Koppers Holdings Inc. Provides July 2020 Business Update; Reaffirms 2020 Outlook
Koppers Holdings, Inc. (“Koppers” or the “Company”), an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds, today reported its regularly scheduled monthly business update and will conduct a conference call and related webcast at 11:00 a.m. Eastern Time. This is part of an ongoing series to share recent developments and highlight strategic initiatives to the investment community. The company plans to issue its next monthly business update on September 22, 2020, and will conduct a conference call with the investment community on that day, which will be broadcast live on www.koppers.com, with a replay to be made available.
As previously announced, Koppers is in the process of consolidating its treating footprint by ceasing production activities at its facility located in Denver, Colorado. The company expects to discontinue production activities at the Denver facility by August 31, 2020 as it begins transitioning the Denver production volumes to its facility in North Little Rock, Arkansas. The anticipated future investments of approximately $23 million over two years will serve to modernize equipment and processes that are near end-of-life, while adding treating capacity that will position its Railroad Products and Services business for future growth. The investments will be funded primarily through proceeds from the sale of the Denver facility and further supported by tax and economic incentives from the State of Arkansas.
July Sales by Business Segment
For July 2020, consolidated sales were $147.4 million compared to $151.3 million in the prior year period, representing a decrease of $3.9 million, or 2.6 percent. The decrease was driven by lower sales from Carbon Materials and Chemicals (“CMC”) and Railroad and Utility Products and Services (“RUPS”), partially offset by higher sales from Performance Chemicals (“PC”). Sales for the month declined from prior year mostly due to a lower year-over-year contribution from the CMC business as sales shifted from July to August due to an outage at its facility in the U.S. and lower overall demand due to the pandemic. Also, the RUPS segment reported slightly lower year-over-year sales primarily driven by weaker demand from the commercial crosstie market. By contrast, the PC business continued to see strong demand for residential wood treatment preservatives as well as industrial wood treating activities primarily in the United States, while international markets delivered a record sales month.
– Sales for RUPS of $66.8 million decreased by $1.9 million, or 2.8 percent, compared to sales of $68.7 million in the prior year month. Crosstie volumes were modestly lower than prior year, primarily due to lower activity in the commercial market; however, this was partially offset by year-over-year improvements in the Australian business, as well as increased activities in its maintenance-of-way businesses.
– Sales for PC of $50.9 million increased by $7.5 million, or 17.3 percent, compared to sales of $43.4 million in the prior year month. The sales increase was driven by strong demand for residential decking as a result of increased focus on home repair and remodel projects during the pandemic, primarily in the United States with sales outside of North America reaching a record high in July due to pent up demand brought on by several months of restricted activity due to the pandemic.
– Sales for CMC of $29.7 million decreased by $9.5 million, or 24.2 percent, compared to sales of $39.2 million in the prior year month. The year-over-year decrease was associated with sales shifting from July to August as a result of the outage at its facility in Stickney, Illinois, as well as lower end market demand globally. Beginning in 2020, Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) results are classified as discontinued operations for the current year, as well as the comparable period in 2019 due to its pending divestiture.
President and CEO Leroy Ball said, “I’m pleased with the start of our third quarter showing sales similar to 2019. Residential lumber sales continue to outstrip demand for treated lumber and treating chemicals as we continue to do all we can to catch up. We currently have several plans in progress to address the chemical shortage in the short and long-term, and expect that PC customers will begin seeing some relief before the end of the third quarter.”
Mr. Ball continued, “While both RUPS and CMC finished July behind 2019 sales, all but the North America CMC sales were within expectations. The Stickney outage resulted in CMC sales being lower than expected, but most should be recaptured in August as sales orders got pushed out. Overall, July held together well in what continues to be a very challenging operating environment.”
Although the worldwide effects of the COVID-19 pandemic are ongoing, based on current market and customer indications, Koppers continues to expect 2020 sales to be approximately $1.6 billion. By comparison, sales in 2019 (excluding KJCC) were $1.65 billion. Accordingly, Koppers expects adjusted EBITDA will be approximately $190 million to $200 million for 2020, compared with adjusted EBITDA of $201 million in the prior year.
The effective tax rate for adjusted net income in 2020 is projected to be approximately 25 percent, compared to the tax rate in 2019, excluding special tax items, of 26 percent and adjusted EPS is forecasted to be in the range of $3.10 to $3.40, compared with adjusted EPS of $3.18 in the prior year.
Mr. Ball commented, “The diversification of our end markets and our classification as an essential business serving other critical industries continues to put us in position to have one of our better years despite the global pandemic that has disrupted many other business models. The durability and resilience our business has displayed thus far, as we have dealt with this current crisis, only reaffirms the strategy that we deployed five years ago to focus on becoming the global leader in wood preservation technologies.”
Koppers does not provide reconciliations of guidance for adjusted EBITDA and adjusted EPS to comparable GAAP measures, in reliance on the unreasonable efforts exception. Koppers is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include restructuring, impairment, non-cash LIFO charges, acquisition-related costs, and non-cash mark-to-market commodity hedging that are difficult to predict in advance in order to include in a GAAP estimate and may be significant.
Capital expenditures for July 2020 were $4.7 million, compared with $3.1 million in July 2019. For the year-to-date period ended July 31, 2020, capital expenditures were $31.2 million compared with $21.7 million for the prior year period. Koppers continues to anticipate investments of $50 million to $60 million in capital expenditures in 2020, which are primarily related to improving the safety and reliability of its existing infrastructure.
Additionally, Koppers plans to reduce debt by approximately $120 million in 2020, which includes and will be contingent on the successful closing of its KJCC divestiture.
Koppers, with corporate headquarters in Pittsburgh, Pennsylvania, is an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds. Our products and services are used in a variety of niche applications in a diverse range of end markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber, and construction industries. Including our joint ventures, we serve our customers through a comprehensive global manufacturing and distribution network, with facilities located in North America, South America, Australasia, China and Europe. The stock of Koppers Holdings Inc. is publicly traded on the New York Stock Exchange under the symbol “KOP.”
Michael Zugay – Investor Relations – (412) 227-2231
Source: Koppers Holdings, Inc.