Koppers Holdings Inc. Reports Second Quarter 2021 Results
Koppers Holdings Inc. (“Koppers”), an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds, today reported net income attributable to Koppers for the second quarter of 2021 of $26.9 million, or $1.22 per diluted share, compared to $29.2 million, or $1.39 per diluted share, in the prior year quarter.
Adjusted net income and adjusted earnings per share (“EPS”) were $30.9 million and $1.41 per share for the second quarter of 2021, compared to $26.7 million and $1.27 per share in the prior year quarter, respectively. Adjustments to pre-tax income totaled $6.5 million of net expenses for the second quarter of 2021, compared with $3.7 million of net benefits for the second quarter of 2020. The adjustments for both periods primarily reflected non-cash effects related to mark-to-market commodity hedging, restructuring activities and non-cash impacts related to LIFO adjustments.
Consolidated sales were $441.0 million, an increase of $4.4 million, or 1.0 percent, compared with $436.6 million in the prior year quarter. Excluding an $11.0 million favorable impact from foreign currency translation, sales decreased by $6.6 million, or 1.5 percent, from the prior year.
The Railroad and Utility Products and Services (“RUPS”) business reported lower sales and profitability than prior year, primarily driven by deferred purchases from railroad customers due to pricing increases associated with a market shortage of hardwood production for untreated crossties as some sawmills shifted capacity to manufacture softwood for construction lumber.
The Performance Chemicals (“PC”) segment delivered record second-quarter sales and a year-over-year increase in profitability due to strong demand in international markets and favorable pricing in the Americas, partially offset by decreased customer activity in North America related to lumber price volatility.
The Carbon Materials and Chemicals (“CMC”) segment generated higher sales compared with the prior year due to increased volumes and a favorable pricing environment in certain markets. The year-over-year increase in profitability demonstrates the benefits of an efficient cost structure, delivering attractive margin performance as demand levels begin to recover.
President and CEO Leroy Ball said, “The second quarter represented another successful outcome for Koppers profitability driven by record sales in our PC business and strong performance in CMC as industrial markets are heating up around the globe. While our RUPS business endured a setback in performance this quarter due to the impact of elevated hardwood pricing on end-market demand, we view that as a short-term situation. I am proud of the Koppers team’s ability to continue to consistently deliver on our strategy of driving sustainable profit improvement through our unique, integrated business model serving critical diversified infrastructure markets no matter the obstacles placed in their way.” ”
Second Quarter Financial Performance
Sales for RUPS of $195.5 million decreased by $14.4 million, or 6.9 percent, compared to sales of $209.9 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $1.8 million, sales decreased by $16.2 million, or 7.7 percent, from the prior year. Sales decreased from prior year, primarily driven by lower crosstie treating volumes as railroad customers deferred purchases due to price increases driven by a temporary shortage in availability of untreated crossties as some sawmills shifted their capacity to higher-demand construction lumber. The utility business also experienced lower volumes as part of transitioning its production from a customer’s facility in Texas to the company’s Somerville facility. Operating profit was $4.3 million, or 2.2 percent, compared with $16.2 million, or 7.7 percent, in the prior year quarter. Adjusted EBITDA was $12.0 million, or 6.1 percent, in the second quarter, compared with $23.2 million, or 11.1 percent, in the prior year quarter. The decrease in profitability from prior year was primarily driven by lower treating volumes which resulted in reduced absorption of fixed costs, and higher raw material costs, partially offset by higher margin from the utility pole business in Australia.
Sales for PC of $145.6 million, a second-quarter record, increased by $8.5 million, or 6.2 percent, compared to sales of $137.1 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $3.5 million, sales increased by $5.0 million, or 3.6 percent, from the prior year quarter. The sales growth reflects strong demand from international markets as well as certain pricing increases that were implemented in the Americas, partly offset by lower treating activities in North America as lumber treaters are managing their inventory levels and monitoring lumber prices. Operating profit was $28.7 million, or 19.7 percent, compared with $32.6 million, or 23.8 percent, in the prior year quarter. The decline reflects an unrealized loss associated with copper swap contracts in the current year quarter compared with an unrealized gain from those contracts included in the prior year period. Adjusted EBITDA for the second quarter was $34.5 million, or 23.7 percent, compared with $29.2 million, or 21.3 percent, in the prior year quarter. On an adjusted basis, the increased profitability was primarily due to higher sales volumes as well as lower realized raw material costs associated with the company’s copper hedging program.
Sales for CMC totaling $99.9 million increased by $10.3 million, or 11.5 percent, compared to sales of $89.6 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $5.8 million, sales increased by $4.5 million, or 5.0 percent, from the prior year quarter. Sales benefited from higher pricing for carbon black feedstock in Europe and phthalic anhydride in North America, partially offset by lower volumes of carbon pitch in North America and Europe, and lower pitch pricing in Australia. Operating profit was $13.4 million, or 13.4 percent, compared with $1.5 million, or 1.7 percent, in the prior year quarter. Adjusted EBITDA was $18.6 million, or 18.6 percent, in the second quarter, compared with $7.1 million, or 7.9 percent, in the prior year quarter. The increase in profitability was due to higher product demand and favorable pricing in certain markets and operational efficiencies along with a recovery from insurance proceeds in the current year period.
Operating profit was $44.3 million, or 10.0 percent, compared with $49.7 million, or 11.4 percent, in the prior year quarter. Adjusted EBITDA was $65.6 million, or 14.9 percent, compared with $59.6 million, or 13.7 percent, in the prior year quarter. Operating profit margin and adjusted EBITDA margin are calculated as a percentage of GAAP sales.
Net income attributable to Koppers was $26.9 million, compared to $29.2 million in the prior year quarter. Adjusted net income was $30.9 million for the second quarter, compared to $26.7 million in the prior year quarter.
Diluted EPS was $1.22, compared to $1.39 per diluted share in the prior year quarter. Adjusted EPS for the quarter was $1.41, compared with $1.27 for the prior year period.
Capital expenditures for the six months ended June 30, 2021, were $60.9 million, compared with $26.5 million for the prior year period. Net of cash provided from asset sales, capital expenditures were $55.8 million for the current year period, compared with $26.4 million for the prior year period. The year-over-year increase is consistent with the company’s projections for net capital investments in 2021, primarily driven by growth and productivity projects.
At June 30, 2021, total debt was $806.2 million and, net of cash and cash equivalents, the net debt was $759.7 million, compared with total debt of $775.9 million and net debt of $737.4 million at December 31, 2020. Compared to December 31, 2020, total debt was higher by $30.3 million and net debt was higher by $22.3 million. Due to higher year-over-year adjusted EBITDA for the twelve months ended June 30, 2021, the net leverage was 3.2 at June 30, 2021, compared with 3.5 at December 31, 2020.
Koppers remains committed to driving improvements through the execution of its strategic initiatives and making continued progress toward its long-term financial goals.
Based on current global economic activity and in consideration of the near-term economic uncertainty associated with the pandemic, the company expects that 2021 sales will be approximately $1.7 billion to $1.8 billion. By comparison, sales were $1.67 billion in 2020, excluding Koppers (Jiangsu) Carbon Chemical Company Limited, which was sold on September 30, 2020.
Koppers expects EBITDA, on an adjusted basis, will be approximately $220 million to $230 million for 2021, compared with $211.0 million in the prior year.
The effective tax rate for adjusted net income in 2021 is projected to be approximately 27 percent, compared to the tax rate in 2020, excluding special tax items, of 20.1 percent. The higher 2021 tax rate is primarily due to benefits in the prior year related to the federal Coronavirus Aid, Relief, and Economic Security Act and other tax regulations that are not expected to continue in 2021. Accordingly, the 2021 adjusted EPS is forecasted to be in the range of $4.35 to $4.60, compared with adjusted EPS of $4.12 in the prior year. The higher tax rate anticipated in 2021 is estimated to have a negative impact on adjusted EPS of approximately $0.40 compared to the prior year.
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.
Koppers expects to invest $110 million to $120 million in capital expenditures in 2021. Approximately half of the planned expenditures in 2021 are aimed at growth and/or cost reduction projects that are estimated to generate $8 million to $12 million of EBITDA in 2022. Net of cash received from the sale of closed properties and property insurance recoveries, Koppers expects its net investment in capital expenditures to be between $80 million to $90 million.
Commenting on the forecast, Mr. Ball said, “While the second half of 2021 will be challenging due to inflationary pressures and volatility of lumber markets impacting the demand of various product segments, I am happy to report that at halfway through the year, we still expect to achieve our seventh consecutive year of growth in adjusted EBITDA and are on pace for a new high in adjusted EPS. With several opportunities to grow our business and drive further efficiency gains, I am confident in our ability to continue our track record of growing profits year-over-year and have a current goal of exceeding $300 million in adjusted EBITDA in 2025.”
For the full second quarter results, click here.
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. We serve our customers through a comprehensive global manufacturing and distribution network, with facilities located in North America, South America, Australasia and Europe. The stock of Koppers Holdings Inc. is publicly traded on the New York Stock Exchange under the symbol “KOP.” For more information, visit us on the Web: www.koppers.com.
Michael J. Zugay – Chief Financial Officer – ZugayMJ@koppers.com – (412) 227 -2231
Source: Koppers Holdings, Inc.