Koppers Reports Fourth Quarter and Full-Year 2022 Results; Provides 2023 Outlook
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 fourth quarter of 2022 of $13.8 million, or $0.65 per diluted share, compared to $22.2 million, or $1.01 per diluted share, in the prior year quarter.
Adjusted net income attributable to Koppers and adjusted earnings per share (EPS) were $23.0 million and $1.09 per share for the fourth quarter of 2022, compared to $16.9 million and $0.77 per share in the prior year quarter, respectively.
Consolidated sales of $482.6 million, which was a quarterly record, increased by $77.3 million, or 19.1 percent, compared with $405.3 million in the prior year. Excluding a $14.7 million unfavorable impact from foreign currency changes, sales increased by $92.0 million, or 22.7 percent.
The Railroad and Utility Products and Services (“RUPS”) business achieved record fourth-quarter sales and higher year-over-year profitability, primarily driven by pricing increases as well as improvements in maintenance-of-way businesses and favorable cost absorption due to higher volumes in commercial crossties.
The Performance Chemicals (“PC”) segment delivered a fourth-quarter record in sales; however, profitability continued to be unfavorably impacted in the near-term by higher overall raw material costs, partly offset by global price increases.
The Carbon Materials and Chemicals (“CMC”) segment continued to generate strong sales due to a favorable pricing environment. As expected, fourth-quarter profitability was unfavorably impacted by higher raw material and operating costs.
President and CEO Leroy Ball said, “Overall, I am happy to state that 2022 represented another year of solid performance. Profitability was strong in the fourth quarter and for the full year as CMC continued to lead the way with exceptional performance. Only a handful of companies outside of China can meet the unique market need that our CMC business does, and our products command a high value, which reflects their importance. RUPS demonstrated notable improvement in both quarterly and annual performance as demand for utility poles remained strong supporting higher pricing, recent capital improvements began paying off, and hardwood availability increased. Our PC segment finished the year in disappointing fashion as we honored supply agreements and absorbed higher costs with limited pass-through in price. By contrast, 2023 points to a better PC story, as new pricing takes effect, positioning us on the right side of the market. We remain on track to achieve our long-term goals through a strategy of expanding and optimizing our vertically integrated business model serving critical infrastructure.”
Fourth Quarter Financial Performance
- RUPS delivered record fourth-quarter sales of $193.0 million, an increase of $37.4 million, or 24.0 percent, compared to $155.6 million in the prior year quarter. Excluding an unfavorable impact from foreign currency changes of $1.2 million, sales increased by $38.6 million, or 24.8 percent, from the prior year quarter. The sales growth was primarily due to pricing increases, particularly in crossties and utility poles, higher volumes in commercial crossties, and increased activity in maintenance-of-way businesses. Adjusted EBITDA for the fourth quarter was $13.3 million, or 6.9 percent, compared with $6.2 million, or 4.0 percent, in the prior year quarter. Profitability increased year-over-year as a result of continued price increases as well as improved capacity utilization associated with higher crosstie volumes, partly offset by higher raw material and operating costs.
- PC generated record fourth-quarter sales of $140.8 million, an increase of $21.9 million, or 18.4 percent, compared to sales of $118.9 million in the prior year quarter. Excluding an unfavorable foreign currency impact of $3.3 million, sales increased by $25.2 million, or 21.2 percent, from the prior year quarter. The year-over-year sales growth was primarily due to volume increases in the Americas as well as price increases implemented globally, partly offset by volume decreases in Europe and Australasia. Adjusted EBITDA for the fourth quarter was $17.6 million, or 12.5 percent, compared with $19.4 million, or 16.3 percent, in the prior year quarter, reflecting higher overall raw material costs, including working through higher cost inventory, partly offset by price increases.
- Sales for CMC of $148.8 million increased by $18.0 million, or 13.8 percent, compared to sales of $130.8 million in the prior year quarter. Excluding an unfavorable impact from foreign currency changes of $10.2 million, sales increased by $28.2 million, or 21.6 percent, from the prior year quarter. Compared with the prior year period, sales benefited from higher prices across products and geographies, driven by strong demand in a market environment experiencing limited supply, partly offset by volume decreases in Europe and North America. Adjusted EBITDA was $21.2 million, or 14.2 percent, compared with $24.9 million, or 19.0 percent, in the prior year quarter. The year-over-year decrease in profitability reflects higher raw material costs and other operating expenses, partly offset by a favorable pricing environment.
- Total adjusted EBITDA was $52.1 million, or 10.8 percent, compared with $48.8 million, or 12.0 percent, in the prior year quarter.
2022 Financial Performance
- Consolidated sales for 2022 were a record $1.98 billion. Sales increased by approximately $300 million, as compared to $1.68 billion in the prior year primarily driven by pricing increases implemented throughout the year.
- RUPS delivered a record $788.3 million in sales for the year, an increase of $58.4 million, or 8.0 percent, compared to sales of $729.9 million in the prior year. Adjusted EBITDA was $53.6 million, or 6.8 percent, compared with $45.4 million, or 6.2 percent, in the prior year.
- PC reported a record $579.9 million in sales for the year, an increase of $76.6 million, or 15.2 percent, compared to sales of $503.3 million in the prior year. Adjusted EBITDA was $75.5 million, or 13.0 percent, compared with $101.8 million, or 20.2 percent, in the prior year.
- Sales for CMC totaling $612.3 million increased by $166.9 million, or 37.5 percent, compared to sales of $445.4 million in the prior year. Adjusted EBITDA was $99.0 million, or 16.2 percent, compared with $76.3 million, or 17.1 percent, in the prior year.
- Net income attributable to Koppers was $63.4 million, compared with $85.2 million in the prior year. Adjusted net income was $88.3 million, compared with $92.3 million in the prior year. Adjusted EBITDA was $228.1 million, or 11.5 percent, compared with $223.5 million, or 13.3 percent, in the prior year.
- Diluted EPS was $2.98, compared with $3.88 per share in the prior year. Adjusted EPS was $4.14, compared with $4.21 for the prior year.
- Capital expenditures for the twelve months ended December 31, 2022, were $105.3 million, compared with $125.0 million for the prior year period. Net of insurance proceeds and cash provided from asset sales, capital expenditures were $100.1 million for the current year, compared with $89.5 million for the prior year.
In 2022, Koppers continued implementing its value creation strategy and the following key pillars contributed to its results as well as helped to further position the company for long-term growth and profitability.
- Balance sheet flexibility:
- Entered into a Credit Agreement for an $800 million revolving credit facility, which provides lower pricing tiers and additional financial flexibility to support the company’s ongoing growth strategy.
- Declared its first quarterly cash dividend since November 2014 and paid $4 million in total to shareholders throughout 2022.
- Repurchased $23.6 million in common stock, including 686,366 shares at an average price of $27.30 per share under its share repurchase program. As of December 31, 2022, approximately $71.9 million remains of the original authorization of $100 million.
- Network optimization:
- Continued upgrading the facility located at North Little Rock, Arkansas, through new construction and new equipment purchases, modernizing its processes, and improving its operational and environmental performance.
- Sold its utility pole treating facility in Sweetwater, Tennessee, to affiliates of Culpeper Wood Preservers, which further optimized the company’s treating footprint by consolidating underutilized capacity.
- Strengthen business model:
- Acquired substantially all the assets of Gross & Janes Co., the largest independent supplier of untreated railroad crossties in North America; thereby, further strengthening its vertically integrated business model and adding value to its customer base by de-risking supply chains for critical products.
- Portfolio enhancement:
- Realigned its PC business and secured approximately $40 million of annualized new industrial business, adding 14 new customers across 18 locations, by transitioning customers from penta, a preservative that was phased out due to regulatory actions, to either its legacy K-33 CCA water-borne preservative or its newest entry into the oil-borne preservative field, InPro 23 and InPro 50 DCOI.
- Wood treatment expansion:
- Purchased a 105-acre property in Leesville, Louisiana, which increases peeling and drying capacity for its utility pole treatment process, reducing costs through plant automation and providing access to an improved logistics network.
- Entered into a new five-year, $50 million agreement, through its Recovery Resources business, with a Class I railroad customer to collect and manage railroad crossties at the end of their useful life, which further solidifies its reputation as a full-service solutions provider for industry.
Koppers remains committed to expanding and optimizing its business and making continued progress toward its long-term financial goals. After considering global economic conditions as well as the ongoing uncertainty associated with geopolitical and supply chain challenges, Koppers expects 2023 sales of approximately $2.1 billion, compared with $1.98 billion in the prior year, and 2023 adjusted EBITDA of approximately $250 million, compared with $228.1 million in the prior year.
The effective tax rate for adjusted net income attributable to Koppers in 2023 is projected to be approximately 31 percent, which is consistent with the adjusted tax rate in 2022. Accordingly, the 2023 adjusted EPS is forecasted to be approximately $4.40, compared with adjusted EPS of $4.14 in 2022.
Koppers expects capital expenditures of approximately $105 million in 2023 with $40 million of the total allocated to discretionary projects that are expected to generate returns on investment of over 20 percent.
Commenting on the forecast, Mr. Ball said, “I am excited about what lies ahead for Koppers in 2023 as we expect to make our largest year-over-year leap in profitability since 2015. The past two years have seen us struggle to match pricing with significant increases in costs while our investments to expand and optimize have generally driven our modestly higher profits. This year, we are poised to recapture the remaining cost increases in our PC business while we expect CMC will see some natural margin compression as market dynamics intensify on both the supply and demand side. RUPS should take another step forward as we complete a few of our larger multi-year projects and begin taking cost out of the organization through greater efficiency. We remain focused on reaching our 2025 goal of $300 million in adjusted EBITDA and believe that our 2023 plan keeps us squarely on track.”
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, but are not limited to, restructuring and impairment charges, acquisition-related costs, mark-to-market commodity hedging, and LIFO adjustments that are difficult to forecast for a GAAP estimate and may be significant.
For the full fourth 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.”
Jessica Franklin Black – Media Contact – BlackJF@koppers.com – (412) 227-2025
Source: Koppers Holdings, Inc.