Koppers Holdings Inc. Reports Fourth Quarter and Full-Year 2020 Results; Provides 2021 Outlook

Koppers Holdings, Inc., 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 $18.6 million, or $0.86 per diluted share, compared to $20.6 million, or $0.96 per diluted share in the prior year quarter.

Adjusted net income and adjusted earnings per share (“EPS”) were $16.2 million and $0.75 per share for the fourth quarter of 2020, compared to $7.1 million and $0.34 per share in the prior year quarter, respectively. Adjustments to pre-tax income totaled $1.8 million for the fourth quarter of 2020, compared with $0.7 million for the fourth quarter of 2019. The adjustments for both periods primarily reflected restructuring expenses, non-cash benefits related to LIFO adjustments and non-cash benefits related to mark-to-market commodity hedging, while discretionary incentive costs were included in the current year adjustments.

Consolidated sales for the fourth quarter of 2020 were $393.1 million, an increase of $11.0 million, or 2.9 percent, compared with $382.1 million in the prior year quarter. Excluding a $3.4 million favorable impact from foreign currency translation, sales increased by 2.0 percent from the prior year.

The Performance Chemicals (“PC”) segment again delivered strong sales growth and expanded profitability, as it continued to serve the underlying demand driven by a strong home repair and remodeling pipeline, as well as increased demand in international markets.

The Railroad and Utility Products and Services (“RUPS”) business reported slightly lower sales than the prior year, primarily due to decreased crosstie treating activities; however, the segment maintained its profitability as a result of increased demand in its utility pole business in the U.S. and Australia, and generally improved conditions in its maintenance-of-way businesses.

While sales and profitability for the Carbon Materials and Chemicals (“CMC”) segment decreased from the prior year due to ongoing demand weakness in its end markets, the sales decline has stabilized and profitability showed continued improvement to generate double-digit margin performance for the fourth quarter as well as for the full year.

As previously announced, the divestiture of Koppers (Jiangsu) Carbon Chemical Company Limited (“KJCC”) was completed on September 30, 2020. Beginning in 2020, KJCC results are classified as held for sale and as discontinued operations for the current year as well as the comparable prior year period.

President and CEO Leroy Ball said, “I’m proud to report that we finished 2020 with financial results in line with what we communicated to the market in January. It was an extremely daunting year, punctuated by many highs as well as some challenges. Through it all, our team members persevered and generated all-time bests in underlying safety metrics and delivered arguably Koppers best all-around financial performance ever. We are excited to continue moving forward, taking the next steps to advance our company’s purpose of protecting what matters and preserving the future.”

Fourth-Quarter Financial Performance

Sales for RUPS of $168.2 million decreased by $1.3 million, or 0.8 percent, compared to sales of $169.5 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $0.7 million, sales decreased by $2.0 million, or 1.2 percent, from the prior year quarter. The sales decrease was primarily due to lower overall crosstie volumes, largely offset by higher demand for utility poles in the U.S. and Australia, as well as increased activities in maintenance-of-way businesses in the U.S., related to bridge repair and engineering and crosstie disposal services. Adjusted EBITDA was $10.3 million, or 6.1 percent, in the fourth quarter, compared with $10.2 million, or 6.0 percent, in the prior year quarter. The year-over-year profitability was relatively flat, in line with typical year-end slowdown.

Sales for PC of $129.9 million increased by $25.3 million, or 24.2 percent, compared to sales of $104.6 million in the prior year quarter. Excluding an unfavorable impact from foreign currency translation of $1.0 million, sales increased by $26.3 million, or 25.1 percent, from the prior year quarter. The sales increase reflects continued demand strength for copper-based preservatives in the U.S. that are, in turn, driven by a strong housing market and the diversion of discretionary funds from leisure and entertainment categories to home repair and beautification projects. International markets benefited from improved industrial and agricultural demand as most economies have reopened. Adjusted EBITDA for the fourth quarter was $23.0 million, or 17.7 percent, compared with $14.4 million, or 13.8 percent, in the prior year quarter. The increased profitability was primarily due to higher sales volumes, a favorable product mix and improved cost absorption.

Sales for CMC totaling $95.0 million decreased by $13.0 million, or 12.0 percent, compared to sales of $108.0 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $3.7 million, sales decreased by $16.7 million, or 15.5 percent, from the prior year quarter. Lower average oil prices, as well as a slowdown of markets during the pandemic, have resulted in lower pricing and volumes for carbon pitch globally and weaker demand for phthalic anhydride in the U.S., partially offset by improved demand for carbon pitch in Europe and carbon black feedstock in Australia. Adjusted EBITDA was $14.4 million, or 15.2 percent, in the fourth quarter, compared with $15.6 million, or 14.4 percent, in the prior year quarter. The year-over-year profitability was consistent with expectations and reflects continued margin recovery in the second half of 2020.

Operating profit was $34.8 million, or 8.9 percent, compared with $26.0 million, or 6.8 percent, in the prior year quarter. Adjusted EBITDA was $47.1 million, or 12.0 percent, compared with $39.8 million, or 10.4 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 in the fourth quarter was $18.6 million, compared with $20.6 million in the prior year quarter. Adjusted net income was $16.2 million, compared with $7.1 million in the prior year quarter.

In the fourth quarter of 2020, items excluded from adjusted EBITDA consisted of $2.5 million of pre-tax benefits, while adjusted net income and adjusted EPS for the quarter excluded $1.8 million of pre-tax benefits. Both adjustments consisted of restructuring expenses, non-cash LIFO income, non-cash benefits related to mark-to-market commodity hedging and discretionary incentive costs.

Diluted EPS was $0.86, compared with $0.96 per share in the prior year quarter. Adjusted EPS for the quarter was $0.75, compared with $0.34 for the prior year period.

Full-Year 2020 Financial Performance

Consolidated sales of $1.669 billion increased by $32.1 million, or 2.0 percent, as compared to $1.637 billion in the prior year. Excluding an unfavorable impact of $2.8 million from foreign currency translation, sales increased by $34.9 million, or 2.1 percent, from the prior year. Despite headwinds associated with the global pandemic, 2020 sales represented the fourth consecutive year of growth as well as the highest level of revenues in the history of the company, excluding KJCC.

Sales for RUPS of $759.1 million increased by $25.6 million, or 3.5 percent, compared to sales of $733.5 million in the prior year. Adjusted EBITDA was $65.4 million, or 8.6 percent, compared with $60.2 million, or 8.2 percent, in the prior year.

Sales for PC of $526.3 million increased by $78.0 million, or 17.4 percent, compared to sales of $448.3 million in the prior year. Adjusted EBITDA was $100.7 million, or 19.1 percent, compared with $68.6 million, or 15.3 percent, in the prior year.

Sales for CMC totaling $383.7 million decreased by $71.5 million, or 15.7 percent, compared to sales of $455.2 million in the prior year. Adjusted EBITDA was $45.0 million, or 11.7 percent, compared with $73.5 million, or 16.1 percent, in the prior year.

Operating profit was $156.7 million, or 9.4 percent, compared with $125.0 million, or 7.6 percent, in the prior year. Adjusted EBITDA was $211.0 million, or 12.6 percent, compared with $201.1 million, or 12.3 percent, in the prior year.

Net income attributable to Koppers was $122.0 million, compared with $66.6 million in the prior year. Adjusted net income was $88.0 million, compared with $66.8 million in the prior year.

The items excluded from adjusted EBITDA consisted of $4.1 million of pre-tax benefits, while adjusted net income and adjusted EPS excluded $0.1 million of pre-tax benefits. Both adjustments consisted of restructuring expenses, non-cash LIFO income, non-cash benefits related to mark-to-market commodity hedging and discretionary incentive costs.

Diluted EPS was $5.71, compared with $3.16 per share in the prior year. Adjusted EPS was $4.12, compared with $3.18 for the prior year.

Capital expenditures for the twelve months ended December 31, 2020, were $69.8 million, compared with $37.2 million for the prior year period. The year-over-year increase is consistent with the company’s most recent projections for capital investments in 2020, primarily driven by improving the safety and reliability of its existing infrastructure as well as a major treating expansion project.

At December 31, 2020, total debt was $775.9 million and, net of cash and cash equivalents, the net debt was $737.4 million, compared with total debt of $901.2 million and net debt of $868.9 million at December 31, 2019. Compared to December 31, 2019, total debt was lower by $125.3 million and net debt was lower by $131.5 million. The net leverage was 3.5 at December 31, 2020, compared with 4.3 at December 31, 2019.

2021 Outlook

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 in 2020 excluding KJCC were $1.67 billion. The 2021 sales forecast is based upon an expectation that the residential treated lumber markets will revert to normalized levels in the second half of the year and demand levels for the company’s other business segments improve modestly year-over-year.

Koppers expects EBITDA, on an adjusted basis, will be approximately $215 million to $225 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 lower 2020 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 $4.00 to $4.25, 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 $0.50 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 $105 million to $115 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, Koppers expects its net investment in capital expenditures to be between $80 million to $90 million.

In 2021, Koppers plans to reduce debt by approximately $30 million, and as a result, its net leverage ratio is projected to be in the range of 3.2 to 3.4 at December 31, 2021.

Commenting on the forecast, Mr. Ball said, “Due to the extraordinary success of our Performance Chemicals business during the pandemic, we will face tougher comparables in 2021. We also acknowledge the likelihood of that business shifting to more normalized volumes as life begins returning to pre-pandemic routines. It is, therefore, beneficial that Koppers has an enterprise model featuring a balanced mix of businesses centered on serving wood and infrastructure markets that, in combination with our many initiatives focused on growth and profitability, provides for a winning formula in 2021 and beyond.”

For the full fourth quarter results, click here.

About Koppers

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.

Contact:

Michael J. Zugay – Chief Financial Officer – zugaymj@koppers.com – (412) 227-2231

Source: Koppers Holdings, Inc.