Koppers Holdings Inc. Reports First Quarter 2020 Results
PITTSBURGH, May 7, 2020 /PRNewswire/ -- Koppers Holdings Inc. (NYSE: KOP), an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds, today reported a net loss attributable to Koppers for the first quarter of $1.4 million, or $(0.07) per diluted share, compared to net income of $11.6 million, or $0.56 per diluted share, in the prior year quarter. Beginning in 2020, results of Koppers (Jiangsu) Carbon Chemical Company Limited (KJCC) are classified as held for sale and as discontinued operations for the current year as well as the comparable prior year period due to its pending divestiture. Net income from continuing operations attributable to Koppers for the first quarter of 2020 was $1.9 million, or $0.09 per diluted share, compared to $9.8 million, or $0.47 per diluted share, in the prior year quarter.
The adjusted net income and adjusted earnings per share (EPS) from continuing operations were $9.9 million and $0.47 per share for the first quarter of 2020, compared to $11.4 million and $0.55 per share in the prior year quarter, respectively.
Adjustments to pre-tax income totaled $10.6 million for the first quarter of 2020, compared with $3.9 million for the prior year quarter. For both periods, the adjustments included restructuring expenses as well as non-cash effects related to LIFO and mark-to-market commodity hedging.
The operating profit was $13.6 million, or 3.4 percent, compared with $24.3 million, or 6.4 percent, in the prior year period. The operating profit margin is calculated as a percentage of sales.
For the first quarter of 2020, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $37.6 million, or 9.4 percent, compared with $40.8 million, or 10.8 percent, in the prior year quarter. The adjusted EBITDA margin is calculated as a percentage of sales.
Additional items excluded from adjusted EBITDA in the first quarter of 2020 totaled $10.0 million of pre-tax charges, compared with $2.3 million in the prior year quarter. For both periods, the adjustments included restructuring expenses as well as non-cash effects related to LIFO and mark-to-market commodity hedging.
Consolidated sales were $401.9 million for the first quarter of 2020, an increase of $25.0 million, or 6.6 percent, from sales of $376.9 million in the prior year quarter. Excluding a negative impact from foreign currency translation of $6.3 million, sales were higher by $31.3 million, or 8.3 percent.
The Railroad and Utility Products and Services (RUPS) performance reflected a generally favorable demand environment with increased crosstie volumes and favorable pricing in its commercial crosstie business as well as higher volumes of utility poles, partially offset by continued weaker demand in its Railroad Structures and Recovery Resources businesses. The Performance Chemicals (PC) segment reported higher sales and profitability, on an adjusted basis, driven by organic growth as well as market share gains primarily in North America and lower year-over-year raw material costs, partially offset by lower demand in its European business. The Carbon Materials and Chemicals (CMC) business was negatively affected by softening demand in the global aluminum markets, and lower pricing and inventory write-downs due to the steep decline in oil prices.
President and CEO Leroy Ball said, "Final results for the first quarter were in line with what was communicated in our press release issued on April 27, 2020. I look forward to providing all stakeholders with details about our operations as we navigate through the challenges brought on by the COVID-19 pandemic when we have our next monthly business update on May 20, 2020."
First-Quarter Financial Performance
- Sales for RUPS of $190.0 million increased by $23.9 million, or 14.4 percent, compared to sales of $166.1 million in the prior year quarter. Excluding an unfavorable impact from foreign currency translation of $1.0 million, sales increased by $24.9 million, or 15.0 percent, from the prior year quarter. The sales increase was primarily due to higher volumes in Class I and commercial crosstie markets, and domestic and Australian utility pole markets as well as favorable pricing in the commercial crosstie market, partially offset by lower demand in maintenance-of-way businesses and an unfavorable foreign currency impact. Operating profit for the first quarter was $9.2 million, or 4.8 percent, compared with operating profit of $8.7 million, or 5.2 percent, in the prior year quarter. Adjusted EBITDA for the first quarter was $13.4 million, or 7.1 percent, compared with $14.3 million, or 8.6 percent, in the prior year quarter. The lower profitability was primarily due to a decrease in the maintenance-of-way business and work restrictions related to additional COVID-19 safety protocols, partially offset by stronger demand in the treated wood markets for crossties and utility poles.
- Sales for PC of $111.4 million increased by $12.4 million, or 12.5 percent, compared to sales of $99.0 million in the prior year quarter. Excluding an unfavorable impact from foreign currency translation of $1.9 million, sales increased by $14.3 million, or 14.4 percent, from the prior year quarter. Despite the global pandemic, sales increased due to higher demand for copper-based preservatives in North America from organic growth as well as new customer volumes, partially offset by lower demand in Europe and an unfavorable currency impact. Operating profit was $4.1 million, or 3.7 percent, for the first quarter, compared with $12.8 million, or 12.9 percent, in the prior year quarter. The year-over-year decrease was due to $11.0 million of mark-to-market copper hedging losses when comparing the quarters of each year, as well as insurance proceeds received in the prior year period. Adjusted EBITDA was $17.0 million, or 15.3 percent, for the first quarter, compared with $15.5 million, or 15.7 percent, in the prior year quarter. The year-over-year increase in profitability was due to higher sales volumes and lower year-over-year raw material prices.
- Sales for CMC totaling $100.5 million decreased by $11.3 million, or 10.1 percent, compared to sales of $111.8 million in the prior year quarter. Excluding an unfavorable impact from foreign currency translation of $3.4 million, sales decreased by $7.9 million, or 7.1 percent, from the prior year quarter. The decrease was due mainly to lower pricing of carbon pitch globally as well as lower sales volumes of carbon pitch in North America. Operating profit was $0.7 million, or 0.7 percent, in the first quarter, compared with $3.3 million, or 3.0 percent, in the prior year quarter. Adjusted EBITDA was $7.0 million, or 7.0 percent in the first quarter, compared with $11.5 million, or 10.3 percent, in the prior year quarter. The profitability declined from prior year due to a weaker demand environment, inventory write-downs, and ongoing pricing pressures.
- Capital expenditures for the three months ended March 31, 2020, were $10.6 million compared with $11.0 million for the prior year period.
- At March 31, 2020, total debt was $953.2 million and, net of cash and cash equivalents, the net debt was $899.0 million, compared with total debt of $901.2 million and net debt of $868.9 million at December 31, 2019. By comparison, the net debt was higher by $30.1 million, primarily due to typical first quarter working capital increases. At March 31, 2020, the company's net leverage ratio was 4.5.
Pending Divestiture of Koppers (Jiangsu) Carbon Chemical Company Limited
In February, Koppers announced that it entered into a definitive agreement to sell Koppers (Jiangsu) Carbon Chemical Company Limited (KJCC), a 75-percent owned China coal tar distillation business with the remaining 25 percent owned by Yizhou Group Company Limited.
On April 29, 2020, the State Administration for Market Regulation of China (SAMR) decided not to conduct further review and gave approval for the pending divestiture to proceed, which represents a significant step in the process.
Executive Vice President and Chief Operating Officer James Sullivan said, "I am happy to report that the work required to be completed prior to closing on the sale of KJCC is proceeding at a faster pace than originally anticipated. While we are holding to our original timeline of closing in August 2020 to account for any potential delays, I am hopeful that we may be able to close the transaction in July, based upon our current progress."
Koppers expects to realize approximately $65 million of net cash, after taxes and expenses, and plans to apply the cash proceeds toward debt reduction.
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." For more information, visit us on the Web: www.koppers.com
. Questions concerning investor relations should be directed to Michael Zugay at 412-227-2231 or Quynh McGuire at 412-227-2049.
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures. Koppers believes that adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, net debt and net leverage ratio provide information useful to investors in understanding the underlying operational performance of the company, its business and performance trends, and facilitate comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that Koppers management internally assesses the company's performance. In addition, the Board of Directors and executive management team use adjusted EBITDA as a performance measure under the company's annual incentive plans.
Although Koppers believes that these non-GAAP financial measures enhance investors' understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP basis financial measures and should be read in conjunction with the relevant GAAP financial measure. Other companies in a similar industry may define or calculate these measures differently than the company, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.
See the attached tables for the following reconciliations of non-GAAP financial measures included in this press release: Unaudited Reconciliation of Operating Profit to EBITDA and Adjusted EBITDA; Unaudited Reconciliation of Net Income to EBITDA and Adjusted EBITDA; Unaudited Reconciliation of Net Income Attributable to Koppers and Adjusted Net Income; Unaudited Reconciliation of Diluted Earnings Per Share and Adjusted Earnings Per Share; Unaudited Reconciliation of Total Debt to Net Debt and Net Leverage Ratio; and Unaudited Reconciliation of Net Income to EBITDA and Adjusted EBITDA on a Latest Twelve Month Basis.
Safe Harbor Statement
Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels, acquisitions, restructuring, declines in the value of Koppers assets and the effect of any resulting impairment charges, profitability and anticipated expenses and cash outflows. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and words such as "outlook," "guidance," "forecast," "believe," "anticipate," "expect," "estimate," "may," "will," "should," "continue," "plan," "potential," "intend," "likely," or other similar words or phrases are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in other press releases, written statements or other documents filed with the Securities and Exchange Commission, or in Koppers communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding expectations with respect to sales, earnings, cash flows, operating efficiencies, restructurings, the benefits of acquisitions, divestitures, joint ventures or other matters as well as financings and debt reduction, are subject to known and unknown risks, uncertainties and contingencies.
Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that might affect such forward-looking statements include, among other things, the impact of changes in commodity prices, such as oil and copper, on product margins; general economic and business conditions; the length and extent of economic contraction as a result of the coronavirus (COVID-19) pandemic; disruption in the U.S. and global financial markets; potential difficulties in protecting our intellectual property; the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures; our ability to operate within the limitations of our debt covenants; potential impairment of our goodwill and/or long-lived assets; demand for Koppers goods and services; competitive conditions; interest rate and foreign currency rate fluctuations; availability and costs of key raw materials; unfavorable resolution of claims against us, as well as those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Koppers, particularly our latest annual report on Form 10-K and any subsequent filings by Koppers with the Securities and Exchange Commission. Any forward-looking statements in this release speak only as of the date of this release, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.