Koppers at Sidoti’s Small-Cap Virtual Conference: Strategic Focus on Profitability

On Thursday, June 12, 2025, Koppers Holdings Inc. (NYSE:KOP) participated in Sidoti’s Small-Cap Virtual Conference, where they discussed their strategic initiatives and market positioning. Despite facing challenges in their performance chemicals segment, Koppers is optimistic about future growth, highlighting efforts to enhance profitability and reduce debt.

Key Takeaways

• Koppers aims to improve profitability through strategic internal projects, reducing capital spending.
• First quarter revenue declined by $40 million, yet adjusted EBITDA rose by $44 million due to improved margins.
• The company plans to generate over $100 million in operational cash flow, focusing on debt reduction and stock repurchases.
• The performance chemicals segment faces headwinds, while the railroad and utility businesses show strong margin improvements.
• Koppers maintains a cautious but optimistic outlook, emphasizing strategic investments and cash flow management.

Financial Results

• Revenue decreased by $40 million in Q1 2025, primarily due to performance chemicals market share changes.
• Adjusted EBITDA increased by $44 million, with margins reaching 12%, close to the mid-teens target.
• Operating cash flow was negative, impacted by a $14 million pension plan termination expense.
• Capital expenditure is projected at $65 million for the year, significantly lower than previous years.
• Debt stands at $909 million, with a leverage ratio of 3.5x, above the target of 2-3x due to the Brownwood acquisition.
• The company repurchased $15 million in stock during the first quarter and continues to pay an 8¢ quarterly dividend.

Operational Updates

• The Railroad and Utility Products and Services (RUPS) segment accounts for nearly half of sales, including crossties and utility poles.
• The Performance Chemicals segment’s EBITDA margin has decreased from over 20% in the previous year.
• The Carbon Materials and Chemicals business has streamlined operations, reducing from 11 to three core plants over the past decade.
• Strong demand in the Performance Chemicals segment is driven by repair and remodeling activities, requiring significant crosstie and utility pole replacements.

Future Outlook

• Koppers prioritizes debt reduction, aiming for a leverage ratio below three times.
• The company focuses on controlling working capital to enhance cash flow for debt paydown.
• Strategic acquisitions are being considered to bolster growth opportunities.
• Repair and remodeling spending, tracked by the LIRA index, is a key growth driver for the performance chemicals business.
• Aluminum demand is expected to positively impact the Centimeters and C business results.

Q&A Highlights

• Growth in the Performance Chemicals segment is linked to repair and remodeling spending.
• Centimeters and C business growth depends on economic strength and aluminum demand.
• The railroad business benefits from increased maintenance programs, driven by volume, not pricing.
• Long-term railroad contracts limit immediate price increases, while utility pole contracts offer more pricing flexibility.
• Koppers’ diversified nature may lead to market undervaluation, despite consistent earnings.

In conclusion, Koppers’ strategic focus on profitability and debt reduction was a key theme at the conference. For more detailed insights, refer to the full transcript below.

Full transcript - Sidoti’s Small-Cap Virtual Conference:

Michael Mathison, Senior Equity Analyst, Sidoti: Good afternoon, everyone, and thank you for joining us. This is the June 2025 Sidoti Small Cap Conference. My name is Michael Mathison. I’m a senior equity analyst here with the firm. Just a couple of housekeeping details before we go ahead and get started.

We really encourage participation. Everybody gets so much out of the q and a, the presenters, and, people who are attending. At the bottom of your Zoom screen, you’ll see a little q and a box. Go ahead and type your your question into, the q and a box, and we’ll get to as many of them as we can. Let me just introduce a couple of people.

We have Quinn McGuire, VP of investment relations for Koppers, and Brad Pierce, chief accounting officer for Koppers. Brad will be doing the presenting. Brad, please go ahead.

Quinn McGuire, VP of Investment Relations, Koppers: Actually, before Brad starts, I will I will just make one comment, which is to say that since we’re very close to our q two close, we will not be, reiterating reiterating guidance, but we can certainly talk qualitatively about the end market trends that we’re seeing. And with that, I’ll hand it off to Brad. Just tell me what slide.

Brad Pierce, Chief Accounting Officer, Koppers: Okay. Okay. Thank you, Quinn. Yeah. If you wanna move, Quinn, please, to the next slide.

There we go. Okay. Yes. Thank you. So, yeah, just to if you go through the presentation, just a few things to to think about with Koppers and, again, why we we view this, you know, as, you know, some of the some of the strengths that that we bring as a company.

is, you know, if you look at our our strategy, you know, we’ve embarked on a strategy going back, you know, five years to, you know, really find ways to improve profitability of the company and really kinda looking at a lot of that through internal projects that that we could that we could implement that would that would improve the profitability of the the company. So, you know, we had a number of years of sort of heavier capital spending. We’re now through all of those those projects. They’ve been completed, and we’re now looking at a period of time where our our capital spending is expected to be, you know, at lower lower levels. And we think that will help to improve, you know, the cash flow of of the company over the near term.

If you look at the markets that we participate in where we are a market leader in those critical end markets with very high market shares, either, you know, number one or number two positions in in the markets that we participate in, And that being a market leader, again, helps us helps us, you know, understand our markets and and hopefully, you know, implement the key drivers to help us improve profitability. We have a experienced management team who’ve been, you know, with the company for for for many years who understand understand the markets that they’re in and have built, you know, strong relationships with our with customer base. You know, if you look at our our company from a sustainability perspective, you know, many of our products are, you know, using sustainable resources, and we’re also, you know, involved in end of life strategies for our products as they’re as they’re taking taken out of service. And then finally, just to wrap it up on the investment thesis, you know, we’ve been a strong cash flow generator in the past. We believe that will continue and will, as we go through the next few years, give us even more sort of, you know, financial flexibility.

So you go to the next slide, Quinn.

Quinn McGuire, VP of Investment Relations, Koppers: Sorry. I’m trying to figure it out.

Brad Pierce, Chief Accounting Officer, Koppers: Okay.

Quinn McGuire, VP of Investment Relations, Koppers: Go go ahead and and I’ll Okay. I’ll get this moving.

Brad Pierce, Chief Accounting Officer, Koppers: Got it. So yeah. So so the next slide deals with us, you know, being a leader in providing, you know, critical infrastructure products to our our customers. So on our railroad and railroad products and services business, you know, we are a leading supplier of crossties to the class one railroads in North America. We supply all six of the of the class ones.

On the on our utility and industrial products business, You know, we are a leading supplier of utility poles both in in The US and Australia. Just looking in The US alone, we supply eight of the 10 largest utilities. And, again, our customer base there, you know, extends from investor owned utilities, which are the large utilities, to to the coops, which, you know, basically join together a lot of the the rural electrical companies to give them give them purchasing power. On the performance chemical side, you know, we we provide to the top 10 largest lumber treating companies in The US. You know, this this business from a perspective of being a leader is really involved in, you know, developing and improving wood treatment chemicals, which is gonna go to various various providers of of treated wood chemicals, both on on the residential side for lumber as well as extending out to industrial applications such as, you know, utility poles, marine pilings, anywhere that wood needs to be preserved and protected.

And then finally, from a carbon materials and chemicals perspective, this business is really, you know, located in The US, Europe, and Australia. It has, you know, deep links with the aluminum industry in providing them products. And as we will see a little bit, you know, later on, it has, you know, a lot of vertical integration with our our railroad business. So next

Quinn McGuire, VP of Investment Relations, Koppers: slide. To see are you able to see, Brad?

Brad Pierce, Chief Accounting Officer, Koppers: I can see the screen. Yes.

Quinn McGuire, VP of Investment Relations, Koppers: Okay. Let me just is it moving? Yep. Awesome. Thank you.

Brad Pierce, Chief Accounting Officer, Koppers: K. Thank you. So, yeah, on slide six, it gives a little bit of a bit of a picture of our of our portfolio. So, you know, if if you look at sales by end market, you can see we maybe back up one slide or two slides. There we go.

Quinn McGuire, VP of Investment Relations, Koppers: Thank you. Sorry about that.

Brad Pierce, Chief Accounting Officer, Koppers: Okay. No problem. So, yeah, from a sales by end market, you can see that we have a good dispersion of sales across, you know, various different different industries. They have no particular reliance on one industry with, again, a main focus on preservation and and railroad crossties. From a geographical perspective, we are mainly focused in North America where that’s around where 70% of our sales are.

But then we have good good distribution of sales in international markets between Australasia, Europe, and other countries. Other countries would be mainly places like South America where our performance chemicals business has a has a presence. From a segment perspective, you know, evenly distributed across our different different businesses. And then finally, from a profitability perspective, you can see the largest part of the pie there is with our performance chemicals business, which is our highest EBITDA margin business relative to relative to sales. So sort of underlying all of this is sort of, I would say, two two or three key things to keep in mind.

You know, one is on the utility pole business. You know, there are a 140,000,000 utility poles installed in the the network in North America. And every year, two to two to 3,000,000 of those poles just need to be, you know, replaced due to age or storm damage. From a crosstie perspective, a very similar story in the 18 to 19,000,000 crossties need to be replaced every year. You know, these crossties are are mainly being replaced on freight lines, you know, that extend, you know, across across North America.

From a performance chemicals side, you know, there has been strong demand for the last couple of years on repair and remodeling activity. And, you know, that business is supplying the chemical needed to treat lumber for outdoor applications. Excuse me. So the next slide, please, Quinn. Slide seven.

Quinn McGuire, VP of Investment Relations, Koppers: Monica has taken over. Okay. Okay.

Brad Pierce, Chief Accounting Officer, Koppers: Thank you. Yeah. So this this provides, like, a high level view across the different business segments. So our RUPS business, which, again, is the cross tie and utility pole business, is just a little bit less than half of our sales as a company. And you can see the main focus there is the crossties and utility poles.

Our railroad business does have around a $100,000,000 of revenue being generated from other services that we do provide to to the railroad, such as rid railroad bridge construction, a crosstie recovery business, and joint bars, which go into the track on on a railroad. Performance chemicals business, you know, from a I had mentioned previously, from a EBITDA margin perspective is our best performing business. Had EBITDA margin last year of, you know, greater than 20%. You will see it if you get down into the results from this year, you will see that that has come down a little bit. I would kind of view last year as a is a bit higher margin than than normal just, again, due to the strong demand for our chemicals last year.

And, again, if you think about this business, you know, it’s both the repair and modeling business, but also, you know, other applications such as, you know, utility poles. Right? And then finally, our carbon materials and chemicals business, that’s that’s about a half a billion dollar business. You know, if you looked at coppers ten years ago, that would have been a much larger element of our business. Again, due to changing market conditions, we we took it upon ourselves to to downsize that business from, you know, 11 plants ten years ago down to three core plants that we that we operate now.

When we talk about vertical integration, that is a very important element of our carbon materials and chemicals business in that all of the the creosote that we produce from our US and European operations, all that creosote gets fed into our railroad crosstie business as that is the the principal wood treatment chemical for for railroad crossties. On the performance chemical side, again, to a lesser extent, but still very important, there is vertical integration in that it does supply all of the chemical that our utility pole business requires. K. Because, Mark, if you could flip forward to slide 14, please.

Quinn McGuire, VP of Investment Relations, Koppers: Alright, Nikki.

Brad Pierce, Chief Accounting Officer, Koppers: Thank you. Yep. So just just a little bit of a a review of how we did in the first quarter of the year. You can see that from a top line perspective, we were we were down around $40,000,000. That is mostly coming from some, you know, reduced revenue or, you know, performance chemicals business due to, you know, changes in in market share year over year.

But in spite of that, we were able to actually increase our adjusted EBITDA by around $44,000,000. And, really, when you kinda look, you know, look behind behind that, a lot of that is being driven by just improved margin in our railroad and and utility business as well as our Centimeters and C business, which have gone to to make up for any of that profitability that declined in our performance chemicals business. From an adjusted EBITDA margin perspective, this is something we watch very, very carefully. You know, our goal is to get that sustainable up into the mid mid teens, and we did make did make progress, you know, with that in the first quarter getting margins up to, you know, 12%. From an operating cash flow perspective, you know, we were negative in the first quarter.

A lot of that driven by the fact that we used $14,000,000 to fund the termination of our largest US pension plan. We moved that plan off to an insurance company here in the in the first quarter. And so we worked to derisk our balance sheet from that perspective. And then finally, from a capital expenditure perspective, you know, capital spending is down this year. We’re projecting it to be around $65,000,000 this year, you know, compared to the $100,000,000 plus that we’ve had for the last few years as those major projects have been completed.

Monica, if you could then please flip us forward to slide 22. K. So, again, just a view about the the capital deployment of the the company. Our debt currently is, you know, around $909,150,000,000 dollars. You know, that borrowing extends out to 2027 on our revolver in 2030 with our term loan b.

You know, our long term target for leverage is two to three times. You know, we are up at the end of the first quarter to about three and a half times, largely being driven by the acquisition of Brownwood that we made in the in the early in the second quarter of twenty twenty four. With that, you know, we are looking for cash flow generation from operations, again, this year in excess of a 100,000,000. And with that lower level of capital expenditures being planned for this year, plan to, again, redirect that excess cash flow into debt reduction as well as continuing to look for opportunistic share repurchase activity. In the first quarter, we did repurchase under our repurchase program $15,000,000 of stock.

And, again, we’ll look for opportunistic buying opportunities at our current stock price. And then finally, we did we did reinstitute a dividend back a few years ago. We’ve steadily increased that, you know, year over year and, you know, are currently paying a dividend out at around 8¢ per quarter currently. So with that, I will I will stop there with our my prepared remarks. I think we have around ten minutes left, and we’ll certainly open up to any questions.

Michael Mathison, Senior Equity Analyst, Sidoti: Well, thank you, Brad. Very informative. We do have some questions. Could you talk about the main growth drivers for the performance chemical business and then kinda review the same thing on CMC?

Brad Pierce, Chief Accounting Officer, Koppers: Sure. So the the main growth driver on the performance chemicals business is we often look at repair and remodeling spending, which is really drives the demand for treated lumber, which then will drive demand for our for our chemical. So, you know, one of the indexes that we often watch is the is the LIRA index, which is you know, tracks repair and remodeling spending. That’s been very strong over the past couple of years. You know, fortunately, treated lumber has really not suffered the effects of inflation over the last couple of years and still is one of the things that still remains, you know, pretty affordable, you know, in at the at the the big box retailers.

So we have seen that strength in that market be sustained over the last couple of years. On the Centimeters and C side of the business, you know, a good portion of that business is connected with the aluminum industry. So, really, that is just sort of, you know, overall economic strength. You know, if we can have higher demand for aluminum, particularly coming out of, North America and Europe, that will help that will help positively drive, you know, the results of that business.

Michael Mathison, Senior Equity Analyst, Sidoti: Great. So speaking of CMC, I saw that the EBITDA margins, for that particular business were up pretty significantly year over year. Mhmm. Is that sustainable, do you think? Is that the new normal, or would there be some sort of pullback that you might expect?

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. So, you know, if you look at where that business was last year, the EBITDA margin in that business was just over 7%, which for our from our perspective is, you know, a very low level. Last year, we we were hit with a number of factors that impacted profitability. One was we had a extended plant shutdown in North America in the early part of the year, which which hurt profitability. That was really a weather related effect.

And then we that business is is the closest we have to sort of a true sort of commodity business where our sales price, you know, can fluctuate based upon supply and demand metrics. It was one of those years where sales sales prices were somewhat depressed, and we were still incurring sort of higher raw material costs. If we look into this year, we sort of see a normal return for that business in the low teens. We’ve returned there. The the market supply dynamics have sort of corrected themselves.

So we we do believe that is is sustainable over the over the near term.

Michael Mathison, Senior Equity Analyst, Sidoti: In one of the presentation decks that you guys have online, you guys mentioned that rail is having a very, very good year. What’s been driving them?

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. So, you know, with with with the railroads, you know, they are constantly they’re they’re very cost conscious, you know, obviously. And, you know, they do come up with their, you know, repair and maintenance programs for their systems, you know, every year. And, know, sometimes they they do sort of slow down repair and maintenance activities to kind of maybe redirect that capital to other places. But, ultimately, they they they do have a need to keep their tracks maintained and safe to operate.

So there can be maybe a little bit of of year to year cyclicality and how much they’re devoting to, you know, track repair and maintenance. And this year, we kinda seem we feel like we’re a bit of a on an upswing there just on their annual programs.

Michael Mathison, Senior Equity Analyst, Sidoti: So you’d say it’s more volume driven than pricing?

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. I would say this year’s probably being driven a lot by a lot by volume. You know, we’ve we’ve and, again, it’s not just the class ones, but it’s also the the the the short line the short line railroads as well. You know, as they have capital available to them, a lot of times, they will then invest that invest that into maintaining their their tracks. So I think we are we are being helped on on the volume side this year.

Michael Mathison, Senior Equity Analyst, Sidoti: Often when Leroy is presenting, he’ll talk about kind of tension with the the railroads around pricing, also the the big utility providers. What kind of contributes to the pricing dynamic there? And I guess I’m asking whether it’s possible for you guys to get a slightly larger share of it.

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. So well, talk about about the the railroad contracts. So those those contracts tend to be, you know, long term contracts and can give us, you know, give us limited capability to increase prices year over year. So, obviously, we we do take that opportunity whenever whenever we can. The last, you know, couple of years, particularly in some of our our raw material pricing, that that cost has gone up.

You know, we’ve approached some of the railroads about, you know, some out of contract price increases, and and some have some have cooperated and, you know, some are are not as quick quick to cooperate. So, you know, wherever we have that opportunity, again, we will enter that dialogue with them and try to get some price increases to recover recover our costs. But we are somewhat limited by by how much we can do that under our contracts. From a utility pole perspective, we do have probably more flexibility there. Those contracts tend to be very much sort of much more short term, almost near them almost going year to year.

So as the dynamics in the cost structure changes, we have much more opportunity to, you know, try to seek price increases as, again, the market will allow in that in that utility business.

Michael Mathison, Senior Equity Analyst, Sidoti: Great. You would know, of course, that copper stock has recovered a lot from the January lows, but it still feels like, the market’s not quite giving you credit for what you do. What is the market missing? What should they know that they’re they’re not seeing?

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. So, you know, I think I think what the I think, you know, part of the market is, again, we’re, you know, we’re in we’re not a pure player. Right? We’re in we’re in a number of different markets, which I say are again, these businesses are all adjacent, right, to each other. And, you know, each one sort of goes through goes through goes through different different cycles.

You know, I think where that is at least a benefit a benefit to Koppers, which I think, you know, maybe does get missed is while maybe one business, is having, you know, a very a very good year and another one is down, they tend to offset themselves, right, year over year, such that maybe they’ll switch position in the following year. But it does sort of provide a steady, a steady earnings stream year over year. So I think I think, you know, it’s important to consider sort of that that consistency in in earnings, you know, that that we that we do have as well as, again, if you look back over time, you know, these businesses’ ability ability to generate cash, which, again, I think is helpful as it goes towards towards debt, you know, debt service, stock buybacks, and and a dividend, and then provides us with with the capacity to then borrow to make, you know, key acquisitions for, again, where we think we can we can strengthen and expand, our growth opportunities.

Quinn McGuire, VP of Investment Relations, Koppers: So

Michael Mathison, Senior Equity Analyst, Sidoti: you have a share repurchase, program out there where you purchased, 19,000,000 in shares, in q one. And if I understood you right, you’re planning just to be active opportunistically going forward?

Brad Pierce, Chief Accounting Officer, Koppers: Yes.

Michael Mathison, Senior Equity Analyst, Sidoti: Yeah. Okay. And so that’s in the neighborhood of 20% of outstanding shares. Right?

Brad Pierce, Chief Accounting Officer, Koppers: Yeah. Yeah. So, I mean, we have, yeah, we have around $2,020,000,000, you know, shares shares outstanding. And, you know, right now, the again, our our credit agreement stage sort of does limit us on an annual basis as to how much stock that we can buy back, but it’s not it’s not stat restrictive that I think it impairs us from being able to buy back, you know, opportunistically over over the year. If you look at look at last year’s buyback activity, I think it was in excess of in excess of 40,000,000, you know, dollars, and which is all done, you know, again, within within within the constraints that that we have under our credit agreement.

Quinn McGuire, VP of Investment Relations, Koppers: Mhmm.

Michael Mathison, Senior Equity Analyst, Sidoti: So we have time for one more question. Let’s kinda drill down a little bit on on the debt side of things. You know, you have all this free cash flow that you’re generating this year because you don’t have a big acquisition. You’ve cut capital spending. Is it fair to say that paying down debt is kind of the highest priority?

Would you characterize it that way?

Brad Pierce, Chief Accounting Officer, Koppers: I’ll say I will say, yeah, near term, there’s there’s a a focus on getting getting the debt get paid down so that we can, you know, really work toward getting below three times. You know, particularly, again, in this this cycle that, again, we we find ourselves in this year where a lot of those heavy internal capital expenditures programs that we had, those projects are now complete. And, you know, we’re we’re watching very carefully, you know, the cash, trying to control working capital, to provide that excess cash flow that can go toward stock sorry, can go toward debt paydown.

Michael Mathison, Senior Equity Analyst, Sidoti: Well, great, Brent. Very, very informative. We have come to the end of our time. Folks, thank you very much for joining. If we were unable to get to your question, and I’m sorry we didn’t get to all of them, please follow-up with your Sidoti representative, and we’ll run down answers for you.

Thanks again everyone for joining. We’ll look forward to seeing you again at the next conference.

Quinn McGuire, VP of Investment Relations, Koppers: Thanks again. Michael. Thanks to you and your team. Take care.

Michael Mathison, Senior Equity Analyst, Sidoti: Bye. Thank you.

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