Koppers Holdings(US:KOP)2020-11-04 14:21Company Overview - The company is a leading global provider of treated wood products, wood preservation chemicals, and carbon compounds, serving diverse end-markets including railroad and construction industries [120]. - The Performance Chemicals (PC) business is the largest global manufacturer of water-based wood preservatives, with significant market presence in North America and other regions [141]. Railroad and Utility Products - The Railroad and Utility Products and Services (RUPS) business is the largest supplier of wood crossties to Class I railroads in North America, with an installed base of approximately 700 million wood crossties [122][132]. - North American demand for crossties has historically ranged from 22-25 million annually, with a projected installation of approximately 17 million crossties in 2020 due to COVID-19 uncertainties [133]. - Operating profit for the Railroad and Utility Products and Services segment increased by $3.7 million, with operating profit as a percentage of net sales rising to 7.9% from 5.7% in the prior year [169]. - Net sales for the nine months ended September 30, 2020, totaled $1,276.0 million, a 2% increase from $1,254.9 million in 2019, driven by a 5% increase in Railroad and Utility Products and Services [172]. - Operating profit for Railroad and Utility Products and Services increased by 27% to $40.4 million [184]. Performance Chemicals - Performance Chemicals segment net sales increased by $24.0 million or 19% compared to the prior year period, driven by higher demand for copper-based preservatives [159]. - Performance Chemicals net sales increased by $52.7 million or 15%, primarily due to higher demand for copper-based preservatives in North America [173]. - Performance Chemicals segment operating profit increased by $18.7 million, with operating profit as a percentage of net sales increasing to 20.6% from 9.4% in the prior year [170]. - Performance Chemicals operating profit increased by 74% to $67.1 million [184]. Financial Performance - Net sales for the three months ended September 30, 2020, were $437.5 million, a 1% increase from $434.2 million in the prior year period [158]. - Carbon Materials and Chemicals segment net sales decreased by $12.9 million or 12% compared to the prior year period, primarily due to lower sales prices for carbon pitch and phthalic anhydride [160]. - CMC operating profit decreased by $0.3 million, while operating profit as a percentage of net sales increased to 13.9% from 12.6% in the prior year period [171]. - CMC operating profit decreased by $14.4 million, with operating profit as a percentage of net sales dropping to 5.5% from 8.7% [186]. - Gross margin for the nine months ended September 30, 2020, was 21% compared to 20% in the prior year period, with cost of sales as a percentage of net sales decreasing to 79% from 80% [175]. Cash Flow and Liquidity - Net cash provided by operating activities increased to $65.5 million from $57.0 million in the prior year period, reflecting an increase in net income [187]. - Net cash provided by investing activities was $35.0 million, primarily due to the sale of KJCC, offset by an increase in capital expenditures of $17.0 million [188]. - As of September 30, 2020, total estimated liquidity was $342.9 million, including $37.2 million in cash and cash equivalents and $305.7 million available under the Credit Facility [199]. - The company anticipates that net cash flows from operating activities and funds from the Credit Facility will be sufficient for working capital and capital spending needs over the next twelve months [202]. - The company may need to pursue additional financing if it fails to maintain compliance with debt covenants due to the impacts of COVID-19 [203]. Cost Management and Restructuring - The company recorded charges of $5.8 million for asset retirement obligations and expects additional restructuring charges of approximately $4 to $9 million through 2021 following the closure of its Denver facility [140]. - The company anticipates slightly higher costs in the second half of 2020 due to sourcing higher-cost intermediate raw materials to meet demand [148]. - The company plans to implement cost reductions, including employee furloughs, if necessary to improve cash position [203]. Market Outlook - The company expects stable to slightly higher demand for utility poles in 2020, driven by the need for infrastructure maintenance as utilities adapt to increased remote work [134]. - The company expects continued strong demand for residential treated wood in North America, supported by low interest rates and increased home repair activities [147]. - The COVID-19 pandemic has led to fluctuations in operating results, but the company has continued to operate within critical infrastructure sectors, ensuring customer demand is met [126][127]. - The company is focused on optimizing operational efficiencies and evaluating opportunities for market expansion in the U.S. and overseas [140]. Debt and Compliance - As of September 30, 2020, the company had $342.9 million of liquidity to fund operations and is in compliance with debt covenants [203]. - The fixed charge coverage ratio at September 30, 2020, was 2.37, exceeding the minimum requirement of 1.10 [208]. - The total secured leverage ratio at September 30, 2020, was 1.51, below the maximum limit of 3.00 [208]. - The total leverage ratio at September 30, 2020, was 3.83, which is within the permissible limit of 5.25 [208]. - The company has identified potential actions to maintain compliance with debt covenants amid uncertainties related to COVID-19 [203]. Consumer Sentiment - The Conference Board Consumer Confidence Index rose to 101.8 in September, up from 86.3 in August, indicating improved consumer sentiment [146].