Koppers Holdings(KOP) - 2023 Q4 - Annual Results

Executive Summary & Highlights Koppers reported record Q4 sales of $513.2 million and full-year sales of $2.15 billion, driven by strong RUPS and PC segment performance, with adjusted EBITDA near guidance top end Fourth Quarter 2023 Highlights Koppers Holdings Inc. reported record fourth-quarter sales of $513.2 million, a 6.3% increase year-over-year. Adjusted EBITDA also saw an increase to $53.9 million. Performance was driven by strong results in the Railroad and Utility Products and Services (RUPS) and Performance Chemicals (PC) segments, which offset declines in Carbon Materials and Chemicals (CMC) Fourth Quarter 2023 Key Financials | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Consolidated Sales | $513.2 | $482.6 | 6.3% | | Net Income Attributable to Koppers | $12.9 | $13.8 | -6.5% | | Adjusted Net Income Attributable to Koppers | $14.5 | $23.0 | -36.9% | | Diluted EPS | $0.59 | $0.65 | -9.2% | | Adjusted EPS | $0.67 | $1.09 | -38.5% | | Adjusted EBITDA | $53.9 | $52.1 | 3.5% | - RUPS segment achieved record fourth-quarter sales and adjusted EBITDA due to pricing increases and higher crosstie volumes, partially offset by increased raw material and operating costs. The domestic utility pole business also contributed to favorable performance[4] - PC segment benefited from global pricing initiatives and higher volumes, with profitability returning to historical norms as renegotiated contracts allowed for price increases to cover higher costs[5] - CMC segment sales and profitability declined primarily due to lower market prices and weaker demand for most products, despite higher carbon pitch volumes[6] Full-Year 2023 Highlights Koppers achieved record full-year sales of $2.15 billion and record operating profit of $195.2 million, marking a 25% increase over the previous record. The company also reported a significant increase in net income attributable to Koppers and adjusted EBITDA Full-Year 2023 Key Financials | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Consolidated Sales | $2,150.0 | $1,980.0 | 8.6% | | Operating Profit | $195.2 | N/A | 25% (vs. previous record) | | Net Income Attributable to Koppers | $89.2 | $63.4 | 40.7% | | Adjusted Net Income Attributable to Koppers | $94.0 | $88.3 | 6.5% | | Diluted EPS | $4.14 | $2.98 | 38.9% | | Adjusted EPS | $4.36 | $4.14 | 5.3% | | Adjusted EBITDA | $256.4 | $228.1 | 12.4% | CEO Commentary on Overall Performance CEO Leroy Ball highlighted a strong finish to 2023, with adjusted EBITDA near the top end of guidance. He credited the global team's execution in a challenging environment and emphasized the strength of the diversified portfolio, where PC and RUPS segments compensated for the struggling CMC segment - The company finished the year strong, near the top end of its adjusted EBITDA guidance range, attributing success to the global team's execution in a challenging environment[7] - A diversified portfolio, with strong performance from PC and RUPS segments, helped offset the struggling CMC segment, which is navigating a business cycle trough[7] Detailed Financial Performance Koppers achieved record full-year sales of $2.15 billion and operating profit of $195.2 million, with RUPS and PC segments showing robust growth, while CMC faced market challenges Fourth Quarter 2023 Segment Performance In Q4 2023, RUPS and PC segments demonstrated robust growth in sales and adjusted EBITDA, driven by pricing and volume increases. Conversely, the CMC segment experienced declines in both sales and profitability due to market price reductions and weaker demand Railroad and Utility Products and Services (RUPS) RUPS reported record Q4 sales of $216.4 million, a 12.1% increase, primarily due to $16.0 million in pricing increases for crossties and utility poles, and increased volumes for Class I crossties. Adjusted EBITDA also reached a record $20.7 million, up from $13.3 million in the prior year, driven by net sales price increases and improved plant utilization RUPS Q4 Performance | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $216.4 | $193.0 | 12.1% | | Adjusted EBITDA | $20.7 | $13.3 | 55.6% | | Adjusted EBITDA Margin | 9.6% | 6.9% | 2.7 pp | | Pricing Increase Contribution | $16.0 | N/A | N/A | - Sales growth was largely due to pricing increases across multiple markets, particularly for crossties and utility poles in the United States, and increased volumes for Class I crossties[10] - Profitability increased due to net sales price increases and improved plant utilization, which more than offset higher raw material and operating costs[10] Performance Chemicals (PC) PC delivered Q4 sales of $164.4 million, an increase of 16.8%, driven by global price increases of $15.1 million, especially for copper-based preservatives in the Americas, and a 6.0% increase in global volumes. Adjusted EBITDA rose significantly to $29.4 million from $17.6 million, reflecting improved profitability despite slightly higher raw material costs PC Q4 Performance | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $164.4 | $140.8 | 16.8% | | Adjusted EBITDA | $29.4 | $17.6 | 67.0% | | Adjusted EBITDA Margin | 17.9% | 12.5% | 5.4 pp | | Pricing Increase Contribution | $15.1 | N/A | N/A | | Volume Increase | 6.0% | N/A | N/A | - Sales growth resulted from global price increases, particularly in the Americas for copper-based preservatives, and increased volumes globally for these products[10] Carbon Materials and Chemicals (CMC) CMC sales decreased by 11.0% to $132.4 million in Q4, primarily due to reduced market pricing, with $25.5 million lower sales prices across most products, including a 24.3% drop in carbon pitch prices globally. Adjusted EBITDA fell sharply to $3.8 million from $21.2 million, impacted by lower prices and a $2.8 million bad debt reserve, partially offset by reduced raw material costs CMC Q4 Performance | Metric | Q4 2023 (Millions) | Q4 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $132.4 | $148.8 | -11.0% | | Adjusted EBITDA | $3.8 | $21.2 | -82.1% | | Adjusted EBITDA Margin | 2.9% | 14.2% | -11.3 pp | | Sales Price Decline Contribution | -$25.5 | N/A | N/A | | Carbon Pitch Price Decline | 24.3% | N/A | N/A | - The sales decline was driven by reduced market pricing across most products, partly offset by higher carbon pitch volumes[10] - Profitability decreased due to lower prices and a $2.8 million bad debt reserve, partially offset by reduced raw material costs and increased volumes, particularly in Europe[10] Full-Year 2023 Segment Performance For the full year 2023, RUPS and PC segments achieved record sales and significant adjusted EBITDA growth, contributing to the company's overall strong performance. The CMC segment, however, experienced a decline in both sales and adjusted EBITDA Railroad and Utility Products and Services (RUPS)_FY RUPS delivered record full-year sales of $897.9 million, a 13.9% increase, and adjusted EBITDA of $84.0 million, up from $53.6 million in the prior year, demonstrating strong annual growth RUPS Full-Year Performance | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $897.9 | $788.3 | 13.9% | | Adjusted EBITDA | $84.0 | $53.6 | 56.7% | | Adjusted EBITDA Margin | 9.4% | 6.8% | 2.6 pp | Performance Chemicals (PC)_FY PC reported full-year sales of $671.6 million, a 15.8% increase, and adjusted EBITDA of $123.1 million, significantly up from $75.5 million in the prior year, reflecting strong market demand and effective pricing strategies PC Full-Year Performance | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $671.6 | $579.9 | 15.8% | | Adjusted EBITDA | $123.1 | $75.5 | 63.0% | | Adjusted EBITDA Margin | 18.3% | 13.0% | 5.3 pp | Carbon Materials and Chemicals (CMC)_FY CMC sales for the full year totaled $584.7 million, a 4.5% decrease, and adjusted EBITDA declined to $49.3 million from $99.0 million in the prior year, indicating ongoing challenges in market pricing and demand CMC Full-Year Performance | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :--------- | | Sales | $584.7 | $612.3 | -4.5% | | Adjusted EBITDA | $49.3 | $99.0 | -50.2% | | Adjusted EBITDA Margin | 8.4% | 16.2% | -7.8 pp | Consolidated Financials Overview Koppers reported record consolidated sales of $2.15 billion for the full year 2023, an 8.8% increase. Net income attributable to Koppers rose to $89.2 million, and operating cash flows reached a record $146.1 million. Capital expenditures increased to $120.5 million Consolidated Full-Year Financials (2023 vs. 2022) | Metric | FY 2023 (Millions) | FY 2022 (Millions) | Change (%) | | :-------------------------------- | :----------------- | :----------------- | :--------- | | Consolidated Sales | $2,150.0 | $1,980.0 | 8.8% | | Net Income Attributable to Koppers | $89.2 | $63.4 | 40.7% | | Adjusted Net Income Attributable to Koppers | $94.0 | $88.3 | 6.5% | | Diluted EPS | $4.14 | $2.98 | 38.9% | | Adjusted EPS | $4.36 | $4.14 | 5.3% | | Operating Cash Flows | $146.1 | $102.3 | 42.8% | | Capital Expenditures | $120.5 | $105.3 | 14.4% | 2023 Accomplishments In 2023, Koppers achieved several significant milestones, including record sales for the fifth consecutive year, record operating profit, and record operating cash flow exceeding $100 million for the fifth year. The company also recorded its second-highest diluted EPS from continuing operations and received recognition for its safety and sustainability efforts - Achieved record sales for the 5th straight year, record operating profit, and record operating cash flow (exceeding $100 million for the 5th consecutive year)[18] - Reported the 2nd highest diluted EPS from continuing operations and the 2nd best-ever safety rate[18] - Recognized on Newsweek's list of Most Responsible Companies for the third year and USA Today's inaugural list of America's Climate Leaders[18] 2024 Outlook Koppers projects 2024 sales of approximately $2.25 billion and adjusted EBITDA of $275 million, driven by pricing benefits and facility efficiencies, with early 2024 results anticipated to be softer Financial Projections Koppers projects 2024 sales of approximately $2.25 billion, an increase from $2.15 billion in 2023, and anticipates adjusted EBITDA of approximately $275 million, up from $256.4 million. Adjusted EPS is forecasted to be in the range of $4.60 to $4.80 per share, with operating cash flows expected around $150 million, excluding pension termination impact 2024 Financial Outlook vs. 2023 Actuals | Metric | 2024 Outlook (Approx. Millions) | 2023 Actuals (Millions) | Change (%) | | :-------------------------------- | :------------------------------ | :---------------------- | :--------- | | Sales | $2,250.0 | $2,150.0 | 4.7% | | Adjusted EBITDA | $275.0 | $256.4 | 7.2% | | Adjusted EPS | $4.60 - $4.80 | $4.36 | 5.5% - 10.1% | | Operating Cash Flows (excl. pension) | $150.0 | $146.1 | 2.7% | | Capital Expenditures | $100.0 | $120.5 | -17.0% | | Effective Tax Rate (Adjusted Net Income) | 28% | Slightly below 28% | N/A | - The company is pursuing a termination of its U.S. qualified pension plan, targeting completion in Q4 2024, which will require an estimated $25 million in funding impacting operating cash flow[14] Strategic Drivers & CEO Commentary CEO Leroy Ball expressed confidence in meeting 2024 targets, contingent on stable to slightly increased demand across segments. Key drivers for the projected 7% increase in adjusted EBITDA include carry-over pricing benefits, contributions from the new Leesville, Louisiana facility, and full-year cost efficiencies from the North Little Rock, Arkansas facility. Softer results are anticipated in early 2024 due to strong prior-year comps, carbon market recovery, and winter storm impacts - Factors driving the 7% increase in adjusted EBITDA include carry-over pricing benefits from the prior year, contributions from the Leesville, Louisiana facility, and full-year cost efficiencies from the North Little Rock, Arkansas treating facility[16] - Anticipates softer results in early 2024 compared to strong Q1 2023, as the company emerges from the bottom of the carbon markets cycle and recovers from intense winter storm activity in the U.S[16] Investor Information & Company Profile This section provides details on Koppers' investor conference call and an overview of the company's global operations as a provider of treated wood products, chemicals, and carbon compounds Investor Conference Call Details Koppers management hosted a conference call on February 28, 2024, to discuss the quarter's results, with presentation materials available on their website. An audio replay was made available until May 28, 2024 - A conference call was held on February 28, 2024, at 11:00 a.m. Eastern Time, with presentation materials available on www.koppers.com[17](index=17&type=chunk) - An audio replay was available until May 28, 2024, via specified toll-free and international numbers[19] About Koppers Koppers Holdings Inc., headquartered in Pittsburgh, Pennsylvania, is a global provider of treated wood products, wood treatment chemicals, and carbon compounds. Its products serve diverse end markets including railroad, utility, and construction, through a global manufacturing and distribution network across North America, South America, Australasia, and Europe - Koppers is an integrated global provider of treated wood products, wood treatment chemicals, and carbon compounds[19] - Products and services are used in niche applications across diverse end markets such as railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber, and construction industries[19] - Operates through a global manufacturing and distribution network with facilities in North America, South America, Australasia, and Europe[19] Non-GAAP Financial Measures & Safe Harbor This section explains Koppers' use of non-GAAP financial measures for performance assessment and includes a safe harbor statement regarding forward-looking statements and associated risks Non-GAAP Financial Measures Explanation Koppers utilizes non-GAAP financial measures like adjusted EBITDA, adjusted net income, and adjusted EPS to provide investors with a clearer understanding of its operational performance and trends. These measures are used internally for performance assessment and incentive plans, but are not intended as alternatives to GAAP measures and should be read in conjunction with them - Adjusted EBITDA, adjusted net income, and adjusted EPS are used to help investors understand underlying operational performance, business trends, and facilitate comparisons[20] - These non-GAAP measures are used internally by management and for incentive plans, but should not be considered an alternative to GAAP measures[20][21] - Reconciliations of non-GAAP financial measures to comparable GAAP measures are provided in attached tables[22] Safe Harbor Statement The press release contains forward-looking statements subject to various risks and uncertainties, including changes in commodity prices, economic conditions, supply chain disruptions, and regulatory changes. Koppers disclaims any obligation to update these statements to reflect future events or circumstances - Statements in the press release are 'forward-looking statements' subject to risks and uncertainties, including those related to sales levels, profitability, and cash outflows[23][24] - Factors that might affect forward-looking statements include changes in commodity prices (oil, copper), general economic conditions, intellectual property protection, debt ratings, supply chain disruptions, and international economic/political conditions[25] - Koppers undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the release date[25] Unaudited Financial Statements This section presents Koppers' unaudited consolidated statements of operations, balance sheet, cash flows, segment information, and non-GAAP reconciliations for the reported periods Consolidated Statement of Operations The unaudited consolidated statement of operations details Koppers' financial performance for the three months and year ended December 31, 2023 and 2022, showing net sales, cost of sales, operating profit, net income, and earnings per share KOPPERS HOLDINGS INC. UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in millions, except share and per share amounts) | Metric | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :---------------------- | :---------------------- | | Net sales | $513.2 | $482.6 | $2,154.2 | $1,980.5 | | Cost of sales | $416.7 | $406.5 | $1,729.7 | $1,635.9 | | Operating profit | $37.2 | $27.6 | $195.2 | $137.7 | | Net income attributable to Koppers | $12.9 | $13.8 | $89.2 | $63.4 | | Diluted Earnings per common share | $0.59 | $0.65 | $4.14 | $2.98 | Consolidated Balance Sheet The unaudited consolidated balance sheet presents Koppers' financial position as of December 31, 2023, and 2022, detailing assets, liabilities, and equity. Total assets increased to $1,835.5 million in 2023 from $1,711.4 million in 2022 KOPPERS HOLDINGS INC. UNAUDITED CONSOLIDATED BALANCE SHEET (Dollars in millions) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------------ | :------------------ | | Total assets | $1,835.5 | $1,711.4 | | Total liabilities | $1,332.5 | $1,308.4 | | Total Koppers shareholders' equity | $498.9 | $399.4 | | Cash and cash equivalents | $66.5 | $33.3 | | Inventories, net | $395.7 | $355.7 | | Long-term debt | $835.4 | $817.7 | Consolidated Statement of Cash Flows The unaudited consolidated statement of cash flows outlines the cash generated and used by Koppers for operating, investing, and financing activities for the years ended December 31, 2023, and 2022. Net cash provided by operating activities increased significantly to $146.1 million in 2023 KOPPERS HOLDINGS INC. UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in millions) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :------------------------------------ | :---------------------- | :---------------------- | | Net cash provided by operating activities | $146.1 | $102.3 | | Net cash used in investing activities | ($116.0) | ($114.8) | | Net cash provided by financing activities | $2.6 | $4.8 | | Net increase (decrease) in cash | $33.2 | ($12.2) | | Cash and cash equivalents at end of period | $66.5 | $33.3 | | Capital expenditures | ($120.5) | ($105.3) | Segment Information The unaudited segment information provides a breakdown of net sales, adjusted EBITDA, and adjusted EBITDA margins for Koppers' three business segments (RUPS, PC, and CMC) for both the fourth quarter and full year 2023 and 2022 UNAUDITED SEGMENT INFORMATION (Dollars in millions) | Segment | Q4 2023 Sales | Q4 2022 Sales | FY 2023 Sales | FY 2022 Sales | | :-------------------------------- | :-------------- | :-------------- | :------------ | :------------ | | Railroad and Utility Products and Services | $216.4 | $193.0 | $897.9 | $788.3 | | Performance Chemicals | $164.4 | $140.8 | $671.6 | $579.9 | | Carbon Materials and Chemicals | $132.4 | $148.8 | $584.7 | $612.3 | | Total Net Sales | $513.2 | $482.6 | $2,154.2 | $1,980.5 | | Segment | Q4 2023 Adj. EBITDA | Q4 2022 Adj. EBITDA | FY 2023 Adj. EBITDA | FY 2022 Adj. EBITDA | | :-------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | | Railroad and Utility Products and Services | $20.7 | $13.3 | $84.0 | $53.6 | | Performance Chemicals | $29.4 | $17.6 | $123.1 | $75.5 | | Carbon Materials and Chemicals | $3.8 | $21.2 | $49.3 | $99.0 | | Total Adjusted EBITDA | $53.9 | $52.1 | $256.4 | $228.1 | | Segment | Q4 2023 Adj. EBITDA Margin | Q4 2022 Adj. EBITDA Margin | FY 2023 Adj. EBITDA Margin | FY 2022 Adj. EBITDA Margin | | :-------------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Railroad and Utility Products and Services | 9.6% | 6.9% | 9.4% | 6.8% | | Performance Chemicals | 17.9% | 12.5% | 18.3% | 13.0% | | Carbon Materials and Chemicals | 2.9% | 14.2% | 8.4% | 16.2% | Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP net income to non-GAAP adjusted EBITDA, and net income attributable to Koppers to adjusted net income attributable to Koppers and adjusted diluted EPS, for both the fourth quarter and full year periods Net Income to Adjusted EBITDA Reconciliation The reconciliation shows the adjustments made to net income to arrive at adjusted EBITDA, including interest expense, depreciation and amortization, income tax provision, and specific non-recurring items like LIFO expense and mark-to-market commodity hedging UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (Dollars in millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net income | $13.0 | $13.8 | $89.8 | $63.2 | | Interest expense | $17.7 | $12.5 | $71.0 | $44.8 | | Depreciation and amortization | $14.3 | $11.6 | $57.0 | $56.1 | | Income tax provision | $6.7 | $1.9 | $34.8 | $31.6 | | LIFO expense | $2.7 | $12.8 | $6.0 | $25.6 | | Mark-to-market commodity hedging | ($0.5) | ($2.5) | ($0.5) | $6.5 | | Adjusted EBITDA | $53.9 | $52.1 | $256.4 | $228.1 | Net Income Attributable to Koppers to Adjusted Net Income and EPS Reconciliation This reconciliation details the adjustments from net income attributable to Koppers to adjusted net income and adjusted diluted EPS, accounting for items such as LIFO expense, impairment costs, and the tax impact of these adjustments UNAUDITED RECONCILIATIONS OF NET INCOME ATTRIBUTABLE TO KOPPERS TO ADJUSTED NET INCOME ATTRIBUTABLE TO KOPPERS AND DILUTED EARNINGS PER SHARE AND ADJUSTED EARNINGS PER SHARE (Dollars in millions, except share and per share amounts) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Net income attributable to Koppers | $12.9 | $13.8 | $89.2 | $63.4 | | LIFO expense | $2.7 | $12.8 | $6.0 | $25.6 | | Impairment, restructuring, plant closure costs | $0.0 | $0.8 | $0.1 | $1.0 | | Mark-to-market commodity hedging | ($0.5) | ($2.5) | ($0.5) | $6.5 | | Income tax on adjustments | ($0.6) | ($3.1) | ($1.8) | ($7.6) | | Adjusted net income attributable to Koppers | $14.5 | $23.0 | $94.0 | $88.3 | | Diluted earnings per share | $0.59 | $0.65 | $4.14 | $2.98 | | Adjusted earnings per share | $0.67 | $1.09 | $4.36 | $4.14 |