Koppers Holdings Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Cost Control: SG&A was down 14% adjusted through 3 quarters, equating to over $19 million in savings. Adjusted EBITDA margin improved despite lower sales.
• Business Simplification: Completed sale of Railroad Structures business, closed phthalic anhydride plant in CM&C, and is assessing a shift to a single column operation in CM&C.
• Safety: Leading safety activities up 29%, recordable injury rate down 23%, serious safety incidents down 72%. 23 sites were accident-free in Q3.
• Board Update: New Board member Laura Posadas elected, continuing the succession process for directors reaching mandatory retirement.
• Capital Allocation: CapEx expected $52-55 million in 2025, reduced from $74 million. Repurchased $33.3 million in stock, with $71.5 million remaining on the $100 million repurchase authorization. Declared a quarterly dividend of $0.08 per share.

Segment Performance

• RUPS: Third quarter sales were $233 million, down from $248 million in Q3 2024. Adjusted EBITDA was $29 million (12.5% margin). Volume decreases in Class I crossties and maintenance-of-way were offset by higher commercial crosstie volumes and price increases.
• PC: Sales were $144 million, down from $177 million in Q3 2024. Adjusted EBITDA was $26 million (18.1% margin). Volume decreases due to market share shifts and higher raw material costs were partially offset by lower logistics and SG&A expenses.
• CM&C: Sales were $108 million, down from $130 million in Q3 2024. Adjusted EBITDA was $16 million (14.4% margin). Decrease was driven by discontinuing phthalic anhydride, but lower operating costs and raw material costs helped improve profitability.

Guidance

• Sales: Revised consolidated sales guidance to $1.9 billion in 2025, down from $2.1 billion due to soft demand across markets.
• Adjusted EBITDA: Revised to $255-260 million, with RUPS adjusted below prior range due to lower crosstie demand and higher costs in UIP.
• CapEx: Projected $52-55 million in 2025, a significant reduction from $74 million in 2024.
• Profitability: Expecting 15+% margins consistently, 10%+ earnings improvement over 3 years, and leverage to below 2.5x via greater free cash flow.

Risks

• Market Volatility: Soft demand across markets, particularly impacting RUPS and PC.
• Tariffs and Costs: Tariffs and increases in raw material costs affecting PC and CM&C.
• Economic Uncertainty: Difficulty forecasting railroad market trends and potential impact on RUPS.

Question and Answer

Q: Concern about PC's adjusted EBITDA and margins A: Costs are being taken out of PC, but it's seen as a future business, so careful not to cut too much while market rebounds.

Q: Growth strategy for Utility and Industrial Products (UIP) A: UIP has market opportunity in underserved regions, using wood preservative tech, expanding species beyond Southern Yellow Pine, and building on Brown acquisition.

Q: Baseline revenue for PC after market share loss A: Market down 3% year-over-year, expecting regular growth in 3-4% range, but customers expecting flat growth next year.