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Koppers (KOP) 8 Nov 24 2024 Q3 Earnings call transcript

AInvestFriday, Nov 8, 2024 7:43 pm ET
2min read

In the latest earnings call, Koppers reported a strong performance for the third quarter of 2024, showcasing record-breaking sales and profitability. The company, led by CEO Leroy Ball and CFO Jimmi Sue Smith, highlighted key achievements and future plans, providing insights into the company's strategic direction and financial health.

Key Metrics and Trends

Koppers reported record-breaking third-quarter sales of $554.3 million, a significant improvement from the previous year's quarter. This growth was driven by a robust performance across its business segments, including Railroad and Utility Products and Services, which achieved record third-quarter sales, and Performance Chemicals, despite a slight decline due to Brown Wood sales now being reported as intercompany and lower sequential profitability.

The company's adjusted EBITDA reached a new third-quarter record of $77.4 million, with a 14% margin, reflecting the successful implementation of cost reduction initiatives earlier this year. Despite facing reduced year-over-year volumes in its legacy Utility Pole business and lower sequential profitability in its Performance Chemicals business due to higher raw material costs, Koppers remains confident in its balanced and diversified business portfolio and its commitment to solving everyday challenges.

Focus on Safety and Environmental Sustainability

Koppers has prioritized its Zero Harm efforts, with a focus on identifying environmental hazards and incorporating them into existing safety processes. This approach has led to a significant reduction in recordable injury rates by 8.5% and a decrease in serious safety incidents by 42%. Zero Harm 2.0 remains a top priority, reenergizing engagement at the front line of operations to accelerate progress towards zero incidents.

Financial Highlights

The company's financial highlights include a third-quarter diluted earnings per share of $1.09 compared with $1.22 in the prior year quarter, while adjusted earnings per share were $1.37 compared with $1.32 in the prior year quarter. Operating cash flow was $29.8 million for the third quarter and $44.7 million for the year-to-date period through September of 2024. However, there was a decrease in operating cash flow compared to the previous year due to higher raw material, operating, and SG&A costs.

Capital Allocation and Future Outlook

Koppers has spent $55 million on capital expenditures through September 30, with a forecast of $80 million for 2024 compared with $116 million in the prior year. The company has also returned capital to shareholders through a quarterly dividend of $0.07 per share and a 17% increase in the annual dividend for 2024. Koppers remains committed to reducing its net leverage, ending the quarter with $936.4 million in net debt and $332 million of liquidity.

Looking ahead, Koppers anticipates a decline in EBITDA for its Performance Chemicals business in 2024 between $9 million and $11 million. The company is also planning to reduce spending across Carbon Materials and Chemicals for the second straight year to improve free cash flow yield. Koppers expects 2025 to be a year of new highs in adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share, with a focus on cost savings and strategic growth opportunities.

Investor Questions and Analyst Insights

During the Q&A session, analysts raised questions about the sustainability of cost savings in SG&A and the impact of interest rate cuts on interest expense. Koppers responded by acknowledging the focus on improving profitability and resizing the organization to fit a year of flat overall sales in 2025. The company also highlighted the potential for additional cost savings in SG&A and operating expenses.

Regarding acquisitions, Koppers expressed interest in the utility side of the business, particularly in areas where the company holds a smaller share and has less geographic coverage. The company is also looking for opportunities around its Performance Chemicals business that could add value to its preservative business.

Conclusion

Koppers' strong performance in Q3 2024, combined with its strategic focus on safety, sustainability, and growth, positions the company well for future success. With a commitment to reducing costs, improving profitability, and exploring strategic acquisition opportunities, Koppers remains on track to meet its 2024 goals and beyond. As the company looks ahead to 2025 and beyond, investors and stakeholders will be closely watching Koppers' strategic moves and financial performance.

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