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8-K
KOPPERS HOLDINGS INC. filed this Form 8-K on 11/09/2017
Entire Document
 

improving safety and financial performance.  Our September quarter exceeded my expectations and as a result, it is likely that earnings in 2017 will represent one of the best years in our history.

 

Mr. Ball continued, "Moving forward, our challenge will be to maintain and grow our top and bottom lines.  First, we are dealing with a higher raw material cost environment that will be a formidable headwind as we prepare for 2018.  Additionally, while we are currently benefiting from sudden strength in certain international markets, we anticipate those markets may moderate sometime in 2018.  That said, I am confident that the many initiatives we have in progress will provide more than enough opportunity to keep us on a sustainable path of profitable growth.”

 

Summary of Third-Quarter Financial Performance:

 

Sales for RUPS of $131.7 million decreased by $14.0 million, or 9.6 percent, compared to sales of $145.7 million in the prior year quarter.  The lower sales volumes of treated crossties and railroad bridge services is driven by lower spending in the rail industry across both Class I and commercial markets. In addition, commercial crosstie pricing has been reduced due to an oversupply of crossties.  The negative impact from these factors was partially offset by higher volumes related to utility products in Australia.  Operating margin for the third quarter was 7.1 percent, compared with 10.2 percent in the prior year quarter.  Adjusted EBITDA margin for the third quarter was 9.0 percent, compared with 13.0 percent in the prior year quarter.

 

Sales for PC of $109.7 million increased by $2.1 million, or 2.0 percent, compared to sales of $107.6 million in the prior year quarter.  The sales increase resulted from higher volumes in North America for copper-based wood preservatives and additives. The higher demand was due to favorable market trends in the repair and remodeling markets and existing home sales as well as treated wood dealers stocking and selling treated wood with higher preservative retention levels.  Operating margin was slightly higher at 16.8 percent for the third quarter, compared with 16.4 percent in the prior year quarter.  Adjusted EBITDA margin was 20.2 percent for the third quarter, compared with 21.2 percent in the prior year quarter as higher average raw material costs more than offset the profit contribution from the increase in sales volumes.

 

Sales for CMC totaling $143.4 million increased by $25.6 million, or 21.7 percent, compared to sales of $117.8 million in the prior year quarter.  The sales increase was primarily from higher sales prices for carbon pitch and carbon black feedstock in Australasia and Europe as a result of a reduced supply in those regions.  Sales volumes were higher for carbon black feedstock and phthalic anhydride, partially offset by lower carbon pitch and creosote volumes.  Also, the segment’s results benefited from lower raw material and logistics costs in North America, partially offset by lower sales prices in North America, accelerated depreciation, and unabsorbed fixed costs.  Operating margin was 11.3 percent in the third quarter, compared with a loss of 3.3 percent in the prior year quarter.  Adjusted EBITDA margin was 18.2 percent in the third quarter, compared with 8.4 percent in the prior year quarter.

 

Operating profit was $34.7 million, compared to $27.7 million in the prior year quarter.  Adjusted EBITDA was $60.5 million compared with $50.8 million in the prior year quarter, due primarily to higher profitability from the CMC segment, partially offset by lower profitability for the RUPS and PC segments.

 

Net income attributable to Koppers in the third quarter was $19.8 million compared with $12.1 million in the prior year quarter.  Adjusted net income was $31.5 million compared with $20.9 million in the prior year quarter.

 

Items excluded from adjusted EBITDA consisted of $11.8 million of pre-tax charges, while adjusted net income and adjusted EPS for the quarter excluded $13.8 million of pre-tax charges.  The excluded items related primarily to pension settlement charges and restructuring expenses.  Adjusted EBITDA margin represents adjusted EBITDA as a percentage of GAAP sales.

 

Capital expenditures for the nine months ending September 30, 2017, were $48.6 million compared with $32.2 million for the prior year period.  The current year amount consists of spending on the new naphthalene unit construction at a CMC facility in Stickney, Illinois, and expanding production capacity at PC production facilities in the U.S.

 

At September 30, 2017, total debt was $700.8 million and net of cash and cash equivalents, net debt was $650.6 million.  At December 31, 2016, total debt was $662.4 million and net of cash and cash equivalents, net debt was $641.6 million.  Due to a higher run rate of profitability for the twelve months ended September 30, 2017, the net leverage ratio improved to 3.3, compared with 3.7 for a similar period ending December 31, 2016.

 

2017 Outlook

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