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Text: I'm Quynh McGuire, Vice President of Investor Relations.
You may access this announcement via our website at www.
As indicated in our announcement, we've also posted materials to the Investor Relations page of our website.
That will be referenced in today's call.
References may also be made today to certain non-GAAP financial measures.
Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer.
I'll now turn this discussion over to Leroy.
As you may have seen as shown on Slide 3, we announced today that Koppers will be hosting an Investor Day scheduled for Monday, September 13, 2021 beginning at 9:00 A.M. Eastern Time.
I sincerely hope that you'll be able to join me and our senior management team for this event and it will take place in Pittsburgh, Pennsylvania.
The venue location is still to be determined.
We will, of course, closely monitor health and safety guidelines regarding the COVID-19 pandemic, but are looking forward to bringing back in person to tell our story.
Moving on to Slide 5.
I'm proud to report that Koppers continues to fulfill its purpose of protecting what matters and preserving the future by transporting critical goods, providing power and connectivity to homes and businesses, and keeping our infrastructure strong and reliable.
At Koppers, we take our responsibility seriously, knowing that the things we all take for granted, every day, do not occur without our products and services, and we're incredibly proud to do our part.
Now, I'd like to start with the Zero Harm update, as always, after many delays due to the pandemic, our team is happy to get back to deploying our ongoing Zero Harm training sessions, in person and in a safe manner.
And it couldn't happen at a more important time as our safety performance during the first quarter lagged our expectations.
We need to get our safety professionals back in front of our people, in operations, to train and reinforce positive behaviors since that is now happening as COVID restrictions begin to get relaxed.
Throughout the year, we will be working to roll out our Foundations training which emphasizes the importance of empathy for fellow colleagues and the criticality of communications as it relates to the presence of hazards or hazardous behavior.
Additionally, we recently presented our company's annual Zero Harm President's award, which I'll describe in detail in a few moments.
Moving to Slide 7.
And it offers an update of the key aspects of our employee health and well-being efforts.
And regarding COVID-19, we currently have about 13% or 265 employees testing positive with rates dropping significantly over the past six weeks.
Sadly, we did have one employee recently pass away, having contracted the virus outside of the workplace.
It's a terrible reminder that as close as we feel to being out of the woods, the virus is still out there, wreaking havoc and the best way to protect yourself is to get vaccinated.
I say that not as a political statement, not to trying to force my beliefs on others, but as someone who doesn't want to see any more people that are under my care, unnecessarily die of a virus that is extremely unpredictable.
We implemented a Life-Saving rule related to COVID, some months ago, and it remains in effect, demonstrating the importance of this issue and the fact that it remains our single biggest fatality risk.
As CDC guidelines are updated, we'll adjust accordingly at our facilities in the US as appropriate.
In addition, we maintain COVID pool testing at four key locations in North America.
We're scheduling vaccine clinics at our facilities when possible and offering a $250 incentive to those who are fully vaccinated.
In addition, we're using point of dispensary occupational medical clinics and other commercial outlets to make vaccination as easy and convenient for employees as possible.
Now, despite my pleased employees, at this point, I only have about 40% of our US employee base as been vaccinated.
And I don't really expect that rate to change all that much given that most everyone has been eligible for a while now.
Internationally, the rate is much lower at this point, but that has more to do with vaccine availability than indifference.
On Slide 8, we see an overview of our operations and planning efforts at our facility in Stickney, Illinois, the tar plant experienced approximately one month of unplanned downtime, beginning March 20.
And has been back up and running for a few weeks now, and while it was a major inconvenience operationally and commercially, The impact on our consolidated results for the first and second quarter is expected at less than 5% and already baked into our full-year guidance.
Employee travel, we continue to limit those to essential-only trips.
An example of that would be the recent deployment of our Zero Harm training modules for front-line employees as well as peer-to-peer workshops.
Now, with COVID vaccination rates increase, we're resuming this training at selective locations.
As always we closely follow social distancing measures and masking protocols, and also we're conducting hazard assessments for certain tasks in order to protect our employees from the highest job site risks.
Regarding off reentry, we're still urging employees who are able to work from home to continue doing that.
And those who need to come into the office must use facial masks and observe all social distancing protocols when not located inside an enclosed Workspace.
We're postponing an official return to the office until September 7, just after the US Labor Day holiday, with limited office return, starting July 1, for those who would like to choose that option.
The pandemic has brought the work-life balance issue to the forefront, so we have asked our employees for suggestions on how to improve that aspect of their lives.
Now, there were many interesting ideas to consider, and ultimately, we plan to implement certain measures over time.
And while we haven't ironed out all of the final details as of yet, it's fair to say that we realize that a one-size-all -- fits-all approach is not fitting for an organization that's spread out as we are in many smaller employee pockets.
What's fit for Pittsburgh is not necessarily what fits for Nyborg, Denmark or Sydney, Australia.
One thing that's for certain though and that is our approach to flexibility in the workplace will reach heights we wouldn't have ever imagined prior to the pandemic.
Now to [Phonetic] notable accomplishments during the quarter.
In April, we presented -- Koppers Zero Harm President's award to our crosstie recovery facility in L'Anse, Michigan, as shown on slide 10.
The L'Anse group led all Koppers' teams worldwide in practicing proactive leading activities related to safety and zero lagging indicators.
I want to congratulate the team at L'Anse for earning the President's Award and to the 10 other impressive teams in locations listed in the finalists' category.
Moving to Slide 11 that recognizes our L'Anse's facility going for three years without any serious injuries and our plant in Nyborg, Denmark, recently completing 365 days, an entire year, without any serious injuries which includes keeping their employees and contractors safe, while managing a number of major projects.
Slide 12 illustrates the new mobile app introduced by our UIP business to better connect directly with customers on products, technical reports, and pole shipments.
It's a great reflection of the different ways we're looking to serve our customers and bring them more value by making our people and the critical information that they need more accessible.
Chief Sustainability Officer, Leslie Hyde offered an overview in a local publication, Pittsburgh Magazine, of our sustainability strategy, while Tom Horvat, Performance Chemicals, Director of Global Marketing, spoke on the consumer appeal of treated wood products to building products digest.
Linkwomen observed Women's History Month by launching a college scholarship in the name of our late Treasurer, Louann Tronsberg Deihle.
Eligible participants are female family members of Koppers' employees.
And Linkwomen encourages professional development for all Koppers employees and has been recently working on a project to look at ways to increase female interest and involvement in the stem fields.
Also, in February, we honored Black History Month by highlighting Tracie McCormick, our Assistant Treasurer and Mario Franks, a 23-year Koppers lift truck operator veteran in our Florence, South Carolina facility.
And also, we challenged employees to recommend ideas to further improve our work-life balance.
As a result we launched LINKparents, a new employee resource group that gives parents and caregivers an outlet to share advice and appreciate diverse perspectives.
On Slide 15, you'll see highlighted one of the most interesting interactions we had in the community this past quarter, which was the Police Chief Town Hall that was organized and moderated by our own Global Director of inclusion and diversity, Lance Hyde.
Lance was able to gather six leaders in law enforcement from around the country to engage in a discussion on ways that we can all work better together to help bridge the racial divide.
We opened up participation in the event to customers, suppliers, and the community, and had approximately 1,200 people join this virtual event to encourage positive change.
And finally, during the past quarter, on Slide 16, our Ashcroft British Columbia team donated funds to a long-term care facility, while employees from our Galesburg, Illinois plant assembled food boxes during the pandemic.
On a bigger picture scale, Koppers celebrated Earth Day on April 22 by promoting tips on how to conserve energy and water and on how to reduce, reuse, and recycle materials in everyday life.
So one [Phonetic] more way we demonstrate that we're living on our sustainability principles and practical actionable ways.
As shown on Slide 18, consolidated sales were $408 million, which was a first-quarter record for Koppers and also an increase from sales of $402 million in the prior year.
Sales for RUPS were $192 million, up slightly from $190 million.
PC sales rose to $124 million, up from $111 million, and CM&C sales came in at $92 million, down from $101 million.
On Slide 19, adjusted EBITDA for the quarter was $55 million or 13.5% and this is a first-quarter record and also up from $38 million or 9.4% in the prior year.
Adjusted EBITDA for RUPS increased to $16 million, up from $13 million.
PC EBITDA rose to $28 million, up from $17 million and CM&C EBITDA was $10 million compared with $7 million.
On Slide 20, sales for RUPS were $192 million, slightly higher than the $190 million in the prior year.
This was primarily due to Class I volume increases, higher demand in the railroad bridge services, and crosstie disposal businesses, and partially offset by year-over-year declines in commercial crossties.
In Q1 crosstie procurement decreased 27% from the prior year due to a continuing tight supply for untreated ties as well as unfavorable weather.
Crosstie treatment in the first quarter was higher than prior year by 6%, driven by increased volumes from Class I railroad customers.
Moving on to Slide 21.
Adjusted EBITDA for RUPS was $16 million in the quarter compared with $13 million in the prior year, and this was driven by a favorable product mix and stabilization in our maintenance of way businesses, offset in part by lower commercial crosstie volumes.
For 2021, we anticipate a favorable outlook for our maintenance of way businesses, which were severely impacted in the prior year due to the pandemic.
On Slide 22, sales for PC were $124 million compared to sales of $111 million in the prior year.
We experienced continued strong sales growth due to ongoing high demand for copper-based preservatives, higher sales in the US from continued home repair and remodeling projects, and higher volumes internationally from improved industrial and agricultural demand.
Adjusted EBITDA for PC was $28 million compared with $17 million in the prior year.
The higher profitability can [Phonetic] be attributed to higher sales volumes, a favorable product mix, and better absorption on increased production.
Profitability also benefited from the demand generated by the strong home repair and remodeling trend.
Moving on to Slide 24.
This shows CM&C sales at $92 million compared to sales of $101 million in the prior year.
The year-over-year decrease was primarily due to lower volumes of phthalic anhydride in the US, lower carbon pitch pricing and volumes globally, and lower volumes for carbon black feedstock in Australia.
Also, the prior year benefited from increased phthalic anhydride sales volumes due to one of our competitors experiencing supply disruption issues during that time period.
On Slide 25, adjusted EBITDA for CM&C was $10 million in the quarter compared to $7 million in the prior year.
Despite the market challenges, CM&C generated higher profitability and a double-digit margin.
This was primarily driven by a lower cost structure and production efficiencies.
In terms of carbon pricing and cost trends compared with the fourth quarter, the average pricing of major products were higher by 15%, while average coal tar costs went up by 11%.
Compared with the prior-year quarter, the average pricing of major products was lower by 2%, while average coal tar cost decreased by 7%.
Now, let's review our debt and liquidity.
As seen on Slide 27, at the end of March, we had $766 million of net debt, with $326 million in available liquidity.
We continue to project $30 million of debt reduction for 2021 and we expect to be at 3.1 times to 3.2 times with our net leverage ratio at year-end.
We remain in compliance with all debt covenants and we do not have any significant debt maturities until 2024.
The recent history of our net debt leverage ratio was also shown on this Slide, as well.
As March 31 -- at March 31, our net leverage ratio was 3.4 times, which was a significant decline from 4.5 times just a year ago.
Longer-term, our goal continues to be between 2 times and 3 times.
So, let's review our business segments and how 2021 looks to be taking shape, starting with our Performance Chemicals group.
On Slide 29, the overall outlook for Performance Chemicals has improved from the more cautious approach we were taking as we entered the year.
We've seen strong year-over-year demand in North America through April, which is not a surprise as prior year comps did not reflect the stay-at-home pandemic effect of home improvement projects.
We did see a mid-quarter minor low [Phonetic] in volumes relative to what we had seen in previous eight months, which we attributed to record lumber prices that we believe were holding traders back to a certain degree as they were looking to avoid getting caught possibly with high-priced inventory if the market took a sudden sharp downturn.
Consumer demand for the product to satisfy the backlog of projects has the industry pushing through the inventory hesitancy and volumes have reverted back to what we had been seeing.
Overseas, the international picture looks to exceed 2020 results due to prior year being severely impacted by the pandemic, as such we're cautiously optimistic about PC's ability to generate EBITDA in 2021 that will actually meet or potentially even surpass the prior year, after initially thinking that we could see some drop off from prior year demand as the year went on.
I'm still a little concerned about where things go in the back-third of the year from a demand standpoint but feel comfortable enough raising our guidance in this business due to the lead we have built in Q1, a better comfort level on Q2, and the rebound in our international segments.
Koppers has continued its rise to record highs and as a result, the industry will need to build that cost increase into materials if this trend continues into 2022.
Across the North American market, residential and commercial treating outlook remained strong, with ongoing pent-up home improvement demand driving lumber prices to record levels.
Big Box retailers have mostly built up their inventory during the first quarter and independent dealers have now decided to jump into the market, despite the higher lumber prices to get ready for the anticipated spring rush.
And our projections of 2021 being a big year for preservative conversions also remain in place as our CCA/DuraClimb utility poles are expected to increase market share over the next year or so as a result of the phase-out of Penta.
Both the US EPA and Health Canada are proposing canceling Penta registrations in the respective countries which would be the final nail in the coffin for the product whose only manufacturer previously announced that they were discontinuing production of the product as at the end of this year.
We continue to consider the proper entry point into copper naphthenate, where other oil borne systems for wood species that cannot take [Phonetic] to our client, but overall we feel satisfied in the interest of our waterborne product as a great substitute for the Southern yellow pine wood species region.
And we're pleased to note that plans for the capacity expansion at our facility located in Hubbell, Michigan, remain on target for the third quarter, which should provide some cost relief in the back half of the year should volumes drop below prior-year levels.
Also, we've de-risked our supply chain by locking in long-term domestic supplies for intermediates over the second half of the year, which will also cut down on lead times.
Continuing on regarding North America, on Slide 30, we show that friendly customer consolidations that are happening currently could mean new volume growth by the fourth quarter and into 2022 as our capacity is expanded.
Now the data that we track to determine the health of our PC business seems to be pointing in a good direction.
According to the National Association of Realtors, existing-home sales rose 12.3%, year-over-year, in March 2021, but fell 3.7% from prior month because of nearly historic lows in housing inventory.
The sales prices of median existing homes soared to record levels and would have been higher had more inventory been available.
The NAR forecasted buyer confidence is on the rise.
The Leading Indicator of Remodeling Activity says home repair and improvement expenditures are expected to increase 4.8% and reach $370 billion by the first quarter of next year as homeowners take on larger discretionary renovations deferred during the pandemic.
These indicators strongly suggest that people are feeling more positive about the economy as validated by the Consumer Confidence Index, which saw another strong increase for the second straight month.
The Index in April came in at 121.7, up from 109 in March, which marked a significant rise from the 90.4 index in February.
Internationally, our PC activity in South America remains on a positive path and looks to be a growing market.
After several failed attempts to acquire manufacturing capacity in Brazil, we're now looking hard at greenfielding a site, which would put us in a much stronger market position in a growing region where we already hold significant market share through an important tolling model.
Australasian business had a strong first quarter and looks to reap the benefits of an anticipated post-pandemic housing boom.
In Europe, as certain of our product registrations are set to expire, we pulled demand forward to satisfy longer-term customer needs, and therefore, we will be challenged in this region as the year progresses.
Now, given that this is a small piece of our global PC portfolio, we don't anticipate any issue in offsetting the expected weakness in the remainder of 2021.
We have been sorting through the long-term alternatives for this business for a while now, and we'll be moving forward soon with the plan to bolster our aging product portfolio through the introduction of new products with the acquisition of existing technology that has a longer regulatory timeline.
Slide 31 brings us to an overview of our Utility and Industrial Products business.
Demand in the US and Australia appears to remain strong in 2021.
Though we may see a bit of sales decline as a result of our recent exit from our operating agreement with TEC in Texas, but we expect that that will translate into improvement in EBITDA as production moves from TEC's Jasper, Texas location to our Somerville, Texas, treating facility.
The TEC arrangement that we inherited with the acquisition of the UIP business was unprofitable and deemed unflexible without some meaningful contractual changes, which we just could not seem to reach agreement on with TEC.
As a result, we'll now be going in alone in Texas, which is probably best in the long run, anyway.
Texas is a creosote pole market and as a burgeoning market for pole disposal, all elements that speak to the strength of our integrated business model.
Now, even if we put the pandemic behind us, it will remain an imperative for utilities to limit or avoid service interruptions.
It's likely that some portion of the workforce will continue to work remotely and as a result the workforce is expected to be more dispersed geographically, compared with a pre-pandemic environment.
An emerging trend shows that more Americans are moving south and west and to the extent that migration and home construction trends are occurring in the Southern US, our business could benefit due to having strong market share in the region.
[Technical Issues] same time energy and telecommunications needs are expected to continue to increase, which should result in a need for upgrades and expansions of the transmission network.
Mentioned earlier, the production of Penta preservative will cease at the end of 2021 and the registration for user Penta is on the road to being canceled in the US and Canada.
And we're converting our first plant from Penta to CCA, a Koppers produced preservative, while evaluating copper naphthenate, DCOI as additional oil borne alternative.
We expect our CCA/DuraClimb product to lead the way in the Eastern US market for a combination of cost and performance reasons.
Our capital program this year is also allocated to adding drying capacity to treating sites, further reducing cost and supply risk.
First kiln is expected to come online in Q2, with the second in Q3.
In Australia, an aging network and a need to rebuild infrastructure following last year's wildfires appear to create a solid demand base for 2021.
Pine poles have gained greater acceptance due to the lack of hardwood, so we're also adding drying capacity in Australia to facilitate increased pine pole production.
Moving on to the RUPS business on Slide 32.
Demand for all product lines looks to be strong for this year and next, as margins are expected to improve with continued cost control.
Integrating tie and pole treatment in Somerville along with processing of end of life ties, illustrates the Super Plant model, referenced in the past, is a key goal for Koppers in the coming years and a core tenant of our network optimization strategy.
The biggest risk we face currently to 2021, results for -- the biggest risk we face currently to 2021 results for our crosstie business is the tightened hardwood supply.
Now, this has been an every couple-of-year issue within the industry, where the supply of hardwoods for untreated crossties tightens either due to weather issues, competing demands for hardwood, or both, and we'll work through it as we have in the past, but if our untreated numbers don't start increasing soon, we could see an impact on treating and shipments by the end of the year.
Now, despite the challenges, the industry is currently dealing with on the supply side, we do remain focused in the crosstie market on increasing our market share and we continue to drive efforts to renew key Class I contracts by the end of 2021.
The expansion of our North Little Rock facility to be completed by the end of this year, further puts us in position for EBITDA improvement in 2022 as it will lower our cost footprint, enable and enable us to compete for a greater share of the market.
Larger market indicators paint an overall encouraging picture for the RUPS business.
The Railway Tie Association forecast 2.7% growth in 2021% and 3.6% in 2022 for crossties, primarily driven by the commercial market while Class I volumes are seeing holding at similar year-over-year levels.
[Technical Issues] raw material availability is slightly constricted according to the RTA, but their view for the next six months to 12 months is ideal, which is probably a little more optimistic than our view at this moment.
And as mentioned earlier, remains our biggest near-term risk.
Rebounding national economy and government stimulus payments are expected to spur increased consumer spending.
RTA reports that retailers' inventory to sales ratios are at their lowest levels in a decade, meaning freight activity should benefit from suppliers' needs to replenish inventory.
Rail traffic continues to recover from 2020 levels as of March 31, year-to-date, according to the American Association of Railroads.
Total US carload traffic decreased 2.6% year-over-year, while intermodal units increased 3.2%.
Combined, year-over-year, the US traffic was up by 5.6%.
The AAR adds that railroad volumes correlate strongly with manufacturing output, so recent signs of strength point to positive indicators for the railroad industry.
Slide 33 shows the impact of Maintenance of Way projects on the RUPS segment, and even though, COVID-19 negatively affected this business tremendously, Maintenance of Way still generated EBITDA and margin improvement in 2020.
In the backlog, the railroad structures project this year is 50% higher than a year ago, pointing to increases in profitability from a full pipeline of incoming work.
In 2021, we don't anticipate as much disruption from COVID-19 as compared with the prior year, which should improve project efficiency.
We're actively working to expand the crosstie recovery business, including the addition of Class I accounts.
We also see more growth potential by leveraging the synergy between landscape crossties and the needs of our PC customers.
Combination of new value-added services, lowering cost, and increasing efficiency for rail customers point to a growing revenue model.
And the Mains-of-Way [Phonetic] business is emerging as a bigger proportion of our RUPS business, having transformed from one of our most negatively impacted businesses during the pandemic and to now representing roughly half of all the EBITDA increase for RUPS in 2021.
According to IHS Markit automotive group, light vehicle production is projected to grow about 14% in 2021, globally, with US production expected to increase 24%.
As such, we expect growth in overall EBITDA margins as demand improves and cost management continues.
Progress of CMC through the pandemic has proven that the model we have built can consistently deliver EBITDA in the low to mid-teens, regardless of the economic cycles.
In North America, we see more tar production in 2021, regaining normal levels in the second half of the year and we expect transportation cost savings as imports from Europe are reduced or eliminated.
Carbon pitch and creosote demand look to be solid, while higher average oil prices should maintain higher profitability in our phthalic anhydride business.
Our CMC footprint worldwide has been streamlined to the degree that we can now support reinvestment in our Stickney, Illinois facility.
And these improvements are under way since last year, designed to provide long-term reliability by minimizing the risk of operational disruptions like what recently occurred.
Higher profitability is anticipated through increased efficiency, upgraded technology, lower costs, improved environmental performance, and most importantly, an enhanced safety record.
Slide 35 details CMC operations in Europe and Australia.
Europe remains the region with the most commercial challenges as the slowdown in aluminum capacity has affected our competitors customer base disproportionately and increased pricing pressure for the remaining base of business.
And while higher oil prices represent a net positive for our overall CM&C business, the one area where it presented challenges in Europe where it makes coal tar more competitive raw material for the carbon black feedstock market, thereby pushing down supply and putting pressure on pricing.
This is where our commercial supply chain chain group has proven to excel over the years in managing these ever-changing dynamics, and I'm confident they'll be successful managing at this time as well.
In the Australian market, we see that higher China benchmark pricing will support a healthier carbon pitch pricing environment.
And should this pricing remain in place, we anticipate that Australia will generate the largest year-over-year improvement of the CMC regions.
Pulling everything together, on Slide 37, our sales forecast for 2021 remains in the range of $1.7 billion to $1.8 billion, compared with $1.637 billion in the prior year.
Our RUPS and CMC businesses are expected to generate a similar range of increase with PC estimated to be somewhere close to prior-year sales numbers.
On Slide 38, we're increasing our EBITDA projections for 2021 to a range of $220 million to $230 million compared with $211 million in the prior year.
The biggest driver in our increased guidance is our increased confidence that PC will see elevated levels of demand, at least through the third quarter.
The EBITDA estimate translates to an increase in our adjusted earnings per share guidance, which is seen on Slide 39, and is now $4.35 to $4.60 per share, compared to the prior guidance of $4 to $4.25 per share, and prior-year adjusted earnings per share of $4.12.
Finally, on Slide 40, our capital expenditures were $24.2 million in the first quarter or $19.5 million net of $4.7 million in cash proceeds from asset sales.
The cash proceeds came from the February sale of the Follansbee facility and the final release from escrow of dollars held from our 2018 sale declared [Phonetic].
The Follansbee sale is an important milestone for Koppers as it will save us considerable ongoing costs and cash flow, and allow us to refocus efforts in cash toward the growth and improvement opportunities in our other -- in our other businesses.
We remain on track to spend a net amount of $80 million to $90 million on capital expenditures this year with half of that dedicated to growth and productivity projects that are expected to generate $8 million to $12 million of annualized benefits.
In summary, I have greater confidence in our ability to deliver a significantly better financial performance this year, now that we're through the first four months of 2021 and have better visibility on the second and third quarters.
Beyond 2021, I remain excited about the many opportunities that we have to further build upon our integrated business model, focused on wood and infrastructure, and look forward to sharing the details of how we believe we can take Koppers to over $300 million of EBITDA generation by the end of 2025 at our upcoming September 13 Investor Day.
With that, I would like to open it up to any questions.

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expects ebitda, on an adjusted basis, will be approximately $220 million to $230 million for 2021.2021 adjusted earnings per share is forecasted to be in range of $4.35 to $4.60.
expects that 2021 sales will be approximately $1.7 billion to $1.8 billion.

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