Koppers Holdings Inc. (NYSE:KOP) Q2 2018 Earnings Conference Call - Final Transcript

Aug 09, 2018 • 11:00 am ET

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Koppers Holdings Inc. (NYSE:KOP) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Executive
Leroy Ball

another year of high performance. As always, I appreciate the continuing dedication to safety that our employees have for both themselves and for their colleagues. We've made significant progress to-date, and remain focused on further improvement as we strive to get to Zero.

Now let's talk about our June quarter financial performance. On an adjusted basis, we delivered $0.93 for the second quarter compared with $1.18 in the prior year period. Our Carbon Materials & Chemicals or CM&C business, again, delivered strong results compared with the prior year period due to positive market trends, as well as more streamlined and efficient cost structure. In fact, it was the seventh consecutive quarter of margin growth. Unlike the first quarter, where the outperformance was driven from our China business, and the second quarter was driven from our North American and European businesses, in fact, we delivered very little product to our major needle coke customer in China, due to them performing a major repair and maintenance turnaround.

Higher global demand for carbon-based products, and a tightened raw material supply put upwards pressure on pricing, while we continue to take costs out of our infrastructure. The question remains, as to how long this sort of environment can continue, and what our sustainable profitability would look like in this segment when things normalize. All indications that we're receiving is that, we will continue to see the benefit from the various market tailwinds through at least a good portion of 2019, and maybe even longer. Adjusted EBITDA margins were 16.1% in the second quarter for the CM&C segment, while adjusted EBITDA was 28% higher than the prior year quarter.

Now our Performance Chemicals or PC business, reported lower year-over-year profitability to an unfavorable sales mix, higher raw material cost and increased overhead costs. The various production difficulties with a newly installed process for producing one of our intermediate raw materials, caused us to have to purchase more of that product on the open market than we would have liked, and that drove our raw material costs even higher than we had anticipated.

And we had hoped that the extended winter would lead to pent-up demand in the second quarter, which never really materialized. So we're speculating that the record high lumber prices had changed some buying patterns, causing treaters to minimize inventories, while waiting for white wood prices to fall. The result was, adjusted EBITDA of $17.9 million, and an adjusted EBITDA of 15.6% compared to adjusted EBITDA of $24.3 million, and an adjusted EBITDA margin of 21.7% last year.

In terms of our RUPS, Railroad Utility Products and Services business, although sales were higher year-over-year as a result of the recent acquisitions of MA Energy and Cox Industrial or our Utility Industrial products business, the profitability was affected by reduced volumes as a result of transitioning a major customer to a treated type program, and reduced availability of hardwoods in the commercial market, due to competing demands for the hardwoods in other markets.

And