Koppers Holdings Inc. (NYSE:KOP) Q3 2020 Earnings Conference Call - Final Transcript

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question will be from Mike Harrison with Seaport Global Securities. Please go ahead.

Hi, good morning.

Good morning, Mike.

Good morning.

I bet as we were heading into this pandemic and you guys were seeing things start to shut down, you would never have expected you'd put up a record quarter in Q3. So, congratulations for that. Wanted to ask about the RUPS business. It sounds like commercial volumes accounted for most of the decline there. We think your business is being predominantly Class 1. So, does that mean that the commercial business was down something like 20% or 30% versus last year? And maybe can you talk about what you're hearing from your commercial customers about their maintenance plans heading into 2021?

Okay. So, you're right, I mean, the commercial business is a smaller proportion of our business, making up anywhere from 20% to 25% of our crosstie business overall. It's also the most volatile, and we will see big swings and pricing as you go through different parts of the cycle, which also will be partly dependent upon the demand in that market as well. We have been riding a wave I'd say over the last probably six to eight quarters of improving pricing and stronger demand. And so, given what's going on with the pandemic and everybody looking for opportunities to reduce spending and cut costs, not surprising that we'd see some impact on demand in the commercial market, which would then also translate into lower pricing as well.

So, I can't say I'm terribly surprised given again the fundamentals of what we're dealing with in the current environment. However, I would say that that's again what makes our business model good during these times is having that heavy Class 1 customer base where through good times and bad, you know you have a strong foundation of demand to serve, and as we've seen during this period of time this year, we've only had again one Class 1 customer that has sought to reduce spending this year in this area. Others have continued to either execute their programs as come -- as they were coming into the year or actually even doing a little bit more. So on balance, we're in pretty good shape.

But long story short, Mike, I'm not shocked by what we're seeing in the commercial market right now and I think we'll continue to see the softness until we get some clarity coming through the pandemic, and where different stimulus spending might come from, right? So, if there is anything that's directed again into infrastructure and anything short lines can take advantage of, then, I think you'll see a pickup back in demand here, which will ultimately generate into a stronger pricing environment as well.

All right. And maybe you mentioned pricing a couple of times, I believe you mentioned some discounting activity in the RUPS business. Was that primarily