Koppers Holdings (KOP) Misses Q4 EPS by 11c, Revenues Miss; Offers FY20 EPS Guidance Below Consensus

Koppers Holdings (NYSE: KOP) reported Q4 EPS of $0.29, $0.11 worse than the analyst estimate of $0.40. Revenue for the quarter came in at $393.2 million versus the consensus estimate of $405.27 million.

Commenting on the quarter, President and CEO Leroy Ball said, "While the RUPS and PC segments showed good year-over-year improvement, it was partly overshadowed by weaker results in some of the smaller parts of those businesses. On a positive note, I am heartened by the fact that the core elements of our wood preservation strategy continues to gain strength as it relates to crossties, poles and pilings, and preservatives."

GUIDANCE:

Koppers Holdings sees FY2020 EPS of $3.00-$3.30, versus the consensus of $4.22.

The worldwide effects of the coronavirus remain a developing situation. As it relates to the overall business, Koppers does source certain key raw materials from China. However, the direct exposure is relatively contained and there has been no immediate impact on product availability. At present, the company's outlook assumes that there will be no material negative impact. Koppers will continue to closely monitor the situation and will provide periodic updates as appropriate.

Koppers expects that 2020 sales, excluding any sales generated from KJCC, will be approximately $1.7 billion. By comparison, sales in 2019 excluding KJCC were $1.65 billion. The 2020 sales forecast is based upon market share growth anticipated in the RUPS and PC segments, partially offset by pricing and demand pressures for certain parts of the global CMC segment.

As part of the company's strategic plan, additional actions have been identified which are anticipated to further improve profitability by $5 million to $10 million in 2020, and $25 million to $40 million on an annualized basis through 2024. The benefits are expected to be achieved through network optimization, commercial development, raw materials, and other cost savings.

Excluding the contribution from KJCC that is currently under a sale agreement, on an adjusted basis, Koppers expects EBITDA will be approximately $200 million to $210 million for 2020. On a comparable basis, adjusted EBITDA excluding KJCC was $201 million in the prior year.

The effective tax rate for adjusted net income in 2020 is projected to be approximately 32 percent, compared to the tax rate in 2019, excluding special tax items, of 26 percent. The lower 2019 tax rate was primarily due to a favorable tax benefit as a result of the closure of a U.S. tax audit. The 2020 adjusted EPS is forecasted to be in the range of $3.00 to $3.30, compared with adjusted EPS of $3.31 in the prior year. The expected higher tax rate in 2020 is estimated to have a negative impact on adjusted EPS of approximately $0.23 compared to the prior year.

Koppers does not provide reconciliations of guidance for adjusted EBITDA and adjusted EPS to comparable GAAP measures, in reliance on the unreasonable efforts exception. Koppers is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include restructuring, impairment, non-cash LIFO charges, acquisition-related costs, and non-cash mark-to-market commodity hedging that are difficult to predict in advance in order to include in a GAAP estimate and may be significant.

Koppers expects to invest $60 million to $70 million in capital expenditures in 2020, which includes approximately $50 million related to improving the safety and reliability of its existing infrastructure.

In 2020, Koppers plans to reduce debt by a minimum of $100 million, which includes and will be contingent on the successful closing of the KJCC divestiture. As a result, the pro-forma net debt to adjusted EBITDA ratio is projected to be in the range of 3.6x to 3.8x at December 31, 2020. The management team continues to focus on strengthening the company\'s balance sheet, and accordingly, further reductions in debt and leverage could occur to the extent that there are additional divestitures of non-core assets.

Commenting on the forecast, Mr. Ball said, "Our portfolio, excluding KJCC, is primed to realize its sixth consecutive year of profitability improvement on a comparative basis which demonstrates the continued strength of Koppers strategy. Moreover, I am expecting continued share gains in 2020 for most markets served by our core businesses and that should more than offset headwinds in the CMC segment."

Mr. Ball continued, "From a cashflow perspective, besides the sale of KJCC, several other opportunities still remain to raise cash through the sale of non-core assets. We will actively follow up on those opportunities throughout the year and any additional proceeds would be applied to further reduce debt. While our business remains on solid ground, I believe it is prudent to prepare for any eventual economic slowdown. We have demonstrated a long-standing ability to navigate a higher leverage profile; however, the public markets are sending a clear message regarding wanting lower risk in the current environment. I am committed to returning Koppers to a leverage level of three times or less to strengthen our balance sheet and increase our financial flexibility."

For earnings history and earnings-related data on Koppers Holdings (KOP) click here.

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