Koppers Holdings (KOP) Tops Q1 EPS by 58c, Revenues Miss; Offers FY21 EPS Guidance Above Consensus, Affirms FY2 Revs. View
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Koppers Holdings (NYSE: KOP) reported Q1 EPS of $1.18, $0.58 better than the analyst estimate of $0.60. Revenue for the quarter came in at $407.5 million versus the consensus estimate of $409.17 million.
First Quarter Financial Performance
- Sales for RUPS of $191.9 million increased by $1.9 million, or 1.0 percent, compared to sales of $190.0 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $1.9 million, year-over-year sales were at similar levels. Sales benefited from Class I volume increases, strong demand in the railroad bridge services business and higher activity in the crosstie disposal business, but were offset by year-over-year declines in the commercial crosstie market. Operating profit was $8.7 million, or 4.5 percent, compared with $9.2 million, or 4.8 percent, in the prior year quarter. Adjusted EBITDA was $16.4 million, or 8.5 percent, in the first quarter, compared with $13.4 million, or 7.1 percent, in the prior year quarter. The increase in year-over-year profitability was primarily driven by a favorable mix related to Class I volumes and maintenance-of-way businesses, partially offset by the slowdown in the commercial crosstie market.
- Sales for PC of $123.6 million increased by $12.2 million, or 11.0 percent, compared to sales of $111.4 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $1.5 million, sales increased by $10.7 million, or 9.6 percent, from the prior year quarter. The sales growth reflects ongoing demand for copper-based preservatives in the U.S. due to a resurgence in home repair and remodeling activities during the pandemic. International markets also reported higher year-over-year volumes as a result of improved industrial and agricultural demand. Operating profit was $24.8 million, or 20.1 percent, compared with $4.1 million, or 3.7 percent, in the prior year quarter. Adjusted EBITDA for the first quarter was $27.8 million, or 22.5 percent, compared with $17.0 million, or 15.3 percent, in the prior year quarter. The increased profitability was primarily due to increased sales volumes, lower realized raw material costs associated with the company's copper hedging program and improved cost absorption.
- Sales for CMC totaling $92.0 million decreased by $8.5 million, or 8.5 percent, compared to sales of $100.5 million in the prior year quarter. Excluding a favorable impact from foreign currency translation of $6.2 million, sales decreased by $14.7 million, or 14.7 percent, from the prior year quarter. The decrease primarily consisted of lower volumes for phthalic anhydride in the U.S., lower pricing and volumes for carbon pitch globally, and lower volumes for carbon black feedstock in Australia. In addition, the prior year benefited from higher phthalic anhydride sales volumes due to supply disruption from a competitor. Operating profit was $10.8 million, or 11.7 percent, compared with $0.7 million, or 0.7 percent, in the prior year quarter. Adjusted EBITDA was $10.4 million, or 11.3 percent, in the first quarter, compared with $7.0 million, or 7.0 percent, in the prior year quarter. Despite challenging market conditions, the year-over-year increase in profitability was due to lower cost of goods and production efficiencies.
- Operating profit was $43.9 million, a first-quarter record, or 10.8 percent, compared with $13.6 million, or 3.4 percent, in the prior year quarter. Adjusted EBITDA, a first-quarter record, was $55.1 million, or 13.5 percent, compared with $37.6 million, or 9.4 percent, in the prior year quarter. Operating profit margin and adjusted EBITDA margin are calculated as a percentage of GAAP sales.
- Net income attributable to Koppers, a first-quarter record, was $25.9 million, compared to a net loss of $1.4 million in the prior year quarter. Adjusted net income was $22.3 million for the first quarter, compared to $9.9 million in the prior year quarter.
- In the first quarter of 2021, items excluded from adjusted EBITDA consisted of $5.8 million of pre-tax benefits, while adjusted net income and adjusted EPS for the quarter excluded $5.2 million of pre-tax benefits. Both adjustments consisted of non-cash effects related to mark-to-market commodity hedging, restructuring activities and non-cash impacts related to LIFO adjustments.
- Diluted EPS was $1.18, compared with a net loss of $0.07 per share in the prior year quarter. Adjusted EPS for the quarter was $1.02, compared with $0.47 for the prior year period.
- Capital expenditures for the three months ended March 31, 2021, were $24.2 million, compared with $10.6 million for the prior year period. Net of cash provided from asset sales, capital expenditures were $19.5 million in the first quarter of 2021. The year-over-year increase is consistent with the company's projections for net capital investments in 2021, primarily driven by growth and productivity projects.
- At March 31, 2021, total debt was $810.6 million and, net of cash and cash equivalents, the net debt was $766.4 million, compared with total debt of $775.9 million and net debt of $737.4 million at December 31, 2020. Compared to December 31, 2020, total debt was higher by $34.7 million and net debt was higher by $29.0 million. Due to higher year-over-year adjusted EBITDA for the twelve months ended March 31, 2021, the net leverage was 3.4 at March 31, 2021, compared with 3.5 at December 31, 2020.
President and CEO Leroy Ball said, "As expected, the first quarter reflected earnings growth in each of our three business segments. PC continues to be the driving force as the North American home improvement market sees sustained, healthy demand and a strong backlog of projects. While the earnings growth in our RUPS and CMC segments were more modest, their contributions helped to support the strongest first quarter on record. This first-quarter performance previews the inherent strength of the Koppers integrated business model when our three business segments are firing on all cylinders."
Koppers Holdings sees FY2021 EPS of $4.35-$4.60, versus the consensus of $4.20. Koppers Holdings sees FY2021 revenue of $1.7-1.8 billion, versus the consensus of $1.72 billion.
Koppers remains committed to driving improvements through the execution of its strategic initiatives and making continued progress toward its long-term financial goals.
Based on current global economic activity and in consideration of the near-term economic uncertainty associated with the pandemic, the company expects that 2021 sales will be approximately $1.7 billion to $1.8 billion. By comparison, sales were $1.67 billion in 2020, excluding Koppers (Jiangsu) Carbon Chemical Company Limited, which was sold on September 30, 2020.
Koppers expects EBITDA, on an adjusted basis, will be approximately $220 million to $230 million for 2021, compared with $211.0 million in the prior year.
The effective tax rate for adjusted net income in 2021 is projected to be approximately 27 percent, compared to the tax rate in 2020, excluding special tax items, of 20.1 percent. The higher 2021 tax rate is primarily due to benefits in the prior year related to the federal Coronavirus Aid, Relief, and Economic Security Act and other tax regulations that are not expected to continue in 2021. Accordingly, the 2021 adjusted EPS is forecasted to be in the range of $4.35 to $4.60, compared with adjusted EPS of $4.12 in the prior year. The higher tax rate anticipated in 2021 is estimated to have a negative impact on adjusted EPS of approximately $0.45 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 $105 million to $115 million in capital expenditures in 2021. Approximately half of the planned expenditures in 2021 are aimed at growth and/or cost reduction projects that are estimated to generate $8 million to $12 million of EBITDA in 2022. Net of cash received from the sale of closed properties, Koppers expects its net investment in capital expenditures to be between $80 million to $90 million.
Commenting on the forecast, Mr. Ball said, "Based on a strong first quarter and increased confidence in an extended home improvement wave, 2021 should generate impressive year-over-year growth, even on the back end of our impressive performance in the prior year during the heart of the pandemic. Furthermore, investments being made this year should add to our successful track record of earnings growth while launching the next phase of our strategy—a path that we believe will create more than $300 million in EBITDA by the end of 2025."
For earnings history and earnings-related data on Koppers Holdings (KOP) click here.
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