Koppers (KOP) Q4 2025 Earnings Call Transcript

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DATE

Thursday, Feb. 26, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Leroy M. Ball
• Interim Chief Financial Officer and Chief Accounting Officer — Brad Pierce
• Vice President of Investor Relations — Quynh T. McGuire

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TAKEAWAYS

• Adjusted EBITDA -- $256.7 million with a 13.7% margin, the highest level on record excluding KJCC and a record margin as reported.
• Operating profit -- $167.8 million, marking the company's second highest year recorded.
• Operating cash flow -- $122.5 million, representing seven consecutive years above $100 million.
• Adjusted earnings per share -- $4.07, delivering at least $4 for the sixth straight year after never previously reaching that level.
• Annual sales -- $1.9 billion, down 10% from the prior year's $2.1 billion.
• Segment sales -- RUPS: $927 million; PC: $544 million; CM&C: $409 million, with all three segments reporting lower sales compared to the prior year.
• Adjusted EBITDA by segment -- RUPS: $108 million (12% margin); PC: $103 million (19% margin); CM&C: $46 million (11% margin).
• RUPS quarterly performance -- Q4 RUPS sales: $209 million versus $216 million prior, attributed to divestitures and lower maintenance-of-way activity, partially offset by a 10% volume increase in utility poles and $4 million in crosstie price increases.
• PC quarterly performance -- Q4 PC sales fell to $128 million from $148 million prior, with adjusted EBITDA at $28 million, only slightly lower than the previous year.
• CM&C quarterly performance -- Q4 CM&C sales were $96 million versus $114 million previously, reflecting declines from discontinued products, lower carbon black feedstock prices, and a global 7% reduction in carbon pitch prices.
• Catalyst program impact -- The Catalyst transformation delivered $46 million in cost and efficiency benefits in the year, keeping EBITDA within 2% of prior-year levels despite a 10% sales decline.
• Adjusted SG&A costs -- Down 15% year over year, achieving a new all-time best for the second consecutive year.
• Employee count reduction -- Headcount fell 11% from year-end 2024, with 17% growth reported over the last three years for nontraditional U.S. market sales.
• Free cash flow -- Generated $100 million cumulatively over the period referenced in the transformation effort.
• Capital expenditures -- $55 million gross ($48 million net of incentives, asset sales, and insurance proceeds), mainly for maintenance, Zero Harm, and growth projects individually below $6 million.
• Share repurchases -- $38 million used to repurchase just under 1.3 million shares, with $67 million remaining on the $100 million buyback authorization.
• Dividend -- Announced quarterly cash dividend of $0.09 per share, a 13% increase, implying a $0.36 per share annual rate for 2026 if maintained.
• Net debt and leverage -- Net debt stood at $881 million, with a net leverage ratio of 3.4x; the company targets a range of 2–3x.
• Liquidity -- $383 million in available liquidity at year-end.
• Acquisition activity -- $21 million invested in acquiring a utility pole procurement business that provides Douglas fir fiber for pole production.

RISKS

• CEO Ball stated that for the second consecutive year, "our railroad customer base reduced their forecasted volumes," and noted that two Class I customers indicated a further pullback in volume for the current year, potentially impacting RPS profitability unless offset by countermeasures.
• Brad Pierce reported, "average coal tar costs were higher by 10%," resulting in lower EBITDA margins in the Carbon Materials and Chemicals segment.
• Leroy M. Ball remarked, "disappointment of 2025 is still fresh" among building products customers, and noted near-term housing market conditions are expected to remain flat despite a slight dip in mortgage rates.
• The company experienced a "net loss of market share" contributing to a 6% portion of the overall 10% sales decline.

SUMMARY

Koppers Holdings(NYSE:KOP) highlighted a record-high adjusted EBITDA margin and maintained adjusted EPS above $4.00 for a sixth consecutive year, driven by disciplined cost controls and execution of the Catalyst transformation program. The company executed targeted capital allocation including a $21 million utility pole procurement acquisition and $38 million in share repurchases, while increasing its quarterly dividend by 13%. Net leverage remains above management’s long-term target at 3.4x, with a plan in place to reduce it to the desired range. Strategic portfolio actions included divesting the railroad bridge services and phthalic anhydride businesses, contributing to a 10% annual sales decline as all reporting segments reported lower top-line results. Shareholder value is being prioritized through reduced capital spending, increased share buybacks, and consistent free cash flow generation as Koppers Holdings implements ongoing cost and operational efficiency initiatives toward achieving mid-teens EBITDA margins by 2028.

• Based on a recent Supreme Court ruling, management anticipates minimal impact from tariff changes, projecting little difference between the previous and new global tariff regimes.
• The company’s internal model projects flat organic volumes for residential wood products in the current fiscal year and low- to mid-single-digit volume growth in industrial products, particularly supported by rising utility pole demand tied to electric infrastructure expansion.
• Recent acquisition of a Douglas fir fiber procurement business positions Koppers Holdings to enter Western U.S. markets previously inaccessible due to limited fiber portfolio, supporting future top-line growth ambitions.
• Cost-reduction opportunities are being targeted in the Utility and Industrial Products segment, especially following the consolidation of Alabama manufacturing operations.
• The commercial crosstie order backlog reached its highest level since 2017 as of January, signaling potential volume stabilization despite overall market competitive pressure.

INDUSTRY GLOSSARY

• KJCC: Koppers (Jiangsu) Carbon Chemical Company, the company’s now-divested former Chinese joint venture included for comparability in historical results.
• RUPS: Railroad and Utility Products and Services segment, including procurement and treatment of wood railroad ties, utility poles, and related engineering services.
• PC: Performance Chemicals, encompassing wood preservatives and fire-retardant chemical solutions.
• CM&C: Carbon Materials and Chemicals, involving production of creosote, carbon pitch, and other carbon compound feedstocks for aluminum, steel, and chemical markets.
• SG&A: Selling, general, and administrative expenses.
• Zero Harm: The company’s safety and environmental program focused on workplace injury reduction and environmental stewardship.
• LIRA: Leading Indicator of Remodeling Activity, a forecast metric for home renovation and repair spending.
• IEPA tariff: A specific import/export tariff referenced as vacated by a Supreme Court ruling, replaced by a 10% worldwide tariff.
• COMEX/LME: Commodity exchanges for copper pricing; COMEX (New York) and LME (London).
• Catalyst: Internal transformation initiative aimed at cost savings, operational efficiency, and strategic growth.

Full Conference Call Transcript

Quynh T. McGuire, Vice President of Investor Relations. Thanks, and good morning. Welcome to our fourth quarter and full year 2025 earnings conference call. You can access it via our website at www.koppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this call is being broadcast live on our website, and a recording of this call will be available on our website for replay through May 26, 2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on Slide 2.

Certain comments made on this conference call may be characterized as forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of assumptions, risks, and uncertainties, including risks described in the cautionary statement included in our press release and in the company's filings with the Securities and Exchange Commission. You should not regard the inclusion of such information, in light of the significant uncertainties inherent in the forward-looking statements, including the company's comments, as a representation that the objectives, plans, and projected results will be achieved. The company's actual results, performance, or achievements may differ materially from those expressed in or implied by such forward-looking statements.

The company assumes no obligation to update any forward-looking statements made during this call. Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website, also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy M. Ball, Chief Executive Officer of Koppers Holdings Inc., and Brad Pierce, Interim Chief Financial Officer and Chief Accounting Officer. At this time, I will turn the discussion over to Leroy.

Leroy M. Ball: Thank you, Quynh. Good morning, everyone. I am pleased to join you this morning to provide more insight on Koppers Holdings Inc. performance in 2025 and how we see 2026 developing based upon current information. So let me start on Page 4, which lists highlights for last year overall, which include adjusted EBITDA of $256,700,000 and a 13.7% adjusted EBITDA margin, the second highest year on record for both when you exclude KJCC, and on an as-reported basis a 13.7% adjusted EBITDA margin actually represents a new high watermark for Koppers Holdings Inc.

We reached operating profit of $167,800,000, also the second highest year on record, and operating cash flow of $122,500,000 for the seventh straight year of more than $100,000,000 in that category. Adjusted earnings per share were $4.07, marking the sixth consecutive year above $4 after never reaching that mark previously. In addition, we tapered back our capital expenditures to a normalized $55,000,000, enabling a heavier capital deployment allocation to shareholders. Facility pulp. UIP. And we still had $12,000,000 remaining to pay down debt. Early 2025, we launched our transformation process named Catalyst, which delivered $46,000,000 in benefits during the year. Catalyst helped to deliver EBITDA within 2% of prior year while our sales declined by 10%.

The conscious decisions to exit our phthalic anhydride business and sell our railroad structures business accounted for 4% of the overall sales decline, with the other 6% resulting from softer market conditions and some net loss of market share. Other benefits derived from Catalyst in 2025 include reducing our adjusted SG&A cost by 15%, driving it to a new all-time best for the second year in a row, and a 19.5% year-over-year improvement in our total recordable injury rate. We also generated $100,000,000 of cumulative free cash flow over that same time period while also reducing our employee count by 11% from year-end 2024, with 17% growth over the next three years.

With one year of Catalyst under our belt, I believe we are on track to reach our goals of double-digit adjusted EPS in a mid-teens margin run rate by 2028. To ensure that our leaders remain highly motivated to achieve those goals, earlier this year we set a new employment high watermark in April 2024. It is a true testament to our team and their leaders who persevered through a stressful environment in 2025 and never lost focus on what is most important, the health and safety of their colleagues. Congrats to the Koppers Holdings Inc. team on a tremendous accomplishment and for never losing sight of our goal of zero.

Turning now to Page 6, Koppers Holdings Inc. was named on Newsweek magazine's listing of America's Most Responsible Companies 2026, representing our sixth consecutive year on that list, based on key performance metrics that include environmental, social, and governance performance, financial results, and more. During the past year, we also earned recognition as one of America's Best Mid-Sized Companies of 2025 from Time magazine based on employee satisfaction, revenue growth, and sustainability transparency. Like Zero Harm, sustainability has been woven into the fabric of how we operate. Koppers Holdings Inc. has enabled us to punch above our weight in this area.

National recognition from organizations like Newsweek and Time helps lend credibility to our results, and while this alone will not win us business, it will most definitely be part of the overall decision-making process and maybe tip the scales in our favor when we are in a tight competitive situation. Kudos to the Koppers Holdings Inc. team for refusing to just check the box on Zero Harm and sustainability and instead making it a way of life at Koppers Holdings Inc.

I will return in a bit to provide my view on how we are seeing the current year within business while also reviewing our 2026 projections and give more flavor for our potential 2027 and 2028 as Catalyst hits peak acceleration. Before I turn things over to Brad Pierce, our Interim CFO and Chief Accounting Officer, I would like to take a moment to recognize Jimmi Sue Smith, who announced her retirement from Koppers Holdings Inc. earlier this year. Jimmi Sue joined Koppers Holdings Inc. as our VP of Finance and Treasurer mere weeks before the pandemic in 2020, was part of a leadership team that navigated the company through those trying times, and positioned us for success.

Relative to the prior-year quarter, RUPS sales decreased by $7,000,000, or 3%. As shown on Slide 9, PC sales were down $20,000,000, or 14%, and CM&C sales decreased by $17,000,000, or 15%. RUPS continued to be our largest segment. Full-year sales totaled $1,900,000,000, a 10% drop from prior-year sales of $2,100,000,000, with sales of $927,000,000, followed by PC with sales of $544,000,000, and CM&C with sales of $409,000,000. Each segment was lower as compared to the prior year. I will now turn the call over to Brad Pierce.

Brad Pierce: Full-year adjusted EBITDA results, as seen on Slide 11, were $257,000,000, reflecting a 13.7% margin. RUPS adjusted EBITDA was $108,000,000, returning a 12% margin, while PC delivered adjusted EBITDA of $103,000,000, a 19% margin. CM&C adjusted EBITDA totaled $46,000,000, resulting in an 11% margin. Focusing on the RUPS business, Slide 12 shows fourth quarter sales of $209,000,000 compared with $216,000,000 in the prior-year quarter. The decrease in sales was due in part to the sale of our railroad bridge services business earlier this year and lower activity in the maintenance-of-way businesses. Approximately $5,000,000 of the decrease in sales was due to lower volumes of commercial crossties.

These were partly offset by volume increases in our domestic utility pole business of around 10% and $4,000,000 of price increases, mostly in crossties. RUPS delivered improved adjusted EBITDA of $22,000,000 compared with $18,000,000 in the prior year. The improved profitability was primarily driven by approximately $7,000,000 in lower operating expenses, coupled with decreased SG&A costs and net sale price increases, partly offset by net lower sales volume. Turning to Slide 13, our Performance Chemicals business reported fourth quarter sales of $128,000,000, down from $148,000,000 in the prior-year quarter. Adjusted EBITDA for PC was $28,000,000, just below the $29,000,000 of adjusted EBITDA in the prior-year quarter.

While profitability was impacted by lower sales volumes, it was largely offset by lower raw material costs net of our copper hedging program, lower logistics costs, and higher royalty income. Slide 14 shows that sales in the fourth quarter for our CM&C business were $96,000,000 compared to $114,000,000 in the prior-year quarter. This decrease was primarily driven by $17,000,000 of lower volumes related to our discontinued anhydride product line, lower volumes and sales prices for carbon black feedstock, and a 7% reduction in prices globally for carbon pitch. These were partly offset by volume increases in carbon pitch and operating cost savings associated with discontinuing our phthalic anhydride business.

Compared with 2024, the average pricing of major products was lower by 4%, while average coal tar costs were higher by 10%, which led to lower EBITDA margins. In terms of investments to position ourselves for the future, as shown on Slide 16, we continue to pursue a balanced approach to capital allocation. Approximately $48,000,000 was allocated for capital expenditures, net of cash received from insurance proceeds and asset sales. Dollars $12,000,000 was related to the termination of our U.S. pension plan. Dollars $21,000,000 was earmarked for the acquisition of the utility pole procurement business. Our share buyback activity in 2025 totaled approximately $38,000,000, or a total of just under 1,300,000 shares.

We have approximately $67,000,000 remaining on our $100,000,000 repurchase authorization. At December 31, we had $383,000,000 in available liquidity and $881,000,000 of net debt, representing a net leverage ratio of 3.4 times. We remain focused on our long-term goal of reducing the net leverage ratio to 2 to 3 times. Total capital expenditures for the year were $55,000,000 gross, or $48,000,000 net of asset sales and insurance recoveries. The majority of our investment spending was allocated to maintenance capital spending, Zero Harm initiatives, and growth and productivity projects, each totaling less than $6,000,000. We also announced a quarterly cash dividend of $0.09 per share of Koppers Holdings Inc. common stock, reflecting a 13% increase from 2025.

This dividend will be paid on March 23 to shareholders of record as of the close of trading on March 6. While future dividends are subject to ongoing Board approval, maintaining a quarterly dividend at this rate will result in an annual dividend of $0.36 per share for 2026. With that, I will turn it back over to Leroy.

Leroy M. Ball: Thanks, Brad. Before I dive into each of the businesses, I would like to provide our perspective on the recent Supreme Court ruling which vacated tariffs under IEPA. Prior to the ruling, we were estimating a tariff impact on our business of around 5%, or $6,000,000, in 2026. Removing the IE tariff and replacing it with a worldwide tariff of 10% essentially has little impact. A large component of our Catalyst initiatives for PC centered around converting commercial opportunities that we knew were in play coming into 2026 as new business. We realized success on a number of accounts, refocusing our attention on serving the customer while also demonstrating the value of our R&D and tech service capabilities.

Moving to the external market data, we interpret market sentiment as neutral to slightly positive for 2026, with our internal models reflecting overall flat market demand. In addition, our PC team continues to be focused on commercializing the next generation of reduced-copper wood preservatives and in-demand fire retardants to convert a portion of business to new technology. Existing home sales in 2025 were flat compared to 2024, and while a fourth quarter upswing gave some hope, the average mortgage rate fluctuated between 6.2% and 6.3% in the fourth quarter, down from earlier in the year.

The rates are currently at about 6% and expected to moderate slightly in the near term, although that is not expected to have a meaningful impact on the housing market. The Leading Indicator of Remodeling Activity, or LIRA, is forecasting growth in home renovation and repair spending of 2.9% in early 2026 and eventually easing to 1.6% growth by the fourth quarter. Building product sentiment remains neutral, with cautious optimism in select commercial and infrastructure segments. Listening to our customer base, it seems the disappointment of 2025 is still fresh in their minds, and so they are reluctant to build in any significant rebound until they can get clearer signals.

Our model for 2026 has flat organic volumes for residential products, with a modest low- to mid-single-digit volume increase expected for our industrial products segment, driven by growth in utility pole demand. On the cost side of the equation, excluding tariffs, we are expecting a mix of increases and decreases in our raw materials to mostly balance out and have little impact. Copper prices have continued their steady rise over the past year and currently are 25% higher than average prices for 2025. Because of our hedging strategy, we are mostly insulated from the increase at current price levels, assuming scrap copper pricing continues to behave as it historically has.

The price separation between the LME and COMEX indices that we discussed last year has not been an issue recently, but changes in the tariff environment could see this return. In the meantime, we continue to work to manage this risk. If the copper markets do not abate as we enter into contract discussions later in 2026, current prices would represent a $50,000,000 pricing pass-through necessary to account for the increased copper costs. The Catalyst benefits for Performance Chemicals targeted in 2026 are mostly commercially driven and are already secured. Moving on to our Utility and Industrial Products business, shown on Page 21, market sentiment remains bullish mainly due to increasing electrical demand related to build-out of AI infrastructure.

In addition, it is anticipated that crypto mining, EV development, and new manufacturing will contribute to increased electrical demand over the next five years. Utilities are being pressured to limit price increases resulting from higher demand, and data centers owned and operated by large tech companies are expected to be required to share the resulting cost burden. We entered 2025 with a clear objective to grow our business outside of our traditional regional markets in the U.S., and we were able to do that, growing our nontraditional markets by 17% on the top line while keeping our core regional markets flat, which resulted in an overall 6% sales increase compared to our flat outlook.

And we are targeting an even greater top-line performance in 2026, driven once again by growth in targeted regions, added sales from the pole procurement acquisition made in late 2025, and a modest organic market improvement after lower-than-expected growth last year. In 2025, we made investments in our distribution assets, fiber supply, technology platform, and sales team, including adding new sales leadership, that in 2026 we believe position us as a formidable competitor on new accounts. As to the acquisition I referenced, in December we acquired a small business specializing in the procurement of Douglas fir fiber, which is traditionally used for transmission poles. This transaction represents a lower-cost, lower-risk approach to securing a new critical supply chain.

And to quell any worries that we would spend significant amounts of capital in the hopes of future business, it represents our next step in building out our portfolio in a measured way. It is important for solidifying opportunities to grow our sales base by adding to the wood species in our portfolio, opening doors in existing markets while also providing a platform to potentially build from as we think further about the Western markets where we have historically been shut out due to not having that wood species in our portfolio.

While sales showed modest gains in 2025, we took a step back on our cost management in UIP last year, and that makes this business ripe for the planning and execution discipline that Catalyst fosters. Opportunity abounds on the cost front in UIP, and we will be going after it hard in 2026. Of the improvement targeted for UIP in 2026, over three-quarters of it is cost-related. Part of the cost improvements relate to a consolidation of production resulting from the recent idling of our plant in Vance, Alabama. That production has moved to our nearby facility in Kennedy, Alabama, which will realize the benefits of improved cost absorption.

Vance will remain in our network but not operate as we continue to monitor our long-term manufacturing requirements in this important growth market. The market outlook for our Railroad Products and Services business is summarized on Page 22. Railroad industry consolidation continues to impact market trends and the pressure to improve operating performance, resulting in reduced capital spending requirements communicated to us heading into the calendar year as they pull back on their tie programs. As mentioned on prior calls, for the second straight year, our railroad customer base reduced their forecasted volumes by our customers.

Thankfully, this past year we were able to balance out the lower-than-anticipated volumes with some aggressive cost actions, improving our profitability in this business to a level not seen in a decade. And as we approach customer discussions for 2026, two Class I customers indicated an additional pullback in volume for this year, which would have a significant impact on our RPS profitability without some counteraction.

We believe we have been able to primarily offset that impact in 2026 by agreeing to provide price relief for one customer as well as an extension of our current agreement while receiving a larger contractual commitment, also mitigating the impact of lower volume from a second customer by idling production capacity and consolidating operations across our remaining treating network. As mentioned earlier, the commercial crosstie market remains very competitive, but we continue to make inroads there and, as of January, have the highest backlog that we have had since 2017.

A lot has been going on with the Class I customer base, but the main point for our shareholders is that much of the benefit has been derived by doing more with less. With 38, or 7%, fewer people than where we ended 2024, in 2025 we had 1% more in crosstie sales than 2024, and we are looking to maintain the gains we have made over the past eighteen months heading into 2026. In the crosstie portion of our business, we are down by 105 people, or 16%, compared to our peak employment.

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