Koppers Holdings Inc.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 10:05

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report and any documents incorporated herein by reference contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels, acquisitions, restructuring, declines in the value of Koppers assets and the effect of any related impairment charges, profitability and anticipated synergies, expenses and cash outflows. All forward-looking statements involve risks and uncertainties. All statements contained herein that are not clearly historical in nature are forward-looking, and words such as "outlook," "guidance," "forecast," "believe," "anticipate," "expect," "estimate," "may," "will," "should," "continue," "plan," "potential," "intend," "likely," or other similar words or phrases are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in press releases, written statements or documents filed with the Securities and Exchange Commission, regarding future dividends, expectations with respect to sales, earnings, cash flows, operating efficiencies, restructurings, cost reduction efforts, transformation initiatives, product introductions or expansions, the benefits of acquisitions and divestitures, or other matters as well as financings and debt reduction, are subject to known and unknown risks, uncertainties and contingencies. Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that might affect such forward-looking statements, include, among other things, availability of and fluctuations in the prices of key raw materials, including coal tar, lumber and scrap copper; the impact of changes in commodity prices, such as oil, copper and chemicals, on product margins; the successful implementation of multi-year cost mitigation programs; the extent of the dependence of certain of our businesses on certain market sectors and customers; economic, political and environmental conditions in international markets, including governmental changes, tariffs, restrictions on trade and restrictions on the ability to transfer capital across countries; geopolitical events (including the current war in the Middle East); current and potential future tariffs or duties; the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures; our ability to operate within the limitations of our debt covenants; capital market and banking market conditions, including interest rates, borrowing costs, foreign currency rate fluctuations, and general volatility; general economic and business conditions, including labor shortages, increased employee turnover and demand for our goods and services; disruptions and inefficiencies in the supply chain; unexpected business disruptions (including, but not limited to, labor disputes, natural disasters, weather conditions, fires, explosions, unscheduled or unplanned downtime, transportation interruptions, certain regional and world events or economic conditions and public health crises) and technology-related disruptions or failures (including, but not limited to, cyber attacks or other events) related to our technology infrastructure, or at key vendors which could impact our supply chain, or at key customers which could impact their operations and cause them to curtail or pause orders; potential difficulties in protecting our intellectual property; potential delays in timing or changes to expected benefits from cost reduction efforts; timing and results of any transformation initiatives, including estimates and assumptions related to the cost and the anticipated benefits of the transformation initiatives; potential impairment of our goodwill and/or long-lived assets; demand for our goods and services; the effects of competition in the industries in which we operate, including locations of competitors and operating and market competition; changes in laws, their interpretation, and their enforcement, including tax regulations, environmental regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulators and governmental bodies; the impact of environmental laws and regulations and compliance therewith; parties who are obligated to indemnify us for liabilities, including legal and environmental liabilities, fail to perform under their legal obligations; and unfavorable resolution of litigation or other legal proceedings against us, as well as those discussed more fully elsewhere in this report and in documents filed with the Securities and Exchange Commission by Koppers, particularly our latest annual report on Form 10-K and subsequent filings. We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report and the documents incorporated by reference herein may not in fact occur. Any forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and related notes included in Item 1 of this Part I as well as the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2025.
Overview
We are a leading integrated global provider of treated wood products, wood preservation chemicals and carbon compounds. Our products and services are used in a variety of niche applications in a diverse range of end-markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber and construction industries. We serve our customers through a comprehensive global manufacturing and distribution network, with manufacturing capabilities in North America, South America, Australasia and Europe. We operate three principal businesses: RUPS, PC and CMC.
Through our RUPS business, we believe that we are the largest supplier of railroad crossties to the Class I railroads in North America and the second largest producer of utility poles in the United States. Our utility poles are used in the electric, telephone, and broadband industries in the United States and Australia and construction pilings in the United States. In addition, we provide untreated wood products and rail joint bars to the railroad markets and inspection services to the utility markets. We also operate a business related to the recovery of used crossties, serving the same customer base as our North American railroad business.
Through our PC business, we believe that we are the global leader in developing, manufacturing and marketing wood preservation chemicals and wood treatment technologies for use in the pressure treating of lumber for residential, industrial and agricultural applications.
Our CMC business processes coal tar into a variety of products, including creosote, carbon pitch, carbon black feedstock and naphthalene, which are intermediate materials necessary in the pressure treatment of wood, and the production of aluminum, steel, carbon black and high-strength concrete.
Non-GAAP Financial Measures
We utilize certain financial measures that are not in accordance with U.S. GAAP to analyze and manage the performance of our business. We believe that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, our business and performance trends, and facilitates comparisons between periods. The exclusion of certain items permits evaluation and a comparison between periods of results for business operations, and it is on this basis that our management internally assesses our performance. Adjusted EBITDA is the measure of profitability we use to evaluate our businesses. In addition, adjusted EBITDA is the primary measure used to determine the level of achievement of management's short-term incentive goals and related payout, as well as one of the measures used to determine performance and related payouts for certain performance share units granted to management prior to 2026.
Adjusted EBITDA is a non-GAAP financial measure defined as income before interest expense, income taxes, depreciation, amortization and other adjustments. These other adjustments are items that we believe are not representative of underlying business performance. Adjusted items typically include LIFO inventory effects, impairment, restructuring and plant closure costs, significant gains and losses on asset disposals or business combinations, mark-to-market commodity hedging, acquisition-related charges, cloud-computing amortization expenses and other unusual items. The LIFO expense adjustment removes the entire impact of LIFO and effectively reflects the results as if we were on a FIFO inventory basis. An adjusted EBITDA reconciliation is presented in the Segment Results section and reconciles net income to adjusted EBITDA on a consolidated basis.
Although we believe adjusted EBITDA enhances investors' understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP financial measures and should be read in conjunction with the relevant GAAP financial measures. Other companies in a similar industry may define or calculate this measure differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, this non-GAAP financial measure should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
Outlook
Forward-looking statements, including the significant market indicators described below, are based upon current expectations and are subject to factors that could cause actual results to differ materially from those set forth below. Please see the "forward-looking statements" disclaimer in the above section for more information.
After considering the current intensely competitive environment, global economic conditions, as well as ongoing uncertainty associated with geopolitical and supply chain challenges, we commenced taking measures to streamline our organization to support an increasingly cost-conscious customer base. These actions, some of which are one-time savings and some of which are expected to be permanent savings, are intended to ensure that we grow our profitability and support a higher margin profile by leveraging a smaller global team highly focused on serving customer preferences. Through the planning phase that occurred throughout 2025, we believe we have identified actionable transformation initiatives to position Koppers for future success, creating a roadmap to reshape our company into a higher earning, higher margin, higher free cash flow and higher return on capital business over the next three years. These initiatives impact all facets of the organization and are focused on growing the more profitable businesses while continuing to selectively scale back our lower margin, capital intensive business. We believe this will grow earnings per share, lower our maintenance and capital requirements and consistently generate higher margins.
Significant areas of focus include:
•For our RUPS segment, our focus is to continue to (i) recoup cost increases, including the value of our creosote preservative in the market, (ii) maximize opportunities for increased volumes, including expanding our customer base in the midwestern and western utility pole markets and (iii) optimizing our network to better align capacity with demand and reduce operating costs.
•For our PC segment, our focus is to continue to (i) acquire new customers and grow organic market share in our residential preservatives markets, (ii) expand market share in our industrial preservatives markets and (iii) align and improve our cost structure.
•For our CMC segment, our focus is to continue to (i) execute on domestic plant restructuring projects including the closure of our Stickney, Illinois coal tar distillation plant by the end of 2026 (see Note 13), (ii) optimize and develop markets for enhanced carbon products and (iii) develop and implement global tar and pitch strategies to mitigate expected raw material cost increases.
Significant market indicators for our businesses include:
•The Railway Tie Association's estimate of total crosstie purchases in 2026 is approximately 19.9 million ties, with approximately 13.4 million for Class I railroads, which is comparable to the 2025 estimate of crosstie purchases. Over the past few years, North American demand for crossties has been in the range of 18 million to 22 million crossties annually. We expect the crosstie market to remain stable and within this range. However, volumes for our business in any year can be affected by individual customer demands, logistics and business conditions.
•Market demand for utility poles is expected to grow over the next few years. The main driver for growth is the construction of data centers that support artificial intelligence development. The data centers that are being constructed nationwide consume large amounts of electricity. Other drivers of pole demand include aging pole infrastructure, the expansion of renewable energy, vehicle electrification, grid-hardening measures, and extreme weather protection. Our Utility Products business continues to focus on expanding its presence in the midwestern and western United States.
•Product demand for our PC business has historically been associated with consumer spending on home repair and remodeling projects in North America. The Leading Indicator of Remodeling Activity (LIRA) reported by the Joint Center for Housing Studies of Harvard University projects that year-over-year spending for annual homeowner renovation and maintenance expenditures is expected to grow by 2.1 percent in the middle of 2026 before easing to 1.6 percent by the end of 2026. Our PC business expects higher volumes through market share growth and acquiring new customers supported by the LIRA projections.
•For the external markets served by our CMC business, we have experienced a slowdown in manufacturing overall as well as in the steel, aluminum and carbon black industries. The availability of coal tar, the primary raw material for our CMC business, is linked to levels of metallurgical coke production. As the global steel industry, excluding Asia, has reduced the production of steel using metallurgical coke, the volumes of coal tar have been reduced. We are actively working to mitigate the impacts of the long-term decline of coal tar supply by gaining market acceptance for petroleum-blended products. We are also investing in projects to increase distillation yields and balance raw material supply and cost with customer demand and pricing.
Our businesses and results of operations are affected by various competitive and other factors including (i) the impact of global economic conditions on demand for our products, including the impact of imported products from competitors in certain regions where we operate as well as tariffs and international trade policy; (ii) raw material pricing and availability, in particular the cost and availability of hardwood lumber for railroad crossties, softwood lumber for utility poles, scrap copper prices, and the cost and amount of coal tar available in global markets, which is negatively affected by reductions in blast furnace steel production; (iii) volatility in oil prices, which impacts the cost of coal tar and certain other raw materials, as well as selling prices and margins for certain of our products including carbon black feedstock and naphthalene; (iv) competitive conditions in our performance chemicals business and global carbon pitch markets; (v) the effectiveness of our commodity hedging programs; (vi) changes in foreign exchange rates; and (vii) the other factors set forth in the "forward-looking statements" disclaimer. Any or all of these or other factors, including those set forth in our Annual Report on Form 10-K, could impact our actual results for 2026.
Trade Tariff Uncertainties
Our outlook reflects plans to substantially offset costs related to import and export tariffs, where possible, but there is continued uncertainty regarding the implementation dates and scope of potential additional tariffs, as well as potential retaliatory trade policy. As a result of these items, our outlook may vary. See also Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2025.
Seasonality and Effects of Weather on Operations
Our quarterly operating results fluctuate due to a variety of factors that are outside of our control, including inclement weather conditions, which in the past have affected operating results. Operations at some of our facilities have at times been reduced during the winter months. Moreover, demand for some of our products declines during periods of inclement weather. As a result of the foregoing, we anticipate that we may experience material fluctuations in quarterly operating results. Historically, our operating results have been significantly lower in the first and fourth calendar quarters as compared to the second and third calendar quarters.
Results of Operations - Comparison of Three Months Ended March 31, 2026 and 2025
Consolidated Results
Three Months Ended March 31,
2026 2025 Change % Change
(Dollars in millions)
Net sales:
Railroad and Utility Products and Services $ 220.0 $ 235.0 $ (15.0) (6.4) %
Performance Chemicals 142.1 120.9 21.2 17.5 %
Carbon Materials and Chemicals 93.2 100.6 (7.4) (7.4) %
Total $ 455.3 $ 456.5 $ (1.2) (0.3) %
RUPS net sales decreased due to customer mix in our Class I crosstie business, lower activity in our maintenance-of-way businesses, including approximately $9.6 million related to the sale of our railroad services business during the third quarter of 2025, and price decreases across multiple markets, particularly for crossties. These decreases were partly offset by increased volumes in our domestic utility pole business, including our acquisition of a western U.S. pole procurement business, and higher volumes in our commercial crosstie business. Foreign currency changes had a favorable impact on sales in the current year period of $1.4 million compared to the prior year period, mainly from our Australian utility pole business.
PC net sales increased due to a 15 percent volume increase along with higher sales prices, in each case, primarily in the Americas. Foreign currency changes from our international markets had a favorable impact on sales in the current year period of $2.7 million compared to the prior year period.
CMC net sales decreased mainly due to lower phthalic anhydride volumes of $13.9 million as we ceased production of the product in the second quarter of 2025 and lower sales prices across most products, especially carbon pitch where prices were down approximately nine percent globally driven by market dynamics. These decreases were partly offset by volume increases for carbon pitch, naphthalene and carbon black feedstock. Foreign currency changes from our international markets had a favorable impact on sales in the current year period of $7.6 million compared to the prior year period.
Cost of sales as a percentage of net sales was 81 percent, compared to 77 percent in the prior year period as higher raw material and operating expenses combined with lower sales prices. Significant items impacting cost of sales in individual operating segments are discussed as part of "Segment Results" herein.
Depreciation and amortization expenses were $1.4 million higher when compared to the prior year period primarily as a result of depreciation on recent capital expenditures as well as higher asset retirement obligations in our European CMC operations.
Impairment and restructuring charges in the current year period represent costs associated with the decision to idle two plants in our RUPS business, consulting services related to our comprehensive assessment of our businesses and discontinuing phthalic anhydride production at our facility in Stickney, Illinois. In the prior year period, it also includes our workforce reduction program across selected U.S. locations to streamline operations and reduce costs. See Note 2 - Restructuring.
(Gain) on sale of assets for the three months ended March 31, 2026 was primarily related to the liquidation of KCCC.
Interest expense was $1.6 million lower when compared to the prior year period due to lower interest rates and lower borrowings.
Loss on pension settlement in the prior year period represents the settlement loss recorded as a result of the termination of our United States qualified pension plan as discussed in Note 10 - Pensions and Post-Retirement Benefit Plans.
Income tax expense increased by $4.1 million when compared to the prior year period due primarily to higher income before income taxes. See Note 8 - Income Taxes.
Segment Results
Three Months Ended March 31,
2026 2025 Change % Change
(Dollars in millions)
Adjusted EBITDA:
Railroad and Utility Products and Services $ 22.6 $ 25.5 $ (2.9) (11.4) %
Performance Chemicals 25.8 20.1 5.7 28.4 %
Carbon Materials and Chemicals 0.9 9.9 (9.0) (90.9) %
Total $ 49.3 $ 55.5 $ (6.2) (11.2) %
Adjusted EBITDA margin as a percentage of GAAP sales:
Railroad and Utility Products and Services 10.3 % 10.9 % (0.6) % (5.5) %
Performance Chemicals 18.2 % 16.6 % 1.6 % 9.6 %
Carbon Materials and Chemicals 1.0 % 9.8 % (8.8) % (89.8) %
RUPS adjusted EBITDA decreased due primarily to lower net sales prices, lower sales volumes and lower activity in our maintenance-of-way businesses, including approximately $0.6 million related to the sale of our railroad services business during the third quarter of 2025.
PC adjusted EBITDA increased due primarily to higher sales volumes and prices, partly offset by $2.4 million of higher raw material and operating costs. Higher raw material costs were unfavorably impacted by scrap copper costs, net of the benefit realized from our copper-hedging program.
CMC adjusted EBITDA decreased due to lower sales prices as well as higher operating and raw material costs. These decreases were partly offset by the operating cost savings from discontinuing phthalic anhydride production at our facility in Stickney, Illinois.
Adjusted EBITDA Reconciliation. The following table reconciles net income to adjusted EBITDA on a consolidated basis:
Three Months Ended
March 31,
2026 2025
(Dollars in millions)
Net income (loss) $ 7.1 $ (13.9)
Interest expense 15.0 16.6
Depreciation and amortization 19.4 18.0
Income tax provision (benefit) 0.8 (3.3)
Sub-total 42.3 17.4
Adjustments to arrive at adjusted EBITDA:
Acquisition inventory step-up amortization 0.3 0.0
Amortization of cloud-based software implementation costs 0.5 0.3
(Gain) on sale of assets (4.3) (0.3)
Impairment, restructuring and plant closure costs(1)
7.8 20.0
LIFO benefit(2)
(1.2) (1.8)
Mark-to-market commodity hedging losses (gains) 3.9 (9.1)
Pension settlement and expense 0.0 29.0
Total adjustments 7.0 38.1
Adjusted EBITDA $ 49.3 $ 55.5
(1)See Note 2 - Restructuring.
(2)The LIFO expense adjustment removes the entire impact of LIFO and effectively reflects the results as if we were on a FIFO inventory basis.
Cash Flow
Net cash provided by operating activities for the three months ended March 31, 2026 was $46.3 million compared to net cash used in operating activities of $22.7 million in the prior year. For both periods, the primary source of cash was net income, excluding non-cash items, principally depreciation and in 2025, the pension settlement loss. Working capital usage improved in the current year primarily as a result of the timing of receipts and payments as well as a reduction in inventory. Additionally, in 2025, working capital was negatively impacted by pension funding of approximately $14 million in connection with the settlement.
Net cash used in investing activities for the three months ended March 31, 2026 was $10.5 million compared to $17.6 million in the prior year. The decrease was due primarily to cash paid in 2025 for a land transfer associated with our agreement to liquidate KCCC.
Net cash used in financing activities for the three months ended March 31, 2026 was $31.0 million compared to net cash provided by financing activities of $28.7 million in the prior year. In the current year, the primary uses of financing cash flows were repurchases of common stock, including payments related to taxes withheld under stock-based compensation plans, and dividends. In the prior year, the primary source of financing cash flows was net borrowings of $49.1 million and the primary uses of financing cash flows in the prior year were repurchases of common stock, including payments related to taxes withheld under stock-based compensation plans, and dividends.
Liquidity and Capital Resources
As of March 31, 2026, liquidity from our Credit Facility and cash on hand was approximately $386 million. Our Credit Facility is described in Note 11 - Debt.
Our need for cash in the next twelve months relates primarily to contractual obligations which include debt service, purchase commitments and operating leases, as well as working capital, capital spending, dividends, share repurchases and plant consolidations and closure. We may also use cash to pursue other potential strategic acquisitions. Capital expenditures in 2026, excluding acquisitions, if any, are expected to total approximately $55 million and are expected to be funded by cash from operations. We anticipate that our liquidity will continue to be adequate to fund our cash requirements for at least the next twelve months.
We manage our working capital to increase our flexibility to pay down debt. The amount of our outstanding debt and our overall cash flows will fluctuate throughout any operating period based upon, among other things, the timing of receipts from customers and payments to vendors. As of March 31, 2026, approximately 85 percent of accounts payable was current and 15 percent was 1-30 days past due. As of December 31, 2025, approximately 95 percent of accounts payable was current and 5 percent was 1-30 days past due.
Restrictions on Dividends to Koppers Holdings Inc.
Koppers Holdings Inc. depends on the dividends from the earnings of Koppers Inc. and its subsidiaries to generate the funds necessary to meet its financial obligations, including the payment of any declared dividend of Koppers Holdings Inc. The Credit Facility permits Koppers Inc. to make dividend payments to Koppers Holdings Inc. if certain conditions are met, including, among other permitted dividend payments, the ability to fund the payment of regularly scheduled dividends on Koppers Holdings Inc. common stock and repurchases of Koppers Holdings Inc. common stock, in an aggregate amount per fiscal year not to exceed the greater of $50.0 million, with unused amounts in any fiscal year being carried over to the succeeding fiscal year, and 6.0 percent of market capitalization.
Bank Debt Covenants
The bank debt covenants that affect availability of the Credit Facility and which may restrict the ability of Koppers Inc. to pay dividends include the following financial ratios:
•The total net leverage ratio is calculated as of the last day of each fiscal quarter in accordance with the Credit Facility definitions of consolidated total net debt divided by consolidated EBITDA and is not permitted to exceed 4.75. The total net leverage ratio as of March 31, 2026 was 3.4.
•The cash interest coverage ratio, calculated as of the last day of each fiscal quarter, is not permitted to be less than 2.0. The cash interest coverage ratio as of March 31, 2026 was 4.4.
We are currently in compliance with all covenants governing the Credit Facility. Our continued ability to meet these financial covenants may be affected by events beyond our control.
Legal Matters
The information set forth in Note 12 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference.
Recently Issued Accounting Guidance
The information set forth in Note 1 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference.
Critical Accounting Policies
There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
Environmental and Other Matters
The information set forth in Note 12 to the Condensed Consolidated Financial Statements of Koppers Holdings Inc. included in Item 1 of this Part I is incorporated herein by reference.
Koppers Holdings Inc. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 08, 2026 at 16:05 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]