Koppers Holdings, Inc. 2026 Q2 Earnings Call

Please go ahead. Thanks. Good morning.

I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our second quarter 2026 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com. As indicated in our announcement, we've 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 is being broadcast live on our website, and a recording of this call will be available on our website for replay through September 6th, 2026. At this time, I would like to direct your attention to our forward-looking disclosure statement seen on slide two. 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. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard inclusion of such information as a representation that its 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 Ball, Chief Executive Officer and Chair of Koppers, and Eric Brenner, Chief Financial Officer and Treasurer. At this time, I'll turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. Thank you for joining us today. The second quarter represented another important step forward in the execution of our transformation strategy. During the quarter, we continued to drive significant cash generation, improve our operating footprint, and advance several initiatives that we believe will create meaningful shareholder value over the long term. Most notably, in May, we announced the decision to discontinue distillation and chemical operations at our Stickney facility and transition those activities to our Nyborg, Denmark facility, as referenced on page four. Since then, we completed several significant milestones in the project, and we're now accelerating the closure by a quarter with a new target date of September 30, 2026 for the end of distillation activity at Stickney. This action contributed to significant non-cash charges in the quarter that impacted our reported net loss in GAAP earnings per share.

This action represents exactly the type of difficult but disciplined decision required to optimize our asset network and improve the long-term earnings power of the company. We continue to expect this initiative to generate annual adjusted EBITDA benefits of approximately $15 million-$20 million, improve adjusted earnings per share by roughly $1-$1.20 per share annually, and reduce annual capital spending requirements going forward. Let's now move to page five, which outlines our results for the second quarter, including adjusted EBITDA of $71 million, a 13.7% adjusted EBITDA margin, and $1.37 in adjusted earnings per share. Second quarter sales were $520 million, an increase of 3% compared with the prior year, led by volume growth in our Performance Chemicals and utility pole businesses. While we were pleased with our top-line performance, profitability was impacted by a challenging cost environment throughout the quarter.

Coal tar costs increased approximately 12% year-over-year and 15% sequentially, while freight and logistics expenses also moved higher as energy markets and transportation networks remained volatile. These pressures were most pronounced within our Carbon Materials and Chemicals business and portions of our Railroad and Utility Products and Services segment. As we've discussed previously, there's often a timing lag between when these cost increases are incurred and when they are fully recovered through contractual mechanisms, pricing actions, and product mix improvements. We're actively working with customers across our portfolio to recover these higher costs and have historically demonstrated our ability to do so over time. Despite these headwinds, our teams remain focused on execution. Through productivity initiatives, network optimization efforts, and disciplined cost management, we were able to offset a meaningful portion of the inflationary pressure and deliver adjusted EBITDA of $71 million during the quarter.

Our focus on cash generation continued to produce meaningful results. Operating cash flow for the first six months of the year was a record $96 million, compared with $28 million in the prior year period. Free cash flow for the same period totaled a record $73 million, demonstrating the benefits of our inventory alignment efforts and operational improvements across the organization. Our capital allocation priorities remain unchanged. We're continuing to invest in the business, reduce debt levels, and return capital to shareholders. During the first half of the year, we returned $47 million to our shareholders through share repurchases and our dividend program, while also reducing debt by $22 million. We believe the actions we're taking today better position Koppers to deliver stronger returns and create long-term value for shareholders.

To further support these efforts, we're implementing a realignment of roles and responsibilities among our leadership team to further enhance our performance and culture. Effective September 1st, Stephanie Apostolou will be taking on the role of Chief Legal and Strategy Officer, adding oversight of Catalyst, our transformation office, to her responsibilities in order to strengthen the link between strategy and execution. Coinciding with that change, Jim Sullivan is shifting his focus from our broader enterprise-wide transformation efforts to more specifically owning the restructuring and transformation efforts of CMC. While Christian Nilsson remains the global leader of CMC and running the day-to-day operations, Jim will own oversight of the Stickney closure, disposition of the remaining Stickney assets, and sourcing, evaluation, and recommendation of our options to reduce our risk and exposure in the CMC markets.

These changes in our operating model will ensure that we're better aligned to execute our strategy, operate more effectively as one enterprise, and strengthen overall performance across the organization. Our broader outlook for the business remains intact. The essential infrastructure markets we serve continue to benefit from long-term replacement and maintenance cycles, and our in-flight transformation initiatives continue to improve the quality, profitability, and cash generation characteristics of our portfolio. While demand remains uneven across certain end markets, we are encouraged by the momentum in markets served by Performance Chemicals, the strength of utility infrastructure demand, and the progress we're making against our Catalyst transformation objectives. We remain committed to our long-term targets of generating greater than 10% adjusted EPS CAGR, more than $300 million of cumulative free cash flow through 2028, and taking the company to a sustainable mid-teens EBITDA margin profile.

I want to thank our employees around the world for their continued commitment to safety, operational excellence, and customer service. As seen on page six, 22 of our 40 operating locations worked injury-free in the second quarter, and we remain committed to our zero-harm vision as the foundation of everything we do. Turning to page eight, we issued our 2025 corporate sustainability report detailing the company's progress in advancing its sustainability goals and introducing the framework for our refreshed 2030 sustainability strategy, focusing on people, climate and energy, products, and supply chain. The Koppers team has embedded sustainability into our culture and core business processes, enabling us to better respond to changing market dynamics and customer expectations while supporting long-term resilience amid our continued evolution. For more information, please use the QR code to access this report.

Shown on page nine, Koppers gained additional recognition by being named to TIME Magazine's listing of America's Best Companies for 2026. Moving on to page 10, Koppers will be hosting an Investor Day on Thursday, September 17th in Atlanta. Please mark your calendars and plan to join us for our Investor Day and related activities. I'll return in a bit to provide my view on how we're seeing the current year within each business, while also reviewing our outlook for the remainder of 2026. First, I'd like to formally introduce our new Chief Financial Officer and Treasurer, Eric Brenner, who joined Koppers in late May. Eric has extensive experience in the chemicals and manufacturing sectors, combined with his proven ability to drive capital deployment, operational excellence, and strategic transformation. Please join me in welcoming Eric to the Koppers team.

I will turn the call over to him to speak in more detail on our second quarter financial performance.