Koppers Holdings Inc. (KOP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Koppers' April 2020 Business Update. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Quynh McGuire. Please go ahead.

Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our April 2020 business update where we will provide commentary on our operations, customer and market trends and sales by business segment. We issued a press release earlier today. You may access this announcement via our website at www.koppers.com. As indicated in our announcement, we have also posted materials to the Investor Relations page of the website that will be referenced in today's call. Consistent with our practice in prior conference calls with the investment community, this is being broadcast live on our website, and a recording of this call will be available on our website for replay through August 22, 2020. Before we get started, I would like to direct your attention to our forward-looking disclosure statement. 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 the 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. References may also be made today to certain non-GAAP financial measures. The company has provided with its press release, which is available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, President and CEO of Koppers; and Mike Zugay, Chief Financial Officer. I will now turn the call over to Leroy.

Thank you, Quynh. Welcome, everyone, to our first of a series of monthly business updates that we've instituted in response to the COVID-19 pandemic and the impact it has on our business and across the world. At Koppers, even with all the challenges, we have been fortunate in many ways during this unusual time. As shown on Slide 4 of our presentation, our designation as an essential business, along with much of our supply chain companies and end-user customer base, enables Koppers to continue to operate and provide essential products and services to our world. We help to maintain the nation's infrastructure, which supports public health, safety and security by keeping railroads running safely to deliver critical shipments of food and other supplies. We also help to keep homes and businesses powered to provide light, heat and digital connectivity by maintaining the utility pole network. We serve construction markets with products to maintain critical infrastructure through our chemical treatments, and our products help support needed repairs and extend the life of structures in homes and farms through our treated wood products. As an essential business, we continue to operate according to the appropriate guidelines set forth by U.S. Cybersecurity and Infrastructure Security Agency, or CISA, an agency of the Department of Homeland Security. On Slide 6, our crisis response continues to be focused on the following objectives: protect our employees through the rapid deployment of safety measures; protect our company's ability to continue operating to serve our customers with essential products and services; and preserve our reputation with stakeholders by communicating frequently and candidly on topics relevant to their interests. From a zero harm perspective, we continue to observe all previously mandated protocols around increased hygiene efforts and social distancing while also vigorously looking into technology solutions to help us limit and identify potential exposure. Speaking of technology, we've significantly expanded our technology-driven outreach efforts with the recent launch of our OneKoppers communication app. Our employees have embraced this platform and are actively exchanging information with each other while also providing support to colleagues struggling with how to cope with a significant and sudden change to their lives. The OneKoppers platform also provides an effective means to access and engage the Koppers leadership team. Earlier this month, we held our first-ever virtual Board of Directors Meeting, virtual Annual Meeting of Shareholders, virtual All-Employee Meeting and virtual Quarterly Leadership Meeting. A transition to virtual for these events went extremely well from a technology standpoint, which is a testament to our global IT team members led by Tushar Lovalekar. In terms of troubleshooting, our help desk team has had to handle extremely high volumes of requests from remote users, which have thankfully now shifted to a more steady levels as the early kinks were ironed out and employees adapted to their new work environments. All IT systems continue to be fully operational. During this pandemic, the use of technology has been instrumental in protecting our employees and just as important, connecting our organization at a time when we need it most. As highlighted on Slide 7, in recent weeks, more countries, states and regions are beginning to lift restrictions on businesses and individuals related to COVID-19. While we certainly welcome the movements back to full economic performance, this next phase also represents a fresh set of cautions regarding personal safety. Our employees on-site are required to continue practicing the enhanced safety and health practices that have been implemented. We have also encouraged those working remotely to continue to do so and for those that can't, have expanded capacity restrictions to more commonly used areas such as elevators, restrooms, meeting areas and hallways to increase social distancing protections. I'll provide some additional color on our office reentry plans a little later in this presentation. Regarding employee health and well-being on Slide 9, the impact on our employee population has been minimal, thankfully. To date, around 7% of employees have self-identified with symptoms and self-quarantined or have been tested, with less than 1% of the employee population still in self-quarantine. We still have had only one positive COVID-19 diagnosis, with that individual having recovered and returned to work. We believe that our zero harm protocols that have been ingrained in our employees has had them take the elevated practices to heart. Treating the coronavirus is another exposure they can work safely around if they remain vigilant and follow all the appropriate hygiene protocols and social distancing practices. In the meantime, I continue to believe that increased communications during this time of social distancing help us to stay connected as much as possible and also help to keep speculation to a minimum. I've been and plan to continue communicating frequently to employees through my weekly written updates, my video messages, which are usually twice each week, and our latest tool, the OneKoppers app. The edited version of my videos can be found on the Koppers' Facebook page or the home page of our website. In terms of maintaining our business continuity on Slide 11, we have been focused on sustaining our operations as well as our integrated supply chain network. All Koppers facilities remain in operation, except the KJCC plant in China, which is now classified as a discontinued operation due to its pending sale. KJCC went down earlier this month due to a planned customer maintenance outage and should start back up in June. For office reentry, we have not set a date for those working remotely to return to the office yet but are contemplating a voluntary return sometime during the summer months. Specific guidelines to be put in place when that return happens remain in discussion, but as already mentioned, when we do reopen, it will be a voluntary choice by the employee and will be according to a preset schedule to ensure that we keep the density of employees in the office to a safe number. Return to the office will also mean some form of use of PPE, regular disinfecting of commonly used areas and defined exit and entry paths. While I'm in no hurry to force a return to the office when we have demonstrated a strong ability to continue to perform critical functions remotely, I also take seriously the impact that working from homes has had on some people's lives and their need to return to some semblance of normalcy. That is why our first steps on a reengagement will be on an entirely voluntary basis while continuing to monitor the situation and our ability to control it. One way of increasing our control over the Koppers' work environment is to deploy technology where possible, and we are continuing to look into the capabilities of various tools to help us minimize exposure and disruption to the work environment. Our IT and zero harm teams are leading the effort and in the process of evaluating multiple solutions for contact alerting and contact tracing, which are critical next steps. Those of you who have been following Koppers for some time will realize our zero harm safety culture plays a major role in establishing guidelines and reinforcing positive behavior. As listed on Slide 13, for the quarter ended March 31, 2020, 33 of our 43 operating locations were free of OSHA recordables. While we will always strive for 0, I want to acknowledge and thank our employees in the field for what has been accomplished so far. Now let's review the current state of business sentiment along -- among our customers and our suppliers. So as outlined on Slide 15, our Utility and Industrial Products group looks to be on track to achieve its best year since being acquired by Koppers. Through April, sales were up 15% over prior year. Part of that is due to some pull-forward of demand as customers wanted to ensure that they would not be short of product during the unpredictable early weeks of the crisis when there was still a lot of uncertainty as to what impact the crisis would have on different companies and industries. However, that pull forward only accounts for a portion of the increase, with the larger portion representing organic growth. We continue to strengthen customer relationships and prove that we have the capability to meet their ongoing needs. All the major utilities are indicating that normal infrastructure maintenance will continue for their networks, so we don't anticipate any drop in demand going forward other than some normalization of inventories. Our proven ability to respond rapidly to emergency situations like unplanned outages and natural disasters enhances our status with utilities. We expect the volume of piling-related work to increase as restrictions are lifted along the East Coast. We're also beginning to see a pickup of higher volumes of work in our pole recovery business after being on hold for the past 2 months. On the preservative side, we've been working with a number of customers on their transition plans from pentachlorophenol to another preservative and have actually seen quite a bit of interest in our CCA product line as well as some interest in creosote in certain markets. While a few customers have made decisions on their future preservative, the pandemic has caused many customers to pause as they focus on managing the crisis. We are providing samples and data, and we'll continue to support the industry on its shift over the next couple of years. Regarding supply chain, we're seeing increases in the supply of untreated poles as forestry is catching up with demand after some interruptions and confusion early in the crisis. And we're also seeing an increase in available trucking crews, which is likely due to slowdowns in other parts of the industry. On Slide 16, in our Railroad Products and Services business, the crosstie business remains steady with maintenance-of-way prospects on the rise. Rail traffic overall in the U.S. is down so far this year, but among certain Class 1 customers, crosstie volumes are increasing as they continue to invest in their infrastructure. We're starting to experience some softening in our short liner commercial business, which was not unexpected given the current situation dynamics. Railroad structured backlogs -- railroad structures backlog in our maintenance-of-way business has been improving as restrictions continue to ease and now sit at a higher level than a year ago. After a tough period from May of last year through February of this year, our recovery resources business has found its footing. An important customer win earlier this year has led to the potential for even more business, while others are looking to reengage in discussions after dealing with various issues with their current supplier base. This is a business that we bought based upon our belief that it would represent an important service to customers of our products and support our treated crosstie business. A little over 2 years into it, and we're beginning to see the opportunities we knew were there beginning to get closer to realization. From an inventory standpoint, as our efforts to rebuild dry crosstie inventory have continued, we expect to begin reducing purchases in the back half of the year as inventory stabilizes, which will help working capital and cash flow. Also, incoming third-party dry ties are seeing increases, which also will help our treating business, which we still expect to be up by low to mid-single digits year-over-year. In our Performance Chemicals business, as shown on Slide 17, results in the U.S. remain strong even amid the pandemic. Rising unemployment may hamper discretionary spending among consumers, but we expect to weather the storm, thanks to a strong market position and declining production costs. In North America, the Joint Center for Housing Studies of Harvard University reported weak and expected decline in spending for the rest of 2020 and into early 2021 due to the impact that COVID-19 is expected to have on the economy. That said, Koppers has seen record order flow so far in April and into May, especially our MicroPro product line. Our FlamePRO product line saw some softening in April as commercial construction was delayed, but we already have seen some pickup in May as some restrictions have lifted. In fact, we anticipate that this week we'll set a record for Performance Chemicals shipments overall in North America. On Slide 18, for PC internationally, our New Zealand facility is back online seeing strong demand. Australia has enjoyed solid demand so far in 2020, but some slacking may occur in the latter part of the year. Sales in the U.K. show signs of improvement, with the rest of Europe representing a mixed bag depending upon restrictions. Overall, we're anticipating that April will be the low point in international sales for PC, which represents the second worse sales month we've experienced since acquiring the business in August 2014. In terms of raw material costs, we fully hedged our copper position for 2020, so no additional benefit is expected from the drop in copper pricing. For the forward years, we've continued to opportunistically lock in hedges for 2021 and 2022 at lower average costs than for 2020. In our Carbon Materials and Chemicals business on Slide 19, continued cuts in auto production and other manufacturing sectors caused steel, aluminum and carbon black industries to produce the stock while at the same time reducing output. Lower raw material prices will help offset reductions in demand and average pricing as we move forward. In North America, demand for carbon pitch is down due to a weak aluminum industry. The phthalic anhydride business is softening, and prices will begin to drop significantly in May as a ripple effect of lower oil prices. Demand for pitch remains at normal levels at our European customers. However, average pricing for carbon black has been cut in half from first quarter level due to the drop in oil. In Australia, tar and pitch supply and demand remain at normal levels, the carbon black feedstock prices will suffer. Regarding supply chain, further pullback in steel production will require raw material to be imported in North America at higher prices. Overall, our supply chain in Europe and Australia remain solid, with costs coming down in Europe. Switching gears now. I'm proud to say that even with all that is happening, our people are consistently stepping up to volunteer, donate and offer support to those in need in a variety of ways during this crisis. Shown on Slide 21, in partnership with the Urban League of Greater Pittsburgh, Koppers launched a community fund to provide essential household supplies to underserved communities in Pittsburgh, raising approximately $65,000 so far. Distributions have been made at 3 separate locations, and I was fortunate enough to take part in one of them. The number of families who benefited from this effort was sobering and staggering. It was masked, however, by the level of dedication and caring shown by volunteers from our company as well as other organizations. As featured on Slide 22, our employee outreach also extended to 2 major organizations doing important work in their respective areas of health care and research. In light of the social distancing guidelines, both these organizations creatively shifted their fundraising efforts to virtual. Our employees joined the staff at the March of Dimes in Pennsylvania to deliver sweet treats to local nurses working in neonatal ICU units at area hospitals. In addition to that, Koppers employees raised funds and participated in a virtual March for Babies conducted by the March of Dimes, raising over $7,000 so far. Also, our employees supported the Juvenile Diabetes Research Foundation of Western Pennsylvania's virtual 2020 Promise Gala with a very fitting theme of Safe At Home. This annual event held by JDRF helps to raise funds to fund -- find a cure for type 1 diabetes, which can create a serious and unrelenting health care challenge for those affected, their families and caregivers. On Slide 23, employees from a Stickney facility expanded their existing relationship with Hesed House, a local homeless shelter, by increasing its capacity to accommodate more people with a safe space and providing protective equipment and other essential supplies to volunteers there. In addition, the Stickney maintenance team took it upon themselves to personally bottle hand sanitizers from bulk drums in order to donate those supplies to an area hospital and support their local health care workers. As demonstrated by our employees, the spirit of community and personal involvement has long been a hallmark of Koppers, and we're most definitely continuing that legacy as we come together during this unprecedented situation. Before I provide closing comments on the actions and opportunities related to mitigating the impact of COVID-19, I'll turn it over to Mike to discuss April sales for each of our business segments as well as our current financial position. Mike?

Thanks, Leroy. Let's start by discussing April sales. As shown on Slide 25, sales for April were $136 million compared to $152 million in the prior year. This was a decrease of $16 million or 11% and was due primarily to lower sales in CM&C, partially offset by higher sales from our RUPS businesses. Sales for the month were negatively affected by softer demand in the CM&C industries we serve. However, they were in line with our expectations. Overall, the industrial wood treating business and related chemicals continued to generate strong volumes as did our U.S. residential wood treatment preservatives. Moving on to Slide 26. RUPS sales of $72 million increased by $7 million or 9% compared to sales of $65 million in the prior year. The sales increase was primarily due to higher volumes of untreated crossties to Class 1 customers and higher volumes of treated crossties for commercial railroads as well as increased demand for utility poles. Year-to-date through April, our railroad tie procurement and tie treatment operations were higher than the prior year by 27% and 6%, respectively. Tie procurement was up 14% and tie treatment was up 5% April over April. The profitability from our maintenance-of-way businesses performed better in April than in the entire first quarter and generated the best monthly profit in these businesses since July of 2019. Likewise, UIP delivered record EBITDA in March and then followed up with even a stronger performance in April. In Australia, our utility business has been holding steady. Moving on to Slide 27. PC sales of $38 million in April decreased slightly by $2 million compared to sales of $40 million in the prior year. The slight year-over-year decrease was primarily due to the temporary shutdown in New Zealand and generally lower volumes in most overseas markets, partially offset by very strong demand in the U.S. and Australia. In North America, we had a record intake in April, which is continuing into May. April sales in North America outpaced prior year by 6%, and the April U.S. EBITDA was the highest since June of 2017. At the same time, international sales suffered an all-time monthly low in April of 2020. CM&C sales, as shown on Slide 28, were $26 million, which was a decrease of $21 million or 44% compared to sales of $47 million in the prior year. The year-over-year decrease was driven by weak markets in all geographies but particularly in Europe. In April, each region performed significantly lower than the prior year, but under these difficult circumstances of today, they were within our expectations. Global CM&C EBITDA was also significantly lower than the prior year but still positive for the month of April. In April, the average global pricing for our major product lines remained flat compared with the first quarter but was down 13% from the prior year. The average April global coal tar costs dropped 6% below the first quarter and 11% below the prior year. Moving on to debt and liquidity on Slide 30. And as we previously reported, our net debt was $899 million at the end of the first quarter, and we had $185 million of available liquidity at that point in time. We are also in compliance with all debt covenants. We do not have any significant debt maturities until 2024 when our revolver matures and a final balloon payment on our term loan is also due. Our $500 million in bonds don't mature until 2025. We're reaffirming that we plan to reduce debt by a minimum of $120 million this year, $120 million, contingent upon the successful closing of the KJCC divestiture as well as additional sources of cash from working capital reductions, lower cash taxes, lower interest and lower than originally projected capital expenditures as well as deferred payroll taxes. On Slide 31, the various scenarios to stress test our bank covenants are shown. We expect to be in compliance with our covenants even if we realize a 30% reduction in EBITDA over the remainder of 2020. As shown on Slide 32, we have also evaluated our liquidity at various different levels of EBITDA. Koppers expects to successfully manage through the pandemic and have ample liquidity even if we realize a 25% EBITDA reduction in 2020. Now I'd like to turn the call back over to Leroy.

Thanks, Mike. As mentioned on our last call, we've identified $15 million to $20 million of cost savings in SG&A that we've been actively working to realize. We realized just under $2 million in savings in April, which, when combined with the $3 million from Q1, puts us at $4.9 million or 1/3 of the low end of our target through the first 4 months of the year. On the bottom of Slide 34, you can see the breakdown from the major components through April. At this stage, I remain confident that we will land comfortably in our identified cost reduction range. While Page 35 looks very similar to what we presented back in April, we've added a couple of very important additions to the list, and they are new processes and new markets. As we speak, there is work going on within our CM&C business that will allow us to alter the mix of our output of products in a way that we previously had very little control over. That small difference will enable us to push more production towards our higher-value end markets, which will reap millions of dollars of EBITDA while further minimizing the risk that we have to the oil market. The first instance of this change process is on track to be operational at one of our sites by year-end 2020. While I'm excited about that development, I'm also excited about some of the other new market opportunities that we've advanced that could have significant profit potential at very little incremental investment. Those are 2021 initiatives at the earliest, and I will look to update you as they continue to develop further. In summary, we figured that Q2 would be our biggest challenge in 2020 for obvious reasons. But through the first 1.5 months, I feel a little bit better on balance in terms of where our business will land. April sales were in line with what we were expecting, as was EBITDA for CM&C. The rest of our business that revolves around our core of wood treatment technologies, however, all performed better than expected. May will be another challenge, particularly in CM&C, but 2/3 of the way through the month, I feel really good about the other businesses once again performing above expectations. Our biggest risks right now revolve around steel and aluminum and how much further they deteriorate as well as the residential treating market. That said, the balance of our businesses and the markets they serve has always served us well by allowing us to navigate through even the toughest times and come out the other side. This crisis, while further reaching and more impactful, is no different. I feel good about our future and our ability to deliver through these uncertain times while coming out of it even stronger. Now I will open it up to questions.

[Operator Instructions] Our first question today will come from Mike Harrison with Seaport Global Securities.

Wanted to say thank you to your Stickney employees for their support of Hesed House. That's an organization that really does a lot of great work, very close to where I live out here in the western suburbs of Chicago. So appreciate that.

Yes. Good to hear.

Wanted to ask about the RUPS business. You mentioned -- it seems like visibility is still pretty good on the Class I business, but maybe the commercial volumes were pretty solid in April but expected to fall off in the rest of the quarter. Can you maybe just give us a little bit of a sense of where you see visibility on both Class I and the short line side?

Yes. So from a Class I perspective, I'd say we're probably in the same spot we were back when we talked to you at the end of April. In terms of -- we've had one customer who has indicated a reduction in their tie program for the year of around 10%, with the other still maintaining their programs. And so we continue to see consistency in the volumes. And those programs on balance are up over 2019. So again, as we sit here on May 20, all indications are that -- but for that one particular customer on the Class 1 side, we should have a pretty normalized year this year as we expected. So all that's positive. On the commercial side, I think the thing there is we're starting to see some softening from a pricing standpoint. And the order flow, I think, is still out there. We expect that we'll probably -- we should meet the production levels and have the expected demand that we thought coming into the year, but pricing is starting to soften a little bit.

All right. And then in terms of the PC business, you mentioned the strength in the U.S. It kind of seems like it's a tale of 2 businesses here with the U.S. being strong, but international being really the weakest it's ever been. How much was the international side down in April? And I guess maybe just a little more color on if things have started to show meaningful improvement since April in international markets.

Yes. So just as a reminder, I mean our North American business is the lion's share of that business segment. They drive the top line and they drive the bottom line in that business. And so if there's one piece of the business that we're happy is doing extremely strong, it's that piece. So yes, there -- this week is projected to be a record shipment week for Performance Chemicals in North America. We had anticipated some slowdown here early in the second quarter just as people were losing their jobs, getting laid off, having maybe some -- even for those working, having some fear around wanting to spend some of their discretionary funds on treated wood products to build decks and things of that nature. But the reality is what we're seeing is almost the exact opposite. It's as if people, with the time that they have -- the additional time that they have at home, and the feeling, I think, that they're going to be stuck at home for quite a while, they're looking to engage in products -- or projects that maybe they had thought of but were thinking of doing further down the line. So the thing that we're keeping an eye on is how much of this is potential pulling forward of some business that might have occurred later in this year or maybe even next year. So we knew -- coming into the year, we expected this year to be fairly strong from a demand standpoint. I guess -- and it's meeting those expectations. It's just -- it's a little surprising that it's continuing to meet them in the environment that we're currently in. So we're continuing to monitor. But as of -- sitting here today, I can tell you, volume in North America is still really, really strong, and we still don't yet see where it slows down. And that will come into the benefit, I think, a little bit of having these monthly updates because we'll be able to give a more timely update on if and when we do see those signs beginning to occur. Internationally, they were a little bit more on the front end of the curve as it relates to the virus. So in -- the European countries were beginning to be impacted sooner. Some of the lockdowns were more severe in some of the areas that we operated in, and New Zealand being an example, and there are certain countries in South and Central America that are also experiencing that. And those operations are smaller. So they can't withstand the shock maybe as well as the larger organization that we have here in North America. Overall, I'm heartened by the fact that even with sales level for the month, basically being at or around the lowest it's been for us, our international businesses were still positive from an EBITDA standpoint. So I think, certainly, in May, we expect a pickup. As I said, with New Zealand coming back online at the end of April, we're already seeing strong demand out of the gate for them with some pent-up demand. Australia has been solid so far for the first part of the year. But they're a little concerned that -- in the back half that they start to see some weakening in their business. Europe is starting to pull out of things gradually. So I think as the year goes on, we'll continue to see better results there. And South America, or South and Central American business, it's struggling right now. They're still in the heat of what's going on with lockdowns in different areas that are having an impact on the business. But overall, we still expect that business to maintain some level of profitability and actually figure that April would probably be its low point.

And Mike, just to reaffirm, from a standpoint of percentages, our North American business is north of 70% of the total volumes and the international markets are less than 30%.

Got it. Okay. And then over on the CMC business, I think it's encouraging to hear that you're above breakeven EBITDA even for this week, April revenue number. I was wondering if you could give a little bit more color on how this raw material situation is shaping up. You mentioned the declines that you had seen in coal tar prices, but then I think you also mentioned maybe needing to bring in some additional volume or import some additional volumes because of low steel activity in the U.S. So how do you expect that to play out in terms of profitability?

Yes. I mean it will have an impact. There are so many moving parts in the business that as one thing moves against you or for you, you have something else seemingly going in the other direction. So the -- I'd say the best thing we have going for us is our integrated supply chain between our European and our North American business. That worked very, very seamlessly together so that when we run into these sorts of situations, which we do from time to time, we have the ability to continue to provide critical supply to our North American operations to keep that facility running and supplying the products we need to here in North America because of the abundance of coal tar that we have essentially at our disposal in Europe. So we don't have any worries at all in terms of interruptions of supply. But because of having to take coal tar raw material from Europe and move it over into the U.S., that's obviously going to come at a -- even with dropping raw material prices, it's going to come at a little bit of a higher cost just due to the logistics. But overall, we still feel today that by the end of this year, that the business will be at a double-digit EBITDA level for the year. So it's going to experience its pain here now in the second quarter, particularly in April and May. But at that point, we feel that things will have stabilized, certainly, at least in the oil markets, which will allow for a little bit of catch-up on the raw material side of things. There could be some additional costs that come in related to additional logistics costs, moving product or raw material into North America. But even with that, we still feel pretty good that we can hit, if nothing else, at least the low end of a double-digit EBITDA margin range.

Our next question will come from Laurence Alexander with Jefferies.

It's Dan Rizzo on for Laurence. So you mentioned strong -- I think strong sales in PC, I think, in the MicroPro. I was just wondering, given what you said was an outlook was kind of subdued, if perhaps there's some kind of pull forward going on within that segment or -- I was just wondering what happened there. If the outlook is kind of soft but things are going strong for you guys at least in terms of customers' orders, why -- I mean why is that kind of winding up, so to speak?

Yes. I mean look, the -- obviously, the forecast from a repair remodeling standpoint is pretty bleak, and this fits into that category, but it's just one of several things that fit into that category. I do suspect that there is some pull-forward of demand. It's hard to say how much, to be honest with you, Dan. Like I said, it's just -- it's one of those things where we have not seen any slowdown whatsoever in what we suspected would be some level of a reduction in order flow here sort of as we're in the earlier parts of trying to work our way through this crisis. So we're very happy to continue to see record order flow, again, even through this week, but we are continuing to monitor the situation daily to -- with communication with customers and what they're seeing and hearing from their customer base. Right now, again, there's no indications that things are slowing down, but I wouldn't be surprised if we get out another month or so, we see a little bit of a pullback. But to date, it just hasn't happened.

Is it possible, and this might be too speculative, that people who are stuck at their house and they can't go on vacation are now using that money to perhaps redo their deck or something along those lines?

I mean it makes perfect sense. I mean as you're thinking about those sorts of things, there's a couple of different ways to think about that and look at it in terms of what people are doing with their additional time at home and the thoughts that this is -- their home is going to be where they're going to be at for quite some time. So again, why not put -- invest some money into it to get more enjoyment out of it. It's a fair comment.

Yes. It's just something I was just thinking. And then just in the utilities business, which is obviously going fairly strong, too, again, is there some pull forward there because of just a period of decreased economic activity so you just do a lot more maintenance projects?

Yes. And I actually referenced that in my comments that there is a portion of that, that is pulling forward. In discussions with our customer base, I think early on, as there was a lot of uncertainty and hysteria around what was going to get shut down, what was going to continue operating, who might have an impact because of an outbreak and how is that going to affect supply chains, there were customers who built up inventories to guard against that. So we did see some of that, but that only explains a portion of our sales increase. So yes, there is a piece of the utility business that has been pulled forward, but there's a greater piece that has just been normal organic growth.

Our next question comes from Chris Howe with Barrington Research.

A lot of questions in regard to the PC segment. Following up on some of those questions, perhaps diving in a little bit further, but there hasn't been any indication in any geography, in particular, that this gloomy outlook is happening in those geographies, respective to others that are seeing strong demand, correct?

So in terms of the other geographies, we've seen the initial strong pullback, and to be honest with you, it's tough to say how much they're going to recover. They weren't quite -- they weren't all quite in the same position here as North America was related to -- from a market standpoint. So North America was in a very strong position. Coming into this year, New Zealand was in position to have a very strong year as well from a demand standpoint, and we had the sudden shock of, obviously, the closure of their economy, but now we're starting to see that come back. In places like Europe and South and Central America, those businesses, we thought coming into the year, we're going to be okay, but they weren't looking at numbers in terms of improvements that we were seeing here in North America. So we expect them to, again, return to some level of normalization over some period of time. The good news is we think we've hit the low point in April, and we'll climb out of it. The one piece that was impacted here in North America that, again, we should see some benefits later in the year is, on the piling side of the business in the Northeast, in particular, a number of different projects were deferred, and that's a nice piece of business for us from a chemical side as well as from a product side.

Okay. So I guess hypothetically speaking, if this demand environment in North America holds up over the course of perhaps the next 3 to 6 months on a full year basis should put you in a pretty good position, assuming the outlook or the gloominess is pushed out even further.

That's correct. I mean we're -- let's put it this way. If the dynamic in North America continues the way it has, there's no reason to believe that we couldn't hit the numbers that we had originally projected coming into the year for Performance Chemicals. And that's even with the international businesses being down because I will tell you, they will not get to a point of recovering what they're going to lose through this piece of it for this year. But with where Performance Chemicals is at North America, they have the opportunity to actually offset that and make up for it if it continues at its sort of current year-over-year increased pace. But again, I -- that's not something that I'm banking on at this point in time.

Yes. That's some good color. And last question. I just wanted to focus on Slide 35, some of these other cash opportunities available to the business as we consider the stress test scenarios, which were very helpful, by the way. What's the outlook on some of these noncore businesses? And kind of what's your line of thinking behind some of these other opportunities that you have to preserve cash?

So we -- I guess we look at our businesses as a portfolio of businesses. There's -- the majority of them that are integrated in a way that -- they're part of our core, and we want to continue to nurture them and grow them, while there are certain pieces that are sitting outside of that. We've pruned the really poor performing businesses already over the past several years. So the businesses that remain as part of our portfolio, while they may not all be in the core of wood treatment technology, they're decent businesses. And so we would happily entertain a fair value for those businesses if there were parties that were interested, but we're not interested in fire selling businesses. That's not what -- it's not in the interest of our shareholders and which is not something that we would do. So we have continued to, I guess, engage the market in some of these different opportunities. And over the course of the past couple of years, we've had some interest here and there that we've engaged in, but none of it has developed to a point, obviously, where we've been able to complete something at a value that we consider fair. So that's one of those ones where if we wanted to fire sell businesses, we could do that absolutely and sell to raise cash. We don't believe we're in that position, and we're not going to give businesses away. So that's the best way I could describe sort of the situation on the noncore business.

Okay. And is it fair to say these noncore businesses are showing sequential improvement from March to April, April into May?

I would say most of them are, most of them are.

Our final question today will come from Chris Shaw with Monness, Crespi.

A couple of questions on CM&C. Just from your commentary earlier, is it safe to think that the -- your outlook for, say, June EBITDA is higher than both April and May individually?

Yes. Yes. We have estimated that April and May would be the low points for that business.

And then just given where oil sort of moved more recently, I mean has that changed your sort of near-term or midterm sort of outlook on like the pricing for the -- your products in that business? Or are the demand reductions sort of all around the sector just been so great that it's moderating any sort of uptick in oil prices?

Yes. I mean oil is still well off of where it was earlier in the year and where we had projected it to be coming into the year. So while it's nice to see a little bit of a recovery, it's still well below levels that were part of our expectations coming into the year. So it's going to be a drag. The fact that it's stabilized and starting to move back up, like you say, that is a positive because it'll put us in that position where we will trough out here over these next couple of months and then be in a position to recover some of that moving forward. The demand situation certainly is also somewhat of an overhang in that business, too. I mean, look, just extrapolate out $26 million of sales in the month of April, right, and that's significantly lower than what we've been over the past -- well, even historically, right? So that's why I feel good in that even with a sales month like that, we could still be in positive territory from an EBITDA standpoint. So sales-wise, April, May, we'll -- we should have troughed out and also troughed out from an EBITDA standpoint and start to see things move up a little bit from June on.

Great. And then on PC, you mentioned again the copper hedging that you might be doing for 2021, 2022, maybe. Do you have a sense yet what sort of savings you might have over the 2022 -- sorry, the 2020 costs next year?

Chris, this is Mike. Yes, we do. Just to maybe backtrack a little bit and give you the history. When we had our record year in 2017, the copper hedge price running through the P&L was $2.35 a pound. In '18, it went up $0.30 to $2.65 a pound. In '19, it went up further to $2.92 a pound. In '20, it's down to $2.75 a pound approximately; '21, $2.55; in '22, $2.45. So we had 2 years of headwinds, and 2021 and '22, we're looking at tailwinds.

And can you remind me how many pounds approximately you use here?

Somewhere between 45 million and 50 million.

Okay. Great. And then finally, just how big is the -- you referenced weakness in the commercial side -- or the commercial construction exposed side of your PC business. How big is that as a percentage of the whole?

Relatively small. So we have our FlamePRO fire retardant product that we developed here a couple of years back. That is really probably the biggest product line, I think, that goes into that. And so our exposure there is relatively small. So that's why even with that pullback there -- again, if there's a particular area that we can absorb in terms of being impacted, it's on that commercial side.

Is it like under 20% of the total?

Yes.

This concludes our question-and-answer session. I would now like to turn the conference back over to President and CEO, Leroy Ball, for any closing remarks.

I just want to thank everyone for taking the time to participate on today's call, and I appreciate your interest in Koppers and your continued support. Look forward to connecting with you again next month. Thank you.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.