Are input costs expected to remain elevated in Q3, and what are the contractual mechanisms for cost recovery across segments?

Input costs are not expected to abate in the near term due to volatile markets and the Middle East conflict. While CMC bears the biggest brunt, the company has spot-related pricing, 3-6 month resets, and longer-term contracts coming up for negotiation in H2 2026/2027, some with cost pass-through mechanisms, positioning them better for 2027. “we don't expect the challenges we're facing. currently from an input standpoint to abate any time in the near term. Certainly getting some resolution, you know, again, on the Middle East conflict and having markets settle down a little bit will be helpful.”

How do Class 1 railroad relationships impact RUPS profitability, especially with price concessions made to secure contracts?

The company made price concessions to secure larger shares and consolidate capacity, enabling an orderly exit from the Florence facility. Profitability will improve as volumes ramp up from these customers and costs are removed through consolidation, with significant improvements expected heading into 2027 as current contracts mature and consolidation completes. “As volume ramps up from that customer base and we're able to take costs out of the system through that consolidation, we're going to see those improvements run through RPS. Right now, we're in the early parts of that, and so we haven't seen the demand moving up yet.”

Where are the market share gains in PC coming from and how do they impact the segment?

PC gained market share from a customer who acquired another business and shifted chemical supply to Koppers, and also recovered some previously lost volume. This, combined with strong industrial chemical demand (e.g., from a customer rebuilding inventories), contributes to operating leverage and volume growth in an otherwise flat residential market. “we had gotten some volume back. Yes. some volume that we had lost in the previous year. as well as adding some market share from a customer base that had made an acquisition and made a decision to move some of their chemical business that they had with a competitor over to coppers.”

KOP

Koppers Holdings (KOP) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Materials· Aug 6, 2026

Source: earnings call transcript

Executive summary

Koppers Holdings Inc. Q2 FY26 — Strong Cash Generation Amidst Cost Headwinds and Strategic Transformation

Koppers delivered strong cash generation and advanced its strategic transformation in Q2 FY26, highlighted by the accelerated closure of the Stickney facility. Despite facing significant cost headwinds from rising raw material, freight, and logistics expenses, particularly impacting the CMC and RUPS segments, the company saw robust performance in Performance Chemicals and Utility and Industrial Products. Management remains focused on cost recovery, network optimization, and executing its Catalyst program to achieve long-term margin expansion and debt reduction targets.

Highlights

Adjusted EBITDA of $71 million, with a 13.7% adjusted EBITDA margin.
Sales increased 3% to $520 million, driven by volume growth in Performance Chemicals and Utility Pole businesses.
Record operating cash flow of $96 million and free cash flow of $73 million for the first six months of the year.
Performance Chemicals sales increased 10% excluding foreign currency, with strong volume gains across all regions.
Utility and Industrial Products organic demand grew 12% in the second quarter and 10.5% year-to-date.

Concerns

Profitability was impacted by a 12% year-over-year and 15% sequential increase in coal tar costs.
Freight and logistics expenses moved higher due to volatile energy markets and transportation networks.
Railroad and Utility Products and Services (RUPS) adjusted EBITDA declined to $26 million from $32 million in the prior year, due to higher raw material costs and unfavorable pricing.
Carbon Materials and Chemicals (CMC) adjusted EBITDA decreased to $8 million from $17 million in the prior year, primarily due to higher raw material, operating, and SG&A expenses.
The Middle East conflict drove a $2.3 million financial impact on CMC from oil price spikes in Q2, with an additional $4.6 million impact expected in H2 2026.

Guidance & targets

Category	Target	Timeline	Confidence
Annual Adjusted EBITDA benefits from Stickney closure	$15 million to $20 million high materiality	Annually	High
Annual Adjusted EPS improvement from Stickney closure	$1 to $1.20 per share high materiality	Annually	High
Annual Capital Spending Reduction from Stickney closure	Reduced medium materiality	Annually	High
Adjusted EPS CAGR	greater than 10% high materiality	2026 to 2028 · FY28	Medium
Cumulative Free Cash Flow	more than $300 million high materiality	Through 2028 · FY28	Medium
Adjusted EBITDA Margin Profile	mid-teens high materiality	Long-term	Medium
Total Sales	$1.9 billion to $2 billion high materiality	Full Year 2026 · FY26	Medium
Adjusted EBITDA	$240 million to $250 million high materiality	Full Year 2026 · FY26	Medium
Adjusted EPS	$3.80 to $4.20 per share high materiality	Full Year 2026 · FY26	Medium
Operating Cash Flow	$175 million high materiality	Full Year 2026 · FY26	Medium
Capital Expenditures	$55 million medium materiality	Full Year 2026 · FY26	Medium
Free Cash Flow Deployment	$120 million high materiality	Full Year 2026 · FY26	Medium
Base Repair, Maintenance, and Safety Capital	$35 million to $40 million medium materiality	Annually	Medium
Adjusted EBITDA Margins	above 15% high materiality	2028 · FY28	Medium
Adjusted EPS Compound Annual Growth Rate	above 10% high materiality	2026 to 2028 · FY28	Medium
Net Leverage Ratio	between two to three times high materiality	Long-term	Medium
Average Annual Free Cash Flow	$100 million high materiality	Annually	Medium
Sales Mix (PC and RUPS)	more than 85% medium materiality	2028 · FY28	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Railroad and Utility Products and Services (RUPS) Sales declined slightly due to the sale of the railroad services business and price decreases in cross-ties, partly offset by strong volume growth in North America utility poles and cross-ties. Profitability was impacted by higher raw material costs and lower maintenance of way activity. Progress is being made on consolidating Florence cross-tie and Vance utility pole production to improve cost position for 2027. Sales vs. prior year: $250 millionSales ex-acquisitions, divestitures, FX: +2%North America utility pole volume growth: ~16%Cross-tie volume growth: ~2% YoYAdjusted EBITDA vs. prior year: $32 million	$246 million	—	—	$26 million
Performance Chemicals (PC) Strong sales growth driven by volume gains across all regions, including market share gains in a flat demand environment. Adjusted EBITDA increased significantly due to higher sales volumes and lower material costs, partially offset by higher logistics expenses. Lower pricing was observed primarily in Europe. Sales vs. prior year: $151 millionSales ex-FX: +10%Americas sales growth ex-FX: +11%Australasia sales growth: +26%Adjusted EBITDA vs. prior year: $29 millionAdjusted EBITDA increase: +31%	$168 million	—	—	$38 million
Carbon Materials and Chemicals (CMC) Sales increased slightly, driven by higher volumes, primarily in Australasia. Profitability decreased significantly due to higher raw material, operating, and SG&A expenses, partly offset by cost savings from discontinuing phallic production. The segment faces volatile carbon markets and rising input costs, with the Stickney closure expected to improve structural performance. Sales vs. prior year: $104 millionSales ex-thalic shutdown and FX: +4%Carbon black feedstock: volume and price increasesCarbon pitch: volume increases, global prices declined 2%Adjusted EBITDA vs. prior year: $17 millionAverage pricing for major products QoQ: +7%Average coal tar costs QoQ: +15%Average pricing for major products YoY: -3%Average coal tar costs YoY: +12%	$106 million	—	—	$8 million

Deals & partnerships

Not stated pole procurement business

Acquisition of a pole procurement business in the western U.S., contributing to volume growth in the North America utility pole business.

Capital programs

Stickney facility closure underway

Benefit:Annual adjusted EBITDA benefits of $15-20 million; adjusted EPS improvement of $1-1.20 per share annually; reduced annual capital spending requirements

Decision to discontinue distillation and chemical operations at the Stickney facility, with the closure accelerated by a quarter. The collective bargaining agreement was extended through June 2027 to retain key personnel for post-production activities.

Risks & headwinds

Challenging cost environment Q2 FY26 and ongoing

Coal tar costs increased 12% YoY and 15% sequentially; freight and logistics expenses moved higher.

Mitigation:Actively working with customers to recover higher costs through contractual mechanisms, pricing actions, and product mix improvements; historically demonstrated ability to recover over time.

Middle East conflict driving input costs Ongoing

Oil and tar prices higher; $2.3 million financial impact on CMC in Q2, $4.6 million expected in H2 2026.

Mitigation:Decisive actions to improve business structurally, strengthen supply chain, and position the segment for better performance over time (e.g., Stickney closure, sourcing from Europe).

Copper prices at historical highs Ongoing, impacting 2027

Forecast to stay at $6 per pound or higher.

Mitigation:Preparing for meaningful price increases in 2027 as 2026 copper hedges roll off.

Iran conflict and changing tariff environment Ongoing

Creating added volatility around input costs.

Mitigation:Not explicitly stated, but implied by general cost recovery efforts and strategic transformation.

Residential demand and remodeling activity slowdown Ongoing, through Q2 2027

Residential treated wood demand relatively flat; existing home sales declined 2.4% MoM; remodeling activity growth to slow to 0.5% in Q2 2027.

Mitigation:Market share gains in Performance Chemicals offsetting flat residential market; focus on industrial demand.

Fiber availability constraint for utility poles Ongoing

Demand concentrated in a relatively narrow range of pole classes and lengths.

Mitigation:Utilizing new Douglas Fir supply assets to increase market reach and improve access to fiber; actively managing the cost side of the equation.

Raw material inflation risk for utility poles Ongoing

Slowed forest harvesting, pulp and paper mill closures putting pressure on supply; 100 million board feet of industry capacity removed (4.5 million cross-tie equivalents).

Mitigation:Actively managing the cost side of the equation; consolidating production facilities to improve cost position.

Class I railroad capital budget tightening Near-term

Reduced treated tie procurement volumes and compressed order timelines.

Mitigation:Secured a strong backlog of commercial business for H2 2026; realizing operating improvements from consolidation actions.

Global carbon markets volatility Ongoing

Aluminum prices risen to $3,600/metric ton (20%+ above Q1).

Mitigation:Decisive actions to improve the business structurally, strengthen supply chain, and position the segment for better performance over time (e.g., Stickney closure, new US terminal operating).

What to watch in Q3 FY26

Catalyst Benefits Achieved

Next quarter (Q3 FY26 update)

Current $33 million YTD June 30, 2026

Target Exceed $40 million

Why it matters

Catalyst benefits are crucial for offsetting ongoing headwinds and driving long-term profitability and margin expansion.

I would expect that we will probably come in over the high end of that range, Gary. But as we've seen, you know, over the course of our transformation efforts, right, all of that is essentially going to offset the headwinds that we're experiencing across, you know, our portfolio of businesses.

Find out whether KOP delivers this. Inve re-checks your case every morning.

Q&A highlights

Will Catalyst benefits exceed the $40 million high end of the target range for the year, and how do they offset headwinds?

Management expects Catalyst benefits to exceed the high end of the range, but these benefits are largely offsetting ongoing headwinds experienced across the portfolio, such as increased input costs.

“I would expect that we will probably come in over the high end of that range, Gary. But as we've seen, you know, over the course of our transformation efforts, right, all of that is essentially going to offset the headwinds that we're experiencing across, you know, our portfolio of businesses.”

asked by Gary Prestopino · answered by Leroy M. Ball

2 min read 5 chapters

Detailed narrative

Strategic Transformation and Stickney Facility Closure

Koppers is in year two of its multi-year Catalyst transformation program, aiming for over $90 million in benefits from 2026 through 2028. A key initiative is the accelerated closure of distillation and chemical operations at the Stickney facility, now targeted for September 30, 2026.

This action is expected to generate $15-20 million in annual adjusted EBITDA benefits and improve adjusted EPS by $1-1.20 per share annually, while reducing capital spending. The company has extended the collective bargaining agreement with the Stickney workforce through June 2027 to support post-production activities.

Performance Chemicals and Utility Pole Business Strength

The Performance Chemicals (PC) segment demonstrated strong performance with sales up 10% ex-FX, driven by volume gains and market share in a flat residential treated wood market. The Utility and Industrial Products (UIP) business also showed robust organic demand, up 12% in Q2 and 10.5% YTD, benefiting from new Douglas Fir supply assets.

This strength is attributed to the continued build-out of AI infrastructure driving electricity demand and a strong investor-owned utility market, positioning these segments as key drivers for higher margins and cash flow.

Challenges in Carbon Materials and Chemicals (CMC)

The Carbon Materials and Chemicals (CMC) segment continues to face a difficult and volatile market environment. Coal tar costs increased significantly (12% YoY, 15% QoQ), and the Middle East conflict is driving oil and tar prices higher, resulting in a $2.3 million financial impact in Q2 and an expected $4.6 million in H2 2026.

Despite these headwinds, decisive actions like the Stickney closure are aimed at structurally improving the business, strengthening the supply chain, and positioning the segment for better long-term performance.

Capital Allocation and Cash Flow Generation

Koppers generated record operating cash flow of $96 million and free cash flow of $73 million in the first half of 2026, driven by working capital improvements and network optimization. The company maintains a balanced capital allocation approach, investing $24 million in capital expenditures year-to-date, returning $47 million to shareholders through repurchases and dividends, and reducing debt by $22 million.

The net leverage ratio stood at 3.5 times at quarter-end, with a long-term goal of 2-3 times.

Market Dynamics and Cost Pressures

Market conditions remain mixed. Residential treated wood demand is flat, with copper prices at historical highs ($6+/lb forecast) necessitating price increases in 2027. The railroad market is varied, with Class I volumes pulling back, but commercial sales backlog remains solid.

Fiber availability for utility poles is constrained, and sawmill closures are impacting hardwood supply. The company is actively working to recover higher input costs through contractual mechanisms and pricing actions across its portfolio.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.