Koppers CEO believes struggling company can do better, transform
Sometimes it takes an outsider to wake up a company lulled into complacency.
For Koppers Holdings Inc., that outsider is Leroy Ball, a 47-year-old Monaca native who's shaking up the Pittsburgh company that's confronting a host of problems.
Ball was named CEO of Downtown-based Koppers in January as the company — whose core business is turning waste from coke ovens into chemicals used in the production of aluminum, vinyl and wood preservers — was hurt by falling oil and aluminum prices, overcapacity, competition from China and high debt.
“Sometimes you get lulled into thinking that there's no better way to do things,” Ball said during a recent interview in his office in the historic Koppers Building, an Art Deco skyscraper that's occupied the corner of Grant Street and Seventh Avenue since 1929.
“That can be very dangerous to a company,” he said.
Ball joined Koppers in 2010 as chief financial officer after eight years with Calgon Carbon Corp., but calls himself an outsider because five years at Koppers isn't very long compared with the many employees who measure their service in decades.
Koppers traces its roots to Heinrich Koppers, a German engineer who developed specialized coke ovens for the steel industry in the early 1900s. He founded Koppers Co., which moved to Pittsburgh from Chicago in 1914 and became a Fortune 500 conglomerate built on the distillation of coal tar.
In 1988, Koppers Co. was bought by Beazer PLC, a British company known for hostile takeovers, which then sold the coal tar distillation and rail tie businesses to former Koppers managers. The managers reincorporated the company as Koppers Holdings, which was taken public in 2006.
Koppers Co. once occupied all 35 floors of its building Downtown. Today, Koppers Holdings leases six floors, where 150 of its 2,100 employees work. It had total revenue last year of $1.6 billion.
Shifting emphasis
In the last nine months, Ball has taken steps to transform the business. He's overseen the sale of Koppers divisions that make utility poles and concrete rail ties. He's restructured a supply contract in China that netted the company a $30 million one-time payout, and he's reviewing plants for closure as the company looks to cut production capacity.
Koppers is scaling back in China, exiting two joint ventures where profits are declining. And the company in February eliminated its dividend, saving $21 million a year.
The moves are aimed at helping Koppers cut debt, which stood at $850.5 million at the end of last year, by raising cash and reducing expenses. Ball plans to pay down debt by $100 million to $125 million this year and by a similar amount next year.
“We're going to hunker down and restructure to come out with an opportunity to grow,” he said.
Which leads to the other part of the transformation. Ball hopes that growth will come from a greater emphasis serving the railroad industry and from a recently acquired performance chemicals business that produces residential wood preservation products.
While the coal tar business was traditionally the largest of Koppers' three segments, its revenue is shrinking and profits are evaporating. Meanwhile the rail products and performance chemicals segments are growing sales and expanding profits.
In the second quarter, for example, performance chemicals produced operating profit of $15.5 million on sales of $102.3 million — an operating margin of 15 percent.
Rail products had an operating profit of $15 million on sales of $170.9 million, for a 9 percent margin.
The coal tar segment, meanwhile, produced an operating loss of $2.9 million on sales of $158.4 million, which had dropped 24 percent from the second quarter the year before.
Coal tar challenges
And Ball said he expects to see performance chemicals and rail products continue to grow while coal tar distillation's challenges will likely persist.
The problem with coal tar is two-fold, Ball said. Prices for several of the chemicals the segment produces are indexed to the price of oil, which has tanked over the past year. And key end markets for those chemicals, particularly aluminum production, have moved overseas where Koppers doesn't have plants, or in the case of China, faces stiff competition.
“It's tough to view that as the linchpin of a growth strategy,” he said.
Meanwhile, moving goods by rail is experiencing a resurgence, adding demand for the treated rail ties Koppers makes. And the housing market is improving across the nation, meaning homeowners are more likely to invest in new decks that need treatment.
“The North American rail industry is structurally more sound,” Ball said.
Analysts like Ball's strategy and the steps he's taken so far.
“Koppers has done a credible job of preserving credit quality amid difficult market conditions,” Moody's Investors Service said in an August report.
The agency has called Koppers' moves to end its dividend and set debt-reduction goals “credit positives,” though it has maintained a negative outlook on the company because of the weakness in the coal tar business.
“We believe that the relatively steady earnings generated by the performance chemicals and railroad and utility products segments will impart a degree of stability on the company's operating results,” Standard & Poor's analyst Daniel Krauss said in a statement earlier this year.
While turning around Koppers is Ball's priority, he said he wants to make the company more visible in Western Pennsylvania.
The Koppers name may be familiar to some longtime Pittsburghers. Or maybe they've simply noticed the name atop the 35-story building across the street from the U.S. Steel Tower. But Ball said he suspects most people don't know much about the company.
“We really want to be a global leader in wood treatment solutions,” Ball said in July during a presentation to the Pittsburgh Technology Council. The speech was part of the effort to increase awareness of his company.
“I think we're going to surprise a lot of people.”
Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.
