Koppers Holdings inc (KOP) Q3 2021 Earnings Call Transcript

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Koppers Holdings inc (KOP 0.96%)
Q3 2021 Earnings Call
Nov 4, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers Q3 2021 Earnings Conference Call and Webcast. [Operator Instructions]

I would like to turn the conference call over to Quynh McGuire. Please go ahead.

Quynh T. McGuire -- Director of Investor Relations

Thanks, and good morning. I am Quynh McGuire, Vice President of Investor Relations. Welcome to our third quarter 2021 earnings conference call. We issued our press release earlier today. You may 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 February 3, 2022. And 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 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 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 discussion over to Leroy.

Leroy M. Ball -- President and Chief Executive Officer

Thank you, Quynh. And good morning, everyone. Now for those of you who joined us in mid-September for our Koppers Investor Day, we hope you enjoyed the event. Our team was very encouraged by the interest shown and to have the opportunity to provide some additional context on our long-term business strategy. And while I am disappointed to post lower-than-expected results in our first quarter following that day, I'd also like to emphasize that we are playing a long game, which as we all know, can be difficult to do as a public company. That's where our focus has been, and that's where it remains, and that's why we were excited to take the opportunity to unveil our 5-year plan. Our interest is in attracting an investor base that's also in it for the long game. And those investors that are interested in owning an essential and underappreciated business model, which has a lot of upside, should have a lot to like with the future we have laid out for Koppers. Replay of the full webcast from our Investor Day on September 13th is still available on our website.

So now let us get started with a review of our Zero Harm safety performance for the third quarter with special attention on COVID-19, as seen on slide four. Following guidelines set by the Center for Disease Control and the Occupational Safety and Health Administration, Koppers continues to require masks for those working indoors with some flexibility as case numbers dictate in each region. The vaccination rates for the company as a whole currently track at 64% globally with 61% in North America and 81% across our international locations. Overseas, Denmark lifted its COVID restrictions throughout the country now that more than 75% of its population is fully vaccinated. And as a result, we have relaxed protocols at our new Board facility. In Australia, lockdowns are being lifted as vaccination rates there have exceeded 60%. However, we have elected to keep our COVID protocols in place at our sites there for the time being. I saw this morning as we were making final preparations for this call that the details regarding President Biden's executive order have been released.

And over the coming days, we will be reviewing it to determine exactly how it must be deployed, and we will put the necessary plans and protocols in place. As described on slide five, we are going through our annual open enrollment process in the U.S. for employees to select their health insurance for 2022. And after careful consideration, we have decided to institute a monthly healthcare surcharge to employees that remain unvaccinated. That decision was made to help mitigate the additional cost of care for those that end up hospitalized as a result of contracting COVID. The data supports that for those who do contract COVID, the health results and cost of care for unvaccinated individuals far exceeds that for the vaccinated.

And I cannot, in good conscious ask our vaccinated employees to bear the additional cost that is brought on by others that are consciously choosing to not vaccinate for their own personal reasons. And also, we have adjusted our Zero Harm life-saving rules to reflect current COVID safety requirements, and we are maintaining all safety and health protocols regarding masks and social distancing. All Koppers office locations have been made available to employees and those who have been vaccinated must wear masks in common areas, while unvaccinated employees are encouraged to work remotely.

Unvaccinated individuals who come into the office must wear mask and maintain social distance at all times. We are now planning a return to the office beginning on January 3, 2022, and a hybrid work arrangement between office and home will remain in effect and available to employees as appropriate. At this time, as shown on slide six and as announced back in August, Mike Zugay, our Chief Financial Officer and a critical member of the Koppers leadership team in the past seven years, has announced his retirement effective at the end of this year. And that means that this will be Mike's last earnings call. So I want to recognize him for that and take a moment to thank him for everything that he has brought to our organization in his time here. We will miss him. I will miss him, and all of us at Koppers wish him all the best in retirement. Next week, Mike will be recognized here in Pittsburgh with a career achievement award as the CFO of the year for his tremendous contribution he has made to the several organizations he has worked at during his career.

Without any further ado, I will hand over the podium to Mike for the final time. Mike?

Michael J. Zugay -- Chief Financial Officer and Treasurer

Thanks, Leroy. On slide eight, consolidated sales for the quarter were $425 million, which was a decrease from sales of $438 million in the prior year quarter. Sales for RUPS were $187 million, down from $191 million. PC sales fell to $115 million from $148 million, and CM&C sales rose to $123 million, up from $99 million. Moving on to slide nine. Adjusted EBITDA for the quarter was $54 million or 12.7%, down from $67 million or 15.2% in the prior year. Also compared to the prior year, adjusted EBITDA for RUPS was $11 million, down from $19 million. PC EBITDA decreased to $20 million, down from $32 million, and CM&C EBITDA improved to $23 million, up from $17 million. On slide 10, sales for RUPS were $187 million, a slight decrease from the prior year's results. We attribute this mostly to declining Class I crosstie treating volumes and the impact of exiting our contract with Texas Electric Cooperatives. We are now serving the Texas market by treating poles at our own facility in Summerville, Texas, and this creates opportunities for longer-term sales growth for the company.

These declines were partially offset by increased activity in commercial crossties and rail joints. Hardwoods for crossties remain a procurement challenge as there is continuing strong demand in the construction industry for other uses for that wood. In fact, crosstie procurement is down 38% in the quarter over last year, while crosstie treatment has increased slightly by 3%. On slide 11, adjusted EBITDA for RUPS was $11 million compared with $19 million in the prior year. This was driven by lower green crosstie purchases, which led to reduced capacity utilization and absorption at the plant level.

We saw reduced track time due to increased levels of rail traffic, along with inefficiencies caused by employee turnover, which led to an approximately $2 million decrease in EBITDA for our Maintenance-of-Way business. Additionally, the costs incurred by converting from Penta to our CCA preservatives had a negative $2 million unfavorable impact. Moving on to slide 12. PC achieved sales of $115 million compared to $148 million in the prior year. Volumes of preservatives in North America were down, while wood treaters continue to closely manage inventory due to higher lumber prices.

As the economy has reopened in various areas, travel and other in-person goods and services have been taking a higher share of discretionary consumer spending. However, we have implemented price increases for our copper-based preservatives, which has somewhat offset these headwinds. On slide 13, adjusted EBITDA for PC was $20 million compared with $32 million in the prior year. This change can be attributed to lower sales volumes compared with pandemic fueled demand in the prior year and higher raw material and logistics costs, partially offset by price increases. EBITDA from Europe and Australia was about $3 million lower due to European regulatory impacts on our product portfolio and rolling lockdowns in Australia and New Zealand. Slide 14 shows CM&C sales at $200 -- $123 million compared to sales of $99 million in the prior year. The increase can be attributed to higher pricing for carbon Pitch, carbon black feedstock and phthalic anhydride, partially offset by lower volumes of carbon pitch. Moving on to slide 15. Adjusted EBITDA for CM&C was $23 million compared to $17 million in the prior year.

This increased profitability was driven by favorable pricing and strong operational efficiencies, partially offset somewhat by higher raw material costs. Compared with the second quarter, prices of major products this quarter increased 11%, while average coal tar cost increased 8%. Compared with the prior year quarter, average pricing of major products rose 24%, while average coal tar costs went up by 39% in that particular quarter. Now let us review our debt and liquidity. As seen on slide 17, at the end of September, we had $762 million of net debt with $326 million in available liquidity, and we also remain in compliance with all of our debt covenants.

Our net leverage ratio was 3.4 times at the end of September, down from 3.5 times at the end of December 2020 and 3.8 times in the prior year quarter. Longer term, our net leverage goal continues to be between two times and three times. In connection with our ongoing efforts to evaluate potential financing options, we are reviewing various refinancing alternatives for both our $500 million senior notes, which are due in 2025, as well as our existing bank credit facility. With that said, we have not yet determined to move forward with any particular refinancing transaction at this time.

With that, I will turn the call back over to Leroy.

Leroy M. Ball -- President and Chief Executive Officer

Thank you, Mike. Now before getting into a review of business sentiments and our outlook for the remainder of this year, I would like to share some notable accomplishments of Koppers and our people in the third quarter. On slide 19, you can see the remarkable accomplishment achieved by our entire Koppers Wood Products team at Longford, Australia, who have reached a 100% vaccination rate, our first location of 20 or more employees to reach that milestone, which is an incredible feat, and we are extremely appreciative of this achievement. Our new Nyborg Denmark team is dealing with the pandemic in an outstanding fashion as well.

The 93 employees there have achieved a 95% vaccination rates which are passing even the national rate of 75%. It's due to their willingness to take the COVID-19 virus so seriously that we have had no infections at Nyborg. And finally, in our corporate headquarters in Pittsburgh, where we have 177 employees, we have crossed the 90% vaccination threshold. I believe it's important for our headquarters personnel to set the right example of what we expect to see throughout the organization. So I am especially happy to see us get to that level.

Kudos all around to our teams at Longford, Nyborg and Pittsburgh for truly making Koppers Zero Harm culture to heart. On slide 20, we wanted to congratulate our truck drivers, the unsung heroes of Koppers who load transport and deliver our products all over the world safely and with special attention paid to limiting and eliminating negative environmental impacts. At our annual Zero Harm Truck Driving Championship 10 drivers were identified as finals for their overall performance and were appropriately recognized. As seen on slide 21, the Pittsburgh Post-Gazette named Koppers headquarters location in Pittsburgh as one of the top workplaces for 2021 with a special recognition of our attention to Health and Wellness.

This honor determined by a third-party and using survey results of employees across the Greater Pittsburgh region noted our company for its alignment, coaching, engagement, leadership, work-life balance and more. Now as the competition for talent intensifies, it will be the flexible adaptive culture we have created that focuses on the whole person that we expect to bring as a competitive advantage for Koppers. So now I want to move on to the review of the current and forward-looking business segment, which includes third-party data and feedback we have received from individuals working within the industries in which we operate.

And we have seen some significant shifts impacting our businesses during the third quarter, many attributable to the aftereffects of the global pandemic, including various supply chain issues and rising costs. I want to stress the headwinds we are facing are short-term and surmountable. They are not indicative of any underlying negative systemic changes to the foundations of our business model, which is important. The first-up is a review of what we see in the fourth quarter for Performance Chemicals, as outlined on slide 23. Now while we had a respectable third quarter, it fell a little bit short of our internal expectations. Residential preservative volumes took a little longer to recover from the deep trough that began in the last couple of weeks of June as lumber prices were in a steep and rapid free fall. The fourth quarter looks to generate a sales volume improvement of about 8% over third quarter results, building on North American residential demand that began in the back half of October. Year-over-year sales volumes are expected to finish about 14% lower than the record volumes in the prior year, which were driven by the strong demand during the pandemic in 2020.

Now the trend of our largest customers leading the way and consolidating the residential treaty market continues to work to our advantage. And as a result of consolidation that's occurred this past year, Koppers will now be the largest wood preservative supplier to the top three U.S. big-box retailers, which is a tremendous achievement and shows what can be achieved with strong proprietary technology and strong partners. Industrial demand in the U.S. should remain strong at a 5% year-over-year increase through September as the pent-up preservative is phased out for utility pole treatment. And this is one of the areas that we have dealt with some supply chain disruption, and therefore, haven't been able to fully keep up with demand.

However, that situation has recently improved, and we appear to be on a path of restocking the inventory channel. The book of demand remains strong, and we have been challenged to keep up. So the full potential of industrial sales will still be a little bit limited somewhat by short-term supply chain challenges in Q4. We are seeing the cost of labor, energy shipping and materials are all trending higher. And as such, we will need to continue pushing further price increases that started at the beginning of the year.

Despite what some are saying, these inflationary cost pressures are not transitory. So we will need to continue the acceleration of global price increases that began in early 2021 and that have totaled $15 million thus far through September. In foreign markets, strong demand and a weaker dollar have South America on track for a record year, while regulatory pressures on European products have led to a forecast of record low results there. Rising copper prices and a revalued inventory have helped our PC results despite the recent volume drop off, it does create some short-term risk of earnings volatility for this segment if the price of copper were to fall rapidly before our price increases step in to fill the gap.

Looking at the external data, some encouraging news came from a 7% rise in the sale of Existing-home with all four U.S. regions experiencing increases in sales and housing demand, according to the National Association of Realtors. The NAR also noted that it expects homebuyers to continue fueling a strong market, securing mortgages before potential interest rate increases. In October, the consumer confidence index was 114%, an increased from September and reversing a three month decline as concerns began to lessen regarding the spread of the Delta variant of the coronavirus.

Spending intentions have risen for homes, cars, major appliances and travel, all of which are projected to drive economic growth for the rest of this year. Slide 24 provides a look at the longer-term PC picture from 2022 through '25. Currently, our early take on MicroPro volumes in North America next year are that we expect them to be between 2020 and 2021 volumes. This is based upon an industry consensus view that volumes return to normal after the pandemic, and we see market share growth through the friendly treating consolidation mentioned earlier. And we also expect North American industrial volumes will rise as the Penta preserver continues to get phased out of the utility pole market and customers move to other preservatives, including our CCA and DuraClimb products. I mentioned earlier that we are on track for our best year ever in South America, which is a rapidly growing market for wood preservation. And to support that growth, we will be looking to expand our footprint in that geography. Earlier this year, we purchased property for a greenfield manufacturing operation in Brazil and are currently going through the detailed design engineering phase of that project.

This is capital that's already in our strategic plan and supports our preservative growth strategy. The expansion of production capacity for Basic Copper Carbonate at our Hubbell, Michigan facility was completed this past quarter. That development, along with regulatory approval of a new domestic BCC supplier promises to significantly reduce our dependence on overseas suppliers for that critical material, thereby strengthening our MicroPro supply chain. Now to keep up with rising costs, we are continuing to implement price increases that should add more than $20 million in 2022 and more than $60 million in 2023 based on current copper prices.

We also anticipate higher working capital values moving forward due to the higher cost of raw materials and increased inventory levels that we will likely carry for some period until we are comfortable that our concerns around supply chain have been alleviated. From an R&D standpoint, we are pleased to report that we have been issued a patent for our next-generation MicroPro product, which will remain in force through early 2038, and we will begin commercializing it in 2023. This is a big deal as it improves upon our current product line while extending the protection of our technology.

As support for next year's volumes projection, is a leading indicator of Remodeling Activity estimates that spending on home renovation and repairs will reach 9% annual growth and surpassed $400 billion by the third quarter of 2022. Also, the expansion in homeowners' equity opens the door to increased numbers and scope of home improvement projects in the coming year, even as labor and material costs are projected to rise. All in all, the future continues to look very bright for our Performance Chemicals business. Now slide 25 offers some insight into our UIP business for the fourth quarter. Near-term sales have been affected by the downstream effect of PC related supply chain issues, but that situation is already improving and should be much improved by the time we get to the end of the year.

Now similar to our PC business, inflationary cost pressures will mean continued U.S. price increases that began in the second quarter and have continued through the third quarter on an accelerated pace. Year-to-date through September, those increases have totaled $8 million, and we will need to continue to cover the rising cost of labor, chemical, fuel and transportation. As mentioned previously, market production of Penta will cease at the end of this year, and most of our customers are choosing to transition to our PC produced CCA and DuraClimb treatment solutions for the Southern Yellow Pine utility poles.

Our Vidalia, Georgia plant completed its conversion from Penta to CCA in the third quarter, which did have a negative impact on Q3 results, as Mike had earlier indicated. At our Vance, Alabama facility, a similar conversion will occur in the fourth quarter, which will similarly impact Q4 results. A new dry kiln also located in our Vance plant came online in the third quarter, while a similar kiln at Newsoms, Virginia will be completed in the fourth quarter. And although all these projects are disruptive in the short term, they are part of our network optimization strategy to reduce costs by becoming more efficient and taking closer control of our supply chain. Wood supplies seem relatively stable, although we are seeing pricing pressure stemming from increased demand for small logs and pulp and export. Trucking and logistics costs are remaining high due to increased diesel costs, availability of third-party trucking assets and labor costs. And all this goes back to our need to pass-through our increased costs.

Sales of poles in Australia have been affected by pandemic related shutdowns, although a vaccine rollout in New South Wales is expected to ease restrictions over the next few months. Turning to slide 26. We offer a peak ahead to next year and beyond for our UIP business. Now as mentioned earlier, sales of CCA treated poles will increase as 65% of our UIP customers have selected CCA as their preservative of choice with 10% still undecided. In 2022, we will continue to build on our Texas creosote pole business as we leverage our pole recovery business to add new customers and improve our cost structure. Sticking with the network optimization theme, we expect a much improved cost footprint to add meaningfully to EBITDA in 2022 through the capital spent this year for plant conversions and drying capacity.

Furthermore, we continue to evaluate our treating footprint and could pull the trigger on the consolidation of another treating plant in 2022, pulling that volume into the remaining plants in our network and saving even further on fixed costs. Basic demand for poles should remain high at least over the first half of 2022 due to project work and upgrades that were deferred during the pandemic, the longer-term demand profile should also remain positive as utilities need to continue to maintain their infrastructure, to avoid service interruptions as remote work continues and extreme weather events continue to increase.

Now an ample supply of softwood to keep whitewood prices stable for the foreseeable future. On the preservative side, we have been granted a registration to produce copper naphthenate, which would add another oil born preservative to our portfolio. At this point, we are in the process of assessing the most effective path forward and whether it is to externally procure or independently produce. In 2022, we expect to implement $15 million to $20 million in annualized price increases to cover the increased costs we are experiencing and that I had outlined earlier. Now for next year, in Australia, we see strong underlying pole demand to replace poles damage from recent natural disasters. While a new dry kiln has been installed at our Takura location to meet the growing demand for softwood due to hardwood supply constraints. Moving on to our Railroad products and services business on slide 27. The year-over-year trend of green tie purchases looks to have bottomed out and should comparatively improve beginning in the fourth quarter. At our current pace of 4.4 million ties purchased, this would represent a new low driven by customer reluctance to pay higher prices to meet their demand levels.

Treated and sold ties are flat year-over-year, suggesting that crosstie insertions are not an issue. Railroad customers are using high green tie prices to defer purchases with demand being pushed out to mid-2022 in hopes that cost will abate. Trucking problems persist from a lack of drivers and pent-up demand limiting access, all of which are driving transportation rates higher. In commercial crosstie profit should improve as comps get easier, but the market overall is still very competitive. As announced in early October, we closed on the sale of the property where our former Denver facility was located, providing net proceeds of $24 million in the fourth quarter.

The American Association Railroads reports total year-over-year U.S. carload traffic increased 8%. Intermodal units increased 10% and combined carloads and intermodal units increased by 9% as of September 30. The AAR added that limited availability of downstream truck and warehouse capacity because of supply chain logistics are impacting intermodal volumes for the time being. Now, the association added that significant network investments have made the rail industry more adaptable and enable to adjust ongoing changes in operational and market conditions, which bodes well for rail traffic long term.

The fourth quarter view of our maintenance-of-way business calls for it to sequentially improve and come in slightly better than last year's fourth quarter. Full year EBITDA, however, is on pace for an all-time low due to a collection of direct and indirect COVID related factors, such as labor shortages, lockdowns and reduced track time due to increased rail traffic mentioned previously. slide 28 discusses our view for our RUPS business in 2022 and beyond. Our current projections have supply issues around green ties beginning to subside with a rebound beginning in the second half of 2022. In the meantime, we have been working on the development of a long-term strategy to smooth out the peaks and valleys of the procurement side of the business, and we are planning to use the experience we have had addressing the factors that created volatility in both our CM&C and PC businesses and applying those same factors to address this challenge. We expect a minimum of $20 million in price increases to flow through our top-line next year to account for higher material costs that we have been experiencing thus far this year. We are close to finalizing the last of our contract extensions on the Class one contracts that were set to expire this year.

And when complete, most of our Class I volume will be secured beyond 2025. While overall volumes are set to increase 3% to 4% in 2022, with share remaining flat, volumes are expected to grow by more than 10% in 2023. The planned completion of expansion at our North Little Rock facility will support a large portion of that projected volume growth. As a result, working capital will increase due to higher green tie purchases and volume growth. And while I mentioned the disappointing results for our maintenance-of-way business this year, on a bright note, we are carrying the highest backlog we have had in that business in years into 2022.

Our results should improve meaningfully as we gain cooperation from the railroad for track time and see better crew continuity. We are addressing our turnover issue through a new redesigned compensation model for portions of our maintenance-of-way group that focuses on what that workforce values. Finally, we are actively working to expand our crosstie recovery business and add more Class one customers to our portfolio. While there's no getting around the fact that 2021 has been a disappointment for our RUPS business, the investments we are making now will set us up to make a major jump in profitability over the next two years.

Looking at the fourth quarter for our CM&C business on slide 29, we see strong demand continuing in key markets like steel and aluminum, with production increasing in auto and other manufacturing industries. The energy crisis in China, along with global supply chain issues have caused raw material shortages and longer lead times for finished goods, which has supported our business model outside of China. And one example is the high pitch export pricing out of China that's partially caused by the previous factors that supports stronger pricing of our Australian produced products that are tied to that benchmark. Our European business continues to experience end market pressure as a result of aluminum production cutbacks cutting into our customers -- cutting into our competitors' demand, which has caused them to compete for business to replace what was lost. In North America, tar production is even with or maybe even surpassed what it was pre-COVID, meaning we can reduce our higher cost tar imports from Europe and shorten our supply chain.

Price increases on coal tar are expected to continue globally, which will begin to compress margins somewhat in the fourth quarter. Pricing of products tied to oil, like carbon black feedstock, phthalic anhydride should remain high and boost profitability. On the downside, we are expecting volumes in our phthalic business to be lower due to customer supply chain issues impacting their demand. We are considering dissolving the previously closed KCCC facility in China during the fourth quarter or early next year to substantially complete our China exit plan. Slide 30 offers a look forward for CM&C. Strong demand in aluminum and steel markets should continue into 2022 or longer with passage of an infrastructure bill in the U.S. and as reliance on Chinese exports goes down and global logistics challenges continue, our CM&C business is poised to benefit. A global review by IHS Markit says that after making adjustments for production trends during the pandemic, production of light vehicles worldwide is expected to see double-digit growth in 2022. Now also, it reports that the semiconductor supply chain is stabilizing, which represents another positive step in the recovery of the automobile and other manufacturing segments.

More decarbonization projects to eliminate coke from the steelmaking process are occurring and will further impact future coal tar availability. But despite external pressures, our focused footprint puts us in a solid competitive position to maintain our low to mid-teens EBITDA margins in this business. Ongoing improvements we are making at our Stickney facility will improve safety, boost reliability and generate additional profitability. Higher future crosstie volumes and creosote treated utility poles will also have a positive effect on the CM&C business in the form of more distillate being upgraded from carbon black feedstock to creosote. Our yield optimization project would further improve pitch yields that we get from tar from 50% of production to up to 70%, meaning higher sales and profitability. In a similar vein, work on enhanced carbon products for use in battery anode materials continues in North America, Europe and Australia. And those projects are not yet included in our 2025 projections but could provide significant potential upside. On slide 32, our sales forecast for 2021 has been revised to be approximately $1.7 billion compared with $1.67 billion in the prior year to reflect the lower than previously expected PC volumes on our third and fourth quarter.

On slide 33, we are adjusting our 2021 EBITDA projections to now be approximately $220 million, which is at the low end of our previously communicated range. That compares favorably with the $211 million generated in the prior year and will be our seventh consecutive year of EBITDA growth looking at the company in its current formation. On slide 34, our adjusted EPS guidance is now expected to be approximately $4.12, which is comparable to our all-time high 2020 adjusted EPS despite the negative impact of $0.40 per share from our higher estimated effective tax rate. Our $4.12 estimate for 2021 is lower than our prior estimate range, primarily due to our effective tax rate increasing from prior projections.

Finally, on slide 35, our capital expenditures were $87.6 million year-to-date through September 30 or $78.7 million, net of the $8.9 million in cash proceeds. We are on track to spend a net amount of $80 million to $85 million on capital expenditures with approximately $45 million dedicated to growth and productivity projects. So in summary, while we always strive to do better, I actually think it's pretty remarkable that we are on track to be in our most recently communicated range of guidance and actually right in the middle of the original guidance we gave for the year back in February.

Of course, how we are getting there is quite a bit different than what we thought. But once again, I believe that just highlights the strength and the diversity of our business segments, which tend to operate opposite of each other. In the dynamic environment, we find ourselves in, it's tremendously helpful to not be reliant upon a single business or market to carry the day, year in and year out. It's been a difficult and draining couple of years, but I am proud of how our team has weathered the storm and put us in a position to capitalize on the many opportunities in front of us. And through a combination of significant price actions and continued execution on our high-return internal projects, I am confident that we will take the next important step forward in 2022 toward meeting our 2025 goal of reaching $300 million in EBITDA.

With that, I would like to open it up to any questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Mike Harrison with Seaport Research Partners. Please go ahead.

Mike Harrison -- Seaport Research Partners -- Analyst

Hi. Good morning. I wanted to say congrats and best wishes to Mike. It's been a pleasure working with you. Thank you. There's a lot to unpack here. I will start with the RUPS business. Just in terms of the untreated tie availability, are there signs that, that is improving near term? It kind of sounds like you expect the weaker utilization to start to improve by mid next year. Is that kind of the way we should think about things trending for now?

Leroy M. Ball -- President and Chief Executive Officer

Yes. Mike, I think what we are seeing now is things appear to be bottoming out. And so we are expecting -- I think we are expecting -- certainly, the comps improve beginning in the fourth quarter. And so I think we are going to see year-over-year things bottoming out. And with really the recovery happening, I think, beginning midyear of next year. That's the current intelligence we are receiving from our folks out in the field with what they are seeing.

Mike Harrison -- Seaport Research Partners -- Analyst

And you mentioned the higher activity in commercial crossties. Presumably, they are actually paying some relatively high prices there. Can you talk about what is driving that higher commercial activity and do you expect that to continue into next year?

Leroy M. Ball -- President and Chief Executive Officer

Yes. I think, again, there's a lot of disruption, obviously, through the pandemic, and it affected industries in different ways. Certainly, the Class 1s took the opportunity to do a lot of repair and maintenance. They have bigger balance sheets and ability to do that. I think some of the smaller railroads were probably a little more cautious in terms of where they were deploying capital. So I'd say from that standpoint, with the recovery beginning to occur and things opening up a little bit, people getting a better sense of maybe what the future will hold, has provided some optimism to be pushing more projects forward.

They have had a lot of delays in terms of just how you could operate. And certainly, we have seen that in the construction side of our businesses as well. It's really -- it's where we have seen the biggest impact on productivity and efficiency, just being able to get people out working and working safely around the COVID guidelines and protocols as well. You had different restrictions in different parts of the country, and it is just a mess. And so I think as things have started to open up more. It gives the confidence for the short lines probably going to move forward with more projects, and we are seeing that on the utility side as well.

Mike Harrison -- Seaport Research Partners -- Analyst

All right. And then within the Performance Chemicals business, can you walk through the European regulatory issue that you are seeing currently? And I believe your one slide there said that you were planning on executing a restructuring of your European business within Performance Chemicals. Can you talk about what that is going to entail?

Leroy M. Ball -- President and Chief Executive Officer

Yes. So we fall under the buy side product registration act over in Europe for the products that we sell into those markets. And there's been a lot of review for reregistration of a number of different products and raw materials over there that we have been going through as well as many others, and there are certain things that have been getting regulated out, which are impacting our product portfolio and so we are having to adjust with a different product line and figuring out how we move forward. Again, and rebuild our profitability there.

We have a pretty strong foothold up in the Nordic regions. And so we are looking at how we play to our strengths and actually utilize the technology that we have developed here, and that's become the staple for residential treatment in the U.S., our MicroPro technology and introducing that product line over there. So I'd say there's a lot of potential for improvement in that business. And especially if we end up getting MicroPro qualified and -- out into the market over there. We already have extreme interest from a couple of large customers over there in supporting it. So we are off to a good start.

Mike Harrison -- Seaport Research Partners -- Analyst

All right. And then within the CM&C business, it looks like volumes were kind of flattish or maybe even a little bit lower this quarter, yet you are kind of talking about strong underlying demand dynamics. So maybe a little bit of color on what was going on with volumes in the third quarter?

Leroy M. Ball -- President and Chief Executive Officer

Yes. So for that business, there can be a tendency. Again, there's large volumes of products that get shipped and things can move from period-to-period as well, which can have an impact. But overall, I'd say the demand level is strong due to the underlying markets and the strength of the underlying markets in steel and aluminum. Europe is probably where we face the biggest challenge because, again, some of our competitors' customers have not fared as well. And so they have lost some business there as a result of curtailment of capacity. And it has just made for a more competitive environment overall.

So we are fighting for volume, we are fighting for price and margin. And it has just made for an overall extremely competitive dynamic there. But we will work through it. I think we are positioned geographically better to compete. And we also have the balance of having our European business strongly linked to our North American business as well. So that provides us some ability to, again, flex back and forth between the two regions, depending upon who might be in a stronger position to supply at a particular point in time. So it's always a balancing act in that business. And again, our folks in that business do an incredibly great -- an incredible job of, again, managing that arbitrage between the raw material and the end market pricing, which can fluctuate significantly in any given quarter.

Mike Harrison -- Seaport Research Partners -- Analyst

All right. My last one is for Mike. I am not going to let him escape without a balance sheet related question. You mentioned in your prepared remarks some potential opportunities for refinancing. Can you just remind us what the rate on the senior notes and your current facilities look like? And maybe what kind of potential interest rate savings you could be looking for?

Michael J. Zugay -- Chief Financial Officer and Treasurer

Yes, Mike. On our bonds, we have $500 million outstanding, which are due in 2025 at a flat interest rate of 6%. And given what we are hearing from our banks that we use, both in our syndication of banks on the bank credit side as well as some investment banking firms that we use. It looks like we could possibly refinance somewhere in the 4.75% to 5% range. Which would knock one point or 1.25 points of our interest rate on those bonds. In addition to that, our bank agreement we believe there's been a lot of changes in the marketplace and the high end of our pricing, which currently is a formula, but it's about 2.6% on the outstanding balance of our credit agreement. We believe, which is at the high range of our current pricing grid. We believe that, that would become -- the low range of our current grid would become the high range in a new particular agreement. So there's interest rate savings as well as covenant relief and getting rid of some other things that have been a nuisance to us for the last five years. We believe that the market is poised for that. We have been getting feedback along those lines, and we are going to seriously take a look at that.

Mike Harrison -- Seaport Research Partners -- Analyst

Alright. Thanks for the details.

Michael J. Zugay -- Chief Financial Officer and Treasurer

You're welcome.

Operator

The next question is from Alex Paris with Barrington Research. Please go ahead.

Chris Howe -- Barrington Research -- Analyst

This is Chris Howe with Barrington Research. Not sure how that got that. I had a few questions here. The first surrounding the price increases, it's not surprising to hear, given the current challenges of the environment. If we think about the PC segment for this question, the price increases that are planned, you mentioned they are greater than $20 million and are greater than $60 million. How should we think about these price increases in the context of catching up to what's been happening in the environment, while also taking into consideration what's still happening in this environment? And when do you think you will be at a comfortable price to cost coverage ratio in the PC segment?

Leroy M. Ball -- President and Chief Executive Officer

Chris, I think in that segment, it's more keeping up. I mean, we have indicated -- we have been increasing price throughout this year. And I think we have been pretty much in alignment with what we have had in our cost increases. So I think we have matched up pretty well, and that's really the intent as we move out. So I'd say it's more keeping up and catching up on that side of the business. There's other parts of the business where it will be -- it is more of a catch-up. I will use UIP as an example there. In that business line, it's more catching up. In PC, it's more keeping up.

Chris Howe -- Barrington Research -- Analyst

Okay. And then another question on the PC segment. You mentioned different remodeling trends still predicted to come in -- at a relatively healthy comparable levels. Once we get past the winter season, I would think it would be fair to assume there should be some level of pickup in remodeling activity as we head into the summer of next calendar year?

Leroy M. Ball -- President and Chief Executive Officer

Yes. I mean, typically, that's what we see. So we are working off of -- a little bit of a strange -- obviously the pandemic spike followed by the steep decline when lumber prices fell through the floor. And truthfully, people -- we had that pent-up demand for people to do other things than -- rather than stay home. So you had everybody head now on vacation, renewing their season tickets, doing all that stuff they haven't been able to do for a long time. And so their focus was not on building outdoor structures like it was in 2020. And we felt that throughout the summer, we thought that as people came back from vacation, as they got the kids back in school sort of post Labor Day, we would see things sort of pick up to normalized demand because there's still a lot of backlog, I think, in the project queue as well, we did not see the jump after Labor Day that we thought and were expecting.

I will say the back half of October, we have seen more of a pickup. So I'd say where we sit today, we are starting to move in line with where we thought we would be. We just thought it was going to happen a little bit earlier. So you get through the winter months. And obviously, there's a preparation in the early parts of the year to start to make sure that all these big-box retailers are fully stocked for the construction season. So we definitely would expect to see that. There's no question about it. But right now, there's still actually a recovery in volumes from the third quarter because there was such a lull, following that huge surge in demand. So fourth quarter volumes actually are going to be better than third quarter, which is unusual and not typical.

Chris Howe -- Barrington Research -- Analyst

Okay. And my last question, the -- you mentioned you are reviewing the government Bill. As we think about these potential benefits, as you outlined in your Investor Day, what's your communication strategy to investors and to the Street once you get a better handle on how these bills and benefits come to fruition and what may mean for the business, both near-term and long term?

Leroy M. Ball -- President and Chief Executive Officer

Well, I think we have always strived to be transparent with investors. And we obviously give a bunch of information in regards to what's going on in our businesses, in the industries we operate and the drivers that impact it. So to -- certainly, to the extent that there are things that we can pick and pull out of the ultimate bill that gets passed, we will absolutely share that. We tried to stress and really convey in a strong way back in September that the road map to take us from where we are at to where we are going is largely in our control. There are projects and things that we know through just simple, successful execution should generate the returns that are attached to them. The things that we -- that will impact us outside of that are just general changes in economic demands for particular businesses, wherever each one of them might be able to sit in a cycle at a time.

Certainly, the ability or inability to pass on cost increases through price. But the whole thing around sort of that additional demand above and beyond what we would typically see in our businesses and that might happen through, again, an infrastructure bill. That is absolutely on top of anything that we have put into our projections and numbers that we put out before. So yes, we are hoping that there's going to be things in there that we can see that will have positive impacts that we will be able to add on to what we have talked about. And if we do see that, we will absolutely communicate it, but it's a little early to tell at this point.

Chris Howe -- Barrington Research -- Analyst

Okay. And if I may squeeze one more in. I promise this is the last one. I wanted to tie it back to the Investor Day. You mentioned one of the key points is wood treatment expansion and some new geographic regions or territories like the Midwest, Texas and the West Coast. I know it's only been about two additional months. But perhaps you can talk about those regions and how you are thinking about those over the next 12 months?

Leroy M. Ball -- President and Chief Executive Officer

Yes. There's a lot of conversations that are going on. A lot of work -- planning work is to exactly how we would go about and what are the best way in terms of generating the best return. So a lot of conversations, both internally and externally, that haven't developed to a point really where I have much news to share. I mean, the commercial development in the Texas region is ongoing and continues. And I think as time goes on, we will see more and more success there, again, which has upstream effects throughout our business as a result of the integration of our production of creosote into that creosote pole market. And beyond that, for Midwest and West Coast, it's still a little early to get into many details there. But there is a lot of work that's going on behind the scene.

Chris Howe -- Barrington Research -- Analyst

Okay. Thank you. And thanks, Mike. It's certainly been a pleasure of working with you and best wishes on your retirement as well.

Michael J. Zugay -- Chief Financial Officer and Treasurer

Thank you, Chris. You as well.

Operator

The next question is from Liam Burke with B. Riley FBR. Please go ahead.

Liam Burke -- B. Riley FBR -- Analyst

Thank you. Good morning Leroy. Good morning Mike. Leroy, in terms of the RUP business, procurement, you said -- crosstie procurement was bottoming. What gets that recovering? Is it just the fact that the maintenance is so far deferred that the Class 1s are going to have to step in and buy or are they still waiting for prices to ease up?

Leroy M. Ball -- President and Chief Executive Officer

Yes. It's -- I think it's a leveling out of pricing, which is sort of the beginning of it. And so nobody in this market, as we have seen, has sort of historically really likes jumping in a rising market. They don't want to add fuel to that fire and propel it even further upwards. So they tend to be pretty conservative as price is moving up. And pretty measured in terms of what they are willing to offer as increases to try and get their demand. And what it takes is for pricing to ultimately level out where they get comfortable that it's reached a peak. And then you start to see some more jump in. And typically, what we obviously see afterwards is some reversion back toward prior levels. So with us right now seeing some leveling out here over the past 3, four weeks, gives us hope that we have reached that peak and that we are going to start moving in the other direction.

Liam Burke -- B. Riley FBR -- Analyst

So any kind of easing in prices, you get the benefit of also the catch-up on any kind of deferred maintenance?

Leroy M. Ball -- President and Chief Executive Officer

Yes. That's right, Liam. I think that we feel really excited about the RUPS business over the next couple of years because when you see the drop that we have seen due to the dynamics that we have talked about, you do tend to see the snapback occur to catch up, as you point out. And then what we have going on now that's different than sort of where we have been in the past during these times is the expansion in the work that we have been doing, again, behind the scenes that will ultimately result in greater efficiency and lower cost structure, while moving into a period of likely higher volumes, all of that should conspire to really propel the RUPS business forward in a big way over the next couple of years. So if we would show the last five years, each year, the ups and downs of each of the businesses, you are going to see all of them having up years and down years. RUPS has had, I think, more down years than up years over that period of time. The next couple of years, for sure, we expect RUPS to be in the green and be one of the ones that are really moving the ball forward for the overall organization.

Liam Burke -- B. Riley FBR -- Analyst

Great. And Mike, presuming the capex is 115 and $120 million for the full year. Would you anticipate being free cash flow positive for 2021?

Michael J. Zugay -- Chief Financial Officer and Treasurer

Yes, we still do, Liam, not by much, but we still do, yes.

Liam Burke -- B. Riley FBR -- Analyst

Great. Thank you Leroy. Thank you Mike.

Leroy M. Ball -- President and Chief Executive Officer

Thank you Liam.

Michael J. Zugay -- Chief Financial Officer and Treasurer

Thanks Liam.

Operator

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

Leroy M. Ball -- President and Chief Executive Officer

I just want to thank everyone for participating on today's call and also for your continued interest in Koppers. Thanks for sticking with us throughout today, and look forward to talking again next quarter. Stay safe, everyone.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Quynh T. McGuire -- Director of Investor Relations

Leroy M. Ball -- President and Chief Executive Officer

Michael J. Zugay -- Chief Financial Officer and Treasurer

Mike Harrison -- Seaport Research Partners -- Analyst

Chris Howe -- Barrington Research -- Analyst

Liam Burke -- B. Riley FBR -- Analyst

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