Koppers Holdings Inc. Q2 FY2025 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Koppers' Second Quarter 2025 Earnings Conference Call and Webcast. Please note that this event is being recorded. I will now turn the call over to Quynh McGuire. Please go ahead.

Thanks, and good morning. I'm Quynh McGuire, Vice President of Investor Relations. Welcome to our second quarter 2025 earnings conference call. We issued our press release earlier today. You can access it via our website at www.koppers.com. As indicated in our announcement, we've also posted materials to the Investor Relations page of our website that will be referenced in today's call. Consistent with our practice in prior quarterly conference calls, this is being broadcast live on our website and a recording of this call will be available on our website for replay through November 8, 2025. At this time, I would like to direct your attention to our forward-looking disclosure statement, seen on Slide 2. 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. Also, references may be made today to certain non-GAAP financial measures. The press release, which is available on our website also contains reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. Joining me for our call today are Leroy Ball, Chief Executive Officer and Chairman of the Board of Koppers; and Jimmi Sue Smith, Chief Financial Officer. At this time, I'll turn the discussion over to Leroy.

Thank you, Quynh. Good morning, everyone. I'm here this morning to report on Koppers' second quarter performance and our progress in transforming into a high-performance organization, delivering mid- to high teens margins and stronger cash flow, while staying rooted in our purpose of protecting what matters and preserving the future. This morning, you'll hear how we continue to make good progress in all controllable areas, while we fight through what has mostly been a sluggish demand environment across our entire portfolio. On Slide 4, you'll see that on the plus side of the ledger, we lowered year-to-date SG&A by 13% compared with the prior year period. We reduced our team member numbers for 14 straight months, equating to an 11% drop in FTEs since April '24. We generated cash flow of over $50 million in the quarter, posted adjusted EBITDA margins north of 15% for the first time in 8 years, brought our capital spend annual run rate down below $60 million, signed a definitive agreement to sell our Railroad Structures business, which has been a drag to margin, ceased production at our phthalic anhydride plant a month earlier than planned, deployed $24 million of capital to dividends, share repurchases and debt reduction and launched our Catalyst transformation process to unleash the ingenuity in the organization to deliver benefits that will bring Koppers to consistent mid- to high teens EBITDA margins by the end of 2027. The biggest negative is on the demand side. And unfortunately, it's across the board. PC volumes beyond our previously disclosed market share loss are running a few percent down for the first 6 months, whereas we have projected them to be up for the year. Class I demand looks to be tailing off in the second half as it did last year, which is not what had been communicated to us at the beginning of the year. CM&C markets continue to be at their trough with no immediate signs of improvement. And while UIP volumes are beginning to show signs of improvement, that improvement is occurring at a slower pace than had been signaled. I find it quite remarkable that we could post our highest second quarter adjusted EPS and a 9% improvement over prior year, with sales down over that same period by 10%. We have a lot to cover today, so let's jump in. Moving to a quick summary of our Zero Harm activities on Slide 6. We show that we had 26 out of 41 facilities worldwide, operating accident-free for the second quarter. Year-to-date, our European CM&C, European PC and Australasian PC businesses have operated with 0 recordable incidents. Leading activities designed to proactively identify and eliminate hazards increased year-over-year in the second quarter, which were instrumental to lessening recordable injuries and serious safety incidents. Moreover, we just finished July with 0 recordables, which is the first time in my memory that we've reached that milestone. My thanks go out to our global team members for continuing to make the health and welfare of your teammates, your #1 priority. On Slide 7, our Susquehanna facility set the standard for operating safely this past year earning the 2025 Zero Harm CEO award. This award recognizes outstanding performance and achieving no critical incidents, maintaining a higher leading activity rate and lower incident rates than the overall Koppers rates. The Susquehanna plant manufacturers pressure treated crossties, switch ties and bridge timbers selling its products throughout the Northeast U.S. and Canada. Our sincere congratulations to plant manager Al Rutz and his team for demonstrating Zero Harm principles on such a consistent basis and setting an example for the rest of the organization to follow. As shown on Slide 9, we issued our 2024 Corporate Sustainability Report in June, once again highlighting the gains made in applying our core principles of people, planet and performance across all aspects of our business. We believe that maintaining responsible stewardship of the resources entrusted to us remains the key to promoting and achieving meaningful business growth. We're also honored that Koppers has been named for the first time the TIME Magazine America's Best Midsized Companies of 2025. This distinction recognizes exceptional performance in employee satisfaction, revenue growth and sustainability transparency is evaluated by TIME and data analysis provider Statista. For more information, please access the QR codes seen here. Moving on to Slide 10. In July, we signed a definitive agreement to sell our Railroad Structures business, which we refer to as KRS to a valued customer of ours and a cash transaction that will close by the end of this month. We acquired KRS at the same time we acquired our Performance Chemicals business back in 2014, and while it has had some strong years, mostly early on, the last several years have been a bit more challenging. KRS struggled to move up the priority list of where we wanted to deploy capital. And in the end, we concluded that we were probably not its best owner. I'm happy to say to Mike Tweet, who has proven to be a fabulous leader and someone I will miss that he and his team are going to be in good hands, as they're joining an organization that will engage and encourage them in ways that we weren't able to at Koppers. I wish the entire KRS team the best of luck, and I thank them for their tireless efforts and commitment to the Koppers culture over the past 11 years. On Slide 11, as mentioned on our previous call, engaged a firm to put our entire organization under a microscope and assess how we measure up the top-performing companies in each respective area of our company from commercial to procurement to manufacturing of course, our corporate support functions. And while there are a number of things we do well, not surprisingly, there is room for improvement in just about every area. This exercise resulted in the launch of Catalyst, a strategic transformation in how we look at our business, how we value opportunities, how we unlock the brainpower across the organization. This will lead to an upgraded technology and upskilling of our team members and an improvement in our processes that ultimately leads to better execution and greater shareholder value creation. In May, I announced that Jim Sullivan will be moving from his role as Chief Operating Officer to Chief Transformation Officer to lead the Catalyst effort. In June, we kicked off the second phase of Catalyst adding to the opportunities uncovered in the first phase, centering on the realistic value of opportunity to be captured in building out a detailed implementation plan that gets evaluated across the entire spectrum of opportunities and resourced according to where each initiative sits in the order of prioritization. Phase 2 will wrap up in mid-September with Phase 3 to follow soon thereafter. And while too early to announce precise numerical targets, I'm comfortable saying that we have uncovered sufficient opportunity to put us on a run rate for mid- to high-teen EBITDA margins on a sustainable basis as we exit 2027. I'm pleased with how the organization has embraced the concept of everything being on the table and the team has not shied away from making unpopular choices for the sake of the betterment of the long-term health of our company. I look forward to sharing more details on Catalyst on our next quarterly call. On Slide 12, we decided to postpone our Investor Day event originally scheduled for September 2025. This decision was made based on 2 primary factors: first, it goes without saying that there continues to be a tremendous amount of uncertainty in the global economy, which is having impacts on the markets we serve. We felt it would benefit us and our audience to give a little more time for things to hopefully settle down before going into depth on our long-range plans and targets. Second, we launched Catalyst at the beginning of this year. And as we've gotten deeper into understanding the opportunity and the time and resources that would be needed to stand it up, we thought it would be wise to take the time to be thoughtful on how it gets worked into our overall plan. In the final analysis, it didn't make sense for us to rush to a September 2025 date and felt like we would have a better-quality plan and story if we demonstrated a little bit of patience. We've not settled upon a date yet, but we'll share the specifics once that decision has been made.

Thanks, Leroy. Earlier today, we issued a press release detailing our second quarter 2025 results. My comments today are based on that information. As seen on Slide 14, we had consolidated second quarter sales of $505 million, down 10.4% from the prior year. By segment, RUPS sales decreased by $4 million or 1%. PC sales were down by $26 million, 15%; and CM&C sales decreased by $28 million, or 22% compared with the prior year quarter. On Slide 15, adjusted EBITDA for the second quarter was $77 million with a 15.3% margin. By segment, RUPS generated adjusted EBITDA of $32 million with a 12.6% margin. PC delivered adjusted EBITDA of $29 million and a 19% margin, while CM&C reported adjusted EBITDA of $17 million with a 16.2% margin. On Slide 16, our RUPS business generated second quarter sales of $250 million compared with $254 million in the prior year. Lower volumes of Class I crossties and lower crosstie recovery activity contributed to this decrease, partly offset by higher commercial crosstie volumes, price increases for crossties and increased activity in our railroad bridge services business. Untreated crosstie market prices remained stable compared to last year. Crosstie procurement was down 13%, while crosstie treatment was down 1%. RUPS also delivered adjusted EBITDA of $32 million compared with $22 million in the prior year. Profitability improved due primarily to $7.7 million of lower costs from raw materials, SG&A and freight along with net sales price increases. On Slide 17, our Performance Chemicals business reported second quarter sales of $151 million compared to $177 million in the prior year. We experienced a 15% volume decrease, mostly in the Americas from previously discussed market share shifts in the U.S. Adjusted EBITDA for PC came in at $29 million compared to $44 million in the prior year. Profitability was unfavorably impacted by higher raw material costs and lower sales volumes, partly offset by $2.2 million in lower SG&A expenses, lower operating costs and higher royalty income. Slide 18 shows second quarter CM&C sales of $104 million compared to $132 million in the prior year. This decrease was driven by approximately $20 million of lower volumes of phthalic anhydride as that product has been discontinued, as well as lower volumes of carbon black feedstock and lower sales prices for carbon pitch, which were down 6% globally as a result of market dynamics, primarily in Australasia. These factors were partly offset by volume increases for refined tar, naphthalene and creosote and $1.8 million in favorable foreign currency impact. Adjusted EBITDA for CM&C in the second quarter was $17 million compared with $11 million in the prior year. This improvement in profitability was due to $11.5 million of lower raw materials, SG&A and operating expenses particularly in North America and a favorable sales mix, partly offset by price decreases and lower utilization from ceasing phthalic anhydride production. Sequentially, the average pricing of major products decreased by 2% and average coal tar costs were higher by 4%. Compared to the prior year quarter, the average pricing of major products was lower by 7%, and while average coal tar costs decreased by 1%. As shown on Slide 20, we continue to pursue a balanced approach to capital allocation. Net of cash received from insurance proceeds and asset sales; we invested $21.7 million into our business through June 30. We are reducing our CapEx guidance for full year 2025 to be in the range of $52 million to $58 million. A significant reduction from $77 million last year, reflecting our commitment to increasing free cash flow. Year-to-date, we have invested $29 million in share buybacks, including shares withheld for taxes. We have approximately $75 million remaining on our $100 million repurchase authorization. We also returned capital to shareholders through our quarterly dividend of $0.08 per share. And we ended the quarter with $929 million of net debt, approximately $20 million lower than March 31, reflecting our commitment to putting a significant portion of our free cash flow toward debt reduction this year, and progress toward our continued long-term target of 2 to 3x net leverage ratio. We ended the quarter with a net leverage of 3.5x and $336 million in available liquidity. On Slide 21, during this quarter, we successfully extended the maturity date of our $800 million revolving credit facility to at least January 9 of 2030. We are very pleased with the extension, which also removes certain step-downs in our permitted leverage ratio and lowered the pricing tiers for certain borrowings. We continue to appreciate the ongoing support of our wonderful banking partners as we advance our strategic priorities. You can use the QR code on this slide for more information. On Slide 22, total capital expenditures for the second quarter were $26.4 million gross or $21.7 million net. We spent $22.5 million on maintenance, nearly $2 million on Zero Harm and $2 million on growth and productivity projects. By business segment, we spent $9.3 million in RUP, $5.9 million in PC, $10.2 million in CM&C and $1 million on corporate projects. And finally, on Slide 24. Our Board of Directors declared a quarterly dividend of $0.08 per share of Koppers common stock on August 7. The dividend will be paid on September 15 to shareholders of record as of the close of trading on August 29. At this planned quarterly dividend rate, which is subject to review by the Board of Directors, the annual cash dividend is expected to be $0.32 per share for 2025, a 14% increase over the 2024 dividend.

Thank you, Jimmi Sue. So now on to a quick review of each of the businesses, starting with our Performance Chemicals, or PC business on Page 26. As Jimmi Sue noted, we finished the second quarter with adjusted EBITDA and PC of just under $29 million, which equates to a respectable 19% margin. While that doesn't come close to measuring up against last year's monster second quarter, it's actually a respectable result in the context of the current state of the housing, repair and remodeling and industrial markets we serve, which all continue to be stagnant. We see some signs of life on the industrial side, however, which I'll speak to shortly in my UIP commentary. If you strip away the market share loss experienced this year, our volumes are lower from prior year by about 2%. That's down from our expectations to start the year of a couple of percent improvement based upon expectations of our customer base at that time, which have turned more dour after 4.5 months of tepid sales activity. As things currently stand, we are not seeing or hearing anything that would indicate that second half volumes will look any different than what we've seen for most of this year. The external data continues to paint an uninspiring picture in the near term as drivers for treated products like existing home sales, new home starts and repair, remodeling indices all seem stuck in neutral, and our customer base is now looking towards 2026 for signs of improvement. As we forecasted last quarter, we managed to fend off most of the impact of higher tariffs so far. The only quantifiable impact to date is the threatened and now actual Kopper tariff. This has caused the separation between the COMEX and LME exchanges, resulting in approximately $2 million of hedge ineffectiveness hitting our results in Q2. Between some additional hedge ineffectiveness and some direct tariff impact currently sitting in inventory, we expect about $5 million of impact from tariffs in the back half of the year, now reflected in our revised guidance. In addition, expected continued softness in our residential preservative business and a higher-than-expected impact from our lower operating leverage resulting from overall volume loss will have an additional impact on results in the back half of the year. Moving on to our Utility and Industrial Products business shown on Page 27. We're starting to see what we hope is the beginning of the market pick up that the industry has been forecasting for the back half of this year. When you look at the details of what appears to be an ordinary performance for UIP in the second quarter, our comparative volumes actually increased by a little bit for just the second time in the last 7 quarters and seem to be picking up even more momentum as we enter the third quarter. The sales improvement was led by our Brown Wood acquisition from last year, which saw a 24% increase, while our legacy sites were off by about 5%. During the second quarter, we started to see the backlog of rate increase requests to state public utility commissions begin to break free with more than double the amount of rate increases approved from quarter 2 of 2024. These much-needed increases provide a positive indicator for pull demand expectations. And we remain bullish on the utility for market through 2030 as megatrends such as electrification and grid hardening, complement the general need to replace aging infrastructure. On a final note, we continue to invest in resources to grow our business outside our traditional stronghold in the Eastern U.S. and are beginning to experience some small wins on which we intend to build. Our Railroad Products and Services business is summarized on Page 28. Treated sales volumes and improvements in pricing, combined with lower operating costs pushed our Q2 crosstie profitability to its highest point since the second quarter of 2016. This was the primary driver to our RUPS segment reaching a new quarterly high. Despite treated sales volumes being up for the first half of the year, the improvement is still tracking well behind the 8% year-over-year increase we had forecast based upon customer communication heading into this year. As a result, we're modifying our forecast for treated sales improvement to 4% for the year, close to what we've been tracking for the first 6 months. Our business mix will shift unfavorably in the second half, and the year-over-year improvement we've seen in our cost will face tougher comps in the second half, making the first half tough to replicate. Our shift away from the disposal part of our crosstie recovery model continues to be justified by more consistently positive results. Our overall Maintenance of Way business added $2 million of improvement for the second quarter compared to prior year, but we will not have our Railroad Structures business beginning in September. We recently signed a definitive agreement to sell the KRS business, as I've previously mentioned, to one of our contracted customers where it makes for a better fit. Despite the great year, our RUPS business has had through the first 6 months, we are revising our guidance down for this segment for the year. This is because we don't expect crosstie volumes to improve from their current pace. And while our UIP business will see an improved second half, we are tempering our expectations a bit regarding the pace of improvement. Next, on to the CM&C business, summarized on Page 29. CM&C continued its recent trend of improved performance, posting its fourth straight quarter of year-over-year improvement, despite most of our customer base still dealing with their own challenges around demand and trade. Our sales comparison is challenged even more, of course, with the shutdown of our phthalic anhydride business with little replacement thus far for naphthalene sales. We ceased production of phthalic in April, a month earlier than planned, and the initial cost benefits look even better than modeled. We still see opportunity to improve our cost structure further at our site in Stickney, Illinois and have a number of catalyst initiatives in progress to get operating costs where we need them to be. In parallel, we've been working hard behind the scenes to secure our major coal tar contracts in each region and stabilize pricing. Coal tar is the raw material that ultimately underpins the long-term health of each of our sites and without stable supply at a reasonable price point, our business can't survive. I reported last quarter that we had locked in a significant chunk of our Australian supply into the future, and I'm happy to say that we recently did the same in Europe. The future of Stickney will depend upon the same, and I hope to be reporting similar news to that effect in the coming quarters. On the spot purchase side, tar markets have been moving in our favor in Europe and Australia, which also helps our recent run of improvement. Finally, as I said on our prior call in May, the coal tar distillation industry could really use some rationalization of capacity. We believe others who participate in our markets are struggling even more than us over the past couple of years. And in the long run, that's unsustainable. In the meantime, we're positioning ourselves as a healthy long-term alternative partner for suppliers and customers, to ensure a much-needed outlet for their tar and for supply of their critical raw material. Moving on to our outlook for 2025, as shown on Slide 31. We're now reducing our consolidated sales guidance to be $1.9 billion to $2 billion in 2025 compared with $2.1 billion in 2024. This reduction reflects an assumption that the demand environment does not change materially from what we've experienced through these first 6 months. On Slide 32, we're revising our adjusted EBITDA forecast down to be in the range of $250 million to $270 million compared with $262 million in 2024. Now if we just match our first half, we'll be at about $265 million for the year, which sounds reasonable. But we did mention that we expect an additional $3 million of tariff impact over the first half, and we will not have $2 million of contribution from KRS that we had in the first half, as it had an ordinary strong first half of the year. That would put us at the midpoint of $260 million. Additional Catalyst benefits over and above the run rate and an accelerated pickup in demand in our UIP business, or higher demand in any of our businesses for that matter, would push us closer to $270 million and maybe even beyond. A combination of limited additional Catalyst benefits, additional tariff impact and further pullback in demand, however, would push us closer to $250 million. Additionally, Catalyst has uncovered some opportunity to reduce inventory levels for cash given the softer demand thus far this year, but it would result in less fixed cost absorption at the plants, which of course would also impact EBITDA. Pulling our guidance down to a more conservative range provides flexibility for us to make that choice and still meet the revised guidance. Slide 33 shows our 2025 adjusted earnings per share bridge and the improvement we expect in 2025, driven by higher operating earnings and lower interest expense. We're expecting $4 to $4.60 per share in 2025, which represents a 5% increase at the midpoint compared with $4.11 in 2024. As it relates to EPS, unfortunately, all the benefit of our lower interest costs and lower share count is getting washed away and a higher expected effective tax rate due to an unfavorable geographic mix of earnings. On Slide 34, we're now projecting capital spending for the year to fall between $52 million and $58 million compared with $74 million in 2024. And while we've not changed our operating cash flow target of $150 million for the year, I'm fairly confident at this point that we will beat that number. At the modest amount of cash, we will receive upon the sale of KRS, and we will have enough free cash flow to pay down a healthy amount of debt for the year. While I'm disappointed to reduce our expectations for the year, I don't want to lose sight that despite softer-than-expected end markets, we are still projecting adjusted EPS improvement, one of our better margin years ever, our best cash flow year ever, reduced debt and leverage and a detailed road map to take the performance and results of the company to another level. We have set ourselves up for a breakout performance, and it feels like we are close to a tipping point to set it in motion. I've never been more positive in the path we're on, and I appreciate our shareholders' patience and support. I would now like to open it up for questions.

Our first question today comes from Liam Burke with B. Riley.

Leroy, on RUPS, how have the contracts with the Class I customer has been going? Are you satisfied that you've got agreements that are in place that are satisfactory for you guys?

They are long-term contracts with varying expiration dates, some extending for several years. You can see our improved results, which reflect two main factors: pricing and costs. As I've noted in previous calls, we've made significant efforts to recover the cost increases experienced from 2022 to mid-2024. I believe we've maximized what we can do in that area until some contracts expire. Over the past year, we've focused on reducing costs, and I think the results indicate some success on that front. The third aspect is volume, and since our sites have a fixed cost structure, lower throughput has a direct impact. Looking at this year, we expect it to be a strong one for RUPS, aiming to finish in double-digit margin territory, which we haven't seen in a while. The last several quarters show significant improvement. However, it could have been even better if we experienced the volume increases we were forecasted at the end of last year while planning our production schedule. Overall, our volume numbers will increase this year, but not as much as we anticipated. Yet, I remain hopeful that this will push demand into 2026, potentially resulting in even higher volumes then. We will only know for certain next year. A lesson from the past two years has been to approach the volume forecasts with some caution, as we've consistently been told volumes would be higher but for various reasons, customers have scaled back around the mid-year point.

On the residential side of the PC business, we're aware of the market share losses and the current trends in existing home sales. As these dynamics play out, you're still maintaining high-teens margins. On the industrial side, there are signs of improvement. Could you provide an estimate of how much continued growth you anticipate from that sector?

Yes, we are seeing some positive developments, particularly in the UIP segment of the business. The industrial preservative aspect isn't the main driver of our results; it's primarily the residential side that matters more. We're noticing a volume pickup, which should enhance our plant throughput, leading to increased sales. However, for significant improvements in the PC segment’s results, we need to see a rebound on the residential front. While being down 2% isn't terrible, we had hoped for at least a slight increase for the year. The difference of 4% from a couple of percent up to down can significantly affect our performance over time. The good news is that we believe this situation is temporary, and we expect to see improvements eventually. Currently, there's a sense of optimism looking towards 2026, but it seems we’ll experience little change in overall demand during the latter half of this year compared to the first half.

The next question is from Gary Prestopino with Barrington Research.

Leroy, regarding this Catalyst, I’m not sure if I should call it a restructuring or something else. Is this a new development that extends beyond your strategic transformation outlined in the 5-year plan? Would you say that's accurate?

Yes. It is contributing to support the plan on a structural ongoing basis. This changes our perspective on how we generate opportunities, evaluate them, measure them, and plan for and track them. It is a change management process that will unlock opportunities, and we have already seen it do so in ways that will lead to sustainable performance improvement. Unlike past cost-saving initiatives, which often involved a brute force approach of indiscriminately cutting costs and enduring short-term pain, this approach focuses on making sustainable changes. It involves improving technology and enhancing the skill sets of our team to enable us to accomplish more with less, ensuring that these changes are lasting rather than temporary. This strategy is a crucial element of our overall plan as it provides a strong foundation for our future initiatives that will add value to the business.

Okay. And then you cited in your comments, the adjusted EBITDA margin target.

Yes, it's in the mid- to high teens. I believe we can definitely achieve that. You saw a preview of this with this quarter. We haven't had a quarterly EBITDA margin above 15% since 2017, but we reached that this quarter even though sales were down by 10% year-over-year. We accomplished this through various cost strategies. This suggests that if we succeed with Catalyst, these costs should remain stable rather than increasing again as demand rises. Imagine the significant impact on the bottom line when we have more volume and revenue coming in. So yes, we are targeting mid- to high teens margins, which we believe are attainable.

Okay. And then just kind of looking at going through your narrative and all that, it seems that the PC business definitely relative to where you were when you gave guidance at the end of Q1, the PC business has continued to slip...

Yes, overall, the volume numbers will still be up for the year, just not by as much as we initially expected. This gives me hope that we may see higher volumes in 2026. However, we won't have clarity on that until next year. One lesson from the past few years is to maintain some level of conservatism regarding our expectations, as we have been told for two years that volumes would increase, but for various reasons, our customer base has pulled back by the middle of the year.

The next question is from Michael Mathison with Sidoti & Company.

Congratulations on all the margin improvement this quarter, you guys. A couple of questions from my end. There was some news about a proposed consolidation among the big 6 rail companies, 2 of them are proposing to merge. Will that change life for you guys from either a pricing or a demand standpoint?

It's difficult to say at this point, and I believe it remains to be determined. We maintain relationships with all of the Class Is, viewing them as very important customers. My hope is that if the merger goes through, we can continue to serve the new entity at least as well as we do currently. However, it's early to make any definitive statements.

Fair enough. Just coming back to margins going forward. Everybody has a lot of curiosity. It obviously took a lot of work to reach 15%. You're now targeting high teens. That's another 200 basis points in lift. Is there anything specific that you could point to that would drive such a big transformation in the margin?

At this point, we are focusing on volume recovery. If you look across our businesses, it's uncommon for them all to be in the same position. Usually, we have 2 to 3 businesses doing well while 1 or 2 may not be performing as strongly, or vice versa. It’s unusual for all of them to either be down or up at the same time. Currently, we are experiencing a phase where all of them are somewhat stagnant, which is rare. This is why I highlight a 15% margin in an environment where our top line is down by 10%. Consider what could happen if PC recovers from being down 2% in volume to being up 2%. Also, think about UIP starting to rebound after a period of year-over-year declines in volume. RPS is expected to improve this year after ending last year down and mostly remaining flat. CM&C has also faced similar challenges but is beginning to show signs of recovery. The cost savings we’re generating will contribute directly to our profit margins. We are not finished addressing costs yet and anticipate further savings. If we observe some markets rebounding, even if not all businesses are performing well, we will likely see a significant positive impact on profitability and margins. I truly believe we are nearing a tipping point here, and while it may not happen in 2025 due to seasonal cycles, I am very optimistic about potential improvements in our end markets as we move into 2026. If we see that uptick, it could lead to substantial enhancements in our performance.

Great. Good luck in the back half of the year.

Thank you, Michael.

Thank you.

Thank you. I really appreciate everybody's time and attention today. As I mentioned, a lot of really good things going on in the organization, and I look forward to being back here in November, with hopefully some better news and some signs of improvement as we look out into 2026. So thank you, everyone, and have a great day.

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