Bottom of your screen, you'll see a circle with three dots in it labeled "More." If you click that, that will take you to a place where you can key in your question, and we'll read it off, and the Koppers will answer it for you. We've left five to 10 minutes at the end for questions, and with that, let me introduce the team from Koppers. We're joined today by Brad Pearce, Chief Accounting Officer. Brad, please take it away.
Okay, great. Thank you, Michael. Yeah, and thank you for the invitation to participate in this investor conference, and yeah, thank everybody for joining in to hear a little bit about Koppers. You know, I think one of the things I'll try to impart during this presentation is to help you see that Koppers is a company that has strong profitability. We're able to generate meaningful cash flows and free cash flow, and as a result of those two things, are able to create shareholder value. So I'm not going to, obviously, read the Safe Harbor statement, but again, just wanted to reiterate that we do undertake no obligation here to update any forward-looking statement that might be made during today's presentation for events or circumstances that occur after this presentation. Whoop, sorry. Having— there we go. Okay, sorry, not sure why that happened.
Okay, so a little bit about Koppers. So from an investment thesis perspective, Koppers does operate from a position of strength across a number of areas that we've outlined on this slide. First is we are at an inflection point in our strategy. A number of years ago, we embarked upon a strategy we called our build phase, where we were investing in capital projects within the company that we believed could return, have solid and strong returns for us in the future. We've now completed that build phase. A lot of those capital expenditures that we incurred are behind us, and we're now moving, hopefully, now into the growth stage of that strategy, where those projects can return strong cash flow to the company to help us pay down debt and also further invest in our future.
One of the key elements that you will see when we get into a little bit more detail about the business is that we are a market leader in the critical end markets in which our businesses participate. This really gives us sort of a stable platform for market growth and really gives us the ability to return assets to the business for future growth opportunities. Right now, we are focused on really trying to find meaningful improvements in our margin that we are generating to, again, generate that cash to invest in our business. We have an experienced and tested management team. I've been with the company for many years. And really just to kind of, again, emphasize the future strong cash flow generation that we believe our business is poised to generate.
We'll talk a little bit also about what we call our Catalyst Initiative, which is really a sort of quasi-restructuring activity that's really focused on improving the business in improving the cash flow generation that the business is able to produce. So to talk a little bit about our different businesses, here we'll break it into four pieces. So for the railroad products and services business, this is really a business that is focused on the manufacturing of wooden cross-ties, and a huge sort of market for us, there are the Class I railroads in North America. We also sell to a lot of the short-line railroads as well. We have a number of plants. They are all located on line with the Class I railroads, and we do have market share with each of those Class I railroads.
A second business, which is related, I would say, in a way to the railroad cross-ties business, really from a manufacturing process perspective, is our utility and industrial products business. This business is also treating wood, but in this case, it is wooden utility poles. And again, we have a leading market presence in the U.S. as well as Australia with this business. So right now, if you look at the U.S. market, we sell to eight of the 10 largest utilities in the U.S. And we really view the utility business as a business that we can grow in North America, given our current market share. The Performance Chemicals business is also related to the wood preservation space. What it does, it is a manufacturer and developer of wood preservation chemicals. So this business doesn't actually treat the lumber. It's producing the chemicals that are used to treat lumber.
If you look at the markets that we participate in here, it's really in residential lumber, treated residential lumber, which are used for applications such as outdoor decking. We have a patented technology called MicroPro, which is the leading wood preservation chemical for residential lumber in North America. And then the final business that we participate in is the carbon materials and chemicals business. This is a business that produces a couple of products. One is carbon pitch, which goes into the aluminum industry. But most importantly for that business, it produces creosote, which is the main wood preservation chemical used to treat railroad cross-ties. So there's a level of vertical integration between the carbon materials business and our railroad business.
So to step back and just look a little bit about the different business segments, from a segment reporting perspective, we do combine the railroad cross-ties and the utility pole business into one segment. You can see that, from a sales perspective, is our largest business. In 2024, it generated EBITDA margins of just under 9%. I would say one of the good stories for 2025 is a real focus on improving the margin contribution from that business. If you look at 2025, we're running at over 12% EBITDA margin generation. From a business perspective in servicing the railroads, you can see we list a couple of other services that we offer the railroads. We did simplify our business a little bit this year by divesting of our railroad bridge service business in August of this year.
We do have a couple of other sort of ancillary businesses there, which again help service the Class I's. The Performance Chemicals business, that is by and large our highest and most profitable EBITDA business. Last year, it generated $140 million of EBITDA. This year, that number is down a little bit from a market share shift that we experienced between 2024 and 2025. It has resulted in a little bit of erosion in the EBITDA margin in that business. This year, we're running around 18% compared to the 22% last year. But again, this is a great business. We'll talk a little bit about capital spending later on. But from a capital spending requirement business, this is actually a fairly low capital-intensive business, but does generate a lot of profitability and cash flow for the business. And then our carbon materials business, which is our smallest business unit.
If you look at this business, this business has gone through a lot of change and restructuring over the years. We used to operate 11 carbon materials and chemicals plants. If you go back to, say, 2014, due to sort of the changes in that market and sort of our priorities, we have reduced our footprint down to three plants, three key core plants, one located in North America, one located in Europe, and one located in Australia. One of the couple of the key things to keep in mind is you're trying to understand some of the markets that we participate in. So from a utility pole perspective, right, there are over 140 million utility poles in place and in service in the U.S., and around 2-3 million of those poles just have to get replaced every year. So there is sort of a base core business.
One of the things that has excited us about the utility pole business over the last couple of years is additional spending, which has happened and we believe will continue to further develop with expansion of the utility electrification markets, either through AI or bringing internet to rural areas, in addition to hardening the network against storms, which again is something that if you're located in areas that are susceptible to hurricanes is a big concern. From a railroad cross-ties perspective, there's sort of an annual 18-20 million cross-ties that just get replaced annually in North America, just so that, again, the railroads, the Class I's, can keep their networks running safely and effectively. As we've kind of looked at the, and again, if you step back and look at the performance chemicals market, I said a lot of focus on that business on residential lumber.
So the things that we look to there are the health of the repair and remodeling markets in the U.S. Those have been pretty strong over the past five years, particularly during the pandemic years when there was a lot of investment, a lot of spending done on the home. We've seen a little bit of a decline from the higher growth rates we saw earlier in the repair and remodeling market. But again, that market still remains pretty strong growth potential for that business. From a sales- by- geography perspective, you can see around 70% of our sales are in the U.S. So again, we have a nice blend between domestic and international sales. And again, if you kind of look across the businesses from a sales and Adjusted EBITDA perspective, we have pretty good sharing of sales and EBITDA across our significant segments. Okay.
So just a few words about a project that we have ongoing at the company called Catalyst. So early this year, we launched this project, which really started with an operational assessment of the company. From that, we developed a detailed implementation plan, and we're now in the process of executing on the initiatives that we identified. So this is really a company-wide initiative at sort of all levels of the company, both from, say, an administrative perspective to an operational perspective, to try to, again, identify things that we can do better, markets that we can serve to really drive profitability benefits to the company.
And you can see some of the examples are saving on procurement costs, obviously looking, again, where it makes sense, headcount reduction activities, closing operations that, again, either have higher capital spending requirements in the future or didn't really sort of fit in with the vision of the company. So as we look and implement these initiatives, we kind of really see around $40 million worth of annual benefit arriving from these activities. And as we project out to the end of this sort of three-year process, what are some of our key objectives? One is maintain on a consolidated basis recurring EBITDA margins of greater than 15%, growth in EPS of 10% a year with that cash that's being generated, driving down our net leverage below two and a half times.
And from really kind of one of the key objectives is to enhance the free cash flow that the company is able to generate. We want to be in a position where, from a free cash flow perspective, we are generating at least $100 million a year of free cash flow. Just a few words about sustainability. Again, if you look at the sort of products that we're making, one is it's the preservation of wood, right? So it's using a renewable resource as a product, giving it a longer life. And really, again, if you've kind of stepped back and look at where our products sit in infrastructure, they are sort of essential to everyday life, right? Electricity distribution through our utility pole business, logistics, moving a freight with our railroad cross-ties business.
So from a sustainability perspective, these are some of the things that we sort of look at and where we fit into that picture. So I'm not going to spend a lot of time talking about our third-q uarter results, but I'm going to say some of the highlights would be, again, lower SG&A costs, a lot of that coming out of the Catalyst initiative on really focusing on areas that we can reduce spending. At the same time, with that reduced spending, again, able to generate sort of consistently strong cash flows. If you look at our operating cash flow, we are well on our way to our seventh year of operating cash flow of greater than $100 million. Again, and that in concert with our reduced capital spending is going to be generating additional free cash flow for the company.
We're constantly looking at ways to optimize our business, and we've been sort of very active in those areas. I had mentioned we simplified our railroad business by selling our Koppers Railroad Structures business, which was a bridge repair business, ceasing production at our phthalic anhydride plant, and again, really kind of focusing in and looking at that North American CMC business to see, again, how we can improve that business and reduce our capital spending requirements related to that business. From a dividend perspective, we currently pay a $0.08 dividend per quarter on our stock. We've been able to increase that quarterly dividend by $0.01 every year since we reintroduced that dividend a number of years ago, and just a few comments here on our capital allocation strategy, and then I'll stop my comments and open it up to questions.
So capital expenditures this year, we're looking at between $52-$55 million. If you compare that to where we were when we were in sort of the build phase of our strategy, we used to be in excess of $100 million, right? So we've made those investments, and now we have pulled back on that capital spending activity. And that's, again, helping to generate additional free cash flow for the business. With some of that additional cash flow, we have been pretty active with share repurchases. We repurchased over $40 million of stock in 2024. Through three quarters of this year, we're at $33 million. We have plenty of capacity left in our share repurchase program. From a leverage perspective, I guess part of the good news is with our term loan and a revolving credit facility, we're secured from a liquidity perspective out to 2030.
And from a net leverage perspective, we ended the quarter at just under three and a half times. Our sort of long-term goal is to get, obviously, below three and really want to be, once we come out of 2028, below two and a half times leverage. So yeah, so with that, I will pause there and answer any questions that the participants might have.
Thanks, Brad. We didn't get any questions from participants yet, so while they're gathering their thoughts and keying them in, why don't I just ask a couple that occurred to me? One that sort of stood out is you have seen a significant increase in your margins over the past two quarters despite a decrease in revenue. Was that all expense cuts, or can you just kind of give us a little bit more color there about how you achieved that?
Yeah, so I'll say it's sort of a blended approach, right? Yes, there has been a lot of focus on trying to find spending reductions where we can, and I'll say there's obviously been a lot of focus on looking at our administrative costs and, again, trying to save money there. Other parts of it are, again, also a focus on where we can, getting some price increases to our customers to improve those margins, and then I think it's also just manufacturing efficiency, right? The more efficiently we can run our plants, we're able to improve the absorption of our fixed costs related to those plants.
We had a question come in from the audience. Bill Anderson asks if it's sort of a threat to your product business that people might use concrete ties or products like Trex.
Yeah. So, I would say concrete ties are in the market. They tend to really be from a metropolitan using the metropolitan transit applications. The wooden crosstie is really suited for freight hauling, right, which is the predominant railroad network that we have in the U.S. The second thing is you can't mix on a particular track. You can't mix railroad crossties as well as with concrete crossties, right? You have to be sort of dedicated to one or the other, and because, again, the wooden crosstie is a much better crosstie for hauling heavier weights, we don't see much threat from, say, concrete in the freight- hauling rail sector.
Okay. Speaking of the rails, when I went and looked at the Q3 report, it looked like most of the revenue reduction this year was explained just by a reduction in sales of cross ties. So I'm wondering if you've seen any signs of a sort of rebound in demand from those clients?
Yeah. So again, we can say that crosstie market, again, has stayed relatively steady over the years. We did see this year perhaps a little bit less spending on the maintenance programs from the Class I railroads. So that did have some impact on the top line. And again, the Class Is can look at their maintenance programs. They can defer, right, but they can't avoid, right? So eventually, that demand will come back, and they will have to make those investments to keep their tracks running safely.
Great. Thank you.
Hey, Michael, I was just going to touch base on the revenue question that you'd asked, so all three of our segments showed a decline year over year, but within that, I guess a little bit more color is on the PC revenues. While we did have a decline in residential preservatives from the market share loss, our industrial preservatives actually increased 2.5%, but of course, on a total basis, it was a net decrease, and then in terms of the REPS segment, which is our railroad and our utility poles, the utility poles volumes were up about 6.5% for the quarter, but we report them on a combined basis, so it's not necessarily obvious.
Thank you for the clarification, Quynh, and welcome to the call. I was afraid we'd missed you somehow.
Yeah, I've been here. Thank you.
Yeah. Well, we're near the end. Maybe just to kind of close out the questions session, let's come back to the share buybacks. You've been very aggressive doing it. You purchased, what, nearly 4% of outstanding shares from the beginning of the year. You've purchased year to date, and that's on top of all the repurchases next year. Is it safe to - pardon me - repurchases last year. Is it safe to think that you'll be active in the market again going forward? You have like 70 million left on your share buyback authorization.
Yeah. So I mean, I think, again, if management sort of looks currently at where our stock price is, we think that is a good use of capital to buy back shares at sort of the lower trading levels we've been at for the past year. So yeah, I think that the stock buyback is going to fall sort of into the mix there of a focus on as debt reduction.
Well, terrific. Well, Brad and Quynh, thank you very much for a very interesting presentation. We've come to the end of our time. Thank you for joining us, and thanks, folks. I hope you got a lot from the session, and we'll just see everybody next time.
Great. Thank you.