Suncoke Energy, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. SunCoke produces coke at U.S. facilities and operates a Brazil cokemaking facility; it also provides coal and materials handling and mixing services. The interim statements are unaudited.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $501.9 million | $364.3 million | $941.7 million | $724.2 million |
| Operating income | $34.5 million | $33.9 million | $83.1 million | $72.1 million |
| Net income (loss) | $19.0 million | $(7.5) million | $49.6 million | $10.7 million |
| Net income (loss) attributable to SunCoke | $18.0 million | $(8.8) million | $47.5 million | $7.7 million |
| Adjusted EBITDA | $71.3 million | $68.0 million | $155.1 million | $138.6 million |
Q2 diluted earnings per share were $0.21 versus a loss of $0.11; first-half diluted EPS was $0.56 versus $0.09. Q2 operating margin was approximately 6.9%, compared with 9.3% a year earlier; the filing attributes pressure on margins partly to higher coal costs, lower volumes, and maintenance and oven repairs.
For the first half, operating cash flow was $66.2 million, down from $104.6 million, primarily reflecting working-capital outflows associated with higher coal prices and payment timing, export shipment timing, and higher tax payments. Capital expenditures were $34.0 million. Cash declined $0.4 million to $63.4 million.
At June 30, 2022, total debt and financing obligations were $597.8 million, including $500 million of 4.875% senior notes due 2029 and $100 million drawn on the revolving facility. The revolver had $250 million available; letters of credit totaled $23.6 million and did not reduce that availability. The company reported compliance with debt covenants. Total liabilities were $1.10 billion and total equity was $574.1 million. The company reported current assets of $371.2 million and current liabilities of $215.6 million.
Changes and operating drivers
- Q2 revenue rose $137.6 million year over year; first-half revenue rose $217.5 million. Much of the increase reflected higher coal-price pass-throughs under coke contracts and stronger export coke pricing, rather than volume growth alone.
- Domestic Coke Q2 sales volume was 1.007 million tons versus 1.063 million; production was 0.997 million versus 1.054 million. Maintenance outages, oven repairs, production mix, and weather-related yield effects reduced volumes. Domestic Coke Adjusted EBITDA increased to $64.3 million from $61.4 million for Q2 and to $140.3 million from $124.9 million for the first half.
- Logistics Adjusted EBITDA increased to $12.5 million from $11.4 million in Q2 and to $25.1 million from $22.3 million in the first half, benefiting from CMT pricing and strong export coal markets. Brazil Coke results were broadly comparable with the prior year.
- Interest expense fell to $8.3 million in Q2 from $14.2 million, reflecting the prior-year refinancing and lower average debt. The 2021 comparison also included a $31.9 million debt-extinguishment loss, absent in 2022.
Outlook, risks, and unusual items
- No numerical earnings or revenue guidance is provided. Management said export coke demand and pricing could weaken in the second half amid inflation, commodity-price volatility, and economic uncertainty. Higher coal demand and prices had benefited export coke sales and CMT handling activity in the first half.
- On June 28, 2022, SunCoke signed a non-binding letter of intent with U.S. Steel concerning acquisition of two blast furnaces at Granite City Works and construction of a 2-million-ton-per-year granulated pig iron facility, with proposed sales to U.S. Steel for an initial ten-year term. The proposal is not described as a completed transaction.
- The company’s estimated black-lung benefit liability was $64.8 million. The U.S. Department of Labor proposed $40.4 million of collateral for certain legacy self-insured obligations, compared with $8.4 million then provided; SunCoke appealed. An unsuccessful appeal could require additional collateral and reduce liquidity.
- Management cited risks including steel and coal market cyclicality, inflation, geopolitical events, aging ovens and repair needs, weather and supply disruptions, environmental and regulatory obligations, customer and supplier risks, and debt covenant compliance. Pending legal claims could be resolved unfavorably, though management did not expect resulting liabilities to be material.
- The board declared a $0.08-per-share dividend on August 2, 2022, payable September 1, subject to the stated record date. The company said it believed liquidity was sufficient for working-capital needs for at least the next 12 months and thereafter for the foreseeable future.
Important facts for investors to verify
- Whether export coke pricing and coal-price pass-throughs sustain earnings, and how much revenue growth translates into margins and cash flow.
- Progress on the U.S. Steel granulated pig iron proposal, including final terms, required investment, approvals, and financing.
- Outcome and timing of the black-lung collateral appeal and any effect on available liquidity.
- Domestic Coke maintenance and oven-repair progress, production volumes, and coal-to-coke yields.
- Working-capital trends, revolver usage, covenant headroom, and the company’s capacity to fund capital needs and dividends.