Suncoke Energy, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. SunCoke is a U.S.-based coke producer with domestic and Brazil coke operations and a coal and aggregate logistics business. Most coke sales are covered by long-term take-or-pay agreements.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $439.8 million | $359.9 million |
| Operating income | $48.6 million | $38.2 million |
| Net income | $30.6 million | $18.2 million |
| Net income attributable to SunCoke | $29.5 million; diluted EPS $0.35 | $16.5 million; diluted EPS $0.20 |
| Adjusted EBITDA | $83.8 million | $70.6 million |
| Operating cash flow | $22.7 million | $64.8 million |
| Capital expenditures | $12.9 million | $20.1 million |
Revenue increased 22%, operating income 27%, attributable net income 79%, and Adjusted EBITDA 19% year over year. Operating margin was approximately 11.1%, versus 10.6%. Higher coal costs raised revenue and cost of sales, while favorable export coke pricing supported earnings. Net interest expense fell to $8.0 million from $12.7 million, reflecting the 2021 refinancing of senior notes at a lower rate.
Operating cash flow fell $42.1 million, mainly because of working-capital movements associated with higher coal prices and purchase timing. Inventories rose to $194.1 million from $127.0 million at year-end, including coal inventory of $116.0 million. Cash was $79.7 million at quarter-end.
Financial position and operating results
- Total debt and financing obligations were $628.2 million net of debt issuance costs; borrowings before those costs were $641.2 million. The $130 million revolving-facility balance left $220 million available. Cash less reported debt and financing obligations was approximately $548 million.
- Total assets were $1.706 billion and total equity was $561.9 million. The company reported compliance with debt covenants.
- Domestic Coke Adjusted EBITDA increased to $76.0 million from $63.5 million, led by export pricing. Domestic coke production was 975,000 tons versus 1.036 million; sales were 962,000 tons versus 1.038 million. Utilization was 99% versus 101%.
- Logistics Adjusted EBITDA rose to $12.6 million from $10.9 million, benefiting from favorable pricing at Convent Marine Terminal. Brazil Coke Adjusted EBITDA was $4.2 million versus $4.5 million.
- Cliffs Steel accounted for $264.4 million, or about 60%, of revenue; U.S. Steel contributed $60.5 million.
Outlook, risks, and notable items
- Management described a strong start to the year and said current resources should meet working-capital needs for at least 12 months and the foreseeable future. The filing provides no numerical earnings or revenue guidance.
- Management attributed stronger export coke demand and pricing partly to global supply constraints and geopolitical events, including Russia’s invasion of Ukraine. Elevated coal demand and prices also benefited logistics activity. These market effects are uncertain and may change.
- Weather and production mix reduced domestic coke output and coal-to-coke yields. Risks include volatile steel and coal markets, inflation, customer and supplier concentration, aging ovens, operating disruptions, environmental obligations, and debt-related constraints.
- SunCoke’s estimated black-lung liability was $64.1 million. The Department of Labor has proposed increasing collateral for certain self-insured legacy obligations from $8.4 million to $40.4 million. SunCoke appealed; an unsuccessful appeal could reduce liquidity.
- Pending commercial, employment, personal-injury, tort, and environmental matters could have unfavorable outcomes, though management did not expect resulting liabilities to be material. The company declared a $0.06-per-share dividend payable June 1, 2022, subject to the stated record date.
Important facts for investors to verify
- Whether export coke pricing and coal-market conditions persist, and how much reported revenue growth reflects pass-through coal costs versus improved margins.
- Working-capital and inventory trends, and whether operating cash flow recovers from the quarter’s decline.
- The outcome and timing of the black-lung collateral appeal and any resulting liquidity impact.
- Customer concentration, domestic coke production and yields, and performance of the company’s long-term take-or-pay contracts.
- Debt levels, revolving-facility availability, covenant headroom, and the company’s ability to sustain dividends and fund required capital spending.