Business context and reporting period
SunCoke Energy, Inc. (NYSE: SXC) filed this Form 10-K for the fiscal year ended December 31, 2020; it reports full-year results, not a separate fourth-quarter summary. SunCoke produces coke for steelmaking and operates bulk-material handling and mixing terminals. Its five U.S. coke plants have approximately 4.2 million tons of annual capacity; it also operates a customer-owned plant in Brazil.
Key financial metrics
Dollars in millions, except per-share data and where noted.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1,333.0 | $1,600.3 |
| Operating income (loss) | $69.7 | $(144.3) |
| Net income (loss) | $8.8 | $(148.4) |
| Net income (loss) attributable to SunCoke | $3.7 | $(152.3) |
| Diluted EPS | $0.04 | $(1.98) |
| Adjusted EBITDA (non-GAAP) | $205.9 | $247.9 |
| Cash from operating activities | $157.8 | $181.9 |
| Capital expenditures | $73.9 | $110.1 |
- Revenue declined 16.7%. Operating margin was approximately 5.2%, versus negative 9.0% in 2019; the prior-year result included $247.4 million of impairment charges.
- Adjusted EBITDA declined $42.0 million (17%). Domestic Coke contributed $217.0 million, Logistics $17.3 million, Brazil Coke $13.5 million, and Corporate and Other was $(41.9) million.
- Domestic Coke capacity utilization was 91% versus 98%; production was 3.840 million tons versus 4.168 million, and sales were 3.789 million versus 4.171 million. Logistics tons handled fell to 14.678 million from 21.053 million.
- Year-end cash was $48.4 million, down from $97.1 million. Current assets were $229.7 million and current liabilities $158.9 million. Revolver availability was $299.9 million.
- Reported borrowings and financing obligations totaled $690.5 million before discounts and issuance costs ($676.9 million carrying value), down from $800.5 million in borrowings. Debt maturities included $587.3 million due in 2025. The company reported covenant compliance.
- Quarterly dividends were $0.06 per share throughout 2020. SunCoke repurchased 1.6 million shares for $7.0 million during the year.
Material changes versus 2019
- Net income improved primarily because 2019 included $247.4 million of non-cash goodwill and long-lived asset impairments related to Logistics; no long-lived asset impairment was recorded in 2020.
- COVID-related coke supply relief reduced 2020 volume and was estimated to lower Adjusted EBITDA by approximately $20 million, net of cost savings. Lower coal prices also reduced reported revenue and costs through contractual pass-throughs.
- Domestic Coke Adjusted EBITDA declined $9.7 million to $217.0 million despite improved oven performance and lower operating and maintenance costs. Logistics Adjusted EBITDA declined $25.3 million as throughput and service mix weakened.
- Operating cash flow decreased $24.1 million. Lower capital spending and debt repayment reduced investing outflows and debt, respectively.
- Cliffs acquired AK Steel and AM USA during 2020. The contracts remained in place, but combined Cliffs Steel agreements represented approximately 78.3% of company revenue in 2020; U.S. Steel represented another 15.6%.
Outlook, commentary, risks and contingencies
- For 2021, management guided to Adjusted EBITDA of $215–$230 million and operating cash flow of $160–$180 million. It expected domestic coke plants to operate at full capacity, with growth also supported by higher Logistics volumes.
- Management planned approximately $80 million of 2021 capital expenditures and intended to pursue foundry coke and export sales to place excess domestic capacity. Commercial-scale foundry coke sales were expected to begin in 2021, but not at a material level.
- CMT signed a long-term take-or-pay handling agreement with Javelin for 4 million tons in 2021 and 3 million in 2022. Management expected domestic Logistics throughput of approximately 10 million tons in 2021, compared with 9 million in 2020.
- Major risks include dependence on a small number of steel customers, customer credit and concentration, steel and coal-market weakness, declining coal-terminal demand, COVID-19 effects, operating and transportation disruptions, and environmental regulation and climate-related transition risks.
- Legacy black lung liabilities were $64.6 million, up from $55.1 million. The Department of Labor proposed increasing collateral for self-insured obligations from $8.4 million to $40.4 million; SunCoke appealed. An unsuccessful appeal could require additional collateral and reduce liquidity.
- The filing discusses environmental notices and consent decrees at certain facilities and other pending or threatened claims. Management did not expect these matters to have a material adverse effect, but some outcomes could be unfavorable. The company also reported $2.0 million of mine-reclamation asset retirement obligations and $9.6 million of posted reclamation security.
- The auditor gave unqualified opinions on the financial statements and internal controls. The audit identified estimation of the black lung liability as a critical audit matter.
Important facts for investors to verify
- Whether 2021 guidance was achieved, especially full-capacity coke operations, EBITDA, cash flow and planned capital spending.
- Cliffs Steel’s financial condition and contract performance, given its substantial share of SunCoke revenue and capacity commitments.
- Javelin agreement volumes and CMT’s ability to replace lost Murray and Foresight business with durable, profitable throughput.
- The outcome and timing of the black lung collateral appeal, and changes in actuarial assumptions underlying the $64.6 million liability.
- The company’s ability to refinance or repay the $587.3 million of 2025 notes while maintaining liquidity, dividends and investment in operating assets.