SunCoke Energy, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparative periods ended June 30, 2022. SunCoke produces coke for steelmaking, operates a Brazil coke facility under contract, and provides materials-handling and mixing services through its logistics business.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $534.4 million | $501.9 million | $1,022.2 million | $941.7 million |
| Operating income | $37.5 million | $34.5 million | $69.2 million | $83.1 million |
| Net income | $22.0 million | $19.0 million | $39.7 million | $49.6 million |
| Net income attributable to SunCoke | $20.4 million | $18.0 million | $36.7 million | $47.5 million |
| Diluted EPS | $0.24 | $0.21 | $0.43 | $0.56 |
| Adjusted EBITDA | $74.0 million | $71.3 million | $141.1 million | $155.1 million |
Revenue increased 6.5% in Q2 and 8.5% for the first half. Q2 operating income and SunCoke-attributable net income improved year over year, while first-half operating income declined 16.7% and attributable net income declined 22.7%. Calculated operating margin was approximately 7.0% in Q2 2023 versus 6.9% a year earlier; for the first half it was 6.8% versus 8.8%. Adjusted EBITDA is a non-GAAP measure.
Q2 revenue growth primarily reflected higher volumes under long-term take-or-pay contracts and coal-price pass-throughs; lower volumes and pricing on non-contracted blast coke, especially exports, partly offset the increase. First-half results also faced lower margins on non-contracted coke. Domestic Coke Adjusted EBITDA was $68.2 million in Q2 (up from $64.3 million) but $128.6 million for the first half (down from $140.3 million). Brazil Coke first-half Adjusted EBITDA declined to $4.7 million from $8.1 million, primarily because technology fees expired after 2022. Logistics first-half Adjusted EBITDA was broadly flat at $25.2 million.
Cash flow, balance sheet and capital
- Six-month operating cash flow was $98.9 million, up from $66.2 million; Q2 operating cash flow was $68.7 million versus $43.5 million. Management attributed the first-half improvement mainly to working-capital timing, including coal purchases and payments.
- Six-month capital expenditures were $50.4 million, versus $34.0 million, including $45.3 million of ongoing capital and $5.1 million of expansion capital. Investing cash outflow was $50.0 million.
- Cash was $78.2 million at June 30, 2023, compared with $90.0 million at year-end 2022. Total debt and financing obligations were $507.1 million before $10.7 million of debt issuance costs; the revolving facility had no outstanding balance and $350.0 million available. The company reported $22.4 million of letters of credit, which did not reduce that availability.
- Financing cash outflow was $60.7 million, including $35.0 million of net revolving-facility repayments, dividends and distributions to noncontrolling interests. The company paid a $0.08-per-share dividend in June and declared a $0.10-per-share dividend for payment in September.
- Current assets were $382.8 million and current liabilities were $222.5 million. Management said current resources were sufficient for working-capital needs for at least the next 12 months and thereafter for the foreseeable future. The company reported compliance with debt covenants.
Developments, outlook and risks
- In April 2023, SunCoke extended the Indiana Harbor take-or-pay agreement with Cliffs Steel through September 30, 2035. Annual contracted supply remains 1.22 million tons; coal-cost pass-through terms remain in place.
- Management reported declining global export coke prices during the first half, limiting non-contracted export sales. Lower European energy needs and benchmark coal prices also weighed on export coal volumes through Convent Marine Terminal in Q2. Domestic Coke capacity utilization was 100% in Q2.
- No formal earnings or operating guidance is provided in the filing. Management expects liquidity to cover current needs, but results remain exposed to steel and coal market cycles, export pricing, customer and supplier performance, inflation, operating reliability, environmental requirements and transportation conditions.
- Black lung benefit liabilities totaled $59.1 million. The Department of Labor had proposed a rule requiring self-insured companies to post collateral equal to 120% of expected lifetime obligations; it was not effective at filing. A separate collateral appeal remains unresolved, and additional collateral could reduce liquidity.
- SunCoke disclosed pending commercial, employment, personal-injury and environmental matters; management believed any resulting liability was unlikely to be material. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Key facts for investors to verify
- Whether export coke pricing and non-contracted volumes recover, and how that affects Domestic Coke margins.
- Progress on the foundry coke expansion, its remaining capital needs and expected returns; first-half capital spending increased year over year.
- Any decision on the black lung collateral appeal or finalization of the proposed Department of Labor rule.
- Customer concentration and contract exposure: Cliffs Steel accounted for $335.9 million of Q2 revenue and $662.1 million of first-half revenue; confirm contract terms and renewal or extension developments.
- Cash generation after working-capital timing effects, ongoing capital requirements, dividends and debt service.