SunCoke Energy, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. SunCoke produces coke for steelmaking and operates a materials-handling logistics business. Its coke sales are largely supported by long-term take-or-pay contracts.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $487.8 million | $439.8 million |
| Operating income | $31.7 million | $48.6 million |
| Net income | $17.7 million | $30.6 million |
| Net income attributable to SunCoke | $16.3 million; $0.19 diluted EPS | $29.5 million; $0.35 diluted EPS |
| Adjusted EBITDA | $67.1 million | $83.8 million |
| Cash from operations | $30.2 million | $22.7 million |
| Capital expenditures | $22.6 million | $12.9 million |
Revenue rose 10.9%, mainly from higher coal-price pass-throughs under Domestic Coke contracts. Operating income fell 34.8%; operating margin declined to approximately 6.5% from 11.1%, and net margin to approximately 3.6% from 7.0%. Management attributed weaker results principally to lower export-coke pricing and shipment timing. The prior-year tax expense included a $1.0 million benefit from revaluation of deferred tax liabilities.
Segments and operating trends
- Domestic Coke: Adjusted EBITDA was $60.4 million versus $76.0 million. Revenue increased to $458.8 million from $411.6 million, primarily from coal-cost pass-throughs; lower export-coke pricing reduced EBITDA. Production was 994,000 tons versus 975,000; sales were 950,000 versus 962,000 tons. Capacity utilization was 100% versus 99%.
- Logistics: Adjusted EBITDA increased to $13.5 million from $12.6 million, reflecting higher transloading volumes at Convent Marine Terminal. Tons handled were 5.309 million versus 5.236 million.
- Brazil Coke: Adjusted EBITDA declined to $2.4 million from $4.2 million, primarily because technology fees expired at year-end 2022 and production bonuses were absent.
Cash, debt, and liquidity
Cash was $83.3 million at March 31, 2023, down from $90.0 million at year-end 2022. Operating cash flow improved year over year, largely due to working-capital timing, while investing used $22.3 million and financing used $14.6 million. Cash capital spending was $22.6 million, mostly ongoing capital.
Total borrowings were $543.0 million before debt issuance costs, comprising $500 million of 4.875% senior notes due 2029, $35 million drawn on the revolving facility due 2026, and an $8.0 million financing obligation due 2024. The company reported $528.4 million of long-term debt and financing obligations and $315 million of revolver availability. Management said resources should cover working-capital needs for at least 12 months and thereafter for the foreseeable future. The company was in compliance with debt covenants.
The board declared a $0.08-per-share dividend paid in March and declared another $0.08 dividend in May, payable June 1, 2023. The share repurchase authorization had $96.3 million remaining; no repurchases had occurred since Q1 2020.
Outlook, risks, and notable items
- No specific earnings or full-year financial guidance was provided. Management cited continued economic uncertainty, inflation, commodity-price volatility, and declining global export-coke prices during Q1. Export coke is produced from capacity beyond long-term contracted volumes and is exposed to market pricing.
- In April 2023, the Indiana Harbor take-or-pay agreement with Cliffs Steel was extended through September 30, 2035, with annual supply of 1.22 million tons. Coal-cost pass-through provisions remain unchanged.
- Black-lung obligations totaled an estimated $58.6 million at March 31. The Department of Labor had proposed requiring self-insured companies to post collateral equal to 120% of expected lifetime obligations; the proposal was not effective at filing, but could reduce liquidity if finalized. SunCoke was also appealing a collateral determination that could require additional security.
- Other key risks include steel-industry cyclicality, dependence on major customers and suppliers, coke-oven reliability and repair needs, environmental and regulatory obligations, and debt and covenant requirements. Management stated pending legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether lower export-coke pricing and shipment timing persist, and how they affect Domestic Coke margins and Adjusted EBITDA.
- Progress and potential liquidity impact of the black-lung collateral appeal and proposed federal rule.
- Execution and economics of the extended Indiana Harbor contract, including inflation adjustments and coal-cost pass-throughs.
- Working-capital and inventory trends: inventories rose to $234.8 million from $175.2 million at December 31, 2022.
- Adjusted EBITDA is a company-defined non-GAAP measure and should be assessed alongside GAAP earnings and cash flow.