Suncoke Energy, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the three months ended March 31, 2023. SunCoke produces coke for steelmaking and operates coke, energy-recovery and materials-handling businesses. Its U.S. cokemaking facilities operated at full capacity.
Financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $488.4 million | $487.8 million | +$0.6 million |
| Operating income | $34.5 million | $31.7 million | +$2.8 million |
| Net income | $21.1 million | $17.7 million | +$3.4 million |
| Net income attributable to SunCoke | $20.0 million | $16.3 million | +$3.7 million |
| Diluted EPS | $0.23 | $0.19 | +$0.04 |
| Adjusted EBITDA | $67.9 million | $67.1 million | +$0.8 million |
| Operating cash flow | $10.0 million | $30.2 million | -$20.2 million |
| Capital expenditures | $15.5 million | $22.6 million | -$7.1 million |
Operating margin was approximately 7.1%, versus 6.5% in Q1 2023; net margin was approximately 4.3%, versus 3.6%. Adjusted EBITDA margin was approximately 13.9%, versus 13.8%. These margins are calculated from reported figures.
Revenue was essentially flat. Higher blast-coke sales volumes, primarily reflecting shipment timing, were partly offset by lower coal-price pass-throughs and lower Logistics revenue. Operating income benefited from lower depreciation and amortization and lower net interest expense. The effective tax rate was 25.2%, compared with 27.8%; Q1 2024 included a $0.5 million expense from a valuation allowance on certain foreign tax credits.
Segments and operating trends
- Domestic Coke: Revenue of $459.5 million versus $458.8 million; Adjusted EBITDA of $61.4 million versus $60.4 million. Production was 1.000 million tons and sales were 996,000 tons; capacity utilization was 100% in both periods. EBITDA per ton declined to $61.65 from $63.58, reflecting lower non-contracted coke pricing, weaker coal-to-coke yields on contracted business and higher maintenance costs, partly offset by lower coal costs on non-contracted sales.
- Logistics: Revenue of $20.6 million versus $21.1 million; Adjusted EBITDA of $13.0 million versus $13.5 million. Lower transloading volumes at Convent Marine Terminal and lower ancillary revenue were partly offset by higher pricing. Total tons handled increased to 5.453 million from 5.309 million.
- Brazil Coke: Revenue of $8.3 million versus $7.9 million and Adjusted EBITDA of $2.4 million in both periods. Production at the operated facility was 371,000 tons, down from 398,000 tons.
Adjusted EBITDA is a non-GAAP measure; the company cautions that it may not be comparable with similarly titled measures at other companies.
Cash, debt and liquidity
- Cash and cash equivalents were $120.1 million at March 31, 2024, down from $140.1 million at December 31, 2023. Cash decreased by $20.0 million during the quarter.
- Operating cash flow fell to $10.0 million, primarily because of an unfavorable year-over-year working-capital change associated with shipment timing and coal prices, partly offset by coal-purchase timing. Investing cash outflow was $15.1 million; financing cash outflow was $14.9 million.
- Debt principal was $500.0 million, consisting of 4.875% senior notes due 2029; carrying value after unamortized issuance costs was $490.8 million. The $350.0 million revolving facility had no borrowings, leaving $350.0 million available. The company also had $22.2 million of letters of credit, which the filing says do not reduce availability.
- Management said 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 at quarter-end.
- The company paid $9.0 million in dividends during the quarter. The board declared a $0.10-per-share dividend for payment on June 3, 2024.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management noted that contracted take-or-pay coke sales are largely insulated from global coke-price fluctuations, while non-contracted coke sales and Logistics activity are more exposed to market conditions. European energy demand and stabilized thermal-coal supply continued to weigh on export coal volumes through Convent Marine Terminal. Management cited inflation, steel-industry cyclicality, customer and supplier concentration, facility reliability and aging ovens, coal supply and transportation, environmental regulation, labor and safety, and debt servicing among the principal risks. The filing reported no material changes to previously disclosed risk factors and no unusual events significantly affecting comparability.
SunCoke has a $53.9 million black-lung benefits liability. Its appeal of a Department of Labor proposed increase in collateral for certain legacy self-insured obligations remained relevant; the agency had proposed collateral of $40.4 million, compared with $8.4 million then provided. A separate proposed rule would require collateral equal to 120% of expected lifetime obligations if finalized. Either requirement could reduce liquidity. The filing also describes pending commercial, employment, personal-injury and environmental matters; management does not expect resulting liabilities to be material, although outcomes are uncertain.
Important facts for investors to verify
- Whether shipment timing, coal-to-coke yields, maintenance costs and non-contracted coke pricing affect results in subsequent quarters.
- Whether working-capital movements reverse and operating cash flow strengthens relative to reported net income.
- Developments in the black-lung collateral appeal and proposed federal rule, including any effect on available liquidity.
- Customer exposure: Cliffs Steel represented $317.3 million of Q1 revenue and U.S. Steel $72.0 million; review contract terms, renewal timing and customer credit conditions.
- Progress at Convent Marine Terminal and changes in export coal volumes, alongside the company’s capital needs and ongoing facility reliability requirements.