SunCoke Energy, Inc. — Q3 2023 Form 10-Q
Business context and period: The filing reports unaudited results for the three and nine months ended September 30, 2023. SunCoke produces metallurgical coke, operates a coke facility in Brazil under contract, and provides coal and aggregate handling and mixing services through its logistics business. Most domestic coke sales are under long-term take-or-pay agreements.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $520.4 million | $516.8 million | $1,542.6 million | $1,458.5 million |
| Operating income | $29.7 million | $47.6 million | $98.9 million | $130.7 million |
| Net income | $8.5 million | $42.5 million | $48.2 million | $92.1 million |
| Net income attributable to SunCoke | $7.0 million | $41.4 million | $43.7 million | $88.9 million |
| Diluted EPS | $0.08 | $0.49 | $0.51 | $1.05 |
| Adjusted EBITDA | $65.4 million | $83.7 million | $206.5 million | $238.8 million |
Cash flow and liquidity: Nine-month operating cash flow was $192.6 million, versus $120.6 million; capital expenditures were $84.5 million, versus $55.7 million. Cash increased $35.9 million to $125.9 million. At September 30, total borrowings were $506.3 million before debt issuance costs, including $500 million of 2029 notes and $6.3 million of financing obligation; the revolving facility had no outstanding balance and $350 million available. The company reported covenant compliance and said it expects resources to cover working capital needs for at least 12 months and thereafter for the foreseeable future.
Margins and segments: Operating income declined despite higher revenue, reflecting higher operating costs and weaker segment results. Q3 Adjusted EBITDA was lower in Domestic Coke ($64.0 million vs. $76.6 million), Brazil Coke ($2.2 million vs. $3.3 million), and Logistics ($8.4 million vs. $12.9 million). Nine-month Domestic Coke EBITDA per ton fell to $64.01 from $72.52. The filing does not provide a clear consolidated gross-margin figure.
Material changes and management commentary
- Revenue rose $3.6 million in Q3 and $84.1 million for the first nine months, primarily reflecting pass-through of higher coal prices and increased volumes under take-or-pay contracts. Those effects were partly offset by lower volumes and pricing on non-contracted blast coke, especially export coke.
- Management attributed weaker operating results principally to lower margins on non-contracted blast coke, unfavorable energy pricing at Haverhill, and lower Logistics transloading volumes. Logistics handled 15.461 million tons in the first nine months, down from 16.766 million.
- Net income was further reduced by an $8.5 million valuation allowance on foreign tax credit carryforwards following changes in Brazilian tax law and the company’s tax-credit assumptions. The Q3 effective tax rate was 63.2%, versus a tax benefit in the prior-year quarter.
- Nine-month operating cash flow benefited from year-over-year working-capital movements. Capital spending increased, including spending on asset reliability upgrades and the foundry coke expansion project.
- In April 2023, SunCoke extended the Indiana Harbor take-or-pay agreement with Cliffs Steel through September 30, 2035, at annual supply volumes of 1.22 million tons.
Outlook, risks and contingencies
The filing gives no numerical earnings or revenue guidance. Management stated that current liquidity is sufficient for expected needs. The company declared a $0.10-per-share dividend payable December 1, 2023, subject to the stated record date and customary board authority over future dividends.
Key risks include cyclical steel and coal markets, export coke price and volume volatility, customer and supplier concentration, aging equipment and operational reliability, inflation and energy costs, environmental compliance, and the ability to service debt. A pending Department of Labor collateral determination concerning legacy black-lung obligations could reduce liquidity: SunCoke is appealing a proposed increase in required collateral, and a proposed federal rule could require collateral equal to 120% of estimated lifetime obligations if finalized. The company reported $60.0 million of black-lung liabilities at September 30, 2023. Pending legal claims include commercial, employment, personal injury, tort, and environmental matters; management does not expect resulting liabilities to be material, though outcomes are uncertain.
Investor facts to verify
- Whether weaker export coke pricing, non-contracted volumes, and lower CMT transloading continue to pressure segment earnings.
- Progress, costs, and expected returns for the foundry coke expansion and ongoing reliability capital spending.
- Developments in foreign tax credit utilization and any further valuation allowances or tax-rate effects.
- The outcome of the black-lung collateral appeal and any final rule, including implications for available liquidity.
- Take-or-pay contract performance and customer exposure: Cliffs Steel accounted for $1,000.8 million of nine-month revenue; verify concentration and contract protections.