In a recent earnings call, SunCoke Energy, Inc. (ticker: SXC) revealed their third-quarter results for 2024, which included an increase in the full-year consolidated adjusted EBITDA guidance to between $260 million and $270 million. The company attributed this positive adjustment primarily to strong logistics performance and a one-time gain from a regulatory exemption related to federal black lung liabilities. Despite challenges in the Domestic Coke segment, the company reported robust results, including a net income of $0.36 per share, marking an increase from the previous year.
Key Takeaways
- SunCoke Energy's Q3 consolidated adjusted EBITDA reached $75.3 million, benefiting from a one-time gain of $9.5 million due to a regulatory exemption.
- The company's leverage stood at 1.86 times on a trailing 12 months adjusted EBITDA basis.
- Full-year consolidated adjusted EBITDA guidance has been raised to $260 million to $270 million.
- An agreement with the U.S. Department of Labor has eliminated the majority of SunCoke's accrued black lung liabilities, resulting in a $9.5 million pre-tax gain.
- SunCoke extended its Granite City coke supply agreement with U.S. Steel and signed a three-year coal handling agreement at the KRT Logistics facility, which includes a $12 million expansion project.
- Net income per share increased to $0.36, driven by the gain on black lung liabilities and favorable logistics performance.
- Domestic Coke segment adjusted EBITDA guidance for the full year has been revised down due to lower coal-to-coke yields and impacts from Hurricane Helene.
Company Outlook
- SunCoke Energy remains focused on maintaining strong safety and environmental performance.
- The company is dedicated to fully utilizing its cokemaking assets and has secured a coke supply agreement extension with U.S. Steel at Granite City.
- SunCoke continues to work on the GPI project and is seeking a final agreement.
Bearish Highlights
- Domestic Coke segment performance was negatively impacted by lower coal-to-coke yields on long-term contracts.
- Full-year domestic coke adjusted EBITDA guidance was revised downward due to these lower yields and adverse weather impacts.
Bullish Highlights
- Logistics business EBITDA increased due to higher transloading volumes and an API2 price adjustment benefit.
- The company saw a solid increase in net income attributable to SunCoke, thanks to the one-time gain and strong logistics performance.
Misses
- The Domestic Coke segment's adjusted EBITDA decreased compared to the prior year period, primarily due to lower coal-to-coke yields.
Q&A Highlights
- The Granite City supply agreement extension is seen as a bridge during the GPI project's delay due to government inaction.
- SunCoke Energy is actively seeking new business opportunities for its logistics terminals and coke plants, with a significant expansion project underway at the KRT facility.
SunCoke Energy, Inc. concluded the earnings call by reiterating their commitment to safety, environmental standards, and value creation for stakeholders. The next earnings call is expected in early 2025 to discuss the full year 2024 results and provide guidance for 2025.
InvestingPro Insights
SunCoke Energy's recent earnings call paints a picture of a company navigating challenges while capitalizing on opportunities. To complement this information, InvestingPro data offers additional insights into SXC's financial health and market performance.
As of the latest data, SunCoke Energy boasts a market capitalization of $724.88 million USD. The company's P/E ratio stands at 14.16, with an adjusted P/E ratio of 11.64 for the last twelve months as of Q2 2024. This relatively low P/E ratio suggests that the stock may be undervalued compared to its earnings potential.
One of the InvestingPro Tips highlights that SunCoke Energy "pays a significant dividend to shareholders." This is supported by the current dividend yield of 4.66%, which is particularly attractive in the current market environment. Moreover, the company has shown a strong commitment to increasing shareholder value, with a dividend growth rate of 50% over the last twelve months.
Another relevant InvestingPro Tip notes that "liquid assets exceed short-term obligations," indicating a solid financial position. This aligns well with the company's reported leverage of 1.86 times on a trailing 12 months adjusted EBITDA basis, suggesting prudent financial management.
The company's revenue for the last twelve months as of Q2 2024 was $2000.3 million USD, with an EBITDA of $258 million USD. While there was a slight revenue decline of 2.57% over this period, the company's ability to raise its full-year consolidated adjusted EBITDA guidance demonstrates its resilience and operational efficiency.
It's worth noting that InvestingPro offers 8 additional tips for SunCoke Energy, providing a more comprehensive analysis for investors seeking deeper insights into the company's prospects.
Full transcript - SunCoke Energy Inc (SXC) Q3 2024:
Operator: Good day, and welcome to the Third Quarter 2024 SunCoke Energy, Inc. Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Shantanu Agrawal, Vice President, Finance and Treasurer. Please go ahead.
Shantanu Agrawal: Thanks, Meghan. Good morning, and thank you for joining us this morning to discuss SunCoke Energy's third quarter 2024 results. With me today are Katherine Gates, President and Chief Executive Officer, and Mark Marinko, Senior Vice President and Chief Financial Officer. Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of our website and a replay will be available later today. If we do not get your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine.
Katherine Gates: Thanks, Shantanu. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy's third quarter results. I want to share a few highlights from the quarter as well as some updates on our 2024 key initiatives. First, I would like to thank all of our employees for their contributions to our results. Our domestic coke plants continued to run at full capacity and our logistics terminals again had strong results. Through our collective efforts, we delivered consolidated adjusted EBITDA of $75.3 million during the quarter. This includes a one-time gain of $9.5 million due to a regulatory exemption received from the Department of Labor that eliminates the majority of our legacy federal black lung liabilities. From a leverage perspective, we ended the quarter at 1.86 times on a trailing 12 months adjusted EBITDA basis. Finally, we are increasing our guidance and now expect full year consolidated adjusted EBITDA between $260 million to $270 million, primarily driven by favorable logistics performance and the gain from the Department of Labor regulatory exemption. Turning to Slide 4 to discuss progress on our 2024 key initiatives. We announced several other important accomplishments this morning that demonstrate progress on our 2024 key initiatives and position us well for the future. First, we're pleased to have reached an agreement with the United States Department of Labor regarding our legacy federal black lung liabilities. In exchange for a one-time payment of $36 million to the Department of Labor, SunCoke received a regulatory exemption, eliminating the majority of SunCoke's accrued black lung liabilities totaling $45.5 million. As a result, we recognized a $9.5 million pre-tax gain during the quarter. Going forward, our annual legacy expenses will be lower and the year-to-year volatility will be greatly reduced. In addition, SunCoke will not be subject to potential higher collateral requirements in the future. Second, we've extended our Granite City coke supply agreement with U.S. Steel through June 30, 2025, with the option for U.S. Steel to extend for an additional six months. The agreement is for reduced tonnage, coupled with lower economics compared to the current contract. This extension is part of the ongoing GPI project work and we expect it to bridge the period before a final agreement may be reached. Finally, we signed a three-year barge-to-rail coal handling agreement at our KRT Logistics facility. To handle the incremental volume, we will be undertaking a $12 million expansion project that will increase our barge unloading capacity from 2 million tons per year to 5 million tons per year. This project is expected to be completed in Q2 2025 after which the contract will begin. The contract builds upon this year's spot barge business at KRT. With that, I'll turn it over to Mark to review our third quarter earnings in detail. Mark?
Mark Marinko: Thanks, Katherine. Turning to Slide 5. Net income attributable to SunCoke was $0.36 per share in the third quarter of 2024, up $0.28 versus the prior year period. The increase was primarily driven by the one-time $9.5 million pre-tax gain on the elimination of legacy black lung liabilities. Lower depreciation expense, lower income tax expense, and favorable logistics performance also contributed to the increase in net income attributable to SunCoke, but were partially offset by unfavorable performance in the Domestic Coke segment. Consolidated adjusted EBITDA for the third quarter of 2024 was $75.3 million compared to $65.4 million in the prior year period. The increase in adjusted EBITDA was primarily driven by the gain on the extinguishment of black lung liabilities, higher volumes at domestic logistics terminals, and higher API2 price adjustment benefit at CMT, partially offset by lower coal-to-coke yields on our long-term take-or-pay contracts. Moving to Slide 6 to discuss our Domestic Coke performance -- business performance in detail. Third quarter domestic coke adjusted EBITDA was $58.1 million and coke sales volumes were 1,027 tons. While domestic coke fleet continue to run at full capacity, the decrease in adjusted EBITDA as compared to the prior year period was primarily driven by lower coal-to-coke yields on our long-term take-or-pay contracts. Due to the lower coal-to-coke yields we've been experiencing throughout the year, coupled with adverse weather impacts from Hurricane Helene in Q4, we are revising our full year domestic coke adjusted EBITDA guidance range to $230 million to $235 million from previous guidance range of $238 million to $245 million. Now moving on to Slide 7 to discuss our Logistics business. Our Logistics business generated $13.7 million of adjusted EBITDA in the third quarter of 2024 as compared to $8.4 million in the third quarter of 2023. The increase in adjusted EBITDA was primarily driven by higher transloading volumes from our domestic terminals and higher API2 price adjustment benefit at CMT. We recognized the full API2 price adjustment benefit in Q3 and expect this to remain consistent in the fourth quarter. Our terminals handled combined throughput volumes of 5.8 million tons during the third quarter of 2024 as compared to 5 million tons during the same prior year period. Our domestic terminals handled 3.8 million tons in the third quarter of 2024 as compared to 2.9 million tons during the same prior year period, driven by new business. Given the strong year-to-date results of our -- from our Logistics segment, we are increasing our logistics adjusted EBITDA guidance to $47 million to $52 million for the full year. Additionally, we are increasing our full year 2024 total logistics volume guidance to approximately 22 million tons, with CMT handling approximately 8 million tons and domestic terminals handling approximately 14 million tons. Now turning to Slide 8 to discuss our liquidity position for Q3. SunCoke ended the third quarter with a cash balance of $164.7 million and a fully undrawn revolver of $350 million. Net cash provided by operating activities was $107.2 million. Operating cash flow includes the impacts of the one-time payment of $36 million to the DOL and cash receipts from accounts receivable of approximately $68 million received in early July. We paid $10.1 million in dividends at the rate of $0.12 per share this quarter and spent $15.1 million on CapEx. In total, we ended the quarter with a strong liquidity position of $514.7 million. With that, I will turn it back over to Katherine.
Katherine Gates: Thanks, Mark. Wrapping up on Slide 9, we're pleased with the progress we've made on our key initiatives. As we close out 2024, we are dedicated to maintaining our strong safety and environmental performance. Robust safety and environmental standards set SunCoke apart and are central to our reliable delivery of high-quality coke and logistics services. We also have a proven track record of selling out our non-contracted coke for the full year and 2024 is no exception. We remain focused on safely executing against our operating and capital plan for full utilization of our cokemaking assets and we're pleased to have reached an agreement for an extension of our coke supply agreement with U.S. Steel at Granite City. For our Logistics segment, the new contract builds upon our existing foundation of reliable, high-quality services at KRT. We are continually pursuing future opportunities to broaden our customer base in both our domestic coke and logistics segments. The GPI project continues to be a top priority for SunCoke. The strong fundamentals of the project remain unchanged and we continue to work on reaching a final agreement. As always, we take a balanced yet opportunistic approach to capital allocation. We further strengthened our balance sheet with the extinguishment of the majority of our legacy black lung liabilities while also eliminating higher future collateral requirements. As we've demonstrated in the past, we continuously evaluate the capital needs of the business, our capital structure, and the need to reward our shareholders and we'll make capital allocation decisions accordingly. Finally, factoring in our favorable logistics performance and the gain from the black lung liability extinguishment, we are increasing our guidance and now expect to achieve full year consolidated adjusted EBITDA between $260 million to $270 million. With that, let's go ahead and open up the call for Q&A.
Operator: [Operator Instructions] The first question comes from Lucas Pipes with B. Riley. Please go ahead.
Nick Giles: Yes. Thank you very much, operator. This is Nick Giles on for Lucas. Guys, congrats on the strong results and on the increased guidance as well. My first question was on the extension of the Granite City supply agreement, where is this material going?
Katherine Gates: That would really be a question for U.S. Steel. The coke is being sold to U.S. steel.
Nick Giles: Got it. Got it. And then should we think about of this extension, having any relation to the progress of the GPI project, or should we think about those as two completely separate items?
Katherine Gates: No, this is really part of the GPI project. As we -- as we've said, so this extension is built into the project. We continue to work on the GPI project and this extension is really part of that. We see this as really a bridge while we have to, unfortunately, wait due to the government's inaction here. It's frankly, it's just really unfortunate that we're stuck in the limbo of the government's delay in not approving the sale of U.S. Steel to Nippon, and as a result of that, there's consequences for all parties here, and we continue to work on the GPI project with U.S. Steel, but at the same time, we're facing this delay and the Granite City contract extension really bridges that period as we're in a holding pattern along with everyone else. And it's unfortunate because it has an impact to us at Granite City and our EBITDA there. But as we've said, we continue to believe strongly in the project. The fundamentals of this project are so strong. And so it's something that we're willing to accept as we -- as we wait for the process to play out.
Nick Giles: Katherine, that's crystal clear. I really appreciate all the color and clarification. Maybe just one more before I turn it over. The capital investment of $12 million at Kanawha, you mentioned some future opportunities, could you just maybe expand on that -- certain geographies you're looking to target or have there been any capacity expansions from a customer perspective?
Katherine Gates: I can't speak to the customers in terms of expansion, but we are constantly looking for new business at our logistics terminals and at our Coke plants, and the $12 million capital project will expand our barge-to-rail unloading capacity from 2 million tons to 5 million tons. So it certainly allows us to bring in a greater volume of business that we had before and we're just -- we're just trying to build upon what we have put in place with this contract and the business that we saw this year.
Nick Giles: Got it. All right. Guys, really nice work and continue, best of luck.
Katherine Gates: Thank you.
Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Katherine Gates, CEO and President, for any closing remarks.
Katherine Gates: Thank you all again for joining us this morning and for your continued interest in SunCoke. We look forward to speaking with you again in early 2025 when we will discuss our 2024 full year results and give 2025 guidance, until then, let's continue to work safely and build value for all our stakeholders.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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