SunCoke Energy (SXC) Q3 Earnings call transcript Oct 31, 2024

The third quarter 2024 earnings call for SunCoke Energy, Inc. provided valuable insights into the company's financial performance and strategic initiatives. The call, led by Vice President of Finance and Treasurer, Shantanu Agrawal, along with CEO and President, Katherine Gates, and Senior Vice President and CFO, Mark Marinko, highlighted several key themes and trends that have emerged for the company.

Financial Performance Highlights

SunCoke Energy reported a consolidated adjusted EBITDA of $75.3 million for the third quarter, up from $65.4 million in the previous year. The increase was primarily attributed to a onetime gain of $9.5 million from the regulatory exemption received from the Department of Labor that eliminated the majority of SunCoke's legacy federal black lung liabilities. The company also saw a lower depreciation expense, lower income tax expense, and favorable logistics performance, which contributed to the rise in net income attributable to SunCoke.

Strategic Initiatives

One of the most significant updates from the call was the progress on SunCoke Energy's 2024 key initiatives. The company announced it had reached an agreement with the United States Department of Labor regarding its legacy Federal black lung liabilities, eliminating a substantial portion of these liabilities through a one-time payment of $36 million. This move is expected to reduce annual legacy expenses, minimize year-to-year volatility, and avoid potential higher collateral requirements in the future.

Additionally, SunCoke extended its coke supply agreement with U.S. Steel, providing a bridge for the ongoing GPI project work. The company also signed a 3-year barge-to-rail coal handling agreement at its KRT Logistics facility, which includes a $12 million expansion project to increase barge unloading capacity from 2 million tons to 5 million tons.

Outlook and Challenges

Despite the positive news, SunCoke faced challenges in its Domestic Coke segment, with lower coal-to-coke yields on long-term take-or-pay contracts and adverse weather impacts from Hurricane Helene in Q4. As a result, the company revised its full-year Domestic Coke adjusted EBITDA guidance range to $230 million to $235 million.

Investor Questions and Analyst Insights

During the Q&A session, analysts inquired about the extension of the Granite City supply agreement and its relation to the GPI project. Katherine Gates clarified that the agreement is part of the GPI project and serves as a bridge during the government delay in approving the sale of U.S. Steel to Nippon, which is causing a holding pattern for all parties involved.

Conclusion

SunCoke Energy's third quarter 2024 results demonstrated the company's resilience and strategic moves to address both financial and operational challenges. The progress on key initiatives, including the resolution of legacy black lung liabilities and the extension of the Granite City coke supply agreement, positions SunCoke well for the future. However, the company's Domestic Coke segment faced hurdles, which may impact its full-year adjusted EBITDA. Overall, SunCoke's focus on maintaining strong safety and environmental performance, as well as its commitment to expanding its logistics business, underscores its dedication to delivering high-quality coke and logistics services.