SunCoke Energy Reports Third Quarter 2013 Results
10/29/2013 - SunCoke Energy, Inc. reported third quarter 2013 net income attributable to shareholders of US$6.2 million, or US$0.09 per diluted share, down from net income attributable to shareholders of US$31.6 million, or US$0.45 per diluted share in third quarter 2012.
"In the third quarter, we delivered solid Adjusted EBITDA of more than US$50 million despite continuing challenges in our coal mining business, the refurbishment of our Indiana Harbor cokemaking facility and higher corporate expenses primarily associated with our recent acquisitions," said Fritz Henderson, chairman and chief executive officer of SunCoke Energy, Inc. "We laid important groundwork for future earnings growth with our 10-year Indiana Harbor contract extension, which provides for a return on our refurbishment capital. This, plus our recent acquisitions, are expected to add approximately US$25 million to consolidated Adjusted EBITDA next year."
Henderson continued, "As for the rest of 2013, we expect to end the year in the upper half of our original guidance ranges. We now anticipate full year 2013 Adjusted EBITDA to be between US$215 million to US$230 million and earnings per share to be US$0.35 to US$0.55.”
CONSOLIDATED RESULTS
In third quarter 2013, total revenues were down 18.7% to US$390.5 million versus third quarter 2012 due to the pass-through of lower coal prices in our cokemaking business and a US$46 per ton decline in average coal sales price in our Coal Mining Segment, partly offset by higher coal sales volume.
Operating income and Adjusted EBITDA declined by US$25.4 million and US$23.0 million in third quarter 2013, respectively, primarily due to lower performance in our Coal Mining Segment and Indiana Harbor cokemaking facility as well as higher corporate expenses primarily driven by acquisition costs. Also impacting operating income was US$1.7 million of accelerated depreciation at Indiana Harbor, which is undergoing a major refurbishment.
Net income attributable to shareholders was US$6.2 million in third quarter 2013, a reduction of US$25.4 million versus the same prior year period. Factors impacting net income included weak Coal Mining Segment performance, the attribution of income to SXCP's public unit holders and lower results at Indiana Harbor.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants. Beginning in first quarter 2013, the company combined its Jewell Coke and Other Domestic Coke segments into one segment called Domestic Coke due to the similarities of operations and contracts between the two segments. Prior year periods have been adjusted to reflect this change.
Brazil Coke
Formerly named International Coke, our Brazil Coke segment consists of a cokemaking facility in Vitória, Brazil, which we operate for a Brazilian affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on its preferred stock investment assuming certain minimum production levels are achieved at the facility.
India Coke
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel launched on March 18, 2013. VISA SunCoke produces coke for the Indian merchant market and owns a 440 thousand ton cokemaking facility and associated steam power generation unit located in Odisha, India. Financial results for VISA SunCoke are recorded on a one-month lag and represent our 49% share of the joint venture's results.
Coal Mining
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke segment for conversion into coke.
Coal Logistics
Coal Logistics consists of the coal handling and blending terminal operated by SXCP since the closing of its Lakeshore Coal Handling Corporation (Lake Terminal) acquisition on 30 August 2013. In the future, this segment will also include the results of the Kanawha River Terminals, LLC (KRT) acquisition, which closed on 1 October 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
2013 OUTLOOK
Our 2013 guidance is as follows:
Pursuant to our omnibus agreement with SXCP, we anticipate making make-whole payments to SXCP as a result of temporarily trimming coke production at our Middletown facility to name plate capacity level in the second half 2013 due to our customer's unplanned blast furnace outage in late June 2013. These make-whole payments will be remitted to SXCP on a quarterly basis in second half 2013 based on actual production. In the third quarter 2013, this payment was US$0.6 million and is eliminated in consolidation. Also, in connection with this unplanned outage, we plan to provide our customer a temporary extension of payment terms on December 2013 coke production, resulting in a shift of approximately US$20 million in expected operating cash flow from 2013 to early 2014.
Henderson continued, "As for the rest of 2013, we expect to end the year in the upper half of our original guidance ranges. We now anticipate full year 2013 Adjusted EBITDA to be between US$215 million to US$230 million and earnings per share to be US$0.35 to US$0.55.”
CONSOLIDATED RESULTS
| Three Months Ended 30 September | ||||||||||||
| (In millions, except per share amounts) | 2013 | 2012 | (Decrease) | |||||||||
| Revenues | US$ | 390.5 | US$ | 480.5 | US$ | (90.0 | ) | |||||
| Operating Income | 27.3 | 52.7 | (25.4 | ) | ||||||||
| Adjusted EBITDA(1) | 50.7 | 73.7 | (23.0 | ) | ||||||||
| Net Income Attributable to Shareholders | 6.2 | 31.6 | (25.4 | ) | ||||||||
| Earnings Per Diluted Share | 0.09 | 0.45 | (0.36 | ) | ||||||||
| (1) See definition of Adjusted EBITDA and reconciliation elsewhere in this release. | ||||||||||||
Operating income and Adjusted EBITDA declined by US$25.4 million and US$23.0 million in third quarter 2013, respectively, primarily due to lower performance in our Coal Mining Segment and Indiana Harbor cokemaking facility as well as higher corporate expenses primarily driven by acquisition costs. Also impacting operating income was US$1.7 million of accelerated depreciation at Indiana Harbor, which is undergoing a major refurbishment.
Net income attributable to shareholders was US$6.2 million in third quarter 2013, a reduction of US$25.4 million versus the same prior year period. Factors impacting net income included weak Coal Mining Segment performance, the attribution of income to SXCP's public unit holders and lower results at Indiana Harbor.
SEGMENT RESULTS
Domestic Coke
Domestic Coke consists of cokemaking facilities and heat recovery operations at our Jewell, Indiana Harbor, Haverhill, Granite City and Middletown plants. Beginning in first quarter 2013, the company combined its Jewell Coke and Other Domestic Coke segments into one segment called Domestic Coke due to the similarities of operations and contracts between the two segments. Prior year periods have been adjusted to reflect this change.
| Three Months Ended September 30 | ||||||||||||
| (In millions, except per ton amounts) | 2013 | 2012 | (Decrease) | |||||||||
| Segment Revenues | US$ | 364.8 | US$ | 462.9 | US$ | (98.1 | ) | |||||
| Adjusted EBITDA(1) | 64.3 | 69.8 | (5.5 | ) | ||||||||
| Sales Volume (in thousands of tons) | 1,084 | 1,116 | (32 | ) | ||||||||
| Adjusted EBITDA per ton(1) | 59.32 | 62.54 | (3.22 | ) | ||||||||
| (1) See definitions of Adjusted EBITDA and Adjusted EBITDA per Ton and reconciliations elsewhere in this release. | ||||||||||||
- Segment revenues were affected by the pass-through of lower coal costs and lower sales volumes.
- Segment Adjusted EBITDA declined primarily due to US$4.5 million of lower performance at our Indiana Harbor cokemaking facility, which is undergoing a significant refurbishment. Also impacting Segment Adjusted EBITDA was higher costs at our Granite City facility, partly offset by improved operating expense recovery at Middletown.
Brazil Coke
Formerly named International Coke, our Brazil Coke segment consists of a cokemaking facility in Vitória, Brazil, which we operate for a Brazilian affiliate of ArcelorMittal. Brazil Coke earns operating and technology licensing fees based on production and recognizes a dividend on its preferred stock investment assuming certain minimum production levels are achieved at the facility.
- Segment Adjusted EBITDA rose US$0.6 million to US$1.5 million due to favorable comparison to prior year, which contained a higher allocation of corporate costs.
India Coke
India Coke consists of our 49% interest in VISA SunCoke, a joint venture with VISA Steel launched on March 18, 2013. VISA SunCoke produces coke for the Indian merchant market and owns a 440 thousand ton cokemaking facility and associated steam power generation unit located in Odisha, India. Financial results for VISA SunCoke are recorded on a one-month lag and represent our 49% share of the joint venture's results.
- India Coke generated an Adjusted EBITDA loss of US$2.1 million on total coke sales of 47 thousand tons, which represents our share of total coke sales of 97 thousand tons. This loss was due to a negative foreign currency translation impact on imported coal purchases of approximately US$2.4 million.
- India Coke recognized US$2.3 million of losses from equity method investment reflecting our share of depreciation, interest expense and taxes attributable to the venture.
Coal Mining
Coal Mining consists of our metallurgical coal mining activities conducted in Virginia and West Virginia. A substantial portion of the metallurgical coal produced by our coal mining operations is sold to our Jewell Coke segment for conversion into coke.
| Three Months Ended September 30 | ||||||||||||
| (In millions, except per ton amounts) | 2013 | 2012 |
Increase/ (Decrease) |
|||||||||
| Total Coal Mining Revenues (including sales to affiliates) | US$ | 52.5 | US$ | 65.1 | US$ | (12.6 | ) | |||||
| Segment Revenues (excluding sales to affiliates) | US$ | 16.8 | US$ | 8.9 | US$ | 7.9 | ||||||
| Adjusted EBITDA(1) | US$ | (2.6 | ) | US$ | 10.7 | US$ | (13.3 | ) | ||||
| Coal Production (in thousands of tons)(2) | 351 | 349 | 2 | |||||||||
| Sales Volumes (in thousands of tons)(3) | 433 | 392 | 41 | |||||||||
| Sales Price per ton (excludes transportation costs) | US$ | 119.64 | US$ | 165.17 | US$ | (45.53 | ) | |||||
| Adjusted EBITDA per ton(1) | US$ | (6.00 | ) | US$ | 27.30 | US$ | (33.30 | ) | ||||
| (1) See definitions of Adjusted EBITDA, Adjusted EBITDA per Ton and reconciliations elsewhere in this release. | ||||||||||||
| (2) Includes production from company and contract-operated mines. | ||||||||||||
| (3) Includes sales to affiliates. | ||||||||||||
- Total Coal Mining revenues (including sales to affiliates) declined due to lower average sales price, partly offset by increased third-party coal sales volumes. Excluding sales to affiliates, segment revenues increased on higher third-party sales volumes of 61 thousand tons. The difference between coal sales volumes and coal production in third quarter 2013 was due to an increase in raw coal purchases.
- Adjusted EBITDA was impacted by a US$46 decline in the average coal sales price, partly offset by lower cash production costs of approximately US$20 per ton. The change in cash production costs reflect the success of our coal action plan initiatives, which includes idling mines, reducing staff, upgrading equipment and installing a new cyclone system in our existing coal prep plant. Third quarter 2012 benefited from a US$3.2 million favorable contingent consideration adjustment.
Coal Logistics
Coal Logistics consists of the coal handling and blending terminal operated by SXCP since the closing of its Lakeshore Coal Handling Corporation (Lake Terminal) acquisition on 30 August 2013. In the future, this segment will also include the results of the Kanawha River Terminals, LLC (KRT) acquisition, which closed on 1 October 2013. SXCP's coal handling and blending terminals are located in East Chicago, Indiana and along the Ohio, Big Sandy and Kanawha Rivers in West Virginia and Kentucky.
- The Coal Logistics Segment contributed US$0.7 million to Adjusted EBITDA on revenues of US$1.1 million in third quarter 2013, which reflects higher than expected volume and lower operating costs. Total coal handled byLake Terminal in third quarter 2013 was 136 thousand tons.
2013 OUTLOOK
Our 2013 guidance is as follows:
- Domestic coke production is expected to be approximately 4.3 million tons
- Coal production is projected to be approximately 1.4 million tons
- Adjusted EBITDA is expected to be between US$215 million and US$230 million on a consolidated basis. Adjusted EBITDA attributable to SXC is expected to be between US$175 million and US$188 million, reflecting the impact of public ownership in SXCP
- Earnings per diluted share attributable to SXC is expected to be between US$0.35 and US$0.55 per diluted share, reflecting the impact of public ownership in SXCP
- Cash generated by operations is expected to be approximately US$120 million
- Capital expenditures are projected to be US$130 million and investments are projected to be US$183 million for a total of US$313 million on a consolidated basis. Approximately US$21 million of the projected 2013 capital expenditures has been pre-funded from the proceeds of the initial public offering of SXCP
- The effective tax rate for the full year 2013 is expected to be between 14% and 20%, and the cash tax rate is expected to be between 12% and 20%
Pursuant to our omnibus agreement with SXCP, we anticipate making make-whole payments to SXCP as a result of temporarily trimming coke production at our Middletown facility to name plate capacity level in the second half 2013 due to our customer's unplanned blast furnace outage in late June 2013. These make-whole payments will be remitted to SXCP on a quarterly basis in second half 2013 based on actual production. In the third quarter 2013, this payment was US$0.6 million and is eliminated in consolidation. Also, in connection with this unplanned outage, we plan to provide our customer a temporary extension of payment terms on December 2013 coke production, resulting in a shift of approximately US$20 million in expected operating cash flow from 2013 to early 2014.
