SunCoke Energy 2019 revenues drop on challenging export market: executives

Houston — Despite a strong year in SunCoke Energy's coke segment, difficulties in its logistics segment due to a challenging export market drove a fourth quarter and full year 2019 net loss, executives said on the company's earnings call Wednesday.

SunCoke had a net loss of $1.4 million in Q4, down from a gain of $1.8 million in the year-ago quarter. Throughout 2019, the company had a loss of $152 million, compared with a gain of $26.2 million the year before.

Revenues in Q4 totaled $397 million, up 7.7% from the year-ago quarter, while full-year revenues were $1.6 billion, up 10.3% year on year. Q4 revenues dropped $1.3 million, while full-year revenues dropped $2 million year on year, driven by lower volumes and unfavorable foreign currency adjustments.

"We have talked throughout 2019 of the challenges faced by our coal export customers and impact the lower coal export prices and declining domestic coal demand have had our customers free cash flow and liquidity," Michael Rippey, president and CEO, said on the earnings calls.

Along with Murray Energy's Chapter 11 bankruptcy and contract rejection with SunCoke's Convent Marine Terminal in Q4, Rippey said the producer did not ship any meaningful volumes through the terminal in 2019, nor did Murray make any payments under its take-or-pay agreement.

"The loss of this customer had a significant impact on our 2019 financial performance, resulting in a loss of approximately $30 million of EBITDA," Rippey said.

Outside Murray, "although there was no impact on 2019 results, Foresight Energy remains challenged by both market conditions and its capital structure," Rippey added, noting that the producer "is currently exploring potential restructuring alternatives, which is likely to impact our relationship going forward and is something we are planning for in our expectations for 2020."

In 2019, SunCoke's CMT customer Foresight did export slightly more than 5 million st of coal through the terminal and performed in line with annual expectations.

"We know we have work to do to secure new customers and additional volume at CMT," said Fay West, senior vice president and CFO. "While the challenges facing our logistics customers and market are outside of our control, we are not satisfied where we are and are aggressively pursuing initiatives to bring on new customers additional volumes and new products at CMT."

Suncoke's domestic coke segment had sales of about 1.1 million st in Q4, up 3.8% from the year-ago quarter. Through 2019, coke sales totaled about 4.2 million, up 3.4% year on year.

Q4 coke segment revenues totaled $373 million, up 11.5% from Q4 2018, while full-year revenues were about $1.5 billion, up 13.8%.

Its logistics segment had revenues of $14.8 million in Q4, down 37.8% year on year, with intersegment sales of $7 million, down 11.4%. Through the full year, revenues totaled $72.8 million, down 28.8% from 2018, along with sales totaling $26.3 million, down 7.3% year on year.

Tons handled in Q4 were about 5 million st, down 27.5% from the year-ago quarter, while over the year the terminal handled 21 million st, down 20.9%.

2020 GUIDANCE

"We believe the coke market will remain oversupplied and do not foresee a meaningful change in coke demand or coke supply in 2020," Rippey said. "These market dynamics certainly factor into our current contract negotiations. However, steel markets are cyclical, and our business is based on long-term supply and demand fundamentals, and accordingly, on long-term contractual commitments."

"On the thermal coal export side, the market appears challenged again in 2020, with API2 prices in the low to mid-$50s/st," Rippey continued. "While fully repositioning, CMT is going to be a multiyear undertaking. It will be one of our top priorities in 2020."

SunCoke noted its 2020 guidance assumes full production of 1.2 million st at Indiana Harbor, along with continued Logistics customer disruption, including an anticipated renegotiated contract with Foresight Energy.

Rippey added that "in the short term, we are aggressively pursuing new opportunities by adding new customers and new products." However, "we don't expect these activities will offset the loss of large anchor customers," he said.