SunCoke Energy(SXC) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The diluted EPS for Q2 2020 was $0.08 per share, an increase from $0.03 per share in Q2 2019, primarily due to costs associated with the simplification transaction in the prior year [15] - Adjusted EBITDA for Q2 2020 was $59 million, down from $63.1 million in Q2 2019, with a decrease in the Logistics segment contributing to this decline [16][17] - The cash balance at the end of the quarter was approximately $81 million, reflecting a reduction in borrowings from the revolving credit facility [18] - The company expects adjusted EBITDA for 2020 to be between $190 million and $200 million, a reduction of $40 million to $50 million from previous guidance [9][25] Business Line Data and Key Metrics Changes - Domestic coke sales volumes were 977,000 tons in Q2 2020, impacted by customer volume relief, with adjusted EBITDA per ton increasing to approximately $63 from $55 in Q2 2019 [21][22] - The Logistics segment saw a decrease in throughput volumes, handling approximately 2.7 million tons less than the prior year, significantly affected by the bankruptcy of Foresight Energy [16][23] Market Data and Key Metrics Changes - Steel capacity utilization remains low at approximately 59%, with uncertainty regarding the timing of a full recovery in demand [6] - Domestic demand for foundry coke is approximately 600,000 tons per year, with recent shutdowns of foundry coke producers leading to increased interest in domestic supply [12] Company Strategy and Development Direction - The company is pursuing a new business line in foundry coke, targeting an initial production of approximately 100,000 tons in 2021, with plans for further market penetration [11][14] - Investments of approximately $12 million are being made to support the transition to foundry coke production, with expectations of a short payback period [14] - The company aims to maintain a low-cost structure and has implemented workforce reductions to achieve permanent annual savings of approximately $10 million starting in 2021 [10] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges in market conditions due to the COVID-19 pandemic but emphasizes the importance of long-term customer relationships and operational stability [5][6] - The company remains focused on optimizing operations and maintaining asset integrity, even as it navigates lower volume levels [26][27] - Management expresses confidence in capturing significant market share in the foundry coke market and maintaining strong margins through disciplined cost management [50][55] Other Important Information - The company has declared a dividend of $0.06 per share for the quarter, indicating confidence in its liquidity despite challenging market conditions [19] - The gross leverage at the end of the quarter was 3.3 times, with a target to reduce it to 3 times or lower over time [20] Q&A Session Summary Question: Which facility will be producing the foundry coke? - The foundry coke will be produced at the Jewell facility, which is logistically positioned to be the most efficient producer [32] Question: What is the expected EBITDA margin for foundry coke? - The margins are expected to be attractive on a time basis, with a two-for-one replacement ratio for blast furnace coke [33] Question: What is the current state of the Haverhill contract? - The company anticipates shipping 800,000 tons from both facilities in 2021, with flexibility in production sourcing [34][36] Question: How does the company plan to address the volume decline to ArcelorMittal? - The company is in constant dialogue with customers regarding their long-term requirements for coke [38] Question: What is the strategy for asset sales? - The company is not currently focused on asset sales due to the pandemic's impact on the market [46] Question: How does the company plan to fill the gap created by new contracts? - The company plans to fill the gap through both traditional blast furnace customers and continued success in foundry coke [66]