SXC Q1 2025: Weak Coke Market Pressures EBITDA; H2 Margin Rebound
- Second Half EBITDA Upside: Management explained that lower first-quarter domestic coke EBITDA was driven by timing, and they expect a pickup later in the year as shipments (e.g., Cliffs contract adjustments) are more evenly spread, suggesting improved margins in H2.
- Disciplined Capital Allocation: Executives highlighted a careful approach to capital spend—continuing dividends and prioritizing projects like the KRT expansion while deferring lower-priority expenditures—which supports strong liquidity and shareholder returns.
- Operational Timing and Inventory Management: Leadership noted that the current buildup in coal inventory and slower Haverhill production are planned seasonal moves, emphasizing effective operational management in a challenging market.
- Challenges in the Coke Market: Management repeatedly highlighted a weak spot coke market and challenging pricing environments, which have already affected domestic coke sales and margins in Q1.
- Cautious Capital Spending: Executives noted deferrals in planned capital expenditure due to market uncertainty, suggesting that growing pressure may limit future investments and affect long-term growth.
- Reliance on Timing Adjustments: The guidance depends on a recovery later in the year (e.g., lower Haverhill production in Q1 with expectations for improvement), a reliance that could turn unfavorable if market conditions do not pick up.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –10.7% (from $488.4M in Q1 2024 to $436.0M in Q1 2025) | Total revenue declined due to a combination of lower spot blast coke sales volumes and the adverse economics from the Granite City contract extension, along with the pass-through of lower coal prices on long-term agreements; in Q1 2024, higher sales volumes and pricing helped drive revenue, which were reversed this year. |
Cokemaking Segment Revenue | –12.4% (from $446.7M in Q1 2024 to $391.3M in Q1 2025) | Cokemaking revenue fell largely because of reduced spot blast coke sales and lower pricing from contracted agreements such as at Granite City, compounded by a decline in domestic coke capacity utilization (from 100% to 91%); in the prior period, higher volumes and favorable pricing supported revenue increases. |
Domestic Coke Segment Revenue | –11.7% (from $459.5M in Q1 2024 to $405.8M in Q1 2025) | Domestic Coke revenue dropped due to similar factors—lower spot sales volumes impacted by challenging market conditions, less favorable contract economics (e.g. Granite City), and the pass-through of lower coal pricing; previously, stronger pricing and volume levels helped maintain higher revenue. |
Operating Income | –12.5% (from $34.5M in Q1 2024 to $30.2M in Q1 2025) | Operating income declined as lower sales volumes and less favorable contract terms (especially on Granite City extensions) squeezed margins compared to Q1 2024, when higher volumes and more robust pricing contributed to stronger results; these factors led to compressed operational profitability despite the underlying cost structure. |
Net Income | –8% (from $21.1M in Q1 2024 to $19.4M in Q1 2025) | Net income decreased modestly reflecting the cumulative effect of lower revenues and operating income, while some cost adjustments helped mitigate deeper losses; this contrasts with Q1 2024 where better segment performance boosted net income slightly. |
Earnings per Share (EPS) | –16.7% (from $0.24 in Q1 2024 to $0.20 in Q1 2025) | EPS fell significantly as a direct outcome of lower EPS drivers such as diminished spot sales and less favorable pricing on key contracts, which reduced net income on a per-share basis relative to Q1 2024; the decline is more pronounced per share due to the operating and revenue headwinds faced in the current period. |
Operating Cash Flow | +158% (from $10.0M in Q1 2024 to $25.8M in Q1 2025) | Operating cash flow improved dramatically driven by better working capital management and non-cash adjustments, which offset revenue declines; while Q1 2024 experienced lower cash generation due to higher working capital outflows, Q1 2025 benefited from tighter cost controls and improved cash conversion. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Consolidated Adjusted EBITDA | FY 2025 | $210 million to $225 million | $210 million to $225 million | no change |
Domestic Coke Adjusted EBITDA | FY 2025 | $185 million to $192 million | $185 million to $192 million | no change |
Logistics Adjusted EBITDA | FY 2025 | $45 million to $50 million | $45 million to $50 million | no change |
Domestic Coke Sales Volume | FY 2025 | Approximately 4 million tons | Approximately 4 million tons | no change |
Capital Expenditures | FY 2025 | Approximately $65 million | Initially planned at $65 million, though the company indicated likely spend less | no change |
Dividend Guidance | Quarterly | no prior guidance | $0.12 per share, with the next payment scheduled for June 2, 2025 | no prior guidance |
Operating Cash Flow | FY 2025 | Expected between $165 million and $180 million | Reaffirmed; no specific figures disclosed | no change |
Granite City Contract Extension | FY 2025 | Extended through end of 2025 with a 6-month option | Extended through September 30, 2025 with an option for an additional 3-month extension | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Domestic Coke Market Dynamics and Margin Pressure | In Q3 2024, topics were discussed in relation to lower coal-to-coke yields, weather impacts, and contract challenges. In Q4 2024, challenging market conditions, lower spot blast sales, and adverse Granite City contract economics were highlighted. | In Q1 2025, the discussion focused on a highly challenged spot blast coke pricing environment, reduced production at Haverhill, and a normalization outlook for EBITDA per ton despite margin pressure from the Granite City contract extension. | Consistent market challenges persist; however, Q1 2025 shows adjustments in production strategy with expectations to normalize EBITDA per ton despite ongoing margin pressure. |
Disciplined Capital Allocation and Capital Spending Strategy | In Q3 2024, the focus was on balanced capital allocation, including actions such as extinguishing legacy liabilities and capital investments like the KRT expansion. In Q4 2024, the emphasis shifted to profitable growth opportunities, commitment to dividends, and detailed CapEx performance. | In Q1 2025, SunCoke continued its disciplined approach by emphasizing reduced CapEx spending, deferring non-critical projects, and maintaining dividend payouts to reward shareholders while focusing on high-value projects. | A consistent focus on disciplined capital allocation is maintained, with Q1 2025 reflecting a more cautious CapEx strategy and project deferment to preserve financial flexibility. |
Operational Timing and Inventory Management | Q3 2024 did not provide specific commentary on this topic. In Q4 2024, SunCoke emphasized 24/7 production to match sales and manage cashable inventory while noting timing effects on EBITDA per ton. | Q1 2025 discussions mentioned a planned inventory build on the coal side and deliberately lower production at Haverhill to align capacity with market demand. | The topic remains under observation. While not as prominently featured in Q3, Q4 and Q1 highlight a strategic approach to managing production timing and inventory builds amid market challenges, albeit with a slightly lower emphasis. |
Emerging GPI Project Development and Granite City Initiatives | Q3 2024 discussions focused on the Granite City coke supply agreement extension as a bridge related to the GPI project delays. In Q4 2024, the GPI project was highlighted for its strong fundamentals and strategic advantages despite delays in the U.S. Steel Nippon transaction, along with Granite City contract extensions. | In Q1 2025, the GPI project remains a top priority with strong fundamentals mentioned, and the Granite City contract has been extended further (through September 2025) to support operations. | The focus remains consistent on long-term project development. Despite regulatory delays, Q1 2025 reaffirms commitment by extending contracts and maintaining a strategic growth outlook. |
Logistics Pricing Adjustments and Capacity Expansion | In Q3 2024, higher API2 pricing adjustments at CMT and a $12 million expansion at KRT (increasing barge-to-rail capacity) were key points. In Q4 2024, changes in pricing indices (from API2 to FOB New Orleans) and guidance for increased throughput and terminal capacity were discussed. | In Q1 2025, while the adjusted EBITDA increase for Logistics was partly driven by higher transloading volumes, there was an absence of the previous index benefit, and the KRT expansion project remained on track and on budget. | Capacity expansion remains a consistent growth area. However, the pricing adjustments have shifted, with Q1 2025 noting operational benefits from higher volumes but a change in index-related pricing benefits compared to previous periods. |
Regulatory and Transaction Uncertainty Impacting Future Growth | In Q3 2024, regulatory delays linked to government inaction on the U.S. Steel sale impacted the GPI project, leading to a bridging extension at Granite City. In Q4 2024, continued delays in the U.S. Steel Nippon transaction and cautious M&A exploration underlined the uncertain regulatory landscape. | In Q1 2025, regulatory and transaction uncertainty remains a key concern with explicit frustration over government delays affecting the GPI project, though the project’s fundamentals remain strong and growth opportunities beyond it are being explored. | Persistent regulatory and transaction uncertainties continue to challenge future growth. Sentiment remains cautious and frustrated, yet there is steadfast commitment to long-term project fundamentals and exploring other growth avenues. |
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EBITDA Cadence
Q: Why is Q1 domestic EBITDA lower?
A: Management explained that lower domestic volumes and spot blast coke sales drove Q1 EBITDA lower, with shipments from Haverhill II expected to rebalance margins in the later half of the year. -
Domestic Coke Margin
Q: Why is EBITDA per ton higher?
A: They noted that minimal spot blast sales in Q1 led to an EBITDA per ton of $55, which is above guidance, although this margin is expected to normalize over the full year. -
CapEx Spend
Q: Why only $5M CapEx spent in Q1?
A: Management cited market uncertainties as the reason for being judicious with spending, leading to deferrals and spending less than the originally planned $65M. -
Deferral Details
Q: What investments are being deferred?
A: They clarified that while the KRT project remains on track, other non-immediate, longer-term investments, including deferred maintenance, are being postponed. -
Capital Allocation
Q: How will capital be allocated this year?
A: Management emphasized a disciplined approach that rewards shareholders through continued dividends while preserving cash for priority projects and profitable growth opportunities. -
Project Opportunities
Q: Will there be projects similar to GPI?
A: They stated they pursue opportunities in areas where they have expertise, looking for profitable growth opportunities that complement their current operations, similar in nature to the GPI project. -
Coke Market Outlook
Q: What is the outlook for foundry/export coke?
A: Management expressed caution, noting that early sales were secured in a weak pricing environment with ongoing discussions about contract terms, leaving market recovery timelines uncertain. -
Haverhill Timing
Q: Why was Haverhill production low in Q1?
A: They explained that producing 200,000 tons in Q1 was a planned timing adjustment aligned with their full year production strategy in response to current market challenges. -
Coal Inventory
Q: Why did coal inventory build up?
A: The buildup was due to routine seasonal adjustments with a new coal blend, expected to reverse later in the year as normal patterns resume.
Research analysts covering SunCoke Energy.