SunCoke Energy, Inc. (SXC) Q3 2026 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Jael, and I will be your conference operator today. At this time, I would like to welcome everyone to SunCoke Energy's third quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We would now like to turn the conference over to Sharon Doyle, Investor Relations Manager. You may begin.

Thanks, Jael. Good morning, and thank you for joining us to discuss SunCoke Energy's third quarter 2026 results. With me today are Katherine Gates, President and Chief Executive Officer, and Shantanu Agrawal, Senior Vice President and Chief Financial Officer. This conference call is being webcast live on the investor relations section of our website, and a replay will be available later today. Following management's prepared remarks, we will open the call for Q&A. If we do not get to your questions on the call today, please feel free to reach out to our investor relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine.

Thanks, Sharon. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy's third quarter results. I want to share a few highlights before turning it over to Shantanu to discuss the results in detail. We are extremely pleased with our third quarter results, with strong consolidated Adjusted EBITDA of $76.9 million. Both of our operating segments delivered excellent performance. Domestic Coke benefited from a favorable mix of contract and spot coke sales and favorable coal-to-coke yields, while Industrial Services benefited from one additional month of Phoenix results compared with the prior year period and higher terminals handling volumes. We also announced this morning that we reached a settlement agreement related to our 2025 claim against Algoma Steel. The agreement was executed in October, and we can confirm that we were made whole. Turning to capital allocation. Earlier today, we also announced a quarterly dividend of $0.12 per share payable to shareholders on December 1st, 2026. This is our 29th consecutive quarterly dividend. While the dividend is evaluated on a quarterly basis by our board, we expect the dividend to continue as part of our well-balanced capital allocation strategy. Our operating segments continue to perform strongly and consistently. Based on our year-to-date results and outlook for the remainder of the year, we expect to modestly exceed the -high end of our full-year 2026 consolidated Adjusted EBITDA guidance range of $250 million to $265 million. With that, I will turn it over to Shantanu to review our third quarter earnings in detail. Shantanu.

Thanks, Katherine. Turning to slide four. Net income attributable to SunCoke was $0.25 per share in the third quarter of 2026, down $0.01 from the prior year period. The benefits from our operating performance and the insurance recoveries from the 2023 Jewell flood event were offset by the absence of capital investment tax credits recorded in the third quarter of 2025. Excluding that item, the underlying earnings performance improved materially. While the insurance recovery was a substantial benefit to our net income and earnings per share during the quarter, the majority of the recovery proceeds were attributable to property damage and therefore excluded from Adjusted EBITDA. Consolidated Adjusted EBITDA for the third quarter of 2026 was $76.9 million, an increase of $17.8 million from the prior year period. Domestic Coke increased by $7.1 million, primarily driven by a change in the mix of contract and spot coke sales and favorable coal-to-coke yields, partially offset by lower coke sales volumes due to Haverhill I shutdown. Industrial Services increased by $13.9 million, primarily driven by one additional month of Phoenix results compared with the third quarter of 2025 and higher terminal handling volumes. Corporate and other expenses increased by $3.2 million, driven by higher employee-related expenses. Moving to slide five to discuss our Domestic Coke business performance in detail. Third quarter Domestic Coke Adjusted EBITDA was $51.1 million, and coke sales volumes were 875,000 tons compared to $44 million and 951,000 tons in the prior year period. The increase in Adjusted EBITDA was primarily driven by a change in the mix of contract and spot coke sales and favorable coal-to-coke yields, partially offset by lower coke sales volumes due to the Haverhill I shutdown. We are pleased with the excellent performance from our coke operations and with a solid outlook for the remainder of the year, we are well-positioned to achieve the high-end of our full-year 2026 Domestic Coke Adjusted EBITDA guidance range of $172 million to $178 million. Now moving on to slide six to discuss our Industrial Services results. Our Industrial Services segment generated $32.1 million of Adjusted EBITDA in the third quarter of 2026, compared with $18.2 million in the prior year period. The increase primarily reflects one additional month of Phoenix results compared with the third quarter of 2025 and higher terminals handling volumes. Third quarter terminals handling volumes were 6.4 million tons and steel customer volume serviced were 5.9 million tons. Our Industrial Services segment continues to perform very well, and we now expect to exceed the high-end of our full-year 2026 Industrial Services Adjusted EBITDA guidance range of $110 million-$115 million. Now turning to slide seven to discuss our liquidity position for Q3. SunCoke ended the third quarter with ample liquidity of approximately $276 million. Gross leverage was 2.34 times on a trailing 12-month Adjusted EBITDA basis. Net cash provided by operating activities during the third quarter was $94.8 million. We used $53.5 million to pay down our revolver balance, spent $20.9 million on capital expenditures, and paid $10.1 million in dividends at the rate of $0.12 per share. We also received $6.9 million of insurance recoveries related to the 2023 Jewell flood event. SunCoke has a strong track record of generating steady free cash flow, and we expect the trend to continue through the balance of the year. Year-to-date, we have reduced debt substantially while simultaneously increasing our free cash flow outlook to $180 million-$185 million, which reflects the impact of the settlement agreement with Algoma. As Katherine mentioned earlier, we intend to continue utilizing our free cash flow to pay down debt, as well as to reward our long-term shareholders via dividends, which is reviewed and approved on a quarterly basis by our board of directors. With that, I will turn it back over to Kat.

Thanks, Shantanu. Wrapping up on slide eight. As always, safety is our first priority, and our team remains committed to maintaining strong safety and environmental performance throughout the year. Robust safety and environmental standards set SunCoke apart and are central to our reliable delivery of high-quality coke and Industrial Services. As we look ahead, we continue to be confident in all aspects of our business. Our long-term coke business is underpinned by the three pillars of Indiana Harbor, Middletown, and Jewell Foundry, which have consistently delivered excellent performance and results. With our Haverhill II and Granite City cokemaking contracts in place and all spot blast and foundry coke sales finalized, we are sold out for the full-year. Our Industrial Services segment is also well-positioned going forward. Phoenix is performing as we expected, and 2026 will benefit from a full-year of Phoenix Adjusted EBITDA. We also see solid market conditions at our terminals and are focused on growing both our Phoenix and logistics businesses. As always, we take a balanced yet opportunistic approach to capital allocation. Our focus will remain on utilizing our free cash flow to support our capital allocation priorities, including paying down our revolver balance. We plan to continue returning capital via the quarterly dividend approved by our board, which has always been well-received by our long-term shareholders. Our focus is also on profitable growth opportunities to further reward our long-term shareholders. This commitment to maximizing value for all stakeholders means operating and investing in our assets in the best and most efficient way possible to support our customers and to further grow the business. Based on our strong year-to-date performance and outlook for the remainder of the year, we now expect full-year consolidated Adjusted EBITDA to modestly exceed the high end of our guidance range of $250 million-$265 million. In addition, we are increasing our free cash flow guidance to a range of $180 million-$185 million. Let's go ahead and open up the call for Q&A.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Nathan Martin of StoneX Financial. Your line is open.

Thanks, operator. Good morning, everyone. Can we get some more details on the settlement agreement with Algoma that was reached this month? Katherine, I know you said you were made whole, but what was the amount, and how will that impact the fourth quarter results?

Thanks for the question. You can appreciate that this is a confidential settlement, and beyond that, we don't talk about the economics of specific customers or specific contracts. What I can say is that we're really pleased with the resolution of the matter. We were made whole, and the impact of the relationship that we have with Algoma as it related to both the steps that we took to mitigate the effect of the contract rejection and the settlement itself is totally reflected in the guidance for 2026.

Okay. Any of the previous kind of working capital headwinds you've talked about there, all that has been reflected now that you have the settlement in place?

That's correct.

Okay. Got it. Then somewhat related, does SunCoke still expect the insurance proceeds from the turbine failure at Middletown to arrive sometime here in the fourth quarter?

Great question. We're obviously really pleased that the turbine returned to service in May and power resumed and everything is working just as we expected. The claims process for the turbine may not be complete at the end of 2026. This may go into early 2027. As a result, the insurance recovery for the turbine is not included in our guidance. If we receive payment for the claim in 2026, we will significantly exceed the high end of our guidance range.

Okay. Got it. Because previously it was, I think, included in your guidance range. Is it almost the case that maybe the Jewell proceeds you got there have kind of offset potentially the proceeds you originally expected from Middletown?

No. Nate, on that, as I mentioned, the Jewell proceeds, a significant chunk of that is excluded from Adjusted EBITDA. We received total $8.7 million from the Jewell flood event. Only $1.8 million of that in Adjusted EBITDA. The remainder, $6.9 million, as I mentioned, is running through the net income, but it is not included in Adjusted EBITDA. The increase in the guidance as we are guiding towards modestly exceeding the consolidated Adjusted EBITDA guidance, that is driven by the performance along with the Algoma settlement.

Okay. So that Algoma settlement is basically potentially going to offset any delay in the insurance proceeds from the turbine failure.

That is kind of what is contemplated in the guidance.

Okay. Got it. That's helpful, Shantanu. Appreciate that. Maybe just looking at the Industrial Services segment. Great quarter there. I think last quarter we talked about how even the new higher full-year guidance still kind of assumed a slowdown in the second half versus the first half. I think you said levels probably look more like the first quarter levels. Clearly, volumes for both the terminals business and Phoenix remained elevated. Now I guess you're expecting to exceed the high-end of the full-year guidance range. Can you help us frame the magnitude there? Is it reasonable to expect fourth quarter Adjusted EBITDA looks similar again to the third quarter, just given strong demand? We've got higher export thermal volumes and prices as well. Just how should we think about that? Thanks.

So great question, Nate, on that. Again, as we have talked about, the Industrial Services segment is the segment where there is the most volatility in our business, right? If the steel mills are running really hard and if there is a lot of bulk products moving through the rivers, bulk product moving out of the U.S., you see additional volumes and additional profitability come through that. As we think about Q4, what is in our guidance today, both our full-year volume guidance for the terminals as well as for Phoenix, we expect to exceed the 24 million and the 22 million that we laid out at the start of the year, right? That's a given. Now to your question of what is the magnitude of Q4, again, there is a little bit of uncertainty, but the expectation is as we go into the holiday period of Thanksgiving and Christmas, the steel mills are going to slow down. They shut down their volumes a little bit. Same thing on the little bit on the terminal side, not to that extent, but you see that a little bit in the Q4 where the volumes are a little bit lighter than Q2 or Q3, right? If you want to think about what Q4 looks like, I would say somewhere closer to Q1 or in between the Q1 and the Q3 range would be my expectation for Industrial Services segment in Q4.

Okay. Got it, Shantanu. Just to confirm, I'm assuming just given where export thermal coal prices are today that you guys are expecting you should receive the price kicker there at Convent?

Yeah. If you recall, we changed our kicker. Instead of being an export coal-driven, it is more the New Orleans price-driven. Now that price has come up as well, given what is happening in the U.S. export market. The coal is moving. So we are getting the kicker, but it is a different kicker versus what it was in the previous years.

Sure. Right. Yeah, I recall. Okay, I will leave it there. Pass it along. Appreciate the time and best of luck in the fourth quarter.

Thank you.

Thank you.

Your next question comes from the line of Henry Hearle of B. Riley Securities. Your line is open.

Good morning everyone. I guess just on the Domestic Coke business, Adjusted EBITDA per ton came in at $58.40, which is your strongest in recent quarters. How would you attribute the improvement between the contract and spot sales mix shift and also the coal-to-coke yield benefit?

Henry, thanks for the question. There are timing differences when you move quarter-to-quarter where the mix between what you're shipping in a quarter, what is contract versus what is spot changes. In Q3, obviously there was a bigger portion of contract coke going out, versus the spot coke, and that's why you see the Adjusted EBITDA per ton being higher. As per coal-to-coke yields, that has some seasonality in it, where Q1 and Q4 being our cold and wet quarters, you historically see higher yields in Q2 and Q3 versus Q1 and Q4. I would say both of these factors kind of played into it, but obviously the contract versus spot coke mix is a bigger factor versus the yield if you're comparing previous year quarter to this year quarter.

Got it. Thanks for that, Shantanu. Looking towards 2027, I believe you have a couple contracts expiring in December this year, 2026. Are you confident that those will be extended going forward? Any color there would be great. Thanks.

We are in active discussions. If you are thinking about the Javelin contract at CMT and the contract with U.S. Steel Nippon at Granite City Works, we are in active discussions with both of those parties and expect to move forward with them in 2027. Obviously, we cannot say more at this point in time, but overall, if you are thinking about 2027, we expect to have a strong finish here to 2026, and Shantanu has sort of walked through some of the nuances of that. Q4 being a bit softer, but overall, very strong finish to 2026 and we have good momentum going into 2027.

Understood, Katherine. Thanks for that color. I think I will leave it there. Continue. Best of luck, guys.

Thank you.

Thank you. With no further questions, that concludes our Q&A session. I will now turn the conference back over to Katherine Gates, President and CEO, for closing remarks.

Thank you all for joining us today and for your continued interest in SunCoke. Let's continue to work safely today and every day. Thank you, guys.

This concludes today's conference call. You may now disconnect.