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SunCoke Reveals Modest 2013 Outlook

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Illinois-based coke producer SunCoke Energy Inc. (SXC - Free Report) announced its operational and financial outlook for 2013. The company’s targeted capital investment is set around $200 million for 2013 versus $70 million in 2012.

Included in the capital outlay is $75 million allocated for the revamping of the Indiana Harbor facility. Environmental remediation projects at the Haverhill and Granite City facilities in Chicago and the $67 million investment in the VISA SunCoke joint venture are also included in the capital guidance.

The company expects its Middletown facility in Ohio to provide a thrust to operations. The Indiana Harbor facility could also be a major draw in 2013. Offsetting these prospects are the expected decline in value of coal-to-coke yield benefits accrued in 2012 owing to lower purchased coal costs per ton.

With projected coke production to exceed 4.3 million tons, SunCoke expects capacity utilization to be more than 100%. For 2013, the company’s domestic coke business will continue to realize Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) of $55 to $60 per ton.

Going forward, SunCoke expects its coke making fleet to do moderate business as it estimates a $40 per ton downside in the average selling prices in the coal mining segment. Furthermore, SunCoke anticipates EBITDA in the range of $205−$230 million in 2013, representing a decline of $40 million to $50 million from the 2012 level.

However, to weather the weak coal price fundamentals, SunCoke would bring online a coal action scheme which entails cost-containment and efficient resource utilization measures at its Jewell underground mining prospect in Virginia.

The company also intends to boost volume from its Revelation surface mining venture and purchase more of lower-priced third-party coal. Taking these coal dynamics into account, the company expects a slight uptick in 2013 coal sales to 1.7 million tons as opposed to an estimated 1.5 million in 2012.

On the financial front, SunCoke anticipates free cash flow of $240 million by the end of 2012. However, with the recent VISA SunCoke joint venture investment, the company expects a cash flow deficit of roughly $65 million in 2013.

Looking ahead, SunCoke estimates both its effective tax rate and cash tax rate to be in the range of 17% to 22% for 2013.

We believe these sizeable development endeavors will offer stability in earnings to the company given the current stalemate in the U.S. thermal coal market as well as the soft overseas met coal market. SunCoke presently has a short-term Zacks #3 Rank (Hold Rating).

Another Zacks #3 Ranked coke major, Alpha Natural Resources Inc. has also cut back its production to bring about supply-demand equilibrium. The company also responded to the tepid demand by lowering production of its lower quality metallurgical coal by 3 to 4 million tons annually.

SunCoke expects 2013 earnings to be in the range of 60 cents to 85 cents per share. The Zacks Consensus Estimates for the full year 2012 and 2013 presently stand at $1.37 per share and 73 cents per share, respectively. With a market capitalization of $1.05 billion, SunCoke has 1,160 employees.

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