Executive Summary / Key Takeaways

• SunCoke Energy is transforming its business model, expanding beyond its core cokemaking operations into diversified industrial services through the strategic acquisition of Phoenix Global, aiming for enhanced stability and growth.
• The company faces near-term headwinds in its Domestic Coke segment, including lower spot market pricing and a contract breach by Algoma Steel Inc. impacting approximately 200,000 tons of coke sales in late 2025, leading to revised full-year Adjusted EBITDA guidance of $220 million to $225 million.
• The Phoenix Global acquisition, completed in August 2025, is immediately accretive and is expected to contribute a full year of Adjusted EBITDA in 2026, along with $5 million to $10 million in annual synergies, significantly diversifying SunCoke's customer base to include electric arc furnace (EAF) operators and expanding its global footprint.
• Despite current market challenges and the Algoma contract dispute, SunCoke maintains a strong liquidity position of $206 million and a commitment to shareholder returns through its consistent $0.12 per share quarterly dividend.
• The long-term outlook for 2026 is optimistic, with management anticipating improved results driven by the full integration of Phoenix Global, a modest recovery in the logistics business, and the foundational strength of its core cokemaking assets.

A Foundation Forged in Fire: SunCoke's Enduring Role in Steel

SunCoke Energy, Inc. (NYSE:SXC) stands as the largest independent producer of high-quality coke in the Americas, a position forged over more than 60 years of operational experience. The company's core business involves heating metallurgical coal in refractory ovens to produce coke, a critical raw material for blast furnace steelmaking and foundry cast iron production. This foundational role in the steel industry is underpinned by five U.S. cokemaking facilities with a collective annual capacity of approximately 4.20 million tons of blast furnace coke, alongside a 1.70 million tons per year facility in Brazil operated for ArcelorMittal Brasil S.A. (MT).

SunCoke's operational efficiency is enhanced by its modern heat recovery technology, which combusts volatile components released during cokemaking to generate steam or electricity for sale. This integrated approach not only optimizes production but also contributes to energy sales, adding a diversified revenue stream. The company's strategic evolution has seen it expand into industrial services, providing material handling and mixing services through logistics terminals capable of handling over 40 million tons of bulk products annually. This dual-pronged business model, rooted in essential industrial processes, positions SunCoke as a critical partner in the broader materials sector.

The company's history is marked by strategic adaptation and resilience. Following the divestment of its legacy coal mining assets in 2016, SunCoke successfully navigated the challenging market conditions of 2020 by developing foundry coke as a commercially viable product and expanding its presence in the spot blast coke market. This adaptability proved crucial, contributing to strong free cash flow generation in 2021 and 2022. More recently, the company has continued to enhance its logistics capabilities, including growing its barge business at the Kanawha River Terminal (KRT) and extending its Granite City cokemaking contract with U.S. Steel through December 31, 2025.

Technological Edge and Operational Discipline

SunCoke's cokemaking ovens utilize efficient, modern heat recovery technology. This core differentiated technology is designed to combust the coal's volatile components liberated during the cokemaking process, using the resulting heat to create steam or electricity for sale. The tangible benefits of this technology are multifaceted: it enhances energy efficiency, reduces waste, and creates an additional revenue stream from energy sales, thereby improving overall operational economics. While specific quantitative metrics on energy yield or cost advantages were not discussed, the strategic intent is clear: to maximize value from the cokemaking process beyond just coke production.

In its industrial services, particularly with the recent Phoenix Global acquisition, SunCoke is leveraging operational discipline and engineering expertise. Phoenix Global's operations provide high-value, site-based services that are mission-critical to the operational efficiency and reliability of steel mills. SunCoke plans to apply its strong financial position and operational excellence to build upon Phoenix's success, aiming to expand the scope of services provided at existing sites and enter new contracts. This strategic integration of operational know-how with advanced service offerings creates a competitive moat by embedding SunCoke deeper into its customers' value chains.

A Transformative Acquisition: Phoenix Global and the New Industrial Services Segment

A pivotal moment in SunCoke's recent history was the completion of the Phoenix Global acquisition on August 1, 2025. This strategic move, valued at $295.80 million (net of cash acquired), fundamentally reshaped SunCoke's business structure and significantly diversified its revenue streams. Phoenix Global, a leading provider of mission-critical mill services to major steel producers, expands SunCoke's industrial services to include electric arc furnace (EAF) operations and provides a global footprint across the United States, Brazil, Slovakia, and Spain.

The acquisition is expected to be immediately accretive to SunCoke's earnings and cash flow, with management anticipating $5 million to $10 million in annual synergies starting in 2026. Phoenix's business model aligns well with SunCoke's, featuring long-term contracts with guaranteed fixed revenue and pass-through components, and minimal exposure to commodity price volatility as Phoenix does not take ownership of major consumables. This strategic fit, encompassing shared customer bases, complementary capabilities, and similar contractual structures, forms the bedrock of the newly formed Industrial Services segment, which now combines the former Logistics business with Phoenix Global. The Brazil Coke operations are now reported under Corporate and Other.

Financial Performance and Outlook: Navigating Headwinds with Strategic Growth

SunCoke's financial performance in the third quarter of 2025 reflected a mixed picture, with consolidated Adjusted EBITDA reaching $59.1 million, a sequential improvement over the second quarter but falling short of earlier expectations. For the nine months ended September 30, 2025, consolidated Adjusted EBITDA stood at $162.5 million, down from $206.7 million in the prior year period. This decline was primarily driven by lower pricing in the Domestic Coke segment due to the mix of contracted and non-contracted blast coke sales, unfavorable coal-to-coke yields, and the economics of the Granite City contract extension.

The Domestic Coke segment reported sales and other operating revenue of $413.80 million for Q3 2025, down from $459.90 million in Q3 2024, and Adjusted EBITDA of $44.0 million, a decrease from $58.1 million in the prior-year quarter. The segment's capacity utilization for Q3 2025 was 97%, a slight dip from 102% in Q3 2024. These results were significantly impacted by a breach of contract by Algoma Steel Inc. , leading to the deferral of approximately 200,000 tons of coke sales into inventory.

Conversely, the new Industrial Services segment, benefiting from two months of Phoenix Global's operations, saw its sales and other operating revenue (exclusive of intersegment sales) rise to $64.10 million in Q3 2025 from $21.40 million in Q3 2024. Adjusted EBITDA for the segment increased to $18.2 million from $13.7 million in the comparable prior-year period. This growth was partially offset by lower transloading volumes and pricing at the Convent Marine Terminal (CMT) due to prevailing market conditions.

For the full year 2025, SunCoke has revised its consolidated Adjusted EBITDA guidance to between $220 million and $225 million. This updated guidance incorporates five months of Phoenix Global results, partially offset by the impact of the deferred coke tons. Domestic Coke Adjusted EBITDA is now expected to be between $172 million and $176 million, while Industrial Services Adjusted EBITDA is projected to be between $63 million and $67 million.

Looking ahead to 2026, management expresses optimism for improved results. This positive outlook is predicated on a full year of Phoenix Global's Adjusted EBITDA contribution and anticipated synergies, coupled with a modest recovery expected in the logistics business. The core cokemaking assets, particularly the long-term contracts at Middletown (through December 2032) and Indiana Harbor (through September 2035), along with the growing Jewell Foundry business, are expected to provide a stable foundation.

Liquidity and Capital Allocation: A Disciplined Approach

SunCoke maintains a robust liquidity position, ending Q3 2025 with $80.4 million in cash and cash equivalents and $126 million in available borrowing capacity under its revolving credit facility, totaling $206 million in liquidity. The revolving facility was recently amended and extended to July 2030, demonstrating continued access to capital.

Net cash provided by operating activities for the nine months ended September 30, 2025, was $52.5 million, a decrease from $107.9 million in the prior year. This was impacted by payments related to Phoenix Global acquisition liabilities and an increase in income tax receivables. Capital expenditures for the nine-month period totaled $43.0 million. The company has revised its full-year 2025 CapEx guidance to approximately $70 million, reflecting lower spending at coke plants and the inclusion of Phoenix's capital expenditures.

Despite these shifts, SunCoke remains committed to a balanced and opportunistic approach to capital allocation. The company has consistently declared a quarterly cash dividend of $0.12 per share, marking its 25th consecutive quarter of dividend payments. This commitment to shareholder returns is expected to continue, supported by the company's strong track record of generating steady free cash flow. Management also confirmed that the dividend strategy fully accounts for the ability to pursue the granulated pig iron (GPI) project at Granite City, which remains a strategic priority despite ongoing delays.

Competitive Landscape and Strategic Positioning

SunCoke operates in a competitive environment within the metallurgical coal and coke production industry, facing both direct and indirect rivals. Direct competitors include major U.S. coal producers like Arch Resources (ARCH), Peabody Energy , and CONSOL Energy (CEIX), which have overlapping operations in coal production, coke-related activities, and logistics.

SunCoke's competitive advantage lies in its specialized focus on cokemaking and its integrated facilities, which offer tailored solutions for steelmakers. Its operational discipline and advanced heat recovery technology contribute to efficiency and reliability, potentially leading to superior margins and stronger customer loyalty compared to competitors with broader coal portfolios. For instance, SunCoke's dedicated cokemaking infrastructure provides a streamlined service for steel customers, a potential differentiator against Arch Resources' larger scale in raw coal extraction. Similarly, its international presence, particularly in Brazil, offers diversification beyond CONSOL Energy's U.S.-centric model.

However, SunCoke faces vulnerabilities, including its dependence on the cyclical nature of the steel industry and exposure to environmental regulations, which can impact operational costs. The company's reliance on long-term, take-or-pay contracts, while providing stability, also exposes it to risks such as customer breaches, as seen with Algoma Steel Inc. . Competitors like Peabody Energy (BTU), with diversified global operations and potential investments in lower-emission technologies, may offer greater resilience during market downturns or shifts towards sustainable energy.

SunCoke's strategic response to this landscape involves leveraging its logistics expertise and expanding its industrial services. The Phoenix Global acquisition, by adding electric arc furnace (EAF) operators to its customer base, diversifies SunCoke away from sole reliance on blast furnace steelmaking, which is crucial given the industry's evolving technological landscape. This expansion into mission-critical mill services, with long-term contracts and fixed revenue components, enhances stability and provides a platform for organic growth by expanding service offerings at existing sites and pursuing new contracts.

Risks and Challenges

Investing in SunCoke Energy involves several key risks. The company is highly susceptible to volatility and cyclical downturns in the steel industry, which directly impacts demand and pricing for its coke products. The ongoing contract negotiations for its Haverhill and Granite City facilities highlight this risk; non-renewal or unfavorable terms could lead to lower margins or even facility rationalization if profitable alternatives are not found. The current breach of contract by Algoma Steel Inc. (ASTL) underscores the potential for customer defaults and the financial implications of storing unsold inventory.

Furthermore, competition from alternative steelmaking technologies that reduce or eliminate the use of coke poses a long-term threat to SunCoke's core business. While the Phoenix Global acquisition diversifies the company into EAF services, the transition away from blast furnaces could still impact a significant portion of its revenue. Operational risks, such as aging equipment and the need for significant capital investment to maintain reliability and environmental compliance, also remain pertinent. Finally, delays in strategic growth initiatives, such as the granulated pig iron (GPI) project at Granite City, due to external factors like the U.S. Steel (X) Nippon (NPSCY) transaction, can hinder future growth and value creation.

Conclusion

SunCoke Energy is at a pivotal juncture, strategically transforming its business to enhance resilience and unlock new growth avenues. While the company's core cokemaking operations continue to provide a stable foundation through long-term contracts, particularly at Indiana Harbor, Middletown, and Jewell Foundry, it is actively diversifying its revenue streams through the expansion of its Industrial Services segment. The acquisition of Phoenix Global is a testament to this strategic evolution, immediately contributing to earnings and broadening SunCoke's customer base into the growing electric arc furnace market, thereby mitigating some of the cyclicality inherent in traditional blast furnace steelmaking.

Despite facing near-term headwinds from challenging spot coke markets and the Algoma contract dispute, SunCoke's disciplined capital allocation, robust liquidity, and commitment to shareholder returns through its consistent dividend underscore its financial strength. The optimistic outlook for 2026, driven by the full integration of Phoenix Global and anticipated recovery in logistics, suggests a company poised for improved performance. Investors should recognize SunCoke's strategic shift towards a more diversified industrial services provider, leveraging its operational expertise and technological advantages to fuel future growth and maintain its critical role in the evolving materials industry.