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Cleveland-Cliffs (CLF) Tops Q1 Earnings and Sales Estimates

Zacks Equity Research
Updated

Cleveland-Cliffs Inc. CLF reported a net loss of $84.3 million or 29 cents per share in first-quarter 2018 compared with a net loss of $28.1 million or 11 cents recorded in the prior-year quarter.

Notably, the company has the new revenue recognition standard, ASC Topic 606, under which revenues will generally be recognized upon delivery for its U.S. Iron Ore customers. As a result of this and the annual winter closure of the Soo Locks, net income and revenues will be relatively lower than historical levels during the first quarter, per the company.

Barring one-time items, adjusted loss came in at 8 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 21 cents.

Cleveland-Cliffs posted first-quarter consolidated revenues of $239 million, down 48.3% year over year. However, the figure beat the Zacks Consensus Estimate of $197.1 million.

Cleveland-Cliffs Inc. Price, Consensus and EPS Surprise

Cleveland-Cliffs Inc. Price, Consensus and EPS Surprise | Cleveland-Cliffs Inc. Quote

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Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 1.6 million long tons in the first quarter, down roughly 48.4% year over year due to lower carryover tonnage from the prior year nomination along with the adoption of the new revenue recognition standard.

Realized revenues per ton improved 32% year over year to $105, mainly driven by a favorable pricing adjustment resulting from considerable increase in domestic hot-rolled coil steel pricing.

Cash production cost per long ton decreased 2% year over year to $57.05 in the quarter. The decline was mainly due to lower sales volumes and standard cost methodology.

Asia Pacific Iron Ore: Sales volumes in the segment fell 46% year over year to 1.7 million metric tons primarily due to lower production volumes.

Realized revenues per ton were $31.10, down 43% from the prior-year quarter and cash production cost per ton was $66.36.

Financial Position

Cleveland-Cliffs had $786.6 million of cash and cash equivalents as of Mar 31, 2018 compared with $295.3 million as of Mar 31, 2017.

Long-term debt was $2,308.2 million as of Mar 31, 2018 compared with $1,642.9 million as of Mar 31, 2017.

Outlook

For 2018, Cleveland-Cliffs projects sales and production volume for U.S. Iron Ore unit to be 20.5 million long tons and 20 million tons, respectively.

The company maintained that it anticipates full-year selling, general and administrative expenses to be around $115 million, of which roughly $20 million is non-cash.

Cleveland-Cliffs expects to spend $225 million for the Toledo HBI Project this year, which was reduced by $25 million due to further development and refined timing of the project spending plan. The company has maintained sustaining capital expectation of $85 million in 2018 and Northshore Mine upgrade spending expectation of $50 million.

Price Performance

Cleveland-Cliffs’ shares have lost 14.3% in the last three months, underperforming the industry’s 3.1% decline.



Zacks Rank & Stocks to Consider

Cleveland-Cliffs currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the basic materials space include Steel Dynamics, Inc. STLD, United States Steel Corporation X and CF Industries Holdings, Inc. CF, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Steel Dynamics has an expected long-term earnings growth rate of 12%. Its shares have gained 33.3% over a year.

U.S. Steel has an expected long-term earnings growth rate of 8%. Its shares have soared 22.7% over the past six months.

CF Industries has an expected long-term earnings growth rate of 6%. Its shares have rallied 52.4% over a year.

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