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What's in Store for Cleveland-Cliffs (CLF) in Q2 Earnings?

Zacks Equity Research
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Cleveland-Cliffs Inc. CLF is scheduled to release second-quarter 2018 results on Jul 20, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 61.9% by posting adjusted loss of 8 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 21 cents.

Sales declined roughly 48.3% year over year to $239 million in the first quarter. The figure however, beat the Zacks Consensus Estimate of $197.1 million.

Notably, Cleveland-Cliffs beat the Zacks Consensus Estimate for earnings in all the trailing four quarters with an average positive surprise of 49.9%.

Will the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Cleveland-Cliffs Inc. Price and EPS Surprise

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

Earnings Whispers

Our proven model shows that Cleveland-Cliffs is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Zacks ESP: Cleveland-Cliffs' Earnings ESP is +1.34%. The Zacks Consensus Estimate for the second quarter is currently pegged at 55 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cleveland-Cliffs currently sports a Zacks Rank #1, which when combined with a positive ESP, makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Cleveland-Cliffs has ceased all mining activities in the Asia Pacific Iron Ore division. The company will treat this division as a discontinued operation starting the second quarter.

The company reported pellet sales of 1.6 million long tons in the first quarter, which benefited from favorable shipping conditions and customers low pellet inventories. During first-quarter earnings call, the company stated that demand is expected to remain strong in the second quarter with an expected surge in shipping activities to roughly 5.5 million long tons.  

Cleveland-Cliffs also raised its sales volume expectations for 2018 for its U.S. iron ore business factoring in strong demand. The company now sees sales volume to be 20.5 million long tons for the full year, up from roughly 20 million long tons expected earlier.

The company also expects prices to continue remaining high. Cleveland-Cliffs expects strength in the U.S. steel market coupled with its enhanced pellet supply contracts to help it deliver significantly higher EBITDA and cash flow in 2018.

The Zacks Consensus Estimate for consolidated revenues for the second quarter is $623 million, reflecting an expected increase of around 9.5% year over year.

Cleveland-Cliffs’ total sales volume for the U.S. Iron Ore segment is projected to sequentially increase more than three-folds as the Zacks Consensus Estimate for the second quarter is currently pegged at 5.5 million long tons.

Cleveland-Cliffs’ realized revenues for the U.S. Iron Ore segment in the first quarter rallied 32% year over year to $105 per long ton. Revenues per ton for the second quarter are likely to increase around 1.9% sequentially, as the Zacks Consensus Estimate for the quarter is currently pegged at $107 per ton.

Shares of Cleveland-Cliffs have gained 17.8% in the past three months against the industry’s 4.4% decline.


Stocks Poised to Beat Estimates

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Allegheny Technologies Incorporated ATI has an Earnings ESP of +1.94% and flaunts a Zacks Rank #1.

Ingevity Corporation NGVT has an Earnings ESP of +9.14% and sports a Zacks Rank #1.

Eastman Chemical Company EMN has an Earnings ESP of +0.91% and holds a Zacks Rank #2.  

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