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Cleveland-Cliffs (CLF) Down 24.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Cleveland-Cliffs (CLF). Shares have lost about 24.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cleveland-Cliffs due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cleveland-Cliffs' Earnings & Sales Trounce Estimates in Q2

Cleveland-Cliffs recorded a profit of $161 million or 57 cents per share in second-quarter 2019, compared with a profit of $165 million or 55 cents in the prior-year quarter. The bottom line in the reported quarter included an $18-million loss on extinguishment of debt.

Adjusted earnings for the reported quarter came in at 63 cents per share, outpacing the Zacks Consensus Estimate of 52 cents.

Revenues went up around 4% year over year to $743.2 million. The figure also topped the Zacks Consensus Estimate of $612.6 million.

Operational Highlights

Mining and pelletizing pellet sales volume was a record-high of 6.2 million long tons in the second quarter, up 4% year over year on the back of strong customer demand.  

Realized revenues per ton were flat year over year at $113, a six-year-high, as higher iron ore prices and pellet premiums were masked by reduced hot-rolled coil steel prices.

Cash cost of goods sold per long ton rose around 8% year over year to $67. The increase was due to transportation and labor costs as well as higher costs associated with improved profitability outlook that include employee profit sharing and higher royalties.

Financial Position

At the end of the second quarter, Cleveland-Cliffs had cash and cash equivalents of $377.2 million, down around 53% year over year. Long-term debt was $2,104.5 million, down roughly 8% year over year.

Net cash provided by operating activities was $151.1 million in the first half of 2019, compared with net cash used by operating activities of $49.3 million for the same period a year ago.

The company repurchased 13 million common shares worth $129 million in the reported quarter. It has bought back 30 million shares since the initiation of the share repurchase program.

Outlook

The company has reaffirmed its full-year sales and production volume guidance at 20 million long tons. It also continues to expect mining and pelletizing cash cost of goods sold in the band of $62-$67 per long ton.

Moreover, Cleveland-Cliffs expects to realize mining and pelletizing revenue rates in the band of $109-$114 per long ton, a $1 per long ton increase compared with the comparable range it provided last quarter.

The company now expects to attain commercial production at its Toledo HBI plant in the first half of 2020, ahead of schedule. It now expects total capital expenditure for 2019 to be $650-$700 million, up from prior expectations of $555 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -16.83% due to these changes.

VGM Scores

At this time, Cleveland-Cliffs has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cleveland-Cliffs has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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