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Will Higher Volumes Aid Cleveland-Cliffs' (CLF) Q4 Earnings?

Zacks Equity Research

Cleveland-Cliffs Inc. CLF is scheduled to release fourth-quarter 2018 results on Feb 8, before the opening bell.

In the last reported quarter, the company delivered a negative earnings surprise of 3% by posting adjusted earnings of 64 cents per share that missed the Zacks Consensus Estimate of 66 cents.

Consolidated revenues rose roughly 24.3% year over year to $741.8 million in the third quarter, beating the Zacks Consensus Estimate of $722.5 million.

Notably, Cleveland-Cliffs beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, with average positive surprise of 42%.

The stock has surged 54.9% in the past year, against the industry’s 4.4% decline.



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

Earnings Whispers

Our proven model shows that Cleveland-Cliffs is likely to beat estimates in the fourth quarter. That is because a stock needs to have 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:

Earnings ESP: Earnings ESP for Cleveland-Cliffs is +1.84%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 58 cents and 57 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cleveland-Cliffs currently carries a Zacks Rank #3, which when combined with a positive ESP, make 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 in Q4

In October 2018, Cleveland-Cliffs stated that it expects to realize U.S. Iron Ore revenue rates in the range of $105 to $110 per long ton. The projections assume that steel prices, pellet premiums and iron ore prices will be at their respective year-to-date averages for the rest of 2018.

For 2018, Cleveland-Cliffs maintained U.S. Iron Ore sales and production volume expectations to 21 million long tons and 20 million tons, respectively. Cash cost of goods sold and operating expense expectation are unchanged at $58-$63 per long ton.

The company has also provided an update on 2018 capital expenditure budget. The capital spending expectation for the Toledo HBI Project has been reduced by $25 million to $175 million due to further development and refined timing of the project spending plan.  

The Zacks Consensus Estimate for consolidated revenues for Cleveland-Cliffs for the fourth quarter is currently pegged at $714 million, reflecting an expected increase of around 18.8% year over year and a 3.8% decline sequentially.

U.S. Iron Ore sales volumes are projected to increase 21% year over year as the Zacks Consensus Estimate for the fourth quarter is currently pegged at 6.52 million long tons. The company is witnessing higher demand for pellets. Notably, sales volume jumped roughly 10% year over year in the last reported quarter mainly driven by increased customer demand.

Realized revenues per ton for the fourth quarter is projected to increase 22.9% year over year, as the Zacks Consensus Estimate is currently pegged at $102. In the last reported quarter, revenues per ton improved 17% year over year. The upside was primarily driven by higher steel pricing and pellet premiums, resulting from favorable contract structures. However, the increase was partly offset by higher freight rates.

Moreover, the company’s results are likely to gain from debt-reduction actions. It expects net debt to be below $1 billion by the end of 2018. Efforts to lower debt will reduce the company’s annualized interest expenses.  

Cleveland-Cliffs Inc. Price and EPS Surprise

 

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

Other Stocks Poised to Beat Estimates

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

New Gold Inc NGD has an Earnings ESP of +166.67% and carries a Zacks Rank #2.

Franco-Nevada Corporation FNV has an Earnings ESP of +3.05% and carries a Zacks Rank #3.

Teck Resources Ltd TECK has an Earnings ESP of +4.82% and carries a Zacks Rank #3.

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