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Will Strong Demand Aid Cleveland-Cliffs' (CLF) Q3 Earnings?

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Will Strong Demand Aid Cleveland-Cliffs' (CLF) Q3 Earnings?

Cleveland-Cliffs' (CLF) Q3 results to benefit from strong demand for pellets.

Cleveland-Cliffs Inc. CLF is scheduled to release third-quarter 2018 results on Oct 19, before the opening bell.

In the last reported quarter, the company delivered a positive earnings surprise of 35.7% by posting adjusted earnings of 76 cents per share, which surpassed the Zacks Consensus Estimate of 56 cents.

Consolidated revenues rose roughly 51.6% year over year to $714.3 million in the second quarter, beating the Zacks Consensus Estimate of $629.2 million.

Notably, Cleveland-Cliffs beat the Zacks Consensus Estimate for earnings in all the trailing four quarters, the average being 47.7%.

The stock has also rallied 62.6% in the past year, against the industry’s 1.9% decline.

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.

Earnings Whispers

Our proven model shows that Cleveland-Cliffs is likely to beat estimates in the third 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 +0.45%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 67 cents and 66 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 #2, 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 Q3

The Zacks Consensus Estimate for consolidated revenues for Cleveland-Cliffs for the third quarter is currently pegged at $722 million, reflecting an expected increase of around 3.4% year over year and 1.1% sequentially.

Cleveland-Cliffs witnessed remarkable growth in sales volume in the last reported quarter, which were driven by higher actual demand for pellets along with higher prices. Steelmakers in the United States are benefiting from the Trump administration’s recent trade actions on imported steel. The positive trend is likely to continue and strong demand for pellets is expected to lend support to Cleveland-Cliffs’ earnings in the to-be-reported quarter.

Buoyed by strong demand for pellets, the company raised 2018 sales volume guidance to 21 million long tons from the previous projection of 20.5 million long tons. Moreover, it expects to sell 6-6.5 million long tons in the third quarter with the remaining balance from the projected 21 million tons are expected to be sold in the fourth quarter.

Cleveland-Cliffs’ U.S. Iron Ore sales volumes are projected to increase 4.7% sequentially as the Zacks Consensus Estimate for the third quarter is currently pegged at 6.25 million long tons.

Moreover, Cleveland-Cliffs is focused on de-leveraging balance sheet. Notably, its long-term debt was down roughly 42.5% year over year to roughly $2.3 billion at the end of second quarter Moreover, it continues to expects net debt to be below $1 billion by the end 2018. The company’s efforts to cut debt should reduce annualized interest expense and boost margins.

Cleveland-Cliffs, in August, completed the sale of Asia Pacific Iron Ore assets to Mineral Resources Limited. The company’s previously disclosed costs of closing the Australian operations were reduced by roughly $85 million due to the transaction.

Notably, the company will record reversal of currency translation adjustments in the third quarter resulting from the deal. This is expected to lead to a positive contribution to net income of roughly $230 million or 75 cents.

Cleveland-Cliffs Inc. Price and EPS Surprise


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


Stocks Poised to Beat Estimates

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

CF Industries Holdings, Inc. CF has an Earnings ESP of +12.07% and carries a Zacks Rank #1.  

Albemarle Corporation ALB has an Earnings ESP of +3.75% and carries a Zacks Rank #2.

FMC Corporation FMC has an Earnings ESP of +3.64% and carries a Zacks Rank #3.

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