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Why Is Cleveland-Cliffs (CLF) Down 10.3% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Cleveland-Cliffs (CLF). Shares have lost about 10.3% 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 catalysts.

Cleveland-Cliffs Lags Earnings, Sales Estimates in Q4

Cleveland-Cliffs delivered fourth-quarter 2018 net earnings of $609.5 million or $1.98 per share, up from $309.9 million or $1.03 in the prior-year quarter.

Barring one-time items, adjusted earnings came in at 55 cents per share, which missed the Zacks Consensus Estimate of 57 cents.

Revenues rose 36% year over year to $696.3 million. Also, the figure trailed the Zacks Consensus Estimate of $714.1 million.

2018 Highlights

In 2018, net income came in at $1,128.1 million or $3.71 per share, up from $367 million or $1.26 a year ago.

Revenues jumped 25% year over year to $2,332.4 million.

Mining and Pelletizing

Pellet sales volume was 6.5 million long tons in the fourth quarter, up roughly 21% year over year. The upside was mainly driven by healthy customer demand along with two additional customer contracts.

Revenue rate per ton improved 19% year over year to $99.42, mainly driven by higher steel pricing and pellet premiums, boosted by favorable contract structures. The increase was partly offset by a negative true-up adjustment associated with index hot-rolled steel pricing that dropped significantly during the fourth quarter.

Cash cost of goods sold and operating expense per long ton increased 11% year over year to $65.43. The increase was caused by higher employee-related expenses and royalties along with unfavorable LIFO impact.   

Financial Position

As of Dec 31 ,2018, Cleveland-Cliffs had cash and cash equivalents of $823.2 million, down from $978.3 million as of Dec 31, 2017. Long-term debt was $2,092.9 million at the end of 2018, down 9.2% year over year.

Net cash from operating activities was $478.5 million for 2018, up 41.5% year over year.

Outlook

For 2019, Cleveland-Cliffs expects to realize Mining and Pelletizing revenue rates per long ton in the range of $102-$107. The projection assumes that iron ore prices, pellet premiums and steel prices will average at their respective January 2019 averages. Mining and Pelletizing revenue rates are expected in the range of $111-$116 per long ton for 2019 based on the spot prices as of Feb 7, 2019.

The company expects sales and production volumes of its productive capacity at roughly 20 million long tons the full year. Mining and Pelletizing cash cost of goods sold and operating expense are projected in the band of $62-$67 per long ton.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.


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