Cleveland-Cliffs (CLF) Tops Q3 Earnings, Sales Estimates

Cleveland-Cliffs Inc. (NYSE:CLF) reported net income of $53 million or 18 cents per share in third-quarter 2017, against net loss of $28 million or 12 cents logged in the prior-year quarter. Net earnings include loss on extinguishment of debt of $89 million or 29 cents and gains from discontinued operations of $32 million or 11 cents.

Barring one-time items, adjusted earnings were 36 cents per share, which surpassed the Zacks Consensus Estimate of 30 cents.

Sales for the quarter came in at $698.4 million, up 26.2% from $553.3 million in the prior-year quarter. The figure beat the Zacks Consensus Estimate of $668 million.

Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 5.9 million long tons in the third quarter, up roughly 11% year over year on the back of higher demand and export sales.

Revenues per ton improved 23.1% year over year to $90.50. Cash production cost per ton increased 6% year over year to $57.37 in the reported quarter. The increase was mainly due to higher employee-related expenses, as well as increased energy rates, repair and maintenance costs, partly offset by reduced idle costs.

Asia Pacific Iron Ore: Sales volumes in the segment decreased 20% year over year to 2.2 million metric tons. The decrease was mainly driven by lower production volumes due to operational decisions reflecting availability of quality ore and present market conditions.

Revenues per ton were $43.36, up around 1.8% from the prior-year quarter. Cash production cost per ton was $40.54, up around 19.7% from the year-ago quarter. The increase was mainly due to higher mining costs, driven by higher logistics and site administrative expenses and an unfavorable exchange rate.

Financial Position

Cleveland-Cliffs had $260.8 million of cash and cash equivalents as of Sep 30, 2017 compared with $132.2 million as of Sep 30, 2016.

Long-term debt was at $1,689.4 million as of Sep 30, 2017, compared with $2,195.9 million as of Sep 30, 2016.

Capital expenditure was $30 million in the third quarter, compared with $26 million in the third quarter of 2016.

Outlook

The company's interest expense for 2017 has been reduced by $5 million to roughly $130 million as a result of the refinancing transaction in July, of which $20 million is expected to be non-cash.

Cleveland-Cliffs maintained its 2017 capital expenditures expectations at $115 million.

U.S. Iron Ore Outlook

For 2017, Cleveland-Cliffs reduced its sales volume expectation for U.S. Iron Ore by 500,000 tons to 18.5 million long tons, due to considerable reduction in pellet nomination by a large customer, which was partly offset by higher export sales.

Further, the company expects iron-ore cash cost of goods sold and operating expense to be in the range of $55-$60 per long ton, which remain unchanged from previous expectations.

Asia Pacific Iron Ore Outlook

For 2017, Cleveland-Cliffs projects sales production volume of 10.5 million metric tons for the Asia Pacific Iron Ore operation, which represents a decrease of 500,000 metric tons from previous forecast owing to operational decisions.

Moreover, the company increased expectations for iron-ore cash cost of goods sold and operating expense to the range of $36-$41 per metric ton due to unfavorable exchange rate movements and reduced production volumes.

Price Performance

Cleveland-Cliffs’ shares have moved up 2.1% in the last three months, underperforming the industry’s gain of 7.8%.

Zacks Rank & Key Picks

Cleveland-Cliffs currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Huntsman Corp. (NYSE:HUN) , Air Products and Chemicals, Inc. (NYSE:APD) and FMC Corp. (NYSE:FMC) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Huntsman has an expected long-term earnings growth rate of 7%.

Air Products has an expected long-term earnings growth rate of 12.1%.

FMC has an expected long-term earnings growth rate of 11.3%.

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