Why Is Cleveland-Cliffs (CLF) Down 55.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Cleveland-Cliffs (CLF). Shares have lost about 55.6% 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' Q4 Earnings Top, Sales Miss Estimates

Cleveland-Cliffs delivered fourth-quarter 2019 net earnings of $63.2 million or 23 cents, down from $609.5 million or $1.98 per share in the prior-year quarter.

Barring one-time items, adjusted earnings came in at 25 cents per share, which beat the Zacks Consensus Estimate of 24 cents.

Revenues fell 23.3% year over year to $534.1 million. Also, the figure trailed the Zacks Consensus Estimate of $559 million.

2019 Highlights

In 2019, net income amounted to $292.8 million or $1.03 per share, down from $1,128.1 million or $3.71 a year ago.

Revenues moved down 14.7% year over year to $1,989.9 million.

Operational Highlights

Mining and Pelletizing pellet sales volume was around 5.8 million long tons in the fourth quarter, down 10% year over year. The decline was caused by lower customer demand, partly offset by inter-company sales to the Toledo HBI facility.

Realized revenues per long ton declined 8.7% year over year to $90.8. The results were affected by an unfavorable true-up of earlier sold volumes caused by lower HRC prices and pellet premiums as well as unfavorable customer mix.

Cash cost of goods sold rate per long ton fell 2.8% year over year to $63.62 due to lower royalties and employee-related expenses.

Financial Position

As of Dec 31 ,2019, Cleveland-Cliffs had cash and cash equivalents of $352.6 million, down from $823.2 million as of Dec 31, 2018. Long-term debt was $2,113.8 million at the end of 2019, up 1% year over year.

Net cash from operating activities was $562.5 million for 2019, up 17.6% year over year.

Outlook

The company expects average iron ore prices, steel prices and pellet premiums to be $90 per metric ton, $650 per short ton and $50 per metric ton, respectively, for 2020. Based on these assumptions, it expects to generate net income of around $300-$325 million and adjusted EBITDA of $550-$575 million for 2020 on a standalone basis.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -41.33% due to these changes.

VGM Scores

At this time, Cleveland-Cliffs has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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.