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Cliffs Natural Resources Inc. (CLF - Free Report) reported net earnings from continuing operations of $77 million or 26 cents per share in the second quarter of 2017 compared with $30 million or 7 cents per share logged in the prior year quarter. Earnings per share surpassed the Zacks Consensus Estimate of 18 cents.
 
Sales for the quarter came in at $569.3 million, up 14.7% from $496.2 million in the prior-year quarter. Sales beat the Zacks Consensus Estimate of $483 million.
 
Segment Performance
 
U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 4.3 million long tons in the second quarter, compared with 4.1 million tons in the year-ago quarter. The rise was mainly due to higher demand.
 
Revenues per ton improved 24.3% year over year to $96.75. Cash production cost per ton increased 5.7% year over year to $59.47 in the reported quarter. The increase was mainly due to higher employee-related expenses, as well as increased energy, repair and royalty costs, partly offset by reduced idle costs.
 
Asia Pacific Iron Ore: Sales volumes in the segment decreased 20% year over year to 2.5 million metric tons. The decrease was attributed to the timing of shipments and market conditions, which led to the termination of certain spot sales.
 
Revenues per ton were $38.23, down around 8.9% from the prior-year quarter. Cash production cost per ton was $36.52, up around 10.5% from the year-ago quarter. The increase was due to higher mining costs, driven by a change in the overall operating plan resulting in a higher strip ratio.
 
Cliffs Natural Resources Inc. Price, Consensus and EPS Surprise
 
 
Cliffs had $321.5 million of cash and cash equivalents as of Jun 30, 2017, compared with $108.2 million as of Jun 30, 2016.
 
Long-term debt was at $1,611.8 million as of Jun 30, 2017, compared with $2,489.7 million as of Jun 30, 2016.
 
Capital expenditure was $22 million in the second quarter, compared with $10 million in the second quarter of 2016. 
 
Outlook
 
For 2017, Cliffs expects to generate net income of around $310 million and adjusted EBITDA of $650 million. The company projects its full-year selling, general and administrative (SG&A) expenses to be around $110 million, an increase from previous expectations to incorporate HBI prefeasibility spend and higher-than-expected incentive compensation accruals.
 
The company's interest expense for 2017 is anticipated to be roughly $135 million, of which $20 million is expected to be noncash.
 
Cliffs expects its 2017 capital expenditures to be $115 million.
 
U.S. Iron Ore Outlook
 
For 2017, Cliffs expects sales and production volume of 19 million long tons for the segment. 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.
 
Asia Pacific Iron Ore Outlook
 
For 2017, Cliffs projects production volume of roughly 11.5 million metric tons for the Asia Pacific Iron Ore operation. Sales volumes for the operation is now expected to be 11 million metric tons. Moreover, the company expects iron-ore cash cost of goods sold and operating expense to be in the range of $34−$39 per metric ton.
 
Price Performance
 
Cliffs’ shares have rallied 15% in the last three months, outperforming the industry’s gain of 9.6%.
 
 
Zacks Rank & Key Picks
 
Cliffs currently carries a Zacks Rank #3 (Hold).
 
Some better-ranked companies in the basic materials space include Akzo Nobel N.V. (AKZOY - Free Report) , Arkema S.A. (ARKAY - Free Report) and Hitachi Chemical (HCHMY - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Akzo Nobel has an expected long-term earnings growth of 11.1%.
 
Arkema has an expected long-term earnings growth of 12.4%.
 
Hitachi Chemical has an expected long-term earnings growth of 5%.
 
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