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

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It has been about a month since the last earnings report for Cleveland-Cliffs (CLF - Free Report) . 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 the most recent earnings report in order to get a better handle on the important drivers.

Cleveland-Cliffs' Q3 Earnings Miss, Sales Top Estimates

Cleveland-Cliffs reported net earnings (attributable to shareholders) of $437.8 million or $1.41 per share in third-quarter 2018, up from net earnings of $53.4 million or 18 cents in the prior-year quarter.

Adjusted earnings came in at 64 cents per share, which missed the Zacks Consensus Estimate of 66 cents.

Cleveland-Cliffs posted third-quarter consolidated revenues of $741.8 million, up 24.3% year over year. The figure beat the Zacks Consensus Estimate of $722.5 million.

U.S. Iron Ore Results

U.S. Iron Ore pellet sales volume was 6.5 million long tons in the quarter, up roughly 10% year over year. The upside was mainly driven by increased customer demand.

Realized revenues per ton improved 17% year over year to $105.65, mainly driven by higher steel pricing and pellet premiums, which were driven by favorable contract structures. Notably, the increase was partly offset by higher freight rates.

Cash cost of goods sold and operating expense per long ton increased to $62.54 compared with $60.79 per long ton in the year-ago quarter. The increase was due to higher employee-related expenses along with higher royalties.

Financial Position

Cleveland-Cliffs had $897.1 million of cash and cash equivalents as of Sep 30, 2018 compared with $227.1 million as of Sep 30, 2017.

Long-term debt was $2,300 million as of Sep 30, 2018 compared with $1,689.4 million as of Sep 30, 2017.

Outlook

Cleveland-Cliffs expects to realize U.S. Iron Ore revenue rates in the range of $105 to $110 per long ton, assuming that steel prices, pellet premiums and iron ore prices will average for the rest of 2018 their respective year-to-date averages.

For 2018, Cleveland-Cliffs maintained U.S. Iron Ore sales and production volume expectations to 21 million long tons and 20 million tons, respectively. Cash cost of goods sold and operating expense expectation are unchanged at $58-$63 per long ton.

The company maintained full-year selling, general and administrative (SG&A) expenses to be around $115 million, of which roughly $20 million is considered non-cash.

Cleveland-Cliffs provided an update on 2018 capital expenditure budget. The capital spending expectation for the Toledo HBI Project has been reduced by $25 million to $175 million due to further development and refined timing of the project spending plan. However, it has maintained sustaining capital expectation at $75 million and Northshore Mine upgrade spending expectation at $50 million.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.18% due to these changes.

VGM Scores

At this time, Cleveland-Cliffs has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. 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 #2 (Buy). We expect an above average return from the stock in the next few months.


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