What To Expect From Cleveland-Cliffs’ Q1 ’18 Results

by Trefis Team
Cleveland-Cliffs Inc.
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Cleveland-Cliffs (NYSE: CLF) will release its first-quarter ’18 results on April 20th and conduct a conference call with analysts the same day. Cliffs’ Q1 2018 results are expected to be comparatively sluggish with respect to the rest of the year due to the adoption of the company’s new revenue recognition standard coupled with lower iron ore price expectations. Additionally, the company in its latest SEC release revealed the details of the planned closure of its APAC division by June 30, 2018, which is going to have a material impact on the company’s 2018 results. We look forward to additional details with respect to this sale from the company’s upcoming earnings call. Revenue for Cliffs’ in Q1 is estimated at $181 million per mean consensus market estimates and adj-EPS is expected to be -$0.21. We have outlined our key expectations from the company’s 2018 results using our interactive dashboard

Sluggish Revenue Expectation From North America In Q1 2018

Although the company has provided an optimistic sales guidance of 20 million long tons of iron ore for 2018, ~7% higher than its year ending 2017 sales figure, sales volume in Q1 is expected to be lower than usual in the first quarter due to a change in the company’s revenue recognition standard. Q1 shipments for Cliffs historically represented figures from December to February, however, with the adoption of the new standard from January ’18, shipments for Q1 would reflect sales figures from January through March, replacing a heavier December with a lighter March. However, the new standard would not have any significant impact on the company’s actual sales for full-year 2018.

Coupled with lower expected shipment volume, iron ore prices in Q1 are also expected to remain low due to negative carry-over effects, lower demand due to winter shipping restrictions, and an unfavorable customer mix due to rail only delivery. Consequently, the aforementioned factors are expected to result in a material decline in sales revenue for the company in Q1.

Planned Closure Of  APAC Operations

The company in its 4th quarter earnings release reiterated its plans of ceasing its APAC operations by the end of 2018. However, in the latest SEC filing made by the company, Cliffs revealed its plan to close its APAC operations by June 30th, 2018. This move comes in response to the unfavorable business prospect prevalent for its APAC division in the seaborne iron ore market with the growing price difference between premium grade and low-grade ore. As a consequence of this growing price difference, the company’s APAC division had reported a negative adj-EBITDA of $3 million in Q4 2017. Although the closure of Cliffs’ APAC division might prove to be detrimental to the company in 2018 (cost-wise), this would prove to be a superior decision and have significant value impact on the company over the long-term.

Our base case model depicts our expectation for full-year 2018 and these assumptions will be modified based on the upcoming results. In case you have a different outlook, you can modify our assumptions and arrive at your own fair price estimate for the company.

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