What To Expect From Cleveland-Cliffs’ Second Quarter Results?

by Trefis Team
Cleveland-Cliffs Inc.
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Cleveland-Cliffs Inc. (NYSE: CLF) will release its second quarter results and conduct a conference call with analysts on July 20, 2018. Consensus market estimates expect the company to report an EPS(Non-GAAP) of $0.53 in comparison to an EPS(Non-GAAP) of $0.11 reported a year ago. Revenue is also expected to display substantial growth with a consensus mean estimate of $651.8 million, almost 15% higher year-on-year (y-o-y). The company’s upcoming results are expected to benefit from a favorable impact of the tariff imposition on the steel imports into the U.S and also through the discontinuation of its less profitable Asia Pacific (APAC) operations.

Although international iron ore prices have come under continuous pressure due to the unfavorable development of the current trade war, pricing mechanisms for Cliffs’ U.S. operations are more closely linked to demand-supply dynamics in the U.S. rather than those in the international market, though some pricing adjustments are based on international iron ore prices. Consequently, we expect Cliffs to remain a prominent beneficiary of the ongoing trade war, having a notable asset exposure in the U.S. The imposed tariffs would increase the demand for domestically produced steel, which, in turn, is expected to result in an enhanced demand environment for domestically produced iron ore (primary raw material used in steel production). Increased demand is expected to translate into higher shipment volume and higher revenue per ton. Therefore, on the basis of such favorable market developments, Cliffs had raised its 2018 North America sales and revenue per ton outlook by 2.5% and 5%, respectively (assuming mid-points) in its last earnings release.

Additionally, Cliffs’ APAC operations will be deemed as discontinued from the second quarter onward which would negate the impact of unusual mine closure expenses which otherwise weighed on the company’s first-quarter results. The company revealed its plan on closing its less profitable APAC operations earlier this year largely due to the unfavorable business prospects at its operating region. This move is likely to boost the company’s margins going forward and thus improve its profitability.

Although the company’s stock price is currently being negatively impacted by the uncertainty surrounding the prevalent trade war, we expect the company’s stock price to remain strong in the long-term. Our key expectations from the company’s 2018 results are highlighted in our interactive dashboard analysis Will Cleveland-Cliffs’ Current Momentum Continue? You can modify our assumptions to arrive at your own fair price estimate for the company.


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