Cleveland-Cliffs Feels Volume And Pricing Pressure In Q1 2019; Outlook Remains Bright

by Trefis Team
Cleveland-Cliffs Inc.
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Cleveland-Cliffs (NYSE: CLF) released its Q1 2019 financial results recently, followed by a conference call with analysts. The company reported revenue of $157 million in Q1 2019, marking a decline of 12.8% from $180 million in Q1 2018. Lower revenue was mainly driven by a 10.7% decrease in the average realized product revenue rate and loss of revenue from sale of the APAC (Asia-Pacific) business. On a sequential basis, revenue was 77.5% lower compared to Q4 2018 as the first quarter is the weakest quarter for the company in terms of revenues, with vessel deliveries not occurring during the winter months because of the closure of the Soo Locks and the Welland Canal. CLF reported an adjusted loss of $0.08 per share in Q1 2019, lower than the loss of $0.29/share in the year-ago period. Improvement in earnings was mainly due to sale of loss-making APAC operations in 2018, partially offset by higher maintenance, transportation, and stripping cost.

We have summarized the key announcements in our interactive dashboard – How did Cleveland-Cliffs fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Materials data.

Key Takeaways

Iron Ore Revenue

  • Revenue from iron ore sales was down by 14.1% (y-o-y) in Q1 2019, mainly due to a decrease in volume and lower price realization.
  • Since volume sold is very low in the first quarter due to the annual closure of the Soo Locks, limiting shipment on the Great Lakes and forcing CLF to limit deliveries to rail only, iron ore shipment was further adversely affected due to loss of volume from APAC, which led to total shipments declining by 3.8% in Q1 2019.
  • Price realized per ton decreased by 10.7% in Q1 2019, primarily due to the favorable 2018 HRC (hot-rolled coil) price-related revaluation that did not recur in 2019. Additionally, the Q1 revenue rate was lower than the full-year expected range due to an unfavorable customer mix driven by a higher proportion of rail shipments.


  • CLF reported net income margin of -14.1% in Q1 2019, much better than -46.8% in Q1 2018.
  • Though margins remained negative due to higher cash cost (on the back of higher maintenance, transportation, and stripping cost), improvement on y-o-y basis was mainly driven by tax benefits received (as against tax expense in the year-ago period) and lower interest expense following the early repayment of Senior Notes due 2020.

Full Year Outlook

  • For the full year, we expect revenues to decrease by about 2.2% to $2.28 billion in 2019 from $2.33 billion in 2018.
  • Lower revenue is likely to be a reflection of loss of volume from the divested APAC business.
  • Though CLF is expected to receive $117 million in tax refunds in Q3 2019, it is still much lower than the benefit of close to $490 million received in 2018, which would, in turn, translate into lower margins for the year.
  • We expect net income margin to come in at 22% in 2019, lower than the previous year, but much better compared to 2016 and 2017, due to closure of low-margin operations and lower interest outgo.

Trefis has a price estimate of $13 per share for Cleveland-Cliffs’ stock, which is higher than its current market price. We believe that premium pricing for the company’s high-grade ores, along with rising margins, is expected to provide a boost to the stock price in 2019. Additionally, expansion of production capacity from 1.6 million metric tons to 1.9 million metric tons at the new HBI (hot-briquetted iron) plant in Great Lakes and upgradation of its Northshore plant to replace up to 3.5 million long tons of blast furnace pellet production with DR-grade pellet production, is also expected to support growth in the stock price going forward.


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