What Led To A Drop Of ~80% In Cleveland-Cliffs’ Profits?

by Trefis Team
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Cleveland-Cliffs Inc.
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Cleveland-Cliffs (NYSE: CLF) saw its net income drop by almost 80% in a year, from $437.8 million in Q3 2018 to $90.9 million in Q3 2019. Such a sharp drop in profits was driven by a double whammy of lower revenue and higher expenses. Drop in pellet volume and prices, along with loss from discontinued operations, were the primary drivers of the decrease in profitability.

For a detailed break-up and analysis of the major factors contributing to lower profits, view the Trefis dashboard – Why Did Cleveland-Cliffs’ Net Income Drop ~80% In A Year?

Drop In Net Income

The $346.9 million drop in net income, from $437.8 million in Q3 2018 to $90.9 million in Q3 2019 was led by:

  • $186 million decrease in Total Revenue
  • $161 million increase in Total Expenses

Revenue Change Drivers

  • The $186.2 million decrease in revenue was driven by:
    • $169.7 million decrease in Product (pellet) Revenue
    • $16.5 million decrease in Freight Revenue
  • Pellet revenues declined due to a drop in realized iron ore and pellet prices in line with global price trends, as slowing demand from China has adversely affected pricing.
  • Realized price per ton declined from $105.7 in Q3 2018 to $95.7 in Q3 2019.
  • Lower customer demand also led to a drop in pellet shipments from 6.5 million tons in Q3 2018 to 5.8 million tons in Q3 2019.

To understand how the company’s revenues have trended and what is the outlook till 2020, view our interactive dashboard

Expense Change Drivers

  • Total expenses increased by $160.7 million or 53%, from $304 million in Q3 2018 to $464.7 million in Q3 2019, primarily led by:
    • $238.9 million decrease in income from discontinued operations
    • $4.3 million increase in tax provision
  • CLF recorded an income of $238 million from discontinued operations, as it sold and exited its Asia Pacific operations in 2018. In contrast, the company recorded a loss of $0.9 million from discontinued operations, thus hitting the bottom line by $238.9 million.
  • Tax provision saw an increase of $4.3 million in Q3 2019, driven by a reduction in alternative minimum tax credit for the quarter.

To understand how other major expenses moved over the last one year, view our dashboard analysis.

 

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