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Cleveland-Cliffs (CLF) Down 4.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Cleveland-Cliffs (CLF). Shares have lost about 4.3% 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 its most recent earnings report in order to get a better handle on the important drivers.

Cleveland-Cliffs' Earnings & Sales Top Estimates in Q1

Cleveland-Cliffs recorded net loss of $22.1 million or 8 cents per share in first-quarter 2019, lower than a loss of $84.3 million or 29 cents in the prior-year quarter. The bottom line was also narrower than the Zacks Consensus Estimate of a loss of 14 cents.

Revenues fell 12.8% year over year to $157 million. However, the figure topped the Zacks Consensus Estimate of $116.6 million.

Mining and Pelletizing

Pellet sales volume was 1.6 million long tons in the first quarter, flat year over year.  

Realized revenues per ton declined 11% year over year to $93.81. The downside was mainly due to favorable HRC price-related revaluation benefits a year ago, which did not recur in 2019. However, the decline was partly offset by higher iron ore prices.

Per the company, the revenue rate was lower than the full year projected range owing to unfavorable customer mix. This was mainly due to higher rail shipments during the annual Soo Locks closure.

Cash cost of goods sold and operating expense per long ton rose 8.6% year over year to $61.94. The increase was due to higher transportation, maintenance, stripping costs as well as higher costs associated with improved profitability view, including higher royalties and employee profit sharing.

Financial Position

At the end of the first quarter, Cleveland-Cliffs had cash and cash equivalents of $430.2 million, down 43.2% year over year. Long-term debt was $2,087 million, down 9.6% year over year.

Net cash used in operating activities was $111.2 million in the quarter, lower than $142.9 million a year ago.

Outlook

The company has reaffirmed its full-year sales and production volume at roughly 20 million long tons. Mining and Pelletizing cash cost of goods sold is expected in the band of $62-$67 per long ton. Total capital expenditure for 2019 is forecast to be around $555 million. Notably, the company expects cash tax refunds worth $117 million in second-quarter 2019.
 

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 -18.03% due to these changes.

VGM Scores

Currently, Cleveland-Cliffs has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.



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