Cleveland-Cliffs’ record Q2 results marred by earnings miss

Fully integrated US-based steel producer Cleveland-Cliffs has reported record operating and financial results for the quarter ended June, but earnings missed analyst expectations, sending the New York-quoted stock nearly 8% lower in early morning trade.

Cleveland-Cliffs said adjusted earnings came in at $1.46 per share, well ahead of the 28c per share reported in the corresponding quarter a year earlier on record iron ore prices but fell short of the average Wall Street consensus forecast of $1.52 per share.

Revenues nearly quadrupled year-on-year in the period to $5.05 billon, slightly exceeding the consensus forecast for $5.01 billion.

CEO Lourenco Goncalves says the company’s free cash flow generation of around $1.4 billion will set up a “monumental debt reduction during the back half of this year.”

“The numbers unequivocally confirm our efficiency in operating the new footprint, resulting from the integration of the two major steel companies acquired in 2020 as a single and indivisible mining and steel company,” Goncalves said in a news release.

“They also demonstrate our flawless execution in ramping up our state-of-the-art direct reduction plant in Toledo to the current level of production above nominal capacity.”

He said the quarter was emblematic of how the company’s raw material cost and quality advantage positioned it for success over others in the industry, particularly the ones fully dependent on scarce prime scrap and “dirty” pig iron imported from polluting countries.

Credit Suisse analyst Curt Woodworth said in a research note the bank was optimistic about the outlook.

“Looking ahead, we remain bullish on Cleveland-Cliffs as the company continues to optimize its large domestic steelmaking footprint and HBI asset and has brought a new commercial discipline to the integrated model.”

The analyst has an ‘outperform’ rating on the stock with a $28.00 price target.

“It’s important to note that Cleveland-Cliffs has significant upside potential across its contract portfolio, entering 2022 with ~30% of annual contracts set to reprice in 4Q-21, which were settled lower in the prior year period,” he said.

Cleveland-Cliffs shares fell to an intra-day low $21.09 before recovering to $21.14 by midday. The stock is still up 260% over the past 12 months.