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What to Expect from Cliffs Natural Resources’s 1Q17 Earnings

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Part 6
What to Expect from Cliffs Natural Resources’s 1Q17 Earnings PART 6 OF 10

Could There Be a Downside ahead for CLF’s Revenues?

Revenue estimates

Revenue estimates from analysts are a proxy for the volumes sold multiplied by the prices received for a mining company. Wall Street analysts covering Cliffs Natural Resources (CLF) are projecting sales of $412 million for 1Q17. This implies revenue growth of 35% year-over-year (or YoY). The implied quarter-over-quarter decline of 45% is mainly due to seasonality.

Most of the expected YoY growth is due to an improvement in iron ore prices and volumes between 1Q16 and 1Q17. Even on an annual level, analysts are projecting growth of 20% YoY in CLF’s 2017 revenues.

Could There Be a Downside ahead for CLF’s Revenues?

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Revenue catalysts

Cliffs Natural Resources (CLF) has guided for 19 million tons of US volumes in 2017 compared to the actual volume of 18.3 million tons for 2016. The shipments for the Asia-Pacific division are expected to be flat YoY at 11.5 million tons. So, the only incremental volumes that could support higher revenues should be 0.7 million tons of US volumes.

The rest of the growth should be due to price changes in steel and iron ore. The current outlook for iron ore prices is not that bright, given the supply glut and slowing Chinese demand. Steel prices in the US should depend on import penetration as well as end user demand.

US steel prices were strong in 1Q17, which should be beneficial for realized revenues. This gain would lead to US (SPY) (SPX) steelmakers such as U.S. Steel (X), AK Steel (AKS), and ArcelorMittal (MT) seeing higher average selling prices as well as seeing a benefit to their top lines.

A downside ahead?

Analysts have increased their one-year forward revenue projections 25% for Cliffs Natural Resources since the start of 2017. Steel imports into the US have been rising in 2017. Iron ore prices could also have a negative impact on Cliffs Natural Resources’s contract prices in the US. Investors should watch for the next set of revisions by the analysts for revenues and estimates.

In the next article, we’ll analyze analysts’ earnings estimates for CLF in 1Q17.

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