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Cliffs Natural Resources Upgraded after Missing 1Q17 Expectations

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Cliffs Natural Resources Upgraded after Missing 1Q17 Expectations PART 1 OF 10

Is Cliffs Natural Resources’ 1Q17 Earnings Miss a Cause for Concern?

CLF’s 1Q17 earnings miss

Cliffs Natural Resources (CLF) released its 1Q17 results on April 27, 2017, before the market opened. A conference call with securities analysts and institutional investors took place on the same day to discuss the results.

Cliffs Natural Resources’ 1Q17 results missed market expectations. The company reported a net loss of $30 million, or $0.11 per share, falling short of the consensus expectation of $0.16.

Is Cliffs Natural Resources’ 1Q17 Earnings Miss a Cause for Concern?

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Its net earnings, however, included $72 million of debt extinguishment and restructuring charges. Excluding this one-off item, Cliffs Natural Resources’ earnings were in line with market expectations. Its revenues of $462 million, on the other hand, were higher than analysts’ expectations of $412 million.

Stock price plunged

Cliffs Natural Resources’ (CLF) stock price dropped 6.8% on April 27, 2017. While an earnings miss wasn’t that concerning for the investors given the one-off item, the company’s guidance downgrade disappointed them. 

CLF downgraded its net income guidance from $510 million to $380 million. It downgraded its EBITDA1 from $850 million to $700 million. The downgrade was mainly due to lower iron ore prices. The company didn’t change its guidance for volumes, cash costs, and selling, general, and administrative expenses.

The steep stock reaction might also have to do with the recent deterioration in the sentiment surrounding the US steel sector (SLX). U.S. Steel (X), which released its 1Q17 results on April 26, fell 25% in a single trading session. That decline was mainly due to its earnings miss as well as the lukewarm outlook for 2017. 

Among CLF’s steel peers (MT), Nucor (NUE) and Steel Dynamics (STLD) posted sharp increases in their 1Q17 EBITDA, while AK Steel’s (AKS) 1Q17 EBITDA fell slightly on a sequential basis due to higher input costs.

Series overview

You can use this snapshot series to gauge Cliffs Natural Resources’ (CLF) fundamentals. In this series, we’ll discuss its 1Q17 results, conference call highlights, management guidance, and outlook. We’ll also analyze how the company’s management is positioning CLF to weather the current volatility in the iron ore and steel markets.

In the next part of this series, we’ll discuss the key highlights of Cliffs Natural Resources’ 1Q17 earnings.

  1. earnings before interest, tax, depreciation, and amortization
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