Can Cliffs Natural Resources Beat Its Earnings Estimates in 2Q17?
Analysts’ EBITDA1 estimates reflect their expectations of future profitability of the company. These estimates are usually derived from top line projections, margin assumptions, or cost projections.
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Analysts expect Cliff Natural Resources’ (CLF) EBITDA to be $131.7 million for 2Q17, which represents 30% over the actual EBITDA recorded in 2Q16. Higher volumes, realized prices, and lower costs are the likely drivers for this implied increase.
As we’ve noted previously in this series, Cliffs Natural Resources has guided for higher realized prices in 2Q17 and even higher for the second half of 2017. This guidance also helps explain the sequential 25% rise in its 2Q17 EBITDA estimates.
While the company has guided for revised EBITDA of $700 million for 2017, analysts are playing it conservatively with a consensus EBITDA of $560 million. This lower guidance could be related to the decline in iron ore and steel prices after Cliff Natural Resources revised its EBITDA during the release of its 1Q17 results.
The current consensus implies impressive YoY EBITDA growth of 57%. The company’s implied EBITDA margin is 23.5% compared to the actual margin of 17.0% in 2016.
In keeping with the downward revisions in revenues, analysts issued a 12% downward revision of their EBITDA estimates for 2017 since Cliffs Natural Resources’ 1Q17 results were released.
The main drivers of Cliffs Natural Resources’ EBITDA usually include US (SPX) (IVV) hot rolled coil and seaborne iron ore prices. Although seaborne iron ore prices have weakened recently, spot steel prices have remained steady in 2Q17.
Further revisions to earnings estimates for Cliffs Natural Resources and US steelmakers such as U.S. Steel Corporation (X), AK Steel (AKS), and ArcelorMittal (MT) could depend on the outcome and timing of the pending Section 232 probe into steel imports into the US.
- earnings before interest, tax, depreciation, and amortization ↩