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Cliffs Natural Resources: 3Q15 Earnings and Conference Call

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Results for Cliffs Natural Resources: Some beats, some misses

Cliffs Natural Resources (CLF) announced its 3Q15 earnings on October 29, 2015. It held a conference call with analysts the same day. The company’s results were a mixed bag this time. It’s important to note that Cliffs has a history of beating market estimates. It has offered positive surprises to the market five out of the last eight times.

Cliffs reported an EPS (earnings per share) of -$0.10 compared to analysts’ consensus of -$0.25. While Cliffs reported adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $93 million, which is higher than analysts’ estimates of $72 million, all the $33 million idling costs don’t seem to be one-off.

During the earnings call, management mentioned that $28 million of costs out of the $33 million were net of one-timers. Adjusting this, Cliffs’s EBITDA of $65 million is a slight miss on analysts’ estimates. Revenue of $593 million was almost in line with market expectations.

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Share price reaction

The company’s stock price had a strong positive reaction of 14% immediately after the results on better-than-expected cost improvements and better guidance on the US realized revenue expectation. However, the stock settled down, up only 1% at the closing.

Series overview

In this series, we’ll look at Cliffs’s 3Q15 results and conference call highlights. We’ll also talk about Cliffs’s reasons for downgrading its volume guidance for the US iron ore business. We’ll also analyze how the company’s management is positioning the company to weather the current slowdown in the iron ore markets.

Cliffs has a small direct exposure to the volatile seaborne iron ore market where mining giants such as BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE) operate.

The rest of the company’s earnings are tied to the legacy contracts in the United States with integrated US steel players, including United States Steel (X), AK Steel (AKS), and Arcelor Mittal (MT).

The SPDR S&P Metals and Mining ETF (XME) is another way for investors to play the metals and mining space. Cliffs Natural Resources, United States Steel, and AK Steel account for 3.0%, 4.4%, and 3.5%, respectively, of XME’s holdings.

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