Cliffs Natural Resources’ 2Q16 Earnings: Key Takeaways



Cliffs’ 2Q16 earnings beat

Cliffs Natural Resources’ (CLF) results for 2Q16 beat market expectations. Cliffs reported EPS (earnings per share) of $0.07, which is higher than the Wall Street estimates of $0.03. Revenues, at $496 million, were also higher than market expectations of $465 million, driven by higher volumes and lower costs in the US iron ore division. Cliffs has a history of beating estimates. It beat estimates in six out of the last eight quarters.

The company released its 2Q16 results on July 28. A conference call with securities analysts and institutional investors took place on the same day to discuss the results.

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Share price reaction

Cliffs’s stock price rose 3% after its 2Q16 results were announced. The market was happy about Cliffs’s better-than-expected cost cutting and upbeat management commentary. The strength in domestic US steel prices, as well as company’s recent positive developments, led to a staggering year-to-date performance of 374% for Cliffs’s stock, as of July 29, 2016. As you can see in the above graph, this gain has dwarfed the gain in the share prices of other iron ore miners.

The upbeat market sentiment is also benefitting US steelmakers such as U.S. Steel (X), AK Steel (AKS), and Steel Dynamics (STLD), which managed to beat consensus earnings estimates. Nucor (NUE), however, witnessed selling pressure as the company missed consensus revenue estimates.

You can also consider the Materials Select Sector SPDR ETF (XLB) to get diversified exposure to the materials sector. Metal producers currently make up ~12.7% of XLB’s portfolio.

Series overview

You can use this 2Q16 snapshot series to quickly gauge company fundamentals. We’ll discuss the company’s results and conference call highlights. Management’s guidance and outlook can help you readjust your portfolio. We’ll also analyze how the company’s management is positioning Cliffs to weather the current volatility in the iron ore and steel markets.

In the next part of this series, we’ll discuss Cliffs’ views on its potential competitor’s bankruptcy filing.


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