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Inside Cliffs Natural Resources’ Solid 4Q16 Earnings, Big Stock Surge

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Nov. 20 2020, Updated 5:23 p.m. ET

CLF’s 4Q16 earnings beat

Cliffs Natural Resources (CLF) released its 4Q16 results on February 9, 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’ results for 4Q16 were hugely positive and beat the market expectations by a wide margin. The company reported net earnings of $81 million, or $0.42 per share, as compared to the consensus expectation of $0.23. Its revenues of $754 million were also higher than market expectations of $672 million.

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CLF’s EBITDA (earnings before interest, tax, depreciation and amortization) came in at $174 million, as compared to the consensus estimate of $133 million. Investors should note that this earnings beat was in-line with Cliffs’ historical performance. It has beaten estimates in five of the last eight quarters.

Share price surged

Cliffs Natural Resources’s expectations beat and its upbeat management commentary and outlook led the stock to rise by 20% in a single trading session after the results. Increased sales in the domestic US market were the major driver of earnings in 4Q16. Cliffs’ management also guided on several other positive performance metrics going forward.

Cliffs Natural Resources’s US peers Nucor (NUE) and Steel Dynamics (STLD) reported a sequential decline in their 4Q16 revenues on lower seasonal shipments and lower steel prices. It’s been a subdued earnings season for steel investors (XME). Both Steel Dynamics and AK Steel (AKS) saw negative price action after their respective 4Q16 earnings releases. Steel Dynamics missed consensus earnings estimates, and AK Steel saw selling pressure on a tepid outlook despite beating consensus earnings estimates.

For diversified exposure to the materials sector, you might consider the Materials Select Sector SPDR ETF (XLB). Metal producers currently make up ~12.7% of XLB’s portfolio.

Cliffs’ management made a very significant announcement after the conference call, revealing that it plans to sell 55 million common shares for $10.75 each. This will be another major step toward reducing its financial leverage.

Series overview

You can use this snapshot series to gauge Cliffs’ fundamentals. We’ll discuss the 4Q16 results, conference call highlights, management guidance, and outlook. We’ll also analyze how the 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 the rationale behind the announcement of CLF’s equity and debt offer and analyze how it could impact the company’s financial leverage going forward.

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