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Key Highlights from Cliffs Natural Resources’ 4Q16 Results

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Revenue summary

Cliffs Natural Resources (CLF) reported revenues of $754 million for 4Q16, which represents a rise of 58% YoY (year-over-year). These revenues were also 12% higher than the Wall Street expectations of $672 million, mainly due to higher volumes in the US (DIA) Iron Ore or USIO division.

Cliffs US peers (SLX) AK Steel (AKS), Steel Dynamics (STLD), and Nucor (NUE) reported sequential declines in revenues that were mostly expected due to seasonally lower US steel demand in the fourth quarter. U.S. Steel (X), however, managed to beat its 4Q16 EPS estimates by a decent margin. Along with the earnings beat, the company’s upbeat 2017 outlook also seems to have impressed analysts.

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EBITDA surge

Cliffs achieved EBITDA (earnings before interest, tax, depreciation, and amortization) of $174 million in 4Q16, which is its highest quarterly EBITDA in two years. It’s also an improvement of 129% YoY. The company attributed this strong performance to the cost-reduction initiatives it has implemented over the past two years.

This sales volume was particularly strong in the US segment. This was due to overall improved steel market conditions and the company’s customer contract arrangements. Finally, the realized prices also remained robust due to higher iron ore and steel prices.

Divisional EBITDA

The adjusted EBITDA for Cliffs Natural Resources’s (CLF) USIO division came in at $151 million, or 54% higher than in 4Q15. These strong earnings were mainly driven by impressive cost-reduction efforts by the company. The sales volumes surge were also responsible for higher EBITDA.

The adjusted EBITDA for CLF’s Asia-Pacific Iron Ore or APIO division also came in at $60 million, which is its strongest performance in the past ten quarters. Higher seaborne iron ore prices and better cost management led to this improved earnings performance.

In the next part of this series, we’ll have a look at the progress of Cliffs’ US sales volumes.

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