Why Cleveland-Cliffs Stock Surged despite 1Q18 Earnings Miss



CLF’s 1Q18 earnings

Cleveland-Cliffs (CLF) reported its 1Q18 results on April 20. It held its conference call with securities analysts and institutional investors the same day to discuss the results.

The company’s 1Q18 earnings missed market expectations. Analysts estimated earnings per share (or EPS) of -$0.21, and the company reported EPS of -$0.29. CLF’s revenues of $239 million, on the other hand, beat consensus estimates by $57.6 million.

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Better than CLF guidance

Due to usual seasonality and changes in the company’s revenue recognition practice, 1Q18 was expected to be weaker. The quarter, however, didn’t turn out to be as weak as expected. First, the ice started melting on the Great Lakes earlier than expected, so the shipping season started earlier than usual. Second, steel prices were better than what the company had expected during its 4Q17 earnings release.

This was not the end of the positive surprises, as the company raised its sales volume guidance for 2018 to 20.5 million tons from 20.0 million tons previously. CLF’s stock price had a very good reaction to these positive surprises. The stock surged 7.5% to $7.7. The overall market performance was weaker on April 20, 2018, as the S&P 500 Index (SPY) (SPX) finished 0.85% lower, and the Dow Jones Industrial Average (DIA) (DOW) closed 0.82% lower. The losses for the day were broad-based, led by weakness in energy and a sharp decline in Apple (AAPL).

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In 2018 year-to-date (or YTD), Cliffs stock has seen many upswings and downswings, which have mostly been related to the import tariffs on steel. CLF and its US peers (SLX) rejoiced when the steel tariffs were announced only to pull back sharply when they were toned down to include more countries on the exemption list. Year-to-date, Cliffs stock has seen returns of 7.1%, and AK Steel (AKS) saw its stock price fall ~16%. In contrast, U.S. Steel (X), Nucor (NUE), and Steel Dynamics (STLD) saw returns of 4.1%, 0.0%, and 8.2%, respectively.

Series overview

In this series, we’ll try to gauge Cleveland-Cliffs’s (CLF) short-term and long-term fundamentals. We’ll discuss its 1Q18 results, conference call highlights, management guidance, and outlook. We’ll also see how the company is planning to progress on new growth initiatives. Cliffs’s CEO, Lourenco Goncalves, provided insight into US steel demand and his view on its future outlook. We’ll start by looking at that in the next part of our series before moving on with 1Q18 results.


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