Highlights of Cliffs’ 1Q15 Earnings: Beat on US Pricing (Part 1 of 5)
Cliffs’ results beat estimates again
Cliffs Natural Resources (CLF) announced its 1Q15 earnings on April 28. It held the conference call with analysts the next day. Cliffs’ earnings beat market expectations. It reported an EPS (earnings per share) of $0.02—compared to analysts’ consensus of a loss of $0.19. Its EBITDA (earnings before interest, tax, depreciation, and amortization) was also higher at $94 million—compared to analysts’ estimates of $52.2 million.
Cliffs has a history of beating market estimates. It has positively surprised the market with its results five out of last eight times.
Cliffs’ share price took a severe beating after the results. It closed down ~8% after the results came out. Most of this was due to the volume guidance downgrade at its US iron ore division.
Series overview
In this series, we’ll discuss Cliffs’ 1Q15 results and conference call highlights. We’ll look at why Cliffs’ results beat market expectations. We’ll discuss whether or not the reasons are sustainable for the rest of the year. We’ll talk about the outlook for Cliffs’ end markets—including the seaborne iron ore trade market and the US steel market.
About Cliffs Natural Resources
Cliffs Natural Resources is mainly an iron ore producer. A small percentage of its revenue comes from metallurgical coal sales. Cliffs accounts for close to 46% of North America’s iron ore pellet supply.
Cliffs has operations in the US, Eastern Canada, and Australia. Recently, it put Eastern Canadian Iron Ore’s assets into bankruptcy. Cliffs has small direct exposure to the volatile seaborne iron ore market where mining giants like BHP Billiton (BHP), Rio Tinto (RIO), and Vale SA (VALE) operate.
The rest of company’s earnings are tied to the legacy contracts in the US with integrated US steel players—including U.S. 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, U.S. Steel, and AK Steel account for 4.0%, 3.7%, and 4.5%, respectively, of XME’s holdings.
Continue to Part 2
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