Another Hit to Steel Stocks: $CLF Misses, Shares Are Heading Lower

Prepare to get lit up again, Trumpfags. After yesterday’s catastrophic decline of 26% in X, investors in the steel sector, many of which are long due to Trump, are about to get lit up again — because CLF just reported a worse than expected quarter.

The company has been reducing debt, so their long term viability looks plausible now. However, the business hasn’t picked up to match the enthusiasm exhibited in the shares.

Reports Q1 (Mar) earnings of $0.16 per share, excluding a $72 mln, or $0.27 per share, loss on extinguishment/restructuring of debt attributable to the liability management activities, $0.04 worse than the Capital IQ Consensus of $0.20; revenues rose 51.1% year/year to $461.6 mln vs the $412.71 mln Capital IQ Consensus

Total debt at the end of the first quarter of 2017 was $1.6 bln, ~$900 mln lower than $2.5 bln total debt at the end of the prior-year quarter
U.S. Iron Ore pellet sales volume in the first quarter of 2017 was 3.1 mln long tons, a 63% increase when compared to the first quarter of 2016 as a result of increased customer demand
As Cliffs’ management previously guided, first-quarter revenues per ton of $79.35 decreased by 5 percent compared to the prior-year quarter.

The decrease is a result of carryover pricing impacts from both 2015 and 2016, and changes in customer mix. The majority of tons sold in the first quarter are from products shipped under the prior-year contract pricing. Contracts that have been priced based on 2017 pricing have been favorable to prior year due to higher benchmark iron ore and hot-rolled coil steel pricing
Asia-Pacific: First-quarter 2017 Asia Pacific Iron Ore sales volume increased 9% to 3.0 mln metric tons, from 2.8 mln metric tons in the first quarter of 2016. The volume increase was primarily related to the timing of shipments

Outlook:
Based on the assumption that iron ore and steel prices will average for the remainder of 2017 their respective April month-to-date averages, Cliffs expects to generate ~$380 mln of net income and $700 mln of adjusted EBITDA for the full-year 2017

This new outlook incorporates revised assumptions around Asia Pacific Iron Ore revenue realizations, which are impacted by the lower IODEX price, larger iron ore content discounts, and lower lump premiums

U.S. Iron Ore Outlook (Long Tons):

Cliffs full-year sales and production volumes expectation is unchanged at ~19 mln long tons. Cliffs’ full-year 2017 U.S. Iron Ore cash cost of goods sold and operating expense2 expectation is unchanged at $55 – $60 per long ton

Asia Pacific Iron Ore Outlook (Metric Tons, F.O.B. the port):

Cliffs’ full-year 2017 Asia Pacific Iron Ore expected sales and production volume is unchanged at ~11.5 mln tons. The product mix is expected to contain 50 percent lump ore and 50 percent fines

My take: the quarter wasn’t all bad. The stock is up 85% over the past 12 months, but lower by 14% for 2017. We’re definitely seeing stronger numbers out of China and hopefully the Trump plans to stoke growth will come to fruition, which would certainly help the stock price in steel and steel related names. The stock is indicating lower by 5%. I wouldn’t buy today. It’s probably a buy sometime next week.