Cleveland-Cliffs Inc. Reports First-Quarter 2019 Results

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CLEVELAND CLIFFS INC.

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CLEVELAND–(BUSINESS WIRE)– Cleveland-Cliffs Inc. (NYSE: CLF) today reported first-quarter results for the period ended March 31, 2019.

The Company reported consolidated revenues of $157 million, compared to the prior year’s first-quarter consolidated revenues of $180 million. Cost of goods sold was $126 million compared to $119 million reported in the first quarter of 2018.

The Company recorded a loss of $22 million, or $0.08 per diluted share, compared to a loss of $84 million, or $0.29 per diluted share, recorded in the prior-year first quarter. For the first quarter of 2019, the Company reported adjusted EBITDA1 of $21 million, compared to the prior year’s first quarter adjusted EBITDA1 of $52 million.

    (In Millions)
    Three Months Ended
    March 31,
    2019   2018
Adjusted EBITDA1        
Mining and Pelletizing   $ 47.5     $ 77.1  
Metallics   (0.8 )   (0.3 )
Corporate   (25.6 )   (24.5 )
Total Adjusted EBITDA1   $ 21.1     $ 52.3  
                 

During the first quarter, Cliffs repurchased 11.5 million common shares at a cost of $124 million in the aggregate. Since the initiation of the share repurchase program, the Company has repurchased 17 million shares at a cost of $171 million, or $10.11 per share. As of March 31, 2019, Cliffs had 282.8 million shares outstanding.

Lourenco Goncalves, Cleveland-Cliffs’ Chairman, President and Chief Executive Officer, said, “With the winter and the first quarter behind us, we enter the three strong quarters of a 2019 that is shaping up to be another multi-year high in adjusted EBITDA for Cleveland-Cliffs. Robust manufacturing activity in the United States, stimulated by a still under-appreciated tax reform and a massive shortage of iron ore and pellets in the international markets, creates a perfect combination to boost Cleveland-Cliffs’ ability to generate cash.” Mr. Goncalves continued, “We don’t see any short-term or even mid-term solution for the multi-year shortage of iron ore and pellets created by the serious problems in Brazil, and what we see now should be the new normal for the foreseeable future. Thanks to the design of the sales contracts we put in place, Cleveland-Cliffs will continue to benefit from this New Normal. Additionally, our comfortable financial position should be further enhanced in 2020 and beyond, as we remain on track to complete the construction of our HBI plant in Toledo, Ohio and start selling HBI to EAF steelmakers in a little more than a year from now.” Mr. Goncalves concluded, “At this time, we expect to generate in excess of $800 million dollars in adjusted EBITDA in 2019. We plan to continue to put the cash generated to good use by paying down debt and returning cash to our shareholders, both through dividends and by taking advantage of our low equity valuation with the use of share buybacks.”




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CLEVELAND-CLIFFS FIRST QUARTER 2019 RESULTS AND ANNOUNCEMENT OF ADDITIONAL SHARE REPURCHASE AUTHORIZATION HERE. 




On November 24, 2018, the Company’s Board of Directors had authorized the Company to buy back its common shares up to a maximum of $200 million worth of shares and, on April 24, 2019, the Company’s Board of Directors authorized an additional amount of up to $100 million. With that, the Company currently has the ability to buy up to an increased amount of approximately $129 million of its common shares, which results from the additional $100 million of share buyback authorization plus approximately $29 million remaining from the earlier authorization. Share buybacks may be made via acquisitions in the open market or privately negotiated transactions, including through accelerated share repurchases or pursuant to the terms of a Rule 10b5-1 plan. The Company is not obligated to make any purchases and the program may be suspended or discontinued at any time. The authorization is active until December 31, 2019.

Mining and Pelletizing

   
    Three Months Ended
    March 31,
    2019   2018

Volumes – In Thousands of Long Tons

       
Sales volume   1,550     1,611
Production volume   4,401     4,500

Sales Margin – In Millions

       
Revenues from product sales and services   $ 157.0     $ 180.0
Cost of goods sold   126.1     118.5
Sales margin   $ 30.9     $ 61.5

Sales Margin – Per Long Ton

       
Revenues from product sales and services*   $ 93.81     $ 105.03
         
Cash cost of goods sold rate2   61.94     57.05
Depreciation, depletion and amortization   11.94     9.81
Cost of goods sold*   73.88     66.86
Sales margin   $ 19.93     $ 38.17
*   Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin.
     

Mining and Pelletizing pellet sales volume in the first quarter of 2019 was 1.6 million long tons, relatively flat when compared to the prior year’s first quarter.

Realized revenues per ton of $93.81 decreased 11 percent from the prior-year period, primarily due to the favorable 2018 HRC price-related revaluation that did not recur in 2019. The decrease was partially offset by increased iron ore prices. As expected, the first quarter revenue rate was lower than the full-year expected range due to an unfavorable customer mix driven by a higher proportion of rail shipments during the annual Soo Locks closure.

Cash cost of goods sold rate2 was $61.94 per long ton, compared to $57.05 per long ton in the prior year’s first quarter. The increase was driven by higher maintenance, transportation, and stripping costs, along with higher costs related to improved profitability outlook, including employee profit sharing and higher royalties.

       

Outlook

      2019 Outlook Summary
Per Long Ton Information   Mining and Pelletizing
Cost of goods sold rate   $74 – $79
Less:    
Freight expense rate (A)   $8
Depreciation, depletion & amortization rate   $4
Cash cost of goods sold rate2   $62 – $67
     
Sales volume (million long tons) (B)   20.0
Production volume (million long tons)   20.0
(A)   Freight has an offsetting amount in revenue and has no impact on sales margin.
(B)   This includes approximately 500,000 long tons of intercompany sales volumes to Cliffs’ HBI facility.
     

Mining and Pelletizing Outlook (Long Tons)

Based on the assumption that relevant pricing indices will average for the remainder of 2019 their respective year-to-date averages, including iron ore prices of $85 per metric ton, steel prices of $691 per short ton, and pellet premiums of $67 per metric ton, Cliffs would expect to realize Mining and Pelletizing revenue rates in the range of $108 to $113 per long ton, a $6 per long ton increase versus the comparable range provided last quarter. Assuming spot prices as of April 23, 2019 including an iron ore price of $94 per metric ton, a steel price of $676 per short ton, and a pellet premium of $66 per metric ton, will average these levels for the remainder of 2019, Cliffs would expect to realize Mining and Pelletizing revenue rates in the range of $111 to $116 per long ton for the full-year 2019.

For 2019, Cliffs maintained its full-year sales and production volume expectation of 20 million long tons. Cliffs’ full-year 2019 Mining and Pelletizing cash cost of goods sold rate2 expectation is maintained at $62 to $67 per long ton.

Other Outlook

Cliffs’ full-year 2019 SG&A expense expectation of $120 million is being maintained. Cliffs also notes that of the $120 million expectation, approximately $20 million is considered non-cash. The Company’s full-year 2019 net interest expense expectation is maintained at $100 million. Full-year 2019 depreciation, depletion and amortization is expected to be approximately $80 million.

Based on refined projections, the Company’s 2019 effective tax rate is now expected to be approximately 12-14 percent. Due to the Company’s NOL position, its cash tax payments are still expected to be zero. Cliffs also expects to receive $117 million in cash tax refunds during the second quarter of 2019, which is earlier than previously expected.

Cliffs total capital expenditures expectation of approximately $555 million (including capitalized interest) for the year 2019 is maintained.

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