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Cliffs Natural's (CLF) Q1 Loss Narrower than Expected

Cliffs Natural Resources Inc.’s CLF net income (attributable to common shareholders), as reported, for first-quarter 2016 was 62 cents per share, as against net loss of $4.26 per share recorded in the year-ago quarter.

Cliffs’ adjusted loss (excluding one-time items including extinguishment of debt and impact of discontinued operations) was 7 cents per share for the first quarter, much lower than the Zacks Consensus Estimate of a loss of 29 cents.

Sales for the quarter came in at $305.5 million, down 32% from $446 million in the prior-year quarter. Sales, however, exceeded the Zacks Consensus Estimate of $300 million.

 

 

Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 1.9 million long tons in the first quarter, compared with 2.9 million tons in the year-ago quarter. The decline was mainly due to termination of a customer contract and weaker demand from U.S. mills.

Revenues per ton went down 9.5% year over year to $83.87. Cash production cost per ton decreased 26.3% year over year to $47.88 in the reported quarter due to efficiencies gained from predictive maintenance initiatives, lower energy rates and reduced employment costs.

Asia Pacific Iron Ore: Sales volumes in the segment declined 8% year over year to 2.8 million metric tons.

Revenues per ton were $41.16, down around 3.9% from $42.81 in the prior-year quarter. Cash production cost per ton was $26.90, down 27% from the year-ago quarter. The decrease was due to lower mining and haulage costs, reduced headcount, and favorable foreign exchange impact.

Financial Position

Cliffs had $59.9 million of cash and cash equivalents as of Mar 31, 2016, compared with $355.7 million as of Mar 31, 2015. Long-term debt was at $2,499.1 million as of Mar 31, 2016, compared with $2,880.9 million as of Mar 31, 2015.

Capital expenditure was $10 million for the first quarter, representing a year-over-year reduction of 35%. Depreciation, depletion and amortization was $35 million in the quarter.

Outlook

For 2016, Cliffs expects selling, general and administrative expenses to be about $100 million, of which roughly $30 million is considered non-cash.
The company expects full-year 2016 interest expense to be roughly $220 million, of which about $185 million is cash interest. This is lower than the earlier interest expense expectation of $240 million, as a result of liability management activities during the first quarter of 2016.

Total depreciation, depletion and amortization for 2016 is expected to be about $120 million.

Cliffs estimates 2016 capital expenditures to be $75 million, up from its previous expectation of $50 million. The expected increase is driven by the capital spend required to produce a specialized, super-flux pellet at United Taconite in order to meet a customer's pellet specification requirements.

U.S. Iron Ore Outlook

For 2016, Cliffs reiterated its sales volume expectation of about 17.5 million tons from its U.S. Iron Ore business. The company plans to produce about 16 million tons of iron ore pellets.

Asia Pacific Iron Ore Outlook

For 2016, Cliffs reaffirmed its sales and production volume expectation of roughly 11.5 million tons for the Asia Pacific Iron Ore operation.

Zacks Rank

Cliffs currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the mining space include Kumba Iron Ore Ltd. KIROY, Alamos Gold, Inc. AGI and Gold Fields Ltd. GFI. All three stocks carry a Zacks Rank #2 (Buy).

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CLIFFS NATURAL (CLF): Free Stock Analysis Report
 
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