Cleveland-Cliffs Inc. (NYSE: CLF) today reported third-quarter results for the period ended September 30, 2018.
The Company reported consolidated revenues of $742 million, compared to the prior year’s third-quarter consolidated revenues of $597 million. Cost of goods sold was $480 million compared to $439 million reported in the third quarter of 2017.
Net income was $438 million, or $1.41 per diluted share, compared to $53 million, or $0.18 per diluted share, recorded in the prior-year third quarter. For the nine months ended September 30, 2018, net income was $519 million, compared to $53 million during the same period in 2017.
For the third quarter of 2018, the Company reported adjusted EBITDA1 of $250 million, a 66 percent increase from the prior-year’s third quarter adjusted EBITDA of $151 million.
| (In Millions) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Adjusted EBITDA1 | ||||||||||||||||
| U.S. Iron Ore | $ | 279.5 | $ | 174.2 | $ | 657.9 | $ | 399.8 | ||||||||
| Corporate/Other | (29.2 | ) | (23.4 | ) | (79.6 | ) | (73.9 | ) | ||||||||
| Total Adjusted EBITDA1 | $ | 250.3 | $ | 150.8 | $ | 578.3 | $ | 325.9 | ||||||||
Lourenco Goncalves, Cleveland-Cliffs’ Chairman, President and Chief Executive Officer, said, “This quarter’s results are another clear demonstration of the strength of Cleveland-Cliffs’ unique business model as a supplier of highly customized high-grade iron units to select steelmakers. The success of our four-year transformational journey is on full display.” Mr. Goncalves added, “As we begin to wrap up the year, we expect current strong market conditions to support our strong profitability through the next quarter and into 2019. Our long-term forecast of predictable and consistent cash flow generation, as well as the great progress we continue to make on the HBI project, gave us the comfort to implement a healthy quarterly dividend.” Mr. Goncalves concluded, “It has now become abundantly clear to the market in general that global supply-demand dynamics have shifted favorably towards producers of high-grade iron units. We at Cleveland-Cliffs were ahead of the curve on identifying the trend, and will continue to center and expand our proven strategy around this premise. ”
Cleveland-Cliffs announced that on October 18, 2018, its Board of Directors declared a quarterly cash dividend on the Company’s common shares of $0.05 per share. This equates to $0.20 per year on an annualized basis. The cash dividend will be payable on January 15, 2019, to shareholders of record as of the close of business on January 4, 2019. Cliffs expects to pay the dividend on a quarterly basis, subject to the approval of its Board of Directors.
| U.S. Iron Ore | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | ||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Volumes – In Thousands of Long Tons | |||||||||||||||
| Sales volume | 6,481 | 5,863 | 14,060 | 13,291 | |||||||||||
| Production volume | 4,719 | 4,265 | 14,731 | 13,233 | |||||||||||
| Sales Margin – In Millions | |||||||||||||||
| Revenues from product sales and services | $ | 741.8 | $ | 596.7 | $ | 1,636.1 | $ | 1,354.2 | |||||||
| Cost of goods sold and operating expenses | 480.2 | 438.9 | 1,028.5 | 1,002.7 | |||||||||||
| Sales margin | $ | 261.6 | $ | 157.8 | $ | 607.6 | $ | 351.5 | |||||||
| Sales Margin – Per Long Ton | |||||||||||||||
| Revenues from product sales and services* | $ | 105.65 | $ | 90.52 | $ | 108.53 | $ | 89.91 | |||||||
| Cash cost of goods sold and operating expense rate2 | 62.54 | 60.79 | 61.81 | 59.73 | |||||||||||
| Depreciation, depletion and amortization | 2.75 | 2.81 | 3.50 | 3.73 | |||||||||||
| Cost of goods sold and operating expenses* | 65.29 | 63.60 | 65.31 | 63.46 | |||||||||||
| Sales margin | $ | 40.36 | $ | 26.92 | $ | 43.22 | $ | 26.45 | |||||||
*Excludes revenues and expenses related to domestic freight, which are offsetting and have no impact on sales margin. Revenues and expenses also exclude venture partner cost reimbursements, where applicable.
U.S. Iron Ore pellet sales volume in the third quarter of 2018 was 6.5 million long tons. The 10 percent increase from the third-quarter 2017 volume of 5.9 million long tons was driven primarily by increased customer demand.
Realized revenues per ton of $105.65 increased 17 percent from the prior-year period, primarily as a result of increased steel pricing and pellet premiums, which are magnified by favorable contract structures. This increase was partially offset by higher freight rates.
Cash cost of goods sold and operating expense rate2 in U.S. Iron Ore was $62.54 per long ton, compared to $60.79 per long ton in the prior year’s third quarter. The increase was driven by higher employee-related expenses and higher royalties.
Other Income Statement Items
During August 2018, the Company completed the sale of its Asia Pacific Iron Ore assets to Mineral Resources Limited. As a result, the historical changes in foreign currency translation of $228 million were reclassified and recognized as a gain in Income from Discontinued Operations.
Miscellaneous-net expense of $6 million included, among other items, $5 million in charges related to the indefinite idle at Empire mine.
| Outlook | ||
| 2018 Outlook Summary | ||
| Per Long Ton Information | U.S. Iron Ore | |
| Revenues from product sales and services (A) | $105 – $110 | |
| Cost of goods sold and operating expense rate | $69 – $74 | |
| Less: | ||
| Freight expense rate (B) | $8 | |
| Depreciation, depletion & amortization rate | $3 | |
| Cash cost of goods sold and operating expense rate2 | $58 – $63 | |
| Sales volume (million long tons) | 21.0 | |
| Production volume (million long tons) | 20.0 | |
| (A) | This expectation is based on the assumption that iron ore prices, steel prices, and pellet premiums will average for the remainder of 2018 their respective year-to-date averages. | |
| (B) | Freight has an offsetting amount in revenue and has no impact on sales margin. | |
U.S. Iron Ore Outlook (Long Tons)
Based on the assumption that iron ore prices, steel prices, and pellet premiums will average for the remainder of 2018 their respective year-to-date averages, Cliffs would realize USIO revenue rates in the range of $105 to $110 per long ton. This range remains consistent with the prior calculation as the year-to-date average increase in hot-rolled coil steel prices has been offset by higher freight rates.
Cliffs full-year sales volume expectation of 21 million long tons and production volume expectation of 20 million long tons were each maintained.
Cliffs’ full-year 2018 U.S. Iron Ore cash cost of goods sold and operating expense expectation is unchanged at $58 – $63 per long ton.
SG&A Expense and Other Expectations
Cliffs’ full-year 2018 SG&A expense expectation of $115 million is being maintained. Cliffs also notes that of the $115 million expectation, approximately $20 million is considered non-cash.
The Company’s full-year 2018 net interest expense expectation was maintained at $120 million.
Full-year 2018 depreciation, depletion and amortization associated with U.S. Iron Ore and Corporate/Other is expected to be approximately $80 million.
Capital Expenditures
Cliffs provided the following updates to its 2018 capital expenditures budget:
- the Toledo HBI Project spend expectation was reduced by $25 million to $175 million due to further development and refined timing of the project spending plan;
- the sustaining capital expectation of $75 million was maintained; and
- the Northshore Mine upgrade spend expectation of $50 million was maintained.
