Cleveland-Cliffs Inc. (CLF) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with a 52% increase in adjusted EBITDA, favorable pricing due to automotive strength, and significant cost reductions. The company is also expanding its stainless steel business and exploring rare earth opportunities. Despite some uncertainties in the Q&A regarding timelines and specifics, the strategic focus on automotive and cost efficiencies, along with the potential for significant EBITDA growth and debt reduction, suggest a positive outlook for the stock price.
Key Financial Performance
Adjusted EBITDA $143 million, a 52% increase year-over-year. This improvement was driven by margin expansion from higher realized prices and improved mix, particularly due to automotive strength.
Steel shipment volumes 4 million tons, a reduction from the prior quarter due to summer slowdowns and continued discipline in the broader market. However, the mix shifted favorably toward automotive, which positively impacted pricing.
Average selling price per net ton $1,032, up $17 per net ton over the prior quarter. This increase was entirely driven by automotive shipments moving from 26% to 30% share and coated volumes moving from 27% to 29% share.
Annual savings from operational efficiencies $300 million projected, achieved through footprint optimization activities fully implemented during the quarter.
CapEx budget for 2025 $525 million, reduced from the original expectation of $700 million. This reduction reflects decreased spending at Stelco and changes to DOE projects at Middletown.
SG&A expenses for the year $550 million, reduced from the original expectation of $625 million. This reduction is due to overhead and incentive pay cost cuts in response to weaker demand conditions.
Proceeds from property asset sales $425 million, to be directed towards debt reduction.
5-year fixed-price contract with the U.S. Department of War $400 million, covering up to 53,000 net tons of grain-oriented electrical steel for national security purposes.
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Operating Highlights
Automotive-grade galvanized steel plants: Cleveland-Cliffs operates 9 automotive-grade galvanized steel plants across Michigan, Ohio, and Indiana, which are fully operational and ready to meet demand by 2026.
Rare earth elements initiative: The company is exploring rare earth mineralization at two sites in Minnesota and Michigan to contribute to U.S. self-sufficiency in critical materials.
Automotive sector contracts: Secured 2-3 year agreements with major automotive OEMs, covering higher sales volumes and favorable pricing through 2027-2028.
Memorandum of Understanding (MOU): Entered into an MOU with a major global steelmaker to support their clients moving production to the U.S., with a formal announcement expected soon.
Operational efficiencies: Achieved $300 million in annual savings through footprint optimization and cost reductions, fully implemented in Q3.
Debt reduction: Proceeds from asset sales totaling $425 million will be directed towards debt reduction.
Trade policy impact: Section 232 tariffs on steel and autos have reinforced domestic steel demand, benefiting Cleveland-Cliffs.
Defense contract: Awarded a $400 million, 5-year contract by the U.S. Department of Defense for grain-oriented electrical steel, underscoring its strategic importance.
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Risk or Challenges
Canadian Market Challenges: The Canadian market remains disappointing, with 9% of total sales coming from Stelco in Canada. The Canadian government has been unwilling to act against steel dumping, leading to a high import penetration of 65%. This creates a challenging environment for Stelco to thrive without relying on U.S. markets.
Operational Asset Sales: The operational asset sales process has been deprioritized due to the focus on advancing negotiations under the memorandum of understanding with a global steelmaker. This could delay potential proceeds from asset sales.
Dependence on Automotive Sector: The company's performance is heavily reliant on the automotive sector, which, while rebounding, remains susceptible to economic downturns and supply chain disruptions.
Debt Levels: Gross debt remains elevated, although the company has refinanced bonds and extended maturities. High debt levels could pose risks if market conditions worsen.
Weaker Demand in Construction and Manufacturing: The construction and general manufacturing sectors remain weak, which could impact overall demand for the company's products.
Canadian Government Policies: The lack of meaningful tariffs and anti-dumping measures in Canada creates a competitive disadvantage for Stelco, impacting its profitability and market position.
Supply Chain Risks: The company highlighted the fragility of supply chains, particularly in the automotive sector, as evidenced by disruptions in aluminum supply. This underscores the risks of relying on external suppliers.
Regulatory and Policy Risks: The company’s operations and future growth are tied to stable trade policies and government support, which could change and impact performance.
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Guidance & Outlook
Automotive Sector Growth: Cleveland-Cliffs anticipates a significant rebound in domestic steel demand, led by the automotive sector. The company has secured 2-3 year agreements with major automotive OEMs, covering higher sales volumes and favorable pricing through 2027 or 2028.
Steel Plant Capacity: The company expects its state-of-the-art automotive-grade galvanized steel plants to operate at full capacity and employment levels by 2026, supported by multiyear contracts with automotive clients.
Shift from Aluminum to Steel: Cleveland-Cliffs predicts a continued decline in aluminum usage in the automotive sector, with a shift back to steel, benefiting the company.
Capital Expenditures: The 2025 CapEx budget has been reduced to $525 million from $700 million, reflecting reduced spending at Stelco and changes to DOE projects.
Debt Reduction: Proceeds from property sales, totaling $425 million, will be directed towards debt reduction. The company also refinanced bonds maturing in 2027, with no bond maturities until 2029.
Rare Earth Elements: The company is exploring rare earth mineralization at two sites in Minnesota and Michigan, aiming to contribute to U.S. self-sufficiency in critical materials.
Market Recovery: Signs of recovery are forming in the construction and general manufacturing sectors, expected to follow the upward trajectory of the automotive sector.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How quickly could Cliffs produce products in the rare earth vertical, and would they consider being a vertically integrated producer or partnering?
A:Cliffs has the opportunity to develop mining if initial studies are successful. They are considering cooperation with Canada and have options to work within the U.S. or Canada due to geographical proximity.
Q:What resources have been brought in to explore the rare earth opportunity, and when is the first milestone expected?
A:Cliffs has identified two promising sites and is working with geologists to assess commercial viability. No specific timeline for milestones was provided.
Q:Why has Cliffs deprioritized the asset sale process, and what assets are involved?
A:Cliffs has not stopped the process but has sold a portion of FPT assets in Florida to SA Recycling. They are considering selling the direct reduction plant in Toledo, Ohio, but are exploring other options for it due to strategic considerations.
Q:Will there be an announcement on the sale of a portion or partnership of FPT?
A:Cliffs has signed an agreement to sell the Florida assets to SA Recycling but has not disclosed economic details yet.
Q:Did any new auto contracts kick in during the quarter or will they in the fourth quarter?
A:Some contracts began on October 1. The fourth quarter is typically slow due to automotive shutdowns, but activity is expected to increase significantly in 2026.
Q:What does the guidance imply for further unit cost reductions in Q4, and will there be momentum in early 2026?
A:Costs are expected to be down $50 per ton year-over-year in Q4, with shipments similar to Q3. No changes to guidance were made, and costs are expected to remain stable.
Q:What are the volume growth and pricing implications of the new auto contracts?
A:The contracts will generate higher margins, but specific details on volume growth or pricing were not disclosed. Cliffs emphasized their capacity to support increased automotive production in North America.
Q:What details are available about the rare earth mineralization and feasibility studies?
A:Cliffs has identified rare earth minerals in Michigan and Minnesota but did not provide details on mineral types or timelines for feasibility studies.
Q:Is the electrical steel award a one-time opportunity or part of a larger trend?
A:It is a multiyear, one-time opportunity to build a strategic inventory for the U.S. government, reflecting national security priorities.
Q:What is driving Cliffs' cost reduction efforts?
A:Cost reductions are driven by optimizing the footprint after acquiring AK Steel and ArcelorMittal USA assets, prioritizing efficient operations, and completing these efforts in 2025.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines or economic details for the rare earth opportunity, the FPT asset sale, and the new auto contracts. They also did not elaborate on the types of rare earth minerals or feasibility study timelines.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Indiana Harbor
MOU
Michigan
Middletown
OEMs
Section
States steel
Stelco
activity
agenda
agreement
aluminum
bond maturity
client production
condition
construction
defense
direction
earth
expectation
footprint optimization
foundation
government
grade steel
independence
manufacturing
mix
nation
ownership steel
plenty
runway
sector
slab
steel auto
steelmaker
strength
supply chain
value
way tariff
weighting
CLF Transcript
Cleveland-Cliffs Inc. (CLF) Q3 2025 Earnings Call Transcript
Positive10-20
The earnings call summary indicates strong financial performance with a 52% increase in adjusted EBITDA, favorable pricing due to automotive strength, and significant cost reductions. The company is also expanding its stainless steel business and exploring rare earth opportunities. Despite some uncertainties in the Q&A regarding timelines and specifics, the strategic focus on automotive and cost efficiencies, along with the potential for significant EBITDA growth and debt reduction, suggest a positive outlook for the stock price.
Cleveland-Cliffs Inc. (CLF) Q2 2025 Earnings Call Transcript
Positive7-21
The company's earnings call reflects a positive sentiment overall. Despite an adjusted EBITDA loss, the company anticipates improved financial results in the latter half of 2025. Operational efficiency improvements, increased shipment volumes, and cost reductions signal a positive outlook. The Q&A section further supports optimism with cost-saving strategies and potential growth in automotive volumes. However, management's avoidance of specifics on certain projects and opportunities tempers the outlook slightly. Given these factors, a positive stock price movement of 2% to 8% is expected.
Cleveland-Cliffs Inc. (CLF) Q1 2025 Earnings Call Transcript
Unknown5-8
The earnings call indicates several negative factors, including problematic AB supply, layoffs, economic pressures, and elevated debt levels. The company reported an EBITDA loss and increased unit costs, with no share repurchase program announced. While there is some optimism in cost reductions and liquidity, the Q&A reveals concerns about tariffs, competition, and unclear management responses. Overall, the negative aspects outweigh the positives, leading to a negative sentiment rating.
Cleveland-Cliffs Inc. (CLF) Q3 2024 Earnings Call Transcript
Unknown11-5
The earnings call highlights several negative factors: reduced shipments, lower average selling prices, and weaker demand in key sectors like automotive. Despite some positive aspects like cost synergies from the Stelco acquisition and improved coal contracts, the overall sentiment remains negative. The Q&A section did not alleviate concerns, as management avoided specifics on critical issues like automotive impact. The reprioritization towards debt repayment over share repurchases further signals caution. Given these factors, the stock is likely to experience a negative reaction in the short term.
CLF Slides
CLF Report
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