Cleveland-Cliffs Inc. (CLF) Q3 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Adjusted EBITDA $124 million (decreased from previous quarter due to weaker steel demand and pricing)
Shipments 3.8 million tons (decreased by 150,000 tons compared to the prior quarter due to lower automotive build rates and reduced order activity)
Average Selling Price Fell by $80 per ton (due to ongoing demand weakness in both automotive and non-automotive markets)
SG&A Costs $112 million (remained substantially below averages for the past four years due to cost-cutting measures)
Capital Spending $151 million (remained substantially below averages for the past four years due to reduced needs across the footprint)
Unit Costs Reduced by over $40 per ton (exceeded previous guidance due to improved operational efficiencies despite reduced operating rates)
Capital Expenditures for 2025 Guided to $600 million on an ex-Stelco basis (lowest standalone CapEx since transformation in 2020 due to reduced needs and updated spend estimates)
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Operating Highlights
Stelco Acquisition: Cleveland-Cliffs acquired Stelco, enhancing operational resilience and cost structure, with expected $120 million in cost synergies within the first year.
Market Positioning: Cleveland-Cliffs is positioned to benefit from favorable domestic steel market conditions, regardless of the political landscape, with strong support for the domestic steel industry.
Cost Reduction: Cleveland-Cliffs reduced unit costs by over $40 per ton in Q3, with expectations for continued cost management.
Production Adjustment: Temporarily idled one blast furnace to align production with reduced order activity, impacting 1.5 million net tons of annual capacity.
Capital Expenditures: Guided to a capital spend of $600 million for 2025, the lowest since 2020, reflecting reduced needs across the footprint.
Strategic Projects: Progressing on three key strategic projects with Department of Energy funding approvals for efficiency projects at Middletown and Butler.
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Risk or Challenges
Market Demand Risks: Weaker steel demand and pricing were noted, particularly in the automotive sector, which saw the lowest build rates since the semiconductor shortage. This led to reduced shipments and average selling prices.
Regulatory and Trade Risks: The company highlighted concerns regarding trade practices, particularly with foreign competitors potentially dumping steel in the U.S. market, which could affect pricing and market stability.
Economic Factors: High interest rates are impacting consumer purchasing power, particularly in the automotive market, leading to reduced demand for new vehicles.
Supply Chain Challenges: The company is facing challenges in aligning production with order books due to reduced activity from automotive and service center customers, leading to the idling of a blast furnace.
Acquisition Integration Risks: While the acquisition of Stelco is expected to provide synergies, there are inherent risks in integrating operations and realizing the projected $120 million in cost synergies.
Capital Expenditure Risks: The company has reduced its capital expenditure guidance for 2025, indicating a cautious approach due to uncertain market conditions and the need to align spending with demand.
Market Recovery Uncertainty: There is uncertainty regarding the timing and strength of market recovery, particularly in the automotive sector, which is critical for the company's performance.
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Guidance & Outlook
Stelco Acquisition: Cleveland-Cliffs acquired Stelco, which is expected to average up the overall EBITDA margin of the company. The acquisition is anticipated to generate $120 million of cost synergies within the first year.
Strategic Projects: Three key strategic projects at Middletown, Butler, and Weirton are progressing well, with Phase 1 funding approvals received for efficiency projects at Middletown and Butler.
Joint Venture: A joint venture partner has been secured for the transformer plant at Weirton, expected to begin production in late 2025 or early 2026.
2025 Capital Expenditures: Guided to a capital spend of $600 million for 2025 on an ex-Stelco basis, the lowest since the transformation in 2020.
2025 Revenue Expectations: Expectations for a strong 2025 based on trends in interest rates, election certainty, and manufacturing onshoring.
Cost Improvements: Anticipated $70 million cost improvement in 2025 due to improved coal supply contracts.
Q4 Volume and Pricing: Q4 average selling prices expected to be similar to Q3, with shipments slightly lower but offset by Stelco's contribution.
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Shareholder Return Plan
Shareholder Return Plan: Cleveland-Cliffs has indicated a shift in focus towards debt repayment over share repurchases following the acquisition of Stelco. The company plans to prioritize using future cash flow generation for debt repayment rather than engaging in share buybacks.
Cost Synergies from Stelco Acquisition: Cleveland-Cliffs expects to generate $120 million in cost synergies within the first year following the acquisition of Stelco.
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Key Q&A
Q:Given that the deal closed mid-quarter, can you speak to Q4 volume, price and cost expectations?
A:We believe that our clients will start placing orders as soon as we have clarity on the election. I’m anticipating a very strong Q1 and volumes back to normal by the first half of next year.
Q:Can you walk through the changes in CapEx guidance for 2025?
A:We are reducing CapEx needs based on our expectations for automotive demand. We don't need to spend as much as we thought because our equipment is in good shape.
Q:Is something of the magnitude of $40 per ton cost savings potentially achievable heading into Q4?
A:I wouldn't expect to see the same magnitude of cost reduction going into Q4, but we'll continue to bring costs down.
Q:Can you talk about the pricing environment for the October auto contracts compared to the prior year's contract?
A:Our prices of the contracts for the next year are lower, but the tonnage is preserved.
Q:What are the expectations for the $70 million lower cost overall next year due to lower coal contracts?
A:That's a big component that we will have for next year. We found significant spare capacity on coal making in Canada.
Q:If we have a strong demand recovery in 2025, how long does it take to bring the number 6 blast furnace back online?
A:We will bring 6 back as soon as the demand comes back and demand will come back when prices recover.
Q:How should we think about the synergies with the Stelco acquisition building up over the next few quarters?
A:We have full conviction on the $120 million in year one, and we'll start to see real opportunities.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific impact of automotive business on Q3 performance compared to the previous year, stating they would not provide specific per client numbers.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Butler
Canada
Celso cost
Cleveland Cliffs
Cliffs portion
Cliffs side
HRC
Stelco acquisition
Weirton
auto
basis
book
build
condition
consumer
contribution
cost standpoint
cost structure
cycle
election
equipment
expectation
frame
house
infrastructure
interest rate
life
mortgage
partner
payment plan
pricing
project Middletown
question line
recovery
sense
steel industry
synergy
unit
weakness
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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