Cleveland-Cliffs Inc. (CLF) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Adjusted EBITDA $174 million loss, compared to a profit in the previous year, primarily due to underperforming non-core assets and the lagged impact of low steel prices.
Total Shipments 4.14 million tons, consistent with guidance, reflecting a stable performance despite market challenges.
Price Realization $980 per net ton, a slight increase from $976 in Q4, impacted by lower-than-expected realizations in plate and cold roll.
Unit Costs Increased by $15 per ton year-over-year, largely driven by the underperformance of non-core assets.
Cost Reductions Expected $50 per ton year-over-year reduction in 2025 relative to 2024, improved from previous expectations of $40 per ton due to operational changes.
Capital Expenditures (CapEx) Reduced from $700 million to $625 million for 2025, primarily due to reduced sustaining CapEx at idled assets.
SG&A Expense Lowered from $625 million to $600 million for 2025, reflecting actions taken to reduce overhead costs.
Liquidity Position Approximately $3 billion in available liquidity and $3.3 billion in secured capacity, indicating a healthy financial position despite elevated debt levels.
Debt Maturities No meaningful debt maturities until at least 2027, with less than $700 million in total bond maturities over the next four years.
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Operating Highlights
Automotive Steel Supply: Cleveland-Cliffs is actively engaging with automotive customers to secure longer-term steel supply as they reshore manufacturing to the U.S., expecting an annual EBITDA benefit of $250 million to $500 million starting in the second half of 2025.
Stelco Acquisition: The acquisition of Stelco has allowed Cleveland-Cliffs to redirect sales into the Canadian market, enhancing business opportunities and supporting the restart of Cleveland Works' number six blast furnace.
Operational Changes: Cleveland-Cliffs is idling several loss-making operations, including the Minorca mine and parts of the Hibbing Taconite mine, to optimize its operating footprint and achieve annual savings of over $300 million.
Cost Reduction: The company expects a $50 per ton year-over-year reduction in costs for 2025, primarily due to the idling of non-core assets.
Strategic Projects: Cleveland-Cliffs is in dialogue with the Department of Energy regarding its strategic projects, with potential changes to the Middletown project to align with current energy policies.
Divestitures: The company has received unsolicited inquiries for non-core assets and is open to pursuing divestitures if they align with strategic goals.
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Risk or Challenges
Underperformance of Non-Core Assets: The company reported worse-than-expected EBITDA and cash flow primarily due to underperforming non-core assets, which have been idled to improve profitability.
Low Steel Prices: The lagged impact of very low steel prices during the second half of 2024 and early 2025 has significantly affected financial results.
Automotive Market Challenges: The automotive sector is facing challenges with only 50% of cars sold in the U.S. being domestically produced, impacting demand for steel.
Loss-Making Operations: The company is addressing loss-making operations that are not core to its business, which have been absorbing losses without generating expected new business.
Disadvantageous Supply Contract: A contract with ArcelorMittal for slab supply has become problematic due to pricing pressures and a lack of correlation with domestic steel prices, leading to negative margins.
Operational Changes and Layoffs: Operational changes, including idling several plants, have impacted approximately 2,000 employees, reflecting the need to optimize operations for cost competitiveness.
Economic Factors and Tariffs: The company is navigating economic pressures and the impact of tariffs on foreign steel, which are intended to protect domestic production but create competitive challenges.
Debt and Liquidity Concerns: Despite elevated debt levels, the company has no significant debt maturities until 2027, but leverage metrics remain above target, necessitating a focus on debt reduction.
Regulatory and Policy Changes: Uncertainty regarding the future of strategic projects due to changing energy policies under different administrations poses a risk to project viability.
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Guidance & Outlook
Automotive Market Strategy: Cleveland-Cliffs is actively engaging with automotive customers to reshore manufacturing in the U.S., expecting an annual EBITDA benefit of $250 million to $500 million starting in the second half of 2025.
Operational Changes: The company is idling several non-core assets to optimize operations, expecting annual savings of over $300 million.
Stelco Acquisition: The acquisition of Stelco is aligned with the strategy to serve the Canadian market, allowing U.S. mills to restart operations.
Strategic Projects: Cleveland-Cliffs is in dialogue with the Department of Energy regarding strategic projects, with potential changes to align with current energy policies.
Q1 2025 Financial Performance: Cleveland-Cliffs reported an adjusted EBITDA loss of $174 million in Q1 2025, with expectations for improved financial results in the second half of 2025.
CapEx Guidance: 2025 CapEx guidance has been reduced from $700 million to $625 million, with expectations for significant reductions in 2026 and beyond.
Debt Management: The company has approximately $3 billion in available liquidity and aims to reduce debt and leverage as profitability improves.
Cost Reductions: Expected cost reductions of $50 per ton year-over-year in 2025, driven by operational changes and idling of non-core assets.
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Shareholder Return Plan
Share Repurchase Program: Cleveland-Cliffs has not announced any share repurchase program during this earnings call.
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Key Q&A
Q:How should we think about the timing to achieve the full run rate of the $300 million savings?
A:The full impact of the $300 million in savings will start to materialize in the second half of the year, primarily due to the WARN notices which have a 60-day period.
Q:Can you quantify the cadence on the cost side and the ASPs?
A:Cost should actually be up a little bit, about $5 a ton from Q1 to Q2, but later in the year, a more meaningful impact from optimizing the footprint and reducing fixed costs will be seen.
Q:What is the impact of steel tariffs on Stelco and any changes to planned synergies or EBITDA impact?
A:The Section 232 tariffs on steel do not change our game plan as we had already decided to take Stelco out of the American domestic market. The broader tariffs impacting Canada were unexpected and impaired our clients.
Q:What are your assumptions around the increase in domestic auto production?
A:Normalization of trade between the US and Canada includes auto production, and we expect to benefit from increased production of cars in the US.
Q:Can you provide details on asset sales and debt covenants?
A:All covenants are springing covenants, and we have received unsolicited interest in non-core assets that could bring several billion dollars in potential value.
Q:What should we think about shipment profile within the guidance?
A:Shipments should be up slightly from Q1, with auto volume expected to increase.
Q:Can you walk us through any exit costs or severance costs related to the actions at different locations?
A:Cash charges related to idles are minimal, around $15 million in Q2, with non-cash accounting charges close to $300 million.
Q:What is the status of blast furnace relines?
A:Blast furnaces will continue to be relined, with the next one scheduled for 2027.
Q:What updates do you have on CapEx plans?
A:CapEx guidance has been lowered to $625 million from $700 million, with significant reductions expected in 2026 and beyond.
Q:What is your sense of the benefit of cutting quotas to zero while keeping rates at 25%?
A:The removal of quotas has led to aggressive foreign competition, which is concerning as it undermines the intent of the tariffs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of asset sales and the exact timing of potential announcements, stating only that some are in advanced stages and could be announced this year.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ArcelorMittal
Butler project
Canada
Cleveland Cliffs
Dearborn blast
EAF mill
HRC
Indiana Harbor
Issue number
OEM
President administration
Section
States car
Stelco
action Pennsylvania
administration energy
asset loss
car production
change action
change scope
correlation
efficiency
flow generation
industry
making
mine
pig iron
plate
production United
profitability cash
rail
slab
tariff
underperformance
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
Frequently Asked Questions
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