Cleveland-Cliffs Inc. (CLF) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Adjusted EBITDA Improved by $271 million from the prior quarter due to higher shipment volume targets, improved operational efficiency, and lower production costs.
Volumes 4.3 million tons, representing a 150,000-ton increase from the prior quarter, which allowed for more efficient mill operations.
Unit Cost Decreased by $15 per ton, contrary to expectations of a slight increase, due to solid operating performance.
Average Selling Price $1,015 per ton, a $35 per ton increase from the prior quarter, driven by higher index pricing and partially offset by lower slab and plate pricing.
Liquidity Ended the quarter with $2.7 billion of liquidity and no near-term maturities.
Net Debt Remains manageable and is expected to be on a downward trajectory.
Capital Expenditure and SG&A Full-year 2025 expectations reduced by a combined $50 million due to proactive surgical reductions based on a tightened footprint.
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Operating Highlights
Bright Annealing Line Investment: Commissioned a $150 million investment in the bright annealing line at the Coshocton Works plant in Ohio. This premium stainless steel product is targeted for high-end automotive and critical appliance applications, improving quality and productivity.
Section 232 Tariffs: The 50% steel tariffs have supported the domestic steel and automotive industries, reducing imports and strengthening the U.S. market. The company emphasized the importance of maintaining these tariffs for a strong domestic steel industry.
Canadian Market Challenges: Cleveland-Cliffs is keeping Stelco steel in Canada due to trade protections and challenges in the Canadian market, which is still a net importer of steel.
Brazilian Pig Iron Tariffs: A 50% tariff on Brazilian pig iron will be implemented starting August 1, benefiting Cleveland-Cliffs as it does not rely on imported pig iron.
Operational Efficiency: Achieved a $271 million improvement in adjusted EBITDA from the prior quarter due to higher shipment volumes, cost reductions, and optimized production.
Cost Reductions: Reduced unit costs by $15 per ton and achieved a $50 per ton steel unit cost reduction target. Inventory reductions in raw materials like iron ore and coke contributed to cash flow improvements.
Debt Management: Ended Q2 with $2.7 billion in liquidity and manageable net debt. Engaged JPMorgan to explore potential sales of noncore assets to accelerate debt reduction.
Competitive Landscape: Nippon Steel's $29 billion investment in the U.S. market highlights the appeal of integrated steelmaking. Cleveland-Cliffs sees potential opportunities for foreign investments due to its unique position in the automotive and electrical steel sectors.
Noncore Asset Sales: Exploring the sale of noncore operating assets and idled facilities to unlock value and reduce debt.
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Risk or Challenges
Section 232 steel tariffs: The reliance on Section 232 tariffs to protect the domestic steel industry creates a dependency on government policy. Any changes or exemptions to these tariffs could adversely impact Cleveland-Cliffs' competitive position and profitability.
Interest rates and automotive sector: High interest rates maintained by the Federal Reserve are impeding consumer financing for vehicle purchases, which could limit demand for automotive steel and underutilize Cleveland-Cliffs' automotive steel capacity.
Canadian steel market: The Canadian government's insufficient trade protections allow foreign steel dumping, which negatively impacts Stelco's pricing and profitability, a subsidiary of Cleveland-Cliffs.
Competition from Nippon Steel: Nippon Steel's significant investment in the U.S. market increases competitive pressures, potentially impacting Cleveland-Cliffs' market share and pricing power.
Reliance on noncore asset sales: The company's plan to sell noncore assets to reduce debt introduces uncertainty, as the success of these sales depends on market conditions and buyer interest.
Imported pig iron tariffs: The imposition of tariffs on Brazilian pig iron could create cost disparities among competitors, potentially leading to market distortions and challenges for Cleveland-Cliffs' competitors who rely on imported pig iron.
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Guidance & Outlook
Automotive Sector Outlook: The company expects a resurgence in the automotive sector once interest rates are reduced by 50 to 75 basis points. Cleveland-Cliffs is prepared to ramp up production quickly to meet increased demand, leveraging its underutilized automotive steel capacity.
Impact of Section 232 Tariffs: The company anticipates continued benefits from the enforcement of Section 232 tariffs, which are expected to support the domestic steel and automotive industries. Cleveland-Cliffs expects these tariffs to remain in place and enforced.
Brazilian Pig Iron Tariffs: Starting August 1, a 50% tariff on Brazilian pig iron will be implemented. Cleveland-Cliffs does not rely on imported pig iron and expects this tariff to create a cost disadvantage for competitors who do.
Stainless Steel Business Expansion: The company has completed a $150 million investment in a bright annealing line at its Coshocton Works plant in Ohio. This investment is expected to improve product quality and productivity, targeting high-end automotive and appliance applications.
Future EBITDA Boost: After the expiration of the Arcelor slab agreement in December, the company expects an additional $125 million per quarter in EBITDA, assuming current pricing and demand conditions.
Cost Reduction and Efficiency: The company is on track to achieve a $50 per ton steel unit cost reduction target, which is expected to support growing EBITDA in the coming quarters.
Noncore Asset Sales: Cleveland-Cliffs is exploring the sale of noncore operating assets and idled facilities, which could generate significant cash proceeds for debt reduction.
Capital Expenditure and SG&A Reductions: The company has reduced its 2025 capital expenditure and SG&A budget by a combined $50 million, reflecting a leaner overhead structure and tightened footprint.
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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 should we think about the cadence of cost reductions from here and working capital considerations?
A:Costs were down $15 per ton in Q2 versus expectations of being up $5 per ton. For Q3, costs are expected to be down another $20 per ton from Q2, with further reductions in Q4. The full-year expectation is a $50 per ton reduction in 2025 relative to 2024, driven by optimization of the footprint, reduced fixed costs, overhead, improved efficiencies, and a favorable cost mix.
Q:What are the CapEx expectations for 2027, particularly regarding Middletown?
A:There is no reline or CapEx related to relines in 2026. The original Middletown project involving hydrogen-supported EMFs and a direct reduction line was not pursued due to the unavailability of hydrogen. The project is being revamped to enhance Middletown using coal, coke, natural gas, and American iron ore, with the blast furnace operating under AI. Discussions with the DOE are ongoing.
Q:How should we think about free cash flow generation in the second half and its sustainability?
A:Q2 had a cash outflow of $67 million due to a significant inventory reduction. More working capital release is expected in the second half. Historically, the company has averaged over $1 billion in free cash flow annually since its transformation. Free cash flow will be used to pay down debt, and deleveraging could happen quickly. Facility shutdowns and consistent volumes are expected to support cash flow generation.
Q:What is the average selling price and volume expectation for Q3 '25?
A:Q3 '25 shipments are expected to be similar to Q2 at 4.3 million tons. The average selling price can be calculated based on the composition: 1/3 fixed on a full-year price, 20% under CRU month lags, 8% slab agreement on a 2-month lag, 5% CRU with a quarter lag, and 1/3 spot including Stelco volumes.
Q:What are the company's views on the Canadian economy and its impact on the steel industry?
A:The company believes Canada has significant potential but needs to reduce reliance on imports and foreign influence. The Canadian steel industry is self-sufficient if import levels are controlled. The company is optimistic about positive changes in Canadian policies.
Q:How did automotive volumes develop in Q2 compared to Q1 and late 2024?
A:Automotive volumes are growing as OEMs produce more cars and reduce reliance on imported steel. Some models previously produced abroad are now being manufactured in the U.S. The company expects further growth in automotive production and is well-positioned to support it.
Q:What is the benefit of producing internal coke versus buying external coke on contract?
A:The benefit of producing internal coke is over $100 per ton compared to buying external coke on contract.
Q:Are there opportunities in the appliance market outside the U.S. due to downstream 232 duties?
A:Yes, the inclusion of appliances in Section 232 has encouraged more appliance production in the U.S., benefiting the domestic steel industry.
Q:What are the company's plans regarding foreign investment and asset sales?
A:The company is undervalued, and there is active interest in noncore assets that could generate billions in cash inflow for debt reduction. Carve-outs in core assets are also being considered, but no specific details were provided.
Q:Why is the cost guidance for the year unchanged despite better-than-expected performance in Q2?
A:The company is being conservative as some cost reductions were pulled forward into Q2. Opportunities for exceeding expectations exist, such as scrap and pig iron tariffs, coal and coke opportunities, and improved mill efficiency.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the revamped Middletown project, foreign investment opportunities, and noncore asset sales. Additionally, they did not quantify the potential growth in automotive volumes or provide a clear breakdown of cost reduction opportunities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cleveland Cliffs
EAF
Fed Chairman
Inc Research
Nicholas
Nippon Steel
Prime Minister
Research Division
Section tariff
Stelco pricing
action
administration
coke contract
cost reduction
exemption
friend foe
industry Canada
interest rate
mill
pig iron
pricing slab
property
sector steel
steel Canada
steel industry
strength
tariff United
ton increase
unit cost
value
worker
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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