Cleveland-Cliffs Inc. (CLF) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with a significant year-over-year increase in EBITDA and improved shipments and selling prices, indicating a positive market environment. Although there are some cost pressures and uncertainties, such as rising fuel costs and ongoing negotiations with POSCO, the overall sentiment is positive due to strong demand, strategic partnerships, and operational improvements. Despite some risks, the positive outlook for automotive demand and strategic contracts support a positive stock price movement prediction.
Key Financial Performance
Adjusted EBITDA $95 million, a $274 million increase year-over-year due primarily to increased pricing.
First Quarter Shipments 4.1 million tons, a recovery of more than 300,000 tons sequentially due to better demand conditions and a more stable operating cadence.
Average Selling Prices Increased by $68 per ton year-over-year and sequentially by $55 per ton during the quarter, reflecting improving market conditions and better automotive pull.
Energy Spike Impact on EBITDA $80 million negative impact due to extreme cold weather and spiking energy costs.
Q2 Costs Expected to increase by $15 per ton due to cost pressures like fuel and scrap, along with scheduled outages.
Free Cash Flow (Q1) Negative due to working capital timing, including accounts receivable increases and bond coupon schedules.
Liquidity Above $3 billion, maintained despite cash-intensive periods.
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Operating Highlights
Cliffs' Steel Substitution: Momentum in substituting aluminum with steel in automotive, building products, appliances, and truck/trailer sectors. Cliffs' steel is being used in equipment previously exclusive to aluminum.
Toyota Quality Excellence Award: Cleveland-Cliffs received the Toyota Quality Excellence Award, confirming high standards in processes, consistency, execution, and quality.
Steel Imports and Trade Enforcement: Steel imports into the U.S. are at their lowest levels since 2009 due to effective trade enforcement measures like Section 232 and tariffs on derivative products.
Canadian Market Challenges: The Canadian market is oversupplied with foreign steel, impacting Cleveland-Cliffs' Canadian subsidiary, Stelco. The company expects Canada to implement measures to protect domestic jobs and steelworkers.
POSCO Partnership: Ongoing discussions with POSCO for a mutually satisfactory transaction, though delayed due to Middle East disruptions.
Operational Efficiencies: Extended lead times optimize production schedules, improving efficiency, productivity, and costs. Idling inefficient mills at Burns Harbor and Gary Plate finishing line to enhance cost performance.
AI Integration: Partnered with a leading AI provider to embed AI into production planning and order entry processes, improving decision-making and operational efficiency.
Energy and Cost Management: Energy spikes caused an $80 million negative impact in Q1 EBITDA. Costs expected to normalize in the second half of the year.
Modernization Projects: Butler Works electrical steel expansion and Middletown Works modernization projects are on schedule, enhancing energy efficiency and competitiveness.
Labor Agreement Negotiations: Upcoming renegotiation with United Steelworkers to ensure competitiveness and sustainability while rewarding the workforce.
Rare Earths Analysis: Analyzing potential in rare earths but dependent on domestic refinement infrastructure, which is currently limited.
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Risk or Challenges
Energy Costs: Spiking energy costs, particularly during extreme cold weather, negatively impacted Q1 results by $80 million. This included natural gas, electricity, and industrial gas price increases.
Canadian Market Pricing: Steel pricing in Canada is at a 40% discount compared to the U.S., impacting margins for the Canadian subsidiary Stelco.
Geopolitical Risks: Disruptions in the Middle East, including war activity in Iran, have destabilized global freight lanes, increased energy prices, and affected metal supply chains.
Labor Agreement Negotiations: Upcoming renegotiation of the labor agreement with United Steelworkers poses potential risks to competitiveness, flexibility, and long-term sustainability.
Supply Chain and Refinement Infrastructure: Limited domestic refinement infrastructure for rare earths could hinder potential opportunities in this area.
Scheduled Outages and Cost Pressures: Scheduled outages in Q2 and rising costs for fuel and scrap are expected to increase costs by $15 per ton before declining later in the year.
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Guidance & Outlook
Revenue and Pricing Outlook: The company expects pricing strength visible in the market today to increasingly show up in results as the year progresses, particularly in Q2 and Q3, due to extended realization lags. Q2 is projected to be the best quarter in nearly two years, with further improvement anticipated in Q3.
Operational Efficiency and Cost Management: Operational changes, such as idling inefficient mills and consolidating capabilities, are expected to enhance earnings and cost performance. Costs are projected to rise slightly in Q2 due to scheduled outages but will decrease meaningfully in the second half of the year.
Capital Expenditures and Modernization: The Butler Works electrical steel expansion project is on schedule for 2028 completion. The Middletown Works project is progressing and will feature a modern blast furnace configuration, enhancing energy efficiency and competitiveness.
Market Trends and Demand: Strong backlogs and disciplined production schedules indicate a healthy steel market. Automotive OEMs are increasingly substituting aluminum with steel, and other sectors like building products and appliances are also shifting toward steel usage.
Free Cash Flow and Leverage: The company anticipates a return to meaningful positive free cash flow in Q2, supported by higher collections and EBITDA. Real estate transactions are expected to generate $425 million in cash receipts, aiding leverage reduction.
Strategic Partnerships and AI Integration: The company is embedding AI into production planning and order entry processes to optimize operations and decision-making. A full announcement on this initiative is expected soon.
Labor Agreement Negotiations: Upcoming renegotiation of the labor agreement with United Steelworkers aims to balance workforce rewards with long-term competitiveness and sustainability.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What are the price expectations for Q2 compared to Q1, and what is the impact of the final slab shipments to Calvert on EBITDA?
A:Q2 shipments are expected to improve from Q1 and remain above 4.1 million tons. Automotive shipments are expected to increase, and selling prices are expected to rise by about $60 per ton from Q1 to Q2. The final slab shipments to Calvert, totaling 175,000 tons, are completed, and while the tonnage was not meaningful, it was a drag on EBITDA.
Q:To what extent could the working capital built in Q1 unwind in Q2, and will further builds be needed to meet increasing demand?
A:A slight release in working capital is expected in Q2 as inventory is further reduced. The Q1 build of $130 million was primarily driven by accounts receivable due to rising pricing and strong shipments.
Q:What is the status of negotiations with POSCO, and how has the external environment affected the discussions?
A:Negotiations with POSCO are ongoing, but the external environment has changed significantly. The U.S. market has improved with stronger prices and higher automotive production, reducing the urgency for a deal. Discussions are still active, but there is no rush to finalize an agreement.
Q:What is the exposure to diesel costs in mining operations, and is there any hedging activity?
A:Diesel is a meaningful cost component, with an annual impact of $50 million on mining costs, equating to about $6 per ton. The company no longer hedges diesel but does hedge 50% of its natural gas exposure. Natural gas accounts for about 20% of mining operations' overall natural gas usage.
Q:Is there a shift back to steel from aluminum in the automotive sector, and what is the impact on operations?
A:Yes, there is a shift back to steel from aluminum, with meaningful volume increases. This shift is leading to the reactivation of previously idle lines, such as the electrogalvanizing line at New Carlyle. The automotive business remains profitable, and the shift is expected to improve the mix and margins.
Q:What is the impact of slab contract changes on EBITDA, and how do costs evolve in Q2 and Q3?
A:The slab contract changes are expected to result in a $100 million increase in revenue due to higher prices. Q2 costs are expected to rise by $15 per ton due to outages, richer product mix, and carryover impacts from Q1. Q3 costs are expected to decrease due to improved utilization, lower outages, and reduced energy and maintenance costs.
Q:What is the status of land sales, and what is the expected timeline for proceeds?
A:The company has received $70 million from asset sales this year and expects $50 million in Q2, $100 million in Q3, and the remainder in Q4, totaling $350 million in proceeds for the year.
Q:What is the outlook for the plate market and electrical steels?
A:The plate market remains strong, with the 160-inch mill fully utilized. Grain-oriented electrical steels are growing in production, while non-oriented electrical steels face challenges due to their primary use in electric vehicles.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the POSCO negotiations, citing changes in the external environment and emphasizing that there is no urgency to finalize a deal. Additionally, while discussing the impact of slab contract changes on EBITDA, management acknowledged the difficulty in pinpointing exact carryover impacts from Q1 to Q2.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Cleveland Cliffs
Cliffs client
POSCO
SGA
Stelco
Toyota
aluminum steel
area
basis
cash use
collection
company
competitiveness
completion
condition
disruption
electricity
employer
energy spike
gas
inch mill
infrastructure
job
labor agreement
lag month
leverage
month day
order
outage
planning
plate
power
pressure cost
process
project
schedule
strength
supply chain
timer
use period
weather
CLF Transcript
Cleveland-Cliffs Inc. (CLF) Q1 2026 Earnings Call Transcript
Positive4-20
The earnings call reveals strong financial performance with a significant year-over-year increase in EBITDA and improved shipments and selling prices, indicating a positive market environment. Although there are some cost pressures and uncertainties, such as rising fuel costs and ongoing negotiations with POSCO, the overall sentiment is positive due to strong demand, strategic partnerships, and operational improvements. Despite some risks, the positive outlook for automotive demand and strategic contracts support a positive stock price movement prediction.
Cleveland-Cliffs Inc. (CLF) Q4 2025 Earnings Call Transcript
Unknown2-9
The earnings call revealed mixed signals: positive automotive sector growth and strategic partnerships are offset by automotive market weakness and high debt levels. The Q&A highlighted unquantified risks and uncertainties, such as open capacity utilization. Financial metrics showed improvements, but cost pressures and delayed contract benefits persist. Overall, these factors balance out, suggesting limited short-term stock price movement.
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.
CLF Slides
CLF Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
