Cleveland-Cliffs Stock Plunges as Earnings Miss Estimates

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Cleveland-Cliffs

reported lower earnings than expected, news that sent the stock sharply lower Friday.

Before the market opened, the steel maker (ticker: CLF) reported second-quarter adjusted earnings per share of $1.31 from $6.3 billion in sales. Adjusted earnings before interest, taxes, deprecation or amortization came in at $1.1 billion.

It’s a little worse than Wall Street was looking for. Analysts projected EPS of $1.33 from $6.1 billion in sales. Ebitda was expected to be $1.2 billion.

Investors have reacted with disappointment. Shares were down almost 9% in late trading, while the

S&P 500
fell 1.3%. The

Dow Jones Industrial Average
dropped 0.8%.

In the first quarter of 2022, Cliffs reported EPS of almost $1.60 from sales of about $6 billion.

Benchmark steel prices averaged about $1,300 a ton in the second quarter of 2022 and $1,200 a ton in the first quarter, but prices have started to slide. They sit at about $920 a ton today.

Those are prices in the spot market, but Cliffs does a lot of its business with contract prices. The company expects to see some positive price improvements when some of its annual contracts reset in early October. “As we move into the second half of the year, we expect this healthy level of free cash flow to continue, as a result of declining capex needs, the accelerating release of working capital, and the heavy use of fixed price sales contracts,” said CEO Lourenco Goncalves in the company’s news release.

Wall Street expects Cliffs to generate about $1.5 billion in free cash flow in the second half of 2022 and about $2.8 billion for the full year. Cliffs’ market capitalization is only about $9 billion, giving the company a free cash flow yield of roughly 30% based on 2022 estimates.

The comparable free cash flow yield of the S&P 500 is roughly 5%. Cliffs stock looks cheap on that metric, but investors typically don’t award steel companies high valuations.

The economic outlook appears to be a bigger concern. Questions on the company’s earnings conference call reflected fears about higher costs and weakening demand.

Options markets implied the stock would move about 8% following the earnings report. Shares have gained or fallen roughly 6% following the past four quarterly reports.

Coming into Friday trading, Cliffs stock was down about 21% year to date, a little worse than the 16% and 12% comparable, respective returns of the

S&P 500
and

Dow Jones Industrial Average
.

Write to Al Root at [email protected]