Shares of Cleveland-Cliffs Inc. gave up a lot of ground July 22 after the steel maker’s leaders reported second-quarter earnings that missed analysts’ estimates but said they are upbeat about their ability to take advantage of a potential rebound in auto manufacturing.
Cleveland-Cliffs posted a profit of $601 million on revenues of $6.3 billion in the three months ended June 30 compared to $794 million and $5.0 billion, respectively, in the prior-year period. Net tons of steel shipped to customers fell 13% to 3,641 during the quarter. Operating income slipped to $840 million from nearly $1.1 billion as the company’s cost of goods sold climbed nearly 40%, outpacing its average net per-ton selling price by about seven percentage points.
Contributing to that cost-of-goods increase was an extended outage at one of Cleveland-Cliffs’ blast furnaces in Northeast Ohio, where the company took advantage of a chip-induced slowdown in vehicle production early this year to add to some previously scheduled maintenance repairs to the complex’s wastewater treatment plant and powerhouse.
In the company’s earnings release and conference call with analysts, Chairman, President and CEO Lourenco Goncalves steered the conversation to the auto sector’s budding bounceback from supply chain snarls – which he said includes a relative shift in semiconductor allocation from Europe to the United States. Barring an economic downturn that seriously stings the labor market, he said, consumer demand for cars is still there and will boost Cleveland-Cliffs’ results in the coming quarters.
“The orders are starting to come more consistently. […] Unexpected shutdowns are gone,” Goncalves said. “Things are really moving back where they should move.”
Looking ahead, Goncalves and his team also expect that contracts up for renewal in early fall will bring Cleveland-Cliffs “substantial increases” in price. Combined with in-line capital spending for at least the next two years – Goncalves ballparked it at $800 million for 2023 compared to $468 million in the first half of this year and $705 million in 2021 – cash flows are expected to stay high.
Investors didn’t fully buy into the auto rebound thesis July 22, however. In afternoon trading, Cleveland-Cliffs shares (Ticker: CLF) were changing hands at $15.70, down more than 8% from the previous day’s close on above-average volume. They are down nearly 30% year to date and more than 50% from their March highs, shrinking the company’s market capitalization to about $8.3 billion.
