- Reports record-high second-quarter sales volume of 6.2 million
long tons
- Records 6-year-high average pellet price realization of $113
per long ton
Cleveland-Cliffs Inc. (NYSE: CLF) today reported
second-quarter results for the period ended June 30, 2019.
The Company reported consolidated revenues of $743 million, a 4
percent increase compared to the prior year's second-quarter
consolidated revenues of $714 million. Cost of goods sold was $480
million compared to $430 million reported in the second quarter of
2018.
The Company recorded net income of $161 million, or $0.57 per
diluted share, which included a one-time $18 million loss on
extinguishment of debt related to the proactive refinancing
measures taken by the Company, equating to $0.06 per diluted share.
Excluding this non-recurring charge, earnings were $0.63 per
diluted share. This compares to net income of $165 million, or
$0.55 per diluted share recorded in the prior-year quarter.
For the six months ended June 30, 2019, net income was $139
million, compared to $81 million during the same period in
2018.
For the second quarter of 2019, the Company reported adjusted
EBITDA1 of $249 million.
(In Millions)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Adjusted EBITDA1
Mining and Pelletizing
$
280.5
$
301.3
$
328.0
$
378.4
Metallics
(1.1
)
(1.2
)
(1.9
)
(1.5
)
Corporate
(30.9
)
(24.4
)
(56.5
)
(48.9
)
Total Adjusted EBITDA1
$
248.5
$
275.7
$
269.6
$
328.0
During the second quarter, Cliffs repurchased 13 million common
shares at a cost of $129 million in the aggregate. Since the
initiation of the share repurchase program, the Company has
repurchased 30 million shares, resulting in a 10 percent reduction
in total common shares outstanding. As of June 30, 2019, Cliffs had
270 million shares outstanding.
Lourenco Goncalves, Cleveland-Cliffs' Chairman, President and
Chief Executive Officer, said, “The New Normal in the global iron
ore market has started to influence our results, offsetting weak
steel prices in the United States during the second quarter. While
the New Normal in iron ore is here to stay, the absurdly low prices
for steel in the United States are just a temporary thing, and we
should see higher steel prices going forward. On top of that, our
Toledo plant construction is ahead of schedule, and we now expect
to be producing HBI in less than one year." Mr. Goncalves
concluded, "It has become abundantly clear that the market
advantage has shifted favorably towards responsible producers of
environmentally friendly high-grade iron units, and only
environmentally responsible players such as Cleveland-Cliffs will
be rewarded by investors in the near future. Knowing that, we will
continue to center and expand our proven strategy around this
premise.”
Mining and Pelletizing
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Volumes - In
Thousands of Long Tons
Sales volume
6,227
5,968
7,777
7,579
Production volume
5,177
5,512
9,578
10,012
Sales Margin - In
Millions
Revenues from product sales and
services
$
747.2
$
714.3
$
904.2
$
894.3
Cost of goods sold
(482.6
)
(429.8
)
(608.7
)
(548.3
)
Sales margin
$
264.6
$
284.5
$
295.5
$
346.0
Sales Margin -
Per Long Ton
Revenues from product sales and
services*
$
112.64
$
112.60
$
108.89
$
110.99
Cash cost of goods sold rate2
67.00
62.32
65.99
61.20
Depreciation, depletion and
amortization
3.15
2.61
4.90
4.14
Cost of goods sold*
70.15
64.93
70.89
65.34
Sales margin
$
42.49
$
47.67
$
38.00
$
45.65
*Excludes revenues and expenses related to
domestic freight, which are offsetting and have no impact on sales
margin.
Mining and Pelletizing pellet sales volume in the second quarter
of 2019 was 6.2 million long tons, a 4 percent increase from the
prior-year quarter on strong customer demand. Due to the earlier
than expected completion of the Northshore plant upgrade,
production of DR-grade pellets began ahead of schedule and 40,000
tons of intercompany sales to the Toledo HBI plant were recognized
in the second quarter.
Realized revenues were $113 per long ton. When compared to the
prior-year period, higher iron ore prices and pellet premiums were
offset by lower hot-rolled coil steel (HRC) prices. The quarter's
results also included an unfavorable HRC price-related true-up of
previously sold volumes due to lower index pricing, compared to the
prior-year's second quarter, which included a favorable true-up
related to HRC.
Cash cost of goods sold rate2 was $67 per long ton, compared to
$62 per long ton in the prior year's second quarter. The increase
was driven by transportation and labor costs, along with higher
costs related to improved profitability outlook, including employee
profit sharing and higher royalties.
Outlook
2019 Outlook Summary
Per Long Ton Information
Mining and Pelletizing
Cost of goods sold rate
$74 - $79
Less:
Freight expense rate (A)
$8
Depreciation, depletion & amortization
rate
$4
Cash cost of goods sold rate2
$62 - $67
Sales volume (million long tons)
20
Production volume (million long tons)
20
(A) Freight has an offsetting amount in
revenue and has no impact on sales margin.
Mining and Pelletizing Outlook (Long Tons)
Based on the assumption that relevant pricing indices will
average for the remainder of 2019 their respective year-to-date
averages, Cliffs would expect to realize Mining and Pelletizing
revenue rates in the range of $109 to $114 per long ton, a $1 per
long ton increase versus the comparable range provided last
quarter.
For 2019, Cliffs maintained its full-year sales and production
volume expectation of 20 million long tons. Cliffs' full-year 2019
Mining and Pelletizing cash cost of goods sold rate2 expectation is
maintained at $62 to $67 per long ton.
Other Outlook
Cliffs' full-year 2019 SG&A expense expectation of $120
million is being maintained. Cliffs also notes that of the $120
million expectation, approximately $20 million is considered
non-cash. The Company's full-year 2019 net interest expense
expectation is maintained at $100 million. Full-year 2019
depreciation, depletion and amortization is expected to be
approximately $85 million.
The Company’s 2019 effective tax rate is expected to be
approximately 12-14 percent. Due to the Company's NOL position, its
cash tax payments are expected to be zero.
Cliffs now expects to reach commercial production at its Toledo
HBI plant ahead of schedule, in the first half of 2020. Due to the
advanced construction timeline and more certain visibility of the
start-up date, a portion of the budgeted contingency has been
allocated. As a result, Cliffs' 2019 total capital expenditures
expectation was revised to $650-$700 million. There is no change to
the base budget of the HBI project.
Conference Call Information
Cleveland-Cliffs Inc. will host a conference call this morning,
July 19, 2019, at 9 a.m. ET. The call will be broadcast live and
archived on Cliffs' website: www.clevelandcliffs.com.
About Cleveland-Cliffs Inc.
Founded in 1847, Cleveland-Cliffs Inc. is the largest and oldest
independent iron ore mining company in the United States. The
company is a major supplier of iron ore pellets to the North
American steel industry from our mines and pellet plants located in
Michigan and Minnesota. By 2020, Cliffs expects to be the sole
producer of hot briquetted iron (HBI) in the Great Lakes region
with the development of its first production plant in Toledo, Ohio.
Driven by the core values of safety, social, environmental and
capital stewardship, Cliffs' employees endeavor to provide all
stakeholders with operating and financial transparency. For more
information, visit http://www.clevelandcliffs.com.
Forward-Looking Statements
This report contains statements that constitute "forward-looking
statements" within the meaning of the federal securities laws. As a
general matter, forward-looking statements relate to anticipated
trends and expectations rather than historical matters.
Forward-looking statements are subject to uncertainties and factors
relating to our operations and business environment that are
difficult to predict and may be beyond our control. Such
uncertainties and factors may cause actual results to differ
materially from those expressed or implied by the forward-looking
statements. These statements speak only as of the date of this
report, and we undertake no ongoing obligation, other than that
imposed by law, to update these statements. Uncertainties and risk
factors that could affect our future performance and cause results
to differ from the forward-looking statements in this report
include, but are not limited to: uncertainty and weaknesses in
global economic conditions, including downward pressure on prices
caused by oversupply or imported products, reduced market demand
and risks related to U.S. government actions with respect to
Section 232 of the Trade Expansion Act (as amended by the Trade Act
of 1974), the United States-Mexico-Canada Agreement and/or other
trade agreements, treaties or policies; continued volatility of
iron ore and steel prices and other trends, which may impact the
price-adjustment calculations under our sales contracts; our
ability to successfully diversify our product mix and add new
customers beyond our traditional blast furnace clientele; our
ability to cost-effectively achieve planned production rates or
levels, including at our HBI plant; our ability to successfully
identify and consummate any strategic investments or development
projects, including our HBI plant; the impact of our customers
reducing their steel production due to increased market share of
steel produced using other methods or lighter-weight steel
alternatives; our actual economic iron ore reserves or reductions
in current mineral estimates, including whether any mineralized
material qualifies as a reserve; the outcome of any contractual
disputes with our customers, joint venture partners or significant
energy, material or service providers or any other litigation or
arbitration; problems or uncertainties with sales volume or mix,
productivity, tons mined, transportation, mine closure obligations,
environmental liabilities, employee-benefit costs and other risks
of the mining industry; impacts of existing and increasing
governmental regulation and related costs and liabilities,
including failure to receive or maintain required operating and
environmental permits, approvals, modifications or other
authorization of, or from, any governmental or regulatory entity
and costs related to implementing improvements to ensure compliance
with regulatory changes; our ability to maintain adequate
liquidity, our level of indebtedness and the availability of
capital could limit cash flow available to fund working capital,
planned capital expenditures, acquisitions and other general
corporate purposes or ongoing needs of our business; our ability to
continue to pay cash dividends, and the amount and timing of any
cash dividends; our ability to maintain appropriate relations with
unions and employees; the ability of our customers, joint venture
partners and third party service providers to meet their
obligations to us on a timely basis or at all; events or
circumstances that could impair or adversely impact the viability
of a mine or production plant and the carrying value of associated
assets, as well as any resulting impairment charges; uncertainties
associated with natural disasters, weather conditions,
unanticipated geological conditions, supply or price of energy,
equipment failures and other unexpected events; adverse changes in
interest rates and tax laws; and the potential existence of
significant deficiencies or material weakness in our internal
control over financial reporting.
For additional factors affecting the business of Cliffs, refer
to Part II – Item 1A. Risk Factors of our Annual Report on Form
10-K for the year ended December 31, 2018. You are urged to
carefully consider these risk factors.
FINANCIAL TABLES FOLLOW
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED OPERATIONS
(In Millions, Except Per Share
Amounts)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
REVENUES FROM PRODUCT SALES AND
SERVICES
Product
$
697.4
$
672.0
$
842.8
$
841.2
Freight
45.8
42.3
57.4
53.1
743.2
714.3
900.2
894.3
COST OF GOODS SOLD
(480.2
)
(429.8
)
(606.3
)
(548.3
)
SALES MARGIN
263.0
284.5
293.9
346.0
OTHER OPERATING EXPENSE
Selling, general and administrative
expenses
(30.6
)
(26.2
)
(58.7
)
(51.3
)
Miscellaneous – net
(5.6
)
(4.1
)
(9.2
)
(10.2
)
(36.2
)
(30.3
)
(67.9
)
(61.5
)
OPERATING INCOME
226.8
254.2
226.0
284.5
OTHER INCOME (EXPENSE)
Interest expense, net
(26.1
)
(31.2
)
(51.2
)
(63.6
)
Gain (loss) on extinguishment of debt
(17.9
)
0.2
(18.2
)
0.2
Other non-operating income
0.6
4.4
1.0
8.8
(43.4
)
(26.6
)
(68.4
)
(54.6
)
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
183.4
227.6
157.6
229.9
INCOME TAX BENEFIT (EXPENSE)
(22.0
)
1.8
(18.3
)
(13.9
)
INCOME FROM CONTINUING OPERATIONS
161.4
229.4
139.3
216.0
LOSS FROM DISCONTINUED OPERATIONS, NET OF
TAX
(0.6
)
(64.3
)
(0.6
)
(135.2
)
NET INCOME
$
160.8
$
165.1
$
138.7
$
80.8
EARNINGS (LOSS) PER COMMON SHARE –
BASIC
Continuing operations
$
0.59
$
0.77
$
0.49
$
0.73
Discontinued operations
—
(0.22
)
—
(0.46
)
$
0.59
$
0.55
$
0.49
$
0.27
EARNINGS (LOSS) PER COMMON SHARE –
DILUTED
Continuing operations
$
0.57
$
0.76
$
0.47
$
0.72
Discontinued operations
—
(0.21
)
—
(0.45
)
$
0.57
$
0.55
$
0.47
$
0.27
AVERAGE NUMBER OF SHARES (IN
THOUSANDS)
Basic
275,769
297,618
282,647
297,442
Diluted
285,479
301,275
293,580
301,143
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL POSITION
(In Millions)
June 30, 2019
December 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
377.2
$
823.2
Accounts receivable, net
193.1
226.7
Inventories
219.0
87.9
Supplies and other inventories
110.8
93.2
Derivative assets
118.3
91.5
Income tax receivable, current
58.7
117.3
Other current assets
42.3
39.8
TOTAL CURRENT ASSETS
1,119.4
1,479.6
PROPERTY, PLANT AND EQUIPMENT, NET
1,597.3
1,286.0
OTHER ASSETS
Deposits for property, plant and
equipment
52.2
83.0
Income tax receivable, non-current
62.7
121.3
Deferred income taxes
443.3
464.8
Other non-current assets
118.3
94.9
TOTAL OTHER ASSETS
676.5
764.0
TOTAL ASSETS
$
3,393.2
$
3,529.6
LIABILITIES
CURRENT LIABILITIES
Accounts payable
$
188.1
$
186.8
Accrued employment costs
58.4
74.0
Accrued interest
31.3
38.4
Partnership distribution payable
44.1
43.5
Other current liabilities
115.5
125.5
TOTAL CURRENT LIABILITIES
437.4
468.2
PENSION AND POSTEMPLOYMENT BENEFIT
LIABILITIES
239.3
248.7
ENVIRONMENTAL AND MINE CLOSURE
OBLIGATIONS
176.7
172.0
LONG-TERM DEBT
2,104.5
2,092.9
OTHER LIABILITIES
149.7
123.6
TOTAL LIABILITIES
3,107.6
3,105.4
EQUITY
TOTAL EQUITY
285.6
424.2
TOTAL LIABILITIES AND EQUITY
$
3,393.2
$
3,529.6
CLEVELAND-CLIFFS INC. AND
SUBSIDIARIES
STATEMENTS OF UNAUDITED
CONDENSED CONSOLIDATED CASH FLOWS
(In Millions)
Six Months Ended June
30,
2019
2018
OPERATING ACTIVITIES
Net income
$
138.7
$
80.8
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, depletion and
amortization
40.9
49.4
Loss (gain) on extinguishment of debt
18.2
(0.2
)
Gain on derivatives
(27.2
)
(123.5
)
Other
46.6
12.6
Changes in operating assets and
liabilities:
Receivables and other assets
127.8
61.8
Inventories
(131.1
)
(125.6
)
Payables, accrued expenses and other
liabilities
(62.8
)
(4.6
)
Net cash provided (used) by operating
activities
151.1
(49.3
)
INVESTING ACTIVITIES
Purchase of property, plant and
equipment
(294.4
)
(42.1
)
Deposits for property, plant and
equipment
(6.5
)
(72.3
)
Proceeds on sales of assets
—
14.6
Other investing activities
8.5
—
Net cash used by investing activities
(292.4
)
(99.8
)
FINANCING ACTIVITIES
Repurchase of common shares
(252.9
)
—
Dividends paid
(28.9
)
—
Proceeds from issuance of debt
720.9
—
Debt issuance costs
(6.8
)
(1.5
)
Repurchase of debt
(729.3
)
(15.3
)
Other financing activities
(10.9
)
(8.9
)
Net cash used by financing activities
(307.9
)
(25.7
)
EFFECT OF EXCHANGE RATE CHANGES ON
CASH
—
(1.0
)
DECREASE IN CASH AND CASH EQUIVALENTS,
INCLUDING CASH CLASSIFIED WITHIN OTHER CURRENT ASSETS RELATED TO
DISCONTINUED OPERATIONS
(449.2
)
(175.8
)
LESS: DECREASE IN CASH AND CASH
EQUIVALENTS FROM DISCONTINUED OPERATIONS, CLASSIFIED WITHIN OTHER
CURRENT ASSETS
(3.2
)
—
NET DECREASE IN CASH AND CASH
EQUIVALENTS
(446.0
)
(175.8
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
823.2
978.3
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
$
377.2
$
802.5
1 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION - EBITDA AND ADJUSTED EBITDA
In addition to the consolidated financial statements presented
in accordance with U.S. GAAP, the Company has presented EBITDA and
adjusted EBITDA on a consolidated basis. EBITDA and Adjusted EBITDA
are non-GAAP financial measures that management uses in evaluating
operating performance. The presentation of these measures is not
intended to be considered in isolation from, as a substitute for,
or as superior to, the financial information prepared and presented
in accordance with U.S. GAAP. The presentation of these measures
may be different from non-GAAP financial measures used by other
companies. A reconciliation of these consolidated measures to their
most directly comparable GAAP measures is provided in the table
below.
(In Millions)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Net income
$
160.8
$
165.1
$
138.7
$
80.8
Less:
Interest expense, net
(26.3
)
(32.3
)
(51.4
)
(65.8
)
Income tax benefit (expense)
(22.0
)
1.8
(18.3
)
(13.9
)
Depreciation, depletion and
amortization
(21.0
)
(25.5
)
(40.9
)
(49.4
)
EBITDA
$
230.1
$
221.1
$
249.3
$
209.9
Less:
Foreign exchange remeasurement
$
(0.1
)
$
(0.1
)
$
—
$
(0.5
)
Impact of discontinued operations
(0.4
)
(54.7
)
(0.4
)
(117.8
)
Gain (loss) on extinguishment of debt
(17.9
)
0.2
(18.2
)
0.2
Severance costs
—
—
(1.7
)
—
Adjusted EBITDA
$
248.5
$
275.7
$
269.6
$
328.0
2 CLEVELAND-CLIFFS INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION EXPLANATIONS
The Company presents cash cost of goods sold rate per
long/metric ton, which is a non-GAAP financial measure that
management uses in evaluating operating performance. Cliffs
believes the presentation of non-GAAP cash cost of goods sold is
useful to investors because it excludes depreciation, depletion and
amortization, which are non-cash, and freight, which has no impact
on sales margin, thus providing a more accurate view of the cash
outflows related to the sale of iron ore. The presentation of this
measure is not intended to be considered in isolation from, as a
substitute for, or as superior to, the financial information
prepared and presented in accordance with U.S. GAAP. The
presentation of this measure may be different from non-GAAP
financial measures used by other companies. Below is a
reconciliation in dollars of this non-GAAP financial measure to the
Mining and Pelletizing operating segment cost of goods sold.
(In Millions)
Mining and Pelletizing
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Cost of goods sold
$
482.6
$
429.8
$
608.7
$
548.3
Less:
Freight
45.8
42.3
57.4
53.1
Depreciation, depletion &
amortization
19.6
15.6
38.1
31.4
Cash cost of goods sold
$
417.2
$
371.9
$
513.2
$
463.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190719005043/en/
MEDIA CONTACT: Patricia Persico Director, Corporate
Communications (216) 694-5316
INVESTOR CONTACT: Paul Finan Director, Investor Relations
(216) 694-6544
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