Cleveland-Cliffs, a steel mill operator, is set to report its Q2 2024 results with revenue expected to be around $5.4 billion, a 12% decline from the previous year. Earnings are projected to be around $0.01 per share, breaking even from a small loss in the year-ago period. Total shipments in Q1 2024 were 3.94 million tons, down 3.5% compared to last year, while average selling prices improved to $1,175 per ton due to higher sales to the automotive industry. However, challenges remain due to weak demand in China’s property sector and mixed global market demand. The U.S. has also seen a cooling in GDP growth, potentially impacting steel volumes.
Despite little change in stock price, Cleveland-Cliffs has underperformed the S&P 500 over the past few years. The Trefis High Quality Portfolio, on the other hand, has consistently outperformed the index, providing better returns with less risk. Given the uncertain macroeconomic environment, there is a question of whether Cleveland-Cliffs will face a similar underperformance as in 2022 or see a strong jump in the next 12 months. Headwinds such as a cooling global economy and higher steel manufacturing capacity may impact pricing, but the company’s cost improvements and subdued capital spending outlook could provide some relief.
Cleveland-Cliffs is better positioned compared to other steel makers due to its vertical integration and minimal reliance on imported raw materials. The company has been cutting its leverage, with net debt declining to under $3 billion in the last quarter, meeting its target. Additionally, Cleveland-Cliffs has been aggressive with share repurchases, buying back a significant portion of outstanding shares during Q1. The company is valued at around $19 per share, which is 20% above the current market price. The valuation will be updated following the Q2 earnings report.
The steel industry, including Cleveland-Cliffs, faces challenges from a cooling global economy and increased manufacturing capacity in North America and Mexico. Despite these headwinds, Cleveland-Cliffs could benefit from cost improvements and a subdued capital spending outlook. The company’s vertical integration and low reliance on imported raw materials provide some insulation from geopolitical uncertainties. Additionally, Cleveland-Cliffs has been focused on reducing leverage and aggressive with share repurchases, which could support its stock value moving forward.
Overall, Cleveland-Cliffs’ upcoming Q2 earnings report will provide insights into how the company is navigating the current economic environment and its strategies for growth. Investors will be watching closely for updates on revenue, earnings, and cost efficiencies. As the company faces industry headwinds, its performance in Q2 and outlook for the rest of the year will be crucial in determining its stock value and potential for growth. For more information on Cleveland-Cliffs’ valuation and revenue streams, investors can refer to Trefis’ analysis for detailed insights.
