Cliffs Natural Resources Inc. (CLF) slashed its full-year 2012 production volume at the company's Empire mine in Michigan by approximately 50% as a steelmaking customer is shutting a blast furnace for maintenance.
The production at the Michigan site is now expected to be approximately 2.7 million tons, down from full-year 2011's expected production volume of approximately 4.6 million tons. However, this reduction in production volume is not expected to impact the company's previously announced sales and production volumes of 23 million tons in its U.S. Iron Ore business segment.
As per the company, this curtailment of production may affect 600 employees in its Michigan operations, beginning in the second quarter of 2012, but believes the production slowdown "will be temporary."
In October, Cliffs posted net earnings of $590 million or $4.07 per share in the third quarter of 2011, up 100% from last year’s $297 million or $2.18 per share. Earnings surpassed the Zacks Consensus Estimate of $3.67 per share.
Quarterly revenues came in at a record $2.1 billion, up 59% year over year. The increase was driven by higher pricing and sales volumes in the company's iron ore segments, along with incremental sales from Cliffs' recently acquired Bloom Lake operations in Eastern Canada.
Looking ahead, Cliffs anticipates stagnant to only modest growth in the U.S. economy. However, the company indicated that the current level of U.S. economic growth should sustain a healthy U.S. business for Cliffs. In Asia, historically high year-over-year crude steel production and iron ore imports should continue to support demand for Cliffs' products across the company's iron ore segments exposed to the seaborne market.
Cliffs' full-year 2011 SG&A expense expectation is approximately $290 million, including roughly $35 million related to Sonoma Coal partner profit sharing and about $25 million in non-recurring acquisition costs resulting from the Consolidated Thompson acquisition.
The company expects to incur cash outflows of approximately $85 million to support future growth, comprising approximately $40 million related to its global exploration activities and approximately $45 million related to its chromite project in Ontario, Canada.
As a result of the benefits of tax planning and discrete items described above, Cliffs at present anticipates full-year effective tax rate of approximately 18% for 2011, down from its previous expectation of 26%. Cliffs decreased its expectation for full-year 2011 depreciation, depletion and amortization to approximately $420 million from its previous expectation of $440 million.
For 2011, based on the above outlook, Cliffs would generate an anticipated $2.2 billion in cash from operations.
Cliffs also decreased its 2011 capital expenditures budget to approximately $900 million from its previous estimate of approximately $1 billion. The decrease is driven by an adjustment in timing of capital spending on certain growth projects. Cliffs indicated the revised capital expenditure expectation consists of approximately $300 million in sustaining capital and $600 million in growth and expansion capital.
Cliffs faces stiff competition from CONSOL Energy Inc. (CNX) and Peabody Energy Corp. (BTU).
We maintain our Neutral recommendation on Cliff with a short-term Zacks #3 Rank (Hold) on the stock.
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