Cliffs Natural Resources Inc. (CLF) reported first-quarter 2014 net loss of $83 million, or 54 cents per share compared with a net income of $97 million or 66 cents per share in the year-ago quarter.
Barring income tax benefit of $22 million, loss was 68 cents per share, wider than the Zacks Consensus Estimate of a loss of 21 cents per share.
Sales for the quarter came in at $940 million, down 18% from $1,140.5 million in the prior-year quarter. It also missed the Zacks Consensus Estimate of $1,039 million. The decline was due to significantly lower market pricing for iron ore and metallurgical coal, and a 2% reduction in global iron ore sales volumes, most of which was weather related.
Segment Performance
U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 2.8 million tons in the first quarter, compared with 3.1 million tons in the year-ago quarter. The decline was due to the extremely cold weather seen across the Midwestern U.S., which impacted production and shipment of product on the Great Lakes.
Revenues per ton were down 9% year over year to $109.02 due to lower realized pricing from certain customer contracts, reduced year-over-year market pricing for iron ore and customer mix.
Cash cost per ton increased 9% year over year to $65.42 due to higher maintenance activity and energy costs, which rose due to bad weather.
Eastern Canadian Iron Ore: Sales volumes in the reported quarter decreased 14% year over year to 1.6 million tons. A Chinamax-sized vessel shipment was delayed due to the adverse weather-related impact on logistics, leading to the decline in sales.
Revenues per ton for the segment decreased 25% year over year to $98.45 due to a 19% decline in ore market pricing and unfavorable provisional pricing settlements that benefitted the prior-year quarter. A year-over-year rise of 23% in freight rates and product mix also adversely impacted the revenues.
Cash cost per ton rose 4% to $103.73 due to lower cost or market inventory adjustments of roughly $13 million or $8 per ton that are reported through cash cost of goods sold.
Asia Pacific Iron Ore: Sales volumes in the segment rose 15% to 2.6 million tons due to the timing of vessel shipments. Revenues per ton were $96.25, down 18% from $117.48 in the prior-year quarter, due to a 19% year-over-year decrease in iron ore market pricing, an unfavorable foreign exchange hedging loss of $4 per ton and increased freight rates.
Cash cost per ton in the segment fell 25% to $56.34 due to favorable foreign exchange rate variances. Increased sales volumes also led to improved fixed-cost leverage.
North American Coal: Sales volumes decreased 12% to 1.6 million tons, led by lower sales to certain customers due to extended pricing negotiations and unfavorable weather-related impacts. Revenues per ton decreased 20% to $88.61, due to lower market pricing for metallurgical coal products, coupled with positive impact in the prior year's first quarter related to tons that were priced at a higher rate.
Cash cost per ton was $100.38 compared with $91.16 per ton in the year-ago quarter.
Financial Position
Cliffs had $364 million in cash and cash equivalents as of Mar 31, 2014, compared with $287.2 million as of Mar 31, 2013. Long-term debt stood at $3,194.8 million as of Mar 31, 2014, compared with $3,433 million as of Mar 31, 2013.
Capital expenditures were reduced by 55% to $103 million in the first quarter and depreciation, depletion and amortization amounted to $141 million.
Cash used in operations was $ $82 million in the reported quarter compared with $25 million in the comparable quarter in 2013.
Outlook
Cliffs maintained its full-year sales and production volumes for all business segments. Demand from its North American customers remains strong, reflecting lower-than-normal iron ore inventory stockpiles at customers' facilities.
Cliffs expects the Chinese economy to expand at a pace near the official government target rate, mainly driven by fixed asset investment, especially infrastructure spending. As such, higher steel production in China will need both domestic and imported steelmaking raw materials to satisfy the demand. Cliffs expects a healthy pace of economic growth in the U.S. to support the company's U.S. Iron Ore products in 2014.
For full-year 2014, selling, general and administrative (SG&A) expenses are expected to be roughly $185 million, which excludes severance-related costs. Cliffs is also maintaining its full-year cash outflows expectation of $15 million for exploration.
Cliffs expects its full-year 2014 depreciation, depletion and amortization to be roughly $600 million. Cliffs reaffirmed its 2014 capital expenditures budget of approximately $375–$425 million.
U.S. Iron Ore Outlook
For full-year 2014, Cliffs expects sales and production volume to be between 22 million tons and 23 million tons. Cash-cost expectation is in the range of $65–$70 per ton. Depreciation, depletion and amortization for full-year 2014 are expected to be roughly $7 per ton.
Eastern Canadian Iron Ore Outlook
For full-year 2014, sales and production volume is reiterated to be between 6–7 million tons. Cliffs maintains its full-year 2014 cash cost per ton outlook to be $85–$90. Depreciation, depletion and amortization for full-year 2014 are expected to be roughly $25 per ton.
Asia Pacific Iron Ore Outlook
For 2014, Cliffs maintains its sales and production volume outlook to be between 10 and 11 million tons. The product mix is expected to be around half lump and half fines iron ore. Cash cost per ton is expected to be roughly $60–$65. Depreciation, depletion and amortization is anticipated to be about $14 per ton for the year.
North American Coal Outlook
For 2014, the company maintains its outlook of sales and production volume of about 7–8 million tons from its North American Coal business. Cliffs lowered its expectations for revenues-per-ton outlook to $80–$85 from its previous outlook of $85–$90. The decrease is primarily driven by lower market pricing for metallurgical coal products.
Cliffs reaffirmed its full-year cash-cost-per-ton expectation of $85–$90. Full-year 2014 depreciation, depletion and amortization is expected to be about $15 per ton.
Cliffs, a prominent mining company along with BHP Billiton Limited (BHP) and Rio Tinto plc (RIO), currently carries a Zacks Rank #3 (Hold).
Another company in the mining industry with a favorable Zacks Rank is Kumba iron Ore Ltd. (KIROY), carrying a Zacks Rank #1 (Strong Buy).
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