Cliffs Natural (CLF) Q2 Earnings, Revenues Top Estimates

Cliffs Natural Resources Inc.’s (NYSE:CLF) net income from continuing operations for second-quarter 2016 was $30 million, as against net loss from continuing operations of $38 million.

Cliffs recorded earnings (attributable to Cliffs shareholders) from continuing operations of 7 cents per share, versus a net loss (attributable to Cliffs shareholders) from continuing operations of 28 cents per share recorded in the year-ago quarter. Adjusted earnings came in at 6 cents per share, topping the Zacks Consensus Estimate of 2 cents.

Sales for the quarter came in at $496.2 million, down 0.4% from $498.1 million in the prior-year quarter. Sales, however, exceeded the Zacks Consensus Estimate of $437 million.

Segment Performance

U.S. Iron Ore: U.S. Iron Ore pellet sales volume was 4.1 million long tons in the second quarter, compared with 4.2 million tons in the year-ago quarter. The decline was mainly due to termination of a customer contract primarily offset by a new customer arrangement.

Revenues per ton went down 0.7% year over year to $77.81. Cash production cost per ton decreased 17% year over year to $46.32 in the reported quarter due to efficiencies gained from improved maintenance practices involving condition-based monitoring, lower diesel fuel and natural gas rates, and lower employee-related costs.

Asia Pacific Iron Ore: Sales volumes in the segment declined 13% year over year to 3.1 million metric tons.

Revenues per ton were $41.96, down around 5.3% from $44.29 in the prior-year quarter. Cash production cost per ton was $28.46, down 17% from the year-ago quarter. The decrease was due to lower mining and haulage costs, reduced headcount and softer site administrative expenses.

Financial Position

Cliffs had $108.2 million of cash and cash equivalents as of Jun 30, 2016, compared with $276.2 million as of Jun 30, 2015. Long-term debt was at $2,489.7 million as of Jun 30, 2016, compared with $2887.4 million as of Jun 30, 2015.

Capital expenditure was $10 million for the second quarter, representing a year-over-year reduction of 47%. Depreciation, depletion and amortization was $27 million in the quarter.

During the second quarter, Cliffs received $31 million in cash as part of a long-term purchased power arrangement with Minnesota Power. The company also paid off the remaining balance of the outstanding equipment loans of $23 million during the quarter.

Outlook

For 2016, Cliffs reiterated its selling, general and administrative (SG&A) expenses at $100 million.

Cliffs anticipates 2016 capital expenditures to be $75 million including roughly $25 million required to produce a specialized, super-flux pellet called Mustang at United Taconite to meet a customer's pellet specification needs.

The company lowered its full-year 2016 interest expense expectation to around $200 million, from its previous guidance of $220 million, due to several liability management activities that were executed during the first half of the year. Of the $200 million expectation, roughly $170 million is considered cash and $30 million is considered non-cash.

Total depreciation, depletion and amortization for 2016 are expected to be about $120 million.

U.S. Iron Ore Outlook

For 2016, Cliffs raised its sales volume expectation to 18 million long tons from its previous expectation of 17.5 million long tons as a result of additional sales to U.S. Steel Canada. Further, the company's 2016 production volume guidance was enhanced by 500,000 long tons to 16.5 million long tons.

Asia Pacific Iron Ore Outlook

For 2016, Cliffs reaffirmed its sales and production volume expectation of roughly 11.5 million tons for the Asia Pacific Iron Ore operation.

Zacks Rank

Cliffs currently carries a Zacks Rank #3 (Hold).

Some better-ranked companies in the mining space include AngloGold Ashanti Ltd. (NYSE:AU) , Kumba Iron Ore Ltd. (OTC:KIROY) and Fortescue Metal (OTC:FSUGY) . While AngloGold Ashanti carries a Zacks Rank #1 (Strong Buy), Kumba Iron Ore and Fortescue Metal hold a Zacks Rank #2 (Buy).

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