News Summary

  • Steelmaker Cleveland-Cliffs said Thursday that its earnings recovery has begun to take shape, aided by favorable factors such as higher prices, lower costs, and increased shipments to the automotive industry.
  • The Cleveland-based company reported second-quarter adjusted EBITDA of $286 million, its best quarterly performance in the past two years. It also provided an optimistic outlook for the second half of the year, expecting third-quarter results to more than double as Section 232 tariffs and supply tightness continue to push steel prices higher.
  • The supplier to Toyota and General Motors restored positive free cash flow in the second quarter while navigating "maintenance outages and contract lags." Chairman and CEO Lourenco Goncalves said on Thursday's earnings call that the company also appointed CFO Celso Goncalves to the board and as president, marking the early stages of a father-son succession plan.

In-Depth Analysis

In the second quarter, the company shipped more than 4 million tons of steel, down 6% from the first quarter. Celso Goncalves said on the call that the decline was mainly attributed to maintenance outages and longer lead times due to improved automotive demand. The company expects third-quarter shipments to increase by 300,000 tons as more capacity comes online and prices and demand continue to improve.

Lourenco Goncalves noted that shipments to automotive customers in the quarter were the highest in the past two years, with finishing lines returning to healthy levels and coated steel production rebounding to highs not seen since 2023. Meanwhile, average steel selling prices rose to $1,124 per ton, up $76 from the first quarter.

"Section 232 is the most effective industrial policy implemented in this country in a generation," he said on the call. "Manufacturing is accelerating, domestic steel utilization is rising, and capital is flowing to domestic production rather than overseas production."

Cleveland-Cliffs is also seeing improvement in the Canadian market, which could benefit its Stelco division. Canada recently extended its tariff quota system until June 2027, but Goncalves said "more needs to be done" to protect its steel industry and prevent dumping by other countries.

The company's second-quarter revenue was $5.2 billion, up nearly 6% year over year. The majority of sales (about 30% each) came from downstream steel service centers, automotive customers, and infrastructure manufacturers (such as ships, rail lines, and heavy equipment), with the remaining 10% from other steel producers.

The company posted a net loss of $134 million for the quarter, narrowing from a loss of $473 million in the same period last year and a loss of $229 million in the first quarter.

Looking ahead, Cleveland-Cliffs expects third-quarter adjusted EBITDA of $575 million, which would be its highest quarterly level in the past three years. Celso Goncalves said average selling prices are expected to rise another $55 per ton, with prices potentially moving higher in the fourth quarter during the holiday lull.

He also mentioned that there will be opportunities in the coming months to reset many fixed-price contracts to higher levels, which could improve EBITDA by $500 million year over year.

Additionally, the company plans to overhaul its Middletown blast furnace in southwestern Ohio by 2030. Lourenco Goncalves hinted on the call that an announcement would be made in the coming weeks.

The CEO noted that based on backlog and price forecasts, second-half results will be "significantly better" than the first half.

He also acknowledged Celso Goncalves' promotion on Thursday, saying he has been an indispensable partner since joining the company in 2014. His son has served as CFO and executive vice president for the past five years.

"I'm not leaving anytime soon, and I plan to continue leading this company for many years with Celso as my right-hand man," Lourenco Goncalves said.