The owners of Cleveland Cliffs (NYSE:CLF) stock suffered a minor blow when the company released its second-quarter earnings on July 22.
Although the firm, which sells rolled steel and iron ore, slightly missed analysts’ average estimates, it will remain relevant. As an American steel company, Cleveland Cliffs will continue to be central to the narrative around President Biden’s infrastructure plans.
Earnings Results
Earnings tracking website EarningsWhispers, reporting on Cleveland Cliffs’ recent earnings miss, stated: “Cleveland-Cliffs (CLF) reported 2nd Quarter June 2021 earnings of $1.46 per share on revenue of $5.0 billion. The consensus earnings estimate was $1.48 per share on revenue of $5.1 billion.”
Although Cleveland Cliffs didn’t perform quite as well as anticipated, it has improved significantly. The fact is that the company is producing and selling more steel than it did last year. In Q2 of this year, Cleveland Cliffs sold 584% more steel than in the same period of 2020.
Through the first half of this year, its results are even better. The company sold 811 tons of steel in the first half of 2020. That figure increased by 929%, rising to 8,349 tons of steel sold in the first half of 2021.
Cleveland Cliffs completed its acquisition of ArcelorMittal USA back in December. That acquisition made Cleveland Cliffs the largest flat-rolled steel producer in North America. The company is now a premier force in steel.
In the steelmaker’s Q2 earnings release, it stated: “In the second quarter of 2021 we achieved all-time quarterly records in revenue, net income, and adjusted EBITDA. The numbers unequivocally confirm our efficiency in operating the new footprint, resulting from the integration of the two major steel companies acquired in 2020 as a single and indivisible mining and steel company.”
But as a result of its acquisition of ArcelorMittal USA, debt is now an issue that those who have invested in CLF stock must pay keen attention to.
Cleveland Cliffs’ Debt
It doesn’t look like Cleveland Cliffs has done a great deal to extinguish the debt that it has taken on. At the end of December, the company had $5.39 billion of long-term debt on its balance sheet. That figure stood at $5.368 billion at the end of Q2 of 2021.
The company line is more optimistic, as Cleveland Cliffs says that it will pay off most of its debt relatively soon. Lourence Goncalves, its CEO, notes that the company is scheduled for “monumental debt reduction during the back half of this year, and the achievement of zero net debt in 2022.”
Cleveland Cliffs Has Potential
Cleveland Cliffs provided Q3 EBITDA guidance of $1.8 billion, and the company expects $1.4 billion of free cash flow. If the steelmaker meets its EBITDA guidance, its Q3 EBIDA would come in above the $1.36 billion that it recorded in Q2 and nearly meet the $1.873 billion of EBITDA that it generated during the first half of 2021.
And although the debate on the infrastructure bill rages on in Congress, it still looks poised to pass. If that is indeed the outcome, then the federal government will spend $600 billion on roads, bridges, and other infrastructure.
So, although Cleveland Cliffs didn’t do as well as many might have hoped in Q2, its future remains full of potential.
Since the company’s Q2 miss should keep the stock’s prices down for now, investing in CLF stock certainly makes sense. Although the shares still pose some risk, Cleveland Cliffs will probably emerge as a winner over the longer term.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
