Chris Lau, Kapitall: Cliffs is cutting costs to keep up with falling ore prices, but is that enough to keep other mining stocks at bay?
[Read more from Kapitall: Rebound for Raw Materials: 4 Commodities Stocks to Consider]
While a large debt load and China's economic slow down once prompted a bearish outlook for the raw materials provider, investors will want to pay attention as to whether Cliffs will continue to turn around its business, or whether its debt will make it easier for its major competitors to dig in to the company's market share.As the chart below illustrates, Cliffs has had a noticeably robust month, even though raw materials have had a strong fall as a whole. Click on the interactive chart to see data for these mining companies over time. Cost cutting To adjust for weaker demand in iron ore, Cliffs is reducing its debt profile and reducing Selling, General & Administrative expenses. In its last quarter, iron ore sales dropped 4% to 6.3 million tons. The decline was due to a force majeure from one customer and the end of a contract with another. Cliffs still expects revenue per ton will be $110 to $115. For 2013, the company believes it will sell between 20-21 million tons of iron ore. Weaknesses Uncertainty for the Wabush location will weigh on Cliffs. The company will not know until closer to the end of the year what sales volumes to expect. At Bloom Lake, the sales level was flat, at 1.4 million tons. Asia Pacific Iron Ore sales dropped 8% to 2.8 million tons. Despite the weak quarter for Asia Pacific Iron Ore, Cliffs expects to sell between 10-11 million in 2014. Click on the interactive chart to see Cliffs price data over time. Earnings a bright spot Cliffs tripled its operating income. In aggregate, the company earned $1.1 billion so far EBITDA. A 17% increase in seaborne iron ore helped contribute to higher revenue. In its third quarter, Cliffs earned $104 million, or $0.66 per diluted share. This is up from $0.59 per share last year.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV