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Cleveland-Cliffs Slumps on Earnings Miss, CEO Vows 'Monumental' Debt Reduction

"We are set for a monumental debt reduction during the back half of this year, and the achievement of zero net debt in 2022," said CEO Lourenco Goncalves.

Cleveland-Cliffs Inc.  (CLF) - Get Cleveland-Cliffs Inc Report shares slumped lower Thursday after the steelmaker posted softer-than-expected second quarter earnings even as shipment volumes and cost inputs continue to improve.

Cleveland-Cliffs said adjusted profits for the three months ending in June were pegged at $1.46 per share, a figure that surged well ahead of last year's tally of 28 cents but fell short of the Street consensus forecast of $1.52 per share. Group revenues, Cleveland-Cliffs said, rose nearly fourfold from last year to $5.05 billon, essentially matching analysts' estimates of a $5.01 billion tally.

Looking into the current quarter, Cleveland-Cliffs said it sees adjusted earnings of around $1.8 billion, compared to a consensus of around $1.9 billion, and free cash flow generation of around $1.4 billion, which CEO Lourenco Goncalves said will set up a "monumental debt reduction during the back half of this year."

"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," Goncalves said. "They also demonstrate our flawless execution in ramping up our state-of-the-art Direct Reduction plant in Toledo to the current level of production above nominal capacity.”

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“This quarter was also a clear illustration of our raw material cost and quality advantage over others in the industry, particularly the ones fully dependent on scarce prime scrap and dirty pig iron imported from polluting countries," he added. 

Cleveland-Cliffs shares were marked 6.6% lower in early Thursday trading to change hands at $19.80 each, a move that would still leave the stock with a year-to-date gain of around 36%.

"Looking ahead, we remain bullish on Cleveland-Cliffs as the company continues to optimize its large domestic steelmaking footprint and HBI asset and has brought a new commercial discipline to the integrated model," said Credit Suisse analyst Curt Woodworth, who carries an outperform rating with a $28 price target on the stock

"It’s important to note that Cleveland-Cliffs has significant upside potential across its contract portfolio, entering 2022 with ~30% of annual contracts set to reprice in 4Q-21, which were settled lower in the prior year period," he added.