Cleveland-Cliffs Inc. — Q1 2024 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2024, compared with the same period in 2023. Cleveland-Cliffs is a vertically integrated North American steel and iron ore producer; Steelmaking is its sole reportable segment. The company reported approximately 28,000 employees.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $5.199 billion | $5.295 billion |
| Gross margin | $285 million (5.5% of revenue) | $99 million (1.9% of revenue) |
| Operating loss | $38 million | $31 million |
| Net loss attributable to Cliffs shareholders | $67 million | $57 million |
| Diluted loss per share | $0.14 | $0.11 |
| Adjusted EBITDA (non-GAAP) | $414 million | $243 million |
| Cash from operating activities | $142 million | $(39) million |
| Free cash flow (non-GAAP) | $(40) million | $(227) million |
- Revenue declined about 2%; steel shipments fell 4% to 3.94 million net tons. Steelmaking revenue fell 2%, while segment Adjusted EBITDA increased to $395 million from $240 million.
- Higher selling prices—about $200 million of gross-margin benefit—more than offset an estimated $60 million impact from lower sales volume. Average domestic hot-rolled coil prices were $941 per net ton, up 8% year over year.
- Cash from operations improved by $181 million year over year. Free cash flow remained negative after $182 million of capital spending.
- At March 31, cash was $30 million; long-term debt was $3.664 billion, or $3.719 billion principal, and net debt was $3.634 billion. Net debt was $2.939 billion at December 31, 2023. Liquidity was $4.03 billion, including $4.00 billion of ABL borrowing capacity; the company said it was compliant with facility covenants.
- Total assets were $17.236 billion and total liabilities were $9.794 billion at quarter-end.
Material changes and unusual items
- The announced indefinite idling of the Weirton, West Virginia tinplate plant generated $104 million of restructuring and other charges and $64 million of asset impairments in Q1. Idling occurred in April. The company attributed the decision to the U.S. International Trade Commission’s rejection of proposed trade remedies on tin mill imports. The plant historically produced about 300,000 net tons annually, roughly 2% of steel sales volumes.
- In March, the company issued $825 million of 7.000% senior notes due 2032 and used part of the proceeds to repurchase $640 million principal amount of 6.750% 2026 secured notes, recording a $21 million extinguishment loss. It redeemed the remaining $189 million of 2026 notes on April 3, using remaining proceeds and available liquidity; after that redemption, it said no secured notes remained outstanding.
- The company repurchased 30.4 million shares for $608 million during Q1, completing its prior $1 billion authorization. On April 22, the board authorized a new repurchase program of up to $1.5 billion.
- Asset retirement obligations increased to $510 million from $459 million at year-end, including a $48 million revision in estimated cash flows associated with the Weirton idling.
Outlook, commentary and risks
- Management expects domestic steel demand to grow, citing continued automotive strength, healthy end-user demand and infrastructure, semiconductor and clean-energy investment. It estimated 2024 North American light-vehicle production would exceed 16 million units.
- Management expects $675 million to $725 million of cash capital expenditures over the next 12 months. It stated a target of keeping net debt below 2.5 times trailing-twelve-month Adjusted EBITDA and expects liquidity and capital-market access to fund requirements for the next 12 months and foreseeable future.
- The company estimated an 18% 2024 annual effective tax rate before discrete items as of March 31.
- The Department of Energy selected the company for award negotiations for up to $575 million for two decarbonization projects. Funding is not stated as finalized; if awarded, management anticipates annual cost savings and yield improvements exceeding $500 million.
- Management cited steel-market cyclicality, volatile steel and input prices, elevated imports, reliance on automotive demand, supply and energy concentration, environmental obligations, and execution and funding risks. It also noted that $149 million of net hedge losses were expected to be reclassified from AOCI to cost of goods sold over the following 12 months.
Important facts for investors to verify
- Whether steel prices, shipment volumes and automotive demand support the expected improvement in margins and demand.
- The cash-flow and balance-sheet effects of the Weirton idling, associated remediation obligations and restructuring costs.
- Post-April 3 debt balances, interest expense and liquidity following the 2026-note redemption, and the effect of further share repurchases on leverage.
- Whether DOE funding is awarded, and the timing, cost, savings and execution assumptions for the proposed decarbonization projects.
- Whether commodity hedge losses, raw-material and energy prices, import levels, or environmental and legal matters materially affect results.