Shares of Cleveland-Cliffs Inc. (NYSE:CLF) continued their upward momentum in early trading on Friday, advancing 6.8% to $11.70 by 9:54 a.m. EDT. The latest gains extended a two-day rally of 23.8%, reflecting investor optimism around the steelmaker's third-quarter profit outlook.
The company projects third-quarter adjusted EBITDA of approximately $575 million, a sequential increase of $289 million from the second quarter's $286 million. Management attributed nearly all of the expected improvement—96.7%—to changes in pricing and unit costs, with volume playing a relatively minor role.
According to the company's guidance, steel shipments are forecast to exceed 4.3 million tons in the third quarter, up from 4.025 million tons in Q2. The average selling price is expected to rise by roughly $55 per ton to approximately $1,179, while unit costs are seen declining by $10 per ton. At the projected shipment level, the price increase alone would contribute $236.5 million to EBITDA, while cost reductions would add another $43 million.
The profit bridge highlights a sharp turnaround from the first quarter, when adjusted EBITDA was just $95 million. In the second quarter, shipments actually declined by 2% sequentially, but a $76 per ton increase in selling prices drove a tripling of EBITDA. The pattern underscores the company's heavy reliance on steel pricing dynamics rather than volume growth.
Peer performance was mixed, with Nucor Corp. (NYSE:NUE) gaining 0.6% and Steel Dynamics Inc. (NASDAQ:STLD) edging down 0.1%, suggesting that Cleveland-Cliffs' move was driven by company-specific factors. The broader market context includes ongoing volatility in steel pricing, auto sector demand, and working capital fluctuations.
For the second quarter, Cleveland-Cliffs reported revenue of $5.23 billion but posted a GAAP net loss of $134 million. Operating cash flow was $230 million, and total liquidity stood at $3.1 billion. Chairman and CEO Lourenco Goncalves noted the company returned to positive free cash flow during the quarter and began reducing debt. However, the balance sheet remains under pressure: operations consumed $95 million in cash in the first half, capital expenditures totaled $309 million, and long-term debt increased by $450 million since year-end to $7.70 billion.
Wells Fargo (NYSE:WFC) raised its price target on Cleveland-Cliffs to $11 from $9 on Friday, maintaining a Market Perform rating. The stock was trading 6.4% above that target and 2.5% above the $11.42 analyst consensus. The revised target suggests limited upside from current levels, potentially reducing tolerance for any earnings disappointments.
Key risks include steel price volatility, auto sector demand trends, and working capital swings. Delays in planned property sales could also slow debt reduction. As shares trade above recently raised targets, the market's scrutiny of the company's ability to convert per-ton improvements into cash flow will intensify.
