Cleveland-Cliffs Inc. (NYSE: CLF) saw its shares soar 28.6% for the week, closing Friday at $11.93 after an 8.9% gain on the day. The rally came as investors focused on the company's improving pricing power rather than a slight dip in shipment volumes.
Pricing Strength Outweighs Volume Decline
In the second quarter, Cleveland-Cliffs reported a 2.0% reduction in steel shipments to 4.025 million tons. However, the average selling price rose 7.3% to $1,124 per ton, pushing consolidated revenue up 6.2% to $5.226 billion from $4.922 billion in the prior quarter. The pricing improvement translated directly to the bottom line, with adjusted EBITDA climbing 201.1% to $286 million. Notably, 63% of the incremental revenue flowed through to adjusted EBITDA.
Third-Quarter Outlook Doubles Earnings
Management projected third-quarter adjusted EBITDA of approximately $575 million, more than double the second-quarter result. CEO Lourenco Goncalves stated, "Q3 adjusted EBITDA is expected to more than double Q2," and added that he anticipates fourth-quarter EBITDA will surpass the third-quarter guidance. The company maintained its full-year shipment outlook of 16.5 million to 17 million tons and kept capital expenditure guidance unchanged at around $700 million.
Cash Flow and Balance Sheet
Operating cash flow improved to $230 million, exceeding capital expenditures by $73 million. Long-term debt stood at $7.70 billion against cash of $70 million, with net interest expense of $156 million in the quarter. Management targets a debt-to-EBITDA ratio below 2.5 times by mid-2027, contingent on the earnings rebound converting into cash flow.
Analyst Reactions
The stock's surge narrowed the valuation gap with analysts' average price target of $12.10, just 1.4% above Friday's close. The median target is $11.50, and the consensus recommendation remains Hold. However, GLJ Research analyst Gordon Johnson upgraded Cliffs to Buy and raised his price target to $15.60 from $15.01, citing expected contract lags that should "do the heavy lifting from here."
Industry Context
Peer Steel Dynamics Inc. (NASDAQ: STLD) posted record second-quarter shipments of 3.7 million tons and adjusted EBITDA of $921 million, with CEO Mark Millett noting steel prices "continued to improve." Nucor Corp. (NYSE: NUE) is set to report after Monday's close, projecting adjusted earnings of $4.50 to $4.60 per share, up from $3.23 in the first quarter, driven by higher selling prices and steady volume.
Market Drivers and Risks
No new trade policy developments provided additional momentum for steel last week. Recently imposed forced-labor tariffs do not apply to steel currently subject to Section 232, leaving contract repricing as the primary driver for upcoming earnings. Risks include a potential downturn in steel prices, weaker automotive demand, and elevated debt that could limit flexibility. Missing volume or cost targets could hinder Cliffs' deleveraging plan. Following the 29% weekly rise, expectations are elevated, and the company must now deliver on the EBITDA improvement and convert it into debt reduction.
