| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3598 Registered: 05-2011 Posted From: 65.35.45.47 Rating: N/A |
CLF Cleveland-Cliffs is flat-rolling the competition; raises guidance for Q2 and FY21 (21.54 -0.58) Cleveland-Cliffs (CLF -2%), which today raised its adjusted EBITDA guidance for Q2 and FY21, is flat-rolling the competition. The upbeat guidance is further evidence that CLF's M&A activity over the past year is beginning to bear fruit more quickly than the company may have expected. In March 2020, CLF acquired AK Steel, and in December 2020, it closed on its purchase of ArcelorMittal USA. CLF has embarked on a remarkable transition, previously never producing steel before its AK Steel purchase and only mining iron ore, a key raw material used to make steel. By moving downstream with its acquisitions of two major US steelmakers, CLF has become the largest flat-rolled steel producer in North America. Flat-rolled steel is an important distinction; other producers make long products (beams, rail, wire, rods) while CLF focuses on flat-rolled products such as sheets and tin plates. In the end, what these deals tell us is that CLF is trying to consolidate the integrated producer side of the equation and use massive scale and cost savings to compete better with mini-mills like Steel Dynamics (STLD) and Nucor (NUE). Moving to Q2 guidance, CLF expects adjusted EBITDA of $1.3 bln, higher than previous guidance of $1.2 bln and above analysts' expectations. In the past, analysts may not have included ArcelorMittal USA in their estimates. However, we expect analysts' Q2 forecast to take into account the effect of the acquisition. The raised guidance comes after CLF merely reaffirmed Q2 EBITDA guidance (first issued in late March) during its Q1 earnings report in late April. Lastly, regarding FY21 guidance, CLF is raising adjusted EBITDA to $5.0 bln from $3.5-4.0 bln based on the conservative estimate that the US HRC index price will average $1,175 per net ton for the remainder of the year. Beyond the numbers, CLF says it sees a resilient steel pricing environment. Other steel producers such as NUE and STLD have recently shared similar sentiments. CLF noted in its Q1 presentation that stimulus money provided to the population is being spent on consumer goods such as appliances and cars, benefiting the steel industry. Also, flat-rolled steel spot prices have been improving, as customer inventory levels were deficient and demand has steadily improved. We noted back in January that, despite great numbers from CLF's upbeat Q4 guidance, we wanted to wait and see how CLF performs on a post-acquisition basis. On that note, in Q1, CLF pointed out that its new direct reduction plant, first operating in November 2020, in Toledo, OH already exceeded its expectations on Hot Briquetted Iron (HBI) production, which started in December 2020. CLF's original intent was to sell HBI to third-party customers. However, after the acquisitions, CLF started using most of the HBI for its blast furnaces. CLF notes that its HBI production has allowed it to stop purchasing prime scrap at current high prices, giving the company a critical differentiating factor from its competitors. Bottom line, through industry consolidation, CLF has streamlined its supply approach, and its raised Q2 and FY21 guidance illustrates that its initial results are better than expected. We like hearing CLF affirm what other steel producers have vocalized in regard to a robust steel market. The guidance also makes us optimistic that STLD and NUE may also offer good Q2 guidance. We are expecting both to offer Q2 guidance any day now, as each typically guides in the middle of the last month of quarters. |