Cliffs Natural Resources Shareholders Should Expect More Of The Same This Earnings Season

Few stocks have been hit harder by collapsing commodities prices during the past year than Cliffs Natural Resources Inc CLF. With shares already down a staggering 82.5 percent over the past 12 months, do shareholders have any reason for optimism ahead of the company’s Q2 earnings report coming on July 29?

According to a new report by RBC Capital analyst Fraser Phillips, the market should expect more of the same from Cliffs and the slumping iron ore market.

Q/Q decline
Phillips is calling for a sharp quarter-over-quarter (Q/Q) earnings decline for Cliffs in Q2. RBC’s projected earnings per share (EPS) of -$0.24 for the quarter is well short of both Cliffs’ Q1 EPS of -$0.02 and Wall Street consensus Q2 EPS estimates of -$0.11. RBC’s most recent estimates are based on updated metal prices for the quarter.

Iron ore prices weak
Slumping iron ore prices are at the heart of UBS’s gloomy take on Cliffs. UBS is calling for a Q2 realized U.S. iron ore price of $80.51/t, down 13 percent Q/Q. According to Phillips, low ore prices combined with slightly higher unit costs likely reduced Cliffs’ sales margin per ton by 47 percent in Q2.

Deconsolidation
Eastern Canadian Iron Ore’s Wabush and Bloom Lake facilities have ceased production, and both facilities, along with North American Coal’s (NAC) facilities, are deconsolidated. UBS has included a -$0.04 per share loss to Cliffs’ earnings related to NAC’s operations.

Outlook
Phillips will be looking for an update from Cliffs management during the earnings call about the company’s strategy going forward. “We maintain our Sector Perform recommendation and $6.00 price target at this time and will review them following the Q2/15 results,” he adds.