Key Highlights

● Net earnings of about $165 million on $5.6 billion revenue reversed a second quarter loss.

● Adjusted EBITDA was about $612 million, up from about $286 million in the second quarter.

● Realized steel prices averaged about $1,177 per net ton, up from $1,124 last quarter.

● Fourth quarter adjusted EBITDA guidance is about $715 million, with leverage targeted below 2.5 times.

Cleveland-Cliffs (NYSE:CLF), the Cleveland-based flat-rolled steel producer, reported third quarter results on Monday, October 19, and the report has remained in focus this week as the broader metals sector updates the market. The company described the period as its strongest quarter in three years, with net earnings of about $165 million following a net loss in the second quarter and revenue of about $5.6 billion.

Behind the swing was a combination of higher realized steel prices, firmer shipments and cost actions. Average realized price per net ton rose to about $1,177, shipments increased, and adjusted EBITDA more than doubled from the second quarter. Management also gave fourth quarter guidance above the third quarter and a longer-range figure for 2027, together with a plan to reduce debt.

What Did Cleveland-Cliffs Report for the Third Quarter on October 19?

Cleveland-Cliffs reported third quarter revenue of about $5.6 billion, up from about $5.2 billion in the second quarter, according to its release filed with the Securities and Exchange Commission. Net earnings were about $165 million, of which about $152 million was attributable to the company's stock owners.

Diluted earnings per share were 26 cents on a reported basis and 28 cents on an adjusted basis, compared with a loss of 25 cents reported and 20 cents adjusted in the second quarter. Adjusted EBITDA was about $612 million, compared with about $286 million in the second quarter, and total EBITDA was about $618 million.

Management called the period its strongest quarter in three years and noted that adjusted EBITDA exceeded the roughly $575 million of guidance it had given three months before. Coverage of the release emphasized the swing to positive net earnings.

How Did Steel Prices and Shipments Drive the Cleveland-Cliffs Turnaround?

Steel shipments were roughly 4.2 million net tons for the quarter. The average realized price per net ton was about $1,177, compared with about $1,124 in the second quarter and about $1,032 in the third quarter of last year.

Higher price and volume together lifted revenue, and the price gain alone is worth roughly $50 per ton across more than 4 million tons, which accounts for a large share of the EBITDA improvement. Cash cost of goods sold was about $4.8 billion, or roughly $1,147 per net ton by arithmetic from the reported figures, which means the spread between price and cash cost widened.

The product mix was weighted toward hot-rolled steel at about 46% of shipments, followed by coated at about 31%, cold-rolled at about 15%, plate at about 4% and stainless and electrical steels at about 4%. A mix weighted to commodity-like hot-rolled products leaves the company more exposed to price swings than a mix weighted toward specialty grades.

Which End Markets Supplied the Cleveland-Cliffs Steelmaking Revenue?

The steelmaking segment generated revenue of about $5.4 billion in the quarter, with a cash margin of about $685 million and a gross margin of about $454 million after about $231 million of depreciation, depletion and amortization.

By end market, distributors and converters accounted for about $1.8 billion, or roughly 34% of steelmaking revenue. Automotive accounted for about $1.5 billion, or about 28%, and infrastructure and manufacturing for a similar amount at about 28%. Sales to other steel producers were about $532 million, or about 10%.

The automotive share is significant because Cleveland-Cliffs has long positioned itself as a major supplier of steel to carmakers, with contracts that reset on an annual basis. Management tied its 2027 guidance in part to contract changes, which means the automotive pricing cycle is an important driver for the longer-range numbers.

What Is the Cleveland-Cliffs Plan for Debt and Leverage?

Long-term debt was about $7.6 billion at September 30, compared with about $7.3 billion at the end of last year. Cash was only about $77 million, with total liquidity of about $3.2 billion, mostly from the company's asset-based credit facility.

Operating cash flow in the third quarter was about $224 million, capital expenditures were about $152 million, and the company repaid about $61 million on its credit facility. Management said it expects a major debt reduction in the fourth quarter and a leverage ratio of net debt to EBITDA below 2.5 times by the middle of next year.

The release did not describe exactly how the reduction would be funded. Because debt is high relative to cash, the company is sensitive to interest costs and to the steel price cycle. The leverage goal is management's stated aim rather than an outcome, and it depends on the earnings path that guidance describes.

What Did Cleveland-Cliffs Guide for the Fourth Quarter and for Next Year?

For the fourth quarter, management guided adjusted EBITDA to about $715 million, higher than the third quarter, citing higher pricing, partly offset by seasonality, maintenance outages, input costs and incentive accruals. The reference to maintenance outages and seasonality indicates that volumes may not rise as much as price.

For 2027, the company said it expects adjusted EBITDA to exceed $4 billion, based on contract changes and price assumptions. That figure is far above the third quarter annualized rate of about $2.5 billion, so the guidance depends on a meaningful further rise in realized prices or volumes, or both.

These are management's expectations and not results. The distance between the current run rate and the 2027 figure is the main uncertainty for the longer view, and it will be tested as contract negotiations conclude and as steel prices evolve. Market participants will be watching the next quarterly report for updates on both the fourth quarter and the contract outcomes.

How Is Stelco Contributing to Cleveland-Cliffs Results?

Stelco, the Canadian steelmaker that Cleveland-Cliffs acquired, turned into a positive EBITDA contributor in the third quarter, according to the release. That is a reversal for a business unit that had weighed on earlier results.

At the same time, the company said the galvanizing lines at Stelco were idled indefinitely because the galvanized market is oversupplied, while hot-rolled production is being maintained. Management said this approach preserves about 2,000 Canadian jobs. The decision reveals the company's willingness to shut specific lines when margins do not support them, while keeping the facility's core operations running.

The Canadian operations are exposed to cross-border trade measures and to market conditions in North America, which can change from quarter to quarter. A positive contribution in one quarter does not guarantee a similar result in the next, and the idled lines represent capacity the company could restart if market conditions change.

How Does the Trade Backdrop Affect Cleveland-Cliffs Pricing?

Management said in the release that imports remain well below historical levels and that lead times are extended. Both statements describe a market in which domestic mills have pricing leverage, because customers face longer waits and fewer import alternatives.

This backdrop is a primary reason for the higher average price of about $1,177 per ton. If imports were to rise again because of changes in trade measures or demand abroad, domestic prices could soften and the guidance would be harder to meet.

The company did not quantify the trade effect, so the effect on any specific line of the earnings statement cannot be isolated. What can be said is that the company itself links its recent pricing strength to the import environment, and that its 2027 guidance assumes continued price support.

What Questions Remain for Cleveland-Cliffs After the October 19 Report?

Open questions include whether realized prices can keep rising enough to support the fourth quarter guidance, how contract resets will turn out for the automotive segment, and how the debt reduction will be funded. Another is whether the idled Stelco lines resume operation, and under what conditions.

There are also uncertainties around input costs, maintenance outages and incentive accruals that management itself flagged. The size of the step from the current quarterly run rate to the 2027 EBITDA figure is wide, and it depends on factors outside the company's control.

The next quarterly report will show how the fourth quarter guidance compared with the result and whether the leverage plan is on track.