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Cliffs Natural (CLF) Q4 Earnings: Stock Poised to Beat?

Cliffs Natural Resources, Inc.CLF is scheduled to release fourth-quarter 2016 results before the opening bell on Feb 9. Last quarter, this mining company delivered a negative earnings surprise of 110.53%.

Cliffs surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive surprise of 55.4%.

Let's see how things are shaping up prior to this announcement.

Factors to Consider

Cliffs has outperformed the Zacks categorized Mining-Iron industry over the past year. The company's shares have gained around 375.7% over this period, compared with roughly 287.4% gain recorded by the industry.

Cliffs is boosting its mining and transportation capacity globally. The company has also implemented a strategic capital allocation plan to ensure optimum utilization of cash. Cliffs should gain from its pellet supply contracts with its U.S. iron ore customers. The company is also expected to benefit from improved iron ore prices in the December quarter.

Moreover, Cliffs is focusing on cost management, reflected by a decline in overall cash costs for the first nine months of 2016. The company's cash costs for the U.S. operation fell roughly 6% year over year to $57.89 per long ton. A roughly 13% year over year decline in cash cost was also witnessed in its Asia Pacific operation for the period. The company's cost initiatives are also expected to support its earnings in the fourth quarter.

Cliffs should also gain from its supply deals with other companies. The company, last year, cut a 10-year iron ore pellet supply agreement with ArcelorMittal USA LLC, part of ArcelorMittal MT . The contract ensures that Cliffs will remain ArcelorMittal USA's sole outside iron ore pellet supplier until 2026.

The new contract allows Cliffs to supply up to 10 million long tons of pellets to ArcelorMittal USA. The mutually beneficial agreement reinforces a strong business relation between the two companies.

The company also entered into a contract with U.S. Steel Canada to supply iron ore pellets. Based on this contract, Cliffs raised its U.S. sales volume guidance for full-year 2016 to 18 million long tons from the earlier forecast of 17.5 million long tons.

Cliffs also remains focused on deleveraging its balance sheet. The company's long-term debt reduced roughly 19% year over year to $2.2 billion at the end of third-quarter 2016. The company redeemed all of its outstanding senior notes due in Jan 2018 in the third quarter, reducing its interest expense by $17 million a year. Cliffs' sustained commitment to reduced debt will further lower its interest expenses, which would lend support to its earnings.

Cliffs Natural Resources Inc. Price and EPS Surprise

Cliffs Natural Resources Inc. Price and EPS Surprise | Cliffs Natural Resources Inc. Quote

Earnings Whispers

Our proven model shows that Cliffs is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Cliffs is +26.09% as the Most Accurate Estimate stands at 29 cents while the Zacks Consensus Estimate is pegged at 23 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Cliffs currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 or 3 have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Cliffs' Zacks Rank #2 and positive ESP makes us reasonably confident of an earnings beat.

Stocks That Warrant a Look

Here are some other companies in the basic materials sector that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Albemarle Corporation ALB has Earnings ESP of +2.67% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Kraton Corporation KRA has Earnings ESP of +3.23% and carries a Zacks Rank #2.

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Albemarle Corporation (ALB): Free Stock Analysis Report

Kraton Corporation (KRA): Free Stock Analysis Report

Cliffs Natural Resources Inc. (CLF): Free Stock Analysis Report

ArcelorMittal (MT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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