Shares of Cleveland-Cliffs Inc (NYSE: CLF) fell a painful 16.6% last month. Although there were declines across the entire month, the biggest drop came after the iron ore miner reported earnings on Oct. 20. From that day to the end of the month Cleveland-Cliffs' stock fell 15.1%.
The headline number earnings wise wasn't bad, with Cleveland-Cliffs reporting earnings of $0.18 a share in the third quarter, up from a loss of $0.12 in the year earlier period. That was driven largely by improved prices and volume for iron ore in its domestic business. Sales margin per ton more than doubled in this segment, year over year. The miner also continued to pay down debt in the quarter, further shoring up a balance sheet that, at one time, had investors worried about the company's solvency.
The reason the shares tanked, however, had more to do with Cleveland-Cliffs' Asian operations. This business saw reduced volumes and only slightly higher pricing. Lower volumes pushed costs up, and, all in, led the sales margin per ton in the Asian segment to decline by a huge 80% year over year. A big turnaround doesn't seem likely in the near term.
The larger impact of this appears to be investor concerns about Cleveland-Cliffs' ability to meet its mid-year EBITDA guidance. As Motley Fool's Tyler Crowe recently explained , achieving guidance would now require a huge iron ore price spike since management has reduced its full-year volume projections by a million tons. Meeting that guidance is possible, but don't hold your breath.
Cleveland-Cliffs' weak October stock performance and the poor showing in its Asian business obscure some important progress that's been made. For example, the company's debt to EBITDA ratio has fallen from over 12 in 2016 to around 3.4 today. Long-term debt, meanwhile, has been cut in half over the last five years. This is a very different company today than it was just a few years ago.
Sure, results are tough in Asia, but Cleveland-Cliffs appears financially capable of dealing with that today, which isn't something that could have been said when debt to EBITDA spiked to over 37 times in 2013. While most investors are probably better off investing in a more diversified miner than Cleveland-Cliffs, there are still good things going on here of which aggressive types should take note despite the stock's poor showing in October.
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