CLEVELAND-CLIFFS INC. (CLF)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered a weak print: revenue $4.63B, diluted EPS -$1.00, adjusted EPS -$0.92, and adjusted EBITDA -$174M; management cited underperforming non-core assets and lagged pricing as primary drivers of the miss .
• Guidance improved on costs and opex: 2025 steel unit cost reductions raised to ~$50/ton (from ~$40), 2025 capex cut to ~$625M (from ~$700M), SG&A lowered to ~$600M (from ~$625M); D&A and cash pension/OPEB maintained .
• Strategic actions: six facility idles to exit rail/specialty plate/high-carbon sheet and reallocate tonnage (>$300M annual savings expected); restart Cleveland #6 offsets Dearborn hot-end idle; no impact to flat-rolled output .
• Medium-term catalyst: auto reshoring and expiration of the onerous AM/NS Calvert slab contract by year-end 2025; management expects ~$500M annualized EBITDA benefit starting 2026 .
• Liquidity is ample ($3.0B) with staggered maturities and $3.3B secured capacity; asset sale optionality (“several billion” potential) is under discussion to accelerate deleveraging .

What Went Well and What Went Wrong

What Went Well

• Raised cost reduction target and cut 2025 capex/SG&A: steel unit costs now expected down ~$50/ton YoY; 2025 capex guided to ~$625M and SG&A to ~$600M .
• Strategic portfolio repositioning underway with >$300M annual savings expected from idling non-core/loss-making assets; no impact expected to flat-rolled output .
• Clear plan to exit the negative-margin slab contract (AM/NS Calvert) at expiry, with management quantifying ~$500M annualized EBITDA uplift in 2026: “we expect to see a benefit of approximately $500 million in annualized EBITDA beginning in 2026” .

What Went Wrong

• Q1 profitability was “unacceptable” per management; adjusted EBITDA and cash flow came in worse-than-expected due to underperforming assets and lagged 2H24 pricing .
• Plate and cold-rolled realizations underperformed HRC correlation, muting ASP uplift; unit costs rose ~$15/ton driven by non-core assets .
• Negative margin exposure on slab contract and import pressure (e.g., rail) weighed on results; idling Steelton rail and other facilities reflects structural pressure from imports despite tariffs .

Financial Results

Non-GAAP adjustments (Q1 2025): idled facility employment charges ($41M), inventory step-up amortization ($7M), derivative fair value changes (-$9M), and other items; adjusted net loss improved to -$456M from GAAP -$495M .

Guidance Changes

Additional call color: Q2 ASP expected up ~$40/ton sequentially, with Q2 costs up ~$5/ton; shipments seen slightly up vs Q1 .

Earnings Call Themes & Trends

Management Commentary

• “Our first-quarter results were negatively impacted by underperforming non-core assets and the lagging effect of lower index prices in late 2024 and early 2025.” — Lourenco Goncalves (CEO) .
• “These actions will allow us to consolidate operations, withdraw from loss-making businesses, and deliver annualized savings exceeding $300 million… we expect no impact to our flat-rolled steel output.” — Lourenco Goncalves .
• “We expect to see a benefit of approximately $500 million in annualized EBITDA beginning in 2026, just by virtue of no longer having this onerous [Calvert slab] contract in place.” — Lourenco Goncalves .
• “Q1 price realization of $980 per net ton was only a slight improvement from Q4’s $976… underperformance of noncore assets largely drove an increase in our unit costs of $15 per ton.” — Celso Goncalves (CFO) .
• “We have approximately $3 billion in available liquidity and another $3.3 billion in secured capacity… we’ll deploy 100% of our cash flow generation towards debt reduction.” — Celso Goncalves .

Q&A Highlights

• $300M savings timing and breakdown: majority from Cleveland–Dearborn switch ($125M), Riverdale fixed costs ($90–$100M), Conshohocken ($45M), Steelton ($30M), Minorca/Hibbing ($20M); full impact in H2’25 due to WARN timing .
• Sequential Q2 cadence: costs up ~$5/ton but ASP up ~+$40/ton (quarterly lag +$200/ton; monthly lag +$100/ton; spot higher), implying EBITDA improvement vs Q1 .
• Shipments/mix: Q2 shipments “slightly up” vs Q1’s 4.14Mt; auto volumes increase; mix similar .
• Asset sales optionality: unsolicited interest across non-core assets with “several billion dollars” potential; proceeds would go to debt reduction; covenants manageable .
• Accounting/charges: Q2 noncash charges ~$300M (impairments/employment accruals); cash charges ~$15M; ongoing idle costs minimal (<$5M/year) .

Estimates Context

FY Consensus (context): FY 2025 revenue ~$18.95B*, EPS -$2.42*, EBITDA ~$147M*; FY 2026 revenue ~$20.32B*, EPS ~$0.29*, EBITDA ~$1.66B*.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

• Near-term setup: Q2 should see ASP improvement (~+$40/ton) with costs slightly higher (+$5/ton), pointing to sequential EBITDA improvement; H2’25 embeds full savings from idles (> $300M annual run-rate) .
• Structural reset: Exit of rail/specialty plate/high-carbon sheet and Dearborn hot-end realignment to Cleveland #6 should lower fixed costs and lift unit economics without sacrificing flat-rolled output .
• 2026 catalyst: Slab contract expiry (AM/NS Calvert) removes a material negative-margin headwind; management quantifies ~$500M annualized EBITDA uplift at current price levels .
• Auto exposure turning constructive: management has secured higher auto volume commitments as reshoring accelerates, targeting $250–$500M annual EBITDA benefit beginning H2’25 into 2026 .
• Capital discipline: 2025 capex trimmed to ~$625M and SG&A to ~$600M; DOE project scopes shifting to lower-cost footprints; Butler remains attractive; Weirton transformer project canceled .
• Balance sheet optionality: $3.0B liquidity and $3.3B secured capacity; asset sale pathways (“several billion” potential) could accelerate deleveraging amid limited maturities before 2027 .
• Risk monitor: import pressure and pricing dislocations (Brazil-linked slabs, rail) remain key variables; watch tariff enforcement and spread recovery in plate/cold-rolled .