Why Cleveland-Cliffs Stock Plunged After Earnings

Cleveland-Cliffs (NYSE: CLF) stock reported a loss last night that was much worse than anticipated, sending its stock tumbling in early trading Thursday, down 16.2% through 10:35 a.m. ET.

Analysts expected the steelmaker to lose $0.83 per share, but Cleveland-Cliffs actually lost $0.92. Operating revenue was $4.5 billion, not the $4.6 billion Wall Street wanted.

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Cleveland-Cliffs Q1 earnings

Not all the news was bad. Consolidated revenue was $4.6 billion, up sequentially. Still, even this number fell 11.5% year over year.

When calculated according to generally accepted accounting principles (GAAP), not adjusted for one-time items, the quarterly loss was actually $1 per share, not $0.92. This was six times worse than last year's Q1 earnings.

Is Cleveland-Cliffs stock a buy?

These probably aren't the results investors were looking for from a steelmaker ostensibly benefiting from President Donald Trump's tariffs on steel imports. Still, those tariffs hadn't fully kicked in by the time Q1 had ended, and things could improve.

Cleveland-Cliffs is also cutting costs to become more competitive, idling six plants "to optimize its footprint, reposition away from loss-making operations, and release excess working capital" -- and save $300 million a year. Management forecasts steel production costs will fall by $50 per ton this year, better than its earlier $40 prediction. Capital spending is also going down, to $625 million this year.

Management didn't give hard numbers for earnings guidance, however, and it's currently burning more than $1 billion a year and reporting even bigger GAAP losses. Tariff relief might help with that. This is a cyclical business, after all, where good times can quickly follow bad.

Still, it's hard to recommend buying into an unprofitable steelmaker. For the time being, I'm not going to do that.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.