Cleveland-Cliffs Q4 Profit Rises 34%; Revenue Up 43% - Update

(RTTNews) - Thursday evening, mining company Cleveland-Cliffs Inc. (CLF | news | PowerRating | PR Charts ) reported a 34% increase in profit for the fourth quarter, buoyed by higher revenue and sales margin at the company's North American Iron Ore segment. Looking ahead, the company provided production and sales outlook for its iron ore as well as coal segments for fiscal year 2008.

Fourth Quarter Results

The Cleveland, Ohio-based company's net income for the fourth quarter increased to $93.7 million, or $1.77 per share from $70.0 million, or $1.33 per share in the previous-year period. On average, four analysts polled by First Call/Thomson Financial expected earnings of $1.66 per share for the quarter.

Income applicable to common shares for the quarter increased to $92.7 million from $68.6 million in the prior-year period.

Revenue for the latest quarter surged 43% to $782.5 million from $549.0 million in the year-ago quarter. Analysts expected revenue of $768.00 million for the quarter.

The increase in revenue for the quarter was driven by a $180 million increase in revenue from the company's North American Iron Ore segment and $51 million in sales generated by its North American Coal Segment acquired during 2007.

Operating income for the quarter rose 52% to $138.9 million from $91.2 million in the prior-year as a result of higher sales margin at the company's North American iron ore segment, partially offset by higher selling, general and administrative expenses and a negative sales margin in its North American Coal Segment. Product revenues rose to $714.1 million from $488.2 million in the previous-year quarter. Freight and venture partners' cost reimbursements were recorded at $68.4 million, up from $60.8 million a year ago.

Sales margin for the quarter climbed to $163.3 million from $97.4 million in the prior-year period. Royalty and management fee revenue for the quarter increased to $4.2 million from $3.1 million in the previous-year quarter. Selling, general and administrative expenses for the latest quarter increased to $40.6 million from $24.5 million a year ago.

The company's income from continuing operations for the quarter increased to $93.5 million, or $1.77 per share from $70.0 million, or $1.33 per share in the comparable period of the prior year.

Joseph Carrabba, Chairman, President and CEO of Cleveland-Cliffs said, "In the fourth quarter, our North American Iron Ore team delivered a record performance. In addition, at our North American Coal mines, integration efforts to implement Cliffs' proven production methodologies and processes are on track. This includes our recovery from the unanticipated geology at our Pinnacle Mine, which negatively impacted third-quarter results and carried over to the beginning of the fourth quarter."

North America Iron Ore

North American Iron Ore pellet sales volume for the quarter increased 37% to 8.27 million tons from 6.04 million tons sold in the year-ago quarter, which the company attributed to additional shipments of iron ore in the fourth quarter that had been postponed in the third quarter due to relining performed on two customers' blast furnaces. This, combined with customers' minimum purchase obligations, resulted in the higher sales tonnage.

Revenues from iron ore sales and services rose to $617.5 million from $437.4 million in the prior-year period, while sales margin more than doubled to $154.3 million from $71.6 million in the year-ago quarter.

North American Iron Ore revenues per ton during the quarter increased 6% to $66.42 from $62.43 in the prior-year period, while costs per ton for the quarter declined 6% to $47.74 from $50.57 in the year-ago quarter. The company attributed the decline in costs to stringent cost control and benefits received from the company's six sigma and business improvement efforts, which included proactive maintenance programs. Sales margin per ton increased to $18.68 from $11.86 a year ago.

North American Coal

North American coal sales fell to 724 thousand short tons from 1.17 million short tons in the prior-year period on slowdown in production at the company's Pinnacle Mine in West Virginia as a result of sandstone intrusions, in addition to business improvement initiatives and safety activities designed to enhance future production at the company's Oak Grove Mine in Alabama, which reduced the company's production.

Revenue from coal sales and services for the quarter declined to $51.3 million from $85.2 million in the previous-year period. Sales margin for the quarter was a negative $15.8 compared to negative $31.7 a year ago. Sales margin per ton for the quarter was a negative $23.25, compared to negative $27.01 in the prior-year period on account of unusually high costs of goods sold of $90.98 per ton.

Asia-Pacific Iron Ore

Asia-Pacific Iron ore sales volume declined 15% to 1.92 million tonnes from 2.27 million tonnes in the year-ago quarter, primarily due to the timing of shipments.

Revenues from iron ore sales and services improved to $113.7 million from $111.5 million a year ago. However, sales margin declined to $24.7 million from $25.8 million in the prior-year quarter.

Revenue per tonne for the quarter increased 20% to $59.12 from $49.23 in the previous-year quarter. Cost per tonne climbed to $46.30 from $37.82 a year ago, and continued to be negatively impacted by foreign exchange rates as the U.S. dollar weakened relative to the Australian dollar, in addition to higher maintenance and contract labor expenditures. Sales margin per tonne increased to $12.82 from $11.41 in the similar period of last year.

Asia-Pacific Iron ore production declined slightly to 2.1 million tonnes from 2.2 million tons in the previous-year quarter.

Fiscal Year 2007 Results

The company's net income for the year declined to $270.0 million, or $5.14 per share from $280.1 million, or $5.20 per share last year. Analysts expected earnings of $5.05 per share for the year.

Income applicable to common shares for the year declined to $264.8 million from $274.5 million a year ago. Income from continuing operations decreased to $269.8 million, or $5.14 per share from $279.8 million, or $5.19 per share last year.

Revenue for the year climbed 18% to $2.28 billion from $1.92 billion in the prior year. Analysts had a consensus revenue estimate of $2.24 billion for the year.

Outlook

Looking ahead to fiscal year 2008, the company confirmed its iron ore sales outlook of 23 million tons in the North American markets and 8.0 million tons in the Asia-Pacific markets.

Cliffs-managed iron ore production for 2008 is expected to approximate 31.5 million tons, with the company's share representing approximately 21 million tons. The company said that its Asia-Pacific iron ore production volume for the year is expected to be 7.9 million tons.

Cliffs forecast North American Iron ore revenue per ton of $76 for 2008 and expects North American costs per ton to increase about 4% to approximately $50 per ton. In addition, the company provided outlook for Asia-Pacific Iron Ore revenue per tonne of about $88, assuming a 65% increase in the 2008 international settlement price for lump and fines, which is still subject to change. Asia-Pacific Iron ore costs per tonne are expected to be approximately $53 per tonne.

Cliffs said that its Sonoma Coal Project, a joint venture with QCoal Pty Ltd of Australia, is slated to commence shipments in the first quarter of 2008. The company further said that severe flooding at the mine last week caused a delay in shipments that were previously scheduled. The company, which has a 45% economic interest in the project, now expects total production of about 2.0 million tonnes for 2008. Revenue per tonne at Sonoma is expected to average $82, with projected cost of about $78 per tonne in 2008.

The Amapa Project, a joint venture between the company and MMX, commenced production in late December. MMX has management control over the venture, while Cliffs owns a 30% interest in the project and has invested about $160 million through December 31, 2007. The company expects production and sales to total 3-4 million tonnes in 2008 and added that it expects to incur significant equity losses in 2008 based on start-up delays and production levels. MMX expects Amapa to produce at the 6.5 million ton design level in 2009.

North American Coal is expected to produce and sell 4.5 million tons of metallurgical coal in 2008. The company expects sale per ton to be approximately $91 in 2008 and cost per ton to be about $77.

Stock Movements

CLF closed Thursday's regular trading session at $119.76, down $2.32 or 1.90% on a volume of 2.51 million shares. In the 52-week period, the stock has been trading in a range of $51.81-$126.27.

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