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Third-Quarter Results
The Cleveland, Ohio-based company recorded net income attributable to shareholders for the third quarter of $58.8 million, or $0.45 per share, down from $174.9 million, or $1.61 per share, in the prior-year quarter. On average, eleven analysts polled by Thomson Reuters expected the company to report a loss of $0.07 per share for the quarter.
Consolidated revenues for the quarter decreased 44% to $666.4 million from $1.19 billion in the same period last year due to lower volumes in Cliffs' North American businesses and lower year-over-year pricing for iron ore. Analysts had a consensus revenue estimate for the quarter of $634.56 million.
Joseph Carrabba, chairman, president and chief executive officer of Cliffs Natural Resources, said, "Throughout the third quarter, we saw steadily improving demand from our North American iron ore and metallurgical coal customers. We have begun to increase production at most of our facilities and will continue to monitor the markets closely to meet demand. Sales volume expectations are increasing in North American Iron Ore and North American Coal, and Asia Pacific Iron Ore remains positioned for a record year in terms of tons shipped."
Selling, general and administrative expenses for the quarter dropped 32% to $28.4 million from $41.8 million in the year-ago period, aided by lower employment costs, including variable compensation. Gain on sale of assets during the quarter was $1.0 million, compared to a gain of $0.1 million a year ago. Operating income for the quarter plunged to $80.5 million from $339.4 million in the same quarter last year, due to reduced sales volumes and price realizations.
At the end of the third quarter, Cliffs had $359.9 million of cash and cash equivalents, compared with $179.0 million at December 31, 2008. The company noted that it had no borrowings on its $600 million revolving credit facility at both points in time.
Segmental Results
North American Iron Ore
Third-quarter North American iron ore pellet sales volume was 5.5 million tons, down 31% from 8.0 million tons sold in the year-ago period. The decrease in sales volumes was due to lower demand for iron ore pellets. The company noted that while capacity utilization in the North American steel industry ramped to 59% at the end of the third quarter from 49% in the beginning of the quarter, the current level of approximately 60% remains well below those achieved throughout 2008.
Revenue from product sales and services dropped to $428.2 million from $811.3 million a year ago. Revenue per ton declined 16% to $79.06 in the quarter and was impacted by factors that determine pricing under Cliffs' customer supply agreements, including significantly lower hot band steel prices and price settlements for blast furnace pellets.
Cost per ton in North American iron ore increased 3% from the year-ago period to $62.85, driven exclusively by increases in depreciation, depletion and amortization. However, cost per ton declined 26% sequentially from $84.39 per ton in the preceding second quarter.
North American Coal
Metallurgical coal sales volume for the third quarter was approximately 343,000 short tons, with average revenues per ton of $96.50. This compares with approximately 894,000 short tons in the prior-year period, with average revenues per ton of $100.34. The company attributed the lower sales volume to market conditions that impacted the demand for steel in both the United States and Europe.
Revenue from product sales and services of coal for the quarter dropped to $37.9 million from $102.6 million in the prior-year quarter. The company said that despite 62% lower sales volume, sales margin loss in North American Coal for the quarter was $15.5 million, compared with sales margin loss of $13.3 million in the same period last year.
Asia Pacific Iron Ore
Asia Pacific iron ore sales volume for the quarter rose 23% to 2.6 million tonnes from 2.2 million tonnes in the year-ago period. Production surged 44% from the previous-year quarter to 2.3 million tonnes. Revenue per tonne for the quarter decreased 42% to $62.71, while per-tonne cost of goods sold decreased 15% from the year-ago period to $52.43.
Year-To-Date Results
For the nine months, net income attributable to Cliffs' shareholders plunged to $96.9 million, or $0.78 per share, from $461.9 million, or $4.34 per share, in the same period last year.
The results for the latest period include an income tax benefit of $14.6 million, reflective of a current year projected annual income tax rate of 24%, offset by income from discreet items of $48 million.
Revenues for the nine-month period dropped 43% to $1.52 billion from $2.69 billion in the same period last year.
Outlook
Cliffs raised its outlook for 2009 North American iron ore sales volume to 17.4 million tons from the prior 17 million tons, citing increased customer demand for iron ore pellets.
The company expects to achieve North American iron ore sales volume of about 23 million tons in 2010. This includes 2.5 million tons of incremental sales from the recently announced Wabush Mines transaction, assuming that the transaction closes on or about December 31, 2009.
Cliffs projects 2009 sales volume for its North American Coal business segment of approximately 1.8 million short tons of coal at average revenue of approximately $95 to $100 per ton. For 2010, the company projects North American coal production and sales volume of approximately 3 million tons, citing signs of recovery in North America and Europe steelmaking markets.
Cliffs forecast 2009 Asia Pacific iron ore sales volume to be 8.5 million tonnes and production to be 8.1 million tonnes. Further ahead, in 2010, Cliffs expects to produce and sell about 8.5 million tonnes from its Asia Pacific iron ore business.
Stock Quotes
CLF closed Thursday's regular trading session at $34.87, up $1.70 or 5.13% on a volume of 5.45 million shares. In the past 52 weeks, the stock has been trading in a range of $11.80-$40.21.
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