Cleveland-Cliffs reports record annual revenue

Cleveland-Cliffs Inc., headquartered in Cleveland, has reported record full-year and fourth-quarter results for the period ended Dec. 31, 2021.

Quarterly results

Fourth-quarter 2021 consolidated revenues totaled $5.3 billion compared with prior-year fourth-quarter consolidated revenues of $2.3 billion.

For the fourth quarter of 2021, Cleveland-Cliffs generated net income of $899 million, or $1.69 per diluted share. This included $47 million of charges, or 9 cents per diluted share, from amortization of inventory step-up and acquisition-related expenses. This compares with net income of $74 million, or 14 cents per diluted share, recorded in the fourth quarter of 2020, which included $44 million of charges, or 10 cents per diluted share, of acquisition-related costs and amortization of inventory step-up, according to the company

Fourth-quarter 2021 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.5 billion compared with $286 million in the fourth quarter of 2020.

From the cash generated during the fourth quarter of 2021, Cleveland-Cliffs says it used $761 million to acquire Ferrous Processing and Trading Co., with the remainder used to pay down approximately $150 million in principal debt.

The company says it also reduced its pension and other postemployment benefits liabilities, net of assets, by approximately $1 billion in the quarter primarily as a result of actuarial gains and strong returns on assets. The full-year 2021 liability reduction, net of assets, was approximately $1.3 billion, which also included company contributions.

Full-year results

For the full year, Cleveland-Cliffs reported consolidated revenues of $20.4 billion compared with $5.3 billion in the previous year.

Net income was $3 billion, or $5.36 per diluted share. This compares with a 2020 net loss of $81 million, or 32 cents per diluted share.

For the full year of 2021, adjusted EBITDA was $5.3 billion compared with $353 million in 2020.

The Cliffs board of directors has authorized a new share repurchase program for outstanding common shares. Under the share repurchase program, the company can buy up to a maximum of $1 billion worth of shares, via acquisitions in the open market or privately negotiated transactions.

In the news release announcing fourth-quarter and full-year earnings, Cliffs Chairman, President and CEO Lourenco Goncalves says, “During the last two years, we completed the construction and started operating our flagship state-of-the-art direct reduction plant and also acquired and paid for the acquisition of two big steel companies and a major scrap company. The results we achieved in 2021 are a clear demonstration of how powerful Cleveland-Cliffs has become, as our revenues grew more than 10 times from $2 billion in 2019 to over $20 billion in 2021. All this growth was profitable growth, generating $5.3 billion of adjusted EBITDA and $3 billion of net income this past year. Our strong cash flow generation allowed us to not only reduce our diluted share count by 10 percent but also to bring our leverage down to a very healthy level of just 1x adjusted EBITDA.”

Goncalves says the company’s quarterly results “demonstrate the disciplined approach to supply that is fundamental to us.” He adds, “During Q3 of last year, we realized that our automotive clients would not be able to resolve their supply chain issues in Q4, and therefore demand pull from the sector would be weak. That would come on top of the widely expected lighter demand from service centers in Q4. As such, we elected not to chase weak demand and instead accelerated maintenance forward to Q4 at several of our steel production and finishing facilities. These actions had a short-term impact on our unit costs in Q4 but should benefit our 2022 results."

He describes the company as the largest steel supplier of the automotive sector in the United States “by a very large margin.”

Goncalves continues, “Through our massive utilization of both HBI (hot-briquetted iron) in our blast furnaces and prime scrap in our BOFs (basic oxygen furnaces), we are now able to stretch hot metal, reduce coke rate and reduce CO₂ emissions to a new international benchmark level for steel companies with product mix similar to ours. That’s particularly relevant when our clients in the automotive sector compare our emissions performance against their other major steel suppliers in countries like Japan, South Korea, France, Austria, Germany, Belgium and a few others. Said another way, through operational changes we have already implemented and that do not depend on breakthrough technologies or massive investment, Cleveland-Cliffs is setting a new world benchmark in CO₂ emissions for steel suppliers of higher quality steels to the automotive sector.”

He predicts a “phenomenal year” for the company in 2022, noting that steel demand is rebounding, particularly in the automotive sector. “Based on our recently renewed contracts, we are now selling the vast majority of our fixed-price contractual volumes at substantially higher selling prices,” Goncalves continues. “Even at the steel futures curve as of today, we would expect to see higher average selling prices for our steel in 2022 than in 2021. As we look forward to delivering another stellar year in 2022 and with our limited needs for capex, we are now comfortable to implement shareholder-focused actions ahead of our original expectations.”

Steelmaking

Cleveland-Cliffs includes the operations of FPT in its steelmaking segment.

Full-year 2021 steel product volume of 15.9 million net tons consisted of 32 percent coated, 31 percent hot-rolled, 18 percent cold-rolled, 6 percent plate, 4 percent stainless and electrical and 9 percent other, including slabs and rail. Fourth-quarter 2021 steel product volume of 3.4 million net tons consisted of 34 percent coated, 29 percent hot-rolled, 17 percent cold-rolled, 7 percent plate, 5 percent stainless and electrical and 8 percent other, including slabs and rail.

Full-year 2021 steelmaking revenues of $19.9 billion included approximately $7.7 billion, or 38 percent of sales, to the distributors and converters market; $5.4 billion, or 27 percent of sales, to the infrastructure and manufacturing market; $4.7 billion, or 24 percent of sales, to the automotive market; and $2.1 billion, or 11 percent of sales, to steel producers. Fourth-quarter 2021 steelmaking revenues of $5.2 billion included approximately $2 billion, or 38 percent of sales, to the distributors and converters market; $1.5 billion, or 29 percent of sales, to the infrastructure and manufacturing market; $1.1 billion, or 22 percent of sales, to the automotive market; and $552 million, or 11 percent of sales to steel producers.

Full-year 2021 steelmaking cost of goods sold of $15.4 billion included depreciation, depletion and amortization of $855 million and amortization of inventory step-up charges of $161 million. Full-year steelmaking segment adjusted EBITDA of $5.4 billion included $232 million of selling, general and administrative (SG&A) expenses. Fourth-quarter 2021 steelmaking cost of goods sold of $3.9 billion included depreciation, depletion and amortization of $222 million and amortization of inventory step-up charges of $32 million. Fourth-quarter 2021 steelmaking segment adjusted EBITDA of $1.5 billion included $52 million of SG&A expense.

Outlook

Because of the successful renewal of relevant fixed-price sales contracts and based on the current 2022 futures curve, which implies an average hot-rolled coil steel index price of $925 per net ton for the remainder of the year, Cleveland-Cliffs says it expects its 2022 average selling price to be approximately $1,225 per net ton.

In comparison, in 2021 when the hot-rolled coil steel index price averaged approximately $1,600 per net ton, its average selling price was $1,187 per net ton.