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Why Cleveland-Cliffs Stock Dropped 15% Today

By Howard Smith - Feb 25, 2021 at 5:58PM

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After shares more than doubled in the last six months, investors didn't think fourth-quarter earnings were enough.

What happened

Shares of steelmaker Cleveland-Cliffs (CLF 0.93%) dropped 14.7% Thursday after the company reported its fourth-quarter and full-year 2020 earnings. Like other companies in the sector, Cleveland-Cliffs had a good fourth quarter and expects an even better first quarter of 2021. 

So what

But net income of only $74 million on sales of $2.3 billion fell short for investors. Larger competitor Nucor (NUE -0.61%) reported Q4 earnings of almost $400 million, for example, on sales of $5.26 billion. Nucor also subsequently provided guidance, saying first-quarter net income should more than double the previous quarter amid strong demand and pricing.

Mxolten steel being poured from a ladle.

Image source: Getty Images.

While Cleveland-Cliffs chairman, president, and CEO Lourenco Goncalves said in the earnings release he expects "a significant improvement" in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter of 2021, he didn't provide further details. Additionally, Q1 will be the first full quarter of sales contributions from Cleveland-Cliffs Steel LLC, which the company formed after acquiring competitor ArcelorMittal USA. 

Now what

Investors clearly expected to see more benefits in the current, strong business environment. Cleveland-Cliffs has borrowed heavily to grow its business beyond a supplier to steelmakers into the largest flat-rolled steel producer in North America. 

The company said it will have $350 million in loan-interest expense for the full year 2021. It also just raised $1 billion in a notes offering earlier this month. Investors want to see the company thrive more in this business environment to justify the company's debt-fueled growth. 

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Stocks Mentioned

Cliffs Natural Resources Inc. Stock Quote
Cliffs Natural Resources Inc.
$21.79 (0.93%) $0.20
Nucor Corporation Stock Quote
Nucor Corporation
$119.97 (-0.61%) $0.74

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