10-year

Don't Miss This Only Promotion (20% off)

Join GuruFocus Premium Membership Now for Only $279/Year

Save up to $500 on Global Membership.

Don't Miss It !

Free 7-day Trial
All Articles and Columns »

CLIFFS NATURAL RESOURCES, INC. Reports Operating Results (10-Q)

November 01, 2011 | About:
10qk

10qk

18 followers
CLIFFS NATURAL RESOURCES, INC. (CLF) filed Quarterly Report for the period ended 2011-09-30.

Cliffs Natural Resources Inc has a market cap of $9.96 billion; its shares were traded at around $68.22 with a P/E ratio of 5.1 and P/S ratio of 2.1. The dividend yield of Cliffs Natural Resources Inc stocks is 1.6%. Cliffs Natural Resources Inc had an annual average earning growth of 6.8% over the past 5 years.

Highlight of Business Operations:

Our consolidated revenues for the three and nine months ended September 30, 2011 increased to $2.1 billion and $5.1 billion, respectively, with net income from continuing operations per diluted share of $4.19 and $10.25, respectively. This compares with revenues of $1.3 billion and $3.3 billion, respectively, and net income from continuing operations per diluted share of $2.19 and $4.68, respectively, for the comparable periods in 2010. Based upon the recent shift in the industry toward shorter-term pricing arrangements linked to the spot market and away from the annual international benchmark pricing mechanism historically referenced in our customer supply agreements, pricing has continued to increase during the first nine months of 2011 from the comparable period in 2010. We have finalized short-term pricing arrangements with our Asia Pacific Iron Ore customers and we have reached final pricing settlements with the majority of our U.S. Iron Ore customers through the third quarter of 2011 for the 2011 contract year. However, in some cases we are still in the process of revising the terms of our customer supply agreements to incorporate changes to historical pricing mechanisms. In addition, in April 2011, we reached a negotiated settlement with ArcelorMittal with respect to our previously disclosed arbitrations and litigation resulting in additional revenue recorded in the first nine months of 2011. Revenues during the first nine months of 2011 were also impacted by higher iron ore sales volumes in Eastern Canada and higher metallurgical and thermal coal sales volumes in the U.S. that were made available through our acquisition of Consolidated Thompson and CLCC during the second quarter of 2011 and the third quarter of 2010, respectively. In Asia Pacific, the demand for steelmaking raw materials remained strong throughout the first nine months of 2011 primarily led by demand from China.

Selling, general and administrative expenses in the third quarter and first nine months of 2011 increased $21.0 million and $50.4 million, respectively, over the same periods in 2010. These increases were primarily due to additional selling, general and administrative expenses related to Bloom Lake since the acquisition of Consolidated Thompson in each period of $4.9 million and $11.6 million, respectively, increases in our partner profit sharing expenses incurred during each period of $11.7 million and $6.7 million, respectively, and higher employee compensation in each period of $3.6 million and $10.0 million, respectively. The first nine months of 2011 were also impacted by $14.8 million of higher technology and office related costs and higher outside services costs, primarily comprised of legal and information technology consulting.

Sales margin for U.S. Iron Ore was $481.3 million for the third quarter of 2011, compared with a sales margin of $264.2 million for the third quarter of 2010. The improvement over the same period last year is attributable to an increase in revenue of $365.3 million, partially offset by an increase in cost of goods sold and operating expenses of $148.2 million. The increase in revenue is a result of an improvement in sales price and sales volumes, which resulted in revenue increases of $188.4 million and $84.4 million, respectively, over the same period in 2010. The price increase is a result of higher prices for iron ore due to worldwide demand. Also, sales prices during the third quarter of 2011 were impacted by U.S. Iron Ore sales tons to seaborne customers at market-based rates. Historically, U.S. Iron Ore has not provided sales tons to seaborne customers. Our realized price for the third quarter of 2011 over the same period in 2010 was on average a 24 percent increase per ton. Revenues during the third quarter of 2011 also included $53.8 million related to supplemental contract payments compared with $25.1 million in the third quarter of 2010. The increase between periods relates to the estimated rise in average annual hot band steel pricing for one of our U.S. Iron ore customers. In addition, the increase in revenue is attributable to the reclassification of $54.1 million related to the ArcelorMittal price re-opener settlement originally recorded during the first quarter of 2011 from costs of goods sold and operating expenses to revenue during the third quarter of 2011. During the third quarter of 2011, we also recorded an addition $25.3 million under the ArcelorMittal price re-opener settlement upon the shipment of additional tons under the 2010 pellet nomination.

Sales margin for U.S. Iron Ore was $1.3 billion for the first nine months of 2011, compared with a sales margin of $545.5 million for the first nine months of 2010. The improvement over the same period last year is attributable to an increase in revenue of $772.2 million, partially offset by an increase in cost of goods sold and operating expenses of $34.0 million. The increase in revenue is a result of an improvement in sales price and the ArcelorMittal price re-opener settlement, which caused revenue to increase $477.9 million and $280.9 million, respectively, over the same period in 2010. Higher market pricing during the first nine months of 2011 and $23.4 million recognized as a result of finalizing prices on sales for Algomas 2010 nomination, due to the previously announced arbitration agreement, had a direct impact on increasing the sales price for the period. In addition, sales prices during the third quarter of 2011 were impacted by U.S. Iron Ore sales tons to seaborne customers at market-based rates. Historically, U.S. Iron Ore has not provided sales tons to seaborne customers. Our realized price for the first nine months of 2011 over the same period in 2010 was on average a 41 percent increase per ton. In April 2011, we reached a negotiated settlement with ArcelorMittal with respect to our previously disclosed arbitrations and litigation regarding price re-opener entitlements for 2009 and 2010 and pellet nominations for 2010 and 2011. The financial results for the first half of 2011 included $201.5 million of the price re-opener settlement, with an additional $25.3 million recognized during the third quarter of 2011 upon the shipment of additional tons under the 2010 pellet nomination. In addition, we reclassified $54.1 million related to the ArcelorMittal price re-opener settlement originally recorded during the first quarter of 2011 from costs of goods sold and operating expenses to revenue during the third quarter of 2011.

We reported sales margin loss for North American Coal of $60.4 million for the first nine months ended September 30, 2011 compared with a sales margin loss of $5.4 million for the same period last year. Revenue during the first nine months of 2011 increased 20 percent over the comparable period in 2010 to $388.7 million due to the acquisition of CLCC that occurred during the third quarter of 2010. North American Coal sold 3.2 million tons during the first nine months of 2011 compared with 2.4 million tons during the same period last year, driven primarily by the additional 1.6 million tons made available through the acquisition of CLCC. The additional CLCC sales tons resulted in $147.7 million of additional revenue in the first nine months of 2011 when compared to the first nine months of 2010. This increase in volume was partially offset by lower availability of coal at our Pinnacle and Oak Grove locations given carbon monoxide levels and significant tornado damage that impacted production during the first nine months of the year, respectively. Volume was also affected by severe shipping congestion caused by demand for export metallurgical coal shipped from port facilities in Virginia and the lack of rail car availability due to supply constraints related to increases in demand experienced during the first quarter of 2011. The sales volume decreases at these locations resulted in lower revenues of $94.8 million over the comparable prior year period. In addition, revenues were impacted by decreases in sales prices of $22.0 million when compared to the prior year period, reflecting a change in the sales mix to higher percentages of lower priced high volatile, metallurgical grade coal and thermal coal. These sales price decreases were partially offset during the first nine months of 2011 due to increases in our 2011 contract prices as a result of high steel demand and the associated raw material prices.

Read the The complete Report

About the author:

10qk
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 4.5/5 (4 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK