There’s No Love for Cliffs Natural Resources Today
It’s not every day that an earnings report is released containing as much bad news as Cliffs Natural Resources’ (NYSE:CLF) fourth-quarter and full-year 2012 results. Suffering from tepid quarter-to-quarter revenue growth throughout the year because of strong economic headwinds, the international mining and natural resources company posted its first annual revenue decline since 2009.
Annual revenues fell 11 percent, pressured by a 23 percent decline in seaborne iron ore pricing, to $5.9 billion. As a result of lower revenues and slightly increased costs and depreciation expenses, the company’s U.S. iron ore sales margin shrank 34.9 percent to $45.13 per long ton. This drove revenues down even though Cliffs Natural Resources’ global iron ore sales increased 5 percent to 42 million tons. For the year, the company recorded a net loss attributable to common shareholders of $6.32 per diluted share, which compares to earnings of $11.48 recorded in 2011.
To be clear, that loss was impacted by several non-cash impairment charges, including $1 billion in goodwill related to the company’s 2011 acquisition of Consolidated Thompson Iron Mines. Excluding charges, full-year net income was $3.45 per diluted share.
While the cost increases and revenue declines are unattractive, one of the real killers out of the report is the board’s decision to slash the company’s quarterly dividend rate…
“Cliffs’ Board of Directors approved a meaningful reduction to Cliffs’ quarterly cash dividend rate to $0.15 from $0.625 per common share,” read the report. That was a clean 76 percent reduction, and one of the major drivers of the stock’s movement on Wednesday. Quickly digesting all the bad news, investors sold the stock down over 19 percent to $29.33 per share.
The results prompted two swift downgrades from analysts at Deutsche Bank and Citigroup. Echoing uneasiness about the company’s decision to simultaneously cut the dividend and issue 9 million common shares, Deutsche Bank moved its rating to Hold, and Citi gave it a Neutral.
Cliffs’ hard times are echoed by other mining and natural resource companies like Alpha Natural Resources (NYSE:ANR), which has faced similar year-over-year losses on the stock chart. Low prices and low demand make for poor revenues, and all the while costs continue to escalate. Cliffs reported some issues with its Bloom Lake Mine that has both decreased volumes and increased costs, indicating that the mine won’t be fully operational until 2015.
That said, companies like Cliffs and Alpha, which are heavily invested in mining, have performed poorly relative to competitors that diversified into natural gas, like Consol Energy (NYSE:CNX).