Cliffs Natural Resources Post Lower Earnings in Q4, Slashes Dividend

Andrew Klips  |

Those looking to Cliffs Natural Resources Inc. (CLF) for their dividend may want to take a closer look. After Wednesday’s closing bell, as part of its earnings report for the fourth quarter of 2012, the Cleveland-based iron ore and metallurgical coal producer slashed its dividend by 76 percent and said it plans to sell more stock to reduce debt. On the bright side, the company did beat analyst expectations on earnings for the quarter.

For the fourth quarter, Cliffs recorded a net loss of $1.62 billion, or $11.36 per share, versus net income of $185 million, or $1.30 per share, in the same quarter of 2011. Excluding a slew of non-cash charges related to its acquisition of Consolidated Thompson Iron Mines Ltd., its mines and more, the company reported earnings of $89 million, or 62 cents per share, down from adjusted earnings in Q4 2011 of $213 million, or $1.49 per share.

Total revenue for the fourth quarter was $1.54 billion, mildly lower than $1.6 billion in the year prior quarter. Cliff’s citing a 15 percent increase in cost of goods sold (up to $1.3 billion), coupled with a 14 percent decline in seaborne pricing as the main driver of a 50 percent drop in consolidated sales margin, from $480 million the prior fourth quarter to $239 million in Q4 2012.

Wall Street analysts were expecting earnings per share of 51 cents on revenue of $1.54 billion. Analysts generally exclude one-time, non-cash items.

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Meanwhile, the board at Cliffs Natural Resources approved a reduction of its quarterly cash dividend from 62.5 cents per share to 15 cents per share.

"While 2012 had some noteworthy highlights, including the operational turnaround of North American Coal and record sales volumes in Australia, the year proved to be challenging both from a market perspective and operationally,” said Joseph Carrabba, Cliffs' chairman, president and chief executive officer.

For the full year 2012, Cliffs reported revenues of $5.9 billion, an 11 percent below 2011 revenue driven by a 23 percent drop in year-over-year seaborne iron ore pricing. Net loss for the 2012 was $899 million, or $6.32 per share, compared to net profit of $1.6 billion, or $11.48 per share, for 2011. Excluding one-time charges for 2012, the company posted a net profit of $493 million, or $3.45 per share, down from $11.68 per share the year earlier.

Looking forward, Cliffs anticipates iron ore sales to be basically flat, at about 40 million tons, in 2013 compared to 2012 and that prices will remain volatile.

Separately, the company said that it plans to sell 9 million shares of common stock and 20 million depositary shares to repay borrowings under its term loan facility with any addition net proceeds being used for general corporate purposes.

Cliffs Natural shares carved off 10 percent to $32.90 in extended-hours trading after the news releases, adding to a now more than 50 percent decline in share value in the past 52 weeks.

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