CLF — Cleveland-Cliffs Inc.

Cleveland-Cliffs Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

• Adjusted EBITDA: $286 million, a significant increase from the previous quarter, marking the best quarter in two years.
• Shipments: Over 4 million tons, down sequentially due to maintenance outages but expected to rise above 4.3 million tons in Q3.
• Average Selling Price: Increased by $76 per ton in Q2, with expectations for a further increase of $55 per ton in Q3.
• Free Cash Flow: Returned to positive after two years of negative cash flow, driven by improved operational performance and working capital management.
• Q3 Adjusted EBITDA Guidance: Projected at approximately $575 million, anticipated to be the strongest quarter in three years.

2. Strategic Updates and Business Highlights

• Automotive Sector: Strong recovery in automotive demand, with Cleveland-Cliffs recognized as a top supplier by major automotive manufacturers like Toyota and General Motors. Steel shipments to automotive clients reached their highest levels in two years.
• Operational Improvements: Enhanced utilization of finishing lines and successful multiyear contracting strategies contributing to better pricing and cost management.
• Trade Policies: Positive impact from U.S. trade policies, particularly Section 232, which have supported domestic steel production and manufacturing investment.
• Safety Record: Continued focus on safety with a best-in-class total recordable injury rate, leading to reduced workers' compensation expenses.
• Leadership Transition: Celso Goncalves appointed as President and CFO, reflecting his significant contributions to the company.

3. Forward Guidance and Outlook

• Q3 and Q4 Expectations: Anticipated continued improvement in EBITDA and operational performance, with Q4 expected to outperform Q3 due to higher prices, lower costs, and increased shipping volumes.
• Long-term Outlook: The company expects to reach a leverage target of below 2.5x by next year, driven by ongoing cash flows and asset sales.
• Contract Renewals: Significant potential for improved pricing on fixed-price contracts, with negotiations expected to yield higher prices due to current market conditions.

4. Bad News, Challenges, or Points of Concern

• Maintenance Outages: Q2 results were impacted by maintenance outages, which constrained production and shipments.
• Canadian Operations: While improvements have been noted, concerns remain regarding the competitiveness of galvanizing lines in Canada without further protective measures.
• Market Dynamics: The company faces competitive pressures from global steel markets, particularly with excess capacity and pricing pressures from imports.
• Negotiation Risks: The company is cautious about negotiations with counterparties, ensuring that any potential transactions meet their valuation thresholds.

5. Notable Q&A Insights

• Contract Reset Timing: The resetting of non-auto fixed-price contracts will begin in the second half of the year, with expectations for significant price increases based on current market conditions.
• Cost Management: Further cost reductions are anticipated in Q4, driven by improved production schedules and operational efficiencies.
• Automotive Market Dynamics: Approximately half of the expected shipment increase in Q3 is attributed to improved automotive demand, with ongoing discussions about capacity restarts hinging on sustained automotive production in the U.S.
• Debt Reduction Focus: The company emphasized that debt paydown will be a priority, supported by free cash flow generation and asset sales.

Overall, Cleveland-Cliffs is positioned for a strong second half of 2026, with improving financial metrics, strategic advantages in the automotive sector, and a commitment to operational efficiency and safety. However, challenges remain, particularly in navigating competitive pressures and ensuring favorable contract negotiations.