Cleveland-Cliffs Q1 2025 Earnings: A Strategic Pivot to Profitability?

Cleveland-Cliffs Inc. (CLF), the largest U.S. iron ore producer and a key supplier to the North American steel industry, delivered its first-quarter 2025 earnings results on May 7, 2025. The earnings call transcript, released alongside the results, revealed a company executing a sharp strategic shift: idling underperforming facilities, exiting unprofitable contracts, and sharpening its focus on high-margin automotive steel. While the quarter itself saw losses and operational headwinds, the moves outlined could position CLF for a stronger 2026—and beyond.

Key Takeaways from the Q1 2025 Earnings Call

1. Strategic Cost-Cutting Measures:
   Cliffs announced the idling of six facilities between March and May 2025, including the Minorca mine, portions of the Hibbing Taconite mine, and operations in Michigan, Pennsylvania, and Illinois. These actions aim to eliminate $300 million in annualized costs, excluding overhead savings, while preserving flat-rolled steel production—the company’s bread-and-butter for automotive clients.

2. Contract Termination Boosting Future EBITDA:
   A major win came from the decision to terminate its long-term slab supply contract with ArcelorMittal/Nippon Steel Calvert. The contract, which accounted for nearly 10% of Cliffs’ shipments, had been a “major negative contributor” due to its inverse pricing structure to rising hot-rolled coil (HRC) prices. Its cancellation is projected to add $500 million annually to Cliffs’ EBITDA starting in 2026, once the agreement expires.

3. Liquidity and Debt Management:
   As of March 31, 2025, Cliffs reported $3.0 billion in total liquidity and $3.3 billion in secured note capacity, with no immediate debt maturities pressuring the balance sheet. CEO Lourenco Goncalves emphasized this strength, stating the company is “well-positioned to navigate industry cycles.”

The Risks and Challenges Ahead

While Cliffs’ strategic moves are bold, risks linger. Key among them:

• Trade Policy Uncertainty: The company noted that U.S. Section 232 tariffs and trade policies remain a wildcard. If global steel imports surge due to relaxed trade barriers, domestic producers like Cliffs could face price pressure.
• Customer Dependency: Automotive OEMs account for 29% of revenue, and any slowdown in vehicle production—driven by interest rate hikes or economic weakness—could hit profitability.
• Project Cancellations: The abandoned Weirton transformer plant project, halted due to a partner’s scope changes, underscores the risks of third-party collaborations.

Why Investors Should Pay Attention

Cliffs’ moves reflect a disciplined approach to pruning low-margin operations and capitalizing on its core strengths. The automotive sector, in particular, remains a bright spot: the company’s flat-rolled steel products are critical to electric vehicle (EV) production, and U.S. demand is bolstered by federal incentives. With the ArcelorMittal contract termination unlocking $500 million in annual EBITDA, Cliffs’ financial trajectory for 2026 looks far stronger than its Q1 losses suggest.

However, investors should not overlook the near-term pain. The Q1 results showed an adjusted net loss of $0.48 per share, driven by lower iron ore prices and underutilized facilities. The savings from idling will take time to materialize, and the company faces $200 million in pre-tax charges for restructuring costs.

Conclusion: A Company Betting on Steel’s Future

Cleveland-Cliffs’ Q1 2025 results are a mixed bag, but the underlying strategy is clear: cut the fat, focus on high-margin automotive steel, and capitalize on the long-term demand for U.S. production. With $500 million in annual EBITDA upside from the ArcelorMittal contract exit and $300 million in cost savings from facility idling, Cliffs’ 2026 outlook is far sunnier than its current results suggest.

The company’s liquidity ($3.0 billion) and lack of near-term debt maturities provide a cushion against near-term headwinds. Risks remain, particularly around trade policy and customer demand, but the stock’s valuation—trading at just 5.8x 2026E EBITDA estimates—suggests the market is pricing in pessimism. For investors willing to look past short-term losses, Cliffs’ strategic pivot could prove prescient.

In short, Cleveland-Cliffs is betting on its core business and the resilience of the U.S. steel sector. If automotive demand holds and trade policies stabilize, this could be a winning hand.

Data as of May 2025. Always conduct your own research before making investment decisions.