Cleveland-Cliffs' Q2 Earnings: Can Near-Term Catalysts Overcome Deteriorating Fundamentals?

Investors in Cleveland-Cliffs (NYSE: CLF) face a pivotal moment ahead of its Q2 2025 earnings report on July 21, 2025. While the company has unveiled strategic moves to restructure operations and cut costs, its fundamentals remain under pressure, leaving analysts and shareholders to weigh whether the near-term catalysts will outweigh the risks.

The Earnings Crossroads

The consensus estimate for Q2 EPS is -0.25 USD, a slight improvement over Q2 2024's -0.33 USD but still deeply negative. This reflects ongoing struggles in a steel sector grappling with weak demand, high raw material costs, and oversupply. Recent revisions have trended downward: Zacks lowered its Q2 estimate to -0.56 USD, while the broader consensus has edged lower over the past month. .

The company's projected -670% EPS growth versus the S&P 500's 13% growth underscores its stark operational challenges. Even with marginal improvements, Cleveland-Cliffs remains in a losing battle unless cost-cutting and strategic shifts can deliver a sharper turnaround.

Strategic Moves: A Mixed Bag of Catalysts

Cleveland-Cliffs has taken aggressive steps to realign its business:

1. Cost Reductions and Facility Idling: By halting six unprofitable facilities—including the Minorca mine and Steelton rail facility—the company aims to save $300M annually. While this cuts capacity, it also reduces losses in weak markets.

2. Contract Terminations: Ending its loss-making slab contract with ArcelorMittal by year-end could add $500M annually to EBITDA starting in 2026. This move refocuses the company on higher-margin automotive steel, a sector buoyed by U.S. policy support.

3. Investment in Premium Steel: The $150M Ohio stainless steel line highlights a pivot toward value-added products. . This aligns with a long-term strategy to reduce reliance on bulk commodities.

4. Financial Fortitude: With $3B in liquidity and reduced capital expenditures, the company appears positioned to weather short-term losses while pursuing restructuring.

The Fundamentals Gap

Despite these moves, Cleveland-Cliffs' Q1 2025 results showed a $483M net loss, with steel unit costs still above targets. Even adjusted EBITDA posted a $174M loss, a slight improvement but far from profitability. Key risks remain:
- Weak Steel Demand: Auto sales, a core market, have slowed in recent quarters, while global oversupply pressures persist.
- Input Costs: Iron ore and energy expenses remain elevated, squeezing margins despite cost-cutting.
- Debt Management: While liquidity is stable, the company's debt-heavy balance sheet requires sustained cash flow improvements to avoid strain.

Investment Implications

The earnings report will hinge on whether the cost cuts and strategic shifts have meaningfully stabilized the business. If Q2 results beat the -0.25 USD EPS estimate, or show sharper margin improvements, it could signal a turning point. However, a miss—particularly if Zacks' -0.56 USD proves closer—would amplify concerns about execution risks.

. Shares have rallied 9% on prior restructuring news, but a sustained recovery hinges on profitability.

Recommendation: Investors should approach Cleveland-Cliffs with caution. While the strategic moves offer long-term promise, near-term catalysts must deliver tangible financial improvements to justify current valuations. Short-term traders might consider a tactical position ahead of earnings, but fundamental investors should await clearer evidence of margin stabilization before committing capital.

The steel sector's broader challenges mean Cleveland-Cliffs' path to profitability remains steep. Until costs fall further and demand rebounds, the company's success will depend on executing its restructuring flawlessly—and hoping the market gives it time to do so.