Looking out further, the CEO noted, "Most importantly, we set the stage for another highly profitable year in 2023, which we expect to further materialize with a much higher Q2 EBITDA and strong free cash flow generation in the last three quarters of the year." That's helped along by cost-cutting efforts and some other one-time items, but all in, Cleveland-Cliffs is clearly hinting that the near-term future is looking bright despite the first-quarter loss. That rose to $243 million in the first quarter of 2023. In the fourth quarter of 2022, EBITDA was $123 million. That said, adjusted EBITDA ( earnings before interest, taxes, depreciation, and amortization) is already moving in the right direction.
That is why CEO Lourenco Goncalves was so positive about the future, stating in the first-quarter earnings release that "With the final batch of yearly fixed-price contracts - the ones dated April 1st - successfully renewed, our outlook for a significant EBITDA expansion in Q2 remains intact." So that's why you see the big jump in sales price. And then most importantly, those lags that we experienced in Q1 from the sub-$700 index pricing environment in November, December, those all fall off in Q2. Relative to Q1, we expect Q2 average selling price to increase more than $100 a ton, call it, $120 a ton compared to Q1, and that's largely driven by higher HRC pricing, higher slab pricing. Getting betterĭuring Cleveland-Cliffs' first-quarter earnings conference call CFO Celso Goncalves explained: The time lag between the market price change and the price change for the contract can lead to short-term earnings that look weaker than investors might expect. So a price increase may not actually show up at the same time as the industry pricing increases. The prices that auto customers pay for steel are reset at specific intervals, often yearly. For example, Cleveland-Cliffs works heavily with the auto industry (roughly a third of its business), which involves long-term contracts. The current going rate for steel isn't always as helpful as you would expect in predicting what a company will earn in any given quarter. There are other factors that play into all of this as well, notably the prices that Cleveland-Cliffs and its peers can charge for steel.
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