Cleveland-Cliffs Earnings Recovery Accelerates as 2027 Outlook Exceeds $4 Billion

Stronger Steel Prices and New Contracts Lift Cleveland-Cliffs' Earnings Outlook

Cleveland-Cliffs (CLF) shares surged more than 12% on Monday after the U.S. steel producer reported its strongest quarterly operating performance in three years and issued a 2027 earnings outlook substantially above Wall Street expectations.

The company's recovery is being supported by higher domestic steel prices, increased shipments and lower production costs. Management also highlighted new customer contracts and a favorable U.S. trade environment as important factors behind its improved outlook, suggesting that the benefits of stronger steel market conditions could extend beyond the current quarter.

Key Points

• Cleveland-Cliffs reported $612 million in third-quarter adjusted EBITDA, exceeding guidance and analyst expectations as stronger steel prices, higher shipments and lower production costs improved profitability.
• Management expects 2027 adjusted EBITDA to exceed $4 billion, substantially above Wall Street's approximately $2.5 billion consensus, supported by new customer contracts and favorable steel pricing.
• U.S. steel tariffs and reduced imports are supporting domestic producers, while stronger cash flow and planned asset sales are expected to help Cleveland-Cliffs reduce debt.

Cleveland-Cliffs Delivers Its Strongest Quarterly Performance in Three Years

Cleveland-Cliffs reported a significant improvement in third-quarter financial results, supported by higher steel selling prices and better operating efficiency.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached $612 million for the three months ended September 30, exceeding management's previous guidance of $575 million and Wall Street expectations of approximately $601 million.

EBITDA is a measure of operating profitability before certain financing, tax and accounting expenses.

Revenue increased approximately 18% from a year earlier to $5.6 billion, although it remained slightly below analyst expectations of roughly $5.7 billion.

Adjusted earnings per share reached $0.28, compared with consensus expectations of $0.22.

The company also returned to profitability on a net-income basis, reporting $165 million in net income after recording a $134 million loss in the second quarter.

Chief Executive Officer Lourenco Goncalves described the results as the company's strongest quarterly performance in three years.

Higher Steel Prices and Shipments Drive Profitability

The improvement reflected progress across three important operating measures: selling prices, shipment volumes and unit production costs.

Steel shipments increased to approximately 4.15 million net tons from 4.03 million in the second quarter.

Average selling prices rose by $53 per net ton sequentially to $1,177, while unit costs declined by $17 per ton.

The cost reduction exceeded management's earlier expectation of a $10-per-ton improvement and reflected higher utilization across the company's steelmaking operations.

Greater utilization allows fixed production expenses to be distributed across more output, improving the cost efficiency of each ton produced.

The combination of higher realized prices, increased shipments and lower unit costs helped adjusted EBITDA more than double from the second quarter's $286 million.

Steel Market Conditions Improve Across the Industry

The broader U.S. steel market has also experienced substantial price increases.

Benchmark steel prices averaged approximately $1,250 per metric ton during the third quarter, compared with roughly $850 a year earlier.

More recent benchmark prices were approximately $1,350 per metric ton.

These benchmark figures differ from Cleveland-Cliffs' average realized selling prices because steel producers sell a range of products under different pricing arrangements, including contracts negotiated in advance.

Nevertheless, stronger market pricing has supported the industry's earnings recovery.

Shares of other U.S. steel producers also advanced Monday, with Nucor (NUE) and Steel Dynamics (STLD) gaining approximately 1% to 2% during the reported trading period.

Cleveland-Cliffs' substantially larger share-price increase reflected the additional impact of its earnings results and stronger guidance.

Why Are Steel Tariffs and Customer Contracts Strengthening the Outlook?

Management attributed part of the company's improving performance to the U.S. trade environment, which has reduced steel imports and supported domestic pricing.

Current tariffs on raw steel imports stand at 50%, making imported steel more expensive and improving the competitive position of domestic producers.

According to Goncalves, customers are increasingly emphasizing the importance of reliable U.S. supply chains.

Reduced imports and longer customer lead times have contributed to stronger demand for domestically manufactured steel.

New Contracts Provide Greater Earnings Visibility

Cleveland-Cliffs' improved 2027 outlook reflects customer agreements that have already been negotiated, rather than relying exclusively on expectations for higher spot steel prices.

Management expects renewed contracts to generate more than $1 billion in additional annual EBITDA compared with the previous year's arrangements, before accounting for further changes in steel price indices.

The company also reported stronger customer demand for contracted volumes and the introduction of additional take-or-pay provisions.

Under a take-or-pay agreement, customers generally commit to paying for a specified quantity of product even if they ultimately purchase less than the contracted amount.

These arrangements can provide suppliers with greater revenue visibility and reduce uncertainty surrounding customer purchasing volumes.

For Cleveland-Cliffs, the combination of stronger contract pricing and greater volume commitments has improved management's confidence in future operating results.

However, the ultimate financial impact will still depend on production costs, customer demand and prevailing steel market conditions.

Stelco Returns to Positive Operating Earnings

Cleveland-Cliffs' Canadian subsidiary, Stelco, also contributed to the quarterly improvement.

Management reported that Stelco delivered its strongest performance since the acquisition approximately two years ago, returning to positive adjusted EBITDA as hot-rolled steel market conditions strengthened.

At the same time, Cleveland-Cliffs announced plans to indefinitely idle Stelco's galvanizing lines because of oversupply in Canada's galvanized steel market.

The company intends to maintain overall production tonnage by emphasizing hot-rolled products.

Management said the decision would preserve approximately 2,000 Canadian jobs, with affected employees expected to return when market conditions improve.

The changes reflect the company's efforts to align production with demand across different steel product categories.

Cleveland-Cliffs Projects Stronger Earnings and Debt Reduction Through 2027

Cleveland-Cliffs expects its earnings recovery to continue during the fourth quarter despite seasonal and operational challenges.

Management forecast adjusted EBITDA of approximately $715 million for the final three months of 2026, above the roughly $684 million to $700 million range of analyst expectations cited in the supplied reports.

The anticipated improvement reflects stronger realized steel prices, which management expects to more than offset seasonal demand softness, planned maintenance outages, higher input costs and increased incentive compensation expenses.

2027 EBITDA Forecast Exceeds Wall Street Expectations

The company's most significant forward-looking announcement was its projection that adjusted EBITDA will exceed $4 billion in 2027.

That compares with Wall Street consensus expectations of approximately $2.5 billion.

The forecast represents a substantial improvement over recent operating results and reflects management's expectations for newly signed customer contracts and prevailing steel price forecasts.

For context, Cleveland-Cliffs generated approximately $5.3 billion in annual EBITDA during 2021, when steel prices reached unusually elevated levels.

The current outlook does not require a return to that historical earnings peak, but it does depend on the company realizing the pricing and operating assumptions incorporated into its forecast.

Because a significant portion of steel production is sold under negotiated contracts, changes in market prices can affect earnings gradually as agreements are renewed.

That distinction helps explain why the company's new customer contracts are central to its longer-term financial outlook.

Stronger Cash Flow Supports Debt Reduction Plans

Cleveland-Cliffs also outlined plans to improve its balance sheet as profitability recovers.

The company reported approximately $3.2 billion in available liquidity at the end of September.

Management expects stronger free cash flow during the fourth quarter, alongside proceeds from property sales, to support a substantial reduction in debt.

Free cash flow generally represents the cash remaining after a company funds its operating activities and capital expenditures.

Cleveland-Cliffs reaffirmed its objective of reducing net debt to less than 2.5 times EBITDA by the middle of 2027.

This leverage ratio compares the company's net borrowing obligations with its operating earnings, providing a measure of debt relative to profitability.

Achieving the target will depend on continued cash generation, operating performance and progress in reducing outstanding debt.

The company's improving earnings outlook provides a potential foundation for that effort, although steel pricing and production costs remain important variables.

What It Means for Investors

Cleveland-Cliffs' results illustrate how changes in steel prices can significantly affect profitability in a capital-intensive manufacturing business. Higher realized prices, increased production volumes and improved cost efficiency contributed to a substantial recovery in operating earnings, even though revenue came in slightly below expectations.

The company's 2027 outlook introduces an additional consideration: greater visibility from customer contracts. Stronger pricing arrangements and take-or-pay provisions can make future earnings less dependent on short-term spot market fluctuations, although the steel industry remains sensitive to economic conditions and demand.

Trade policy is also playing an important role. The current tariff environment has supported domestic steel pricing and reduced import competition, benefiting U.S. producers while reinforcing the importance of reliable domestic supply chains.

For Cleveland-Cliffs, the next phase of the recovery will be measured not only by higher earnings but also by the company's ability to convert profitability into free cash flow and reduce leverage. Those financial developments will help determine how much of the operating improvement translates into a stronger balance sheet.

Conclusion

Cleveland-Cliffs' third-quarter results mark a significant improvement in operating performance, with stronger steel prices, higher shipments and lower production costs supporting the company's earnings recovery. New customer contracts and favorable domestic market conditions have also strengthened management's outlook for 2027, while improving cash flow is expected to support debt reduction. The company's ability to sustain these gains will depend on steel pricing, contract execution and continued operating efficiency as it works toward its longer-term financial objectives.

FAQs

Why did Cleveland-Cliffs stock rise after its earnings report?

Cleveland-Cliffs shares surged more than 12% after the company reported stronger-than-expected third-quarter adjusted EBITDA and issued a 2027 earnings forecast substantially above Wall Street expectations. Higher steel prices, improved operating efficiency and new customer contracts supported the outlook.

How did Cleveland-Cliffs perform in the third quarter of 2026?

Cleveland-Cliffs reported third-quarter revenue of approximately $5.6 billion, adjusted EBITDA of $612 million and adjusted earnings of $0.28 per share. Profitability improved as steel selling prices increased, shipments rose and unit production costs declined.

What is Cleveland-Cliffs' earnings outlook for 2027?

Cleveland-Cliffs expects adjusted EBITDA to exceed $4 billion in 2027, compared with Wall Street expectations of approximately $2.5 billion. Management attributed the stronger forecast to newly negotiated customer contracts and prevailing steel price expectations.

How are U.S. steel tariffs affecting Cleveland-Cliffs?

U.S. tariffs of 50% on raw steel imports have contributed to higher domestic steel prices and reduced import competition. Cleveland-Cliffs management said the trade environment is supporting demand for domestically produced steel and encouraging customers to secure reliable supply agreements.

What are Cleveland-Cliffs' debt reduction plans?

Cleveland-Cliffs expects stronger free cash flow and proceeds from property sales to support debt reduction. The company aims to reduce net debt to less than 2.5 times EBITDA by the middle of 2027 and reported approximately $3.2 billion in available liquidity at the end of September 2026.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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