Al Root

Cleveland-Cliffs stock fell early Tuesday after the steel maker reported weaker-than-expected earnings.

Demand for steel remains soft while President Donald Trump's tariffs take effect and as Nippon Steel and U.S. Steel try to complete their industry-altering merger.

Cliffs stock was down 5.3% at $10.56 in early trading, while S&P 500 and Dow Jones Industrial Average futures were off about 0.3% and 0.1%, respectively.

The company reported a loss of $81 million for adjusted fourth-quarter earnings before interest, taxes, depreciation, and amortization (Ebitda) on Monday evening. That was close to management's guidance, but Wall Street was still looking for a loss of about $30 million, according to FactSet.

Citi analyst Alexander Hacking pointed out in a Monday report that free cash flow -- at about negative $700 million -- was weaker than expected. He rates shares Hold and has an $11 price target for the stock.

"Our results in 2024 were a consequence of the worst steel demand environment since 2010, ex-COVID," said CEO Lourenco Goncalves in a news release. "Since Jan. 20, President Trump has made clear that proper enforcement of our trade laws and a supportive industrial policy prioritizing manufacturing in the United States are both being implemented. That should benefit Cleveland-Cliffs more than others."

In February Trump imposed 25% tariffs on imported steel and aluminum -- including on material from Canada and Mexico, which together supply roughly 40% of U.S. steel imports.

Trump also opposed the fourth largest steel maker in the world, Nippon Steel, buying U.S. Steel. President Joe Biden blocked the acquisition on national security grounds in January before he left office.

U.S. Steel and Nippon are suing to overturn that decision. The companies also filed a separate lawsuit against Cliffs, its CEO Lourenco Goncalves, and David McCall, president of the United Steelworkers union, "for their illegal and coordinated actions aimed at preventing the transaction."

The lawsuit led to some surprising disclosures, including Goncalves claiming he was responsible for Biden's decision while discussing the possibility of a new deal with a U.S. Steel shareholder.

Cliffs didn't immediately return a request for comment about the court filing.

"The filing reinforces our claim that the defendants have entered into an illegal agreement to subvert the transaction," said a U.S. Steel spokesperson. "There are no valid legal defenses to that illegal conduct. U.S. Steel and Nippon Steel remain confident the facts and law are on our side."

Tariffs, earnings, mergers, and lawsuits. There is no shortage of drama in the steel business these days. It's exciting, but investors would probably settle for less excitement and higher steel prices.

Benchmark steel prices have risen to almost $900 a ton since the tariff announcement. Prices staying at that level will help earnings significantly. Steel prices ranged between $1,000-$1,500 range a ton from 2021 to 2022, when steel-company profits were much higher.

Write to Al Root at allen.root@dowjones.com

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February 25, 2025 07:50 ET (12:50 GMT)

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