Cleveland-Cliffs has its best quarter in three years and says 2027 EBITDA should top $4 billion

Cleveland-Cliffs said on Monday, Oct. 19, that it just had its strongest quarter in three years and expects new customer contracts and higher steel prices to push adjusted EBITDA above $4 billion in 2027, a much bigger number than management floated in July. It also defended idling production lines at Stelco, its Canadian unit, where Ottawa is threatening a forced sale over layoffs.

A quarter above its own target

Third-quarter revenue rose to $5.6 billion from $5.2 billion in the second quarter and $4.7 billion a year earlier. Net income was $165 million, of which $152 million was attributable to Cliffs shareholders, or 26 cents a diluted share. On an adjusted basis, it earned 28 cents a share. In the second quarter it had lost $134 million.

Analysts had expected earnings of 22 cents a share on revenue of $5.71 billion, according to an Investing.com preview, so Cliffs beat on profit while sales came in slightly light.

The bigger number for steel investors is adjusted EBITDA, a measure of operating profit before interest, taxes, depreciation and amortization. It reached $612 million, ahead of the $575 million the company had guided to three months earlier, more than double the $286 million of the second quarter and up from $143 million a year earlier. Chairman and Chief Executive Lourenco Goncalves said price, volume and unit costs "all moved in the right direction."

Shipments rose to 4.15 million net tons, up 125,000 tons from the second quarter. The average selling price climbed to $1,177 a ton, $53 more than in the spring and up from $1,032 a year earlier, while unit costs fell $17 a ton from the second quarter. Volume to automakers reached its highest level since the third quarter of 2023, and direct sales to the auto industry made up 28% of steelmaking revenue.

A much bigger 2027

Cliffs guided to about $715 million of adjusted EBITDA in the fourth quarter, despite seasonal slowing and planned maintenance outages. The headline, though, is next year. "Based on the new contracts we have already signed with our clients and prevailing index price forecasts, we would expect our 2027 adjusted EBITDA to exceed $4 billion," Goncalves said.

An illustrative bridge in the earnings presentation shows how the company gets there. It starts from the third quarter's run rate, about $2.45 billion a year, then adds about $350 million from smaller discounts and higher extras on index-linked contracts, about $850 million from resetting fixed-price contracts and about $1.1 billion from prevailing price forecasts, less about $250 million of higher costs. That bridge ends at roughly $4.5 billion. After about $1.8 billion of interest, capital spending and pension payments, the company estimates 2027 free cash flow of about $2.7 billion.

That is a big step up from management's own view in July, when it said 2027 adjusted EBITDA could grow to $3.3 billion. It is also well above Wells Fargo, which upgraded the stock on Oct. 6 on a 2027 estimate of $2.65 billion that it said was already materially above the FactSet consensus.

The catch is that about $1.1 billion of the bridge rests on price forecasts, which the company defines as the current futures curve and its Canadian order book. Wells Fargo said its own estimate already allowed for benchmark prices easing to about $1,000 a ton from around $1,250. Cliffs' presentation put U.S. hot-rolled coil, the benchmark sheet product, at $1,259 a ton as of Oct. 15.

Debt comes first

Cliffs ended September with $3.2 billion of liquidity. Long-term debt stood at $7.65 billion, up from $7.25 billion at the end of 2025, after the company drew on its credit line earlier in the year. Goncalves said he expects "a major debt reduction" in the fourth quarter from stronger cash flow and property sales, and the company said it remains on track to get net debt below 2.5 times trailing adjusted EBITDA by the middle of 2027. Asset sales that are under contract or closed are valued at about $500 million, of which about $130 million has been received, and the company expects to put all net proceeds toward debt.

Stelco's best quarter, and its idled lines

Goncalves said the third quarter was Stelco's strongest since Cliffs bought the Canadian steelmaker two years ago. Canadian hot-rolled prices stood at $1,226 a ton as of Oct. 15, close to the U.S. level, and Stelco turned into a positive contributor to EBITDA in the quarter.

He was blunt about the rest of Stelco's business. Canada's galvanized-steel market is "clearly oversupplied," he said, and because he does not expect government action to fix it, Cliffs made "the difficult but necessary decision to indefinitely idle our galvanizing lines at Stelco." That decision, first announced on Sept. 28, idles the cold-rolling and coating operations at Stelco's mill in Hamilton, Ont., concentrates steel production at its Lake Erie Works and came with layoffs of about 500 workers. Goncalves said total tonnage at Stelco will be maintained, idled employees will be brought back when conditions improve and about 2,000 Canadian jobs are preserved.

Ottawa sees it differently. It says the cuts break the employment commitments Cliffs made when it bought Stelco in 2024, and Industry Minister Mélanie Joly said on Friday that the government believes there have been "multiple breaches of commitments" and that the Investment Canada Act offers options through a court process. She said resolving the standoff is "a question of days," and that the company faces financial penalties and "a potential forced divestiture" of its Canadian assets. Monday's release did not address the legal threat.

What the market heard

Cliffs shares were at $13.62 in premarket trading at 6:25 a.m. ET, more than 12% above Friday's close of $12.12. The company holds its earnings call at 8:30 a.m. ET. The open questions are whether next year's prices hold up well enough to deliver the $4 billion, how quickly debt comes down, and whether Ottawa takes Cliffs to court over Stelco.