Cleveland-Cliffs, Inc. Q4 2007 Earnings Call Transcript

Cleveland Cliffs Inc. (CLF)

Q4 FY07 Earnings Call

February 22, 2008, 10:00 AM ET

Executives

Steve Baisden - Director, IR and Corporate Communications

Laurie Brlas - Sr. VP and CFO

Joseph A. Carrabba - Chairman, President and CEO

Analysts

David MacGregor - Longbow Research

Michael Gambardella - JPMorgan

Meredith Bandy - BMO Capital Markets

Tony Boase - FAF Advisors

Mark Liinamaa - Morgan Stanley

Justin Bergner - Gabelli & Company, Inc.

John Tumazos - John Tumazos Very Independent Research

Presentation

Operator

Good morning. My name is Sheryl, and I am your conference facilitator today. I would like to welcome everyone to the Cleveland-Cliffs' 2007 Fourth Quarter and Full-Year Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions].

At this time, I would like to introduce Steve Baisden, Director, Investor Relations and Corporate Communications. Mr. Baisden?

Steve Baisden - Director, Investor Relations and Corporate Communications

Thank you, Sheryl. Before we get started, let me remind you that certain comments made on today's call will include predictive statements that are intended to be made as forward looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which could cause results to differ materially. Important factors that could cause this difference are set forth in our reports on Form 10-K and 10-Q and news releases filed with the SEC, which are available on cleveland-cliffs.com.

Today's conference call is also available and being broadcast on our website. At the conclusion of the call, it will be archived and available for replay for 30 days on the site. Joining me today are Cliff's Chairman, President and Chief Executive Officer, Joseph Carrabba; and Senior Vice President and Chief Financial Officer, Laurie Brlas.

At this time, I'll turn the call over to Laurie for her prepared comments.

Laurie Brlas - Senior Vice President and Chief Financial Officer

Thanks, Steve, and good morning everyone. I'll begin today's discussion with the financial review of 2007 and our outlook for 2008. After that, Joe will have some comments on our operation including a review for our development projects.

Let's start with the fourth quarter highlights. Consolidated revenues of $783 million were up 43% compared with $549 million last year, benefiting primarily from the record performance delivered by our North American Iron Ore segment, up 41% to $618 million. We also had a $51 million revenue contribution from our new North American Coal segment.

Consolidated sales margins increased during the quarter, due principally to an $83 million sales margin gain in North American Iron Ore. This was partially offset by higher cost in Asia-Pacific Iron Ore related to the weaker U.S. dollar versus the Australian dollar as well as a negative sales margin in North American Coal.

Operating income of $139 million was up 52% from the comparable prior-year period and represented a quarterly record. Net income of $94 million or $1.77 per diluted share compared with $70 million or $1.33 per diluted share last year. The increase was principally due to higher operating income, partially offset by acquisition-related borrowing costs, increased SG&A, and the loss at Amapa.

For the full-year 2007, consolidated revenues rose 18% to an all-time high of $2.3 billion, surpassing the record of $1.9 billion established last year. Revenue increases of 12% and 23% respectively from our North American and Asia-Pacific Iron Ore businesses and an $85 million revenue contribution from our met coal business acquired in July were the drivers of 2007 topline growth. Operating income of $383 million was up 2% from last year's record results, and net income was $270 million or $5.14 per diluted share compared with $280 million or $5.20 per diluted share a year ago.

Turning to the results of our reported [ph] segments, North American Iron Ore pellet sales volume for the 2007 closing quarter was a record 8 million tons, up 37% from 6 million tons last year. The increase was due to contractual take or pay commitments as well as deliveries that were delayed from the third quarter due to customers