CLF — Q3 2026 Financial Report Analysis

Higher steel prices turned a $251 million loss into a $152 million profit

Cleveland-Cliffs, a North American flat-rolled steel maker whose biggest market is cars, made money in Q3 2026 after two loss-making quarters. Revenue rose 18.5% to $5.61 billion. Net income attributable to shareholders was $152 million ($0.26 per diluted share), against a $251 million loss ($0.51 per share) a year earlier. Most of the gain came from price. The company's average selling price rose 14% to $1,177 per ton, and the 10-Q says higher pricing alone added about $500 million of revenue. Shipments rose only 3%. The quarter also shows how much Cliffs is still carrying: $7.7 billion of debt, interest costs equal to almost half of operating income, and $77 million of cash.

The numbers

Operating margin is the share of revenue left after running the business, before interest and tax. Year-on-year percentage changes are left out where the year-ago figure was a loss, because a percentage measured from a negative base doesn't mean anything.

Compared with the previous quarter (Q2 2026), revenue rose from $5.2 billion and adjusted EBITDA from $286 million. The average selling price rose 4.7% from $1,124 and shipments rose 3.1% from 4.03 million tons. Shareholders' result moved from a $145 million loss ($0.25 per share) to the $152 million profit.

What drove it

Price came first. The domestic hot-rolled coil (HRC) price averaged $1,195 per ton in the quarter. HRC is flat steel rolled while hot, and its price is the benchmark index that matters most to Cliffs' revenue. That average was 42% higher than a year earlier and the highest quarterly average since Q2 2022. The 10-Q links the rise to 50% Section 232 tariffs on imported steel, imports staying "significantly below historical levels", and longer delivery lead times. It says US steel imports fell 15% year to date through August. Cliffs' own price rose much less than the index because of its fixed-price contracts.

The mix changed. Cliffs' five-year contract to supply semi-finished slabs (steel that customers roll further themselves), inherited with the ArcelorMittal USA purchase, ended in December 2025. Its last tons shipped in Q1 2026. Slab shipments fell from 375,000 tons a year ago to zero. The 10-Q says the contract had been "unprofitable in 2025". The mill capacity it freed went into hot-rolled sheet, where shipments rose 28% to 1.9 million tons, now 46% of volume. The company puts the favourable mix effect at about $100 million of revenue this quarter. Volume added another $130 million. Plate shipments fell 24% after Cliffs idled one of its two Burns Harbor plate mills and the Gary plate finishing line in Q2.

By customer group:

Distributors and converters grew fastest. That fits the shift into hot-rolled sheet after the slab contract ended and the rise in market prices. Automotive is the more notable line. North American light-vehicle production fell to about 3.8 million units from 4.0 million, yet Cliffs' direct automotive revenue rose 14%. The company says its direct automotive shipments were the highest since Q3 2023. That suggests Cliffs gained share with carmakers that are buying more US-made steel, which fits management's statement that automotive customers are "prioritizing supply chain resiliency and localization".

Costs rose, but more slowly than prices. Cost of goods sold rose $367 million (7.7%) while revenue rose $878 million. The 10-Q blames the cost increase on volume, product mix and "elevated repair and maintenance expense". Depreciation fell to $259 million from $288 million, which also helped operating income. Selling, general and administrative costs rose $23 million, mostly from higher incentive pay.

What the headline numbers hide

• Cash is thinner than profit. Operating cash flow was $224 million in the quarter, which we calculate as $129 million for the nine months minus negative $95 million for the first half. Capital spending was about $152 million, which leaves roughly $72 million of free cash flow (cash left after investment). Year to date, operating cash flow was $129 million against a $198 million net loss. That is better than 2025's outflow of $449 million, but working capital absorbed $400 million.
• Receivables jumped, for an explainable reason. Accounts receivable (money customers owe) rose 50% since December, to $2.16 billion from $1.44 billion. Nine-month revenue rose 11% over the same period. The 10-Q attributes the increase to "rising steel prices and the timing of sales". Billing customers more per ton naturally raises the amount owed to Cliffs. Payables rose too, by $434 million, which roughly offset it. It is worth checking again in Q4, when management expects cash flow to accelerate.
• A pension credit props up pre-tax profit. A $64 million non-cash pension and retiree-benefit credit sits below operating income. It is an accounting gain, mainly because the expected return on the plans' assets is larger than the interest cost on what the plans owe, and it makes up about 30% of the $213 million pre-tax income. It is recurring, but it isn't steelmaking profit.
• The GAAP vs adjusted gap is small this quarter. Adjusted net income was $161 million and GAAP net income $152 million. The difference is mostly a $15 million loss on the fair value of a derivative (the MinnTac option), $4 million of idled-facility charges and $4 million of currency losses. Those were partly offset by a $14 million gain on selling non-core assets, which the adjusted figure strips out. That makes adjusted EPS of $0.28 a fair read of the quarter. A year ago the gap was wider ($0.45 adjusted loss vs $0.51 GAAP loss), and over nine months of 2025 idled-facility charges ran to $245 million.
• Tax and share count aren't the story. The quarter's tax rate was about 22%, and there were no share buybacks: 570.6 million shares were outstanding, roughly flat on December. The swing to profit came from operations.
• Debt went up this year, not down. Total debt principal was $7.71 billion, up from $7.33 billion in December, because Cliffs drew $383 million more on its asset-backed credit line (ABL) this year. The line did fall in Q3, from $895 million at June 30 to $834 million. Liquidity was $3.2 billion, made up of cash plus undrawn credit. The nearest bond maturity is 2029.

Outlook

• Q4 2026: management guides to adjusted EBITDA of about $715 million, up 17% from Q3. It expects higher prices to more than offset seasonal weakness, planned maintenance outages, input costs and incentive-pay accruals. It also expects "a major debt reduction" in Q4, funded by stronger free cash flow and property sale proceeds.
• 2027: based on contracts already re-signed and "prevailing index price forecasts", the company expects adjusted EBITDA above $4 billion. That is roughly four times the $993 million it earned in the first nine months of 2026. The target relies on fixed-price contracts resetting toward today's much higher spot prices, and on index prices staying high.
• Leverage: the target is net debt below 2.5x EBITDA by mid-2027. Net debt means debt minus cash. On our arithmetic, about $7.6 billion of net debt against $4 billion of EBITDA would be roughly 1.9x. Against the Q4 guide annualized ($2.9 billion), it would be about 2.7x, so reaching the target depends on both the 2027 earnings and the promised Q4 debt paydown.
• Other items to watch: contract talks with the United Steelworkers covering more than 18,000 employees are under way. The finishing lines at Stelco's Hamilton Works in Canada have been idled indefinitely. The possible POSCO partnership has no definitive agreement, and the 10-Q says it may not happen.

Our read: this is a real turn, and the drivers are visible in the filing. They are higher prices, a dropped loss-making slab contract and gains with automotive customers. But nearly all of it depends on tariff-supported US steel prices. Cliffs carries enough debt that a pullback in HRC prices would hit shareholders quickly. Q4 is the test: whether the promised debt reduction happens, and whether receivables turn into cash.

Takeaway: Cleveland-Cliffs is back in profit because steel prices rose, but it is only partly benefiting so far. Its price rose 14% while the market benchmark rose 42%, because 40-45% of its tons are on fixed-price contracts. The 2027 contract reset is what management's $4 billion EBITDA target rests on. With $7.7 billion of debt, that reset matters more to shareholders than this quarter's $0.26 per share.