Cabot Corp Reports Third Quarter Fiscal 2018 Results

August 6, 2018

BOSTON--(BUSINESS WIRE)--Aug 6, 2018--Cabot Corporation (NYSE: CBT) today announced results for its third quarter of fiscal year 2018.

Key Highlights

Diluted EPS of $1.40, compared to $0.73 in the same period of the prior year; Adjusted EPS of $1.06, up 28% year-over-year Reinforcement Materials EBIT improved 45% versus prior year driven by strong commercial execution that delivered volume growth and higher unit margins Performance Chemicals EBIT up 22% year-over-year from robust sales volumes and pricing gains in Specialty Carbons and Formulations Continued commitment to returning cash to shareholders with $64 million of dividends and share repurchases in the quarter

Commenting on the results, Cabot President and CEO Sean Keohane said, “I am very pleased with the strong operating results this quarter as we continue to drive our growth strategy. Reinforcement Materials delivered another strong quarter with 45% growth in EBIT on a year-over-year basis driven by expanded unit margins from our leadership position in Asia and the delivery of volume growth and price improvements in our 2018 customer agreements. Performance Chemicals results improved compared to the prior year quarter due to 17% higher sales volumes in Specialty Carbons and Formulations and the successful realization of price increases across the segment. Purification Solutions EBIT was lower than the prior year quarter due to continued competitive intensity in mercury removal applications, while results in Specialty Fluids benefited from the ramp-up of projects in the Middle East and Africa.” Keohane continued, “In addition, we raised the dividend by 5% in May, repurchased shares in the amount of $43 million during the quarter and announced 300,000 metric tons of advantaged capacity additions throughout the carbon black network.”

Financial Detail

For the third quarter of fiscal 2018, net income attributable to Cabot Corporation was $88 million ($1.40 per diluted common share). Net income includes an after-tax charge of $5 million from certain items, principally reflecting charges associated with executive transition costs and restructuring activities during the quarter. Tax-related certain items included a discrete tax benefit of $26 million. Adjusted EPS for the third quarter of fiscal 2018 was $1.06 per share.

Segment Results

Reinforcement Materials -- Third quarter fiscal 2018 EBIT in Reinforcement Materials increased by $23 million compared to the third quarter of fiscal 2017. The increase in EBIT was principally driven by continued strong volume growth globally, expanded unit margins in Asia, and improved pricing and product mix from 2018 customer agreements. Globally, volumes increased 6% year over year, with above-market growth in all regions as indicated in the table below.

Performance Chemicals -- Third quarter fiscal 2018 EBIT in Performance Chemicals increased by $10 million compared to the third quarter of fiscal 2017 driven by strong commercial execution in both pricing and volume growth. Volumes increased by 17% in the Specialty Carbons and Formulations business and decreased 2% in the Metal Oxides business year-over-year. The strong growth in Specialty Carbons & Formulations was driven by above market growth in all product lines.

Purification Solutions – Third quarter fiscal 2018 EBIT in Purification Solutions decreased by $4 million compared to the third quarter of fiscal 2017 due to lower volumes and margins resulting from continued competitive intensity in mercury removal and other North American powdered activated carbon applications, partially offset by lower fixed costs as a result of restructuring actions taken earlier in the year.

Specialty Fluids – Third quarter fiscal 2018 EBIT in Specialty Fluids decreased by $1 million compared to the third quarter of fiscal 2017 due to the mix of business compared to the prior year.

Cash Performance - The Company ended the third quarter of fiscal 2018 with a cash balance of $131 million. During the third quarter of fiscal 2018, cash flows from operating activities were $62 million, which included a $72 million increase in net working capital. Capital expenditures for the third quarter of fiscal 2018 were $58 million. Additional uses of cash during the third quarter included $21 million for dividends and $43 million for repurchases of common stock.

Taxes – During the third quarter of fiscal 2018, the Company recorded a tax benefit of $4 million for an effective tax rate of (3%) and an operating tax rate of 21%. The benefit includes a $24 million net benefit of certain items and discrete tax items primarily related to the discrete benefit arising from a change in a valuation allowance.

Outlook Commenting on the outlook for the Company, Keohane said, “We are very pleased to deliver another excellent quarter, reflecting the strength of our global competitive position and we remain positive about the current business environment. Looking ahead to the fourth quarter, we anticipate that Reinforcement Materials will continue its robust performance supported by our advantaged leadership position and our strong operational and commercial execution. In Performance Chemicals, we expect to maintain margins and continued strong volumes in Specialty Carbons and Formulations, while we anticipate some impact on volumes and fixed costs in Metal Oxides due to coordinated turnarounds with two of our fumed silica feedstock providers in the quarter. Although the ongoing competitive pressures will continue to impact results in the Purification Solutions segment, we expect higher seasonal volumes in the fourth quarter to improve results sequentially. In the Specialty Fluids segment, we are expecting the continued ramp up of drilling activity on recently awarded projects to drive improved results in the fourth quarter. We continue to execute on our strategy and are poised to deliver a very successful 2018 fiscal year.”

Earnings Call The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Tuesday, August 7, 2018. The call can be accessed through Cabot’s investor relations website at http://investor.cabot-corp.com

About Cabot Corporation Cabot Corporation (NYSE: CBT) is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, masterbatches and conductive compounds, fumed silica, and aerogel. For more information on Cabot, please visit the company’s website at: http://www.cabotcorp.com. The Company encourages investors and potential investors to consult the Cabot website regularly.

Forward-Looking Statements -- This earnings release contains forward-looking statements. All statements that address expectations or projections about the future, including with respect to our performance in the fourth quarter of fiscal 2018 and the factors that we expect will impact volumes, demand for our products, fixed costs and margins are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control and difficult to predict. If known or unknown risks materialize, or should underlying assumptions prove inaccurate, our actual results could differ materially from past results and from those expressed or implied by forward-looking statements. Important factors that could cause our results to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to volatility in the price of energy and raw materials; competition from other specialty chemical companies; safety, health and environmental requirements; a significant adverse change in a customer relationship; negative or uncertain worldwide or regional economic conditions; unanticipated delays in site development projects; fluctuations in foreign currency exchange and interest rates; and changes in global trade policies. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly under the heading “Risk Factors” in our annual report on Form 10-K for our fiscal year ended September 30, 2017, filed with the SEC at www.sec.gov. We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Use of Non-GAAP Financial Measures To supplement Cabot’s consolidated financial statements presented on a generally accepted accounting principle (“GAAP”) basis, the preceding discussion of our results and the accompanying financial tables report Adjusted EPS and our operating tax rate, both of which are non-GAAP financial measures. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, GAAP. A reconciliation of Adjusted EPS to net income (loss) per share attributable to Cabot Corporation, the most directly comparable GAAP financial measure, and a reconciliation of operating tax rate to effective tax rate, the most directly comparable GAAP financial measure, are provided in the table titled “Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate.”

Management believes these non-GAAP measures provide investors with greater transparency to the information used by Cabot management in its financial and operational decision-making, allow investors to see Cabot’s results through the eyes of management, and better enable Cabot’s investors to understand Cabot’s operating performance and financial condition.

Adjusted EPS. In calculating Adjusted EPS, we exclude from our net income (loss) per share from continuing operations items of expense and income that management does not consider representative of the Company’s business operations. Accordingly, reporting earnings on an adjusted basis supplements the GAAP measure of performance and provides additional information related to the underlying performance of the business. For example, certain of the items we exclude are items that we are required by GAAP to recognize in one period that relate to activities extending over several periods or relate to single events that management considers to be unusual and infrequent, although not necessarily non-recurring. We refer to these items as “certain items.” Management believes excluding these items facilitates operating performance comparisons from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis and evaluates the Company’s operating performance without the impact of these costs or benefits. Management also uses Adjusted EPS as a key measure in evaluating management performance for incentive compensation purposes.

The items of income and expense that we have excluded from our calculations of Adjusted EPS, as applicable, but that have been included in our GAAP net income (loss) per share, as applicable, are described below.

Asset impairment charges, which primarily included charges associated with an impairment of goodwill or other long-lived assets. Inventory Reserve Adjustment, which resulted from an evaluation performed as part of an impairment analysis. Global restructuring activities, which included costs or benefits associated with cost reduction initiatives or plant closures and were primarily related to (i) employee termination costs, (ii) asset impairment charges associated with restructuring actions, (iii) costs to close facilities, including environmental costs and contract termination penalties, and (iv) gains realized on the sale of land or equipment associated with restructured plants or locations. Legal and environmental reserves and matters, which consisted of costs or benefits for matters typically related to former businesses or that were otherwise incurred outside of the ordinary course of business. Gains (losses) on sale of investments, which primarily related to the sale of investments accounted for under the cost-method. Executive transition costs, which included incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company. Acquisition and integration-related charges, which included transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes. Non-recurring gains (losses) on foreign currency, which primarily related to the impact of continued currency devaluations on our net monetary assets denominated in that currency.

Cabot does not provide a target GAAP EPS growth rate range or reconciliation of the Adjusted EPS growth rate range with a GAAP EPS growth rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on GAAP EPS in future periods.

Operating Tax Rate. Our “operating tax rate” represents the tax rate on our recurring operating results. This rate excludes discrete tax items, which are unusual or infrequent items that are excluded from the estimated annual effective tax rate and other tax items, including the impact of the timing of losses in certain jurisdictions, cumulative tax rate adjustments and the impact of the items of expense and income we identify as certain items on both our operating income and the tax provision. Management believes that the operating tax rate is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and to understand what our tax rate on current operations would be without the impact of these items.

Explanation of Terms Used

Product Mix. The term “product mix” refers to the mix of types and grade of products sold or the mix of geographic regions where products are sold, and the positive or negative impact this has on the revenue or profitability of the business or segment.

Net Working Capital. The term “net working capital” includes accounts receivable, inventory and accounts payable and accrued liabilities.

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