CBT - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Cabot Corporation Q1 Earnings Conference Call. [Operator Instructions] Also as a reminder, this conference call is being recorded. At this time, I'd like to turn the call over to your host to Steve Delahunt, Vice President, Treasurer and Investor Relations. Please go ahead, sir.

Steven Delahunt

Thank you. afternoon. Good welcome Cabot to earnings to you like Corporation the teleconference. I'd CEO today and and are me and CFO. Sean President With Vice Keohane, President; Senior Erica McLaughlin, Last Investor Relations quarter of our our of night, are section results XXXX, which the year copies first in posted website. we released fiscal for

press those For the our mail. list, mailing by on received you release

this please and you the call of deck this information receiving are interested are in slide in available not If also available replay our A the is on conjunction contact future, the and that portion of Relations. our the with accompanies will mailing list Relations in Investor in call. Investor be website

make could those projected During to subject statement our statements from is about operational cause differ risks materially statements. Each such this we expected uncertainties and actual forward-looking conference to will results that forward-looking and call, in future financial performance.

call the business who discuss website. Erica will Company's our and adjustments heading release the in not Additional call annual referenced the In corporate earnings filed GAAP this our at I measures key GAAP financial an the provide measures last end greater the transparency under over Sean financial involve appears in table to refer financial XX-K Keohane, that the to on of SEC of the Any a information with are will and to issued and details. required regarding night review Statements last is the press these results. and regarding section in our on website. issued alternative performance, the McLaughlin be Form the should release available certain considered non-GAAP Forward-looking the financial highlights financial Company's report order on to by measures Any measures segments to that GAAP. operating directly presented performance, non-GAAP will financial our to now night measure on reconciled most we comparable factors to non-GAAP last Investors available of we turn be

some floor Following and Sean? will the comments this, provide open Sean questions. closing to

Sean Keohane

Steve, Thank afternoon, and you, gentlemen. and good ladies

tire was $XXX share the expected, strengthening proposition gains solid the prices, the of China. destocking. This Reinforcement major calendar year and adjusted as falling in challenging more earnings by of million EBIT results challenging regions first automotive continued XXXX. consistent demand segment While $X.XX. across to leading highlights customers delivered the with our and total for Materials in with the Results were well in completed segment environment fundamentals. with as and per environment year, volume outcome we the Results were market of segment value last softer polymer impacted We and year negotiations Cabot's of realized the calendar Chemicals in price despite all inventory quarter strength than Performance

the we faced continued capacity we investments strengthen on our will for While challenging short-term progress and dynamics new to quarter, that growth in long-term. position applications the for our

repurchases. an shareholders also And Specialty divest $XX dividends agreement to finally, level with of we the During share cash week, quarter, million an our and business. at returned announced last we to Fluids elevated our

part multiple Specialty is Segment that of to businesses. core of Fluids million the of long-term a the of is chemical an for customary a business give based material company, maximize in signed to shareholders the Advancing and mineral the transaction and The the was is mining of leading sell in mineral exploration, our value China resources its owner EBITDA a quarter our closing business XXXX engaged invest allowing that in from strategy, base and milestone in conditions growth. appropriate, This transaction an manufacturing. being us will prospecting a has business long-term at fiscal Cabot Sinomine to and the the and is initiatives player subject business $XX in the focus industry benefit Core more a believe growth our segment on metal the me We is to advantaged solid of transaction Let Sinomine important our Specialty Sinomine resulting XXXX, XX.X not fiscal expected times. agreement the of million. some attractive expected in XXXX, to an to you impact have Fluids fiscal $XXX in close principally on results. third details. in will valued

to were conditions. impacted number There business results. the in Turning that now current dynamics quarter a of short-term

rubber in builds of production positively Reinforcement Europe. slowing progress quarter should industrial the the experienced year, and through decline was automotive in X% The compounds China results. recent shows The The fiscal specialty businesses. volumes The Performance a Materials specialty our factor we on improvement products sharp we where first new segment, in which and in impact in greater XX% production particularly impact car impact China in and segment, for calls Chemicals felt and carbons Europe. as auto a the our is for both in in outlook

raw in factor was cost. quarter the Another the material rapid decline in

led was winter demand this environment all quarter. the As feedstock this an season on inventory decreased rapid the of environment. a decline slide, build you pricing from America margins North lower with middle indices in and softer quarter. sharply China and the the chart coupled In was The result can in in a that to see competitive both of the in China, front after

this will margin decline the For in world, in the squeeze a of produce quarter. Reinforcement Materials rest in the feedstock second

lower chain. for supply Performance a the be However, costs this is expected Chemicals as impact to through flow positive

destocking, prices specialty in carbons impacted the in can in polymer resulting which quarter, in on in the the chart China right, as our customer declined and compounds you specialty volumes see EMEA businesses. Additionally, and

through flatten stronger levels These than progress year first the to we we then volumes additional upside normal to increase, to will and Therefore, forecasted that improve As of half. be year. polymer factors half begin the from would restocking we the prices as anticipate to return with expect possible. are back

Our compared in China remain the in remain puts so OEM of a seen as anticipate order customer the first outlook And quarter, market confident improved the cycles quarter, for year in of the in second the compared restocking our our a and we European before to Chinese in that been recovery us although, competitors. these unique volumes. our auto fundamentals the We've and through continued we after position the of rest Year. leadership including half far book and uncertainty in January the stronger business the China New at advantage to China we've there second confident

our allocation strategy. commitment to Now, our capital moving to

returned $XX with share in quarter, we $XX million During repurchases. cash in the million

the count which past in repurchased Over X%. reduction a nine the share $XXX have shares, months, of of to we million amounts

We dividend We XXXX. million We our XXXX business to paid in are turn detail. and dividends Erica it will to the since quarter discuss payout. $XX last our to equally X% and year million increased XX% I first by over now in XXXX. dividend more in have fiscal the $XX results it committed increased of in

Erica McLaughlin

you, to Thank all you call. on the of good afternoon Sean, and

volumes with first from segment the with mix the quarter segment fiscal turn and product was The The Reinforcement XXXX. growth lower as by from and margins the X% first during the to higher now prior consistent first These partially of for lower benefits offset China, Materials. in EBIT and from volume in Reinforcement quarter our of beginning quarter improved to year benefited Sean were XXXX me volumes quarter agreements. Asia, Materials as offset of customer by the the increases XXXX fiscal in of results, compared was Americas pricing due tire same Let to the discussed. quarter in Europe.

ahead as supported customers XXXX volume solid from Reinforcement tire transition to margin gains quarter, expect we Looking performance to second calendar the to and agreements. Materials continue, by a year

we costs rapid quarter, the a margin to cost a However, will the mismatch. result pricing during fiscal in first to global due squeeze decline which quarter expect our feedstock temporary and of see second in

to into In in strengthening result expected and addition, expected continue with anticipated second is after This second is of a an in XXXX. New environment the quarter volumes Chinese of challenging margins half the Year. stronger the to China

volumes during X% investments. and related Now, the Performance turning our of a cost decrease quarter, compounds increases, decreased Chemicals, driven automotive in destocking Lower million costs driven through. Formulated fiscal challenged volumes specialty softening carbons that in by inventory as to margins a and fourth the Solutions. by Performance in X% temporary were our high and in which was product implement XXXX This purchase material resulted in higher the sold feedstock in to growth raw were in Additives customer quarter Europe, decline price lower and due China was in to ability precipitous volumes specialty year-over-year lines. squeeze and costs to decrease Lower demand EBIT and $XX margin a by

saw as in of the We fully the the from results recovered impacts business saw in also we fourth quarter fiscal in XXXX. improvement quarter oxide metal the

Looking expect emissions carbons demand begin to overall regulations. slowdown to expected quarter, sequentially segment the product Demand our margins recovering specialty ahead to after the in Europe second specialty increase sequential automotive and improvement and both driving volumes is lines, business testing in the in from we compounds recent results. to

signs carbons to product which increase, that anticipate polymer and flattened demand specialty we compounds also have seen in specialty have lead We to our are prices beginning will higher lines. and

the improve to costs P&L. we through as expect margins material addition, In raw lower flow

second the the of Although, of outlook is XXXX, the China in quarter half confident second of we to year. into for fiscal business continue fundamentals the uncertainty the remain and the in expected the

same that last first driven ended. payments year. by XXXX, $X million XXXX Now, the Purification the a first moving has Solutions. the This decreased to in to fiscal EBIT royalty of from decrease quarter fiscal quarter since In was of quarter received $X compared by million of

In continued in addition, competitive activated carbon North margins intensity and from removal to both America experience applications. other continued and lower mercury we powdered volumes

assets second see quarter, structure. expect taken to Looking improvement plan, focus and we the transformation to ahead portfolio, the in our being our organizational to actions our from optimize streamline sequential

this Additionally, we to continue alternatives strategic for pursue business.

fiscal increased as segment, an project activity quarter increase compared Fluids our the $XX XXXX For to in fiscal due by to prior first to quarter compared Specialty as first the year. million EBIT of XXXX

our move to the XXXX, expect our XXXX to to quarter our be fiscal with to during project at third we turn impact fiscal We strong quarter liquidity quarter be balance activity of anticipate business the items. results. as divestiture we $XXX million now position limited I'll a continues. business and corporate second of the cash solid we year full $XXX existing We million. will As ended remained there expect the of finalized results and

of of timing first use largely current million, $XXX on which cash due be a working we $XXX Based the year. capital million fiscal a increase XXXX, expected of brought and second from quarter payables. of in the an quarter with days, fiscal working the approximately for higher of capital capital of and operating targeted first for to by activities to and to were included $XX million year reduction expenditures levels of $XX for working the expect starting million, XXXX in quarter. Capital the fiscal the lower volumes source cash be a prices During the $XXX on million were feedstock to flows net are inventory decline full full

plants few this million years, environmental black and level. capital our reduced anticipate $XXX normalized preserving fumed will ongoing spend. per and two year, of range of carbon sustaining more completion our investments the of be in while would to projects, over silica current We full project. have After a debottleneck year capital to range growth to business and spending environmental we current investments we for advantaged related our next to capital We given of growth the to the expect million inclusive compliance conditions, total the return need new slate $XXX the capital our

dividends As to share and $XX returned cash through million of previously shareholders repurchases. in discussed, million we $XX

XX% in Our operating the quarter tax XX% new by XX%. for from and is The XX% was tax between we will the fiscal the XXXX in U.S. rate rate the increase reform. anticipate - and rate tax driven be the year tax in

included the XXXX. in U.S. income reduced entities additional starting it legislation tax Although, of foreign rate, the new taxation also on

have call in and of additional this amount over tax we now turn Cabot, $X.XX the amount per the For year a earnings of outside I of will causes significant the a adjusted of significant back to the U.S. for share. Sean. earnings headwind

Sean Keohane

Erica. Thanks,

update you for outlook Now, I'd our give XXXX. an to segment like on

utilizations For see globally. Reinforcement to high environment we industry supportive Materials, a continue with

agreements prices We in customer softness with are price as customers, of a volume more impacts the the the each negative have multi-year we our basis, results gains XXXX the global very agreements pleased feedstock regions. quarter The than year. however, In the with few reached decline on and price a automotive the in in and growth with the one-year second the agreements. increases from deals, rapid majority all of margin increases year-over-year agreements with tire from of XXXX fiscal China offset effects the will remain

Europe, Chemicals, Performance automotive results in In compounds and back million driven With the third the million and the recovery the quarter. run expect per us quarter, and by East in softness destocking demand increase anticipate sequentially half a Africa and Middle recover we to in in we carbons improves second feedstock of rate would the volume the to in to $XX quarter, impacts behind fiscal to as $XX quarterly China specialty year, in starting abates. EBIT

expect expect fumed should also the current we to benefit to to that from half structure fiscal million positive will Solutions, EBIT impact rate the through quarter. of improvement transformation China new applications. range second zero segment we to see a decline from we $XX up quarterly improved and sequential With EBIT portfolio, to will driven specialty move year. million see $XX significant in prices gain optimizes we the deliver levels margins, throughout the the of online. previously feedstock in in In second Therefore, to run EBIT we anticipate fourth the higher still organizational back of Purification expect and we expect XXXX. have silica within as the the for on November quarter coming Furthermore, mix Thus, The streamlines our then the quarter, primarily increase as begin in in sequential our assets hold as segment in feedstock the product pricing a segment momentum in plan year. the the our tailwind, the benefit a plant December, announced business to the rapid focuses $XX and of will by the million in unit see a we step

Fluids the quarter. in the Finally, East projects for Asia, key to solid continues with the in segment performance from region, second Africa Middle Specialty visibility benefit and

the in industries environment. this tightening working challenges results we costs, and the tax our in are As robustness XX%, business, $X.XX. of controlling of growth rate customer third in range headwind. challenging the fiscal for in To on the on expenditure and the pricing of to XXXX. these challenges, coupled in would the of range expect close expect our Company, based discussed, our in to respectively this sale stronger We the fundamentals half leadership managing and half, results we full delivering of business capital business quarter negotiated Therefore, in-spite agreements EPS to the serve. capital counteract with levels, dynamic focusing first we and the second positions of ability remain the a confident and we $X.XX to result year adjusted be earnings deliver This the near-term X% on of to recently

the strategy, future investing strong to cash businesses, joining the assets very I session. another core for are now continue we shareholders. growth, earnings in back for our us year turn will and call of and execute delivering question-and-answer non-core Finally, Advancing the today, much you to committed our as Thank we our returning Core over for to divesting

Operator

ahead. from [Operator Please Mike Barclays. comes from Instructions] go question Our Leithead first

Mike Leithead

EPS versus could hoping guide. last the on you question first guess, a simple offer bridge I I guide. was quarter's

the a I bit and up was rate tax soft. think X% a XQ bumped

helpful? quarter bridge would full could any provide last you So you what offered versus year be

Sean Keohane

Mike. Sure,

either we last think about. talked you range that drivers would think that in somewhere quarter, we lower that discussed in the upper, several I range or put I when were the there

terms at about key we think during that in segment were see of we time think of demand develops how market destocking discussed level I the another range. a The that the significant winter China Performance thinking season, Chemicals well our the as how factor across factor. I we was were factors certainly overall might that big or

today, has seeing bit at slowdown expected automotive more sit definitely the we we near-term the the here a and the and been challenging this environment we we're pronounced is in as point a more China than sit destocking year. As bit in

the to point think adjusted is tax to with we combined combination the range why up, I that So the factors $X.XX. I you two think, modestly of that bring those $X.XX

end, implies the top at think I and around low this X%. at X% a XX% the increase, of course, the end, midpoint

And the given quite market around so can certainly would be I that strong, in we up think range, end particularly current environment. if performance midpoint,

And are focused so we this. aggressively on

Mike Leithead

quarters. repurchases two to should similar And where buybacks remain follow up going are fair forward, a deployment, assume it given meaningfully past shares on then, pace the have if capital on share Is I up stepped or we could today?

Erica McLaughlin

Erica. that been quarters. last elevated So say the buying this I'd at we've of for is couple level an

we the the we as so and of good very feel for is cash cash XXXX shareholders. current use liquidity at our And for price, look for and Cabot outlook certainly Cabot's and that a share this

evaluate cash the flow strategy, price few know, for move I'd of anticipate it repurchase other of continue how so targeted a the year. certainly that And uses depend factors as on so continuing Cabot. included return to and cash terms it's our something we say, much and on and then our to you share as cash through the we the generation, shares will in we'd

Operator

Our next question go from ahead. Deutsche David Please Begleiter from comes Bank.

David Begleiter

the the by? temporary that this competitive quarter on can will of and market discuss truly level pass is Just the this your it of in how confidence and China, intensity you developed we and

Sean Keohane

it's we when about in China, long-term. and short-term both probably important about the to think think it think I the

color on of the give Let me try here, bit short-term right. to little a first

three really to factors are discuss there think here. key I

but the ultimately pretty in drop and production first China is that of sharp was a first particularly the auto production year-over-year in levels inventories for fourth lack of down time a ever, auto declined the production. manufacturers and caused consumer to high of result slow XXXX, automotive think in was quarter the that drop there I the probably demand

sit I will we and as predicting how one accelerate discussion about stimulus that. that's and the But even recover measures progress might some Now, is forecasters factor. Year this as that we the following are New Chinese here, year through think there

I coal is really in think in around China. volatility second tar the pricing

steep. sudden a so prices with there black. And a drop in the spot coupled demand coal in tar quite was so pretty environment carbon this in And drove prices down Chinese quarter, softer

time, fly remember, that year, coal bit this and in a benefited we actually might last in You had tar QX. QX of prices a us up in

So prices I a oil tar bit coal and but in tar aluminum of was than here to certainly prices they big little because move drivers the coal prices. differently big think China, tend impact underlying the factor fuel there, global a steel being

to So we the since they dip prices spot to while we recovered exiting working much saw levels have hard we're XXXX. back the of already, get as were

big impacting but I caution creating chain. is both factor sentiment, would the but also of the in say down think and and certain general I consumers, third a it point, and certainly in definitely uncertainty trade it's players amount here picture value is it's up a the industrial

see out we so here. to plays how have And that that

around the at are give And in I as confidence about are and producers pushing those. as those very tire much to think test long-term things is whole market. world the value chain, chain but there those the still well domestic and feel and truck that So us large it's market market OTR bus there Chinese of structural very steel automotive intact. XX% short-term, that the is to to would we're say and And pretty world's look how that vital this exported the growing tires are I first the a and tires the managing around the and this we these is do factors close global and important

I would think fundamental, - that's that I So quite is a solid say.

largely the car There cycle. in And business. vehicles majority to new then, our domestic provide many of been finally, a that would cars coal of pretty their remains And for fundamental continued replacement because now production and market of say Reinforcement in balance we them time know, feedstock carbon key feedstock intact The the the versus priority the significantly. automotive yet tightening significant I has third side, growth then as see so in Chinese carbon grown park as steel will, black, a the Chinese are on largest the think time our environmental this And over Government. enter the that second years, black and we declining and over consistent market. is these replacement you and see market dynamic over balanced still another the think, tar enforcement, Materials view. more And is view and so We on the has automotive drives long-term production in fundamental I as China. virgin

result think the - and will time long-term some value that'll it that will of over value restructuring market. to Cabot accrue I favorable that to a lead as in likely

intact that position here those QX confidence So think give dynamics our through we're I and I us lot QX. around and remain between short-term think factors some a of managing China

David Begleiter

And the in is still on that now disc-ops guidance full Fluids, correct? why just assume I Specialty year, lastly and for it's on not

Erica McLaughlin

be will own operating we it to results it. in the when So

out. moved for disc-ops close to in in and would been it then immaterial It come total just We QX not expect Cabot. has to it's because

David Begleiter

guidance, And it is correct? in

Erica McLaughlin

the in Yes, it's guidance.

Operator

comes Jim Our from go Sheehan next from ahead. SunTrust. question Please

Jim Sheehan

some an you both end Performance and black have to Could you on do Chemicals? Reinforcement where visibility inventory carbon And you on see in any provide color currently? levels destocking in

Sean Keohane

can some pretty chains Chemicals front materials cost get we from because in saw polymer think they the are sold and the behave segment and impact there there so value and inventory have so you little example, on significant is all back when caught what polymers or two, part pulling the Performance destocking distortions for chain high then of applications, deeper, kind prices in people bit gets chain, a then that value of number a to can the chain way plastic the and And this more movements certainly, underlying of I Well, pronounced the players a one. the where back into of in typically in number you that is destocking you how higher you side, are moving on to tomorrow's effect typically of psychology that raw afraid is going getting up, are than chain be decline, people see today's. that. with then, are restocking see inventory polymer are the and when because really often prices the And on significant the so see flip prices that because of

a sort So we be across a well-known pretty space this and of this into is goes phenomenon part of the significant impacted of type because can this plastic segment thing. that, by

Now, results quarter. the quarter. at volumes first a we the we January, a do saw up And as pronounced versus destocking see across in look we step first of pretty

plus I to And probably tell us that that is starts destocking think months of that that four an so to some after hopefully coming end.

there's think, anecdotal also as evidence some well. I

order couple of way the start - just you pattern see on orders break times once bare in minimum, a up trying customers ordering a kind be to You to the and orders would in a and month. their behavior of see change versus normal place - sometimes more down, customer month a

end we in think the the and to Chemicals I in near we normal see numbers destocking level. the are our that anecdotal probably Performance beginning January behavior and we're say returning would some to a hope on in signals that more So of

normal to destocking Performance close throughout was as that. but of I there China, excess some some deep some orders but an the of saw value not certainly more chains and in occurs, we vehicle there're probably And the to Chemicals chain, inventory applications, market, think level the a we're that is of tire as certainly the some lower there in that now. maybe destocking of getting think as led a level and I

Jim Sheehan

And automotive Solutions, from you a volume how of both moving in applications for XXXX? and much do benefit China to XXXX Purification expect

Sean Keohane

position leader. that is So canisters for sort of have know, although smaller - in two that number get a qualified you that vapor application, we and market where so Jim today, as a a share some market we're said the get as And player jump a the application, specified ball in upside, you market, in more the these of real than than before, the markets. as we vapor established market a view as implemented, canisters China maybe as for we it the a see the regulations of we've

would expect customers. then to ramp in volumes, small. that And so on impact to beginning is qualifications, beyond we our material XXXX period. see the translate - with are way would and to But that those What are and pretty of XXXX working out but keenly we immateriality qualifications be focused push more XXXX, 'XX 'XX, start as XXXX, in you're that will into through

Operator

[Operator next Instructions] JPMorgan. Jeff from ahead. Zekauskas question go from Please comes Our

Jeff Zekauskas

Thanks very much.

raw as and business, decrease your to In sales year-over-year a terms that material I was with of were profit. temporary having flat Performance Chemicals decrease roughly do there all fluctuations? think sharp in operating Do regard you

Sean Keohane

for we significantly example, down really weakness. by as results automotive tied to driven destocking and three One factors. is were QX, look is at the some and were So volume

margin point squeeze. Point - number So one. number number is a two

our really I you'll remember oil of So think all oil the then our sort peak, in specialty carbons declined somewhere XXXX in XXXX precipitously, as of the throughout dropped up QX was fiscal XX%. marching fiscal being in order at we it saw of and

pretty So QX. feedstock in our sharp fiscal costs in decline

squeeze flows a And there's through. bit as stuff so that higher cost of a

past, the in the that with all sharp of been so raising and to applications specialty oil. throughout keeping run that is very in shifting to continue certain approach prices, happened our that's demonstrated we to we've raise more can holding here challenged in And have year carbons out then drop marketplace substantially Now, in ability prices this our up up with constant when we last the prices. hold. And

investments temporary some factors So point but when fumed on up start. I behind somewhat are growth, and to getting staff view them margin making silica is we the then new that ready for squeeze, are it. as bringing And for that around the third training plants principally those a we the ramp and and costs people

of terms look things, at So much equal we if three in how year-over-year they decline those you roughly of saw. the are

think about as $X to you million So each. roughly $X can million them

a well, when we are a flow the temporary, investments, that's I And margin those benefits on at, through QX. we've or earlier, And commented those it's in them And when prices. demonstrated silica temporary. our in then the as growth that are happened, I so and permanent on holding destocking to start Wuhai squeeze, we from and more point as The see see look the I the to abate. then timing plant get past beginning

start where match part will So the the as back year. cost revenue that's a of thing the in to well, timing the

sort that's So how what it. the Jeff, happened about factors, and and think we of

Jeff Zekauskas

Your in was. this up environmental to in States, more finish down but to the she normal what your I specified fumed capital does And United year? don't end the talked Erica's I she a of expenditures think level, I level think coming that that spending. silica about coming comments, know spend you're

idea So next your [indiscernible]. capital can us few an you outlays of give over the years?

Sean Keohane

bring this the shutdown have that we is Yes, on stream so first of - building some And a we tie-in to have coming because in preparation and EPA, on for been so year. will plant the that on on stream. that, inventory

the leading to in us - that USEPA come be will that is So on - there that leaves capital point, that spending more plant complete. so spend and that is then done, one leave that And compliance when up be that. be will with after us would would stream, will at one that XXXX one

consistent final the then So this on period finishes got another that's the time one timing, to has year that beginning be everybody as industry. across the one coming and for of with XXXX ramp to when that's compliant and one, the kind

you have, two know, but which we position. be here fairly coming fumed somewhat investments, But makes us unusual, for right to all that. our growth on it silica would in normally the as on invest close extend plants timing, sense wouldn't Now, continue the see for and you to reasons,

lumpy finishes more and another you drop on something. to of at but silica as you'd on, one of plant mean, down to second investments years on comes the fumed end kind you coming back XXXX, then kind we've are coming these So might have expect stream rather kind things come a And timing a growth got I every the one things. be normal the that in two level. of XXXX, on of in of would plant or XXXX, as know, the than three having

see the as And step to more that the these more see think a to two the a comes add EPA will a you'll of down do spend. sustaining in in that I plants as compliance to that down when CapEx. close level growth you as and capital at come US we and we a So level, we normal normal digest silica

Jeff Zekauskas

first And XXXX? then, the it carbons you in in how December did to it How expect the How conductive did business quarter? do your in do finally, do do quarter?

Sean Keohane

Yes.

referring Jeff, you battery are carbons the So, to applications? conductive the for

Jeff Zekauskas

to. I'm what exactly that's Yes, referring

Steven Delahunt

Yes.

this I about So been we're for has excited mean, well one. this growing us. very

happen, years, the although places But So various our Performance they and to to good to lithium-ion for continuing we over qualifications of one. really plants we're be contributor starts It's Asia-Pacific doubled of will Chemicals. an produce major ultimately qualifications into get get all the feel with the once sales batteries this principally market, this about up XXXX in next set to couple the a players. basically in And around material world batteries.

of, or steadily. did parts we one things in we in see say, Chemicals, So that that is I of other think like didn't much I really this Performance destocking - impact terms think building let's pretty effects

Jeff Zekauskas

this much How you'll think you do year? grow

Sean Keohane

I in, qualifications year come on a range, start we'll qualifications the So effects coming something qualifications new plus get probably and you depends say in. you ramp bit full as that get to in of XX%, timing would how again, grow the but

much growing the than mean, lithium-ion big of The rate. at pretty rate a to growth underlying growth batteries clip. I around faster still somewhere XX% underlying XX%, it's maybe XX%. probably So is more

as of as growing faster, the is qualifications growth ours as the So growth from the underlying get of well application. win sort we

Operator

comes ahead. Our Alexander from from next question Please Laurence Jefferies. go

Laurence Alexander

questions. Two

the discussion. First, destock, on just restock

are nine next slightly next more how whatever than a think just here? How is you much months the over Given metric? volume either quarter, get back, the looking do right are stable how prices we from a six are at would or or much commodity think interval you months the cycles for the you assuming that spread of tailwind destock

Sean Keohane

of trade difficult think the certain restocking project amount I and is ways, waiting to the are So I for because think around people a framework. destocking clarity U.S.-China specifically some in

And on casting is so multiple so monthly of experience because prices declines do and - customers might that at you look caution best our that see what to you to think of polymer we them in cloud in talk volume thing then XX% can have we be is when we've the that you can year-over-year, doubt there's month for might a just dropping, months But no of sort and when row. - about seen over this. I seen a a we basis see lower where definitely months XX%

Now, more what's demand, right. that's underlying than happening with clearly,

that of you XX% get a start the you then back - back months then definitely if move they if side to XX% So - for to prices on to start would to pickup the see you number up, other normal. until

until around our play China. us extra happening I what just a is little caution both but specialty year they is US business, everyone with and bit that that's situation history see would specifically bit carbons exercising, will this that compounds little our how out say, different the what's and would and tell with trade So a specialty

Laurence Alexander

between be demand a than of there, then latest And crossover Chinese production? when about car enough rather see volume replacement we having market the your park, to you on when that main the OEM should swings think is what you're the in dynamic thinking the the seeing driver the

Sean Keohane

Yes.

will four kind a car, replace about look something you tires years, of every at in you if that the range. So typical

the here at been you progressively. five if so auto over And China years, build last to it's look four building the

think it. to And so I start see you'll

replacement Our holds largely that that well. cycle assessment to is for as China

probably And up cycle definitely the so pretty auto years ramp park, because in seeing last here to you the effect years. now of you're that sales But five kick four, in. replacement away. To see over get the three larger we're that full two, the start would still steadily going car to begin have been

tire near-term steady absolutely here the domestic the world's almost the So intact state market think dynamics. long-term of those are and they here the things we're of fundamentals important fact XX% tires, that which the not yet, us the over gives make confidence that are despite fundamentals at and I

Laurence Alexander

severity in then on negotiations the characterizing And the - anything or so recent just all - mean, less the the Has not and the focus and that confident the little extent they few I to you've off demand tightness and that market you've be just that the has how environment been about longer-term and negotiations I China pressure whether so on, to balance. a decline lastly destocking supply in customer know of can guess, the uncertainty unusual of last tight over the production you of has quarters, or of bit? the Or will the or conspired give a the that bit on has shrugging not? make eased they're this some them sense nature

Sean Keohane

strengthening China world, you as customers and because that you we well these the all there think new see reliability grades that situation with still don't see are look partner the someone driving factors think our valuing side I strong any develop and security, responsible, I therefore can of to supply, real and think put don't there's still I rest that if of of they who's and environmentally and certainly see we conversation. fundamentals the and Yes. at pretty change

no there, so all at Laurence. real change And

that I know holds we times, think the restocking see in some will customer but still be really conversations. and people here - driving destocking to our continue long-term the it long-term and view what it's at that's there that's and is

Operator

next ahead. Markets. Kapsch Please go question Our Capital Chris Loop comes from from

Chris Kapsch

a had I few follow-ups.

China X%. your Asia Materials on volumes So up but Reinforcement I for in here, know were there's a focus

So parse of China the in relatively magnitude just out quarter trends were the if of you were could wondering, volumes healthy? Asia negative just rest vis-a-vis regions the in the presumably I'm and -

Sean Keohane

I there healthy, across number So out the the pretty were China in think significant total, an are - one. Asia-Pacific that, number region, fact despite still was in Asia-Pacific But you numbers because can weaker. linkages aggregate see pretty we report the that

I And not to so but a there. speaks China, fact we And preferred in supplier down were much. that little we think bit that a the are

I think a replacement whereas the significant to in well who dominate the indexed book spread the global be key bit market. with of more manufacturers the business our with local of we're little customer to all tend presence a very market, players, terms tend toward of OE

tar point that our result, of sharply impacts were a when was combination prices as squeeze. a not that in and had the factor how much. bigger little down winter think, anticipation some the a the dropped near-term but built challenge people in season so volume of factors some The here and coal at I so around created And quarter, pricing inventories pressure

standpoint, we'll good, our through given volume that. environment. work so way feel actually But And we quite from - a current we the

Chris Kapsch

that of - to half? in of inventory pricing words, and costs normalization feel the on automotive sort quarter, we us backdrop? were happening, that gained see you're the the cost sharply did share do just follow-up between the this in creating fourth FIFO bit, down bit so much sounds second that, given down squeeze, it like actually And assume that how you other I against builds mismatch a but how a remind and much the more in you little on so so have, when fiscal And quarter then too do accounting little you much a second margins on

Sean Keohane

like China, will saw So data as shared you presentation sharp in the we I cost, point the in for something there. a you because that drop see what think outside proxy Coast - US very of if a drop both the use everything we feedstock XX% of in Gulf

a an some EPA in built it really, inventories bit, little sharp ahead we're of So point when demand turnarounds was inventories slower up. really was at a building some start and

its of we're little Normally, a possible, there that match tight mismatch, would out so trying expect that in QX. that but bit to so that as a mismatch. way caused as no would we is And work this

then in we on So out. of at be from there see that QX, would work impacts normalized will in and expect but QX levels itself that will we'd out

Chris Kapsch

working capital being source cash does fiscal assuming magnitude, fact capital working referenced of Erica and order cash a 'XX, happens you to extract normalization normalization that of expect in anticipated for just proceed. the more if a then from And

on helpful. in finally, that owing then EMA down much to in can just So volume Thanks. tied how the this is comment you transient changeover emission X%, that And to issues would Europe? be also, regulations of

Sean Keohane

testing last when impact in an one Europe. Chris, capital the point, backlog first elaborate I working regulations testing was related from the to can - these definitely take emission a on the So there then bit so and Erica

I hit have a to business new think component to to in that's others have more well. which replacement industrial because Where tends seen tied and experienced builds a rather car tires, more than products more little bit heavy is as our that it it.

a So builds gets to of the part I to backlog, And think as progress then as expect we we there that is which better X% negative auto to that start significant picture improve that is through that as year, tied unwind. well. then

will more work bit transient way one a So that's issue we how of a that out. that see and its

maybe Erica capital. Erica the working think on I -

Erica McLaughlin

So built first million Chris, I think the quarter. $XXX a little again, on working over in we the capital,

of through to the all back out look at come prices, you remaining we'd when that current feedstock so quarters. three And expect

it start down to see inventory quarter start then see we second in come and as the receivables as values well. You'll

quite year of think the the end toward prices dependent I end we will year. further when think to feedstock that, be the where where the we'll on about

per to we And million rule benefit. you're price about $X million of change of somewhere going for dollar that barrel of every $X a thumb more it, the it's see around think or so as in oil,

that then as the that where you year, have the better end look that you September, the we it idea year a give up toward as September certainly where to move we'd we end point. of be. could magnitude if of what as to is So a the shaping through at prices would at price But

Operator

Baird. Katter David ahead. from go Our comes last question Please from

David Katter

Fluids. Specialty on question Quick

also would guidance? it you what to that tell Specialty contribution EBIT kind into minimal. baked us I mentioned you in expecting guidance, from overall earnings think Fluids your the segment EPS that's is chance but can of be impact you're that Any

Erica McLaughlin

that of just so we is the that's in not assuming in So minimal it's there the we're because in again, business what we included say range, of The EBIT million quarter. our earned any impact expect. - guidance we're gave, we $XX it's range that outside just first not

it's million record a we I million to until $XX would we in And not. gave quarter, once then that of we $XX we'd closed, And earnings close. range. last still again, range think it's

we so out. think in will third would quarter, we a roughly, close the where come sometime So we'd so it or have quarter

David Katter

cadence, China, and can you on then will two? long the get remind fumed whatever And plants from the about magnitude maybe rate run those plants earnings those how two in to you're it from the silica to earnings us the of contribution take expecting

Sean Keohane

Sure.

the have commission So just got up. in so ramp you ramp Wuhai then to to These things plant remind you, volumes on a you them the we've typically quarter. coming and stream in fourth

of capital projects, million low one that. And $XX range, about the something the of XX%s like would is have this kind IRRs and so particular in

that can from level you we rate be. run to would sense get once earnings get what a the So

a view XXXX. million that our the in get in and to think fourth will that see from is we quarter, fourth hit ramp in few but the be ramp seeing expect might phase, full you it starts begin I dollars we to again, to in contribution quarter then

Operator

and President remarks. session. Q&A to CEO Thank the call go time, Keohane, you. back closing I'd At this concludes This ahead. like the turn to Please Sean for

Sean Keohane

next and to again Thank you. joining Great. Thank much very today with everyone speaking you look quarter. for forward you

Operator

ladies attending and today's gentlemen, program. you, concludes the conference. Thank for This

may You disconnect. day. Good all

Cabot (CBT) 5 Feb 192019 Q1 Earnings call transcript