CBT - Earnings call transcript Q3 2019

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Operator

Good day, ladies and gentleman, and welcome to the Q3 2019 Cabot Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to turn the conference over to Steve Delahunt. begin. may you Sir,

Steve Delahunt

President afternoon. earnings to are teleconference. President; Senior CEO Good the Sean you Cabot and Vice McLaughlin, Erica Corporation With and CFO. I'd you. welcome like to Keohane, and Thank me today

our also third Relations slide Last year and of with this deck website posted the that XXXX, for of portion section is are fiscal Investor which accompanies quarter Relations the available night, available of our be results Investor in we replay in the released of call. in our the copies website. will call The conjunction of

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

Additional Annual appears information Forward-looking in and Company's website. the press the night on we filed on Statements the the Report our is Form in heading and regarding issued that with last factors release last available under these SEC XX-K

financial the be available alternative most end non-GAAP provide of required to and non-GAAP refer financial earnings to of order referenced non-GAAP directly Any our in night certain measures are adjustments table section the greater call that in the at we should our an GAAP. issued measures our comparable on measure reconciled operating to involve this to a GAAP financial presented not GAAP measures Investors be release website. last measures results. transparency financial to to Any financial performance, regarding considered In by

floor of review financial will questions. following business Sean? will Erica Keohane, will segments and discuss the comments call Sean to the turn the I the will now Sean to this closing open McLaughlin who the performance, highlights and Company's provide corporate details, key over

Sean Keohane

delivered share we solid environment. which performance quarter of pleased you, was $X. navigate the of we good adjusted earnings profitability the with Despite Materials Reinforcement have results XXXX. challenges in segment, business a and of three and generated XXXX, improvement since level I afternoon, in gentlemen. of the per Thank quarter third earnings highest particularly sequential this, Steve, quarterly number to of our ladies In and with a

encouraged of in Solutions which progress our in by the improvement also in segment. I'm year-over-year continued plan Purification transformation resulted this

we the During Specialty sale on cash Fluids important the and thereby an closed quarter, achieving delivered performance of we our strong objective. business portfolio flow

the PMI more for production industry macroeconomic We and China have continued the soft. anticipated. environment negative chemical conditions third territory in weaken challenging the than globally, to not remained was and whole a seen quarter in automotive improvement in as remained

the progress situation the a between U.S. global China. was on of and lack front trade Exacerbating

tariffs impact created trade a caution base. results in on the While our particularly Performance is of high customer These clarity small, across lack framework our the segment. of global on results themes the direct was level a our Chemicals impacted

business Recognizing we proactive the seeing impacts we current environment, across steps the to the Company. counteract took are

focus grow where volumes. First, could on we to continue opportunities we

for market China Reinforcement driven by volumes grew example, domestic stable tires. replacement For year-over-year, in Materials a

measures, of Second, plan. cost we to and management of discretionary manage combination continue to transformation Purification our productivity a through Solutions spending improvements related structural tight

year gave $XXX prudent capital million further growth cash well is at $XXX balancing spending, we carefully investments we year full million year full now our guidance beginning as tighten the with the And we forecast to below the are third, and management. of

our quarter, X%. in cash and million the $XX in the continue million. capital dividend focus a totalled in have to we quarter. which Total We strong drive by in $XXX shareholders returning paid was quarter of working increased we access cash remain committed flow sustained to to the Finally, on to dividend operating our

past four have the $XX of shares outstanding repurchased and of our X% million the quarters We shares. repurchased we also in over quarter

the current completed the which conviction front, of core the have plant in the results growth long-term will Wuhai, businesses While new our our Performance and contribute fundamentals quarter. China, our to construction remains starting at fourth silica we and this committed strategy. Chemical in around we On plans fumed are markets challenging, environment segment and our to

wish turn and Erica, strong success Cabot it in the of Before over for the I for their all their years take process. employees I over Fluid would contribution support to to the like sales opportunity to many team Specialty and thank the to I business this future. much during their

business now I’ll results the turn to discuss more Erica in it detail. to over

Erica McLaughlin

Material. the discuss with the will of third the XXXX competitive to million that Reinforcement by fiscal compared fiscal third than quarter as of the results Reinforcement beginning I impact $X China achieved from agreements benefit our decreased Sean. XXXX Thanks, EBIT more mix segment The environment. a quarter more pricing price Materials for were by the we from margins customer lower XXXX. from of offset in

compared softer growth and in preferred as the the In volumes higher in by continues Asia, declined we X% prior the driven quarter of to production. primarily in volumes X% automotive delivered to tire of Europe market be remain X% volumes the period we third from Globally, supplier. in a year, to the China, a firmed due as replacement same decrease volume

cost in XXXX pleased actions customer well continued attention of agreement the as speed results quarter. lightning pricing the been the address as the that We and of have with of our differentials

set contract time issue spend a As negotiation, the the these continuing we’re of presents typical process. more topics to as our than of part customers complex on negotiation annual educating feedstock environment XXXX

be reflected our This most and of higher consistent industry is that North intended way freight feedstock has chain. in cost. time surcharges, recent the the increase the and differentials with consistent is worked long increase by that that EPA remains in announcement carbon a for value this on players must cost cover the to view price black passed major down Our been are America and is

assumption results similar the we that in current expect continue. fourth to the the conditions Looking challenging business the quarter, Reinforcement quarter ahead those of with Materials to the third

to favourable largely product market, the in less demand which product Chemicals. to year-over-year a profitable by to more turning was weaker decreased line the Performance Now $XX The and primarily impacted and end less due Carbons product and automotive quarter. Specialty fiber mix. mix volumes largely EBIT million lower the favourable due

Timing Solutions of product fumed silica sales our line. the order are than performance product volume line to inkjet in X% in volumes Formulated resulted in lower while additive X% in declining down due

the EPA-related Similar segment that a to we feedstock Materials, differentials and challenge there recover. compliance to for Reinforcement from costs need was

surcharge the produced continue We to pricing feedback global that announced today for carbon. implement address these North including America we to specialty actions all

quarter, improved China see product improvement our sequential Chemicals line Performance to from to our the startup increased of to volumes business timing fourth we fence-line the in new ahead an in silica result from partners. in in and specialty from are the with mix targeted tire our sequentially. The expect couple of plant off-take fumed Looking in expected volumes fumed customer carbons silica our segment of actions

specialty in margins food and Purification the by million XXXX, catalysts volumes applications This of in to quarter to EBIT improve from higher compared XXXX. and driven fiscal In moving to quarter $X increased third the was beverage, applications. by specialty Now Solutions. chemicals third increases including our in of price addition the fiscal

driven fixed also the cost business from savings quarter transformation in the previously reduced The by plan. announced

actions Solutions expect costs improvement in transformation our taken the driven quarter, by the to see fourth Looking sequential lower fixed from to Purification in been we ahead plan.

in Specialty activity to due XXXX, decreased mix million $X project the to the the of quarter third Fluids. of EBIT quarter XXXX moving the fiscal In Now to by of third compared fiscal quarter.

going As we have the we this no this of quarter be will operating mentioned and results. of divestiture during earlier, longer forward the completed part segment business

I'll of improved million repay the our to ended which quarter used quarter, $X.X million. position issued million of has bonds the liquidity now a the turn We cash items. commercial are paper. to balance to we $XXX and corporate proceeds public $XXX with In

of During due flows levels. working from operating cash a million in which include reduction to largely fiscal the activities quarter $XXX million in net the were of $XX third decrease inventory capital XXXX,

capital see a quarter of million are We $XXX further to XXXX quarter. capital be $XXX million should year. expect source full in the fourth for expenditures the now cash third be were to to approximately $XX of for continue Total the and million flow quarter to cash for expected in as operating working fiscal improvement

cash shareholders through free to returned in million million $XX $XX was flow third Discretionary the dividends $XX cash which we fiscal million and of repurchases. in quarter share of

XXXX For operating forecasted rate fiscal XX%. year-to-date and is operations continuing tax on

the over I'll Sean. call now turn to back

Sean Keohane

Thanks, Erica.

update our on I to XXXX. for outlook give Now, you like an would

share a been challenging comparable earnings adjusted XXXX expect has level fiscal our per to be XXXX year-to-date, XXXX our fiscal with While a results. we

of in quarter business headwinds. actively China sales going into our the applications of offset as our a to year-over-year result one-third earnings about and of our level sales maintaining and With managing geopolitical challenging about automotive

China say in The stronger external in recovery have can't not confident the recovery is with and high likely production that automotive materialized fourth forecast quarter. OEM and for we

As generally are that third focused trends, in market quarter. fiscal Against both of what of line macro these a current remain we result, the our in markets on and assuming we we experienced with are controllable backdrop measures.

we’ll be the start driven will and driven orders. sequentially, Looking purification the earnings our plan results measures. volumes continue timing focus third quarter by cost China higher the partner transformation with at do plans results than contribute. fence-line expect to up of our finally, And company fumed overall quarter to fourth increase we also silica in Improved of on by

Looking ahead, priorities our are clear.

for First, and global to margin leading push of of manage positions volumes of feedstock and pricing market we’ll differential. to the footprint to leverage recovery and continue balance our strength continue the

measures focus execute the timing capital prudently of productivity and to cost bringing to will growth levels working down cash continue And we’ll Second, aggressive we as enhance competitiveness. and we pace and of stewards managing long-term on investments. finally,

as in We fundamental leading footprint of robustness serve. of core our and positions businesses, are and the geographic unparallel we our industry the confident a in

with balance strategy leadership in core core robust shareholders. return the advancing cash Our to our seeks businesses growth to and

right core the conviction strategy businesses and to have the delivering this are future for shareholders. our returning for investing in flows, We committed cash cash is Cabot and strong that we to

today, the will turn now over much very for you a back question-and-answer session. us Thank call joining for I and

Operator

Thank of first Instructions] you. Barclays. [Operator Leithead from comes Michael Our question

is open. line Your

Michael Leithead

guess EPS CAGR. This I earnings year digits if growing at goals first at outlook, essentially we double on of your look is the flat.

certain XXXX? your I things but back CAGR start should there still, we to need trend year’s your and that XX% snap fiscal I to know on so grow or back in the we that early and likely line as get in mind new the are $X Or think you XXXX? it's XXXX So, what about parts there? into mind XX% are off of off moving base this of is guess

Sean Keohane

Yes. Sure, Michael.

across volume our build one difficult to growth in back might recall that you eventually announced ago, a year we when much a the And mean, clearly of the at destocking right haven’t overall you’re pathway elements think I that bounced outlook seen we the that key of year is to now of little that us Day bit I how portfolio. X% XXXX, about range the that So, was this at tell X% this point. Investor in is out

the sure, year. that’s are a volumes that and whole phenomena destocking our demand and For has of end included believe from and we market I think chemical disconnected out seen course the certainly generally sales to over that the be what quite as sector so

think come what are triggers I that comes much and how of the So, to for back question that is, back? the

that out And is here? microeconomic therefore a trade and -- for gets question the persist patterns trigger more does right now is where people at and Do there is period the deal destocking? play around of replacement difficult aggressive see in micro global I global this to that how to some point does settlement we very Or order global that time? this be confidence picture there here. of a And situation a a think

the quarter evaluating negotiations customer what will well. the the So, doing next I contract we then over middle will we think current environment the of next entire over is be and in be is, as course quarter

we a to after report next that better I position address will So, quarter. question be think the in

Michael Leithead

of talking we're That's then discussed on helpful when XQ repeat the year, the you earnings quarter project And earnings. for think last EPA the the wouldn't tailwind the back bridge quarter in about that of half a this color. I call and XQ substantial be

as so the see versus mention through XQ? And seem project, stuff, I XQ anticipated? that of EPA don't that Looking should occur to benefit the did any

Sean Keohane

an extended Michael. right, point coming in shut positive down. a were benefit You're rebuilding QX inventories of EPA-related from We out planning QX

period and So, that of in tied time. consent that this then a is the industry course to we down this withdrawing building and of had one inventory is decree, of the bit up of built shutdowns, quite shutdown, to

at But the getting we plant, is that a to so inventory and inventories change one back offset been the projected the outage the which of recent hurricane because the batteries from did of were level with our now outage effectively had here impact quarter benefit impact rebuild online with site, able we that is the haven't but at plant we ago. the

So that’s the offset.

Operator

you. Thank

question from Jim of Our comes next SunTrust. Sheehan

line is open. now Your

Jim Sheehan

So, could Materials measuring and clarify Are progress that on segments Have Reinforcement segments business your just or the feedstocks? of passing making the you you on in both that in far? so only successful one been you differentials through wrong? of or

Sean Keohane

a question try and think businesses these confusion and clarify I a you. is can so Jim important me to bit source that let an of one so Yes, operate for be the little differently,

to this would this customers as to feedstocks price. a through reiterating pricing their in business start that basically through adjusts formula you So, And market with index know we our under first, philosophy let me that I materials and passed underlying by a customers. costs execute with calculate with our start reinforce

And might about to be a as challenges year that was issue ago, emerging, this. there we MARPOL saw

And many our into DCA DCA of actual. we introduced contracts our the differs or adjust index to from cost these of And pricing a so, adjustment delivery contracts.

DCA pass-through pass-through/ is ensure year, So, philosophy in and differentials the we market that indeed of has increase that have And our this are upheld. to those feedstocks pricing adjusted this seen

as contract place continue also that these to have will we customers in DCA a did any And not in needed. adjust put surcharges feedstock to their and

widen did our of not the it performance in in quarter implementation contracting impact this differentials we to Reinforcement, surcharges. meaningfully due have EBIT seen while our strategy So, third and feedstock

to use order our MARPOL-related concept in that we in further situation customers any uncertainty. these to this need to you contracts is DCA continue course Of to an a as evolving continue and know recover going ensure forward we’ll costs so XXXX with manage and

as think Reinforcement well. the the it’s and on working DCA So team concept business I think has on is specialty Materials is carbons a different. tied value-and-use adjust of progressing is carbons, bit more The In in specialty costs our said, different way. pricing strategy. I the do little But foresight prices a well input and been we not philosophy pricing much a as a costs that in as meaningful to it is move

more impacted because this carbons tends more low-sulfur MARPOL and And is a the more bit is impact than does so, course to differentials specialty by the use in of business pronounced issue. the feedstocks rubber blacks low-sulfur

than So, these up feedstock of what a index North we are MARPOL creating expected differential. seeing cost the currently is relative that to the American feedstocks is markets have low-sulfur to adjusted earlier thus and

focus getting on in is place. these now price the So, adjustments

a a so to announced these surcharge intended that’s cover result effective September pound today And a differentials. cost rising $X.XX as we’ve of the in

progress along more is carbons, still and there, the but us. situation But underlying and different in approaches front stay with recovered Specialty businesses value same these different. are pleased work and of to do further passed vigilant. intent So, the and here two slightly work ahead down quite Reinforcement get to chain, the some

Jim Sheehan

surcharges your still do do is think place, you that in stay the on XXXX effectively problem that? Once fixed differential means are or tuned for we that

Sean Keohane

tell to difficult and up. accumulate a where think and settles index out because really to Well, for it’s order target to in on you pricing an up-trades need firm low-sulfur, enough moving activity I

it’s believe coverage. value and for we still But and watching chain probably here today, say that would I that. what so, think who’s implement based if for in we’ll everyone on successfully this And have we too I we see early is

Jim Sheehan

on and to do for when plants the you up? the And to utilization that you what ramped fumed in silica be fully quarter just your expect you could fourth Terrific. expect be Wuhai talk rates about

Sean Keohane

Yes.

get up chemical of ramp always there the plant reach So It’s customers doesn’t full start of a we qualify. up course a a instantaneously. capacity if

So will I That's to I the it it. next say, be production across would would about full quarter. think how ramping

Operator

you. Thank

Bank. David of from Begleiter question comes next Deutsche Our

now is line Your open.

Christine Besselman

Hi. David. on This for is Christine

Sean Keohane

Christine. Hi,

Christine Besselman

year? Just your the the Can this in of for bit talk quarter about little expectations what two pricing questions China dynamics a are on remainder the China. and you

Sean Keohane

Sure.

the certainly a think is challenging environment I China So, in short-term.

long-term. I it’s short-term think both about important this think in the and the to

the So maybe of and to here. help with out, short-term thought couple a I'll start

auto remains in all, weak. of First production very China

the row And in was was month June basis. so, auto a month down a the production XXth of year-over-year where on

think. I significant pretty So,

basis, production On China. a about year-to-date auto is XX% down in

in demand quarters. pressure And so, are you probably environment a has more over that competitive that driving as China. -- has has are well the And been aware under reduction of a more the last in that, couple a factors that of result, there pricing but created more created

the factor other it unable between out dispute because presents uncertainty that's plan of really the China, in think are just is and a and trade pointing lot properly. short-term U.S. to I the companies

that And so, -- of are the competitive on as cautious or contributes And things. a again, to side in more very inventory levels. result, a creates black environment carbon

we is that to see uncertainty support that some firm out chains. begin would provide And comps that So, more customers to one, sentiment up least help give really a confidence begin reverse, we need and would to would firmer bit demand in the and with significant Number think to supply some and for I a clarity more negative of then need environment second their remove fill China. production and at see the pricing. automotive these happening to and improve consumer

changed term to carbon the tires I view making in here of longer that. black, terms world's recognize XX% the so almost think and important hasn't China our over of

-- the are the steel fairly carbon on many and our tar in is steel black world yet their largest then here second balanced virgin feedstock side that production as slowed. has park replacement hit production well to and cycle. these have think the I coal that the cars the has And view car is China of still

picture that I enforcement in priority environmental intact. that, a long-term will for the then And remains think we think finally, China. remain So the

these we this to long-term, situation that. in work in through factors confidence So, have a certainly the China, give in us unprecedented and we're short-term but somewhat doing

thrilled we and in China of quite of quarter were strong circumstances. the are set had, given the that this While segment the profitable that we're profitability not results we level quite still with in overall Reinforcement

Christine Besselman

the super strong you. little elaborate the driving fumed helpful. one question I just which actions, That silica then customer obviously targeted Can able you on plant was year-over-year that then a XX% Thank are you pull the bit what's mentioned on know what growth? QX. QX hit increases? and likely measures, that cost order implied strings you other to incremental And cost price on most means guidance? in And to

Sean Keohane

Yes.

So a few items to little try just bit perhaps let the is but sequential frame up path touched driven it you by on a more.

Chemicals in volumes well repeating. QX of from increased as plant from new in that So partners China expect not our volumes I think fence-line were Performance the we weaker as that the in weakness and operation

two portfolio. fumed product factors and margin be those drive the Performance highest to volumes So silica higher the silica across fumed tends Chemicals

So as gets the mix a better result.

of also the in as we actions, certain expect of terms as actions both contribute mix pricing customer that quarter. to have a number in targeted We well

there there So Performance is a series of things Chemicals. across

The as spending as then continuing plan. they improvement reducing our be And some and drive typically from second QX, well seasonality would benefits incremental in driver as finally from Solutions Purification projects. to in productivity improvement see transformation

So things. those three

to across improvement The Chemicals range the in in sense the actions first in $X and is cost series $X would $X the $X million I things that, sequentially million range. a in range. I the of on probably $X Purification million If $X million Performance say give million million for to you then to rough

level possible. environment all that measures the We're given the facing here sense So gives that really. we're a focused as the and you as of all controllable much uncertain and on magnitude of drivers controllability hopefully the

Operator

Thank you.

question Capital Our comes from next Kapsch Loop Markets. of Chris

Your line now open. is

Chris Kapsch

China. A mentioned availability little couple on means tar. of virgin follow which ups less coal of assume I Sean bit I steel slower guess focused you crude production a

well? the there's movement about costs differentials wondering talk backdrop understand feedstock if to if the just costs what that over don’t causing contracts of right that pricing pricing of no real is just apply and Are I that of really you there juxtaposed can concept I know so, China. need the feedstock to pricing But or seeing the you that’s pretty doesn't against since against the get in any over But that environment? now? higher there. matched are sort And costs

Sean Keohane

Yes.

is pricing been costs China have the but tends to follow in So seeing that somewhat we are what that. feedstock volatile,

need side more to less the of the move of we improve demand issue is back we I have here. and that past normal to see will then that in levels a we So, in China And seen and long-term more differential consider with for think support. more pricing and that would what

begins once being as that don’t with situation imbalanced, up we side to you we improves, feedstock demand pressure So, excess and lots see that feedstock. back market pick see don’t demand the couple of --

side So be therefore black should -- should firm pricing on the carbon up.

So, differentials I think think a it a is in demand is China, it more I than Chris, issue. issue of

Chris Kapsch

percentage that weaker of Okay. your just And think the referenced does the that’s confidence customer there. a same plant silica reasonable what I Because volumes And just if pay silica just could know level this ramp you is of fiscal assumption. a percent that I’m take it’s on generally? assuming volumes has fumed if the you’ll fence across capacity to plant for new the And elastomer or need assuming then Thanks. see at the showing production? in I the that application, that fence-line customer But your on -- back here represent arrangement fence-line customer don’t what goes quarter. operate that fence-line the demand. follow in fence-line good it you if I’m softer I level third customer. new the up just --

Sean Keohane

Yes.

try clarify of couple a things me to there. Let

in all, to is I that project. first the the impact of demand QX China related So referenced fence-line not partner

the so, network other in Western our And it’s fence-line world. in

And won’t so, we that feel pretty repeat. that, good

of through the what up good is pretty stuff. the process the all plant and building see commissioning qualification. we’ll for typical year. the the in plans the this and quite on We got we’ve And customer quarter quarter. past side, up China been here we’re ramp the schedule and This On began the commercial will is that of ramp feel volume the course have across about this over late

to of partner the we In about half-half. offtake of it’s what fence-line terms our on open that sell the versus market,

quite partner from we other it the then exported open balance the good feel about in both fence-line gets and offtake our of so, cases And certain network as the can to as customers of China into parts market of in other parts be well in sold or the world Asia.

good So, that that’s we assumption, feel embedded pretty QX. Chris, in about

Operator

Thank time. at like closing to remarks. you. further I'm turn questions for to showing back any no this I'd conference Keohane the Sean over

Sean Keohane

continued thanks everyone your for look forward Thank again to quarter. support Cabot Okay. for with today you joining and you. of speaking Well, next and

Operator

your and does you. this gentlemen, wonderful today's conference. a you participation and day. Ladies for conclude Thank have Thank

may all You disconnect.

Cabot (CBT) 6 Aug 192019 Q3 Earnings call transcript