CBT - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Q2 2020 Cabot Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. today's being that advised be conference recorded. is Please Instructions]. [Operator

hand over Vice to I ahead, Treasurer would speaker conference to like sir. go Please Delahunt, now your the today, Investor Relations. and President, Steve

Steve Delahunt

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

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

which unknown difficult some inaccurate, make results of control operational expected from If could will assumptions statements potentially about During assumptions implied forward-looking and differ and materialize These those our future statements. forward-looking uncertainties, factors, should risks known proved call, forward-looking and not performance. actual by subject this materially future guarantees and underlying of are predict. inaccurate other to or or are performance expressed we our financial are beyond risks, are statements to conference or

the Importantly, results the negative the cannot as impact be we of predict scope duration or cannot or COVID-XX pandemic, predicted.

or the Factors economic that imposed will or and extent containment and duration include the of business impact of the consequences on operations influence pandemic. the of recommended the mitigation and the pandemic, extent our general measures

make Forward-Looking XX-q our annual the under company's fiscal and materially our we implied results issued press cause that those quarter from our fiscal expressed or the the Form which are on March for year Statements forward-looking last XXXX, could the SEC, website. in for release the available on also are in night subsequent of factors XX-K we XX, statements ended important on filings differ XXXX in last with discussed report all quarterly ended XX, report our our September forward heading Form Other or to

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

seeing call I and will COVID-XX the Erica year our performance, how the context are will light over the details. company's of will business in business provide on corporate provide some operations. an we now Then the second segment of the for of turn developing the half key on results highlights who Sean and of review financial to will the impact Sean, pandemic. COVID-XX update

floor We to open the will then questions.

Sean?

Sean Keohane

you, and second Steve. morning, welcome our Good to call. quarter Thank everyone, earnings

your you time. hope families are at well and this I all First,

an share situation. the to update To want the start on I call, COVID-XX

I'd First, response coronavirus those of professionals first to my are like who effort. healthcare our tirelessly lines the the express thanks responders, to front on and working all

our the have communities. supporting maintained also entire and way thank and focus customers our serving would team to conditions the working the Cabot employees, these I to for protecting have like unusual our they adapted on

the team supply from without to production sanitizer to of are our long and we Cabot community access hand by community materials We during of support tradition from of to are many have meals. contributing Thank a school donating personal inspired raw children time, equipment helping this you. acts countless protective food and the and kindness engagement for who

the is on safety of impact significant first the where halting take and priority a of ensure employees, from all to having stakeholders. requiring home our our is pandemic including to were safety COVID-XX steps We world our quick health employees, implementing The for and the procedures, facilities following customers critical our sites travel, and protective self-monitoring safety access personnel, to increasing possible, at rules, the providing people sanitation equipment the world. guidelines procedures screening, distancing to to and strict providing around our restricting and and of all ensure social the measures, appropriate hygiene our work

Additionally, support COVID-XX. our employees by we've leave impacted policies to help implemented

most The chemical and an has governments around materials world. by deemed essential the industry been industry

means Cabot, production our facilities this have remained that For open.

are supplies, the for as goods, the everything. virtually manufacturer Cabot's sectors power and agriculture of the support important key essential products sector blocks such broadly. products building packaging of distribution Chemical as medical the production such of cables, transportation And products infrastructure specifically consumer

That of rates most to operating of at Americas, manufacturers plants by our of the notably due in significantly halting temporary said, many East, Middle customers, are tire Europe, Africa. automotive the our operations many lower and and key

our flawlessly environment. systems and functions high expect operate customer service of from that that supporting chain the during report come service our our IT of am our to processes, dynamic that requires technical business level are service remote teams with despite Serving of consistent supply pleased this all customers customers Cabot. and work have to I time performing

COVID-XX, of with our in of low running Now, for the Year impact holiday in China New to plants closures China Lunar rates into January the February. I to were We extended if is our move or experienced Many seen customers' business. closed the February. at of at end in and what most here date have first of COVID-XX of impact we

second volumes materials through same quarter XX% to for the We March, reinforcement to China in as in down XXXX. we began compared see week-by-week still moved the quarter were improvement but

Indonesia the where and other operate in Asia, experienced impact countries Malaysia, Japan, In namely of we terms quarter. the in we limited second

locations of have spread has parts region. of in We other impact these April the more as in seen to an the virus

operate countries, most We however to in continue plants rates. reduced significantly our those at

early COVID-XX pretty impact up limited we and January, point. Americas, that to to experienced February solid businesses, the our throughout across March, Moving was Europe of demand the as and

end over weeks reduced Materials This and segment. the By across and volumes to of the weaker customers two quarter. the March, of began stop in Reinforcement our demand led mainly many our last regions was automotive tire these to operations of

At at lower all facilities open, our point, demand. operating rates align of are significantly lower to customer to this they remain but

While supply experienced chain and logistics disruptions have material this at not cited any point. have been some we companies, issues by

our uncertain this ensuring is In priority. economic flow access liquidity cash environment, protecting and strong to top

several management like we this, Our generate over to through recessionary last the act in must And XX having cash. times experienced, know quickly is periods years. team worked we

receivable, with lower in we front, oil significant combined to half actions in are reduce will and release fiscal result second this prices aggressive the taking On year. accounts working a of capital inventory of levels which the

In which of to demand feature quickly strong This flow profile countercyclical allowed in cash Cabot from respond despite operations reduction generated is the crisis, as a returned. financial us XXXX short-term cash volumes, the flow distinguishing Cabot. significant

We've lower when also steps our demand prudent non-discretionary taken products our returns. timely for costs and to near respond the in quickly to balancing term, the ability while

We and my travel, production, discretionary stopped salary suspended eliminated spending, third spending, all quarter. curtailed the tightened I in plant temporarily

of structure prior half US providing the the management of pandemic, our in actions reduction of the addition, cost such to were service the In underway are streamlining as shared cost back center now significant our move to year. COVID year savings the the Latvia that and in

year These negative reduction $XX reductions offset partially from with efforts of will of XXXX. million growth in yield the these costs a costs anticipate COVID-XX will costs impact investments. We and associated fiscal the

delay including expenditures We've Finally, the CapEx our $XXX $XX another we million of further year. and some growth reduce approximately projects, capital expenditure to million. our have where for deferred this capital fiscal reduced possible, this our forecast of by will

In support capital this. cash in dividend current to outlook to allocation, and terms we are our of confident flow committed remain our level

cash second do repurchased in early repurchasing for anticipate flow halted part we $XX shares of remainder repurchase year. as the the but our we During quarter, management our We actions. of shares fiscal quarter, activity the not have the of since million prudent

debt will actions to strengthen already liquidity These position. solid and continue our

generation operating $X consistently has cash. flow been we in over since XXXX, strong. Our And billion have generated cash fiscal

operating our dividend sufficient will flow fund needs the the cash be support capital We confident businesses. to are expenditure of our that and

debt XXXX. maturity fiscal terms profile, is it until with maturities our no In of staggered

liquidity of provides which for a have uncertain as profile. debt We strong the ample anticipate facilities, we On to we billion operating below year, the the were cash our cushion half and believe our well of agreement, liquidity XXXX, in $X.X committed debt and end these in cash we second credit March times. of revolving EBIT in the stable side, resulting covenant flow in

the I to over will Erica results of second turn now to Erica? it quarter. discuss the

Erica McLaughlin

total estimated $XX and volumes We from delivered quarter. EBIT, EBIT impact the of second was was driven quarter $X.XX the The for was our Sean. China. solid despite second results from in segment COVID-XX Total COVID-XX. lower million in quarter by EPS adjusted $XX Thanks, the in million primarily impact

EBIT to Materials We in Reinforcement see were volumes in sequentially XX% Chemicals increase the segment pleased year-over-year. Performance and segment the increase

of reminder, business quarter year. the of As last Specialty divestiture in our a fiscal the from which business, of XXXX repeat did not million Fluids EBIT included second our of $XX given June

million and, Finally, million Sean $XX to in of mentioned, cash share we continued $XX dividends repurchases. our commitment as shareholders return with to

quarter with due XXXX the for moving saw Materials Now of as though the to compared impact EBIT was second I volumes, fiscal segment to largely even Reinforcement XXXX segments, unchanged quarter start COVID-XX. Materials. second of the will the Reinforcement lower the in fiscal of to

period the XX% impact Globally, year, to where prior primarily in volumes due the in we the XX% second Asia to saw as compared COVID-XX. the biggest of declined from decrease quarter same a

XX% by where in were where regions. volumes We spread as Europe, those of COVID-XX were down X% and also down impacted Americas was March in were in impacted the the volumes

and cover mix margins product effects industrial ensure to feedback volumes in worked agreements were principles Feedstock lower that the our protection through our higher MARPOL-related customer mechanisms pass that to due were designed and products our Offsetting expected in as to upheld. tire were both line. pricing benefits

third temporary the to quarter, ahead severely Europe in be tire the results as the customer will impact COVID-XX shutdowns we in by to auto significantly Looking and Reinforcement impacted Americas and expect Materials volumes.

be Pacific to significant is that volumes as weak production of Asia a related. expect region's also tire export part We

as current the be quarter range of last the fiscal is third to quarter expectation same for Our compared for in down XX% to volumes year. the

the an center combination sudden segment margins and mismatch million the of impact expect lower result rapid We in by in due as in demand of timing $XX yield prices the temporary drop of third a energy will feedstock feedstock as quarter. to be well EBIT to benefits, million drop to customer estimated as unfavorably of the the impacted $XX

less and The line. product product continues lower EBIT Now, pricing turning a to favorable decreased metal Performance year-over-year metal mix million by oxides due in our $X oxides in Chemicals. primarily pricing to markets, China. to slowdown and an to a impact exacerbated Europe the transportation key in due and end by the intensity COVID-XX of be competitive China, in and industrial increased in

in from volumes quarter, new benefited X% volumes additives Performance plant. additives the China in in from sales and the higher specialty increased X% carbons formulated our silica year-over-year In and fumed in solutions. quarter performance

as driven line our Asia. Formulated benefit acquisition product our solutions we compounds volumes were realized the by Southeast increases specialty in from recent

the the we Looking impact third Americas. in of sequential COVID-XX ahead from quarter, decrease a volume the to expect and Europe

is remain resilient and products applications. expected However, consumer for infrastructure demand to sold more into

We the will environment business pricing continue. metal in also the oxides anticipate challenging

specialty product moving XXXX, EBIT margins compared by mix XXXX. from fiscal million and quarter quarter the our $X fiscal improved pricing the In to Now driven Solutions. by second in higher to of was Purification This of applications. second increased

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

segment. third negatively ahead also which to have COVID-XX expect impacts in product on negative quarter, a specialty our Looking mix the volumes the to in applications, we impact

due expected and asset have lower costs to to curtailments, partially the headwind. are Fixed offset be volume which margin

at corporate will position items. billion. cash $XXX now liquidity million $X of the turn with strong ended and quarter over I to balance our a We remains

the operating million. of operating $XX cash flows $XX quarter, the and million. was the capital quarter full were second $XXX Sean fiscal were cash for During we are earlier, the be business XXXX Total $XXX down second year-to-date to flow from activities from million million approximately forecasted given conditions. capital quarter year, current as $XXX for expecting million last And now expenditures mentioned expenditures

million $XX repurchases. the in $XX through million of dividends share quarter, $XX shareholders and Also we returned to million in

business the We have conditions. year, purchases fiscal for halted of remainder the current share given the

our rate projected tax the year Our And between and quarter our anticipate rate is was The the be from will from the of rate to earnings. due increase XX% year-to-date XX%. impact fiscal operating geographic XX%. in mix the last we COVID-XX operating guidance on largely

call Sean. I will back now over turn to the

Sean Keohane

Erica. Thanks,

over develop help with there how demand ahead, as is like some look significant that of we indicators to share are coming watching the months. us. guide the to we will would As uncertainty I you

three sectors, related business automotive standpoint, tires, exposed First, vehicle production, high to from a replacement applications. infrastructure consumer is Cabot's portfolio and and level

our shape of like. With such industry as vehicle of are to IHS, roughly as we analysts production, XX% others new what the and sales LMC, linked we recovery to could look model looking

exception of much in that a more we and XX% in positive as might demand and economic is back as IHS the of Asia, activity view how provides slightly was With auto April sub April other once globally China over XX% region actually in each up China as regions up. Western demand North was quickly recovery opens see story a tracks one and Europe. down

and difficult Americas and Africa point being Europe, still magnitude of While as to a to timing recovery. specific it and East predict such in April bottom the production, restart is signs the automakers the Middle

is replacement many is the of than trucks, and tires orders lower and be to closures our demand buses, the the to year, in plants. cars, of and tire quarter of for place June customers' off-the-road world Approximately across revenue XX% the temporary significantly vehicles, given our the expected linked shelter prior for

the While in over down year-over-year market online, light industry continues to expected LMC June and show China for X% the the quarter. down is Europe be to back are be as country tires come to replacement in vehicle that forecasts America North that expected XX% only

demand. typically than demand rebounds quickly tire OEM Replacement more tire

in rebound just China we're now. faster we market, So, as a the seeing would tire right replacement expect in

page In city, searches to country. for miles on information are pace their by publishing term, closely. trends of and directions time some the recovery Maps the in state real driven driving tracking is indicators there near that that understand order app we are on Apple their shows daily mobility

miles driven In about similar data addition, INRIX publishes trends.

to sources these trajectories we're many are were data pandemic, countries where prior last distancing recommendations. far ease still showing are we from social the While starting to as positive in the the weeks, few

resilient and of is sales performance less remaining related These The provide supported clear applications, and XX% far, where applications consumer to be infrastructure and government particularly cyclical thus to types businesses. our been diversification needs additives tend stimulus. have our of and consumer tied they formulated are solutions by which in

With see external I this in we provide color expect to will backdrop our businesses. some of indicators, on what

in quarter the decline a that Americas fiscal quarter results COVID-XX we March expect While continue solid, related did pronounced the late have the second and experience to third we to demand were in significant a Europe and to on effect results.

a Reinforcement significant and segment customer in automotive quarter the expect the the in Americas. tire and temporary in At shutdown we to reduction in Materials level, third demand Europe due

prior-year were Volumes the April. in XX% April below

point would utilization end seeing to quarter. the albeit many are plants the we into the We of April at low at customers and May, rates, and expect restart April volumes low for be of

impacted picture mixed a Asia see China are economies. China's weakness from by we substantially exports Pacific, Southeast Asia though and as western recovered, market domestic In has in

be in impacted In expect further mix by demand globally. product underlying and automotive carbons to compounds decline a in negatively we Performance specialty Chemicals,

were volumes prior and down in additives and up partially infrastructure offset weakness April building construction. year. April, formulated to of X% performance solutions continued in In agriculture in in packaging, compared and and automotive the Strength X% applications

levels same these Though although March expect Materials. weakening volumes Reinforcement well magnitude we in to to have up April, not expect in in from see some held we June, the and and this in segment quite the May as

I operating expected the cash as $XXX be approximately be due anticipate half should second the in While flow of to operating to a working is the net the significant remain COVID-XX source restrictions, to demand back cash in be cash the half year. million of to flow fiscal expected weak in of strong related our quarter is capital year.

in this in provide terms seeing markets. some what hope helps color of I are we our

Given this into time. the the adjusted due year guidance will visibility of not of underlying COVID-XX, we lack for balance to provide the EPS demand

update information to continue we and visibility We have will improves. you as more as

current market our an to tends periods tire of replacement underlying we working related oil focused products, many bolstered through We scenarios. cash by be have proven our efforts the has release. demand and stress With uncertainty, capital quite know the resilient that that be on for recessionary particularly flow the the test to

and financial the to our experienced markets the non-discretionary robustness to end of during businesses across we XX% in XXXX, our consecutive XXXX of Looking the many experience however, declines range back pre-XXXX Demand the quarters. products. in XX% returning demonstrates nature This crisis, volume volumes with of three recovered levels. of our to quickly,

a from predict, demand in expect experienced downturn we be While the have in products realize of flow view cash reduction that is there a to Furthermore, our for not fundamental difficult profile to we countercyclical length the will is previous COVID-XX. recessions. that our

stress below These XXXX cash ran scenarios various reductions In the on addition scenarios year. impact prior to XX% of determine volume the analyzing to crisis, we financial the generation. to up test flow included

In capital each working and levels. generation operating expected to flow. us cash to relatively lower our underpinning actions, the release and was scenarios, scenario, cash consistent aggressive capital maintain due and working thereby expenditures prices allows all feedstock fund significant capital the solid debt strong dividend In

from the of the the long-term So, Cabot. feel we on good are about future managing COVID-XX pandemic, impact while near-term very demand I

the a number each all leader and one Cabot businesses. two global our position holding of market is First foremost, or in businesses, either across market number

supply us that on Our customers deploy practices cannot regions, our chain serve scale and replicate. global all best footprint in and our allowing unparalleled, is global a to innovation optimize competitors many

and E²C, the business. the about heritage long sector applications a has now elastomer inkjet the we our are growth potential key investments emergence as transformative for such in of called packaging and excited technology composites, Cabot batteries, of

create are potential are for fundamentals favorable market leveraging and long-term to Cabot. prudent investments each earnings In we making these of cases,

the carbon transformational of battery deployment us a strengthen position the to manufacturers to capitalize potential our E²C first of developments leading the superior solutions economically. In quarter, conductive markets. Our sustainably carbon most unlock position in Sanshun, and the producer of recent for nanotube on performance announced sector, acquisition recent additives. Both the we will tire help these commercial

characteristics. also portfolio Cabot's financial has some enduring

Our revenue the nature flows, geographically generated consistently and our strong even recessionary we capital. diverse of periods, is during given have base cash working countercyclical

well This prudent ample always our us with into commitment and management, long-term we accelerate and recovery investment approach allowing the serves And posture maintained us weather a and to a liquidity. like rating intact. times balance to storm our this, the have to grade sheet strategy assets the in with

pandemic COVID-XX have the financial While the the advancing in core strength we to storm. have is challenging conviction companies, we navigate certainly all the strategy our and

Thank session. I turn today question-and-answer joining you will to for call for operator over now our us and the the

Operator

Instructions]. [Operator

first the Leithead line Our question comes Barclays. Michael from of from

Your now line open. is

Michael Leithead

Hope And staying guys. morning. you're Thanks, well and good all healthy.

Sean Keohane

Same Mike. to you,

trends the question, First side questions to start, the third few Reinforcement the just around into quarter. heading on a Materials

First, can on the you called and April. But the rest world? just between you regional in XX% of give out how China us maybe volume declines color the some dynamics

$XX a out, just called And $XX effect margin was volume that well? the hit that the EBIT that second, you as to just million million or incorporating was

Sean Keohane

family I your and are also. you Mike, hope well all

Africa. Americas of Middle terms was April and certainly volumes, most it the pronounced East, in in So, the Europe,

pretty plants across no And temporarily so, given there. in that And was surprise, what the you've pronounced board. read I'm closed manufacturers much about regions sure, having tire the significant those decline very

March, by saw a better for getting week we has well. and China, in domestic month bounced the week market pretty coming back bit the throughout plants of tires Now, back online

in by export going is Of market West. impacted course, on the the what's

to respect with pronounced. the less Asia, declines a North little were then, And

have most think during what region, closures. say the East, I that terms in the varies place of majors restricted shelters April. a by given temporary And pronounced in So, Middle and it done I Americas in the the of would bit Africa, again really period Europe, but mobility

that million margin are in that Now, half reflecting here, in margin be impact volume these a terms to of declines. one-time the roughly we of million these will of not the are $XX impact impacts, quarter. And mentioned about so $XX

know, there lower you So, three on as dramatically are when effects oil, at you really our look business.

see we some at lower, are the benefits from our lower projects yield oil as less prices valuable feedstock compression when First, prices. are

And so correlate revenue where energy center operate, second, they energy with prices. feedstock our typically generally lower prices and lower center is energy prices linked to

simultaneous our fall feedstock they will. And sharp then with customers' shock drop, volumes. our keep we working mismatch our customers drop we're sort demand inventory third impact When when this is to an spirit and suddenly principle of that unusual very a a finally drop forecast prices take in closely you in we that as see the with we've intact. This if saw the when very comes a to those certainly we meet this matching combination happens, and situation of purchased a

three of volumes. again, So, million was is the of not the $XX quarter, one time that quoted we'd the is that to of but $XX third be million these And combination to impact of that in including lower margin impact for factors half impact the the third quarter. about expect

Michael Leithead

to dig Got really the color. just should oxides second, think helpful segment, then it. now. it seems bit one of into the but fumed points of [Technical which metal that's be right main want I a kind Difficulty] like weak That's I in business, And

that two market the dynamics through market? And what's next think the going years? on how of to can walk some balances So, in one you the out you over of just itself

Sean Keohane

Sure.

start, is China. significant China and first XX% environment has me world's presence The been in Europe silica of let to have about regions, particularly particular foremost, in course, a makes in the think, And that softer, of So, tightly fumed Mike, demand. linked chain. China. we by I silicones and and both demand talking and, in around

automotive and estimate like we calendar a has fumed and impact. So, end in weaker construction demand actually XXXX, contracted. in market the significant and key globally in Europe In China been markets silica

pre-COVID. pretty over in market a It contracted or actually So, of this course, a X% X% year. time that consistently grown has XXXX, and is was, that

intensity demand further is, think, weakness things I competitive region. driving the up the and in exacerbating So,

combination and come has and some terms onstream, the somewhat weaker to pricing. term lumpy tends near pressuring it demand in of addition, coming onstream which recently, supply the on, supply be when comes of thereby so In

And these while of grown strong very challenges, to So, of the and think margins. profitability demand fundamentals been out, point you demand a performance has factors sort that X% as with near-term certainly pretty business X% The because attractive. high remain historically the GDP I EBITDA again, business business, this level silicones above characteristics and in of has time over substitution. terms business have strong in present

integration, to Wuhai And finally, line And I access feedstock fence then, in well this long-term and on This determine feedstock and think, industry entrant will pretty positioned leading with strategic Silicones. continue balanced silica been front, our limited new growth risk. demand, we're historically partners, levels. and has really profit think I between well to Dow strategic

Now, silicones know, byproduct polycrystalline production I both a feedstock, silicon of is think as you and production.

relationships these so, fence are line critical. pretty And

You market buy go this the can't and just to feedstock.

time. has But that historically here, be in capacity up the demand period capacity growth additions given can a scale a of soaked and relatively investment of definitely economic lumpy, bit short

a I So, industry demand it's structure of how think of perspective. and our the fundamentals intact industry sort question from remain responds, but

demand a Mike. it's question, So,

Michael Leithead

you. thank Great,

Operator

Thank you.

Spector from next the UBS. comes Our of question line Josh from

is line open. Your now

Josh Spector

thanks Hi, my for taking question. Yeah.

impact just question about quarter. prior the the the in in Reinforcements follow-up So, from margin a

stay about kind you oil maybe guess, temporary, half I around that expect of annual around where a being of another on to would million you will talk $XX rest were range, You year? EBIT this being that Or a based of $XX impact million impact are? this if $XX per way, half around ongoing. in that prices persist the to of through expect quarter

Sean Keohane

drop the sort oil amount very this sudden About half, expect to So, demand. and terms be the would of we both of you're one right, and Josh. of sort to shock related or that's time in

projects And saw is. April. then, and center it's that those oil absolute prices that the dependent down rebounded yield the here, do it the really energy dollar really lows a on we certainly comes the But where in from oil to where what other factor we on have. we is the benefits bit value then is that and And now,

Josh Spector

dollar EBIT Okay. sensitivity move Do any you guys to at feedstocks your all? share every for in

Sean Keohane

difficult variables don't We so pretty are to. There a it's many because one here.

and I in can are which you're they're significantly you feedstocks, making different in of world, China different have the think fundamentals. And to and in bit then parts – the than global grades tar fuel where driven where it's tends times one on they the rest be are quite market by of prices global world the of sort then oil. a world little disconnected more at from oil other is coal

difficult So, many so just a there's it reduce impacted are factors thumb. rule here. that It's to of to

balance we is offsetting is significant But those capital the see the think key benefit that By to effects. understand when thing and same price token, I the the see we lower, do significant yield deflates as center sheet energy cash working a and operating flow generated.

demonstrated long period very over of So, this a time. been I think, has very, pattern,

cash XX back profile operating you'll see that so consistently. or go flow pretty If years, you

Josh Spector

between could, in Western just Reinforcement the benefit maybe your contracts of effects was Okay, at could a the if versus new you that on really down thanks. China strong break other EBIT the more of in was Wondering price of level. how much one and just That mix If Asia? within I markets quarter. rest that

Sean Keohane

from the tire definitely contributed both so products, in arrangements, the and in of terms Yeah, industrial the customers our pricing materially in and mix world, quarter. contracted around both

the year-over-year decline were in pretty on despite basis, a quarter And volume so, significant flat. results a

there. strong result a So, pretty

And the pricing in Asia, basically basically China. to and was that principally offset was margin –

offsetting. sort were they of So

Operator

you. Thank

from of from James Sheehan SunTrust. question next the Our line comes

open. is now Your line

James Sheehan

Thank third just quarter? performance morning. kind in of we Can you chemicals, in you. the talk Good what about, fiscal decremental expect margins can

Sean Keohane

Jim. again, it Say

James Sheehan

year. in of the decremental rest fiscal the Chemicals margins about curious quarter I'm Performance and in third

Sean Keohane

I understand what so, And you decremental when make to you say I by Jim, want sure mean margins, that.

James Sheehan

significantly. the that. to think expecting come the line impact just top you're trying to about of Well, I'm margin down

that Reinforcement Chemicals. not on color Materials, some Performance in in gave You but

Sean Keohane

the continuation most think that is of quarter the as FMO. a in significant I occurring you'll around see was So, thing well what QX prior and in

and margins across specialty If and there. look carbons up both have compounds, performed held you

the happened. at quarter unit So, fairly consistent margin I the sort most that recent would in say just the level what margin with occurred of be would profile

will certainly And through now for expect weak auto year, perform. builds and how the do over year-and-a-half past have we In almost question has would we impacts running quarter, be, the the had been that mix auto played from volumes but an recent weaker business negative the out. OEM that as persist, already most to

the volumes the of question terms in just where will be think come to I unchanged. QX, It's drive that fundamentals out. a the So, margin largely QX of

James Sheehan

purification on question And solutions. Okay.

You specialty talked know lose do you did changed or market? And to your business about economy any once that business region? have on recover the you your And I to specialty expect to you in volumes normalizes, in being approach specialty specifically want Europe, that business down. your that

Sean Keohane

change from impacts Jim. remains but some The here, in market No specialty approach activity side. or were there certainly in would market or our focus all changes and them competitive impacts, any rather COVID-related call I a the strategy to same. any change than fundamental That remains

in COVID across month began really of through Europe. think I So, just some the impacts March that it's coming

So, really there. nothing speak to new of

James Sheehan

Thank you.

Operator

Thank you.

the line of Zekauskas Our JP next question from Jeff comes from Morgan.

open. Your line is now

Jeffrey Zekauskas

very much. you Thank

Sean Keohane

Hey, Jeff.

Jeffrey Zekauskas

mainly thought negative competitive you? oxide, fumed because pricing are fumed relationship. over metal increased of were In an activity. the how about talked fence oxides Hi, I you metal

competitive at understand increased I'm activity so, are increased activity your I but lower, competitive from. volumes, where to characterization. puzzled how, returns the understand come I don't And as can maybe can lower

Sean Keohane

Sure.

though remember you in [Technical refer Investor may some there on So, – is back It's at right, volume, through globally. oxides. of their finished of feedstock I talked silica out that byproduct then fumed market their we XXXX, so are silicones of the types it, not And two Jeff, producer, Day you're fumed the metal important all to Difficulty] significant fumed silicones fence, this. of downstream who certainly, to back point uses portion the that know, is two And a compounds, over One field silica chain. in a compounds. things

largely silica that amount the call that is be produced So, from we in although to the a balance, tends market. feedstock merchant into goes of certain that there what

self-consumed. So, not it's

silica source polycrystalline big of feedstock market. other from The fumed the silicon is

to their used sil producer then out is there produce the and doesn't fumed the market. consume material called A silica, so when merchant tet, of a in is corresponding you into byproduct any that there's So, PCS, no silica making poly PCS, which goes offset. downstream produce

with both I find silicones that out that fumed competitive time, have And in a demand, is from two with poly-based been that to There home. now so is right balance think, silica around overall and demand. over are, lower Now, One factors trying playing demand, to feedstock lead can and to still poly are the feedstock intensity. related intensity. silica from competitive

think, other a And market. thing then, going in the I on shift is, polysilicon the that's

Western As China capacity, people think poly its to expense expand I the producers, continues Wacker OCI. at of poly and like

inputs big are with recent have So, the market expansions who significant you poly in both the their silicon the and they're low two recently, plants cost making because These of compete finding the energy pretty may on impairments have poly China them cost. difficult metal seen took building poly. low producers and in for Chinese it to northwest are very of

most solar course, that And in of consumed poly is which panels, China. fabricated are in of

western I some that are announcements. impairment poly And think of in you're players the seeing these suffering. market

other that's But factor the here.

and fumed that compete producing market While market. is still trying feedstock, are some silica shakeout byproduct to poly they are sell going into to the the people and they're on, trying in

Again, its playing long-term silica these feedstock But over to to sort time, silicones needs two out. poly term, X% X% of the support growth the short both fumed from in rate. factors market are and

competitive near helps little I a color the intensity. term hope more So, that give on

Jeffrey Zekauskas

Cabot coming that. say, oil carbon it less come where down or today black your months down versus, Thank dynamics lower, producing Yes. for advantaged as three coal in cost when as at in China was is it's and ago? you you advantaged look moving With more prices much

Sean Keohane

to China, Yeah. That's say, played participate. respect would China. I our for has is way how the so with is we China out basically view industry and this

very coal players profitability. And in all so, of and benchmark we in competitive, dynamics terms tar feedstock against our of there the are China

And I there. so, real no think change

of open for not sometimes the Europe. times material seen is wide coal was We're into the like not out carbon has arb there of of China. can Again, you've going is and China of and that more global That We've or black question places flows peak been into out at dynamics how China your of diverge but tar some oil fuel model, perhaps where a is was can cause think traditionally Cabot. flow for Asia material arb in Southeast terms its seeing it competitor at that bit some some flowing a of when now closed. was, time. quite I

seeing relationship. And not significant that any in we're changes so,

Jeffrey Zekauskas

pricing higher regions? in all Reinforcement there was in positive Materials or were Prices US-based that quarter. other positive the pricing Was in

Sean Keohane

us. all no, It in China, and improvements pricing regions, all spot the was of would exception I with say, was is in of, a for which market But, other mix there the pricing regions. positive

Jeffrey Zekauskas

exactly then worth of? center by produce power you the is. about lastly, I with the Is that your and exactly centers. hit And energy sell grid, is and talked less. you're difficulties you never maybe it's to understand power cogen energy what speaking that so What you

Sean Keohane

Yeah. Jeff. No, that's right, exactly

energy link with gas. input. the produce the using to alternative content we power produce tail that use produce our can because to the linked an is of But alternative many saying. energy we but cogeneration the partner. what's is plants, So, fuel we're of our prices energy arrangements energy. needs, We're facilities underlying industrial that's because offset in different the that gas BTU either tail energy our competitiveness to But prices of But most selling to the energy someone we're to at have our have to same productive time a own those and called a what an

the capital a still of was cost but mentioned lower. of earn oil over above number times less projects we've years, they for I of the they're absolute when energy dollars, centers, oil in lower us, as So, the on think impact

Jeffrey Zekauskas

you. much. Okay, thank you safe. very Stay Thank

Sean Keohane

You too.

Operator

you. Thank

Our Deutsche from Begleiter line of next question David Bank. comes from the

line is open. now Your

Katherine Griffin

This Katherine salary be temporary, some things the morning. But sharing million may saving about permanent David. curious $XX it as permanent, characterize of cost nature. is expenses, good them travel Hi, that some more Griffin of just of and for structural talk how much of may about temporary? such It or savings. of and reductions like versus that sounds reduced service you is questions. be centers. Could on taking the for Thanks I'm

Sean Keohane

I we're think now, Yeah, levers right all Katherine. pulling certainly

sustain come cuts is to visibility that of some back discretionary spend of in that, as and some in our that in improves, time. demand order And over operation will naturally returns

it is structural. some And of

our So, those of things implemented we the changes management year, things be within that like types creation global of business the services and structural. would past structure

half half you these being it activity it and we our fund in we're And, it before of order being think zone think we the as us could probably of of the about those like sort excited help pullbacks structural projects about about of did temporary to half-half some way in so, investment of materials structural try in actions, well And those But costs. a course, composites manage that to activity. elastomer to our as to COVID and growth long-term energy of it. about, that's about as roughly initiated

Katherine Griffin

talk are lower the benefits raws? you you. about to that be just expect I extent sort to thank see to costs, fiscal sure want fiscal a tailwind versus that QX much just expected greater QX already you Would given realize material this, from Great, And I in know talked from you raw you make lower volumes about but lower? Could of understand.

Sean Keohane

which it business So, about. depends you're talking

If you're talking about…

Katherine Griffin

overall on Maybe basis. an

Sean Keohane

about. which talking you're depends it Well, business

the If margins lower at impacts benefits you oil our prices see effectively Materials, projects feedstock you're talking about from Reinforcement from are center. our yield a pass-through costs would lower but and then our to customers, energy on

dynamic, working the a release. but that's get capital you So,

specialty there's formula driven. In business, of exposure Performance our more tends It in part be sort that of less to pricing spot market Chemicals business. carbons,

major materials retain able that And while materials raw space, decline we've raw application prices as parts across of so, been historically to decline.

happen, two see take a demand. to impacts currently to that. lag And before lower could those there's at so, lower quarter or are a there the we prices. though we raw material two That But would expect that

Katherine Griffin

Thank you.

Sean Keohane

Sure.

Operator

Thank you.

of Our Jefferies. next from Laurence the comes question line from Alexander

is now open. line Your

Laurence Alexander

we Good help that Should of morning. reduction in in margins of recovery? inventory then would factor any sort incremental the degree

Sean Keohane

sorry. I'm about Could quite the hear Laurence. reduction? you Hi, it. inventory I question didn't repeat

Laurence Alexander

reducing fall then winter? in help Sorry. inventories own Should in we its hurt degree margins which the factoring of would but this and be summer, this next sharply Cabot summer, obviously some

Sean Keohane

and Well, it definitely second the driving that focus is flow – now, bringing cash inventories in right the on half. down

And EBIT of think a then is of so, the come about demand would absorption the see under reversal way sort that And as that. negative impact. you Basically, improves, will then, to it. with the

sort reverse building then of itself. As working inventory and see that begins capital up, back you would

will timing right, the recovery that play but think exactly how the that's dynamic that looks, directionally, Laurence. So, I And of is that out. that's the question demand

Laurence Alexander

under to out? separate from million $XX then, included does $XX that or in And absorption factor the called you million

Sean Keohane

$XX the in million called out, to that million included of terms In that not $XX is that. we

that from as margin from as So, the those very prices, are lower both that just sort mismatch the center both of energy in effects yields temporary demand. oil affecting oil drop and benefits, then well and sudden

the margin be be an But absorption independent So, would those would under factor. effects.

in So, number. included that not

Laurence Alexander

you And be your timeline product – sell original give parties, development what E²C, where to the commercialization help to might that CEC to of from apart be us and then I the the able you to are shift a name can third could with in partner? from we guess sense for

Sean Keohane

sure. Yeah,

here a bit building refresh So, maybe a because just momentum. of we're

this a about speaking perhaps so, more. And bit

that their licensed the So, back in out composite that Michelin product they technology been you'll to portfolio. remember time some we elastomers and have building

so, continued, And a that while type that's arrangement. has royalty

ability We that. of to have this an outside develop

have And that this. last so, both we've as out years and do the to customer continued over well been building the several portfolio for

have new we're our composites, E²C. that's so, launched And and called we for calling elastomer what brand

rubber E²C. and to where product automation create here licensing to the actually strong materials. this demand offering mining the equipment performance efficiency our Michelin, and make space, we've And opposed this products in as original is heavy sell agreement So, high called we product for product investments launched in the range for where

going so, I is E²C offering. think with generating well we're this this and And now sales

to up will is the question And, And we predict. very this how here I course, think ramp it does is over of Certainly, be potential significant. difficult think the time.

industrial If you and it's industry, of course. the look overall market pretty for both the compounds at significant, rubber in products tire

performance and for in but a for equipment tires mining this be space for will also is fit is tires, long-haul trucking early applications the in question heavy development which vehicles. certainly electric The and we're

as in So, play are well. these

because got go industry, own there safety here. tire liability it's at move doesn't But through and to issues this really and pace quick development from standpoint, a understandably its a testing are

we're this of revenue E²C question to pace, with but a pleased way with beginning So, build is the offering.

Laurence Alexander

Thank you.

Sean Keohane

Laurence. Thanks,

Operator

Thank you.

Our next Northcoast Hocevar Research. the from from Kevin line question comes of

Your now line is open.

Kevin Hocevar

Good morning, everybody.

Sean Keohane

Hey, Kevin.

Kevin Hocevar

be half, of to the working should that operations mentioned should expect $XXX the with all that of back for from of working be imply million year? in favorable the half prices, but Curious, mentioned capital. capital does I what back in we you lower the cash it benefit? you think How to think that

Sean Keohane

Yeah.

well how release somewhat back prices you be capital in oil what that, was working we the we So, And it's period, XXXX run even chemical comes recessionary as significant, course, for of in recessionary and our plants and terms very in release. will or how working capital of look And working China XXXX, significant previous in a very down. you weakening a of Kevin. operating in factors through, if And bring the many sector in there. that periods, at was recessionary because whether saw capital the period dynamic from our lower and aggressive as flowing we're other

fourth is time to million-ish And we be in going over about. going demonstrated quarter number in And third and to flow roughly that so, been a material quarter. operating we XXX the that talked have contributor here show the confidence through profile it's to that's cash that

Kevin Hocevar

little the by of how then, any delaying you're – any expansion Indonesia you're of – those or these I these if just CapEx. affected quarters if curious Curious couple debottleneckings if CapEx two a back expansion, debottlenecking or being scaling an – say you're of don't slowing – or and you your are slowing looks announced want And some bit. curious Okay. ago, to a maybe a Thailand. But, it year know, I in ago,

Sean Keohane

Yeah. visibility We're into we Important have is very question. now more those growth the scrutinizing projects answer progress The demand. until and deferring yes. aggressively on right

uptime in hierarchy and starts we can OEE first, efficient rates of terms our driving the of is, of equipment unlock. always course, capacity overall reminder, with most and can a expansion we – as so the capacity Just effectiveness, capital our units

in right being least visibility like, launched. growth in those when would second how here. our announced projects we we've debottlenecks right that see all to And are like in now, then brownfield now, more low how have the scrutinized. Cilegon. and expansion, into plants. looks the would need think, at slowed we'll of visibility, what But capacity the were term I demand unfolds that see projects. dictate And certainly, will be option of as the assumed unfold what The third cost those But But, how environment throttle different demand we have aggressively it's and be was existing things And looks, we here, to short really than here. sort question a picture

continue market same to as again. lockdown dynamic robust. would that begins we quite tire to the start expect and And people moving replacement the Historically, has release been

Kevin Hocevar

perfect. you. Okay, Thank

Sean Keohane

Thanks, Kevin.

Operator

you. Thank

question Kapsch of Christopher from Markets. comes Capital next the from line Loop Our

line open. is Your now

Christopher Kapsch

Good morning.

quantify curtailment? is operational environment? of sort how the could across expect In to doing you Reinforcement obviously, that So, question. on is operating that how be is absorption. alluded reductions, $XX,XXX Like, at question focused qualify or way strategy Materials. on it you least, lower cost way your board? guess what Or the you lower words, from headwind selective you you other impact And, headwind? of or it fixed going terms the Is this you my could any that demand to. in quantify the qualitatively I there is any might what talk rate focus unit cost you're Or navigating first to impact that's your sort long about of that are anticipate

Sean Keohane

Yeah. Sure. Thanks, Yeah. Chris.

building as quarters of referred inventory the we're So, we'll historically depleting tied we've inventory under or the aggressively or to over change is be bringing back in impact two the course, and of down that, inventories it inventories, terms here. absorption, to impact, change whether

is naturally And that then, would flowing on there. some two is last again, that of see that of the demand responding. then And after how really beginning see up so, through think is the And if we'll shape you effects pick depend I quarters. demand going to reversion to

and from the to in definitely under expect impact be but significant year, inventory cash QX, the So, we a release phenomenon that's and the quarters there absorption QX on back of the P&L. on corresponding both

terms state domestic in a right of depends, really would which our more significantly of is the across Now, say, little curtailments, generally China, of recovery now I in We're here. it board. curtailed with the advanced exception

client. portfolio But reactor because is curtailments, say talked that, LMC Now, range our of the where the by that they with down they They and different. but think by system-wide to I by do vary vary. customer in bit plant it's sort and about line level we've do the a safe at match is little vary for, a specific curtailments that plant calling volumes do by

Christopher Kapsch

Okay. And the as with at your follow-up or signs approaching China? that, facilities in a are of economic various utilization new early to just conditions – economic China currently normal normal maybe, what your rates

Sean Keohane

right managing China. to outside utilization exports, of before is and market going is pulling certainly so But that of west. to and by of rates impacted the kind half, the in pandemic certain match it So, than that. we're around utilization amount a because of the the is that was weakness better course, market not China much XX across are tire levels the supporting it's tires of the demand the China back company are export because kind those in as to now inventories down percent-ish,

we're were we in higher still improvement. China not until those begins in very begins return much utilizations some see the at China, operating tire won't system that to but market our at. So, average export show high certainly than we're the We to

in So, to market improves. signal But is for the looking recovering. be, domestic west going think, market that before China from that the I definitely is export

Christopher Kapsch

one consent meaningfully seeing curious do need And EPA complete you're needed it Got it. projects. compliance what disclosed a That's accomplish higher needs helpful. to that to spending peers CapEx in then, if increase of their to decree. the your under just seemed I'm you similar

industry? the that other So, for yourself players in or seen you've

Erica McLaughlin

This is Chris. Hi, Erica.

the and we've range. most believe been the consent right be of spend, for the to meet $XXX decree. to given is $XXX that through million timing still spending us year range the recently, This the million we calendar So, XXXX would

we So, that see change don't from any now. right

to consent decree the were We of We with started one earlier. a sign the bit the EPA. this first

at And of XXXX. the spent roughly half point, rest through this that we we'd so, have spend about and

Christopher Kapsch

that I if on and adequate pricing, on narrative clearly compliance a to more just earn that NOx that, projects, capital deploying can But return the the industry Okay. given for that these pricing, certainly been generally SOx is hasn't just follow-up has domestic capital. been the

so, for these in have And contracts. an actions achieved affirmative annual been pricing that been pricing impetus that's

So, still Any sort is like environment. kind secular those half, second earn fact look though capital – the for So, the conversations the like more the to juxtaposed environment on demand a might way adequate, talk there this later aren't you. persist even that return against in that about any of Thank returns to that's right? the to weak about weaker year? any of probably current Because is, need to going about way talk how think way juxtaposition? to industry that there's

Sean Keohane

Yeah.

So, take let one, that me Chris.

ultimately, a that pay get our and a to sustainability their own do of that, will the and and and to care to chain about to and supply provide industry in that order customers capital as is time. important surety mean And customers up that higher in of think reliability return sustainable, does this small goals have who related that these lot a increment is cost a time have spent and of to supply are clearly investments And some move pricing that way tire consumers have we pushed certainly, on to ever on and broadly to consistent our lined support of where sustainable an sustainable that. us all get I order So, for more issue down over to the it – carbon in black and has more long-term so will to tire.

this our we've And an the so, And And of underpinning important it's customers. pushing and that's narrative. been in stressing what been pricing with that's industry.

I does that's sort with see our provide not advance continue responds run has COVID? time. have Now, can of a And only a how to change We'll demand But long don't narrative always No, it think factor conviction that think the our to and this they make that I it's around the and necessity we of begins progress because in changed with over to and business. of has not customers that that that. here rhythm we'll know to does. sustainable that the period recover. And supply on and way them changed

Christopher Kapsch

Thanks for the color.

Sean Keohane

Yep.

Operator

Thank you. At over back for I'm further turn like President no this showing questions. to the closing call and time, I Sean to remarks. would CEO, Keohane,

Sean Keohane

you. in stay we'll the and all joining meantime, maybe forward the and Thank you conferences Thank again like hope Great. safe. in of you investor healthy But more support and us traditional Cabot look for again hopefully, Thank your for remain you speaking safe. again you soon, families seeing to your and some and And today. I forums like.

Operator

you call. Ladies Thank and participating. for gentlemen, today's this concludes conference

You may now disconnect.

Cabot (CBT) 12 May 202020 Q2 Earnings call transcript