CBT - Earnings call transcript Q3 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2020 Cabot Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator like the now Mr. over to would call turn to I Delahunt. Steve Please go ahead, sir.

Steve Delahunt

is good welcome results are morning, Corporation and are Last of that year McLaughlin, you be of Thank and the and President third earnings and and CFO. which website. With posted quarter available call our accompanies call. The copies Investor Senior CEO our section of fiscal in Vice replay Investor XXXX, Relations third we available the to teleconference. me deck our website. Keohane, today released slide this Sean night, President; of Erica with Relations for also in the quarter the in Cabot portion conjunction will the of It

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

financial Any website. transparency our to the will business provide of financial review sustainability. in required regarding measures by to be at comparable referenced Any reconciled should certain involve performance, that not the presented financial measures measures an financial night greater refer to to last measures call non-GAAP considered provide results. of and non-GAAP in available alternative this we non-GAAP issued operating on earnings to adjustments table to financial GAAP are our financial GAAP. measures end release GAAP most who a be directly questions. provide section now floor color the open results, will the update our details. on our Sean the and an and some to on I and along results quarter Investors duration Factors call will differ expressed could the that and cause financial include the McLaughlin of important that will quarter an available on Importantly, the Form update pandemic. release are implied pandemic, which economic on discussed forward fiscal results press the last for with XXXX, or as containment in Forward-Looking ended on the for September forward-looking website. quarterly night influence in to statements of Form consequences Other order our company’s our extent recommended and will Statements our issued predicted. or XX, mitigation annual the extent the on operations year last and general materially be report ended in XXXX, subsequent we report the are cannot measures March or and our XX-K filings the fiscal pandemic, the imposed the or business under we COVID-XX those on in of XX-Q heading factors from our of turn progress over with overview our corporate our our and all our Sean then to the of the and market scope make cannot predict duration the position SEC, negative on In Then results impact quarter Keohane, we third and Erica fourth will impact XX, the the Sean? segment to

Sean Keohane

morning, our and earnings Steve, and welcome third you, everyone, good quarter Thank call. to

businesses our well. our report they volumes for have product people third an as the safe we suppliers fiscal quarter In I communities I’m pleased from support of are extensive fiscal COVID to transmission entire among employees. am and faced our that protocols and was our I’d and instances COVID-XX begin the to mix of the recognizing significant we’ve set priorities that quarter, ensure worked to the of had proud As expected, new preservation in that the work-related no over by $XXX remain across and sectors, to million we COVID-XX tire declined like adjust halted demand the demand by the management. our around team lower that primarily cash level unprecedented a quarter, disruption. response safe, and ensure to to third by prior-year customers compared the cost as way pandemic. responded automotive manufacturers and temporarily as in specifically impact to in Cabot very driven production

loss of As million. year. quarter. a pleased for a flow earnings $XXX the second share our adjusted quarter deliver we result, total with as million environment, per was track EBIT and the we challenging cash fiscal operating extremely that cash the performance million puts Despite $X.XX quarter $XX flow of operating last the us to $XXX of the communicated half in the was on This segment cash generated of in flow we’re

to our cash with dividends we paid return the shareholders in continued addition, million to In in commitment quarter. $XX

application. key the also this strengthen sector made The of position a complement range our blacks will leading lithium-ion Sanshun of conductive on We battery progress Nano. our nanotube Shenzhen carbon initiative carbon of acquisition our this by completing and acquisition in strategic producer fast-growing to

the increasing remain current to debt balance generated has needs support cash of and flow cumulatively. the same Sanshun our down. We allowed capital fund to over quarter sufficient Cabot cash expenditure cash strengthen flow. in the we’ve debt also The businesses. be billion that time our while the our our bringing generation and operations strong cash fund us And and to our dividend continue acquisition, since generated at XXXX, liquidity position. consistently flow will confident from We $X.X our operating already strong solid

as X.X. COVID-XX in a having on debt starting forecasted GDP far-reaching billion X% approximately to which global of fourth end of uncertain we covenant in XXXX, we September pandemic and believe the caution, June X.X times. times is leverage increased cushion XXXX, the a the impact economy, liquidity ample for side, with abundance committed the $X.X ratio had in of quarter On times cash we decline facilities XXXX. provides X.X an of The Out from to EBITDA global these to our and of in

In financial the terms the business, us and in strengthening saw terms in month-over-month on April of be the be the a results. of throughout expect pandemic with low point we quarter point Cabot’s July. quarter, June demand for the impact of low will proved further the to we improvement

continue we Additionally, data to broad the seeing strengthen. are mobility

chemicals, bit Automotive plastic deeper This applications market and in of suffered represents engineered XX% a year, as are cars decline to developments has all in at our about declines tires is new performance calendar XX% projected on XXXX year-over-year and host regions. coatings of end-markets, such production Looking from approximately compounds. with structural sales, a ranging our mixed. in in to adhesives, the

light which a We external year-over-year that decline global expect to see projecting decline quarter. June based quarter in in in forecasts, are the auto of improvement a compared in only on the of XX% production XX% vehicle September to as quarter

to been improvement show sales auto compared estimates across a Now, year-over-year, resilient upward with in by regions. for to replacement decline based bus. replacement September calendar broader is projected and tires, more tire market be according decline quarter approximately to has tire of steady expected production, passenger the LMC, occurring June global with the moving XXXX to down replacement to and tire The on XX% compared industry for quarter of for trends well production, full also from vehicles driven, historically in year to the replacement sequentially, clear and parts total XX% cycle of other to miles well the mobility contraction Similar LMC. is all We’ve the expected tire XX% sector. as both seen terms this of for also terms bodes as truck of to the transportation and

of also automotive important Beyond end diverse are up agriculture tires, infrastructure, this applications well for have a and these we packaging us, which sectors, large across during and markets the and markets held time. serve end range and

we April. important to that the technologies recovering has these, challenges, committed our value to and competitive quarter, sign a in strategy. economies June times point strategy further like key it’s is exited sustainability a us sharply tenet as chain, believe with PMI built to develop is of on long-term Cabot key economy Additionally, remain In in at are innovative the A and from low our shared our a circular sustainability. advantage. meet We position the our resources our customer across to our provides grow conserve to ability rebounded future

in than consistently a more this area, report highlight a we’ve report. our recently progress our we XXXX and released sustainability For to published decade,

for information and shareholders. the accordance in published an initiative, to further our our the reporting As typical important to is and report global was to in commitment to transparency us, effort provide with

or Board Standards the We our sets have Sustainability standards industry. which Accounting disclosures forth chemical for the with framework, aligned SASB

a Nations signatory sustainability proud a Compact, expanded component committed reporting Global and progress excited United remain are also as also goals. of to XXXX report. key our I’m to share We sustainability our the of our

long of and our and of employees, have partners environmental safety We the history of our intensely on focusing a the impacts operations, communities.

a that in approach sustainability well form, to also engagement. to recognize We requires long-term commitment as broadest as success balanced its stakeholder a

community pleased person steadfast and EPA sustainability. segment, sustainability, our April received such environment of Materials track definition completed industry’s and include broad emission all Louisiana equipment required extends into supplier product as of areas of engagement. estimated XXXX, project our has the hours This our safety, broadened our sustainability our and development, strong XXXX Our site. of to position control and and health set that In goals this Franklin, This and and been inclusion, report foundation of view finish remains the reinforces has placed commitment beyond on demonstrate to expanded we’re XXXX goals deadline. diversity sustainability XX% to of to at June ahead Reinforcement major final as

contribute top in to will company rubber new raising we’ve Erica cost ranks lifespan Engineered We The to XX list turn industry. the our elastomers it recently Journals DXXXXX were the Inaugural business. line now improve XX product discuss the and list. Additionally, I quarter. performance, profile projects The elastomers carbon European the environmental and was product solution which safety another recognized third tires of Rubber of for top black specifically that the while new over to the and the production. to environmental named reducing EXC Elastomer EXC sustainability, engineered launched of results within of Erica? Composite of Cabot impact only is most this

Erica McLaughlin

by in Asia, impact due Reinforcement quarter, automotive in to XX%. and customer a of for in Materials The volumes costs offset volumes volumes the Cost shutdowns third raw Thanks, the impacted on decreased also due Reinforcement center were XX% driven material the of the primarily to of to fiscal XXXX quarter lower and volumes margins. to the the were where impact where were Sean. projects XX% in lower was partially I’ll the third from XX%, of and start volumes inventory, declined Americas, the lower primarily compared Europe with tire from EBIT $XX year, million turn compared down respectively. $XX We margins Materials. from lower prior temporary unfavorable mitigation efforts revenue. COVID-XX. Globally, prior by yield less impact benefit down as million energy slower and year, and

of and plans at includes June improved range we ahead, July compared in July year’s fourth some that online. reinforcement sequentially half X% volumes this sequential of customers. believe that last were Therefore, down will XX% customer We our year. of demand anticipate we back cost in fourth the lower headwind be Looking the in And restocking come the below and from level expect given to raw of last to volumes a not quarter. material significant quarter. repeat materials, have expect improvement we

in and metal Chemicals, to and product specialty of EBIT a from lower product Performance year-over-year, oxides line mix carbons mix due from lower impact weaker COVID-XX decreased a competitive fumed $XX primarily a pricing and product turning Now the construction line weaker in and in X% to product more by our million volumes in the environment our COVID-XX demand both well in Formulated businesses cable, volumes automotive in X% third year-over-year volumes pipe decreased hold end Additives, and up applications Solutions. wire markets, quarter, impacted and while to Performance regions. the market all including in automotive infrastructure primarily In continue applications. in

led through all hold growth As quarter, many third in did markets take has such regions key see to which end move automotive. of China, recovery as to we we the in returned begin by signs

more improvement favorable on of sequential The markets product the Looking as Performance fumed and by Formulated we with benefit volume expect expecting fourth turnarounds recover North new in plant fixed begin ahead to in costs is quarter, that our Solutions. Additives offset to modest by the higher the startup our we fumed from by demand, impact partners. American somewhat mix seasonal the in silica of volumes offset in patterns end fence-line expected are be higher silica in fourth the of associated quarter to synchronized Additives Performance driven and COVID largely

third in moving Solutions. specialty This applications and savings impact the margins of $X by million, and removal related the of the mix In demand. fiscal product were quarter improved transformation COVID-XX, Purification by Now the applications previously plan. from reduced of and fixed third offsetting specialty mercury and lower pricing these driven announced fiscal higher to to EBIT costs driven quarter was Partially compared XXXX, XXXX. the quarter our by volumes to increased in benefits weaker from

which seasonally by more volumes due corporate turn million an to our expect position recovery, $XXX items. we billion. to will will Looking remained margins some and quarter mix. lower with the now a ahead be I to fourth quarter, to strong $X.X unfavorable cash offset We and ended of at COVID-XX see balance than the higher product liquidity

quarter, third in quarter and quarter the in expenditures provided operating cash operating year-to-date the is Total be expenditures fiscal XXXX expecting million, third paid $XXX the $XXX million the flow cash and capital in million $XX million. of flows activities capital were dividends. we for Also, to we forecast with million During line were $XXX last quarter. $XX we’re still from

shares shares remainder the expect this of we did Given any don’t year. fiscal purchase repurchase to in the uncertain and for business quarter, the conditions, not

rate call to the Sean. Our operating the be rate anticipate the in XX%, fiscal to for year back is XX% and operating year-to-date XX%. I the of to now we range over turn will

Sean Keohane

Thanks, Erica.

new as about the talked temporary end this With market, tied to applications. tire decline of primarily we and customer by anticipated, mix to the of XX% in market was XX% volumes linked replacement consumer autos related the in infrastructure-related sectors. XX% to last driven the and the As quarter, end in our of about tire participation production and sales automotive third quarter suspension are

We underway see been production the auto from recovery has to Materials that levels to demand in so for leading in tire are V-shaped is and in a low April, end-markets pleased the product what our there Reinforcement recovery far line.

recovery to Performance Given most Chemicals curve the the was decline overall. leading flatter more longer the muted, applications, in and value-chain of a

the In volume-level infrastructure portfolio of the consumer addition, up third see led to well many space during of quarter. the held applications resilient more can in the you and And reasonably that diversification overall. Chemicals our a Performance

underlying modest applications these With this and and remain more we Performance to significant With in solid. continue to shape our improvement of we of consumer to sequential the a demand Reinforcement perform well, in Chemicals. a volumes infrastructure backdrop end-markets, Materials recovery anticipate recovery in our expected expect

world. and But the of underlying reduction the Cost We remains are drivers. for parts of base the improving growth associated to COVID-XX uncertainty in million lower across a with strengthening of key of in is helping impact focus operations, and and us pleased partially the $XX which on volumes see we to our the mitigate savings given current state track of pattern cost excess different demand projects. deliver to in-flight remains are

it the of We of operating turn and continue expect the you Therefore, Lisa guidance session. today Thank we manage I question-and-answer our in flow fourth we cash for working in now to the to net as are cash second for reaffirming profitability million of increases approximately over joining quarter solid capital year. will $XXX tightly. the us and flow half

Operator

with question Deutsche David first from Bank. of Begleiter [Operator a Your Instructions] comes line

David Begleiter

into what cash cash only million metric, looks that QX? the it flow capital QX in guidance, working for a little $XX QX, on about you of you. give more it’s of because flow like Just insight could the imply Thank does

Sean Keohane

we as about good we outlook Well, about flow reaffirming last are Sure. feeling that and our quarter. we that said, talked cash

start we fourth the change think composition quarter will recovery. I in see the as to

the receivables build. the higher recovers, profit to as much we contribution in balances see be flow quarter. And demand So cash beginning will certainly, will to

saw in the some that capital. this to in point We move past will have lead an we working – low oil so quarter, increase that from prices up seen in

and the However, build, given we’re working level here of tightly very constrain capital product demand. finished continuing to to the manage try uncertainty our inventories feedstock to just around

leading And flow will the by so, think in quarter. we see in more change composition improved working the will the from to I cash impact capital, negative quarter, profile, fourth but earnings offset an where some solid than

David Begleiter

what in and half like half from still million. million just cost you. the million the million? savings, And and increase you $XX it Thank $XX that structural the drove increase permanent $XX $XX looks did Is to to from

Sean Keohane

Yeah. Sure.

obviously, and created now. important structural underway moves cost reduction, global efficiency in and organization into number which some And our we a many service of activities situation, already example. in Rīga to business cost we for right Latvia, around of our service were shared as have cost So, management efforts of site COVID consolidation been a is and making improve the had heading the

many already to added with our aggressive cost have So, across measures were those all containment businesses. underway. activities we And of that of

discretionary I spending. to structural led and general and as of so, way of level think more – what basis. a to just think And intense full-year about to about elimination $XX we’ve on and million to about spend, around it it the belt-tightening, it’s of the expected think has that’s of half half still increasing reasonable that been I right deferral as

in back we’re in will with that, to those deferring that better sync as recovers. the But are to and try certainly I maintenance like and it volume things volumes. up periods, the costs come think volume lower out pushing

think is half/half reasonable a about way think about I to still it. So

David Begleiter

Thank you.

Operator

the with comes question Mike Barclays. from of line next Leithead Your

Michael Leithead

morning, Good guys.

Sean Keohane

Hi, Mike.

Michael Leithead

Asia, about trended helpful into the cost a the led we EBIT some were talk down or or say, ways guess, you we we in reinforcement recovery? on the that first, we July? of bit volumes think X profile assume XX% think about in should go China I on Asian some volumes, impact recovery business, And how how let’s hit, Erica decrementals the getting of about then, first I that particularly this incrementals as as comments But the can fourth from quarter, into about in your business, just guess, if kind have has I that? back. of margin do

Sean Keohane

Well, in we’re seeing the comments on first, then, a comment And what there. let Erica analysis, recovery Asia few incremental make Mike, that and the Sure. about topic. me maybe can so

definitely China rebound, which we��re So, positive. is seeing

course, things came managing reported they ground Of has on seem and out COVID all pretty by life statistics returned of first well to and be to normal. – the somewhat

our be seem they general moved look containing we’ve China. you in at seen to sectors activity, sharply economic now has up respond And if well. very over So end-market And things XX accordingly. and PMI pretty

automotive has has So tire market and as domestic back our swung volumes well and the have.

been So real I think that’s a positive.

where think in would full a recovery markets. some seeing say, there related I in I the export to China has delay, been

up markets, think lot see onset make has to export recovery tires. to is I western XX% to And, does a beginning recovery slower China world’s that. of that the close delayed we export beginning in are But that of market delayed the more recover. and been So and capacity. delayed They of tire with course, the and

nicely hopefully, strength. of And improved, overall a volumes gather market there’s I to are think that and China if western have trajectory. recovery markets, in So in sector continues sustained the export pretty good say the pretty I would on

ask Mike. that to I incrementals, terms one, think Erica the I’d pick maybe on up of in

Erica McLaughlin

Sure.

you bit look incremental So, a you what margin, at. on the decremental different look depending obviously, as at or segment

for XX%; a at So you in the Reinforcement look bit Materials, look could Chemicals, Performance QX, roughly at you XX%s. about percentage if higher in low of terms a

it revenue of quarter that oil you so, through the these this, quarter, And nature line the on so the can moves feedstock and based move to prices. percentages when that’s our between movements figure, think say I’d a QX about and given remember, link business just in how the

the think in EBIT I So of more about we incremental change terms in based on this, volumes. think dollars

going dollar at about QX And to think so, forward I looking the think if important. you’re QX, impact of is volume the change

dropping And $XX a in we year-on-year talked that this was XX% impact and about volumes so, EBIT to segment. reinforcement million

obviously from business results, so, And the in that change volume. operating change dramatic the with in leverage significant in

And much the and decline And expectation year. QX, only said, we prior We in EBIT the less was talked for X% solutions. X% As of $X Chemicals, Performance million in impact formulated be the was would about that below XX% additives the then, total on impact quarter. volume. performance in

as diverse so, as materials. there’d applications of overall and more the volumes set terms And that a this in dollars not segment. volume improvement in in for QX in customers talked be and here, lower of has So significant much level nearly decline, a we modest resulted expected of about reinforcement

Chemicals of gives it as dollars terms So be about in talking we’d magnitude Performance the you in well.

Michael Leithead

pricing Great, set that was issue quarters. where And of just could then, like It metal been in few the has super are we the bit seems past you an oxides Sean, maybe a level terms helpful. market? fumed of

You XX hopefully supply. X that bit we to on of you recovering Can today how guys the see months? a next still set over level are you bringing just and where are new

Sean Keohane

FMO been the first point, on because actually stream. some global has faced we year in so, when challenging, Yeah, some decline saw in environment in a where at definitely silica was bit volumes more a even the coming fumed pre-COVID we Sure. XXXX, capacity

more near-term in think intensity that price competitive led I So to has here. the

Of for course, the sure. COVID a bit been exacerbated that’s by situation

balance. here. that the feedstock recovering, silica the have I can’t balance moving buy. think been barriers of business, then on supportive be and and the is entry fumed think in back demand are them feedstock to I prices, a out because of There up in market as well sort margins of recovering has and has strong this in state that there’s think, and a globally balance happening combination becomes And very the things been PCS that will silica as I led course, into this you the back feedstock, go and to, more industry. to balance the And, our one seen here. historically, will very But industry the view that And in getting into of levels. just you fumed that clear structural the shakeout demand now industry shakeout and hold historical come the I fumed takes good market. sources this we And I silica have that much right think demand is feedstock of think historically of is for more see demand a and

think begins as So up. what difficult climb see, incrementally happening. to that that over is industry Mike, we see can I should clearly is it’s improves demand we coming the call. shakeout the kind And the little pricing a back think bit year more But to on of poly I

announcement, example, they poly on the their same significant assets, look from at, you for you a where and Wacker in took saw Korea. If impairment OCI

that little our realignment You happening balance it’s to into difficult here. can again. And the kind I happening. certainly view a exactly rebalancing a can when a clearly see signals or that of is a of see that that’s comes bit call there’s But

as see through as of next demand for improvement coming stabilize well, industry pricing, poly historical progress the and think out get year that we of I feedstocks back come balance recovery giving into as that industry the tranche improving, and So that stabilizes and always we’ll had. that with support we’ve then incremental the the

Michael Leithead

you. thank Great,

Operator

line Josh the Spector of from with Your next UBS. comes question

Josh Spector

morning. Yeah. good Hi,

Sean Keohane

morning. Good

Josh Spector

where getting performance sequential Related just better mostly or overall, prior in talk to slightly question, mix mix of I’m is curious about that the that you that is fumed portfolio? within rest actually silica with that

Sean Keohane

Yeah, so it’s of Josh. little a bit both,

higher quarter, the sure in that begins see improve So products automotive as what sector. associated will with are we is industry the lot a of to September for value

And specialty so well carbon as both fumed in across true and – silica. that’s compounds as

over levels. a we some be are there’s here, a coming because will builds the that But it, should bit a improve. improvement delay and the value X segment. chains when auto that see the production in quarters a or from slight in experience assuming we this driver deeper It’s that possible auto X rise So

a significant most one, this would the I business. certainly So in significant one say that’s probably

should infrastructure-related view is pretty continue those up Our the hold applications well. on to

that’ll the would with QX economic the in saw consistent then applications as be consumer-driven takes and fairly say here hold, I some we So of recovery what should see improve.

products into have consumer and more recently. these go think durables of impacted Some I those been

of the applications those should And improve. so, some as hold, recovery takes

in like that. example, are panels used like silica and For things insulation in vacuum refrigerators things fumed

are there these to should that up. pick of into So as go some products durables start consumer

Josh Spector

as a Yeah, last Thanks. guess, and I million maybe of to $XX there. feedstock lower about from a helpful. that’s quarter oil lag pricing this impact million you talked $XX in quarter, cost, there’s bit a with

it of the that quarter? we Just And curious, did realize in expected? that should Was you next any or consider prices how of for than impact you worse actually much with moving type this they energy what quarter? better the way there have, is

Sean Keohane

Yeah.

by And impacts bit get inventory timing and are respect quickly the from a then, the drivers slower of so as you, when collapsed, we a production other energy $XX driven oil oil plants. lower negative a million. $XX remind of less a prices the dropped prices turn of both the our centers came our at and And drop, oil the volumes just in again, prices And mismatch. impact in yield lower then the we in benefit did and to million projects. we have from right range $XX very last to project to that were inside with million drivers, range demand oil quarter. the quarter, So And third

in So the what $XX we had zone million right of the was talked about.

inventory not of repeat that of that basically in will the Now as does we slow the commented turn quarter, go about fourth here, forward half Erica not that’s repeat.

we’re that feel we back so in there. And balance

And bottom, they’re have volumes center prices of basis. still time kind recovery oil are some is that in a the there we front, down and because bounced yield energy then saw have are the energy period. So that’s year-over-year the higher, center off in off on And higher. utilizations good. April the bounced bottom But certainly

it is about quarter. but $XX about next million those in – to be right will is So think improving, half repeat not the to will of that the expected way

Josh Spector

Great. Thank you.

Operator

from comes the Sheehan line Truist of with question next Your Jim Securities.

James Sheehan

Thanks. Good morning.

Sean Keohane

morning. Good

James Sheehan

rates Can with contracts about expectations end you Materials a as Can Reinforcement Thanks. about I customers? you for negotiations where your sense finalized of today? inventory in levels the the those and And usually July? where toward also sit us talk you your you Reinforcement know tire utilization Material talk the give of year. are,

Sean Keohane

Jim. Good morning, Yeah.

me let questions So X – there.

try Let you them them. tackle order posed the to in me that

know, the terms we of you typically the customers when about year our discussions starting in back major in as the half of now So contracts, with begin. negotiate is the those agreements annual

I year. is so this schedule And no the different think

just the to of beginning will discussions. calendar We’re later in It’s year. finalizing hard how stages say now play our between the the negotiations at and agreements out those

We’re such and at indicators and positive external some seeing signs the miles as there driven for data, certainly tire carbon industry. looking black

still there good. So with pandemic. But is this to regard uncertainty some the is COVID

of answer recent So shape in depend are expected recovery on I improvement of encouraging XXXX. of for the But into think terms the will us. mobility the that’s of certainly much timing signs and the

environmental which factor are and and increasing costs. our both of environmental other play that is competitors, – those at mostly going the here our up driven costs by think the I regulatory and of the costs

support so fair need are other and we higher And the producers return in them. these with a way, earn required investments Cabot that and to for carbon a on associated black order costs in customers our sustainable to

here. price we’re increases additional most especially up how that’s approaching that those costs are negotiations necessary, places are do going to order in and quickly, in so where And our

continue last is and working this theme for be wide we’ve long-term few and central to one for stability that an – stability terms customers. of industry So our been over a providing in on hard the the issue years

compliance hard that so stream, so working make air control that, come the for these can And to our our that on supply sure have We’re costs. desire. in on-time, pollution can investments fair that return we they for we higher we price a our that to need give give security customers

for recovery our quite the but get investments. it’s to So it. I thinking that higher that’s say work we would that’s industry, in these early – I about And we’re think with it’s important as a customers an process, how

try asked. question Let comment me that quickly just you the to on inventory

through that. that they sense levels a quite is specifically and recent of see following – of that can And about we tire you And some the weak period manufacturers’ low we’ve inventory so earnings think really demand. commented calls, really, come just our are

I took So and, had inventory course, aggressively. taken chain down levels been we of the across think down ours

I value chain. so the And sync think were across we with was what happening in

there more that hard it be in would be was should – to because of And guess visibility, But on that July. through but I there’ll think fairly likely it I then be utilization. surprised we I a don’t as given that see bit some wouldn’t some improve, beginning low. if be So there very your tell, on finally, may low, probably we a improvement flow It’s big inventories will But I that us. think already which I last to front, here. should demand distortion pretty have Jim, of restocking, should in be directly July. are a inventories say levels question seen are

are aggressively lower down aggressively. in probably utilizations volumes the to our production more the were XX%. our down were levels were more the our range or plant – because for rates – track, our across in of tire rates quarter, pulling expectation we the inventories in operating utilization But XX% the were utilization down last quarter. course, is now. what Our We We going

inventories so how down, now utilization levels And That’s think see reflect it of this point. going volumes. forward I I should with the sort at expectation our of

James Sheehan

your also And on you. could the given of carbons comment the Thank state conductive helpful. market? vehicle Very you electric business

Sean Keohane

Sure. Yeah.

commented Sanshun pleased to acquisition I in in close were prepared really the the remarks, as quarter. the we So

most EV that’s automotive impacted the should auto the just as up recent as most that I recover. that market has quarter are hold takes and I been in – but mean, broader positive. So was market think the real the recent – back recovery that a too plants here,

years leading the this EV as position. Our of with number certainly, China a China CNT serving capture we’re market is they’re about over the bigger And X producer world. excited the the market market biggest in And changed EV’s market growth market. our terms in because underlying share next the acquisition, to EV of Sanshun XX view the of a a significant the in view, of hasn’t X really expectation share

their on strategic blacks, be quite we additives, was carbon to their front. and there’s in over of ability these, our between furnace product investment of formulation, we important dispersions to generation next and this here CNTs the conductive so that time combination is think synergy And And lot with formulate a conductive development. going then the think,

Cnano, one million past within recently and revenue. of competitors key China, year, a company, And so with here of our the IPO-ed about $XX you in follow may

in our – is with well, They’re billion acquisition. to So of Sanshun valuation maybe with right sitting a maybe $X.X what currently double XX% close ours China now.

the we in think is plants strategic impact this I feel shut here investment Sanshun. really there good some auto down. long-term But were as short-term So about

James Sheehan

very you much. Thank

Operator

Your line of Laurence next Jefferies. from question the with comes Alexander

Laurence Alexander

X any bit can questions, should little of into X efforts? you then next One sense then through next about should mix? Good that please. the how or of [ph] over your And talk you And mix you’re to drawn capsule how As X, how talent putting scope would [CTC] few margins recover, end a morning. evolve? over marketing – resources give is your evolve quarters? can – the the pricing the the a years? flow should And markets

Sean Keohane

just marketing the the first one Laurence, Yeah. in CEC efforts. on

me? you The question, second mind that part of repeating that would just for

Laurence Alexander

efforts in to longer-term Well, capital efforts, there’s investments and research the and component, forth. their capital then there’s infrastructure working so component, customers the development personnel help with just

Sean Keohane

it. Yeah. No. Got

Okay.

to very materials pleased continued here business. with progress we’re the CEC still It reinforcement the broader in immaterial yeah, So on relation front. is

materiality. line time and to adoption build development tire investing to that take the and We’ll build as time we going something building where an extend some here. further product well over as are marketing phase and it’s by investment we’re out of here, to the is but technology here, further in makers the that So both this in

you as a in business burn. now cash But a this some cash burn right think term. kind it’s in So terms of longer millions for low-single sort the the in of basis, the number about there’s a if on of it we make investments these

investing revenue a and all in development, together, that’s – Of also that gives when the margin but a so sales, longer-term and course, sense. there’s net you we’re you just from

I think I the now one this very So modest this question. to of time, for balance has is potential as here, to think products respect something it that role business. does we because transformational important, some evolve. right how sustainability be It a burn, see sustainable It’s cash but will should take but going mix, our the With drive in base and to tires really of customer in importance materials critical. materials the some

the many single think Chemicals, weak been auto, specified in I the chain. into high of are portfolio, Performance products in value biggest for a because the are has mix products the automotive particularly drag most on us

mix X, think should improves, demand commented side, a I be as follow improves product out this of I positive So auto margin that I fumed as is mix line. with in production in follow. we then next through think industry bit of the terms – flowing earlier, should the of then should silica And a a course, flowing through it the high improving numbers see timing it quarters, offset, Maybe – X will over slight basically it levels.

further as And that be And support to would we so pricing coming we’ll demand – X X incrementally over as would up that should well. the there. some get ratcheting expect improves, I quarters

and respect major to be of drivers, couple Laurence, would sort those the a with of mix. So price

Laurence Alexander

you. Thank Okay.

Operator

line next from Zekauskas the Jeff comes Your JPMorgan. of question with

Jeffrey Zekauskas

much. very Thanks

Sean Keohane

Jeff. Good morning,

Jeffrey Zekauskas

much spending in XXXX? of the have think XXXX by spent? all in States you aggregate, the of will your in much – United And how have you’ll be XXXX? how April Will do fiscal And completed spent emissions you

Sean Keohane

Yeah.

implementation plant the a The date in completion online to the plant we XXXX. Cabot industry come final So, April we and of next have now that And a plant to Jeff, for of by in with with obligated similar us to competitors have decree, leaves consent XXXX. are respect all the have EPA one timeline. under XXXX, online a final where

penalties there now and will have once million out we this obligated players so be estimate that total, right With all projects. And is the are that, the the industry, synchronized the and from for to with respect had DOJ. we million plants an costs, and to for and impacts feel of range to of in completion to those continue and $XXX or implemented, meet the range deal that the consequences EPA are in our these are $XXX implementation schedules all

completed. are range So that’ll be the capital cost of once them all

Jeffrey Zekauskas

you far? How so spent much have

Sean Keohane

now. right half About

Jeffrey Zekauskas

volume what and black June what quarter in was it That did did in much is decrement the decrement July? July? How how the And – in the volume the in was specialty quarter? how behave business behave –

Sean Keohane

Yeah.

both have the FMO. So Additives is in specialty report We we additives, down performance quarter. which and our reported numbers, Performance X% in carbons

related, But up largely maybe probably we might the it because hits That value same how improving bit more delayed aligned depth points percentage be year, related, specific with, related to it’ll should a ag So was we’re book our and that we’re we certainly pretty there chain. the in driving you a a be Jeff, factors more seeing think in decline auto, well when business decline modest better. from Materials. the weak who then we the seem what as Again, of our was in But be but balanced in and us Performance in well. that few and certain hold be had terms the it little from infrastructure might balance It of up we in Additives. July they – for will extremely of in packaging, specific – – resilient. little beginning business the the that range of – some last modest And to will well a certainly see auto out bit down more QX. Reinforcement that is customers We some than expect of held quarter. of our with being what those just impact of – And over infrastructure, what see the as X% was same over ag it, saw packaging, more sort auto off seeing would quarter and customer against improvement some It doing a continue the – same improvement I things. of we quarter. some of other modest book is of

those So I think us also. are helping

Jeffrey Zekauskas

it is all part of specialty Additives And it Performance specialty what is of percentage or black? of Is a black it?

Sean Keohane

No, of and fumed it, Performance we Additives, – it’s in have a part specialty… silica have we because

Jeffrey Zekauskas

That’s to wanted to black? what specialty happened Right. why I know

Sean Keohane

say, would blacks I specialty Yeah, Additive. Performance about moved as overall direction the same the in

commentary my reasonable is So that. for

Jeffrey Zekauskas

what’s whether been Okay. monitoring the you going XX there black And for carbon you have reached be drives Yeah. these there to what’s in of looked And natural And the produce Russia pyrolysis out have – in gas, then been you carbon going you companies or think research at truck And there? of hydrogen. do resultant lastly, produced. Europe? industry touch on have it developments or on are Like black in different overtime? would will

Sean Keohane

gas-based Pampa, Texas Yeah. We was to gas natural time, And certainly our follow very in feedstock. tied long-ago originally in on a closely. plants in a Cabot this production had capacity fact built

to are to to conversion well things various everything recycled trying sources understand So and reclaim black carbon from take producers like natural the tires technology of we them. like monolift across people developments like certainly Materials, Reinforcement feedstock gas tracking alternative and from alternative spectrum the

all So these entrants we inform point of our substitutes. to closely view track around or very of new either potential

our challenges a probably but them it’s I of in scale economics the either have of another application. product each that conversation making analysis of actually performs them on up think think I or terms or each based for that day, in real

get application in here and our theory, black it You our and product how the think is and application. knowledge and I what strengths different one of is deep carbon very performs of take different. application see this performance quite its ability to is, in company a And our a is

polymer, it, you but and it’s a be Carbon full the and And think potential, of formulation Jeff. closely, – the product. underlying around handles have very are EXC, because sheer formulation angle to apply watch you we things so to here. CEC to something performance compelling. disperse we its now formulation it’s the going the we’ve of try hard where what this is And bets because put quite are it’s when degrade or we handles going our realize on black like lot really drive So great that to to CEC you is a call

we the So our that technologies. money emerging around but track closely we’ve put do and angle, effort

Jeffrey Zekauskas

much. Okay, so you great. Thank

Operator

next comes from Your Markets. of question Chris Kapsch line Loop Capital with

Chris Kapsch

good Yeah, morning.

that annual against held weaker pricing that noticed intensity you Materials my bigger contracts and question, you’ve the pandemic. not up That’s into been backdrop. just specifically competitive How you the on how that pricing? touched of has or wondering the about segment? maybe through picture, by So seen is any this contract Have the little the business shifts overall first question season. in pricing expectations more we’re this upon demand region, around as then PC bit bit a Reinforcement a in you the supply more I’m carbon going my dependent have really on little agreements. just black coming But industry

Sean Keohane

Yeah.

RM that’s it So in much under because and economies, the change, certainly terms Chris, honored. been hasn’t agreed of any of in more West so the in been with and there mature contract, pricing really

over for during were fighting they That demand the phase. had through Now weak markets intensity, China, were competition volumes for precipitously. that here, certainly – spot people in – more working with like the price COVID very in more example, resulted more because price dropped

pricing power see demand then see to coming back, we starting As we’re restore.

incremental that biggest China, say market. if pricing the is And that so, which in see I those spot continues, trend should of restoration then – we would

that’s Materials. So sort characterize would I how of Reinforcement

any specialty carbons not we of side had in pricing. impact have the On things,

down, this to and when an margin when important there’s for driven. it’s application of it and raws, to But performance relationship of in room deal and input it factor up, price the expansion. with with that. respect some feedstock more price So and And is business, moves got we’ve course, moves the normally

raws, think price quite we between and at So that’s holding up been I look well. this relationship

oriented to mix comes been with than the stuff rather I challenge that the pricing high that. has exposure auto and a margin the bit very think more because just oriented

Chris Kapsch

then And a helpful. That’s follow-up.

was the could RM granular China You at segment, in just talked a on more get the little looked demand a at monthly about, how and the the question, you trends mentioned sequential degradation China, wondering quantitatively, I that’s how how on Thanks. China a and actually far quarter through you of in into June qualitatively, response you the – have And saw least there? if in least that’s basis, to magnitude comparisons July? monthly so basis looked on another those

Sean Keohane

Yeah, yeah.

but low pretty year China volumes than we very the the sharply, low spitting west. was volumes But earlier where point, would in back distance little within in of at certainly And they’re come saw strongly. bit down experienced the say point well, I we ago. a were have So, were a

capacity positive is sustain continues and if then the that utilization improve, in think export well. to up and market move the I industry should that pricing as I tick itself the to should up incrementally So think and continues

So China. the from a standpoint, in I think stages early is things the in is competitive high, But market volume fairly well are somewhat intensity the recovering. recovering is because still of export only

but little And so, trend see people more, here improving fight we bit for incrementally volumes that a

Chris Kapsch

that and update you Investor of Is there you can mentioned export-related by I matured. Thanks. at demand car – Day OE your One last there was replacement exposure spelled last one, in way you’ve how also your replacement end-market. sort And out lagging. export, that there’s there what know China, the is you’ve is a tire? the OE versus park versus But because

your there of by over those buckets? exposure what just So is sort Thanks.

Sean Keohane

Chris. to try bit help a I’ll you Well, Yeah. here,

look in China tires about about China, XX% if exported. mean, you I total, get domestic of in and So, are XX% the in

exports. of have they heavy a there’s component – So they XX% almost tire world’s And capacity. tire make – again, the about of

of house sort of that’s So, at level. the top the

in the quite see terms of over over course, a last building, is passenger relative what China The the years X bit versus and last, X car. park in bus to bigger been China the has that passenger with years. in market car of Now, you XX truck kind is the

And that proportion to see or rest not where so, the is yet the world. relative at the we of

side heavier little things. a truck it’s bus on So and the of

to to get park see in that replacement then higher look make into is they China, passenger exposure the you’ll car cycle, to in start But balance world. China a as bit truck result build up of that. as fleet or the of in the a probably and continues car car like more that a the little bus China our – that rest So and

So how that’s we it’s structured of it. kind and see how

Chris Kapsch

you. Thank

Operator

Instructions] [Operator Difficulty] next comes [Technical Our question

Unidentified Analyst

you guys me. can Hello, hear

out you’re second? there like Sounded cutting a for just

Sean Keohane

sure the No, they top off past if here. wasn’t we’re here. it’s still still no, I of hour gone here. – if were because shutting we’re us But,

Unidentified Analyst

impact this the Okay, – cost go – gather, great. up will much it of cost we’ve – up Yeah, spend, those quick been how costs like us related Because to EPA mentioned how doesn’t – as you you much it’s could not question seem installing if on help frame the going result curious up immaterial. a equipment? it’s what operating to able Sean,

NOx, players you And know this will how all in to costs you – I’m equipment? associated costs and go if compliant So SOx my terms up NOx. on mentioned, some curious plants with once thoughts the of if different those it’s flip April your it’s just understanding much XXXX. having – you it’s the becoming Do is switch be supposed

be you at all your companies companies April how the you’re – consent other how similar going companies curious look less? curious the other are becoming that you’re what other costs thinking you or to of that? about up the kind when compliant more So – Will with or the of XXXX. decrees Just aware or

Sean Keohane

Yeah, sure.

general, producer’s think, So shape the I in consent each the of decree, shape is Kevin. similar,

some a of smaller have that have you mix a so, And plants investment.

So, certain and we first plant did restriction. example, had that the for knocks feedstock

you lower both controls a and certain it that So find complete then, also decree require more And the has what was NOx. plants is consent investment. capital SOx that

implementation say would producers – effectively well. it’s of the identical. synchronized I as timeline is the So shape the across the And consent of decree is

know, costs similar with SOx so, you respect fairly full has think you’ll a controls take plant on it, see to – to range. have, in you full just and NOx I for if And that example, a

from estimates generally zone, – But are the reaffirmed competition have particular stream, Although, cost be has it seen their technology. recently up. gas is for they while the adapted should going our technology I that ours. reports because in same get some to known in the general, We’ve

I that’s about So that. what would say

of in Now, costs. terms operating

that of need of the So get equipment there a And are control equipment operating There’s that cost capital putting we recovery to recovery return is cost. then, here. X cost an the types costs and getting of in and that capital costs running a important the the on here. for there’s and also

last hence, we’ve pricing so, be to hard this. here, as them been working plants bringing the couple continue years need supplier able on been costs. our at and – we that simply for And sustainable of with incurring in for we’ve And this customers won’t to a these negotiations without be to because we

our doing we’re part. Now,

for return online and on that and but can’t We’re going going supply a fair speak to But going to we’re ready to have them to our we have customers. reliability to plants we’re I others, provide that. have need

Unidentified Analyst

Thank very you much. Okay, great.

Operator

Mr. questions. turn to are no call would there like to further I time, over now Sean This the Keohane.

Sean Keohane

this Cabot thank some remaining hope time Thank look But for today. for sense Great. and talking all to attention of you’re and and back to next again quarter. of normal joining and and support to you, forward safe I thanks Lisa, you here. journey you beginning all your

Operator

today’s This call. conference concludes

You may now disconnect.

Cabot (CBT) 7 Aug 202020 Q3 Earnings call transcript