Cabot Corporation (CBT) Earnings

Management highlights

### Leadership Transition - CEO and President Sean Keohane will retire effective September 30, 2026, after 25 years with the company and 10 years as CEO, and will serve in an advisory capacity through the end of 2026. The transition is a well-planned, board-aligned process, and Cabot enters the transition from a position of strength with a clear strategy, strong balance sheet, and experienced leadership team. - CFO Erica McLaughlin has been appointed as the next President and CEO, with deep operational and strategic experience across Cabot's businesses, including prior leadership of the reinforcement materials segment and tire business. McLaughlin will maintain the company's existing strategic priorities. - A search for a new CFO is underway, and the existing finance team is positioned to support a smooth transition. ### Core Financial and Operational Performance - Q3 adjusted earnings per share was $1.67, up 4% sequentially, in line with management expectations. - The company generated $75 million in operating cash flow, even with a $44 million increase in working capital from rapidly rising raw material costs. Capital expenditure for the quarter was $38 million, and $24 million was returned to shareholders via dividends. Year-to-date fiscal 2026 share repurchases total $101 million, with repurchases expected to resume in Q4. - As of quarter-end, Cabot held $250 million in cash and cash equivalents, with total liquidity of ~$1.3 billion, a debt balance of ~$1.3 billion, and a net debt to EBITDA ratio of 1.4x. A maturing public bond will be refinanced in Q4 in line with disciplined liquidity management. - Cabot earned a platinum sustainability rating from EcoVadis for the 6th consecutive year, placing it in the top 1% of basic chemicals manufacturing companies globally. ### Battery Materials Growth Initiative - Battery materials remains a core long-term growth driver, with global battery demand expected to more than double by the end of the decade driven by EVs, energy storage, and emerging applications such as drones, robotics, and power reliability for AI data centers. Non-EV applications account for ~30% of current battery demand, with energy storage as one of the fastest growing subsegments. - Cabot reaffirmed its full-year fiscal 2026 battery materials EBITDA target of ~$40 million, with a trailing 12-month EBITDA margin of ~24% as of Q3 end, driven by strong customer execution and growing energy storage penetration. - The company revised its U.S. battery materials expansion plan from a planned greenfield facility in Michigan to brownfield capacity additions at two existing U.S. sites. This approach is more capital-efficient, flexible, and aligned with customer startup timelines amid evolving EV market conditions and growing energy storage demand. Total investment for global capacity additions in the U.S. and China will be ~$125 million, with new capacity coming online in 2028, and the spending is already included in the current CapEx envelope. - Cabot's existing global manufacturing footprint across North America, Europe, and China, combined with its broad portfolio of conductive additives, positions it to meet localized supply chain requirements and tailored customer performance needs.

Guidance

- Adjusted full-year fiscal 2026 EPS guidance was tightened from the prior range of $6.00 to $6.50 to a new range of $6.15 to $6.45, reflecting year-to-date performance and Q4 expectations amid ongoing market uncertainty. - The expected fiscal 2026 operating tax rate range was updated to 28% to 30%, a modest increase driven by changes to the expected geographic mix of earnings. - The expected fiscal 2026 capital expenditure range was narrowed to $200 million to $215 million, reducing the upper end of the prior range by $15 million while still supporting all required maintenance and strategic growth initiatives including battery materials expansion. - Long-term, the Performance Chemicals segment is expected to grow at 1.5x to 2x GDP in normalized market conditions. Battery materials is expected to outpace the overall market's strong projected growth through the end of the decade.

Segment performance

1. Reinforcement Materials: Q3 fiscal 2026 EBIT was $97 million, down from $128 million in the year-ago quarter. EBITDA was $117 million, with an EBITDA margin of 20%. Global volumes increased 5% year over year, with 10% growth in Asia Pacific and 4% growth in the Americas, driven by the ramp of Indonesia capacity and the recent Mexican acquisition. The year-over-year earnings decline was primarily caused by pricing headwinds from 2026 annual tire customer agreements, partially offset by higher volumes and favorable regional product mix. Management expects a modest sequential EBIT decline in Q4 due to lower seasonal demand and less favorable mix, particularly in Europe. This segment contributed 57.4% of total Q3 segment EBIT. 2. Performance Chemicals: Q3 fiscal 2026 EBIT was $68 million, up 19% year over year (a $11 million increase). Growth was driven by higher volumes and higher gross profit per ton. Volume growth came from battery materials (across EV and energy storage applications) and fumed metal oxides (driven by higher electronics demand). Gross profit per ton improved due to favorable product mix and proactive pricing actions ahead of rising raw material costs. This segment contributed 42.6% of total Q3 segment EBIT. Management expects lower seasonal Q4 volumes and normalized gross profit per ton as raw material costs catch up to prior pricing actions.

Risks & headwinds

- Ongoing geopolitical tensions, particularly in the Middle East, have created volatility in energy and raw material costs, most notably sharp increases in oil prices that have impacted working capital balances and created near-term pricing management challenges. - Demand conditions remain mixed across end markets, with ongoing headwinds for automotive original equipment production and housing/construction end markets. - Pricing headwinds from 2026 annual tire customer agreements created a year-over-year earnings decline in the Reinforcement Materials segment, with ongoing seasonal and mix challenges expected in Q4. - The dynamic tire import market creates uncertainty for Reinforcement Materials fundamentals, even as recent import trends and regulatory actions have been directionally positive.

Analyst Q&A

• Q: With current oil price volatility, will Cabot hold Specialty Blacks prices until oil stabilizes, or will it continue to adjust pricing dynamically? /

  A: Cabot has a long track record of managing raw material price volatility effectively, and executed well to adjust pricing in Q3 as oil rose rapidly. The company will continue to adjust pricing dynamically as oil moves to protect margins. While margins are expected to normalize in Q4 as higher raw material costs catch up to prior pricing actions, management expects strong segment margins to persist, supported by continued favorable product mix shifting to high-growth end markets.

• Q: How does Cabot align its battery materials capacity expansion with industry growth, and how much growth will the current planned expansion support? /

  A: Cabot prioritizes synchronizing capacity additions to customer gigafactory startup timelines, to avoid overbuilding capacity ahead of demand. The 2028 capacity additions are planned to support approximately three years of expected growth. The company’s global existing asset base provides significant optionality to add future capacity as market demand develops, with the next wave of expansions to be planned between now and 2028.

• Q: Have tire import headwinds for Reinforcement Materials continued to ease, and can we expect normalization by year-end? /

  A: Recent trends are directionally positive: EU year-to-date tire imports from China are down 16% year over year, and North American imports are down 3% year over year, with U.S. imports down 2%. The EU’s recent implementation of 24% to 45% anti-dumping duties on Chinese tire imports, with additional countervailing duties expected soon, is expected to further support European market fundamentals over time. The situation remains dynamic but the current trend is supportive of better fundamentals.

• Q: What is the outlook for long-term capital spending, and is the cancelled Michigan greenfield project still eligible for the previously announced DOE grant? /

  A: Long-term capital spending is expected to remain at similar levels to recent years, covering maintenance, compliance, and strategic growth initiatives. Cabot continues discussions with the DOE regarding the 2024 proposed grant for U.S. battery expansion, and will provide an update once those discussions are concluded.