Cabot Corporation Q3 FY2025 earnings call

• Acquired Bridgestone's reinforcing carbons plant in Mexico for $70 million, expected to close in 3-6 months and be accretive in first year.
• Received platinum rating from EcoVadis for fifth consecutive year, underscoring sustainability commitment.
• Battery Materials increased contribution margin by 20% in first 3 quarters of fiscal 2025, with strategy focused on China and other regions.
• In Performance Chemicals, infrastructure (wire and cable) volumes up 15% YTD, alternative energy (wind turbine blades) volumes up 8% YTD.
• Strong cash flow: $249 million operating cash flow in Q3, funded cap ex and returned $64M to shareholders.
• M&A priorities: Strengthen competitive position, drive growth, enhance margins, with focus on high-growth areas like batteries and conducted materials.
• Organic growth projects: New unit in Indonesia for reinforcing carbons and CNT capacity expansion in China; expect to fund with strong cash flow.
• Dividend increased 5% in May, expect to continue increasing in line with earnings growth; share repurchase authorization increased to 10 million shares, expect to repurchase $150M-$200M in fiscal 2025.

Reinforcement Materials: EBIT was $128 million in Q3, down 6% year-over-year. Volumes were down 8% year-over-year due to macroeconomic challenges, with 11% decline in Asia Pacific, 9% in Americas, and 4% increase in Europe. Performance Chemicals: EBIT increased by $2 million in Q3, up 4% year-over-year. Volumes were down 8% year-over-year, but offset by gross profit per ton improvement. Revenue contribution details were not explicitly provided in absolute percentage but the focus was on the performance of each segment.

• Reaffirmed full-year adjusted EPS range of $7.15 to $7.50. Current demand levels put them in middle to lower end of range; tariffs could impact higher if recent announcements translate to higher Q4 demand.
• Outlook for fourth quarter: Total segment EBIT expected to be largely consistent with prior year, but higher tax rate anticipated compared to Q4 2024.

• Tariff uncertainties: Fluctuating tariffs and antidumping duties on tires and carbon black from Southeast Asia and China could impact volumes and margins.
• Macroeconomic weakness: Challenging global macroeconomic environment affecting customer demand and volumes.
• Trade policy changes: Potential changes in trade agreements or duties could disrupt supply chains and competitive positioning.

Q: Saurabh Dhir from Mizuho Group asked about the relationship between tariffs and demand in North America, including tariff rates on Southeast Asian countries and when domestic production would be competitive.

A: Sean Keohane discussed tariff ranges for Southeast Asia, China, Mexico, and Canada, noting tariffs and antidumping duties would likely make local production more competitive but magnitude and timing uncertain.

Q: Jeffrey John Zekauskas from JPMorgan inquired about volumes in the Americas and differences between North and South America, and business conditions at Altamira plant.

A: Sean Keohane said Americas volumes down 9% YTD, with North and South America having different trends; Altamira plant is USMCA compliant with 0 tariffs, and the acquisition of the Mexican plant is financially attractive.

Q: Chris Perrella from UBS followed up on inventory overhang related to tires and impact of tariffs on Q4 demand, and Brazil countervailing duties.

A: Sean Keohane said tire inventories are largely in balance, tariffs directionally supportive but timing and magnitude uncertain; Brazil duties could lead to rebalancing of tire production from Brazil to other regions.

Q: Laurence Alexander from Jefferies asked about network optimization initiatives and operating leverage.

A: Sean Keohane and Erica McLaughlin discussed broad network optimization efforts, fixed cost and procurement savings trending ahead of targets, with structural cost reductions contributing to favorable operating leverage.