Cabot Corporation Q1 FY2026 earnings call

• Continued executing at a high level in a challenging economic environment, with adjusted EPS of $1.53 in the quarter. - Reinforcement Materials faced a challenging demand environment with depressed tire production and tire imports impacting local production and pricing. - Took $50 million cost savings in fiscal 2025 and expects to maintain those and add $30 million more in cost reductions in fiscal 2026, including procurement savings, headcount reductions in Reinforcement Materials, and technology deployment for improved efficiencies. - Reduced full-year capital expenditures for 2026, with midpoint CapEx expected to be ~$60 million lower than 2025 actuals. - Finalizing plans to rationalize carbon black capacity in the Americas and Europe. - Battery Materials product line had strong performance with 39% revenue growth in the quarter, signed a multiyear agreement with PowerCo, and is well-positioned in the growing battery energy storage systems and electric vehicle markets.

In the first quarter, the Reinforcement Materials segment's EBIT declined by 22% compared to the first quarter of fiscal 2025, primarily driven by lower volumes in the Americas and Asia Pacific. The Performance Chemicals segment's EBIT increased by 7% compared to the first quarter of fiscal 2025, due to a more favorable product mix and momentum in the Battery Materials product line. Regionally, for Reinforcement Materials, volumes were down 15% in the Americas, 7% in Asia Pacific, and up 6% in Europe in the first quarter. Performance Chemicals volumes were down 3% year-over-year mainly due to lower demand in Europe.

• Narrowed adjusted earnings per share guidance range for fiscal 2026 to between $6 and $6.50. - In Reinforcement Materials, volumes are expected to be relatively flat year-over-year, with impact of first quarter volumes and some volume loss in Europe offset by new assets, and pricing is lower year-over-year due to annual agreements. - Performance Chemicals is anticipated to have low single-digit volume growth year-over-year driven by the Battery Materials product line and tailwinds in certain end markets, while maintaining gross profit per ton compared to prior year.

• Global demand environment, especially for the Reinforcement Materials segment, remains challenging with depressed tire production and tire imports affecting local production and pricing. - Uncertainty regarding trade protection measures and their impact on tire imports and production levels. - Weakness in certain end markets like housing and construction in Europe affecting the Performance Chemicals segment's performance.

Q: What are you seeing on tires leaving ports in Asia?

A: Tire imports in the Americas have been coming down sequentially. In South America, tariff measures have led to a modest year-over-year decline in tire imports. In Europe, tire imports continue with an antidumping petition under review.

Q: Is volume weakness in Europe silicas just the construction silicones market?

A: It's more of a general market weakness in Europe related to housing and construction, not materially impacted by Dow's silanes closure.

Q: Have you quantified the expected earnings contribution from the PowerCo agreement?

A: Not quantified due to confidentiality, but the agreement is strategically important given PowerCo's significance with Volkswagen Group.

Q: What's the magnitude of cross-border specialty product sales exposed to tariffs?

A: There are relatively small volumes of cross-border specialty products, and there have been no material impacts from trade tensions.

Q: How does the new Mexico plant fit into the Americas manufacturing footprint?

A: The Mexico plant is strategically important with operational synergies, underpinned by a long-term agreement with Bridgestone for supplying materials for their tire production in the Americas.

Q: How were volumes realized by region in annual contracts?

A: Volumes across Reinforcement are expected to be relatively flat globally. In the Americas, there's no real change in share position, but some volume was lost in Europe in the contract negotiations.

Q: Quantify the earnings contribution from the Battery Materials business and difference in value add for EV and ESS?

A: Recent earnings contribution from the Battery Materials business hasn't been disclosed. The difference is that EV has a space constraint requiring different conductive additives than the less space-constrained ESS.

Q: How does margin affect when selling to lower-tier vs higher-tier tires?

A: Segmentation is important as each tire part has specific carbon black grades, and reinforcing grades on the tread impart more performance.

Q: How is Reinforcement Materials volume trending in the Americas quarter-to-date?

A: Volumes are up a bit year-over-year in the Americas, and sequentially up ~15% from the December quarter as the December quarter was seasonally weaker with customer inventory management.