CABOT CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Achieved an adjusted earnings per share growth CAGR of 12% over the 2021-2024 period, meeting the top end of the target range of 8% to 12%.
• Generated $1.2 billion of cumulative discretionary free cash flow over the 2021-2024 three-year period.
• Launched the Creating for Tomorrow strategy in 2021, focusing on global leadership, innovation, and operational excellence.
• In fiscal 2024, delivered adjusted EPS of $7.06, operating cash flow of $692 million, and discretionary free cash flow of $479 million.
• Allocated capital to maintaining the asset-base, underwriting high-confidence growth projects, and returning capital to shareholders via dividends and share repurchases.
• 2024 sustainability achievements included publishing the 2024 Sustainability Report, achieving 9 of 14 2025 sustainability goals ahead of schedule, and receiving a $50 million DOE grant for battery materials production.

Segment Performance

• Reinforcement Materials: EBIT increased 11% year-over-year to $537 million in fiscal 2024. In Q4, EBIT decreased by $11 million due to lower volumes, less favorable geographic mix, and higher costs, but partially offset by higher pricing and improved product mix. Globally, volumes were down 1% year-over-year. For Q1 2025, expected sequential increase in EBIT due to $10 million of lower costs.
• Performance Chemicals: EBIT increased 31% year-over-year to $164 million in fiscal 2024. In Q4, EBIT increased by $8 million due to higher volumes and better product mix, partially offset by higher costs. Volumes were up 2% in Q4. For Q1 2025, expected EBIT to be consistent with Q4.

Guidance

• Expected fiscal year 2025 adjusted EPS to be in the range of $7.40 to $7.80, representing 5%-10% growth from 2024.
• Reinforcement Materials expected to have global volume growth and higher unit margins, with higher costs from the startup of a final air pollution control project in the US and a new unit in Indonesia.
• Performance Chemicals expected to continue the EBIT run rate seen in the second half of 2024, with mid-single-digit volume growth and steady unit margins.
• Tax rate expected to be in the range of 27%-29%, midpoint 2 points higher than fiscal year 2024.
• Anticipate lower unallocated corporate costs and interest expense, offset by lower general unallocated income due to lower investment income.

Risks

• Impact of foreign exchange rates, interest rates, and energy prices on financial performance.
• Trade dynamics such as tariffs and anti-dumping duties affecting tire imports, which can impact demand for Cabot's products.
• Uncertainty around the resolution of trade-related issues and their effect on market positioning and pricing.

Question and Answer

Q: The silica business seems like the stronger area in Performance Chemicals. I assume that's what you were talking about in terms of the mix improvement. Could you talk about if you're seeing any slowdown in semiconductor applications or the automotive applications?

A: Sean Keohane responded that semiconductor applications saw normalized volumes continuing into Q4, and automotive production is expected to grow but with a downward revision from prior outlooks.

Q: What are you seeing, I guess, the return in the December quarter? And then how do you see the cadence of volumes for the year and, I guess, the dynamic between the Asian imports coming into the US?

A: Sean Keohane stated there was solid October volume and return to normalized patterns related to the Mexican drought, with modest growth in tire production in 2025 and trade pushback on tire imports via tariffs and anti-dumping duties.

Q: Your battery materials demand in the United States has contracted for eight quarters in a row. Can you comment on that? What's behind that? Is it just too expensive to make tires in the US?

A: Sean Keohane discussed Asian tire imports, tariffs, anti-dumping duties, and the competitiveness of US tire production, noting pushback on elevated imports but long-term supply side fundamentals remaining unchanged.

Q: You talked a bit about maintenance costs in Q4, and I was just wondering what the outlook is for maintenance costs and maybe turnarounds in '25 versus '24?

A: Erica McLaughlin mentioned maintenance costs were higher in Q4, expected to decrease in Q1, and Performance Chemicals expected to have flat performance on EBIT related to maintenance