CABOT CORP Q1 FY2025 earnings call

• In the first fiscal quarter, Cabot executed at a high level in a mixed economic environment, generating adjusted earnings per share of $1.76, up 13% year-over-year. - EBIT in Reinforcement Materials was $130 million, up 1% YOY, with results demonstrating value of structural improvements. EBIT in Performance Chemicals was up 32% YOY due to higher volumes. - Cashflow was strong: operating cashflow $124 million, $77 million invested in capital expenditures (including growth investments), and $66 million returned to shareholders. - Held Investor Day in December, reviewed successful achievement of 2021 Investor Day goals, discussed company vision/strategy, provided segment outlooks, and communicated updated 3-year financial targets. - Creating for tomorrow strategy built on pillars of grow, innovate, optimize, with execution driven by disciplined operating platform of commercial and operational excellence, aligned with macro trends: electric vehicles, global infrastructure buildout, sustainability transition.

Reinforcement Materials: EBIT was $130 million, up 1% year-over-year. Volumes were up 1% globally in the first quarter, with 2% growth in Asia Pacific and 1% in Europe. For the second quarter of fiscal 2025, expected to improve modestly with relatively consistent volumes, more favorable geographic mix offset by lower volumes in Asia due to lunar New Year. Performance Chemicals: EBIT increased by $11 million compared to the first quarter of fiscal 2024. Volumes were higher by 8% in the quarter as volumes reconnected to underlying demand drivers. For the second quarter of fiscal 2025, expected modest sequential EBIT improvement from seasonally higher volumes in North America and Europe. Revenue contribution details: Reinforcement Materials had an EBIT of $130 million, and Performance Chemicals had an EBIT increase of $11 million from the prior year.

• Reaffirmed fiscal year 2025 adjusted earnings per share outlook in the range of $7.40 to $7.80. - Reinforcement Materials expected to remain at similarly strong EBIT level as fiscal 2024, with volumes expected to increase as new Indonesia capacity comes online in the back half of the year. - Performance Chemicals expected to continue in current EBIT range of $45 million to $55 million per quarter for the year, with volume growth year-over-year from global infrastructure buildout. - Guidance does not include adverse impacts from tariffs announced between US, Mexico, Canada, and China currently, but impact is still being assessed. - Expect to return robust cash to shareholders through dividends and share repurchases, supported by board's 10 million share repurchase authorization.

• Tariffs announced between US and Mexico, Canada, and China: potential downstream impact on customers' businesses and underlying demand levels; need to better assess broader impacts on GDP, foreign currency rates, inflation, and overall demand as situation is dynamic.

Q: Could you just dig a little more on the contract terms for reinforced materials that you realized in 2025 and how they compare to the last couple of years? And then is there any benefit still left over from the big increases that you got in 2023?

A: As to contract terms, base prices on a global basis concluded similar to the prior year, with volumes higher in Europe but lower in South America. No, we did not have any multi-years that extended from 2023 into 2025.

Q: With the Indonesia startup, how should we expect EBIT to improve off of that? Or are there some startup headwind costs you have to overcome as you load volume into the plant?

A: Typically, the plant will start up in the back half of the year, with very modest back half benefit in 2025 (low single-digit millions) as working through customer qualifications, and then ramping up sharply in 2026.

Q: Is it fair to say you're benefiting from the increased tire imports into the US that your Asian customers’ volume growth is outpacing any impact you're having to your US customers?

A: We participate globally, able to secure share of volumes, but there are differences in margin levels by region; Asian imports have been a margin headwind but managed well.

Q: On Reinforcement earnings for 2025, initial guidance was for it to be up year-over-year. Now it's flat. Is that due to the outcome of the tire contract negotiations? Were they worse than you expected and was it due to a more competitive market end of the day?

A: Outlook for Reinforcement Materials is to be operating at a similarly strong level as 2024, with underlying demand fundamentals for tire production and auto OE relatively flat, pricing and contract outcomes reasonable, and other factors like FX rates and energy center movements contributing.

Q: Can you talk about which product lines within the Performance Chemicals segment drove the 8% volume growth? Was it fumed silica, battery materials, master batch, or others? And if all product lines grew, which ones grew more and which ones less?

A: Saw growth across all product lines; carbons and compounds grew 5%-6%, few metal oxide product line grew around 20%.

Q: Could you quantify the year-over-year energy center revenue loss? Was it more or less than $30 million this quarter, and which region contributed to the decline?

A: Loss on an EBIT type basis was about $5 million headwind year-over-year in the Reinforcement Materials segment, driven by Europe and China revenue.

Q: Allocated corporate costs were $4 million less negative year-over-year. And so, what drove that, and is that going to be the case for the next three quarters?

A: Driven by timing of corporate expenses (lower spend on corporate meetings, board-related costs); remainder of the year expected to be in the $14 million to $16 million per quarter range, with Q2 usually a bit higher due to timing of certain expenses.