Diluted EPS of $0.70 and Adjusted EPS of
$0.69
Cabot Corporation (NYSE: CBT) today announced results for its
first quarter of fiscal year 2020.
Key Highlights
- Performance Chemicals EBIT up 14% compared to the first
quarter of fiscal 2019 due to improved volumes
- Strong cash flow generation driven by continued working
capital improvements
- Returned $54 million in the quarter to shareholders through
share repurchases and dividends
- Positive outcome from the calendar year 2020 tire customer
agreements including the successful implementation of pricing
formula adjustments for MARPOL-related feedstock
differentials
- Announced agreement to acquire Shenzhen Sanshun Nano – a
leading producer of carbon nanotubes (CNT) for lithium-ion
batteries
(In millions, except per share
amounts)
First Quarter
2020
2019
Net sales
$
727
$
821
Net income (loss) attributable to Cabot
Corporation
$
41
$
69
Net income (loss) per diluted share
attributable to Cabot Corporation
$
0.70
$
1.14
Less: Certain items after tax per
share
$
0.01
$
0.27
Adjusted EPS
$
0.69
$
0.87
Commenting on the results, Cabot President and CEO Sean Keohane,
said, “Results in the first quarter of fiscal 2020 declined as
compared with results in the first quarter of fiscal 2019. Our
first quarter fiscal 2019 results included $10 million of EBIT from
our Specialty Fluids business, which we divested in the third
quarter of last year. EBIT in our Reinforcement Materials segment
was lower than the prior year, which was largely from lower volumes
as our customers aggressively managed their year-end inventory
levels. Partially offsetting these declines was an increase in
Performance Chemicals EBIT of 14% due to strong volumes in both our
Performance Additives and Formulated Solutions businesses as demand
levels stabilized as compared to last year’s destocking behavior.
Purification Solutions EBIT also increased year-over-year as that
business continued to benefit from the transformation plan we
implemented last year.”
Keohane continued, “Cash flow from operations in the first
fiscal quarter of 2020 totaled $105 million, and we continued
returning cash to shareholders with $54 million returned in the
quarter through share repurchases and dividends. During the
quarter, we also finalized our calendar year 2020 Reinforcement
Materials customer negotiations with a favorable outcome from
improved pricing, particularly in the Americas. On the strategic
front, we announced the acquisition of Shenzhen Sanshun Nano, a
leading producer of carbon nanotubes, which we expect will
strengthen our market position and formulations capabilities in the
high-growth batteries space.”
Financial Detail
For the first quarter of fiscal 2020, net income attributable to
Cabot Corporation was $41 million ($0.70 per diluted common share).
Net income includes an after-tax per share benefit of $0.01 which
was predominantly comprised of a discrete tax benefit partially
offset by restructuring charges in the quarter. Adjusted EPS for
the first quarter of fiscal 2020 was $0.69 per share.
Segment Results
Reinforcement Materials – First quarter fiscal 2020 EBIT
in Reinforcement Materials decreased by $15 million compared to the
first quarter of fiscal 2019. Globally, volumes decreased 3% year
over year as customers managed year-end inventories in Europe and
the Americas. Lower volumes also resulted in lower energy center
revenue and a slower turn of inventory, both of which negatively
impacted margins in the quarter.
Global and regional volume changes for Reinforcement Materials
for the first quarter of fiscal 2020 as compared to the same
quarter of the prior year are included in the table below:
First Quarter
Year-over-Year Change
Changes in Global
Reinforcement Materials Volumes
(3%)
Asia
2%
Europe, Middle East, Africa
(9%)
Americas
(6%)
Performance Chemicals – First quarter fiscal 2020 EBIT in
Performance Chemicals increased by $5 million compared to the first
quarter of fiscal 2019 primarily due to higher volumes.
Year-over-year, volumes increased by 20% in the Formulated
Solutions business driven by our specialty compounds product line.
Volumes in the Performance Additives business increased by 13%
year-over-year due to share gains in the specialty carbons product
line and higher volumes in the fumed metal oxides product line from
the start-up of our new facility in China. The higher volumes were
partially offset by a more competitive pricing environment in our
fumed metal oxides product line in China and Europe and a weaker
product mix in our specialty carbons product line from lower demand
in automotive applications.
Purification Solutions – First quarter fiscal 2020 EBIT
in Purification Solutions increased by $1 million compared to the
first quarter of fiscal 2019 due to higher margins from improved
pricing and product mix and lower fixed costs as a result of the
transformation plan we implemented last year.
Cash Performance – The Company ended the first
quarter of fiscal 2020 with a cash balance of $173 million. During
the first quarter of fiscal 2020, cash flows from operating
activities were a source of $105 million, which included a $50
million decrease in net working capital. Capital expenditures for
the first quarter of fiscal 2020 were $68 million. Additional uses
of cash during the first quarter included $34 million for share
repurchases and $20 million for dividends.
Taxes – During the first quarter of fiscal 2020, the
Company recorded a tax provision of $4 million for an effective tax
rate of 7%. The provision included $10 million of discrete tax
benefits primarily related to impacts of Switzerland tax reform and
the release of uncertain tax positions. The operating tax rate was
26% in the first quarter of fiscal 2020 and increased from 24% in
the first quarter of fiscal 2019 due to the impacts of Switzerland
tax reform legislation and our projected geographic mix of
earnings.
Outlook
Commenting on the outlook for the Company, Keohane said, “While
the first fiscal quarter was impacted by more pronounced year-end
customer inventory management in Reinforcement Materials, we expect
company earnings to improve as we move through this fiscal year. We
anticipate that Reinforcement Materials will benefit from the
calendar year 2020 customer agreements, and volumes will return to
a more normalized level starting in the second fiscal quarter. In
Performance Chemicals, volumes have stabilized at a higher level
than the first half of fiscal 2019 in the specialty carbons and
specialty compounds product lines, while we anticipate the
challenging price environment for fumed silica in China and Europe
that we experienced in the first quarter will continue in the
near-term. Additionally, we expect the Purification Solutions
segment will continue to see year-over-year improvement in
quarterly EBIT. With these factors in mind, we expect full year
Adjusted EPS to be in the $3.60 to $3.90 band of our previously
communicated range. Impacts from recent developments with the
coronavirus are difficult to predict and we have therefore not
included impacts in our second quarter or full-year outlook.”
Keohane continued, “As we look ahead, we are pleased to see the
first phase of a trade deal between the U.S. and China, improving
volumes in our specialty carbons and specialty compounds product
lines, and the favorable outcome from our 2020 calendar year
Reinforcement Materials customer agreements. However, given the
continuing uncertainty in the overall business environment,
particularly in China, we will continue to manage costs, net
working capital and capital expenditures aggressively. We are
excited about our recently announced acquisition of Shenzhen
Sanshun Nano and we expect this acquisition will strengthen our
position as a leading supplier to the growing battery sector. We
remain committed to generating strong cash flow, investing for the
future in our core businesses and returning cash to
shareholders.”
Earnings Call
The Company will host a conference call with industry analysts
at 2:00 p.m. Eastern time on Tuesday, February 4, 2020. The call
can be accessed through Cabot’s investor relations website at
http://investor.cabot-corp.com.
About Cabot Corporation
Cabot Corporation (NYSE: CBT) is a global specialty chemicals
and performance materials company, headquartered in Boston,
Massachusetts. The company is a leading provider of rubber and
specialty carbons, activated carbon, inkjet colorants,
masterbatches and conductive compounds, fumed silica, and aerogel.
For more information on Cabot, please visit the company’s website
at: http://www.cabotcorp.com. The Company encourages investors and
potential investors to consult the Cabot website regularly.
Forward-Looking Statements – This earnings release
contains forward-looking statements. All statements that address
expectations or projections about the future, including with
respect to our expectations for our performance in fiscal year
2020, including our adjusted EPS, the factors that we expect will
impact our results of operations, volumes in our Reinforcement
Materials segment beginning in the second quarter of fiscal 2020
and the impact of the Shenzhen Sanshun Nano acquisition on our
market position in the battery sector, are forward-looking
statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties, potentially
inaccurate assumptions, and other factors, some of which are beyond
our control and difficult to predict. If known or unknown risks
materialize, or should underlying assumptions prove inaccurate, our
actual results could differ materially from past results and from
those expressed or implied by forward-looking statements. Important
factors that could cause our results to differ materially from
those expressed or implied in the forward-looking statements
include, but are not limited to, competition from other specialty
chemical companies; volatility in the price of energy and raw
materials; a significant adverse change in a customer relationship;
safety, health and environmental requirements; unanticipated delays
in site development projects; negative or uncertain worldwide or
regional economic conditions and market opportunities, including
from trade relations or global health matters; and fluctuations in
foreign currency exchange and interest rates. These factors are
discussed more fully in the reports we file with the Securities and
Exchange Commission (“SEC”), particularly under the heading “Risk
Factors” in our annual report on Form 10-K for our fiscal year
ended September 30, 2019, filed with the SEC at www.sec.gov. We
assume no obligation to provide revisions to any forward-looking
statements should circumstances change, except as otherwise
required by securities and other applicable laws.
Use of Non-GAAP Financial Measures
To supplement Cabot’s consolidated financial statements
presented on a generally accepted accounting principle (“GAAP”)
basis, the preceding discussion of our results and the accompanying
financial tables report Adjusted EPS, Total Segment EBIT, Total
Segment EBITDA, Adjusted EBITDA, Adjusted EPS excluding the
Specialty Fluids segment, our operating tax rate, Free Cash Flow
and Discretionary Free Cash Flow, all of which are non-GAAP
financial measures. These non-GAAP financial measures are not
computed in accordance with, or as an alternative to, GAAP.
Reconciliations of Adjusted EPS to net income (loss) per share
attributable to Cabot Corporation, the most directly comparable
GAAP financial measure, Total Segment EBIT, Total Segment EBITDA,
and Adjusted EBITDA to income (loss) from continuing operations
before income taxes and equity in earnings of affiliated companies,
the most directly comparable GAAP financial measure of each such
non-GAAP measure, operating tax rate to effective tax rate, the
most directly comparable GAAP financial measure and Free Cash Flow
and Discretionary Free Cash Flow to Cash flow from operating
activities, the most directly comparable GAAP financial measure,
are provided in the tables titled “Cabot Corporation Certain Items
and Reconciliation of Adjusted EPS and Operating Tax Rate” and
“Cabot Corporation Reconciliation of Non-GAAP Financial
Measures.”
Management believes these non-GAAP measures provide investors
with greater transparency to the information used by Cabot
management in its financial and operational decision-making, allow
investors to see Cabot’s results through the eyes of management,
and better enable Cabot’s investors to understand Cabot’s operating
performance and financial condition.
Adjusted EPS. In calculating Adjusted EPS, we exclude
from our net income (loss) attributable to Cabot Corporation items
of expense and income that management does not consider
representative of the Company’s business operations. Accordingly,
reporting earnings on an adjusted basis supplements the GAAP
measure of performance and provides additional information related
to the underlying performance of the business. For example, certain
of the items we exclude are items that we are required by GAAP to
recognize in one period that relate to activities extending over
several periods or relate to single events that management
considers to be unusual and infrequent, although not necessarily
non-recurring. We refer to these items as “certain items.”
Management believes excluding these items facilitates operating
performance comparisons from period to period by eliminating
differences caused by the existence and timing of certain expense
and income items that would not otherwise be apparent on a GAAP
basis and evaluates the Company’s operating performance without the
impact of these costs or benefits. Management also uses Adjusted
EPS as a key measure in evaluating management performance for
incentive compensation purposes.
The items of income and expense that we exclude from our
calculations of Adjusted EPS but that are included in our GAAP net
income (loss) per share, as applicable in a particular reporting
period, include, but are not limited to, the following:
- Global restructuring activities, which include costs or
benefits associated with cost reduction initiatives or plant
closures and are primarily related to (i) employee termination
costs, (ii) asset impairment charges associated with restructuring
actions, (iii) costs to close facilities, including environmental
costs and contract termination penalties, and (iv) gains realized
on the sale of land or equipment associated with restructured
plants or locations.
- Non-recurring gains (losses) on foreign currency, which are
primarily related to the impact of continued currency devaluations
on our net monetary assets denominated in that currency.
- Legal and environmental reserves and matters, which consist of
costs or benefits for matters typically related to former
businesses or that are otherwise incurred outside of the ordinary
course of business.
- Employee benefit plan settlements, which consist of either net
charges or benefits associated with the termination of pension
plans.
- Executive transition costs, which include incremental charges,
including stock compensation charges, associated with the
retirement or termination of employment of senior executives of the
Company.
- Asset impairment charges, which primarily include charges
associated with an impairment of goodwill or other long-lived
assets.
- Acquisition and integration-related charges, which include
transaction costs, redundant costs incurred during the period of
integration, and costs associated with transitioning certain
management and business processes to Cabot’s processes.
- Gains (losses) on sale of investments, which primarily relate
to the sale of investments accounted for under the
cost-method.
Cabot does not provide an expected GAAP EPS range or
reconciliation of the Adjusted EPS range with an expected GAAP EPS
range because, without unreasonable effort, we are unable to
predict with reasonable certainty the matters we would allocate to
“certain items,” including unusual gains and losses, costs
associated with future restructurings, acquisition-related expenses
and litigation outcomes. These items are uncertain, depend on
various factors, and could have a material impact on GAAP EPS in
future periods.
Total Segment EBIT. Total segment EBIT reflects the sum
of EBIT from our three reportable segments. In calculating Total
segment EBIT we exclude from our income (loss) from continuing
operations before income taxes and equity in earnings of affiliated
companies, certain items and items that, because they are not
controlled by the business segments and primarily benefit corporate
objectives, are not allocated to our business segments, such as
interest expense and other corporate costs, which include
unallocated corporate overhead expenses such as certain corporate
salaries and headquarter expenses, plus costs related to corporate
projects and initiatives.
Total Segment EBITDA. Total Segment EBITDA is equal to
Total Segment EBIT (as defined above), but further adjusted to
exclude depreciation and amortization expenses.
Adjusted EBITDA. Adjusted EBITDA reflects Total Segment
EBITDA and is further adjusted to exclude unallocated corporate
costs, which include unallocated corporate overhead expenses such
as certain corporate salaries and headquarter expenses, plus costs
related to corporate projects and initiatives.
Free Cash Flow. To calculate “Free Cash Flow” we deduct
Additions to property, plant and equipment from cash flow from
operating activities.
Discretionary Free Cash Flow. To calculate “Discretionary
Free Cash Flow” we deduct sustaining and compliance capital
expenditures and changes in Net Working Capital from cash flow from
operating activities.
Operating Tax Rate. Our “operating tax rate” represents
the tax rate on our recurring operating results. This rate excludes
discrete tax items, which are unusual or infrequent items that are
excluded from the estimated annual effective tax rate and other tax
items, including the impact of the timing of losses in certain
jurisdictions, cumulative tax rate adjustments and the impact of
the items of expense and income we identify as certain items on
both our operating income and the tax provision. Management
believes that the operating tax rate is useful supplemental
information because it helps our investors compare our tax rate
year to year on a consistent basis and to understand what our tax
rate on current operations would be without the impact of these
items.
Cabot does not provide a forward-looking reconciliation of the
operating tax rate range with an effective tax rate range because,
without unreasonable effort, we are unable to predict with
reasonable certainty the matters we would allocate to “certain
items,” including unusual gains and losses, costs associated with
future restructurings, acquisition-related expenses and litigation
outcomes. These items are uncertain, depend on various factors, and
could have a material impact on the effective tax rate in future
periods.
Explanation of Terms Used
Product Mix. The term “product mix” refers to the mix of
types and grade of products sold or the mix of geographic regions
where products are sold, and the positive or negative impact this
has on the revenue or profitability of the business or segment.
Net Working Capital. The term “net working capital”
includes accounts receivable, inventory and accounts payable and
accrued expenses.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION CONSOLIDATED STATEMENTS OF
OPERATIONS Periods ended December 31
Three Months
Dollars in millions, except per share amounts (unaudited)
2019
2018
Net sales and other operating revenues
$
727
$
821
Cost of sales
586
655
Gross profit
141
166
Selling and administrative expenses
64
73
Research and technical expenses
14
16
Income (loss) from operations
63
77
Other income (expense) Interest and dividend
income
3
2
Interest expense
(14
)
(15
)
Other income (expense)
(2
)
6
Total other income (expense)
(13
)
(7
)
Income (loss) from continuing operations before income
taxes and equity in earnings of affiliated companies
50
70
(Provision) benefit for income taxes
(4
)
7
Equity in earnings of affiliated companies, net of tax
—
—
Net income (loss)
46
77
Net income (loss) attributable to noncontrolling interests
5
8
Net income (loss) attributable to Cabot Corporation
$
41
$
69
Diluted earnings per share of common stock attributable
to Cabot Corporation
$
0.70
$
1.14
Diluted weighted average common shares outstanding
57.0
60.1
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION SUMMARY RESULTS BY SEGMENT
Periods ended December 31
Three Months
Dollars in millions, except per share amounts (unaudited)
2019
2018
Sales Reinforcement Materials
$
379
$
457
Performance Chemicals
242
231
Performance Additives
170
167
Formulated Solutions
72
64
Purification Solutions
59
65
Specialty Fluids (A)
—
19
Segment sales
680
772
Unallocated and other (B)
47
49
Net sales and other operating revenues
$
727
$
821
Segment Earnings Before Interest and Taxes (C)
Reinforcement Materials
$
47
$
62
Performance Chemicals
41
36
Purification Solutions
(2
)
(3
)
Specialty Fluids
—
10
Total Segment Earnings Before Interest and Taxes
86
105
Unallocated and Other Interest expense
(14
)
(15
)
Certain items (D)
(11
)
(10
)
Unallocated corporate costs
(10
)
(12
)
General unallocated income (expense) (E)
(1
)
2
Less: Equity in earnings of affiliated companies
—
—
Income (loss) from continuing operations before income
taxes and equity in earnings of affiliated companies
50
70
(Provision) benefit for income taxes (including tax certain
items)
(4
)
7
Equity in earnings of affiliated companies
—
—
Net income (loss)
46
77
Net income attributable to noncontrolling interests
5
8
Net income (loss) attributable to Cabot Corporation
$
41
$
69
Diluted earnings per share of
common stock attributable to Cabot Corporation
$
0.70
$
1.14
Adjusted earnings per share (F)
$
0.69
$
0.87
Diluted weighted average common shares outstanding
57.0
60.1
(A)
Cabot divested its Specialty
Fluids business, which does not meet the criteria to be reported as
a discontinued operation, during the third quarter of fiscal 2019.
Therefore, prior periods’ financial statements and disclosures have
not been recast. For more detail on the sale of the Specialty
Fluids business, please refer to the Company's fiscal 2019 10-K
filing.
(B)
Unallocated and other reflects
royalties, other operating revenues, external shipping and handling
fees, the impact of the corporate adjustment for unearned revenue,
the removal of 100% of the sales of an equity method affiliate, and
discounting charges for certain Notes receivable.
(C)
Segment EBIT is a measure used by
Cabot's Chief Operating Decision-Maker to measure consolidated
operating results, assess segment performance and allocate
resources. Segment EBIT includes equity in earnings of affiliated
companies, royalty income, and allocated corporate costs.
(D)
Details of Certain items are
presented in the Certain Items and Reconciliation of Adjusted EPS
and Operating Tax Rate table.
(E)
General unallocated income
(expense) consists of gains (losses) arising from foreign currency
transactions, net of other foreign currency risk management
activities, Interest and dividend income, the profit or loss
related to the corporate adjustment for unearned revenue, the
impact of including the full operating results of a contractual
joint venture in Purification Solutions Segment EBIT and unrealized
holding gains (losses) for equity securities.
(F)
Adjusted EPS is a non-GAAP
measure, and a reconciliation of Adjusted EPS to GAAP EPS is
presented in the Certain Items and Reconciliation of Adjusted EPS
and Operating Tax Rate table.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
December 31,
September 30,
Dollars in millions (unaudited)
2019
2019
Current assets: Cash and cash equivalents
$
173
$
169
Accounts and notes receivable, net of reserve for doubtful
accounts of $3 and $3
485
530
Inventories: Raw materials
110
107
Work in process
—
—
Finished goods
313
305
Other
56
54
Total inventories
479
466
Prepaid expenses and other current assets
59
45
Total current assets
1,196
1,210
Property, plant and equipment, net
1,395
1,348
Goodwill
92
90
Equity affiliates
39
39
Intangible assets, net
97
96
Deferred income taxes
161
163
Other assets (A)
171
58
Total assets
$
3,151
$
3,004
(A)
Effective October 1, 2019, the
Company adopted the new accounting standard for leases and applied
the modified retrospective optional transition method. As such,
operating lease right of use assets of $102 million are included in
Other assets as of December 31, 2019, and the prior period has not
been restated.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
December 31,
September 30,
Dollars in millions, except share and per share amounts (unaudited)
2019
2019
Current liabilities: Short-term borrowings
$
4
$
33
Accounts payable and accrued liabilities (A)
544
537
Income taxes payable
19
22
Current portion of long-term debt
7
7
Total current liabilities
574
599
Long-term debt
1,095
1,024
Deferred income taxes
41
41
Other liabilities (A)
289
206
Stockholders' equity: Preferred stock: Authorized:
2,000,000 shares of $1 par value Issued and Outstanding: None and
none
—
—
Common stock: Authorized: 200,000,000 shares of $1 par value
Issued: 56,825,282 and 57,250,454 shares Outstanding: 56,655,417
and 57,080,589 shares
57
57
Less cost of 169,865 and 169,865 shares of common treasury
stock
(5
)
(5
)
Additional paid-in capital
—
—
Retained earnings
1,329
1,337
Accumulated other comprehensive income (loss)
(354
)
(391
)
Total Cabot Corporation stockholders' equity
1,027
998
Noncontrolling interests
125
136
Total stockholders' equity
1,152
1,134
Total liabilities and stockholders' equity
$
3,151
$
3,004
(A)
Effective October 1, 2019, the
Company adopted the new accounting standard for leases and applied
the modified retrospective optional transition method. As such,
operating lease liabilities of $20 million and $88 million are
included in Accounts payable and accrued liabilities and Other
liabilities, respectively, as of December 31, 2019, and the prior
period has not been restated.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION QUARTERLY RESULTS BY SEGMENT
Fiscal 2019
Fiscal 2020
Dollars in millions,
except per share amounts (unaudited)
Dec. Q
Mar. Q
June Q
Sept. Q
FY
Dec. Q
Mar. Q
June Q
Sept. Q
FY
Sales Reinforcement Materials
$
457
$
445
$
461
$
452
$
1,815
$
379
$ ― $ ― $ ―
$
379
Performance Chemicals
231
254
251
259
995
242
— — —
242
Performance Additives
167
179
172
176
694
170
— — —
170
Formulated Solutions
64
75
79
83
301
72
— — —
72
Purification Solutions
65
72
73
68
278
59
— — —
59
Specialty Fluids (A)
19
24
13
—
56
—
— — —
—
Segment sales
772
795
798
779
3,144
680
— — —
680
Unallocated and other (B)
49
49
47
48
193
47
— — —
47
Net sales and other operating revenues
$
821
$
844
$
845
$
827
$
3,337
$
727
$ ― $ ― $ ―
$
727
Segment Earnings Before Interest and Taxes (C)
Reinforcement Materials
$
62
$
61
$
72
$
71
$
266
$
47
$ ― $ ― $ ―
$
47
Performance Chemicals
36
38
37
41
152
41
— — —
41
Purification Solutions
(3
)
1
1
3
2
(2
)
— — —
(2
)
Specialty Fluids
10
12
2
—
24
—
— — —
—
Total Segment Earnings Before Interest and Taxes
105
112
112
115
444
86
— — —
86
Unallocated and Other Interest expense
(15
)
(14
)
(14
)
(16
)
(59
)
(14
)
— — —
(14
)
Certain items (D)
(10
)
(37
)
(14
)
(26
)
(87
)
(11
)
— — —
(11
)
Unallocated corporate costs
(12
)
(13
)
(14
)
(11
)
(50
)
(10
)
— — —
(10
)
General unallocated income (expense) (E)
2
1
—
5
8
(1
)
— — —
(1
)
Less: Equity in earnings of affiliated companies
—
—
1
—
1
—
— — —
—
Income (loss) from continuing operations before income taxes
and equity in earnings of affiliated companies
70
49
69
67
255
50
—
—
—
50
—
—
—
—
(Provision) benefit for income taxes (including tax certain items)
7
(20
)
(30
)
(27
)
(70
)
(4
)
—
—
—
(4
)
Equity in earnings of affiliated companies
—
—
1
—
1
—
—
—
—
—
Net income (loss)
77
29
40
40
186
46
—
—
—
46
Net income (loss) attributable to noncontrolling interests
8
6
8
7
29
5
—
—
—
5
Net income (loss) attributable to Cabot Corporation
$
69
$
23
$
32
$
33
$
157
$
41
$ ― $ ― $ ―
$
41
Diluted earnings per share of common stock attributable
to Cabot Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
$
0.70
$ — $ — $ —
$
0.70
Adjusted earnings per share (F)
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
$
0.69
$ — $ — $ —
$
0.69
Diluted weighted average common shares outstanding
60.1
59.3
58.4
57.6
58.8
57.0
— — —
57.0
(A)
Cabot divested its Specialty
Fluids business, which does not meet the criteria to be reported as
a discontinued operation, during the third quarter of fiscal 2019.
Therefore, prior periods’ financial statements and disclosures have
not been recast. For more detail on the sale of the Specialty
Fluids business, please refer to the Company's fiscal 2019 10-K
filing.
(B)
Unallocated and other reflects
royalties, other operating revenues, external shipping and handling
fees, the impact of the corporate adjustment for unearned revenue,
the removal of 100% of the sales of an equity method affiliate and
discounting charges for certain Notes receivable.
(C)
Segment EBIT is a measure used by
Cabot's Chief Operating Decision-Maker to measure consolidated
operating results, assess segment performance and allocate
resources. Segment EBIT includes equity in earnings of affiliated
companies, royalty income, and allocated corporate costs.
(D)
Details of certain items are
presented in the Certain Items and Reconciliation of Adjusted EPS
and Operating Tax Rate table.
(E)
General unallocated income
(expense) consists of gains (losses) arising from foreign currency
transactions, net of other foreign currency risk management
activities, Interest and dividend income, the profit or loss
related to the corporate adjustment for unearned revenue, the
impact of including the full operating results of a contractual
joint venture in Purification Solutions Segment EBIT and unrealized
holding gains (losses) for equity securities.
(F)
Adjusted EPS is a non-GAAP
measure, and a reconciliation of Adjusted EPS to GAAP EPS is
presented in the Certain Items and Reconciliation of Adjusted EPS
and Operating Tax Rate table.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS Periods ended December 31
Three Months
Dollars in millions (unaudited)
2019
2018
Cash Flows from Operating Activities: Net
income (loss)
$
46
$
77
Adjustments to reconcile net income to cash provided by
operating activities: Depreciation and amortization
39
35
Other non-cash charges, net
(5
)
(12
)
Changes in assets and liabilities: Changes in certain
working capital items (A)
50
(111
)
Changes in other assets and liabilities, net
(26
)
(29
)
Cash dividends received from
equity affiliates
1
1
Cash provided by (used in) operating activities
105
(39
)
Cash Flows from Investing Activities:
Additions to property, plant and equipment
(68
)
(54
)
Cash paid for acquisition of business
(8
)
—
Other investing activities, net
(1
)
—
Cash used in investing activities
(77
)
(54
)
Cash Flows from Financing Activities: Change
in debt, net
20
192
Cash dividends paid to common stockholders
(20
)
(20
)
Other financing activities, net
(44
)
(98
)
Cash provided by (used in) financing activities
(44
)
74
Effect of exchange rates on cash
20
(14
)
Increase (decrease) in cash and cash equivalents
4
(33
)
Cash and cash equivalents at beginning of period
169
175
Cash and cash equivalents at end of period
$
173
$
142
(A)
Includes Accounts and notes
receivable, Inventories, and Accounts payable and accrued
liabilities.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION CERTAIN ITEMS AND RECONCILIATION OF
ADJUSTED EPS AND OPERATING TAX RATE TABLE 1:
DETAIL OF CERTAIN ITEMS Periods ended December 31
Three Months
Dollars in millions, except per share amounts (unaudited)
2019
2018
Certain items before and after income
taxes Global restructuring activities
$
(8
)
$
(9
)
Legal and environmental matters and reserves
1
—
Employee benefit plan settlements
(2
)
3
Acquisition and integration-related charges
(1
)
(3
)
Other certain items
(1
)
(1
)
Total certain items, pre-tax
(11
)
(10
)
Tax impact of certain items (A)
2
2
Certain items after tax (excluding discrete tax items)
(9
)
(8
)
Certain items after tax per share impact (excluding discrete
tax items)
$
(0.16
)
$
(0.14
)
Tax-related certain items Discrete tax items
10
24
Total tax-related certain items
10
24
Total tax-related certain items per share impact
0.17
0.41
Total certain items after tax
$
1
$
16
Total certain items after tax per share impact
$
0.01
$
0.27
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS
LINE ITEM Periods ended December 31
Three Months
Dollars in millions, Pre-Tax (unaudited)
2019
2018
Statement of Operations Line Item
(B) Cost of sales
$
(3
)
$
(5
)
Selling and administrative expenses
(6
)
(7
)
Research and technical expenses
—
(1
)
Other income (expense)
(2
)
3
Total certain items, pre-tax
$
(11
)
$
(10
)
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS Periods
ended December 31
Three Months
Dollars in millions (unaudited)
2019
2018
Reconciliation of Provision for income
taxes, excluding certain items, to Provision for income
taxes (Provision) benefit for income taxes
$
(4
)
$
7
Less: Tax impact of certain items
2
2
Less: Tax-related certain items
10
24
(Provision) benefit for income taxes, excluding certain
items
$
(16
)
$
(19
)
TABLE 4: RECONCILIATION OF OPERATING TAX RATE Periods
ended December 31
Three Months
Forecast
Dollars in millions (unaudited)
2019
2018
Fiscal 2020
Reconciliation of the effective tax
rate to the operating tax rate (C) (Provision)
benefit for income taxes
$
(4
)
$
7
N/A
Effective tax rate
7
%
(10
)%
24
%
Impact of discrete tax items: (D) Unusual or infrequent items
12
%
29
%
2
%
Items related to uncertain tax positions
8
%
5
%
1
%
Other discrete tax items
1
%
1
%
1
%
Impact of certain items
(2
)%
(1
)%
(2
)%
Operating tax rate
26
%
24
%
26
%
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FOR
FISCAL 2020 and FISCAL 2019
Fiscal 2020 (E)
Periods ended (unaudited)
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Reconciliation of Adjusted EPS to GAAP
EPS Net income (loss) per share attributable to Cabot
Corporation
$
0.70
$
—
$
—
$
—
$
0.70
Less: Certain items after tax per share
0.01
—
—
—
0.01
Adjusted earnings per share
$
0.69
$
—
$
—
$
—
$
0.69
Fiscal 2019 (E)
Periods ended (unaudited)
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2019
Reconciliation of Adjusted EPS to GAAP
EPS Net income (loss) per share attributable to Cabot
Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
Less: Certain items after tax per share
0.27
(0.60
)
(0.45
)
(0.50
)
(1.28
)
Adjusted earnings per share
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
(A)
The tax effect of certain items
is determined by (1) starting with the current and deferred income
tax expense or benefit, included in Net income attributable to
Cabot Corporation, and (2) subtracting the tax expense or benefit
on “adjusted earnings”. Adjusted earnings is defined as the pre-tax
income attributable to Cabot Corporation excluding certain items.
The tax expense or benefit on adjusted earnings is calculated by
applying the operating tax rate, which includes both current and
deferred taxes, as defined under the section Use of Non-GAAP
Financial Measures of the earnings release.
(B)
This table indicates the line
items where certain items are recorded in the Consolidated
Statements of Operations.
(C)
For fiscal year 2020, the
Effective tax rate and Operating tax rate are expected to be in the
range of 24% to 25% and 26% to 27%, respectively. The discrete tax
items have the same impact on these ranges. The table provided
reconciles to the low end of these ranges.
(D)
For the three months ended
December 31, 2019 and 2018, Impact of discrete tax items included a
net discrete tax benefit of $10 million and $24 million,
respectively. The nature of the discrete tax items for the periods
ended December 31, 2019 and 2018 were as follows: (i) Unusual or
infrequent items during the three months ended December 31, 2019
consisted of the net tax impact of Switzerland tax reform
legislation. Unusual or infrequent items during the three months
ended December 31, 2018 consisted of the net tax impacts of the Tax
Cuts and Jobs Act of 2017 (net tax benefit of $17 million),
excludible foreign exchange gains and losses in certain
jurisdictions, impacts related to stock compensation deductions,
and the tax impacts of a pension settlement; (ii) Items related to
uncertain tax positions during the three months ended December 31,
2019 and 2018 included net tax impacts from the reversal of
accruals for uncertain tax positions due to the expiration of
statutes of limitations, the accrual of interest on uncertain tax
positions, the accrual of an uncertain tax position (fiscal 2020
only) and the settlement of tax audits (fiscal 2019 only); and
(iii) Other discrete tax items during the three months ended
December 31, 2019 and 2018 included net tax impacts as a result of
changes in non-U.S. tax laws as well as various return to provision
adjustments related to tax return filings.
(E)
Per share amounts are calculated
after tax and, where applicable, noncontrolling interest, net of
tax.
First Quarter Earnings Announcement, Fiscal 2020
CABOT CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
Fiscal 2020 (A)
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Reconciliation of Adjusted EPS to GAAP
EPS Net income (loss) per share attributable to Cabot
Corporation
$
0.70
$
—
$
—
$
—
$
0.70
Less: Certain items after tax per share
0.01
—
—
—
0.01
Adjusted earnings per share
$
0.69
$
—
$
—
$
—
$
0.69
Fiscal 2019 (A)
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2019
Reconciliation of Adjusted EPS to GAAP
EPS Net income (loss) per share attributable to Cabot
Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
Less: Certain items after tax per share
0.27
(0.60
)
(0.45
)
(0.50
)
(1.28
)
Adjusted earnings per share
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
Less: Specialty Fluids Adjusted earnings per share (B)
0.14
0.15
0.02
—
0.31
Adjusted earnings per share excluding Specialty Fluids
$
0.73
$
0.84
$
0.98
$
1.05
$
3.60
(A)
Per share amounts are calculated
after tax and, where applicable, noncontrolling interest, net of
tax.
(B)
Specialty Fluids Adjusted
earnings per share is calculated as follows (in millions except for
per share amounts):
Specialty Fluids EBIT
$
10
$
12
$
2
$
—
$
24
Less: Specialty Fluids taxes (C)
2
3
1
—
6
Specialty Fluids profit after tax
$
8
$
9
$
1
$
—
$
18
Divided by: Cabot Corporation diluted weighted average common
shares outstanding
60.1
59.3
58.4
57.6
58.8
Specialty Fluids Adjusted EPS
$
0.14
$
0.15
$
0.02
$
—
$
0.31
(C)
Specialty Fluids taxes calculated
by applying Cabot's Operating tax rate for each period to Specialty
Fluids EBIT. Please refer to Cabot's fiscal 2019 earnings releases
for the reconciliations of the Company's operating tax rate to its
effective tax rate.
Dollars in millions
Fiscal 2020
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Reconciliation of Segment EBIT to Net
Income and Segment EBITDA Margin Net income (loss)
attributable to Cabot Corporation
$
41
$
―
$
―
$
―
$
41
Net income (loss) attributable to noncontrolling interests
5
—
—
—
5
Equity in earnings of affiliated companies, net of tax
—
—
—
—
—
Provision (benefit) for income taxes
4
—
—
—
4
Income (loss) from continuing operations before income taxes and
equity in earnings of affiliated companies
$
50
$
―
$
―
$
―
$
50
Interest expense
14
—
—
—
14
Certain items
11
—
—
—
11
Unallocated corporate costs
10
—
—
—
10
General unallocated (income) expense
1
—
—
—
1
Less: Equity in earnings of affiliated companies
—
—
—
—
—
Total Segment EBIT
$
86
$
―
$
―
$
―
$
86
Depreciation and amortization
39
—
—
—
39
Adjustments to depreciation (D)
(1
)
—
—
—
(1
)
Total Segment EBITDA
$
124
$
―
$
―
$
―
$
124
Less: Unallocated corporate costs
10
—
—
—
10
Adjusted EBITDA
$
114
$
―
$
―
$
―
$
114
(D)
Adjustments to depreciation
includes the addition of the depreciation expense of a contractual
joint venture in Purification Solutions less accelerated
depreciation expense not allocated to a business.
Dollars in millions
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Reinforcement Materials EBIT
$
47
$
―
$
―
$
―
$
47
Reinforcement Materials Depreciation and amortization
17
—
—
—
17
Reinforcement Materials EBITDA
$
64
$
―
$
―
$
―
$
64
Reinforcement Materials Sales
$
379
$
―
$
―
$
―
$
379
Reinforcement Materials EBITDA Margin
17
%
—
%
—
%
—
%
17
%
Dollars in millions
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Performance Chemicals EBIT
$
41
$
―
$
―
$
―
$
41
Performance Chemicals Depreciation and amortization
15
—
—
—
15
Performance Chemicals EBITDA
$
56
$
―
$
―
$
―
$
56
Performance Chemicals Sales
$
242
$
―
$
―
$
―
$
242
Performance Chemicals EBITDA Margin
23
%
—
%
—
%
—
%
23
%
Dollars in millions
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Purification Solutions EBIT
$
(2
)
$
―
$
―
$
―
$
(2
)
Purification Solutions Depreciation and amortization
6
—
—
—
6
Purification Solutions EBITDA
$
4
$
―
$
―
$
―
$
4
Purification Solutions Sales
$
59
$
―
$
―
$
―
$
59
Purification Solutions EBITDA Margin
7
%
—
%
—
%
—
%
7
%
Dollars in millions
Fiscal 2020
Reconciliation of Free Cash Flow and
Discretionary Free Cash Flow to Cash Flow from Operating
Activities
Dec. Q
Mar. Q
June Q
Sept. Q
FY 2020
Cash flow from operating activities (E)
$
105
$
―
$
―
$
―
$
105
Less: Additions to property, plant and equipment
68
—
—
—
68
Free cash flow
$
37
$
―
$
―
$
―
$
37
Plus: Additions to property, plant and equipment
68
—
—
—
68
Less: Changes in net working capital (F)
50
—
—
—
50
Less: Sustaining and compliance capital expenditures
30
—
—
—
30
Discretionary free cash flow
$
25
$
―
$
―
$
―
$
25
(E)
As provided in the Condensed
Consolidated Statements of Cash Flows.
(F)
Defined as changes in accounts
receivable, inventory and accounts payable and accrued liabilities
as presented on the Condensed Consolidated Statements of Cash
Flows.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200203005780/en/
Investor Contact: Steve Delahunt (617) 342-6255
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