Cabot Announces Second Quarter Operating Results
BOSTON, April 25 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced net income of $37 million after-tax ($0.54 per diluted common share) for the second quarter of 2007, including $5 million after-tax ($0.08 per diluted common share) of charges from certain items, compared to net income of $12 million after-tax ($0.17 per diluted common share) for the second quarter of fiscal 2006, including $20 million after-tax ($0.29 per diluted common share) of charges from certain items. Details of financial results and certain items included in net income are provided in the accompanying tables.
(Logo: http://www.newscom.com/cgi-bin/prnh/20000323/CABOTLOGO )
In commenting on the results, Kennett F. Burnes, Cabot's Chairman and CEO, said, "We are very pleased with our second quarter financial results. We had strong volume growth in most of our businesses, and we continued to benefit during the quarter from our recent capacity additions in China in both carbon black and fumed silica. In addition, lower carbon black feedstock costs and the timing of pricing adjustments in our supply contracts favorably impacted results in rubber blacks and performance products during the quarter, albeit not as significantly as in the first quarter of 2007. Inkjet colorants' results improved significantly as a strong increase in volumes led to a recovery from a weak first quarter of 2007. Specialty Fluids maintained a solid utilization level compared to the prior year but declined somewhat following a strong first quarter of 2007. These strong results were dampened a bit by weaker than anticipated performance in the Supermetals Business as the expiration of our final significant long-term supply contract and some unanticipated costs led to a slight loss in this Business for the quarter."
Product Line Performance
Unit margins in both rubber blacks and performance products increased when compared to the second quarter of 2006, in part because of the time lag in our feedstock related pricing adjustments on contracted business. Volume increases in both product lines, 3% in rubber blacks and 7% in performance products, combined with lower feedstock and natural gas costs and favorable foreign currency translation to more than offset increased fixed costs of new capacity, leading to improved performance when compared to the second quarter of 2006. Sequentially, the impact of strong volume growth, 7% in rubber blacks and 10% in performance products, was almost entirely offset by lower unit margins as price declines driven by our contracted business outpaced raw material cost decreases. Therefore, in combination with a small increase in operating costs and administrative expenses, profitability declined slightly compared to the first quarter of 2007.
In inkjet colorants, volumes increased by 7% compared to the same quarter a year ago, and by 31% compared to the first quarter of 2007. Volumes in both the aftermarket and OEM market segments improved compared to the first quarter of 2007, leading to a significant increase in profitability. However, softness in the aftermarket and increased competition in the small office home office (SOHO) market segment continues to impact the product line. Costs associated with new production capacity, which is not yet fully commercially utilized, and increased R&D expenses unfavorably impacted the results of the product line compared to the second quarter of 2006.
Fumed silica volumes grew by 7% and 4% when compared to the second quarter of 2006 and the first quarter of 2007, respectively, as growth in the silicones and niche segments more than offset declines in the electronics segment when compared to both periods. When compared to the second quarter of 2006, the profitability of the product line improved as strong volumes, lower average feedstock costs from our new fumed silica capacity in China and lower hydrogen costs more than offset increased R&D and administrative expenses and higher fixed manufacturing costs related to new capacity. Sequentially, profitability decreased slightly as the positive impact of increased volumes was offset by higher raw material costs and increased R&D and administrative expenses.
The performance of the Supermetals Business decreased significantly when compared to both the second quarter of 2006 and the first quarter of 2007. When compared to both periods, the Business experienced lower volumes and pricing as the transition from contracted to market based sales was completed in December 2006. Compared to the second quarter of 2006, we have replaced nearly 70% of contracted volumes with market based sales. Sequentially, volumes decreased by 25% as the Business experienced the effects of both the loss of contracted volumes and some weakness in the electronics industry. Unfavorable product mix, the timing of certain costs and an unanticipated increase in a number of expenses also reduced profitability during the quarter.
In the Specialty Fluids Business, profitability decreased when compared to both the second quarter of 2006 and the first quarter of 2007. When compared to the second quarter of 2006, the Business maintained its fluid utilization level, with an increase in rental revenue offset by a lower volume of fluid sold. Increased engineering and global marketing costs caused profitability to decline slightly. Sequentially, normal seasonality in rental revenue and volume of fluid sold caused a decrease in the fluid utilization rate from an exceptionally strong first quarter of 2007.
Outlook
With respect to the future, Burnes said, "We anticipate that the benefit associated with the timing of pricing adjustments in our carbon black contracts has been realized, and we continue to watch feedstock costs closely as their volatility inevitably impacts our results. We are optimistic about carbon black volume growth outside of North America, but remain cautious about demand in North America. We anticipate continued solid performance from our fumed silica product line, particularly in the silicones and niche markets, and from our new capacity in China. Despite a weak second quarter and some concerns over market volumes for the remainder of the year, we expect the Supermetals Business to improve from this quarter's results and be profitable for the balance of the year. We also continue to develop additional cost reduction opportunities to improve performance in this Business. We optimistically await the results of near term customer launches in the high- speed segment of the inkjet market and will monitor progress over the second half of the year to ensure that we are well positioned to commission new capacity in a timely manner to serve demand. Our new businesses continue to make progress in market development and operational activities and we remain optimistic about their growth for the remainder of this year and beyond."
For those interested in more detailed information regarding Cabot's second quarter 2007 results, please see the Supplemental Business Information available on the Company's website in the Investor Relations section: http://investor.cabot-corp.com.
This press release includes forward-looking statements, particularly under the outlook section, relating to management's expectations regarding volume growth of our carbon black business outside of the North American region, performance in the fumed silica product line, improvement in results in the Supermetals Business and profitability of that Business, and growth in the new businesses. The following are some of the factors that could cause Cabot's actual results to differ materially from those expressed in the forward- looking statements: changes in feedstock costs; lower than expected demand for our products; our inability to achieve savings from cost reduction activities; our inability to maintain and grow our position in the small office, home office printing market and to participate in the growth in emerging inkjet applications; unexpected delays in drilling operations at wells awarded to the Specialty Fluids Business and the success of this Business in gaining wider acceptance by the energy industry of cesium formate as a drilling fluid and to penetrate new markets (including development of the required logistics to reach remote markets); and the timely customer acceptance of products from recent capacity expansion projects. Other factors and risks are discussed in the Company's 2006 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission.
Cabot Corporation is a global specialty chemicals and materials company headquartered in Boston, MA. Cabot's major products are carbon black, fumed silica, inkjet colorants, capacitor materials, and cesium formate drilling fluids.
Contact: Susannah R. Robinson
Director, Investor Relations
(617) 342-6129
Second Quarter Earnings Announcement, Fiscal 2007 CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Periods ended March 31 Dollars in millions, except per Three Months Six Months share amounts (unaudited) 2007 2006 2007 2006 Net sales and other operating revenues $637 $627 $1,292 $1,214 Cost of sales 499 542 1,005 1,023 Gross profit 138 85 287 191 Selling and administrative expenses 63 59 117 117 Research and technical expenses 17 14 32 27 Income from operations 58 12 138 47 Other income and expense Interest and dividend income 3 1 5 3 Interest expense (9) (7) (18) (13) Other income (expense) (1) 6 1 2 Total other income and expense (7) - (12) (8) Income from continuing operations before income taxes 51 12 126 39 Provision for income taxes (15) (1) (34) (5) Equity in net income of affiliated companies, net of tax 3 4 6 7 Minority interest in net income, net of tax (2) (3) (7) (7) Net income from continuing operations 37 12 91 34 Cumulative effect of an accounting change, net of tax - - - 2 Net income 37 12 91 36 Dividends on preferred stock, net of tax benefit (1) - (1) (1) Net income available to common shares $36 $12 $90 $35 Diluted earnings per share of common stock Income from continuing operations $0.54 $0.17 $1.33 $0.48 Cumulative effect of an accounting change, net of tax - - - 0.04 Net income $0.54 $0.17 $1.33 $0.52 Weighted average common shares outstanding Diluted 69 69 69 69 Second Quarter Earnings Announcement, Fiscal 2007 CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS Periods ended March 31 Dollars in millions, except per Three Months Six Months share amounts (unaudited) 2007 2006 2007 2006 SALES Carbon Black Business (A) $493 $476 $978 $895 Rubber blacks 346 346 697 644 Performance products 134 117 257 226 Inkjet colorants 13 12 23 23 Superior MicroPowders - 1 1 2 Metal Oxides Business 68 62 133 119 Fumed metal oxides 68 62 133 119 Aerogel - - - - Supermetals Business 53 67 130 160 Specialty Fluids Business 10 11 26 21 Segment sales 624 616 1,267 1,195 Unallocated and other (B) 13 11 25 19 Net sales and other operating revenues $637 $627 $1,292 $1,214 SEGMENT PROFIT Carbon Black Business $57 $26 $111 $47 Metal Oxides Business 10 5 19 7 Supermetals Business (2) 12 14 23 Specialty Fluids Business 3 4 11 8 Total Segment Profit (C) 68 47 155 85 Interest expense (9) (7) (18) (13) General unallocated expense (D) (5) (24) (5) (26) Less: Equity in net income of affiliated companies, net of tax (3) (4) (6) (7) Income from continuing operations before income taxes 51 12 126 39 Provision for income taxes (15) (1) (34) (5) Equity in net income of affiliated companies, net of tax 3 4 6 7 Minority interest in net income, net of tax (2) (3) (7) (7) Income from continuing operations 37 12 91 34 Cumulative effect of an accounting change, net of tax (E) - - - 2 Net income 37 12 91 36 Dividends on preferred stock, net of tax benefit (1) - (1) (1) Net income available to common shares $36 $12 $90 $35 Diluted earnings per share of common stock Income from continuing operations $0.54 $0.17 $1.33 $0.48 Cumulative effect of an accounting change, net of tax (E) - - - 0.04 Net income $0.54 $0.17 $1.33 $0.52 Weighted average common shares outstanding Diluted 69 69 69 69 (A) Segment sales for certain operating segments within the Carbon Black Business include 100% of sales of one equity affiliate at market- based prices. (B) Unallocated and other reflects an elimination for sales of one equity affiliate offset by royalties paid by equity affiliates and external shipping and handling fees. (C) Segment profit is a measure used by Cabot's operating decision-makers to measure consolidated operating results and assess segment performance. Segment profit includes equity in net income of affliliated companies and excludes royalties paid by equity affiliates, minority interest and allocated corporate costs. (D) General unallocated expense includes foreign currency transaction gains (losses), interest income, dividend income, and the certain items listed in Exhibit I. (E) Cumulative benefit of an accounting change for implementation of FAS 123 (R), net of tax. Second Quarter Earnings Announcement, Fiscal 2007 CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION March 31 September 30, 2007 2006 Dollars in millions, except share and (unaudited) (audited) per share amounts Current assets: Cash and cash equivalents $248 $189 Short-term marketable securities 21 1 Accounts and notes receivable, net of reserve for doubtful accounts of $5 and $6 541 534 Inventories: Raw materials 137 131 Work in process 99 109 Finished goods 149 139 Other 43 41 Total inventories 428 420 Prepaid expenses and other current assets 78 75 Deferred income taxes 34 36 Total current assets 1,350 1,255 Investments: Equity affiliates 59 59 Long-term marketable securities and cost investments 2 3 Total investments 61 62 Property, plant and equipment 2,616 2,531 Accumulated depreciation and amortization (1,657) (1,567) Net property, plant and equipment 959 964 Other assets: Goodwill 33 31 Intangible assets, net of accumulated amortization of $10 and $10 4 5 Assets held for rent 42 40 Deferred income taxes 97 100 Other assets 79 77 Total other assets 255 253 Total assets $2,625 $2,534 Second Quarter Earnings Announcement, Fiscal 2007 CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION March 31 September 30, 2007 2006 Dollars in millions, except share and (unaudited) (audited) per share amounts Current liabilities: Notes payable to banks $69 $58 Accounts payable and accrued liabilities 379 384 Income taxes payable 38 27 Deferred income taxes 2 2 Current portion of long-term debt 18 34 Total current liabilities 506 505 Long-term debt 442 459 Deferred income taxes 19 20 Other liabilities 290 286 Minority interest 68 68 Stockholders' equity: Preferred stock: Authorized: 2,000,000 shares of $1 par value Series B ESOP Convertible Preferred Stock 7.75% Cumulative Authorized: 200,000 shares Issued: 50,580 and 55,895 shares 50 56 Outstanding: 33,419 and 38,734 shares (aggregate redemption value of $33 and $39 at $1,000 per share) Less cost of 17,161 shares of preferred treasury stock (38) (38) Common stock: Authorized: 200,000,000 shares of $1 par value Issued: 64,506,134 and 63,579,040 shares 65 64 Outstanding: 64,361,188 and 63,432,651 shares Less cost of 144,946 and 146,389 shares of common treasury stock (5) (5) Additional paid-in capital 29 7 Retained earnings 1,228 1,160 Deferred employee benefits (36) (38) Notes receivable for restricted stock (19) (20) Accumulated other comprehensive income 26 10 Total stockholders' equity 1,300 1,196 Total liabilities and stockholders' equity $2,625 $2,534 CABOT CORPORATION Fiscal 2006 In millions, except per share amounts Dec. Mar. June Sept. (unaudited) Q. Q. Q. Q. FY Sales Carbon Black Business (A) $419 $476 $514 $508 $1,917 Rubber blacks 298 346 367 367 1,378 Performance products 109 117 134 128 488 Inkjet colorants 11 12 12 12 47 Superior MicroPowders 1 1 1 1 4 Metal Oxides Business 57 62 66 69 254 Fumed metal oxides 57 62 65 69 253 Aerogel - - 1 - 1 Supermetals Business 93 67 66 66 292 Specialty Fluids Business 10 11 12 11 44 Segment Sales 579 616 658 654 2,507 Unallocated and other (B) 8 11 8 9 36 Net sales and other operating revenues $587 $627 $666 $663 $2,543 Segment Profit Carbon Black Business(C) $21 $26 $23 $31 $101 Metal Oxides Business(C) 2 5 6 9 22 Supermetals Business 11 12 9 9 41 Specialty Fluids Business 4 4 5 3 16 Total Segment Profit (D) 38 47 43 52 180 Income from operations Interest expense (6) (7) (6) (8) (27) General unallocated expense (E) (2) (24) (2) (16) (44) Less: Equity in net income of affiliated companies, net of tax (3) (4) (1) (4) (12) Income from continuing operations before income taxes 27 12 34 24 97 (Provision) benefit for income taxes (4) (1) (8) 4 (9) Equity in net income of affiliated companies, net of tax 3 4 1 4 12 Minority interest in net income, net of tax (4) (3) (2) (3) (12) Net income from continuing operations 22 12 25 29 88 Cumulative effect of accounting changes, net of tax (F) 2 - - (4) (2) Discontinued operations (G) - - - 2 2 Net income 24 12 25 27 88 Dividends on preferred stock, net of tax benefit (1) - (1) - (2) Net income available to common shares $23 $12 $24 $27 $86 Diluted earnings per share of common stock Net income from continuing operations $0.31 $0.17 $0.37 $0.43 $1.28 Cumulative effects of accounting changes, net of tax (F) 0.04 - - (0.07) (0.03) Discontinued operations (G) - - - 0.03 0.03 Net income $0.35 $0.17 $0.37 $0.39 $1.28 Weighted average common shares outstanding Diluted 68 69 69 68 68 Fiscal 2007 In millions, except per share amounts Dec. Mar. June Sept. (unaudited) Q. Q. Q. Q. FY Sales Carbon Black Business (A) $485 $493 $978 Rubber blacks 351 346 697 Performance products 123 134 257 Inkjet colorants 10 13 23 Superior MicroPowders 1 - 1 Metal Oxides Business 65 68 133 Fumed metal oxides 65 68 133 Aerogel - - - Supermetals Business 77 53 130 Specialty Fluids Business 16 10 26 Segment Sales 643 624 1,267 Unallocated and other (B) 12 13 25 Net sales and other operating revenues $655 $637 $1,292 Segment Profit Carbon Black Business(C) $54 $57 $111 Metal Oxides Business(C) 9 10 19 Supermetals Business 16 (2) 14 Specialty Fluids Business 8 3 11 Total Segment Profit (D) 87 68 155 Income from operations Interest expense (9) (9) (18) General unallocated expense (E) - (5) (5) Less: Equity in net income of affiliated companies, net of tax (3) (3) (6) Income from continuing operations before income taxes 75 51 126 (Provision) benefit for income taxes (19) (15) (34) Equity in net income of affiliated companies, net of tax 3 3 6 Minority interest in net income, net of tax (5) (2) (7) Net income from continuing operations 54 37 91 Cumulative effect of accounting changes, net of tax (F) - - - Discontinued operations (G) - - - Net income 54 37 91 Dividends on preferred stock, net of tax benefit - (1) (1) Net income available to common shares $54 $36 $90 Diluted earnings per share of common stock Net income from continuing operations $0.79 $0.54 $1.33 Cumulative effects of accounting changes, net of tax (F) - - - Discontinued operations (G) - - - Net income $0.79 $0.54 $1.33 Weighted average common shares outstanding Diluted 69 69 69 (A) Segment sales for certain operating segments within the Carbon Black Business include 100% of sales of one equity affiliate at market-based prices. (B) Unallocated and other reflects an elimination for sales for one equity Baffiliate offset by royalties paid by equity affiliates and external shipping and handling fees. (C) The fourth quarter and fiscal year end 2006 amounts include a reclassification of $4 million of profit from the Carbon Black segment to the Metal Oxides segment. This reclassification was deemed to be immaterial for purposes of the annual segment reporting in the September 30, 2006 consolidated financial statements. (D) Segment profit is a measure used by Cabot's operating decision-makers to measure consolidated operating results and assess segment performance. Segment profit includes equity in net income of affiliated companies, royalties paid by equity affiliates, minority interest and allocated corporate costs. (E) General unallocated expense includes foreign currency transaction gains (losses), interest income, dividend income and certain items listed in Exhibit I. (F) Amounts relate to the cumulative benefit resulting from the adoption of FAS 123(R) in the first quarter of 2006 of $0.04 and the cumulative expense resulting from the adoption of FIN 47 in the fourth quarter of 2006 of ($0.07). (G) Amount relates to a favorable tax settlement recognized during the period from our discontinued liquified natural gas business. Second Quarter Earnings Announcement, Fiscal 2007 CABOT CORPORATION CERTAIN ITEMS - Exhibit I Periods ended March 31 Three Months Dollars in millions, except per share amounts (unaudited) 2007 2007 2006 2006 $ per $ per share(A) share(A) Certain items before income taxes Environmental reserves/settlement $(5) $(0.06) $- $- Restructuring initiatives - Global (2) (0.02) - - Restructuring initiatives - Altona - - (2) (0.02) Cost reduction initiatives - - (2) (0.02) Gwalia settlement payment - - (27) (0.25) Total certain items (7) (0.08) (31) (0.29) Cumulative effect of an accounting change (B) - - - - Total certain items and cumulative effect of an accounting change (7) (0.08) (31) (0.29) Tax impact of certain items and cumulative effect of an accounting change 2 - 11 - Total certain items and cumulative effect of an accounting change, after tax $(5) $(0.08) $(20) $(0.29) Periods ended March 31 Six Months Dollars in millions, except per share amounts (unaudited) 2007 2007 2006 2006 $ per $ per share(A) share(A) Certain items before income taxes Environmental reserves/settlement $(5) $(0.06) $- $- Restructuring initiatives - Global (4) (0.04) - - Restructuring initiatives - Altona (1) (0.01) (3) (0.03) Cost reduction initiatives - - (3) (0.03) Gwalia settlement payment - - (27) (0.25) Total certain items (10) (0.11) (33) (0.31) Cumulative effect of an accounting change (B) - - 4 0.04 Total certain items and cumulative effect of an accounting change (10) (0.11) (29) (0.27) Tax impact of certain items and cumulative effect of an accounting change 3 - 10 - Total certain items and cumulative effect of an accounting change, after tax $(7) $(0.11) $(19) $(0.27) Periods ended March 31 Three Months Six Months Dollars in millions (unaudited) 2007 2006 2007 2006 Statement of Operations Line Item Net sales and other operating revenues $- $1 $- $1 Cost of sales 6 (30) 8 (30) Selling and administrative expenses 1 (2) 2 (4) Total certain items $7 $(31) $10 $(33) Periods ended March 31 Three Months Six Months Dollars in millions (unaudited) 2007 2006 2007 2006 Certain items by Segment Carbon Black Business $4 $(2) $7 $(3) Supermetals Business 2 (29) 2 (30) Other 1 - 1 - Total certain items $7 $(31) $10 $(33) (A) Per share amounts are calculated after tax. (B) Cumulative benefit resulting from adoption of FAS 123(R) in the first quarter of 2006, net of tax.
SOURCE Cabot Corporation
Susannah R. Robinson
Director, Investor Relations
Cabot
Corporation
+1-617-342-6129
Click here for supplemental business information
To access a copy of the Supplemental Business Information for this quarter please Click here.