News Release Details

Robust segment profits drive strong first quarter fiscal 2012 performance

BOSTON--(BUSINESS WIRE)--Feb. 1, 2012-- Cabot Corporation (NYSE: CBT) today announced results for its first fiscal quarter of 2012.

Key Highlights

• $81 million total segment EBIT - 9% improvement year over year
• Margin expansion more than offsets volume softness – near term demand pickup expected
• Hong Kong masterbatch plant closure – consolidation into Tianjin, China facility
• Supermetals divestiture closes with proceeds in excess of $450 million

Commenting on the results, Patrick Prevost, Cabot’s President and CEO, said, “We were pleased with our first quarter results especially in light of weaker volumes due to economic uncertainty, seasonality effects and customer inventory destocking. Our continued focus on margin expansion and value pricing enabled a 15% improvement in adjusted earnings both sequentially and year over year.”

Prevost continued, “With our expansions coming on line throughout the year in Rubber Blacks and Fumed Metal Oxides, and improving volume expectations, we are well positioned to deliver continued earnings growth over the coming quarters. We are driving the company to greater efficiency with investments in energy centers and yield technology, and streamlining our asset base as evidenced by the closure of our Hong Kong masterbatch facility. We are pleased to have taken another step in the transformation of the company with the completion of the sale of our Supermetals Business for proceeds of more than $450 million. This divestiture focuses our portfolio and improves the stability of our earnings. We will use the cash proceeds to further our growth initiatives.”

Financial Detail

For the first quarter of fiscal 2012, net income attributable to Cabot Corporation was $46 million ($0.71 per diluted common share) which includes $0.16 per share of income from discontinued operations, primarily related to the results of the Supermetals Business. In addition, it includes a per share charge of $0.06, principally for restructuring costs. Adjusted EPS for the first quarter was $0.61 per share.

Segment Results

Core Segment-- First quarter fiscal 2012 EBIT in the Rubber Blacks Business increased by $18 million when compared to the same quarter of fiscal 2011. The increase was driven principally by higher prices and a favorable product mix. These positive factors more than offset the impact of 9% lower volumes. Sequentially, EBIT increased $17 million driven by lower raw material and manufacturing costs partially offset by 5% lower volumes. Lower sequential manufacturing costs were driven by plant maintenance completed during the fourth quarter of fiscal 2011 that did not reoccur during the first quarter of fiscal 2012, and the benefit of increasing inventory levels.

Global and regional volume changes for the Core Segment for the first quarter of fiscal 2012 as compared to the same quarter of the prior year and the fourth fiscal quarter of 2011 are included in the table below:

Performance Segment-- First quarter fiscal 2012 EBIT in the Performance Segment decreased by $10 million when compared to the first quarter of fiscal 2011. The decrease was driven principally by higher fixed costs from the start-up of new capacity and increases in segment management costs. Volumes in Performance Products increased 3%, while Fumed Metal Oxides volumes decreased 10% due principally to customer inventory destocking coupled with ongoing softness in the global construction and electronics industries. Sequentially, Performance Segment EBIT decreased by $6 million. The decrease was due principally to lower volumes from customer inventory destocking that more than offset lower maintenance spending and the benefit of increasing inventory levels. Volumes in Performance Products decreased 2%, while volumes in Fumed Metal Oxides decreased by 15%.

Specialty Fluids-- For the first quarter of fiscal 2012, EBIT in the Specialty Fluids Segment decreased by $1 million compared to the first quarter of fiscal 2011 and by $7 million compared to the fourth quarter of fiscal 2011. The EBIT decreases in both periods resulted principally from lower sales revenue from fewer completed jobs that more than offset higher rental revenues from ongoing jobs during the quarter.

New Business Segment-- First quarter fiscal 2012 EBIT in the New Business Segment was flat when compared to the first quarter of fiscal 2011 as volume growth in Inkjet Colorants was offset by a less favorable product mix and higher costs from growth investments. Sequentially, EBIT decreased by $2 million as higher volumes in Inkjet Colorants were more than offset by a less favorable product mix and lower commercial activity in Aerogel and Cabot Superior MicroPowders.

Cash Performance-- The Company ended the first quarter of fiscal 2012 with a cash balance of $188 million. During the first quarter of fiscal 2012, the Company’s cash balance declined by $98 million. For the quarter, uses of cash included a $64 million increase in working capital, capital expenditures of $61 million and share repurchases of $30 million. These were partially offset by solid operating results.

Taxes-- During the first quarter of fiscal 2012, the Company recorded a net tax provision of $16 million, including a net discrete tax charge of $2 million. The tax rate on continuing operations was 29% for the first quarter of fiscal 2012. Excluding the net discrete tax charge and the impact of certain items, the quarterly operating tax rate on continuing operations was 25%.

Market Outlook

Commenting on the outlook for the Company, Prevost said, “We are seeing increased demand as our customers are replenishing inventories after a significant drawdown during the previous quarter. Our businesses have available capacity to supply this demand and are expanding to support the growth anticipated in the quarters ahead. We have successfully repositioned our margins through efficiency improvements and the execution of our pricing strategy. These factors, combined, create significant operating leverage to further improve earnings in the near term.”

“Cabot continues to position itself as a leading specialty chemicals and performance materials company. We have multiple growth projects and remain committed to delivering upon our long-term financial targets,” Prevost concluded.

Earnings Call

The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Thursday, February 2, 2012. The call can be accessed through Cabot’s investor relations website at http://investor.cabot-corp.com

Cabot Corporation, headquartered in Boston, Massachusetts, is a global specialty chemicals and performance materials company. Cabot’s major products are carbon black, fumed silica, cesium formate drilling fluids, inkjet colorants and aerogels. The Company’s website address is: http://www.cabotcorp.com

Forward-Looking Statements-- This earnings release contains forward-looking statements based on management’s current expectations, estimates and projections. All statements that address expectations or projections about the future, including our ability to meet our long-term financial targets, strategy for growth, demand for our products, the cash proceeds due to us from the divestiture of our Supermetals Business, and the effect we expect the divestiture of our Supermetals Business to have on our earnings are forward-looking statements. Some of the forward-looking statements may be identified by words like “expects,” “anticipates,” “plans,” “intends,” “projects,” “indicates,” and similar expressions. Forward-looking statements are based on our current expectations, assumptions, estimates and projections about Cabot's businesses and strategies, market trends and conditions, economic conditions and other factors. 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 in the forward-looking statement. Important factors that could cause our results to differ materially from those expressed in the forward-looking statements include, but are not limited to changes in raw material costs; costs associated with the research and development of new products, including regulatory approval and market acceptance; competitive pressures; delays in the successful integration of structural changes, including restructuring plans, and joint ventures; delays in the completion or start-up of our capacity expansion projects; the laws, regulations, policies and economic conditions, including inflation, interest and foreign currency exchange rates, of countries in which the company does business; and severe weather events that cause business interruptions, including plant and power outages, or disruptions in supplier or customer operations. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly our latest annual report on Form 10-K.

Explanation of Terms Used-- The term “quarterly 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 rate adjustment and the impact of certain items on both operating income and tax provision.

The term “product mix” refers to the various types and grades, or mix, of products sold in a particular Business or Segment during the period, and the positive or negative impact of that mix on the revenue or profitability of the Business or Segment.

When we discuss the profitability impact of changes in inventory levels, we refer to the recording of fixed manufacturing costs on either our balance sheet or through our consolidated statement of operations. When inventories increase, we record fixed manufacturing costs on our balance sheet, causing lower fixed costs to be recorded in the consolidated statement of operations and benefiting the recorded profitability of the business. When inventories decrease, the opposite occurs, and additional fixed costs flow through the consolidated statement of operations, unfavorably affecting recorded business profitability.

Use of Non-GAAP Financial Measures-- The preceding discussion of our results and the accompanying financial tables report adjusted EPS which is a non-GAAP financial measure. Our chief operating decision-maker uses adjusted EPS to evaluate the performance of the Company in terms of profitability. We believe that this measure also assists our investors in evaluating the changes in our results and the Company's performance.

In calculating adjusted EPS, we exclude from our net income per share from continuing operations certain items of expense and income that management does not consider representative of the Company's ongoing operations. Adjusted EPS should be considered as supplemental to, and not as a replacement for, EPS determined in accordance with GAAP. A reconciliation of adjusted EPS to EPS from continuing operations, the most directly comparable GAAP financial measure, and the certain items that are excluded from our calculation of adjusted EPS, are provided in the table titled "Certain Items and Reconciliation of Adjusted EPS.”

Source: Cabot Corporation

Cabot Corporation
Investor Contact:
Susannah Robinson, 617-342-6129