News Release Details

Higher margins and lower costs offset a weak demand environment

BOSTON--(BUSINESS WIRE)--Jan. 28, 2015-- Cabot Corporation (NYSE: CBT) today announced results for its first quarter of fiscal year 2015.

Key Highlights

• Volume pressure from customer inventory destocking and soft demand in South America and Europe was largely offset by lower costs
• Purification Solutions results improved year-over-year from higher volumes and better operational performance
• Repurchased approximately 925,000 shares for $42 million

Commenting on the results, Cabot President and CEO Patrick Prevost, said, “We delivered a solid quarter despite volume pressure from customer destocking, a significant drop in oil prices and a challenging global economic environment. We were able to largely offset the volume pressure with the benefit from higher margins, the implementation of corporate-wide cost controls, and a favorable LIFO adjustment. The soft economic environment was most pronounced in South America and Europe, negatively affecting volumes and utilization levels in the Reinforcement Materials segment. Purification Solutions results improved primarily due to higher volumes and improved operational performance. Finally, we used our solid cash flow generation to repurchase close to one million shares during the quarter.”

Financial Detail
For the first quarter of fiscal 2015, net income attributable to Cabot Corporation was $45 million ($0.69 per diluted common share). Net income includes a per share charge of $0.11 from certain items, principally reflecting charges associated with a pension settlement and restructuring actions. Adjusted EPS for the first quarter of fiscal 2015 was $0.80 per share.

Segment earnings before interest and taxes are presented to reflect the previously announced realignment of our global business segments. Recast segment earnings before interest and taxes for fiscal 2014 are included in the attached financial tables.

Segment Results
Reinforcement Materials -- First quarter fiscal 2015 EBIT in Reinforcement Materials decreased by $20 million compared to the first quarter of fiscal 2014 principally driven by 3% lower volumes from weak demand in South America and Europe, the absence of one-time benefits we received in the prior year, and an elastomer composites technology milestone payment received in the first quarter of fiscal 2014 that did not reoccur this year. Sequentially, EBIT was $6 million lower than in our fourth quarter of fiscal 2014 primarily due to 6% lower volumes. The sequential decline in volumes was driven by customer inventory destocking and seasonal impacts. The lower volumes were partially offset by lower fixed costs and the impact on margin from a favorable product mix.

Global and regional volume changes for the rubber blacks product line for the first quarter of fiscal 2015 as compared to the same quarter of the prior year and the fourth quarter of fiscal 2014 are included in the table below:

Performance Chemicals -- First quarter fiscal 2015 EBIT in Performance Chemicals increased by $2 million compared to the first quarter of fiscal 2014 due to 4% higher volumes in Metal Oxides and improved margins from the combination of price increases and lower raw material costs. Volumes in Specialty Carbons and Formulations decreased by 1%. Sequentially, Performance Chemicals EBIT decreased by $2 million primarily due to 8% lower volumes in Metal Oxides and 10% lower volumes in Specialty Carbons and Formulations as a result of seasonal impacts and customer inventory destocking. These lower volumes were partially offset by improved margins from the combination of price increases and lower raw material costs, and a benefit from building inventory.

Purification Solutions -- First quarter fiscal 2015 EBIT in Purification Solutions increased by $8 million compared to the first quarter of fiscal 2014 due to higher gas and air volumes, higher pricing, and improved operational performance that lowered costs. Sequentially, Purification Solutions EBIT decreased by $2 million compared to the fourth quarter of fiscal 2014 due to the non-recurrence of a one-time $9 million benefit related to a business interruption and property damage insurance payment received during the fourth quarter of fiscal 2014. Excluding the one-time insurance payment, EBIT improved sequentially by $7 million. The benefits from price increases, the impact on margin from a favorable product mix, and improved operational performance that lowered costs were partially offset by a decline in water volumes.

Specialty Fluids – First quarter fiscal 2015 EBIT in Specialty Fluids decreased by $7 million compared to the first quarter of fiscal 2014 and $1 million as compared to the fourth quarter of fiscal 2014. The declines in both comparative periods were driven by lower sales and rental volumes as a result of a lower level of project activity.

Cash Performance -- The Company ended the first quarter of fiscal 2015 with a cash balance of $88 million. During the first quarter of fiscal 2015, the Company generated adjusted EBITDA of $133 million. Uses of cash during the first quarter included $41 million for capital expenditures and $42 million for share repurchases.

Taxes -- During the first quarter of fiscal 2015, the Company recorded a net tax provision of $3 million for an effective tax rate of 5%. This included a tax benefit from certain items of $19 million. Excluding the impact of certain items, the operating tax rate on continuing operations for the first quarter of fiscal 2015 was 28%.

Outlook
“Our current outlook is shaped by the uncertainty related to the global economy, exchange rate fluctuations, declining oil prices and mixed consumer confidence. Hence, we remain cautious about the near-term,” Prevost said, commenting on the outlook for the Company. “Specifically, we expect soft demand and margin pressure next quarter in the Reinforcement Materials segment. On the positive side, we anticipate increased volumes in the second half of our fiscal year in the Purification Solutions and Performance Chemicals segments. We will continue to apply cost reduction measures, implement operational improvements, and we have reduced our expected capital expenditures for fiscal 2015. We anticipate strong cash flows due to the benefit of lower oil prices on our net working capital, which will allow us to remain flexible with regard to share repurchases given the increased authorization that has been put in place.”

Earnings Call
The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Thursday, January 29, 2015. 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, cesium formate drilling fluids, fumed silica, and aerogel. For more information on Cabot, please visit the company’s website at: 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 actions that will drive earnings growth, demand for our products, and expectations for growth 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 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 economic, competitive, legal, governmental, and technological factors. 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. 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.

Explanation of Terms Used and Use of Non-GAAP Financial Measures -- The preceding discussion of our results and the accompanying financial tables report adjusted EPS, total segment earnings before interest and taxes, “Total Segment EBIT”, operating tax rate and adjusted EBITDA, which are non-GAAP financial measures. Our chief operating decision-maker uses these non-GAAP financial measures to evaluate the performance of the Company in terms of profitability. We believe that these measures also assist 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 and Operating Tax Rate.”

Total Segment EBIT is a non-GAAP performance measure, and should not be considered an alternative for Income from continuing operations before taxes, the most directly comparable GAAP financial measure. In calculating Total Segment EBIT, we exclude “certain items”, meaning items that management does not consider representative of our fundamental segment results, as well as items that are not allocated to our business segments, such as interest expense and other corporate costs. Our Chief Operating Decision Maker uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe that this non-GAAP measure provides useful supplemental information for our investors as it is an important indicator of the Company’s operational strength and performance. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another. A reconciliation of Total Segment EBIT to Income from continuing operations before income taxes and equity in (loss) net earnings of affiliate companies is provided in the table titled, “Summary Results by Segments.”

The term “operating tax rate” is a non-GAAP financial measure and 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. A reconciliation of operating tax rate to effective tax rate, the most directly comparable GAAP financial measure is provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate.”

“Adjusted EBITDA” is a non-GAAP financial measure and refers to earnings before interest, taxes, depreciation and amortization, excluding items that management does not consider representative of the fundamental segment results. A reconciliation of adjusted EBITDA from segment EBIT for the first quarter of fiscal year 2015 is provided on the investor portion of our website at http://investor.cabot-corp.com, under the Non-GAAP Reconciliations section.

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.

^(A) Other (expense) income for the three months of fiscal 2014 includes a $29 million non-cash gain on Cabot's existing investment in its Mexican joint venture (NHUMO) recognized upon acquiring our former joint venture partner's common stock in NHUMO, which represented approximately 60% of the common equity of the joint venture.

^(B) Amounts relate primarily to the divestiture of the Security Materials business.

^(A) The amounts above have been recast for all periods to reflect the movement of the Elastomer Composites product line from the Advanced Technologies segment to the Reinforcement Materials segment and the Inkjet Colorants and Aerogel product lines from the Advanced Technologies segment to the Performance Chemicals segment. Specialty Fluids, which was previously included in the Advanced Technologies segment, will now be a stand-alone reporting segment.

^(B) Beginning in the second quarter of fiscal 2014, a reclassification between Purification Solutions and Unallocated and other sales has been made in the table above in order to align the presentation of shipping and handling fees on customer sales with the rest of Cabot’s businesses. Historical periods have been adjusted to reflect this reclassification.

^(C) Unallocated and other reflects royalties, other operating revenues, external shipping and handling fees, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable.

^(D) 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.

^(E) Details of certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.

^(F) General unallocated income includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to unearned revenue, and the impact of LIFO accounting.

^(G) Amounts relate primarily to the divestiture of the Security Materials business.

^(H) 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.

^(A) The amounts above have been recast for all periods to reflect the movement of the Elastomer Composites product line from the Advanced Technologies segment to the Reinforcement Materials segment and the Inkjet Colorants and Aerogel product lines from the Advanced Technologies segment to the Performance Chemicals segment. Specialty Fluids, which was previously included in the Advanced Technologies segment, will now be a stand-alone reporting segment.

^(B) Beginning in the second quarter of fiscal 2014, a reclassification between Purification Solutions and Unallocated and other sales has been made in the table above in order to align the presentation of shipping and handling fees on customer sales with the rest of Cabot’s businesses. Historical periods have been adjusted to reflect this reclassification.

^(C) Unallocated and other reflects royalties, other operating revenues, external shipping and handling fees, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable.

^(D) 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 (loss) of affiliated companies, royalty income, and allocated corporate costs.

^(E) Details of certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.

^(F) General unallocated (expense) income includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to unearned revenue, and the impact of LIFO accounting.

^(G) Amounts relate primarily to the divestiture of the Security Materials business and the Supermetals business.

^(H) 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.

^(A) Includes Accounts and notes receivable, Inventories, and Accounts payable and accrued liabilities

^(A) Per share amounts are calculated after tax and, where applicable, noncontrolling interests, net of tax.

^(B) Amounts relate primarily to the divestiture of the Security Materials and Supermetals Businesses.

^(C) This table indicates the line items where certain items are recorded in the table titled Cabot Corporation Consolidated Statements of Operations.

Source: Cabot Corporation

Cabot Corporation
Investor Contact:
Erica McLaughlin, 617-342-6090