Cabot Announces First Quarter Operating Results
BOSTON, Jan. 23 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced net income of $36 million ($0.56 per diluted common share) for the first quarter of 2008, including $7 million after-tax ($0.11 per diluted common share) of income from certain items. This is compared to net income of $54 million ($0.79 per diluted common share) for the first quarter of fiscal 2007, which included $2 million after-tax ($0.03 per diluted common share) of charges from certain items. Cabot's results during the quarter were unfavorably impacted by approximately $17 million arising from the time lag of the feedstock related pricing adjustments in the Company's rubber blacks supply contracts and the immediate recognition of higher feedstock costs in North America, due to the use of LIFO accounting. The Company's results during the quarter were positively impacted by approximately $14 million of tax benefits arising from favorable settlements of tax audits as well as various tax credits in China. Details of the Company's 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, Patrick Prevost, Cabot's President and CEO, said, "Although we were not satisfied with our operating results for the first quarter, when taking all factors into consideration, we believe the performance was solid, in line with the fourth quarter of 2007. We were able to achieve broad-based volume growth compared to the same period last year, particularly in key geographic areas and market segments. In the Carbon Black Business, volumes grew solidly in the core product lines compared to the prior year, however, rapid raw material cost increases caused a decline in unit margins. As in the fourth quarter of 2007, this decline included a significant effect from the time lag of the feedstock related pricing adjustments in our supply contracts. The contract lag effect will continue to impact our results in an environment of highly volatile raw material costs. Performance in our inkjet colorants product line continued to be weak. As expected, the inkjet aftermarket has improved, as evidenced by increased volumes compared to the fourth quarter of 2007. However, this improvement was more than offset by weakness in the OEM small office, home office market segment attributable to year-end inventory management by our customers. The development of the high speed opportunity remains slow. The Metal Oxides Business performed well. Our efforts to diversify into new geographies are paying off and we are seeing good development of the specialty portion of our product portfolio. The Supermetals Business continues to experience the highly competitive environment we discussed last quarter. We remain focused on generating cash in this Business and exploring at additional cost reduction opportunities. Our Specialty Fluids Business had a strong quarter, continuing on a track of solid performance with multiple opportunities developing in geographic regions outside of the North Sea. More broadly, we believe our strong balance sheet and our underlying business fundamentals position us well to withstand a downturn that could arise from negative macroeconomic factors."
Business Financial Detail
The following discussion of our results includes information on our reportable segment sales and operating profit before taxes ("PBT") and should be read in conjunction with the accompanying financial tables. We use segment PBT to measure our consolidated operating results and to assess segment performance. When explaining the changes in our PBT period on period, we use several terms. The term "fixed costs" means fixed manufacturing costs, including utilities. The term "inventory related charges" means differences attributable to items such as (i) inventory obsolescence and valuation reserves; (ii) utilization variances; and (iii) other increases or decreases in costs associated with the production of inventory. The term "product mix" refers to the various types and grades of products sold by a particular business or product line during the quarter, and the positive or negative impact of that mix on the variable margin and profitability of the business or product line.
Carbon Black Business
The following chart details the percentage change in volume by product
line for the first fiscal quarter of 2008, as compared to the first and fourth
fiscal quarters of 2007:
First quarter 2008 vs. First quarter 2008 vs.
first quarter 2007 fourth quarter 2007
Rubber Blacks 8% flat volumes
North America 12% (2%)
South America 12% 2%
Europe flat volumes 7%
Asia Pacific 10% 1%
China 8% (8%)
Performance Products 7% (7%)
Inkjet Colorants (6%) (12%)
Revenue Variance Analysis
-- The $75 million increase in revenue from the first quarter of 2007 to
the first quarter of 2008 was driven by the positive impact of foreign
currency translation on our selling prices ($36 million), increased
volumes ($35 million) and increased selling prices ($4 million).
-- The $39 million increase in revenue from the fourth quarter of 2007 to
the first quarter of 2008 was driven by increased selling prices
($31 million) and the positive impact of foreign currency translation
on our selling prices ($18 million), partially offset by lower volumes
($11 million).
Profit Variance Analysis
-- The $33 million decrease in PBT from the first quarter of 2007 to the
first quarter of 2008 was driven by raw material cost increases
($53 million), and higher fixed costs of new capacity ($5 million),
partially offset by increased volumes ($14 million), higher selling
prices and improved product mix ($5 million) and a benefit from
inventory related charges ($4 million).
-- The $1 million increase in PBT from the fourth quarter of 2007 to the
first quarter of 2008 was driven by lower selling, technical and
administrative expenses ($3 million), increased pricing that more than
offset higher raw material costs (net benefit of $2 million), lower
fixed costs ($1 million) and the positive benefit of inventory related
charges ($1 million), partially offset by lower volumes ($6 million).
Variability in feedstock costs significantly impacts financial results for both the Carbon Black Business segment and the Company as a whole on a quarterly basis. The table below quantifies, in millions of dollars, the absolute impact on PBT during a quarter of both the time lag of our feedstock related pricing adjustments in our rubber blacks supply contracts ("contract lag") and the immediate recognition of feedstock costs in North America due to the use of LIFO accounting ("LIFO impact").
(millions of dollars) Fiscal Year 2007 Fiscal Year 2008
Quarter 1
contract lag 8 (9)
LIFO impact 5 (8)
Quarter 2
contract lag 7
LIFO impact (2)
Quarter 3
contract lag (8)
LIFO impact (8)
Quarter 4
contract lag (13)
LIFO impact (1)
Metal Oxides Business
Volumes in the fumed metal oxides product line increased by 4% when comparing the first quarter of 2008 to the first quarter of 2007 as increases in the niche market segment more than offset declines in both the silicones and electronics segments. When comparing the first quarter of 2008 to the fourth quarter of 2007, volumes decreased by 3% in the product line.
Revenue Variance Analysis
-- The $5 million increase in revenue from the first quarter of 2007 to
the first quarter of 2008 was driven by the positive impact of foreign
currency translation on our selling prices ($3 million) and increased
volumes ($2 million).
-- The $1 million decrease in revenue from the fourth quarter of 2007 to
the first quarter of 2008 was driven by lower volumes ($2 million) and
an unfavorable product mix ($1 million), partially offset by the
positive impact of foreign currency translation on our selling prices
($1 million).
Profit Variance Analysis
-- The $1 million decrease in PBT from the first quarter of 2007 to the
first quarter of 2008 was driven by higher fixed costs, principally
higher utility costs ($1 million), higher selling, technical and
administrative costs ($1 million) and the unfavorable impact of
inventory related charges ($1 million), partially offset by higher
volumes ($2 million).
-- PBT was flat from the fourth quarter of 2007 to the first quarter of
2008.
Supermetals Business
Revenue Variance Analysis
-- The $24 million decrease in revenue from the first quarter of 2007 to
the first quarter of 2008 was driven by lower volume ($16 million) and
lower pricing ($8 million), principally due to the end of favorable
contract sales.
-- The $2 million decrease in revenue from the fourth quarter of 2007 to
the first quarter of 2008 was driven by lower volumes.
Profit Variance Analysis
-- The $15 million decrease in PBT from the first quarter of 2007 to the
first quarter of 2008 was driven by lower volumes ($9 million) and
lower pricing ($8 million), resulting from the end of favorable
contract sales, partially offset by lower fixed costs ($3 million).
-- PBT was flat from the fourth quarter of 2007 to the first quarter of
2008 as lower fixed costs ($3 million) were offset by the unfavorable
impact of inventory related charges ($3 million).
Specialty Fluids Business
Profit Variance Analysis
-- PBT decreased by $1 million from the first quarter of 2007 to the
first quarter of 2008 as increased rental revenue and a higher fluid
utilization rate was more than offset by a lower volume of fluid sold.
-- PBT was flat from the fourth quarter of 2007 to the first quarter of
2008 as stronger rental revenues and a significantly higher fluid
utilization rate offset a lower volume of fluid sold.
Variability in the percentage of our total available fluid inventory used during a period, or the fluid utilization rate, significantly impacts financial results for the Specialty Fluids Business on a quarterly basis. The table below quantifies the absolute fluid utilization percentage by quarter for fiscal 2007 and the first quarter of fiscal 2008.
Fiscal Year 2007 Fiscal Year 2008
Quarter 1 17% 21%
Quarter 2 13%
Quarter 3 19%
Quarter 4 12%
Corporate Financial Detail
Capital Expenditures -- Cabot invested approximately $33 million in
capital expenditures during the first fiscal quarter of 2008.
Open Market Share Repurchases -- During the first fiscal quarter of 2008,
the Company repurchased 119,400 shares of its common stock on the open
market for a cash cost of approximately $4 million. Approximately 5
million shares remain on the current Board of Directors' authorization.
Working Capital -- Working capital increased by $91 million on a constant
dollar basis (an increase of $112 million at actual exchange rates) during
the first fiscal quarter of 2008 driven principally by higher carbon black
feedstock costs impacting both inventories and selling prices.
Tax Rate -- The Company's overall tax rate for net income from
continuing operations was a 16% benefit for the first fiscal quarter of
2008. During the quarter, the Company recorded net tax benefits in
continuing operations of approximately $7 million ($0.11 per diluted
common share) from tax settlements and an increase of tax reserves.
Additionally, the Company recorded tax benefits in continuing operations
of approximately $7 million ($0.12 per diluted common share) from China
dividend reinvestment and investment credits approved during the quarter.
Excluding the impact of these tax benefits, the Company's tax rate would
have been a provision of approximately 27% for the first fiscal quarter of
2008.
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 statements about the company's strategy for growth, product development, market position, expected expenditures and financial results 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. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Cabot, particularly its latest annual report on Form 10-K, could cause results to differ materially from those stated. These factors include, but are not limited to changes in cost of raw materials; costs associated with the research and development of new products, including regulatory approval and market acceptance; competitive pressures; successful integration of structural changes, including restructuring plans, and joint ventures; 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 and customer operations.
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. The Company's website is: http://www.cabot-corp.com.
Contact: Susannah R. Robinson
Director, Investor Relations
(617) 342-6129
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Periods ended December 31 Three Months
Dollars in millions, except per share
amounts (unaudited) 2007 2006
Net sales and other operating revenues $711 $655
Cost of sales 594 506
Gross profit 117 149
Selling and administrative expenses 56 54
Research and technical expenses 17 15
Income from operations 44 80
Other income and expense
Interest and dividend income 1 2
Interest expense (9) (9)
Other income (expense) (2) 2
Total other income and expense (10) (5)
Income from continuing operations
before income taxes 34 75
Benefit (provision) for income taxes 6 (19)
Equity in net income of affiliated
companies, net of tax 2 3
Minority interest in net income, net of tax (6) (5)
Net income 36 54
Dividends on preferred stock, net of
tax benefit - -
Net income available to common shares $36 $54
Diluted earnings per share of common stock
Diluted $0.56 $0.79
Weighted average common shares outstanding
Diluted 64 69
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
Periods ended December 31 Three Months
Dollars in millions, except per share
amounts (unaudited) 2007 2006
SALES
Carbon Black Business (A) $560 $485
Rubber blacks 409 351
Performance products 142 123
Inkjet colorants 8 10
Superior MicroPowders 1 1
Metal Oxides Business 70 65
Fumed metal oxides 70 65
Aerogel - -
Supermetals Business 53 77
Specialty Fluids Business 16 16
Segment sales 699 643
Unallocated and other (B) 12 12
Net sales and other operating
revenues $711 $655
SEGMENT PROFIT
Carbon Black Business $21 $54
Metal Oxides Business 8 9
Supermetals Business 1 16
Specialty Fluids Business 7 8
Total Segment Profit ( C ) 37 87
Interest expense (9) (9)
General unallocated expense (D) 8 -
Less: Equity in net income of
affiliated companies, net of tax (2) (3)
Income from continuing operations
before income taxes 34 75
Benefit (provision) for income taxes 6 (19)
Equity in net income of affiliated
companies, net of tax 2 3
Minority interest in net income, net
of tax (6) (5)
Net income 36 54
Dividends on preferred stock, net of
tax benefit - -
Net income available to common shares $36 $54
Diluted earnings per share of common
stock
Diluted $0.56 $0.79
Weighted average common shares
outstanding
Diluted 64 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
affiliated companies, 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.
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
December 31, September 30,
2007(A) 2007
Dollars in millions, except share and
per share amounts (unaudited) (audited)
Current assets:
Cash and cash equivalents $129 $154
Short-term marketable securities 1 2
Accounts and notes receivable, net
of reserve for doubtful accounts
of $6 and $6 601 563
Inventories:
Raw materials 178 154
Work in process 71 77
Finished goods 221 184
Other 30 27
Total inventories 500 442
Prepaid expenses and other current assets 90 72
Deferred income taxes 39 35
Assets held for sale 7 7
Total current assets 1,367 1,275
Investments:
Equity affiliates 67 65
Long-term marketable securities
and cost investments 3 3
Total investments 70 68
Property, plant and equipment 2,899 2,823
Accumulated depreciation and amortization (1,874) (1,807)
Net property, plant and equipment 1,025 1,016
Other assets:
Goodwill 35 34
Intangible assets, net of
accumulated amortization of $11 and $10 3 4
Assets held for rent 43 42
Deferred income taxes 128 120
Other assets 86 77
Total other assets 295 277
Total assets $2,757 $2,636
(A) The above statement of Condensed Consolidated Financial Position
includes the Company's initial estimate of the impact of adopting FIN
48 during the quarter ended December 31, 2007. The impact of adoption
included above is an increase to stockholders' equity of
approximately $1 million. Reclassifications of certain tax related
balances are possible based on further analysis to be performed prior
to the Company's filing of its quarterly report of Form 10-Q for the
quarter ended December 31, 2007.
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
December 31, September 30,
2007(A) 2007
Dollars in millions, except share and
per share amounts (unaudited) (audited)
Current liabilities:
Notes payable to banks $121 $67
Accounts payable and accrued liabilities 419 427
Income taxes payable 36 36
Deferred income taxes 2 2
Current portion of long-term debt 10 15
Total current liabilities 588 547
Long-term debt 505 503
Deferred income taxes 15 16
Other liabilities 318 300
Minority interest 86 76
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: None
Outstanding: None
Common stock:
Authorized: 200,000,000 shares of $1
par value 65 65
Issued: 65,315,338 and 65,424,674 shares
Outstanding: 65,171,348 and 65,279,803
shares
Less cost of 143,990 and 144,871 shares
of common treasury stock (5) (5)
Additional paid-in capital 2 -
Retained earnings 1,144 1,119
Deferred employee benefits (33) (34)
Notes receivable for restricted stock (19) (19)
Accumulated other comprehensive
income 91 68
Total stockholders' equity 1,245 1,194
Total liabilities and stockholders'
equity $2,757 $2,636
(A) The above statement of Condensed Consolidated Financial Position
includes the Company's initial estimate of the impact of adopting FIN
48 during the quarter ended December 31, 2007. The impact of adoption
included above is an increase to stockholders' equity of
approximately $1 million. Reclassifications of certain tax related
balances are possible based on further analysis to be performed prior
to the Company's filing of its quarterly report of Form 10-Q for the
quarter ended December 31, 2007.
CABOT CORPORATION
Fiscal 2007
In millions,
except per share amounts
(unaudited) Dec. Q. Mar. Q. June Q. Sept. Q. FY
Sales
Carbon Black Business (A) $485 $493 $506 $521 $2,005
Rubber blacks 351 346 351 368 1,416
Performance products 123 134 142 142 541
Inkjet colorants 10 13 13 10 46
Superior MicroPowders 1 - - 1 2
Metal Oxides Business 65 68 67 71 271
Fumed metal oxides 65 68 66 71 270
Aerogel - - 1 - 1
Supermetals Business 77 53 48 55 233
Specialty Fluids Business 16 10 16 16 58
Segment Sales 643 624 637 663 2,567
Unallocated and other (B) 12 13 12 12 49
Net sales and other
operating revenues $655 $637 $649 $675 $2,616
Segment Profit
Carbon Black Business $54 $57 $25 $20 $156
Metal Oxides Business 9 10 9 8 36
Supermetals Business 16 (2) - 1 15
Specialty Fluids Business 8 3 7 7 25
Total Segment Profit ( C ) 87 68 41 36 232
Interest expense (9) (9) (8) (8) (34)
General unallocated income
(expense) (D) - (15) 1 (5) (18)
Less: Equity in net income
of affiliated companies,
net of tax (3) (3) (3) (3) (12)
Income from continuing
operations before
income taxes 75 41 31 20 168
Benefit (provision) for
income taxes (19) (11) (9) 2 (38)
Equity in net income of
affiliated companies,
net of tax 3 3 3 3 12
Minority interest in net
income, net of tax (5) (2) (4) (4) (15)
Net income from
continuing operations 54 31 21 21 127
Discontinued operations,
net of tax (E) - - (1) 3 2
Net income 54 31 20 24 129
Dividends on preferred stock,
net of tax benefit - (1) - - (1)
Net income available to
common shares $54 $30 $20 $24 $128
Diluted earnings per share
of common stock
Net income from continuing
operations $0.79 $0.45 $0.31 $0.32 $1.87
Discontinued operations,
net of tax (E) - - (0.01) 0.04 0.03
Net income $0.79 $0.45 $0.30 $0.36 $1.90
Weighted average common
shares outstanding
Diluted 69 69 68 66 68
Fiscal 2008
In millions,
except per share amounts
(unaudited) Dec. Q. Mar. Q. June Q. Sept. Q. FY
Sales
Carbon Black Business (A) $560
Rubber blacks 409
Performance products 142
Inkjet colorants 8
Superior MicroPowders 1
Metal Oxides Business 70
Fumed metal oxides 70
Aerogel -
Supermetals Business 53
Specialty Fluids Business 16
Segment Sales 699
Unallocated and other (B) 12
Net sales and other
operating revenues $711
Segment Profit
Carbon Black Business $21
Metal Oxides Business 8
Supermetals Business 1
Specialty Fluids Business 7
Total Segment Profit ( C ) 37
Interest expense (9)
General unallocated income
(expense) (D) 8
Less: Equity in net income
of affiliated companies,
net of tax (2)
Income from continuing
operations before
income taxes 34
Benefit (provision) for
income taxes 6
Equity in net income of
affiliated companies,
net of tax 2
Minority interest in net
income, net of tax (6)
Net income from
continuing operations 36
Discontinued operations,
net of tax (E) -
Net income 36
Dividends on preferred stock,
net of tax benefit -
Net income available to
common shares $36
Diluted earnings per share
of common stock
Net income from continuing
operations $0.56
Discontinued operations,
net of tax (E) -
Net income $0.56
Weighted average common
shares outstanding
Diluted 64
(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 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
affiliated companies, 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 certain items
listed in Exhibit I.
(E) Amounts relate to legal and tax settlements in connection with our
discontinued operations.
CABOT CORPORATION CERTAIN ITEMS - Exhibit I
Periods ended December 31
Dollars in millions, except per Three Months
share amounts (unaudited)
2007 2007 2006 2006
$ per share(A) $ per share(A)
Certain items before income taxes
Environmental reserves/settlement $(1) $(0.01) $- $-
Restructuring initiatives
Global - - (2) (0.02)
Altona, Australia 18 0.20 (1) (0.01)
North America (6) (0.07) - -
Europe (B) (1) (0.01) - -
Total certain items 10 0.11 (3) (0.03)
Tax impact of certain items (3) - 1 -
Total certain items $7 $0.11 $(2) $(0.03)
Periods ended December 31 Three Months
Dollars in millions (unaudited) 2007 2006
Statement of Operations Line Item
Cost of sales 11 $(2)
Selling and administrative expenses (1) (1)
Total certain items $10 $(3)
Periods ended December 31 Three Months
Dollars in millions (unaudited) 2007 2006
Certain items by Segment
Carbon Black Business $11 $(3)
Other (1) -
Total certain items $10 $(3)
(A) Per share amounts are calculated after tax.
(B) Charge relates to a former carbon black facility.
SOURCE Cabot Corporation
CONTACT:
Susannah R. Robinson, Director
Investor Relations of Cabot Corporation
+1-617-342-6129
Web site: http://www.cabot-corp.com