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.
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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
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