News Release Details

Fiscal Year 2017 Diluted EPS of $3.81 and Adjusted EPS of $3.43

BOSTON--(BUSINESS WIRE)--Oct. 31, 2017-- Cabot Corporation (NYSE: CBT) today announced results for its fourth quarter and full fiscal year 2017.

Key Highlights

• Strongest full year business results since 2014
• Reinforcement Materials full year EBIT up 41% on higher volumes and margins
• Advanced key strategic investments in fumed silica for long term growth in Performance Chemicals
• Generated robust annual cash flows from operations of $340 million
• Returned $138 million of cash to shareholders in fiscal year 2017

Commenting on the results, Cabot President and CEO Sean Keohane, said, “I am pleased to report in the fourth quarter of fiscal 2017 we had the strongest business results since the third quarter of 2014, largely due to higher volumes and margins. The Reinforcement Materials segment delivered robust growth compared to the same quarter in the prior year, while the Performance Chemicals segment rebounded from a challenging third quarter. Purification Solutions showed continued momentum in the Specialty applications but was impacted by the ongoing competitive intensity in the mercury removal application. Our strong finish to fiscal year 2017 resulted in 9% adjusted EPS growth year over year. Reinforcement Materials delivered a 41% increase in EBIT while Performance Chemicals recorded solid results despite feedstock headwinds and a step up in growth investments. In addition, we maintained discipline around our capital allocation framework, returning $138 million, or 57% of discretionary free cash flow, to shareholders in the form of dividends and share repurchases during the fiscal year.”

Financial Detail
For the fourth quarter of fiscal 2017, net income attributable to Cabot Corporation was $68 million ($1.07 per diluted common share). Net income includes a per share benefit of $0.16 from certain items, principally associated with discrete tax items. Adjusted EPS for the fourth quarter of fiscal 2017 was $0.91 per share.

Segment Results
Reinforcement Materials -- Fourth quarter fiscal 2017 EBIT in Reinforcement Materials increased by $6 million compared to the fourth quarter of fiscal 2016. The increase in EBIT was principally driven by higher unit margins and volumes from calendar year 2017 customer contracts and an improved demand environment in China. Volumes increased by 4% during the fourth quarter of fiscal 2017 as compared to the fourth quarter of fiscal 2016 as a result of volume growth in EMEA and the Americas. Sequentially, Reinforcement Materials EBIT decreased by $3 million compared to the third quarter of fiscal 2017 driven by seasonally lower volumes in EMEA partially offset by favorable spot pricing in Asia.

Global and regional volume changes for the rubber blacks product line for the fourth quarter of fiscal 2017 as compared to the same quarter of the prior year and the third quarter of fiscal 2017 are included in the table below:

Performance Chemicals -- Fourth quarter fiscal 2017 EBIT in Performance Chemicals decreased by $3 million compared to the fourth quarter of fiscal 2016 due to lower unit margins from the impact of higher feedstock costs and higher fixed costs, partially offset by strong volume growth. Volumes increased by 10% in the Specialty Carbons and Formulations business and 8% in the Metal Oxides business. Sequentially, Performance Chemicals EBIT increased by $9 million compared to the third quarter of fiscal 2017. The increase in EBIT was primarily due to favorable margins and higher volumes, with a 5% volume increase in Specialty Carbons and Formulations and a 2% volume increase in Metal Oxides.

Purification Solutions -- Fourth quarter fiscal 2017 EBIT in Purification Solutions remained flat at $2 million compared to the fourth quarter of fiscal 2016. The segment results benefitted from higher volumes in the Specialty applications and the favorable impact from the change in inventory levels, which were offset by a decrease in volumes associated with MATS related demand. Sequentially, Purification Solutions EBIT increased by $4 million compared to the third quarter of fiscal 2017 due to seasonally higher volumes from MATS related demand and lower fixed costs, partially offset by a less favorable product mix.

Specialty Fluids -- Fourth quarter fiscal 2017 EBIT in Specialty Fluids decreased by $2 million compared to the fourth quarter of fiscal 2016 due to decreased project activity in the North Sea and Asia. Sequentially, Specialty Fluids EBIT decreased by $1 million compared to the third quarter of fiscal 2017 primarily due to reduced rental activity in the North Sea.

Non-Operating -- The Company recorded a LIFO charge of $7 million during the fourth quarter and $11 million for the full fiscal year 2017.

Taxes -- During the fourth quarter of fiscal 2017, the Company recorded a tax benefit of $3 million for an effective tax rate of (2%). This included a benefit from tax certain items of $11 million. Excluding the impact of certain items on both operating income and the tax provision, the operating tax rate on continuing operations for the fourth quarter of fiscal 2017 was 19%.

Cash Performance -- The Company ended fiscal year 2017 with a cash balance of $280 million. During the fourth quarter of fiscal 2017, cash flows from operating activities were $157 million, including a decrease in net working capital of $64 million. Capital expenditures for the fourth quarter of fiscal 2017 were $61 million, including $50 million for sustaining and compliance capital expenditures. Additional uses of cash during the fourth quarter included $20 million for dividends and $18 million for share repurchases.

Outlook
Commenting on the outlook for the Company, Keohane said, “Looking forward to 2018, we remain focused on our strategy of investing for growth in the core, driving application innovation with our customers, and generating strong cash flows through efficiency and optimization. We feel good about the current business environment and expect to see growth across all segments. At the same time, we will be stepping up our growth investments as evidenced by our previously announced Carrollton and Wuhai projects which will drive future profitability. Overall, we continue to focus on creating shareholder value by generating strong discretionary free cash flow and reinvesting that into our core businesses as well as returning cash to shareholders. We believe this will result in a good balance of long term growth and a meaningful cash return, leading to top tier Total Shareholder Return.”

Earnings Call
The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Wednesday, November 1, 2017. 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, masterbatches and conductive compounds, fumed silica, and aerogel. Cabot routinely posts information that may be important to investors in the “Investors” section of its website at www.cabotcorp.com. The Company encourages investors and potential investors to consult the Cabot website regularly.

Forward-Looking Statements -- This earnings release contains forward-looking statements. All statements that address expectations or projections about the future, including our expectations for adjusted EPS growth, future cash flow and cash return to shareholders, segment growth and growth in application innovation and in profitability from our investments in Wuhai and Carrollton 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 or implied by forward-looking statements. Important factors that could cause our results to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to, volatility in the price of energy and raw materials; competition from other specialty chemical companies; safety, health and environmental requirements; a significant adverse change in a customer relationship; negative or uncertain worldwide or regional economic conditions; unanticipated disruptions or delays in plant operations or development projects; and fluctuations in foreign currency exchange and interest rates. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly under the heading “Risk Factors” in our annual report on Form 10-K for our fiscal year ended September 30, 2016, filed with the SEC at www.sec.gov. 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.

Use of Non-GAAP Financial Measures
To supplement Cabot’s consolidated financial statements presented on a generally accepted accounting principles (“GAAP”) basis, the preceding discussion of our results and the accompanying financial tables report Adjusted EPS, total segment EBIT, our operating tax rate, and discretionary free cash flow, which are non-GAAP financial measures. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, GAAP. The table titled “Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate” provides a reconciliation of Adjusted EPS to net income (loss) per share attributable to Cabot Corporation, the most directly comparable GAAP financial measure, and a reconciliation of operating tax rate to effective tax rate, the most directly comparable GAAP financial measure. The accompanying financial tables also provide a reconciliation of total segment EBIT to income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, and a reconciliation of discretionary free cash flow to cash flow from operating activities, the most directly comparable GAAP financial measures.

Management believes these non-GAAP measures provide investors with greater transparency to the information used by Cabot management in its financial and operational decision-making, allow investors to see Cabot’s results through the eyes of management, and better enable Cabot’s investors to understand Cabot’s operating performance and financial condition.

Adjusted EPS. In calculating Adjusted EPS, we exclude from our net income (loss) per share from continuing operations items of expense and income that management does not consider representative of the Company’s business operations. Accordingly, reporting earnings on an adjusted basis supplements the GAAP measure of performance and provides additional information related to the underlying performance of the business. For example, certain of the items we exclude are items that we are required by GAAP to recognize in one period that relate to activities extending over several periods or relate to single events that management considers to be unusual and infrequent, although not necessarily non-recurring. We refer to these items as “certain items.” Management believes excluding these items facilitates operating performance comparisons from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis and evaluates the Company’s operating performance without the impact of these costs or benefits. Management also uses Adjusted EPS as a key measure in evaluating management performance for incentive compensation purposes.

The items of income and expense that we exclude from our calculations of Adjusted EPS, as applicable, but that are included in our GAAP net income (loss) per share, as applicable, are described below.

• Global restructuring activities, which include costs or benefits associated with cost reduction initiatives or plant closures and are primarily related to (i) employee termination costs, (ii) asset impairment charges associated with restructuring actions, (iii) costs to close facilities, including environmental costs and contract termination penalties, and (iv) gains realized on the sale of land or equipment associated with restructured plants or locations.
• Non-recurring gains (losses) on foreign exchange, which primarily relate to the impact of controlled currency devaluations on the Company’s net monetary assets denominated in that currency.
• Legal and environmental reserves and matters, which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business.
• Executive transition costs, which include incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company.
• Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long-lived assets.
• Acquisition and integration-related charges, which include transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes.
• Employee benefit plan settlement charges, which consist of the costs associated with transferring the obligations and assets held by one of the Company’s defined benefit plans to a multi-employer plan.

Cabot does not provide a target GAAP EPS growth rate range or reconciliation of the Adjusted EPS growth rate range with a GAAP EPS growth rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on GAAP EPS in future periods.

Total Segment EBIT. Total segment EBIT reflects the sum of EBIT from our four reportable segments. In calculating total segment EBIT we exclude from our income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, certain items and items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to special projects and initiatives.

Operating Tax Rate. Our “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 tax rate adjustments and the impact of the items of expense and income we identify as certain items on both our operating income and the tax provision. Management believes that the operating tax rate is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and to understand what our tax rate on current operations would be without the impact of these items.

Discretionary Free Cash Flow. The term “Discretionary Free Flow” is defined as Operating Cash Flow less sustaining and compliance capital expenditures and changes in Net Working Capital.

Explanation of Terms Used

Product Mix. 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.

Net Working Capital. The term “net working capital” includes accounts receivable, inventory and accounts payable and accrued liabilities.

(A) Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.

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

(B) 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.

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

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

(E) Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.

(F) 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) Effective October 1, 2016, the Company adopted a new accounting standard simplifying the presentation of debt issuance costs by presenting debt issuance costs as a reduction of the corresponding debt liability. In addition, the Company early adopted a new accounting standard that simplifies the presentation of deferred income taxes by classifying all deferred taxes as noncurrent assets or liabilities. These new standards were applied retrospectively. The retrospective application of the standard that simplifies the presentation of debt issuance costs resulted in the reclassification of $1 million and $3 million of unamortized debt issuance costs from "Prepaid expenses and other current assets" and "Other assets", respectively, to "Long-term debt" within the consolidated balance sheets as of September 30, 2016. The retrospective application of the standard that simplifies the presentation of deferred income taxes resulted in the reclassification of $41 million of current deferred tax assets and $1 million of current deferred tax liabilities to noncurrent Deferred income tax accounts within the consolidated balance sheets as of September 30, 2016.

(A) Effective October 1, 2016, the Company adopted a new accounting standard simplifying the presentation of debt issuance costs by presenting debt issuance costs as a reduction of the corresponding debt liability. In addition, the Company early adopted a new accounting standard that simplifies the presentation of deferred income taxes by classifying all deferred taxes as noncurrent assets or liabilities. These new standards were applied retrospectively. The retrospective application of the standard that simplifies the presentation of debt issuance costs resulted in the reclassification of $1 million and $3 million of unamortized debt issuance costs from "Prepaid expenses and other current assets" and "Other assets", respectively, to "Long-term debt" within the consolidated balance sheets as of September 30, 2016. The retrospective application of the standard that simplifies the presentation of deferred income taxes resulted in the reclassification of $41 million of current deferred tax assets and $1 million of current deferred tax liabilities to noncurrent Deferred income tax accounts within the consolidated balance sheets as of September 30, 2016.

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