Cabot Corp Reports Second Quarter Fiscal 2019 Results
Diluted EPS of
Key Highlights
- Positive impact from calendar year 2019 tire customer agreements more than offset by pricing weakness in
China in Reinforcement Materials - Performance Chemicals impacted by soft automotive demand and a less favorable product mix
- Announced agreement to divest Specialty Fluids segment in transaction valued at
$135 million - Continued commitment to return cash to shareholders with
$70 million of dividends and share repurchases in the quarter
(In millions, except per share amounts) | Three Months Ended | Six Months Ended | ||||||||||||||
3/31/19 |
3/31/18 |
|
3/31/19 |
3/31/18 |
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Net sales | $ | 844 | $ | 818 | $ | 1,665 | $ | 1,538 | ||||||||
Net income (loss) attributable to Cabot Corporation | $ | 23 | $ | (173 | ) | $ | 92 | $ | (295 | ) | ||||||
Net earnings (loss) per share attributable to Cabot Corporation | $ | 0.39 | $ | (2.80 | ) | $ | 1.53 | $ | (4.78 | ) | ||||||
Less: Certain items after tax per share | $ | (0.60 | ) | $ | (3.84 | ) | $ | (0.33 | ) | $ | (6.75 | ) | ||||
Adjusted EPS | $ | 0.99 | $ | 1.04 | $ | 1.86 | $ | 1.97 | ||||||||
Commenting on the results, Cabot President and CEO
Keohane continued, “Cash return remains an important element of our capital allocation framework and in the quarter, we returned
Financial Detail
For the second quarter of fiscal 2019, net income attributable to
Segment Results
Reinforcement Materials -- Second quarter fiscal 2019 EBIT in Reinforcement Materials decreased by
Second Quarter |
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Changes in Global Reinforcement Materials Volumes | (1%) | |
Asia | 2% | |
Europe, Middle East, Africa (EMEA) | (6%) | |
Americas | (1%) | |
Performance Chemicals -- Second quarter fiscal 2019 EBIT in Performance Chemicals decreased by
Purification Solutions – Second quarter fiscal 2019 EBIT in Purification Solutions increased by
Specialty Fluids – Second quarter fiscal 2019 EBIT in Specialty Fluids increased by
Cash Performance -The Company ended the second quarter of fiscal 2019 with a cash balance of
Taxes – During the second quarter of fiscal 2019, the Company recorded a tax charge of
Outlook
Commenting on the outlook for the Company, Keohane said, “As we look ahead, we anticipate improving sequential results in our Reinforcement Materials and Performance Chemicals segments driven by volume and margin recovery. We are seeing some signs of recovery as we move into the third quarter and anticipate the unfavorable impact from the timing of raw material flow-through will not repeat. The sequential improvement in Reinforcement Materials and Performance Chemicals will largely be offset by the impact of our Specialty Fluids segment which remains on track for divestiture in the third quarter.”
Keohane continued, “We are seeing the environment improve, albeit at a slower pace than originally expected. As this anticipated improvement develops gradually through the remainder of the year, our outlook for the full year Adjusted EPS is in the range of
Earnings Call
The Company will host a conference call with industry analysts at
About
Forward-Looking Statements -- This earnings release contains forward-looking statements. All statements that address expectations or projections about the future, including with respect to our expectations for adjusted EPS for fiscal 2019, our performance in the third and fourth quarters, including in the Reinforcement Materials and Performance Chemicals segments, the factors that we expect will impact volumes, demand for our products, and margins, the timing of the commencement of operations at our new fumed metal oxides facility in
Use of Non-GAAP Financial Measures
To supplement Cabot’s consolidated financial statements presented on a generally accepted accounting principle (“GAAP”) basis, the preceding discussion of our results and the accompanying financial tables report Adjusted EPS, Total Segment EBIT, our operating tax rate, Adjusted EBITDA, and discretionary free cash flow, all of which are non-GAAP financial measures. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, GAAP. Reconciliations of Adjusted EPS to net income (loss) per share attributable to
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) attributable to
The items of income and expense that we have excluded from our calculations of Adjusted EPS, as applicable, but that have been included in our GAAP net income (loss) per share, as applicable, are described below.
- Asset impairment charges, which primarily included charges associated with an impairment of goodwill or other long-lived assets.
- Inventory reserve adjustment, which resulted from an evaluation performed as part of an impairment analysis.
- Global restructuring activities, which included costs or benefits associated with cost reduction initiatives or plant closures and were 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.
- Legal and environmental reserves and matters, which consisted of costs or benefits for matters typically related to former businesses or that were otherwise incurred outside of the ordinary course of business.
- Gains (losses) on sale of investments, which primarily related to the sale of investments accounted for under the cost-method.
- Executive transition costs, which included incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company.
- Acquisition and integration-related charges, which included transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes.
- Non-recurring gains (losses) on foreign currency, which primarily related to the impact of continued currency devaluations on our net monetary assets denominated in that currency.
Cabot does not provide a target GAAP EPS range or reconciliation of the Adjusted EPS range with a GAAP EPS 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 corporate 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.
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.
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||||||||||
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions, except per share amounts (unaudited) |
2019 |
2018 |
2019 |
2018 |
||||||||||||
Net sales and other operating revenues (A) | $ | 844 | $ | 818 | $ | 1,665 | $ | 1,538 | ||||||||
Cost of sales (A)(B) | 666 | 630 | 1,321 | 1,174 | ||||||||||||
Gross profit | 178 | 188 | 344 | 364 | ||||||||||||
Selling and administrative expenses (B) | 70 | 79 | 143 | 149 | ||||||||||||
Research and technical expenses | 15 | 16 | 31 | 31 | ||||||||||||
Specialty Fluids held for sale assets impairment charge | 20 | — | 20 | — | ||||||||||||
Purification Solutions long-lived assets impairment charge | — | 162 | — | 162 | ||||||||||||
Purification Solutions goodwill impairment charge | — | 92 | — | 92 | ||||||||||||
Income (loss) from operations | 73 | (161 | ) | 150 | (70 | ) | ||||||||||
Other income (expense) | ||||||||||||||||
Interest and dividend income | 2 | 3 | 4 | 6 | ||||||||||||
Interest expense | (14 | ) | (14 | ) | (29 | ) | (27 | ) | ||||||||
Other income (expense) (B) | (12 | ) | 1 | (6 | ) | 12 | ||||||||||
Total other income (expense) | (24 | ) | (10 | ) | (31 | ) | (9 | ) | ||||||||
Income (loss) from continuing operations before income taxes and equity in | ||||||||||||||||
earnings of affiliated companies | 49 | (171 | ) | 119 | (79 | ) | ||||||||||
(Provision) benefit for income taxes | (20 | ) | 7 | (13 | ) | (198 | ) | |||||||||
Equity in earnings of affiliated companies, net of tax | — | 1 | — | 2 | ||||||||||||
Net income (loss) | 29 | (163 | ) | 106 | (275 | ) | ||||||||||
Net income (loss) attributable to noncontrolling interests | 6 | 10 | 14 | 20 | ||||||||||||
Net income (loss) attributable to Cabot Corporation | $ | 23 | $ | (173 | ) | $ | 92 | $ | (295 | ) | ||||||
Diluted earnings per share of common stock attributable to Cabot Corporation |
||||||||||||||||
Net income (loss) attributable to Cabot Corporation (C) | $ | 0.39 | $ | (2.80 | ) | $ | 1.53 | $ | (4.78 | ) | ||||||
Weighted average common shares outstanding | ||||||||||||||||
Diluted (C) | 59.3 | 61.8 | 59.7 | 61.8 | ||||||||||||
(A)Beginning in fiscal 2019 as part of the adoption of the new accounting standard for revenue recognition, the Company now presents revenue from by-products produced in manufacturing operations in Net sales and other operating revenues, which in prior years was included as a reduction in Cost of sales.
(B)Fiscal 2018 amounts have been recast to reflect the retrospective application of the Company’s adoption of the new accounting standard that amends the presentation of net periodic pension and postretirement benefit costs. This adoption resulted in an increase in Cost of sales of
(C)The weighted average common shares outstanding used to calculate earnings per share for the three and six months ended
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||||||||||
CABOT CORPORATION SUMMARY RESULTS BY SEGMENT | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions, except per share amounts (unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Sales | ||||||||||||||||
Reinforcement Materials | $ | 445 | $ | 454 | $ | 902 | $ | 841 | ||||||||
Performance Chemicals | 254 | 268 | 485 | 497 | ||||||||||||
Performance Additives (A) | 179 | 177 | 346 | 336 | ||||||||||||
Formulated Solutions (A) | 75 | 91 | 139 | 161 | ||||||||||||
Purification Solutions | 72 | 66 | 137 | 136 | ||||||||||||
Specialty Fluids | 24 | 6 | 43 | 12 | ||||||||||||
Segment sales | 795 | 794 | 1,567 | 1,486 | ||||||||||||
Unallocated and other (B) | 49 | 24 | 98 | 52 | ||||||||||||
Net sales and other operating revenues | $ | 844 | $ | 818 | $ | 1,665 | $ | 1,538 | ||||||||
Segment Earnings Before Interest and Taxes (C) | ||||||||||||||||
Reinforcement Materials | $ | 61 | $ | 79 | $ | 123 | $ | 141 | ||||||||
Performance Chemicals | 38 | 57 | 74 | 104 | ||||||||||||
Purification Solutions | 1 | (6 | ) | (2 | ) | — | ||||||||||
Specialty Fluids | 12 | (3 | ) | 22 | (5 | ) | ||||||||||
Total Segment Earnings Before Interest and Taxes | 112 | 127 | 217 | 240 | ||||||||||||
Unallocated and Other | ||||||||||||||||
Interest expense | (14 | ) | (14 | ) | (29 | ) | (27 | ) | ||||||||
Certain items (D) | (37 | ) | (264 | ) | (47 | ) | (257 | ) | ||||||||
Unallocated corporate costs | (13 | ) | (16 | ) | (25 | ) | (30 | ) | ||||||||
General unallocated income (expense) (E) | 1 | (3 | ) | 3 | (3 | ) | ||||||||||
Less: Equity in earnings of affiliated companies | — | (1 | ) | — | (2 | ) | ||||||||||
Income (loss) from continuing operations before income taxes and equity in
|
49 | (171 | ) | 119 | (79 | ) | ||||||||||
(Provision) benefit for income taxes (including tax certain items) | (20 | ) | 7 | (13 | ) | (198 | ) | |||||||||
Equity in earnings of affiliated companies | — | 1 | — | 2 | ||||||||||||
Net income (loss) | 29 | (163 | ) | 106 | (275 | ) | ||||||||||
Net income attributable to noncontrolling interests | 6 | 10 | 14 | 20 | ||||||||||||
Net income (loss) attributable to Cabot Corporation | $ | 23 | $ | (173 | ) | $ | 92 | $ | (295 | ) | ||||||
Diluted earnings per share of common stock attributable to Cabot Corporation |
||||||||||||||||
Net income (loss) attributable to Cabot Corporation (F) | $ | 0.39 | $ | (2.80 | ) | $ | 1.53 | $ | (4.78 | ) | ||||||
Adjusted earnings per share | ||||||||||||||||
Adjusted EPS (G) | $ | 0.99 | $ | 1.04 | $ | 1.86 | $ | 1.97 | ||||||||
Weighted average common shares outstanding | ||||||||||||||||
Diluted (F) | 59.3 | 61.8 | 59.7 | 61.8 | ||||||||||||
(A)In
(B)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. Beginning in fiscal 2019 as part of the adoption of the new accounting standard for revenue recognition, the Company now presents revenue from by-products produced in manufacturing operations in Unallocated and other.
(C)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.
(D)Details of Certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.
(E)General unallocated income (expense) includes foreign currency transaction gains (losses), interest income, dividend income and the profit related to the corporate adjustment for unearned revenue.
(F)The weighted average common shares outstanding used to calculate earnings per share for the three and six months ended
(G)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.
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||
Dollars in millions (unaudited) | March 31, 2019 |
September 30, 2018 |
||||
Current assets: | ||||||
Cash and cash equivalents | $ | 176 | $ | 175 | ||
Accounts and notes receivable, net of reserve for doubtful accounts of $5 and $7 | 555 | 637 | ||||
Inventories: | ||||||
Raw materials | 139 | 129 | ||||
Work in process | 1 | 3 | ||||
Finished goods | 363 | 329 | ||||
Other | 51 | 50 | ||||
Total inventories | 554 | 511 | ||||
Prepaid expenses and other current assets | 59 | 63 | ||||
Assets held for sale | 179 | — | ||||
Total current assets | 1,523 | 1,386 | ||||
Property, plant and equipment, net | 1,297 | 1,296 | ||||
Goodwill | 91 | 93 | ||||
Equity affiliates | 38 | 52 | ||||
Intangible assets, net | 93 | 98 | ||||
Assets held for rent | — | 118 | ||||
Deferred income taxes | 158 | 134 | ||||
Other assets | 72 | 67 | ||||
Total assets | $ | 3,272 | $ | 3,244 | ||
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||||
Dollars in millions, except share and per share amounts (unaudited) | March 31, 2019 |
September 30, 2018 |
||||||
Current liabilities: | ||||||||
Short-term borrowings | $ | 576 | $ | 249 | ||||
Accounts payable and accrued liabilities | 529 | 613 | ||||||
Income taxes payable | 2 | 29 | ||||||
Current portion of long-term debt | 5 | 35 | ||||||
Liabilities held for sale | 21 | — | ||||||
Redeemable preferred stock | — | 26 | ||||||
Total current liabilities | 1,133 | 952 | ||||||
Long-term debt | 672 | 719 | ||||||
Deferred income taxes | 42 | 42 | ||||||
Other liabilities | 193 | 252 | ||||||
Stockholders' equity: | ||||||||
Preferred stock: | ||||||||
Authorized: 2,000,000 shares of $1 par value |
— | — | ||||||
Common stock: | ||||||||
Authorized: 200,000,000 shares of $1 par value | ||||||||
Issued: 58,644,974 and 60,566,375 shares | ||||||||
Outstanding: 58,449,603 and 60,366,569 shares | 59 | 61 | ||||||
Less cost of 195,371 and 199,806 shares of common treasury stock | (7 | ) | (7 | ) | ||||
Additional paid-in capital | — | — | ||||||
Retained earnings | 1,367 | 1,417 | ||||||
Accumulated other comprehensive income | (315 | ) | (317 | ) | ||||
Total Cabot Corporation stockholders' equity | 1,104 | 1,154 | ||||||
Noncontrolling interests | 128 | 125 | ||||||
Total stockholders' equity | 1,232 | 1,279 | ||||||
Total liabilities and stockholders' equity | $ | 3,272 | $ | 3,244 | ||||
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||||||||||||||||||||||||||||||||
CABOT CORPORATION QUARTERLY RESULTS BY SEGMENT | ||||||||||||||||||||||||||||||||||||||
Fiscal 2018 | Fiscal 2019 | |||||||||||||||||||||||||||||||||||||
Dollars in millions, except per share amounts (unaudited) |
Dec. Q | Mar. Q | June Q | Sept. Q | FY | Dec. Q | Mar. Q | June Q | Sept. Q | FY | ||||||||||||||||||||||||||||
Sales | ||||||||||||||||||||||||||||||||||||||
Reinforcement Materials | $ | 387 | $ | 454 | $ | 466 | $ | 467 | $ | 1,774 | $ | 457 | $ | 445 | $ ― | $ ― | $ | 902 | ||||||||||||||||||||
Performance Chemicals | 229 | 268 | 274 | 257 | 1,028 | 231 | 254 | — | — | 485 | ||||||||||||||||||||||||||||
Performance Additives (A) | 159 | 177 | 188 | 183 | 707 | 167 | 179 | — | — | 346 | ||||||||||||||||||||||||||||
Formulated Solutions (A) | 70 | 91 | 86 | 74 | 321 | 64 | 75 | — | — | 139 | ||||||||||||||||||||||||||||
Purification Solutions | 70 | 66 | 70 | 73 | 279 | 65 | 72 | — | — | 137 | ||||||||||||||||||||||||||||
Specialty Fluids | 6 | 6 | 12 | 21 | 45 | 19 | 24 | — | — | 43 | ||||||||||||||||||||||||||||
Segment sales | 692 | 794 | 822 | 818 | 3,126 | 772 | 795 | — | — | 1,567 | ||||||||||||||||||||||||||||
Unallocated and other (B) | 28 | 24 | 32 | 32 | 116 | 49 | 49 | — | — | 98 | ||||||||||||||||||||||||||||
Net sales and other operating revenues | $ | 720 | $ | 818 | $ | 854 | $ | 850 | $ | 3,242 | $ | 821 | $ | 844 | $ ― | $ ― | $ | 1,665 | ||||||||||||||||||||
Segment Earnings Before Interest and Taxes (C) | ||||||||||||||||||||||||||||||||||||||
Reinforcement Materials | $ | 62 | $ | 79 | $ | 74 | $ | 64 | $ | 279 | $ | 62 | $ | 61 | $ ― | $ ― | $ | 123 | ||||||||||||||||||||
Performance Chemicals | 47 | 57 | 56 | 40 | 200 | 36 | 38 | — | — | 74 | ||||||||||||||||||||||||||||
Purification Solutions | 6 | (6 | ) | (6 | ) | (1 | ) | (7 | ) | (3 | ) | 1 | — | — | (2 | ) | ||||||||||||||||||||||
Specialty Fluids | (2 | ) | (3 | ) | 3 | 10 | 8 | 10 | 12 | — | — | 22 | ||||||||||||||||||||||||||
Total Segment Earnings Before Interest and Taxes | 113 | 127 | 127 | 113 | 480 | 105 | 112 | — | — | 217 | ||||||||||||||||||||||||||||
Unallocated and Other | ||||||||||||||||||||||||||||||||||||||
Interest expense | (13 | ) | (14 | ) | (14 | ) | (13 | ) | (54 | ) | (15 | ) | (14 | ) | — | — | (29 | ) | ||||||||||||||||||||
Certain items (D) | 7 | (264 | ) | (3 | ) | 12 | (248 | ) | (10 | ) | (37 | ) | — | — | (47 | ) | ||||||||||||||||||||||
Unallocated corporate costs | (14 | ) | (16 | ) | (15 | ) | (16 | ) | (61 | ) | (12 | ) | (13 | ) | — | — | (25 | ) | ||||||||||||||||||||
General unallocated income (expense) (E) | — | (3 | ) | — | 5 | 2 | 2 | 1 | — | — | 3 | |||||||||||||||||||||||||||
Less: Equity in earnings of affiliated companies | (1 | ) | (1 | ) | — | — | (2 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and | ||||||||||||||||||||||||||||||||||||||
equity in earnings of affiliated companies | 92 | (171 | ) | 95 | 101 | 117 | 70 | 49 | — | — | 119 | |||||||||||||||||||||||||||
— | — | — | — | |||||||||||||||||||||||||||||||||||
(Provision) benefit for income taxes (including tax certain items) | (205 | ) | 7 | 4 | 1 | (193 | ) | 7 | (20 | ) | — | — | (13 | ) | ||||||||||||||||||||||||
Equity in earnings of affiliated companies | 1 | 1 | — | — | 2 | — | — | — | — | — | ||||||||||||||||||||||||||||
Net income (loss) | (112 | ) | (163 | ) | 99 | 102 | (74 | ) | 77 | 29 | — | — | 106 | |||||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interests | 10 | 10 | 11 | 8 | 39 | 8 | 6 | — | — | 14 | ||||||||||||||||||||||||||||
Net income (loss) attributable to Cabot Corporation | $ | (122 | ) | $ | (173 | ) | $ | 88 | $ | 94 | $ | (113 | ) | $ | 69 | $ | 23 | $ ― | $ ― | $ | 92 | |||||||||||||||||
Diluted earnings per share of common stock attributable to Cabot Corporation |
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Net income (loss) attributable to Cabot Corporation (F) | $ | (1.98 | ) | $ | (2.80 | ) | $ | 1.40 | $ | 1.51 | $ | (1.85 | ) | $ | 1.14 | $ | 0.39 | $ | — | $ | — | $ | 1.53 | |||||||||||||||
Adjusted earnings per share | ||||||||||||||||||||||||||||||||||||||
Adjusted EPS (G) | $ | 0.93 | $ | 1.04 | $ | 1.06 | $ | 1.00 | $ | 4.03 | $ | 0.87 | $ | 0.99 | $ | — | $ | — | $ | 1.86 | ||||||||||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||||||||||||||||||
Diluted (F) | 61.9 | 61.8 | 62.3 | 61.7 | 61.7 | 60.1 | 59.3 | — | — | 59.7 | ||||||||||||||||||||||||||||
(A)In
(B)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. Beginning in fiscal 2019 as part of the adoption of the new accounting standard for revenue recognition, the Company now presents revenue from by-products produced in manufacturing operations in Unallocated and other.
(C)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.
(D)Details of certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.
(E)General unallocated income (expense) includes foreign currency transaction gains (losses), interest income, dividend income and the profit related to the corporate adjustment for unearned revenue.
(F)The weighted average common shares outstanding used to calculate earnings per share for all periods in fiscal 2018, except for the three months ended
(G)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.
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||||||||||
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions (unaudited) |
2019 |
2018 |
2019 |
2018 |
||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net income (loss) | $ | 29 | $ | (163 | ) | $ | 106 | $ | (275 | ) | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 38 | 40 | 73 | 79 | ||||||||||||
Other non-cash charges, net | 26 | 233 | 14 | 424 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Changes in certain working capital items (A) | 22 | (65 | ) | (89 | ) | (115 | ) | |||||||||
Changes in other assets and liabilities, net | (26 | ) | (12 | ) | (55 | ) | (39 | ) | ||||||||
Cash dividends received from equity affiliates | 1 | 3 | 2 | 7 | ||||||||||||
Cash provided by (used in) operating activities | 90 | 36 | 51 | 81 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Additions to property, plant and equipment | (43 | ) | (57 | ) | (97 | ) | (109 | ) | ||||||||
Cash paid for acquisition of business, net of cash acquired of $—, $—, $— and $1 | — | — | — | (64 | ) | |||||||||||
Other investing activities, net | (1 | ) | 1 | (1 | ) | 16 | ||||||||||
Cash used in investing activities | (44 | ) | (56 | ) | (98 | ) | (157 | ) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Change in debt, net | 59 | 9 | 251 | 9 | ||||||||||||
Cash dividends paid to common stockholders | (20 | ) | (19 | ) | (40 | ) | (39 | ) | ||||||||
Other financing activities, net | (55 | ) | (5 | ) | (153 | ) | (21 | ) | ||||||||
Cash used in financing activities | (16 | ) | (15 | ) | 58 | (51 | ) | |||||||||
Effect of exchange rates on cash | 4 | 25 | (10 | ) | 26 | |||||||||||
Increase (decrease) in cash and cash equivalents | 34 | (10 | ) | 1 | (101 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 142 | 189 | 175 | 280 | ||||||||||||
Cash and cash equivalents at end of period | $ | 176 | $ | 179 | $ | 176 | $ | 179 | ||||||||
(A)Includes Accounts and notes receivable, Inventories, and Accounts payable and accrued liabilities.
CABOT CORPORATION CERTAIN ITEMS AND RECONCILIATION OF ADJUSTED EPS AND OPERATING TAX RATE | ||||||||||||||||
TABLE 1: DETAIL OF CERTAIN ITEMS | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions, except per share amounts (unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Certain items before and after income taxes |
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Specialty Fluids held for sale asset impairment charge | $ | (20 | ) | $ ― | $ | (20 | ) | $ ― | ||||||||
Equity affiliate investment impairment charge | (11 | ) | — | (11 | ) | — | ||||||||||
Purification Solutions goodwill and long-lived asset impairment charge | — | (254 | ) | — | (254 | ) | ||||||||||
Inventory reserve adjustment | — | (13 | ) | — | (13 | ) | ||||||||||
Global restructuring activities | (2 | ) | 9 | (11 | ) | 8 | ||||||||||
Legal and environmental matters and reserves | (1 | ) | (5 | ) | (1 | ) | (6 | ) | ||||||||
Gains (losses) on sale of investments | — | — | — | 10 | ||||||||||||
Acquisition and integration-related charges | (1 | ) | (1 | ) | (4 | ) | (1 | ) | ||||||||
Other certain items | (2 | ) | — | — | (1 | ) | ||||||||||
Total certain items, pre-tax | (37 | ) | (264 | ) | (47 | ) | (257 | ) | ||||||||
Tax impact of certain items (A) | 1 | 32 | 3 | 30 | ||||||||||||
Certain items after tax (excluding discrete tax items) | (36 | ) | (232 | ) | (44 | ) | (227 | ) | ||||||||
Certain items after tax per share impact (excluding discrete tax items) | $ | (0.59 | ) | $ | (3.73 | ) | $ | (0.73 | ) | $ | (3.64 | ) | ||||
Tax-related certain items | ||||||||||||||||
Discrete tax items | — | (5 | ) | 24 | (190 | ) | ||||||||||
Total tax-related certain items | — | (5 | ) | 24 | (190 | ) | ||||||||||
Total tax-related certain items per share impact | (0.01 | ) | (0.09 | ) | 0.40 | (3.07 | ) | |||||||||
Total certain items after tax | $ | (36 | ) | $ | (237 | ) | $ | (20 | ) | $ | (417 | ) | ||||
Total certain items after tax per share impact | $ | (0.60 | ) | $ | (3.82 | ) | $ | (0.33 | ) | $ | (6.71 | ) |
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS LINE ITEM | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions, Pre-Tax (unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Statement of Operations Line Item (B) |
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Cost of sales | $ | (5 | ) | $ | (8 | ) | $ | (10 | ) | $ | (11 | ) | ||||
Selling and administrative expenses | — | (2 | ) | (7 | ) | (2 | ) | |||||||||
Research and technical expenses | — | — | (1 | ) | — | |||||||||||
Other income (expense) | (12 | ) | — | (9 | ) | 10 | ||||||||||
Specialty Fluids held for sale asset impairment charge | (20 | ) | — | (20 | ) | — | ||||||||||
Purification Solutions long-lived assets impairment charge | — | (162 | ) | — | (162 | ) | ||||||||||
Purification Solutions goodwill impairment charge | — | (92 | ) | — | (92 | ) | ||||||||||
Total certain items, pre-tax | $ | (37 | ) | $ | (264 | ) | $ | (47 | ) | $ | (257 | ) |
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS | ||||||||||||||||
Periods ended March 31 | Three Months | Six Months | ||||||||||||||
Dollars in millions (unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Reconciliation of Provision for income taxes, excluding certain items, to Provision for income taxes |
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(Provision) benefit for income taxes | $ | (20 | ) | $ | 7 | $ | (13 | ) | $ | (198 | ) | |||||
Less: Tax impact of certain items | 1 | 32 | 3 | 30 | ||||||||||||
Less: Tax-related certain items | — | (5 | ) | 24 | (190 | ) | ||||||||||
(Provision) benefit for income taxes, excluding certain items | $ | (21 | ) | $ | (20 | ) | $ | (40 | ) | $ | (38 | ) |
TABLE 4: RECONCILIATION OF OPERATING TAX RATE | |||||||||||||||||||
Periods ended March 31 | Three Months | Six Months | Forecast | ||||||||||||||||
Dollars in millions (unaudited) | 2019 | 2018 | 2019 | 2018 | 2019 | ||||||||||||||
Reconciliation of the effective tax rate to the operating tax rate (C) |
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(Provision) benefit for income taxes | $ | (20 | ) | $ | 7 | $ | (13 | ) | $ | (198 | ) | N/A | |||||||
Effective tax rate | 41 | % | 4 | % | 11 | % | (248 | )% | 20 | % | |||||||||
Impact of discrete tax items: (D) | |||||||||||||||||||
Unusual or infrequent items | (1 | )% | (15 | )% | 17 | % | 238 | % | 6 | % | |||||||||
Items related to uncertain tax positions | 1 | % | — | % | 3 | % | 2 | % | 1 | % | |||||||||
Other discrete tax items | (1 | )% | — | % | — | % | — | % | — | % | |||||||||
Impact of certain items | (16 | )% | 32 | % | (7 | )% | 29 | % | (3 | )% | |||||||||
Operating tax rate | 24 | % | 21 | % | 24 | % | 21 | % | 24 | % |
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FOR FISCAL 2019 and FISCAL 2018 | ||||||||||||||||||
Fiscal 2019 (E) | ||||||||||||||||||
Periods ended (unaudited) | Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||
Reconciliation of Adjusted EPS to GAAP EPS |
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Net income (loss) per share attributable to Cabot Corporation | $ | 1.14 | $ | 0.39 | $ | — | $ | — | $ | 1.53 | ||||||||
Less: Certain items after tax per share | 0.27 | (0.60 | ) | — | — | (0.33 | ) | |||||||||||
Adjusted earnings per share | $ | 0.87 | $ | 0.99 | $ | — | $ | — | $ | 1.86 | ||||||||
Fiscal 2018 (E) | ||||||||||||||||||
Periods ended (unaudited) |
Dec. Q | Mar. Q | June Q | Sept. Q | FY 2018 | |||||||||||||
Reconciliation of Adjusted EPS to GAAP EPS |
||||||||||||||||||
Net income (loss) per share attributable to Cabot Corporation | $ | (1.98 | ) | $ | (2.80 | ) | $ | 1.40 | $ | 1.51 | $ | (1.85 | ) | |||||
Less: Certain items after tax per share | (2.89 | ) | (3.82 | ) | 0.34 | 0.51 | (5.86 | ) | ||||||||||
Less: Dilutive impact of shares (F) | (0.02 | ) | (0.02 | ) | — | — | (0.02 | ) | ||||||||||
Adjusted earnings per share | $ | 0.93 | $ | 1.04 | $ | 1.06 | $ | 1.00 | $ | 4.03 | ||||||||
|
(A)The tax effect of certain items is determined by (1) starting with the current and deferred income tax expense or benefit, included in Net income attributable to
(B)This table indicates the line items where certain items are recorded in the Consolidated Statements of Operations.
(C)For fiscal year 2019, the Effective tax rate and Operating tax rate are expected to be in a range of 19% to 21% and 23% to 25%, respectively. The discrete tax items have the same impact on these ranges. The table provided reconciles to the mid-point of these ranges.
(D)For the three and six months ended
(E)Per share amounts are calculated after tax and, where applicable, noncontrolling interest, net of tax.
(F)Due to the Company’s net loss position, GAAP EPS for all periods in fiscal 2018, except for the three months ended
Second Quarter Earnings Announcement, Fiscal 2019 | ||||||||||||||||||||
CABOT CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||||||||||||||
Fiscal 2019 (A) | ||||||||||||||||||||
Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | ||||||||||||||||
Reconciliation of Adjusted EPS to GAAP EPS |
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Net income (loss) per share attributable to Cabot Corporation | $ | 1.14 | $ | 0.39 | $ | — | $ | — | $ | 1.53 | ||||||||||
Less: Certain items after tax | 0.27 | (0.60 | ) | — | — | (0.33 | ) | |||||||||||||
Adjusted earnings per share | $ | 0.87 | $ | 0.99 | $ | — | $ | — | $ | 1.86 | ||||||||||
(A)Per share amounts are calculated after tax and, where applicable, noncontrolling interest, net of tax. | ||||||||||||||||||||
Dollars in millions | Fiscal 2019 | |||||||||||||||||||
Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | ||||||||||||||||
Reconciliation of Segment EBIT to Net Income and Segment EBITDA Margin |
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Net income (loss) attributable to Cabot Corporation | $ | 69 | $ | 23 | $ ― | $ ― | $ | 92 | ||||||||||||
Net income (loss) attributable to noncontrolling interests | 8 | 6 | — | — | 14 | |||||||||||||||
Equity in earnings of affiliated companies, net of tax | — | — | — | — | — | |||||||||||||||
Provision (benefit) for income taxes | (7 | ) | 20 | — | — | 13 | ||||||||||||||
Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies | $ | 70 | $ | 49 | $ ― | $ ― | $ | 119 | ||||||||||||
Interest expense | 15 | 14 | — | — | 29 | |||||||||||||||
Certain items | 10 | 37 | — | — | 47 | |||||||||||||||
Unallocated corporate costs | 12 | 13 | — | — | 25 | |||||||||||||||
General unallocated (income) expense | (2 | ) | (1 | ) | — | — | (3 | ) | ||||||||||||
Equity in earnings of affiliated companies | — | — | — | — | — | |||||||||||||||
Total Segment EBIT | $ | 105 | $ | 112 | $ ― | $ ― | $ | 217 | ||||||||||||
Plus: Total Depreciation & Amortization | 35 | 38 | — | — | 73 | |||||||||||||||
Plus: Adjustments to Depreciation (B) | — | (1 | ) | — | — | (1 | ) | |||||||||||||
Total Segment EBITDA | $ | 140 | $ | 149 | $ ― | $ ― | $ | 289 | ||||||||||||
Less: Unallocated Corporate Costs | (12 | ) | (13 | ) | — | — | (25 | ) | ||||||||||||
Adjusted EBITDA | $ | 128 | $ | 136 | $ ― | $ ― | $ | 264 | ||||||||||||
(B)Adjustments to depreciation includes the addition of the depreciation expense of a contractual joint venture in Purification Solutions less accelerated depreciation expense not allocated to a business. | ||||||||||||||||||||
Dollars in millions | Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||||
Reinforcement Materials EBIT | $ | 62 | $ | 61 | $ ― | $ ― | $ | 123 | ||||||||||||
Plus: Depreciation & Amortization | 16 | 17 | — | — | 33 | |||||||||||||||
Reinforcement Materials EBITDA | $ | 78 | $ | 78 | $ ― | $ ― | $ | 156 | ||||||||||||
Reinforcement Materials Sales | $ | 457 | $ | 445 | $ ― | $ ― | $ | 902 | ||||||||||||
Reinforcement Materials EBITDA Margin | 17 | % | 18 | % | — | % | — | % | 17 | % | ||||||||||
Dollars in millions | Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||||
Performance Chemicals EBIT | $ | 36 | $ | 38 | $ ― | $ ― | $ | 74 | ||||||||||||
Plus: Depreciation & Amortization | 12 | 13 | — | — | 25 | |||||||||||||||
Performance Chemicals EBITDA | $ | 48 | $ | 51 | $ ― | $ ― | $ | 99 | ||||||||||||
Performance Chemicals Sales | $ | 231 | $ | 254 | $ ― | $ ― | $ | 485 | ||||||||||||
Performance Chemicals EBITDA Margin | 21 | % | 20 | % | — | % | — | % | 20 | % | ||||||||||
Dollars in millions | Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||||
Purification Solutions EBIT | $ | (3 | ) | $ | 1 | $ ― | $ ― | $ | (2 | ) | ||||||||||
Plus: Depreciation & Amortization | 6 | 7 | — | — | 13 | |||||||||||||||
Purification Solutions EBITDA | $ | 3 | $ | 8 | $ ― | $ ― | $ | 11 | ||||||||||||
Purification Solutions Sales | $ | 65 | $ | 72 | $ ― | $ ― | $ | 137 | ||||||||||||
Purification Solutions EBITDA Margin | 5 | % | 11 | % | — | % | — | % | 8 | % | ||||||||||
Dollars in millions | Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||||
Specialty Fluids EBIT | $ | 10 | $ | 12 | $ ― | $ ― | $ | 22 | ||||||||||||
Plus: Depreciation & Amortization | 1 | — | — | — | 1 | |||||||||||||||
Specialty Fluids EBITDA | $ | 11 | $ | 12 | $ ― | $ ― | $ | 23 | ||||||||||||
Specialty Fluids Sales | $ | 19 | $ | 24 | $ ― | $ ― | $ | 43 | ||||||||||||
Specialty Fluids EBITDA Margin | 58 | % | 50 | % | — | % | — | % | 53 | % | ||||||||||
Dollars in millions | Fiscal 2019 | |||||||||||||||||||
Reconciliation of Discretionary Free Cash Flow |
Dec. Q | Mar. Q | June Q | Sept. Q | FY 2019 | |||||||||||||||
Cash flow from operating activities (C) | $ | (39 | ) | $ | 90 | $ ― | $ ― | $ | 51 | |||||||||||
Less: Changes in net working capital (D) | (111 | ) | 22 | — | — | (89 | ) | |||||||||||||
Less: Sustaining and compliance capital expenditures | 27 | 21 | — | — | 48 | |||||||||||||||
Discretionary Free Cash Flow | $ | 45 | $ | 47 | $ ― | $ ― | $ | 92 | ||||||||||||
(C)As provided in the Condensed Consolidated Statements of Cash Flows. | ||||||||||||||||||||
(D)Defined as changes in accounts receivable, inventory and accounts payable and accrued liabilities as presented on the Condensed Consolidated Statements of Cash Flows. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190506005789/en/
Source:
Investor Contact:
Steve Delahunt
(617) 342-6255