Cabot Corp Reports Third Quarter Adjusted EPS of $0.84 and Diluted EPS of $0.90
Cabot Corp Reports Third Quarter Adjusted EPS of $0.84 and Diluted EPS of $0.90
Third quarter adjusted EPS improved 33% sequentially as volumes recover
- Total Segment EBIT increased 25% sequentially and 2% year over year as demand improved in many of our end markets
- Record Advanced Technologies segment operating results
- Reduced net working capital by $30 million and reduced debt by $61 million
- Acquisition of NHUMO will help strengthen the company's position in North America
|(In millions, except per share amounts)||Fiscal 2013||Fiscal 2012|
|Net income attributable to Cabot Corporation||$||59||$||106||$||66||$||352|
|Net earnings per share attributable to Cabot Corporation||$||0.90||$||1.63||$||1.02||$||5.43|
|Net income per share from discontinued operations||$||0.04||$||0.02||$||0.06||$||3.14|
|Certain items per share||$||0.02||$||(0.52)||$||(0.04)||$||(0.30)|
Commenting on the results, Cabot President and CEO Patrick Prevost, said, "We experienced a sequential and year over year increase in volumes as demand in many of our end markets improved. Additionally, our Advanced Technologies segment delivered record-setting EBIT. We were also pleased with the early results of a corporate-wide initiative to reduce net working capital and generate cash. The initiative resulted in a net working capital improvement of $30 million this quarter, but caused an $8 million unfavorable impact to our operating results through the reduction of inventory. Our earnings were also unfavorably impacted by a $3 million LIFO accounting charge. Finally, the near-term challenges in the North American mercury-removal end market continue to affect performance of the Purifications Solutions segment."
Prevost, continued, "This was our first quarter of broadly improving volumes since early 2011. The restructuring activities we previously announced in Advanced Technologies are contributing positively to the results. This quarter, we announced the closure of our carbon black facility in Malaysia. We have now ceased operations and we are on track with the plant closure plan. We also announced the intention to purchase the remaining common shares of our Mexican joint venture NHUMO. Once completed, the acquisition of our joint venture in Mexico is expected to be accretive by $0.15 in the first year and will give us expanded access to an important growth market in Mexico and additional capacity to support the expansion of our customers in North America."
For the third quarter of fiscal 2013, net income attributable to Cabot Corporation was $59 million ($0.90 per diluted common share). Net income includes a per share benefit of $0.04 from discontinued operations and $0.02 from certain items, principally for favorable discrete tax items. Adjusted EPS for the third quarter of fiscal 2013 was $0.84 per share.
Total Segment EBIT for the third quarter of fiscal 2013 was $111 million as compared to $109 million for the third quarter of fiscal 2012. General unallocated income (expense) includes a $3 million LIFO accounting charge during the third quarter of fiscal 2013 as compared to a benefit of $5 million during the third quarter of fiscal 2012. Thus, LIFO accounting resulted is an $8 million unfavorable change between the two comparative periods.
Reinforcement Materials -- Third quarter fiscal 2013 EBIT in Reinforcement Materials decreased by $11 million compared to the same quarter of fiscal 2012 due to lower pricing in Asia and Europe and higher costs associated with the reduction of inventory levels. Volumes increased 4% as compared to the prior year from a recovery in most regions. Sequentially, EBIT increased $7 million driven by 8% higher volumes. The higher volumes were partially offset by lower margins in Japan, increased maintenance activity and higher costs associated with the reduction of inventory levels.
Global and regional volume changes for Reinforcement Materials for the third quarter of fiscal 2013 as compared to the same quarter of the prior year and the second quarter of fiscal 2013 are included in the table below:
Year over Year Change
|Europe, Middle East, Africa||10%||1%|
Performance Materials -- Third quarter fiscal 2013 EBIT in Performance Materials decreased by $3 million compared to the third quarter of fiscal 2012. The decrease was driven by 11% lower Specialty Carbons and Compounds volumes as global infrastructure-related spending remains soft, which impacted customer order patterns. The segment also incurred higher costs associated with the reduction in inventory levels. These unfavorable items were partially offset by 12% higher volumes in Fumed Metal Oxides from new product introductions and the successful commercialization of new capacity. Sequentially, Performance Materials EBIT decreased by $2 million, principally due to 7% lower volumes in Specialty Carbons and Compounds and higher costs associated with the reduction in inventory levels. These increases were partially offset by 6% higher volumes in Fumed Metal Oxides.
Advanced Technologies -- For the third quarter of fiscal 2013, EBIT in Advanced Technologies increased by $15 million compared to the third quarter of fiscal 2012 and $19 million sequentially. The EBIT increases for both comparative periods were driven by higher rental activity and direct sales in Specialty Fluids, improved volumes in Inkjet Colorants, Elastomer Composites and Aerogel, and cost savings from segment restructuring actions announced earlier this year.
Purification Solutions -- On July 31, 2012, we completed the acquisition of Norit N.V. For the third quarter of fiscal 2013, EBIT in Purification Solutions was $1 million.
Stand-alone Purification Solutions financial results, excluding purchase accounting impacts, for the quarter ended June 30, 2013, resulted in adjusted EBITDA of $14 million, which is a decrease of $9 million compared to the same quarter of fiscal 2012. Sequentially, adjusted EBITDA decreased $2 million as compared to the second quarter of fiscal 2013. The decreases in adjusted EBITDA in both comparative periods were due to lower volumes and pricing in the gas and air purification end market, higher maintenance activity, and higher costs associated with the reduction in inventory levels. Sequentially, volumes increased 9% despite the lower volumes in the gas and air end market, driven by the water, chemicals and food and beverage end markets.
Cash Performance -- The Company ended the third quarter of fiscal 2013 with a cash balance of $76 million, a decrease of $9 million from the second quarter of fiscal 2013. The Company spent $68 million on capital expenditures and reduced debt by $61 million. Sources of cash include adjusted EBITDA of $145 million, a decrease in net working capital of $30 million and the collection of $10 million of proceeds from the sale of the Supermetals business.
Taxes -- During the third quarter of fiscal 2013, the Company recorded a net tax provision of $16 million for an effective tax rate of 22%. Excluding the impact of certain items, the operating tax rate on continuing operations for the third quarter of fiscal 2013 was 27%.
"We are pleased with the recent positive demand trends in a number of our end markets around the globe and we remain well positioned to capture volume growth," Prevost said, commenting on the outlook for the Company. "The tire industry is showing signs of improvements in Europe and South America and remained solid in North America and fairly robust in China. The Purifications Solutions business continues to show strong growth in most end applications, but the North American mercury-removal sector will continue to be challenging through fiscal 2014. We expect continued momentum in the Fumed Metal Oxides business and should see improvement in Specialty Carbons and Compounds after some recent end market destocking volatility. Finally, we are pleased with the potential shown by the growing demand in the various Advanced Technologies businesses. After a difficult start to the fiscal year, we are somewhat optimistic after seeing signs of demand improvement in most of our global businesses."
The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Thursday, August 1, 2013. The call can be accessed through Cabot's investor relations website at http://investor.cabot-corp.com.
About Cabot Corporation
Cabot Corporation (NYS: CBT) is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, aerogel, and elastomer composites. For more information on Cabot, please visit the company's website at: http://www.cabotcorp.com.
Forward-Looking Statements -- This earnings release contains forward-looking statements based on management's current expectations, estimates and projections. All statements that address expectations or projections about the future, including our actions that will drive earnings growth, and demand for our products, including when we expect demand to recover and expectations for growth, and Cabot's expectations pertaining to the completion of the acquisition of the equity interest in Nhumo that we do not currently own and the benefits we expect to receive from the acquisition and Cabot's future financial performance, including expectations for growth, 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. Forward-looking statements are based on our current expectations, assumptions, estimates and projections about Cabot's businesses and strategies, market trends and conditions, economic conditions and other factors. These statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control and difficult to predict. If known or unknown risks materialize, or should underlying assumptions prove inaccurate, our actual results could differ materially from past results and from those expressed in the forward-looking statement. Important factors that could cause our results to differ materially from those expressed in the forward-looking statements include, but are not limited to changes in raw material costs; lower than expected demand for our products; the loss of one or more of our important customers; our inability to complete capacity expansions or other development projects as planned; the timing of implementation of environmental regulations; our failure to develop new products or to keep pace with technological developments; patent rights of others; the timely commercialization of products under development (which may be disrupted or delayed by technical difficulties, market acceptance, competitors' new products, as well as difficulties in moving from the experimental stage to the production stage); demand for our customers' products; competitors' reactions to market conditions; delays in the successful integration of structural changes, including acquisitions or joint ventures; the laws, regulations, policies and economic conditions, including inflation, interest and foreign currency exchange rates, of countries where we do business; and severe weather events that cause business interruptions, including plant and power outages or disruptions in supplier or customer operations. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly our latest annual report on Form 10-K.
Explanation of Terms Used and Use of Non-GAAP Financial Measures -- The preceding discussion of our results and the accompanying financial tables report adjusted EPS, total segment earnings before interest and taxes, "Total Segment EBIT", operating tax rate and adjusted EBITDA, which are non-GAAP financial measures. Our chief operating decision-maker uses these non-GAAP financial measures to evaluate the performance of the Company in terms of profitability. We believe that these measures also assist our investors in evaluating the changes in our results and the Company's performance.
In calculating adjusted EPS, we exclude from our net income per share from continuing operations certain items of expense and income that management does not consider representative of the Company's ongoing operations. Adjusted EPS should be considered as supplemental to, and not as a replacement for, EPS determined in accordance with GAAP. A reconciliation of adjusted EPS to EPS from continuing operations, the most directly comparable GAAP financial measure, and the certain items that are excluded from our calculation of adjusted EPS, are provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate."
Total Segment EBIT is a non-GAAP performance measure, and should not be considered an alternative for Income (loss) from continuing operations before taxes, the most directly comparable GAAP financial measure. In calculating Total Segment EBIT, we exclude "certain items", meaning items that management does not consider representative of our fundamental segment results, as well as items that are not allocated to our business segments, such as interest expense and other corporate costs. Our Chief Operating Decision Maker uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe that this non-GAAP measure provides useful supplemental information for our investors as it is an important indicator of the Company's operational strength and performance. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another. A reconciliation of Total Segment EBIT to Income (loss) from continuing operations before income taxes and equity in net earnings of affiliate companies is provided in the table titled, "Summary Results by Segments."
The term "operating tax rate" is a non-GAAP financial measure and represents the tax rate on our recurring operating results. This rate excludes discrete tax items, which are unusual or infrequent items that are excluded from the estimated annual effective tax rate and other tax items, including the impact of the timing of losses in certain jurisdictions, cumulative rate adjustment and the impact of certain items on both operating income and tax provision. A reconciliation of operating tax rate to effective tax rate , the most directly comparable GAAP financial measure is provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate."
"Adjusted EBITDA" is a non-GAAP financial measure and refers to earnings before interest, taxes, depreciation and amortization, excluding items that management does not consider representative of the fundamental segment results. A reconciliation of Adjusted EBITDA from segment EBIT for the third quarter of fiscal 2013 is provided on the investor portion of our website at http://investor.cabot-corp.com, under the Non-GAAP Reconciliations section.
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
|Periods ended June 30||Three Months||Nine Months|
|Dollars in millions, except per share amounts (unaudited)||2013||2012||2013||2012|
|Net sales and other operating revenues||$||903||$||846||$||2,565||$||2,452|
|Cost of sales||726||671||2,097||1,961|
|Selling and administrative expenses||73||68||223||199|
|Research and technical expenses||18||17||55||54|
|Income from operations||86||90||190||238|
|Other (expense) income|
|Interest and dividend income||2||1||4||3|
|Other (expense) income||-||(2||)||3||(2||)|
|Total other (expense) income||(13||)||(12||)||(40||)||(29||)|
Income from continuing operations before income taxes and equity in earnings of affiliated companies
|Provision for income taxes||(16||)||(16||)||(51||)||(55||)|
|Equity in earnings of affiliated companies||3||4||9||8|
|Income from continuing operations||60||66||108||162|
|Income from discontinued operations, net of tax (A)||2||4||1||204|
|Net income attributable to noncontrolling interests||3||4||3||14|
|Net income attributable to Cabot Corporation||$||59||$||66||$||106||$||352|
Diluted earnings per share of common stock attributable to Cabot Corporation
|Discontinued operations (A)||0.04||0.06||0.02||3.14|
|Net income attributable to Cabot Corporation||$||0.90||$||1.02||$||1.63||$||5.43|
|Weighted average common shares outstanding|
|(A) Amounts relate to the divesture of the Supermetals Business.|