Cabot Corp Reports Second Quarter Adjusted EPS of $0.63 and Diluted EPS of $0.42
Cabot Corp Reports Second Quarter Adjusted EPS of $0.63 and Diluted EPS of $0.42
Second quarter results in-line with first quarter of fiscal 2013 due to challenging economic environment.
- Demand remained soft, but signs of improvement with higher sequential volumes
- Performance Materials segment delivered strong results
- Asset optimization efforts result in closure of Malaysian carbon black joint venture
- Adjusted EPS target of $5.00 now expected to be delivered in fiscal 2015
|(In millions, except per share amounts)||Fiscal 2013||Fiscal 2012|
|Net income attributable to Cabot Corporation||$||27||$||47||$||240||$||286|
|Net earnings per share attributable to Cabot Corporation||$||0.42||$||0.73||$||3.70||$||4.41|
|Net income per share from discontinued operations||$||-||$||(0.02)||$||2.92||$||3.08|
|Certain items per share||$||(0.21)||$||(0.54)||$||(0.18)||$||(0.26)|
Commenting on the results, Cabot President and CEO Patrick Prevost, said, "The global macroeconomic environment remained challenging this quarter. Our second quarter results, which included a Reinforcement Materials plant disruption in Japan, were in-line with our first quarter of fiscal 2013. The plant disruption in Japan led to reduced volumes and impacted the business by $8 million pre-tax. We continue to pursue opportunities to improve our global efficiencies and we have announced the closure of our Malaysian carbon black operation. In light of the uncertain global economic environment, we remain focused on prudent cost and cash management."
Prevost continued, "We experienced a sequential improvement in demand in many of our businesses and we are pleased that our investments in fumed silica capacity are contributing to stronger results for our Performance Materials segment. We also saw a sequential increase in Specialty Fluids EBIT and the pipeline of new projects is improving. The Company remains focused on its value pricing initiatives and continues to see positive contributions from this effort."
For the second quarter of fiscal 2013, net income attributable to Cabot Corporation was $27 million ($0.42 per diluted common share). Net income includes a per share charge of $0.21, principally for restructuring costs. Adjusted EPS for the second quarter of fiscal 2013 was $0.63 per share.
Reinforcement Materials -- Second quarter fiscal 2013 EBIT in Reinforcement Materials decreased by $31 million compared to the same quarter of fiscal 2012 due to 9% lower volumes, a plant disruption in Japan and a more competitive environment in China and Europe. Sequentially, EBIT decreased $9 million primarily due to the plant disruption in Japan, which unfavorably affected the quarter by $8 million. Excluding the impact from the Japan plant disruption, sequential volumes increased 1%. The second quarter also included the unfavorable seasonal impact of Chinese New Year.
Global and regional volume changes for Reinforcement Materials for the second quarter of fiscal 2013 as compared to the same quarter of the prior year and the first quarter of fiscal 2013 are included in the table below:
Year over Year Change
|Europe, Middle East, Africa||(10%)||14%|
*Includes the impact from the plant disruption in the second quarter of fiscal 2013.
Performance Materials -- Second quarter fiscal 2013 EBIT in Performance Materials increased by $2 million compared to the second quarter of fiscal 2012. The increase was driven by 13% higher volumes in Fumed Metal Oxides from new product introductions and the successful commercialization of new capacity. These benefits were partially offset by 1% lower Specialty Carbons and Compounds volumes. Sequentially, Performance Materials EBIT increased by $11 million, principally due to 30% higher volumes in Specialty Carbons and Compounds and 6% higher volumes in Fumed Metal Oxides. These increases were partially offset by higher costs from a reduction in inventory levels.
Advanced Technologies -- For the second quarter of fiscal 2013, EBIT in Advanced Technologies decreased by $8 million compared to the second quarter of fiscal 2012. The EBIT decrease resulted principally from comparatively lower rental activity in Specialty Fluids. Sequentially, Advanced Technologies EBIT increased by $1 million principally due to improved performance in Specialty Fluids, which was partially offset by lower volumes in Inkjet Colorants, Aerogel and Elastomer Composites. Elastomer Composites received a technology milestone payment during the first quarter that did not repeat in the second quarter of fiscal 2013.
Purification Solutions -- On July 31, 2012, we completed the acquisition of Norit N.V. For the second quarter of fiscal 2013, EBIT in Purification Solutions was $3 million.
Stand-alone Purification Solutions financial results, excluding purchase accounting impacts, for the three months ended March 31, 2013, resulted in adjusted EBITDA of $16 million, which is a decrease of $9 million compared to the same quarter of fiscal 2012. The decrease in adjusted EBITDA was due to a 7% decline in volumes driven by lower sales to the gas and air purification end markets and the timing of $3 million in royalty fees that we expect to receive in the third quarter of fiscal 2013. Sequentially, adjusted EBITDA decreased $4 million as compared to the three months ended December 31, 2012. The decrease was driven by 13% lower volumes primarily due to the seasonality of sales to the water purification end market.
Cash Performance -- The Company ended the second quarter of fiscal 2013 with a cash balance of $85 million, a decrease of $6 million from the first quarter of fiscal 2013. The Company spent $64 million on capital expenditures and received an additional $11 million of proceeds from the sale of the Supermetals business.
Taxes -- During the second quarter of fiscal 2013, the Company recorded a net tax provision of $16 million for an effective tax rate of 43%. Excluding the impact of certain items, the operating tax rate on continuing operations for the second quarter of fiscal 2013 was 27%.
"We are anticipating a moderate demand recovery during calendar year 2013. We have seen some positive signs in a number of our markets around the globe, with the exception of Europe. We remain well positioned to capture volume growth as global demand returns to more normal levels," Prevost said, commenting on the outlook for the Company. "In addition, we continue to pursue opportunities to reduce our costs, improve the efficiency of our asset base and build upon our strong positions across our portfolio."
Prevost continued, "We are now halfway through our three-year plan to achieve our adjusted EPS target of $5.00 in fiscal 2014. Our plan assumed mid-cycle economic conditions and growth in emerging markets. Due to the ongoing weakness in Europe and reduced growth rates in emerging markets, we believe it will take an additional year to meet our objectives and we are targeting $5.00 of adjusted EPS in fiscal 2015. We continue to implement our strategic plan and remain focused on our value pricing strategy, investments in operational excellence and technology, completing our capacity expansion in China, and the introduction of new products."
The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Wednesday, May 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 ability to meet our long-term financial targets, actions that will drive earnings growth, and demand for our products, including when we expect demand to recover and 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 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, 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."
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 second 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 March 31||Three Months||Six Months|
|Dollars in millions, except per share amounts (unaudited)||2013||2012||2013||2012|
|Net sales and other operating revenues||$||842||$||844||$||1,662||$||1,606|
|Cost of sales||698||671||1,371||1,290|
|Selling and administrative expenses||77||66||150||131|
|Research and technical expenses||18||20||37||37|
|Income from operations||49||87||104||148|
|Other income and (expense)|
|Interest and dividend income||1||1||2||2|
|Other income (expense)||2||(3||)||3||—|
|Total other income and (expense)||(13||)||(11||)||(27||)||(17||)|
Income from continuing operations before income taxes and equity in net earnings of affiliated companies
|Provision for income taxes||(16||)||(23||)||(35||)||(39||)|
|Equity in net earnings of affiliated companies, net of tax||3||3||6||4|
|Income from continuing operations||23||56||48||96|
|Income (loss) from discontinued operations, net of tax (A)||-||189||(1||)||200|
|Net (loss) income attributable to noncontrolling interests, net of tax||(4||)||5||-||10|
|Net income attributable to Cabot Corporation||$||27||$||240||$||47||$||286|
Diluted earnings per share of common stock attributable to Cabot Corporation
|Discontinued operations (A)||-||2.92||(0.02||)||3.08|
|Net income attributable to Cabot Corporation||$||0.42||$||3.70||$||0.73||$||4.41|
|Weighted average common shares outstanding|
(A) Amounts relate to the divesture of the Supermetals Business.