Q4 2019 Earnings Call
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I would now like to hand, the conference over to your speaker today Mr., Steve Telehealth.
Thank you. Please go ahead Sir.
Thank you and good afternoon I'd like to welcome you to the Cabot Corporation earnings teleconference.
With me today are Sean <unk>, CEO , and President and Erica Mclaughlin Senior Vice President and CFO .
Last night, we released results for our fourth quarter fiscal year 2019 copies of which are posted in the Investor Relations section of our website.
The slide deck that accompanies this call is also available in the Investor relations portion of our website and will be available in conjunction with the replay up a call.
During this conference call, we will make forward looking statements about our expected future operational and financial performance.
Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.
Additional information regarding these factors appears under the heading forward looking statements in the press release, we issued last night and that our last annual report on Form 10-K satisfied with the FCC and available on the company's website.
In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures.
I would just since the gap results.
non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP.
Any non-GAAP financial measures referenced on this call are reconciled most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investor section of our website.
Also as we typically do each year I would like to remind you that over the next several weeks in connection with the vesting of restricted stock warrants issued under our long term incentive equity program.
Mr. So the company will be selling shares to pay tax.
In other obligations related to their rewards.
I'll now turn the call over to Sean Keohane will discuss the full year highlights or somebody else is part of provide a fourth quarter overview and review the business segment corporate financial details.
Following this Sean will provide closing comments and open the floor to questions Sean.
Thank you Stephen good afternoon, ladies and gentlemen.
Despite an environment, where we saw continued deceleration of macroeconomic and piece sector indicators, our fourth quarter results were strong with adjusted EPS up 5% year over year.
Reinforcement materials performance remains very robust in the quarter in the face of a week China environment.
In performance chemicals, we started our new China, Fumed silica plan and our transformation plan and purification solutions continues to take hold.
And we continued our intense focus on cash generation with strong operating and free cash flow performance in the quarter.
Eric will go into more detail on the quarter a bit later in the call, but I would like the share my perspective on the full fiscal year 2019 results.
There was no doubt that the environment in 2019 was much weaker than our planning assumptions heading into the year.
Automotive production continued to weaken throughout 2019, particularly in China in Europe , and the second half recovery expected by our Hs never materialized.
The trade friction between the U.S. in China is having an impact on global growth and it's seen is a key driver of the deceleration.
Finally, the chemical sector experience pronounced de stocking across most value chains, leading to weaker volumes product mix impacts.
Why we're planning assumptions changed as we progress through 2019, we remain focused on long term strategy and capital allocation framework.
Starting with our portfolio I'm pleased that we completed the divestiture the specialty fluids business during the year.
Even the historically volatile revenue profile of this business and the growing capital call to mine additional war, we determined it was best to monetize this business.
The proceeds from the divestiture, we large we used to repurchase shares a ballpark stated capital allocation framework.
Our strategic view, if your application solutions business has not changed but our near term efforts are focused on improving the business performance through our transformation plan.
I'm very pleased with the progress achieved during the year and I'm confident that the earnings momentum, we're building will translate into value for our shareholders as we continue to evaluate strategic alternatives.
On the performance Ron we delivered adjusted earnings per share of $3, a 91 cents, which is solid in the current environment, but below the expectations. We have for this company.
The reinforcement materials segment had another good year, despite some challenging headwinds from the competitive environment in China, and feedstock volatility as the market progressing towards new IMO regulations.
The team did a great job and delivering price increases in our calendar year customer contracts implementing commercial terms and price increases to manage feedstock volatility and delivering cost reductions to partially offset the headwinds.
In performance chemicals results continued to be impacted by less favorable product mix related to negative automotive production levels, primarily in Asia, and Europe , along with higher feedstock costs and specialty carbons and growth related investments that will yield benefits in future periods.
They were pricing efforts in cost containment measures implemented during the year with more progress is needed to restore profitability target levels.
Well the earnings environment was more challenging we remain intensely focused on cash flow generation and balance sheet strength.
During the year, we delivered strong operating cash flow of 361 million and free cash flow 137 million.
We also issued a 10 year bond at attractive interest rates.
We remain committed to an investment grade balance sheet and with ample liquidity of over $1 billion, we have both financial and operational flexibility in the current environment.
Turning now to our long term strategy I'd like to give you an update on the progress we made in 2019 against our advancing the core strategy.
During the year, we started our new China, Fumed silica plant, which came online both on budget and on schedule.
Following the completion of the purchase of our new China carbon Black plant, we began upgrading the facility and expected to come online over the next 12 to 18 months to serve our specialty carbons customers.
Looking beyond advantage capacity investments. We're also focused on driving application innovation in new and attractive markets.
One example of this is the progress we've made in our energy materials business.
The market for lithium ion batteries is growing at a 15% to 20% compound annual growth rate in our product portfolio of advanced conductive Carmen and fumed metal oxides offer is important performance enhancement.
We've been increasing our investment in this space over the last couple of years and our qualified with seven of the top 10 global battery manufacturers.
Since 2015 revenue has grown at roughly a 40% compound annual growth rate and the business now has sales in the $20 million to $30 million range.
As battery manufacturers continue to push for increased range and cycle like the conduct do formulations are becoming more demanding.
Our efforts to broaden our range of conductive carbon additives and build formulation capability will be a differentiator in this market and we remain very excited about the long term earnings growth potential.
Finally, the third pillar of our strategy is built on efficiency and optimization.
As it became apparent that macroeconomic indicators were weakening throughout 2019, we undertook an initiative to reduce cost across the company.
The areas of focused included organizational structure changes and outset decisions that reduced headcount, including the purification solutions transformation plan in a broad range of discretionary spending.
Initiative achieved a year over year reduction in cost of approximately $30 million.
Overall, while fiscal 2019 market fundamentals were weaker than anticipated we executed on important strategic initiatives to set the company up for sustained long term growth.
I'll now turn the call over the Erika to discuss the financial results of the quarter in more detail Erica Thanks John .
Moving to the highlights of the fourth quarter for the quarter I total segment EBIT was $115 million an adjusted earnings per share was the dollar side up 5% on a year over year basis, given by improved results in all three segments.
Reinforcement materials segment delivered strong operating results with EBIT up $7 million compared to the same quarter in fiscal 2018. These results were achieved despite the challenging business environment in Asia.
Fundings chemical segment results improve year over year, largely due to the benefit from the new China Fumed silica plant and EBIT in the purification solutions segment improved for the third consecutive quarter due to improved results in our specialty application and the impact from the segments transformation plan.
Cash flow is very strong in the quarter with operating cash flow of $195 million, and we returned $49 million to shareholder dividends and share repurchases.
I'll now discuss the segment results in more detail beginning with reinforcement materials.
EBIT for reinforcement materials for the fourth quarter fiscal 2019 increased by $7 million as compared to the fourth quarter fiscal 2018, the pricing and mix mix benefits that we achieved from our 2019 customer agreements and the benefit from lower fixed costs were partially offset by the impact of lower margins in Asia.
And the continued competitive pricing environment, and we got a motor production globally volumes grew by 2% in the fourth quarter as compared to the same period at the prior year, primarily due to a 3% increase in volumes in the Americas and a 3% increase in Asia.
Looking ahead to the first quarter at 2020, we expect a sequential decline in EBIT due to lower volumes and higher fixed costs lower volumes, there given by normal seasonality as well as customers delaying orders as they manage their yearend balance sheet in this difficult economic environment.
I have fixed costs are due to the timing of scheduled plant turnaround and maintenance during the quarter.
We also anticipate a business environment to remain challenging in China throughout the quarter.
Now turning to performance chemicals EBIT in the fourth quarter 2019 increased by $1 million compared to the fourth quarter fiscal 2018.
The increase in EBIT was primarily due to the positive impact on the new China seems like a plant and lower fixed costs, partially offset by a less favorable product mix, primarily in the specialty carbons product line.
In the quarter volumes increased by 14% in formulated solution and decreased by 3% in performance additive.
Looking ahead to the first quarter of 2020, we expect to see a sequential decline from lower seasonal volumes and as customers manage yearend inventory level, we anticipate the less favorable product mix will continue as demand for higher in applications remains depressed, we continue to implement pricing actions to compensate for higher feedstock cost.
We are having success with these actions thus far.
Moving to purification solutions, even in the fourth quarter 2019 increased by $4 million compared to the fourth quarter last year.
Chris is driven by improved margins from price increases in the specialty application and lower fixed costs driven by savings from the previously announced transformation plan looking ahead to the first quarter, we expect to see a sequential decline given by lower seasonal volumes, partially offset high margins and volumes in the specialty application.
I'll now turn to corporate items, we ended the quarter when the cash balance of $169 million and our liquidity position remains strong at one and a half billion.
During the fourth quarter fiscal 2019 cash flows from operating activities were 195 million, including a decrease in networking capital of $98 million capital expenditures for the fourth quarter fiscal 2019 were $69 million and additional uses of cash during the fourth quarter included $20 million for dividends.
And $29 million for share repurchases.
During fiscal 2019, we generated 361 million of cash flow from operation, including a decrease in net working capital of $25 million capital expenditures for fiscal year 2018 were $224 million, which included both our targeted growth investments and the necessary EPA relate.
To spend.
Additionally uses of cash during the fiscal year included $80 million for dividends and $173 million for share repurchases.
During the fourth quarter fiscal 2019, the company recorded a tax charge of $27 million for an effective tax rate of 41% and an operating tax rate of 24%.
The increase in the operating tax rate from the third quarter was largely due to a change in the geographic mix of earnings earnings in the lower tax jurisdictions like Europe were lower than expected well earnings in the higher tax jurisdictions, such as Latin America were higher than forecast the increase in the tax rate in the fourth quarter impacted adjusted.
Yes by seven cents.
As we look towards 2020.
Operating tax rate for fiscal 2020 is expected to be in the range of 24% to 25%.
We expect capital expenditures to be approximately $250 million. This estimate includes continued EPA related compliance and and the completion of our fumed silica plant in the U.S.
Capital related to upgrading our new China carbon black glad to pretty specialty products and additional capacity at our Indonesian carbon black plant.
I'll now turn the call back over to Sean.
Thanks, Erica looking forward to 2020, we don't yet see catalyst to improve the current weak macroeconomic conditions.
Current market signals point to a soft first quarter as customers manage inventory levels beyond the normal seasonality.
We expect the quarter, we shape of fiscal year 2020 to be similar to 2019 with Q1 being weak and momentum building throughout the year as we enter seasonally stronger quarters and our initiatives take hold.
As we look at segment performance, we anticipate year over year EBIT growth in all three segments.
For reinforcement materials, we feel good about how the business is performing despite a difficult environments in Asia.
Our management actions over the past few years have structure, we improved the profit levels in this business.
Utilizations remain generally favorable driven by a balanced supply and demand environment in the Americas and EMEA.
This supports a favorable outlook for the outcome of our customer agreements for calendar year 2020.
The rising cost of environmental compliance and Marpol changes are factors that must be recovered with pricing in order to support our customers long term and our efforts to educate customers and gain their support are going well.
In performance chemicals, we expect positive volume growth from a full year of the new China Fumed silica plant.
Targeted customer share gains and the expectation that de stocking impact in 2019 will not repeat.
We are focused on pricing actions to offset marpol related feedstock volatility and the implementation of cost management initiatives given the current environment.
In purification solutions, we anticipate another year of profit improvement as we realize the full year benefit of transformation actions and as we continue to grow our specialty applications.
We expect to experienced normal seasonality in the first quarter results are anticipated to deliver year over year improvement.
Based on these factors, we expect adjusted earnings per share to be in the range of $3.60 to $4 in 10 cents.
The midpoint of this range reflects a growth rate of 7% as compared to fiscal year 2019 result, excluding the specialty fluids segment.
On the cash side, we will continue to aggressively drive working capital improvement and expect to generate strong free cash flow in fiscal year 2020, we will use this cash to fund dividends share repurchases and debt management.
Our strategy and goals remain unchanged, we will drive our advancing the core strategy and the strong cash flows that we generate we will be deployed to fund advantage growth investments and return cash to shareholders.
The long term fundamentals of our businesses, our robust our market positions and global presence is unmatched in our balance sheet and liquidity provides strength and flexibility.
Im confident in our growth opportunities ahead, and our ability to manage the businesses in a challenging environment.
Thank you very much for joining us today and I will now turn the call back over for a question and answer session.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound <unk>. Please standby, we compile the couponing roster.
Our first question comes from my life had with Barclays. Your line is now open.
I guess first to start in reinforcement materials I was hoping you could maybe parse apart the performance of your China business versus your non China business. Both how they performed in the fourth quarter, how you expect them to trend into 2020.
Hey, Mike.
So I think as you know a China accounts for about 40% of the world's tire production and correspondingly something in that range in terms of.
The worlds carbon black business, and the Asia market tends to be more spot and the western more mature markets tend to be more contract a contract base. So as we progress through the year a in a in 2019, what you saw a was largely and on.
Change story, where.
The results of our contract our customer agreements in 2019.
Were favorable and ER and that was largely offset by more competitive intensity.
In Asia Pacific All in a given the environment were quite pleased with the result, and I think it speaks to the robustness of the business, but the story in Q4 really didn't change much compared to the way the story unfolded throughout the full fiscal year. It was really those those two components.
That we're playing out.
Hey, how you think about the those two businesses going into next year.
Yes, so our view right now Mike is that we certainly don't see any catalysts that will.
Cause a at this stage or a change in a in the macro.
Economic factors here, so our thinking right now is that a 2020, a will will set up to be a fairly similar to 2019 and that kind of informs the middle of the road in terms of our our range and then there are there are fat.
Actors that drive us above that and and depending on how they play out and those same factors could could drive us below but on balance we see we see an unchanged environment in 2020.
Of lining up with the middle of that that range.
If I could just as one last one on reinforcement materials for 2020 contract pricing how have those negotiations have been completed yet this point and I guess any color you could give on the level of pricing benefit you assuming your guidance would be helpful. Thank you.
Sure so.
While the macro environment, you know may not be exactly what we had we had hoped for a at the level that it was last year I would say the overall supply demand balance remains favorable, especially in the western regions, where most of our business is contracted and the contract process. So is taking a little bit longer this year due to.
Changing market environment, but also the impact of Marpol and our efforts to educate customers on the important.
Transitioned to get protection mechanisms in place here I have spoken in the past about how we have put a DC A's are delivered cost adjustments in place.
In most contracts we had those in place in 2019 and for those where we didnt, we actually move to raise prices to recover any of that but as we go into 2020 were certainly looking too.
To to get those mechanisms in place going forward and have been investing a lot of time to educate customers on that and on balance I would say that's going well so.
As we sit here today, we've concluded negotiations with several customers and we'll see price increases and mix benefits from those the we've closed thus far so I think we're off to a good start.
With several other customers were still in negotiations.
So its commercially sensitive to say much more we'll certainly have more to say about this on our next call.
Our next question comes from Josh Spector with.
Your line is open.
Yeah, Hey, we're going to.
Continuing on the pricing discussion, but perhaps on the performance or the specialty carbons side of the business can you just give an update on where those conversations are and kind of your mix from what already has some type of feedstock differential pass through and it versus contracts that you're trying to get something similar to that in place.
Sure Hi, Josh So maybe just a.
Quick a quick overview around the difference between specialty carbons and reinforcements or reinforcement.
Has a much higher percentage of formula business.
And specialty carbon specialty carbons tends to be more a spot market driven the other factor here is that the specialty carbons business in general tends to rely more on low sulfur feedstocks as an important input to performance.
And so therefore is more impacted by a the transition to the new Marpol regulations. So what is all that mean, it means that where were out a raising prices in.
Performance chemicals to to recover any moves in the low sulfur feedstock and earlier this year in August towards the end of our fiscal year, we announced a surcharge across all our specialty carbon black.
Products that are manufactured in North America, and we've been working with our customers to to educate them on a on the need for this pricing and I would say on balance that has been going well today, but as we transition to the the the new IMO regulations effective date of January .
Sorry.
It's possible that we'll see some.
Some volatility as we trend towards that date and until things settle out so.
Continuing to be sharp on price recovery is going to be not to be important here. In this segment. So I would say a good progress, but still a still some work to do here over the over.
Over the coming quarter or too as we as we transition to the new the new world of IMO 2020 regulations.
Alright, great. That's that's helpful and kind of related I guess do you have can you quantify the impact of what higher feedstock costs, where for the specialty.
Business within this quarter and what's your expectations would be based on this current quarter.
So in this quarter, we havent quantified that but in this quarter a d. This segment did pretty well in terms of a recovery of all of those higher feedstock costs. So I think that's a positive and then as we.
The transition forward I think it's a little bit difficult right now because of this transition to the new IMO regulations and how the low sulfur.
Indices are going to play out we're expecting because this is the first big spec change that I think the this industry is the oil industry as experienced in a long long time, we're expecting that there could be some volatility as we transition to that so.
The outlook is a little bit difficult to project, but where we're trying to be timely in our.
In our price recovery here.
Okay. Appreciate it thanks.
Our next question comes from David backlog at Deutsche Bank. Your line is now open.
Hi, Thank you.
Sean some other companies I've mentioned possible green shoots in China over the last few months or quarter. So.
You sell more cautious on what's happening in China any way you can.
And that goes to a those two views.
Yeah, So a boy I wish.
I wish I I had the the crystal ball, what David but I think you know as we sit here right now we certainly see continued weakness in China automotive.
And so OE auto production.
I think now it's been about 15 months of Ah consecutive year over year declines in the full year 2019 on a calendar year basis will be negative in auto production and so we don't yet see.
Anything turning their although there are.
There are some signals that the government is looking at stimulus measures to to get that trend arrested because it's such an important part of the overall economy, but I can't say that we can point to those to those yet so I think a and then.
There's no doubt that the U.S., China trade friction is still I think weighing on on China and you see it in most of their indicators. So I don't yet see any signals of improvement I would say, we're not seeing a any real significant worsening at this stage, if we look across our.
Portfolio, but I don't yet see the signals of of improvement at least as it as it relates to our portfolio.
Understood and unless you just saw the customer agreements. The once you have negotiated can you say the prices or are in line over the last year in terms of increase above or below the increasing achieved last year.
Yeah, I would say last year, we had a pretty strong result, and while it's difficult to say.
We'll certainly see prices up perhaps not quite to the level that we we saw last year, but that being said you know there are still.
There are still a negotiations going on here and again I think the.
The supply demand fundamentals remain.
Largely the same as they have and it's pretty important that the industry have the right mechanisms to deal with this transition to the IMO regulations and so our efforts there to get these a DC a mechanisms in place in all contracts is really important.
I think with Weve educated customers on that so I think it's going pretty well, but given.
The environment is a little bit weaker than what it was last year I would say that it a it might be a little bit a little bit lower than what we saw last year.
Very helpful. Thank you.
Our next question comes from Jim Sheehan with Suntrust. Your line is now open.
Thank you on your 2020 tire customer contracts do you expect to be fully compensated for increased spending on pollution controls.
Hey, Jim.
I think the the increases that we are getting I think are recovering us ratably as were moving through the investment phase you'll remember that a we have investments that will play out over the next few years.
And so customers certainly understand that and they know that getting recovery is is gonna be critical to ensuring long term supply. So I think it's going to be more a question of getting recovery rate a whole what how are the capital and the operating costs are coming are coming in and so.
Against that I would say, we're progressing well.
Thank you and how would you quantified the benefit you're seeing in 2020 from both the silica plant the fumed silica plants in China as well as your opportunity in conductive carbons.
Yes, so on the the new facility in China. We we commented I think the last call or certainly the maybe the last couple of calls on what be expected full year impact is and so that would be in the range of $8 million to $10 million of E bid on it.
Full year basis, you'll remember, we saw about $2 million of benefit in our fiscal Q4.
And as that came on so.
I think thats, the right way to to think about its.
You know its earnings contribution and of course than that.
Subject to sort of market conditions and the specific rate at how we ramp up but that's a reasonable way to think about it.
On the on that conductive carbons for.
Energy materials, we are were growing our sales.
At a pretty significant clip and focused pretty heavily on.
Customer qualification. So I would say this segment is still more in investment phase at this point as we invest research and development.
And application development dollars to work with customers on further approvals and so I think 2020 will be another investment year, where sales will grow but investment will be growing quite fast as well, but the expectation here is then with qualification.
Funds are continuing to build and that it transitions to be immaterial profit contributor for performance chemicals segment, but 2020 will be another year of some fairly heavy R&D investment in that segment.
Thank you.
Our next question comes from Kevin Hocevar with North Coast Research. Your line is now open.
Hey, good morning after everybody.
Right.
In terms of the guidance, so 7% MPS growth at the midpoint.
It seems like you know with the lower share count sounds like you're expecting to continue to repurchase shares returning 50% of your discretionary free cash flow to shareholders.
So between lower share count the will high facility.
Benefits and there was some $7 million an EPA costs that you incurred in the third quarter of 19 that I think was not expect to repeat seems like you can get to that 7% growth with just that stuff and.
Then it sounds like contract negotiations are going.
Quite well purification solutions should should grow earnings. So what are the offsets there that you know kind of counteract that those you know the positive contract pricing I know theres a lot of.
No caused uncertainty with IMO impacts and there's other EPA costs. So so what are the offsets I guess that could you know keep earnings from being better than that.
Yes, so Kevin let me, let me sort of walk you through how how we're thinking about it here.
So I guess I'd I'd start by a suit of outlining the assumptions that we believe would put us kind of in the middle with that range and as I said earlier I think there there's sort of similar economic environment in 2020 as to what we experienced in 2019. So this would mean that.
The global GDP growth bid tire production would have modest growth in the kind of 1% to 2% range and then our auto production assumption is aligned with current I Hs forecast, which say roughly flat on a year over year basis, So of course coming off a year of negative but.
But but but flat so not worsening, but not getting better and that's the current view of Oh by Hs and so if you. If you look at those sort of top level factors I would say that that kind of Ah you know would would have you in a in a middle middle ground territory now.
The factors they move us higher and lower or the same factors. It's really just a question which direction in the magnitude, but let me just walk you through how we think about those I mean look first of all of auto production is stronger than you know we could we could be in the higher end of the range of course, if we remain a negative territory.
And that that a flat outlook semi hs doesn't materialize then than than that would push us to the lower end. So that's that's one factor that we're watching closely I think the other is tire production.
Depending on on which which way. This this goes you could have a movements up or down.
In the range.
The third is the overall competitive environment in China right now, we're assuming a a kind of a similar environment in China. If we see some positive momentum here and then it would move as higher but if it if it worsens if China continues to weaken.
Then you know pricing and volume pressure could or could increase so thats a a factor you've touched already on where the tire contracts the agreements ultimately settle out and we're still not done with that and then finally IMO and while I think we're managing.
This well across reinforcement, there's still some some volatility that is possible as we progressed to the new rules and until things settle out around these new indices. So.
Those are the big movers, Kevin and as we as we think about scenarios on each of those you know you could certainly.
C.
See scenarios that push you, a higher and lower and each of those can be pretty material in either direction and so.
It's difficult at this stage to get more more precise than that which provided a bit of a wider range because I think where we're trying to reflect the uncertainty that is out there right. Now. We're also at a point, where we're we're trying to give outlook on 20 twond.
I see a little bit ahead of most of our customers and other you know a chemical peers in the value chain, who.
No who were a more on calendar yearend and so we're trying to reflect these factors in our thinking here. So that's our thought process, Kevin and those are the key things that we're watching to see.
As you know as the year progress is how we how we think things will develop.
Okay, great. Thanks, very helpful and then on the.
In China, you know last couple of years, particularly two years ago, but there is a winter curtailments that occurred.
Are you seeing that at all this year and how is the pricing environment overall in in China, how has that been trending.
Yes, so definitely as we saw 2019 play out we did not see the same level of.
Government into regulatory intensity I would say there was there was no change in the regulations, but the level of enforcement seem to back off a little bit I think because China was trying to find their footing.
As the global trade.
Friction was was was picking up and so that being said they continue to do a regular inspections and we have.
Plenty of evidence of that and I think the requirement for China to grow while becoming a better environmental stewardship I think remains and there's there's theres lots of evidence of that commitment, but the actual enforcement can be a little bit choppy and we did see that in.
2019, resulting in in a less less curtailment of nonperforming sites and and therefore more competitive intensity and so if we're sitting here.
Saying that our our baseline expectation is no no no real change in the China environment and my guess is that the curtailment story for 2020 will be similar to 2019 and then we'll we'll just have to see as we as we get deeper.
Into the winter period here and we see how China is doing in terms of their economy I think there will be a relationship between these two of China.
Against a strengthened economically than then I think you'll probably see a corresponding ratcheting of enforcement because I think the long term picture here is unchanged. It's just a question of short term a bit of Choppiness.
Okay got you and last one from me on the contract pricing is that.
The favorable conditions is that specific to any certain region or all regions.
Seeing some type of realization there.
Well I think in our contract regions, Kevin So as you know a that's a Americas.
And then also in a north Asia, where the more mature markets tend to be they tend to be on more contract type structures long longer term agreements and and so I think in those places we find that the supply demand balance remains favorable and.
And we would therefore.
Expect to have favorable outcomes in those to the rest of the world, which is principally sort of a Asia ex Japan that those are much more spot market.
Markets.
Okay. Thank you very much yes.
Your next question comes from Laurence Alexander with Jefferies. Your line is.
Hi, everyone. It's actually down was wonderful Lawrence how are you.
In.
Given just we're saying about the.
Lack of a curtailment in China I was just wondering what the regional capacity utilization is actually with the capacity utilization is for all the regions for carbon black.
Yeah, So utilizations, Dan I would say remain you know with the exception of Oh the Asia.
Remain largely in line with what we would then communicating over the last a year or so here, where they're currently running in the.
You know kind of mid to mid to high Eightys as you look across the more mature markets and then.
In Asia Pacific They would be they would be lower than that because of you know hire a higher higher capacity levels and a bit of a softer environment right now.
In in China, So the big picture Suda supply demand hasn't really changed in the mature markets and where we're seeing you know the most competitive intensity is as it relates to to China.
And as China has has softened a economically and as auto production has been weak in China that that has created some more competitive intensity. There. So no real no real change in the movie here I would say.
Okay. That's very helpful. And then just given all the fluctuations and and the outlook for 2022, we still have line of sight for 10% EPS growth of a long term over the next 510 years or so or how should we think about it.
Yeah. So if you look at our our strategy Dan and.
And the financial framework.
That that did underpin that we believe we can grow in the earnings per share in the 7% to 10% range overtime and we still feel.
Great. Good about that I think thats the right long term way to think about it and then our plan in terms of capital allocation.
Is to invest about half of our discretionary free cash flow in attractive growth investments to keep that long term, 7% to 10%.
Going and then to return about half to shareholders in the form of dividends and share repurchases and that is certainly I think the right long term frame and the way to to think about things.
In any given year.
There will be some choppiness and as we saw this year that was that was the case on the earning side that being said, we were more aggressive and stepped outside of our capital allocation framework I think appropriately. So in terms of the cash return piece. So.
Any given year that might be a little movement around that framework, but we think that is the right on term framework for the company.
Thank you very much.
Our next question comes from Chris Kapsch with <unk> capital markets Your line.
Yeah. Thanks, Im just wondering if you could just touched upon demand trends order trends that you saw sequentially during the.
The September quarter, and and then thus far into the.
The December quarter, I'm, particularly interested in sort of maybe specialty and MRG given that.
Those businesses seem to be tied to end markets, where there might be more susceptible to you know to inventory stocking or destocking.
In the supply chain.
Hi, Chris So it's certainly a it certainly early a in the quarter, but I would say the October order book.
In a in performance additives was Ah was pretty good.
And was a was up over the same month last year and so that is that is positive now you remember the same on last year.
We were beginning to experience some destocking across.
Some of these some of these markets, but still I think that's that's positive. So that is a that gives us some measure of optimism, but that being said, where where we're concerned about customers you know any uncertain economic environment trimming inventories more aggressive we we've heard of some cost.
Emerge.
You know taking extended shutdowns around Christmas holidays, and things like this and so we're trying to balance off. These ah. These two things, but but I would say the data we have right now the order book in a in October across those specialty carbons fumed silica those were those were those are pretty solid.
And and Sean just seats sequential trends during the September quarter, but is there just a normal seasonality was there anything different about how demand trended sequentially during the.
As the fiscal fourth quarter progress. Thanks, Yeah, I know, Chris not not really I mean, we normally see some seasonality as there are often.
Customer turnarounds and a slowdown across the July August months, and then September usually ends up being a little stronger I would say generally that profile was a was intact as we work through our fiscal Q4, so nothing really to note there. Okay and then I just had a quick follow up on.
The fumed fumed metal oxides started up but just to understand so the eight to 10 million in EBITDA contribution is that in total or is that incremental contribution anticipated on top of the 2 million.
You saw in the fourth quarter.
And.
What sort of loading for that plant.
Is baked into.
That sort of metric. Thanks, yeah, yeah. So the eight to 10 number.
Chris is a is a full year number.
Now we are coming out of the gates, we we ramped pretty well so I would say a you know getting to fall a full realization a fairly fairly quickly there, but the eight to 10 is is a is a full year number that you should think about.
And then you know that how that how that how that develops is of course subject to local market conditions, but but thats the right way to think about it in our ramp coming out of the gates in Q4 was pretty consistent with that so that was good.
Okay.
And at this time Im showing no further questions I'd like to turn the call back over to Sean.
Great well, thank you very much for joining today and for your questions and we'll look forward to speaking with you again next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.