Q1 2023 Cabot Corp Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Ladies and gentlemen, thank you for standing by and welcome to Cabot's first quarter 2023 earnings conference call. After the speaker's presentation there'll be a question and answer session and instructions will be given at that time. Please be advised that today's conference maybe recorded.
I would like to turn the conference over to your Speaker, Steve Delahunt, Vice President Treasury and Investor Relations. Please go ahead.
Okay.
Thank you Michelle and good morning, I would like to welcome you to the Cabot Corporation earnings teleconference.
Today are Sean Keohane, CEO , and President and Erica Mclaughlin Executive Vice President and CFO .
Last night, we released results for our first quarter fiscal 2023 copies of which are posted in the Investor Relations section of our website.
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 of the 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 in the press release, we issued last night and in our 10-K.
Year ended September 32022, and its subsequent filings we make with the SEC.
All of which are also available on the company's website.
In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve.
Adjustments to GAAP results.
The non-GAAP results.
GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the investors section of our website.
I will now turn the call over to Sean who will discuss our first quarter highlights. Some recent recognition we received with respect to our leadership in ESG and our progress in the area of battery materials.
Erica will review the company and business segment results along with some corporate financial details. Following this Sean will provide closing comments and open the floor to questions.
Right.
Thank you, Steve and good morning, ladies and gentlemen, welcome to our call today.
I am pleased with our first quarter results were in line with our expectations and the strategic developments that informed our full year guide in November remain on track.
As a result, we remain confident in our full year outlook and are reaffirming our guidance range of adjusted earnings per share of $6 25 to $6 75.
In the first fiscal quarter, we delivered adjusted earnings per share of <unk> 98.
Significant headwinds, including lower demand in China due to significant levels of Kobe note Greg.
Weighted levels of customer destocking across most value chains and softness in key end markets and performance chemicals.
EBIT in reinforcement materials was up 11% year over year, demonstrating the structural improvements we've made in recent years to the business and the resilience of the replacement tire market.
We also concluded our entire customer contracts with better pricing than we originally forecasted back in November underscoring cabot's value proposition of supply reliability quality and sustainability.
Further on the strategic front battery materials continues to outperform the market with year over year volume growth of 63%.
Overall, we are very pleased with our strategic progress and we believe the company is well positioned for another year of earnings growth.
Our leadership in ESG continued to be recognized in the quarter.
First we were named by Newsweek as one of America's most responsible companies. This is the fourth consecutive year that we've been included on Newsweek's list, which recognizes our strong performance in the areas of environmental social and governance and we're very proud of this recognition.
Second we were named by Investor's business Daily is one of the 100 best ESG companies in 2022.
<unk> recognizes companies with superior ESG ratings in addition to strong fundamental and technical stock performance.
And finally, we recently have been named one of America's Great workplaces for diversity 2023 by Newsweek and plant in Science group.
This newly established recognized as the top 1000 companies in the U S that not only celebrate diversity when implement policies to cultivate inclusive workplaces.
<unk> received a five star diversity score the highest recognition available <unk>.
This recognition is a testament to our efforts to promote and encourage diversity in all its forms.
Look forward to continuing to advance our goals and fostering inclusion and supporting employee development as well as increasing diverse representation across our company.
Leadership in the space of sustainability is central to our strategy and these forms of external recognition acknowledged our progress and are a source of motivation for our employees.
I look forward to updating you on further developments as we progress on our ESG journey.
Okay.
I've talked quite a bit about the growth in battery materials over the last few quarters as I believe it represents a transformational opportunity for Cabot driven by growth in the demand for electric vehicles and lithium ion batteries.
Global demand for critical battery materials, such as our conductive carbon additives is expected to grow in the range of 20% to 30% annually over the next decade.
Growth potential in the U S is expected to outpace global growth as penetration of Evs Evs and accelerates from what is a small fraction of car sales today.
The U S growth was aided by our recent U S government announcements targeted to accelerate the build out of a domestic EV battery supply chain as part of these efforts federal and state governments have implemented a variety of programs in the form of grants loans and tax incentives.
To meet the growth expectations of our customers, we recently announced plans to add conductive carbon additives capacity in the United States Disinvestment located at our existing facility in Tampa, Texas as part of an approximately $200 million planned investment program over the next five years.
In addition to the Pampa conductive carbons expansion, we also intend to invest in our new CMT dispersion capacity in the U S, which will bring together the powerful combination of conductive carbons carbon nanotubes and blends offering our customers optimal performance and formulation flexibility.
These capacity investments will also support the critical needs of our customers for domestic supply.
During Investor Day in December of 2021, we outline the capacity investment program that would add approximately 30000 metric tons of CCA capacity through 2024.
These projects are all on track for completion by 2024 and support our communicated growth target of 50% plus for battery materials through 2024.
The Tampa expansion will add an additional approximately 15000 metric tons of conductive carbon capacity, thereby driving growth from 2025 and beyond.
At Cabot, we have been building out our battery materials CCA product line for several years and have been extending our leadership position in this transformational space.
We currently have established CCA capacity for battery materials in the U S Europe , and Asia, which provides our customers with security of supply, but also gives cabot an advantage over many competitors, which are largely operating in the Asia region.
Our global footprint gives us the opportunity to expand capacity quickly to meet the expected sharp ramp in demand from our customers.
At Cabot, we have the flexibility to either expand on existing sites or upgrade current assets to produce battery materials products as we're currently doing in Tianjin China.
Our ability and track record to quickly scale up capacity additions is something that our customers value and Cabot and this directly supports their imperative to regionalize and material supply chain.
We believe our broad offering of Ccas, along with our existing network of plants and the talent of our people uniquely positioned cabot to support the growth expectations of our customers here in the U S.
The planned investments are another step in our strategy to capitalize on the fundamental transition from internal combustion engines to electric vehicles or.
Our planned investments will help support the electric vehicle transition and solidify Cabot as a global leader in battery materials.
I will now turn it over to Erica to discuss the segment and financial performance Erica. Thanks, John I will start with discussing results for the company and then review the segment results adjusted earnings per share for the quarter first quarter fiscal 2023 was 98.
Compared to a $1 29 in the first quarter of fiscal 2002.
Both in the reinforcement materials segment offset by declines in the performance chemicals segment.
It was also impacted by higher net interest expense of $7 million.
For the year and unfavorable foreign exchange impacts at $13 million.
Current year impact from foreign currency is now estimated to be just about $20 million with the majority of the year over year unfavorable comparison expected to be in the first half of the fiscal year.
Our expectation of net interest for the year is unchanged from last quarter, and we expect $20 million higher year over year net expense.
Discretionary free cash flow in the quarter was $63 million and we ended the quarter with $190 million of cash.
Working capital in the quarter was a use of cash and $34 million and looking ahead based on the forward curves for oil prices.
Net working capital to be a source of cash of approximately $100 million.
The remaining three quarters of the fiscal year.
Capital expenditures in the quarter was $35 million and we expect full year capex to be approximately $300 million.
Our balance sheet remains strong with total liquidity of $1 1 billion and net debt to EBITDA of one eight times as of December 31 2022.
Our operating tax rate was 25% for the quarter and we anticipate that fiscal year rate will be between 24 and 26%.
Now moving to reinforcement materials.
During the first quarter EBIT for reinforcement materials increased by $9 million as compared to the same period in the prior year.
The increase is driven by improved unit margins from higher pricing and product mix and our 2022 calendar year customer agreements.
Really offset by 5% lower volumes and a 5 million unfavorable foreign currency impact in the quarter.
Globally volumes were down in all regions in the first quarter as compared to the same period of the prior year with declines of 5% in the Americas, 5% in Europe and 6% in Asia.
Lower volumes were largely due to year end destocking in excess of the normal seasonal effect in all regions and the impacts from COVID-19 outbreak in China.
Looking to the second quarter of fiscal 2023, we expect our reinforcement materials EBIT to improve both year over year and sequentially due to the outcome of our calendar year 2023 customer agreements.
The net year over year benefit from contract pricing and product mix improvement now expected to be a net benefit of approximately $25 million per quarter based on the finalization of customer agreements and updates to the offsetting cost factors such as inflation energy center revenues and foreign currency impacts.
This resulted in a $100 million annualized benefit of which we expect to see approximately $75 million over the three quarters in our fiscal 2023.
Offsetting the benefit from the pricing and product mix in the second quarter, we expect an unfavorable impact on volumes and margins in China from the COVID-19 outbreak.
As you May recall, China represents approximately 25% of total segment volumes and we estimate the impact in China in the second quarter to be in the range of $10 million to $15 million.
We anticipate volumes to recover in China after the lunar new year holiday and to return to more normalized levels in the second half of the fiscal year.
We expect volumes to increase sequentially in the second quarter in Europe , and the Americas and we see this recovery has already started in January .
We expect results in this segment will deliver another impressive year of double digit percentage growth.
Now turning to performance chemicals.
EBIT decreased by $23 million in the first fiscal quarter as compared to the same period in fiscal 2022.
The decrease was principally due to lower volume higher fixed costs from new capacity adds and an unfavorable foreign currency impact in the quarter.
Year over year segment volumes in the first quarter decreased by 8%.
Volumes in our specialty carbons and compounds and fume metal oxides product line declined by 10% to 15% largely due to elevated levels of year end destocking softness in key end markets and the impact from the COVID-19 outbreak in China. These.
These volume declines were partially offset by another quarter of strong volume growth in battery materials with volumes up 63% year over year.
Fixed cost increased by $8 million in the quarter, driven by our new capacity adds including the new specialty carbon plant in Suzhou, China and the newly acquired plant for battery materials and Tianjin China.
And our specialty compounds plant came back online in Belgium.
In addition, the translation impact of the stronger U S dollar.
Favorable by $4 million year over year in the quarter.
Looking ahead to the second quarter of fiscal 2023, we expect volumes to improve sequentially across our larger product lines as Destocking comes to an end in our key end markets begin to recover.
We have seen improvement in the month of January across our product lines from the levels experienced in the first quarter. However.
However, we expect volumes to continue to be lower on a year over year basis in the second quarter largely due to the lingering effects from the COVID-19 outbreak in China.
We offset by another strong quarter of volume growth in battery materials.
EBIT in the second quarter is also expected to be impacted from higher cost year over year related to increased capacity and growth investments and the unfavorable impact of foreign currency translation.
In addition, we do not expect to see the same benefit from price increases ahead of raw materials in our fumed metal oxide product line that we realized in the second quarter of fiscal 2022.
Items are expected to be a headwind of approximately $10 million each for a total of $30 million on a year over year basis in the second quarter.
As you move to the second half of the year, we expect volumes across our larger product lines to continue to improve each quarter with the second half of fiscal 2023 back to more normalized levels.
Also anticipate that our growth vectors will contribute substantially to the earnings as the demand profile for battery materials and inkjet packaging step up in the second half of the fiscal year.
Overall, the segment is expected to see lower EBIT year over year in the first half of the year and the weaker volume profile.
Volumes improved across the larger product line and the momentum continues in our growth vectors, we anticipate EBIT to be stronger year over year in the second half of the year.
I will now turn the call back over to Sean.
Thanks Erica.
Moving to our 2023 outlook as I mentioned in my opening remarks, we feel very good about the strategic growth drivers of cabinet and are reaffirming our outlook for adjusted earnings per share in the range of $6 25.
To $6 75.
Which was up 4% at the midpoint year over year.
Looking more closely at the full year guide to achieve the midpoint of the outlook implies a rate of EPS growth year over year in the last three quarters of 11%, which would reflect another structural step up in the earnings power of the company.
In terms of the key assumptions that underpin our outlook Eric is covered these in her remarks.
As we think about the quarter, we shape of earnings the second quarter results are expected to be up sequentially, but down year over year with EBIT accelerating as we move through the year.
We expect that the second half of the fiscal year, we will deliver higher year on year adjusted earnings per share.
At a strategic level the key drivers of earnings growth are continuing to develop as we expected.
We did a tremendous outcome to our calendar year 2023 reinforcement materials customer agreements, reflecting the tight regional supply demand dynamics and the importance of both quality and sustainability to our customers.
This will drive our expectation for another year of strong double digit EBIT growth in reinforcement materials segment.
In battery materials, we continue to expect EBITDA for fiscal year 2023 to be in the range of $45 million to $50 million up from $29 million in fiscal year 2022.
We are investing behind the strong secular growth trends and are excited by the transformational potential that the shift to evs presents for Cabot.
And while performance chemicals is impacted by external demand environment in the first half of the fiscal year, we expect our growth investments will enable a strong recovery in the second half of the year as demand normalizes and then grows over the longer term.
Overall I am very pleased with how the company is positioned today and I am confident in the outlook for the year.
We are executing very well against our creating for tomorrow strategy. In this strategy is built to grow transform and reshape the valuation potential of Cabot.
Thank you very much for joining us today, and I will now turn the call over for Q&A session.
So I think we're ready for that now.
Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.
Our first question comes from David Begleiter with Deutsche Bank. Your line is open.
Thank you good morning, Sean what do you mean, David Hey, guys. Good morning, what are you guys seeing right now in China in terms of reopening post the Chinese lunar new year.
Yes.
As you as you know well David certainly the the China policy on Covid was quite an abrupt change.
In December period, and that it really had a chilling effect on just consumer activity and demand.
And the like but.
As a result.
I think COVID-19 is burned through pretty fast.
In China, and so as we on the ground kind of see what's happening coming out of Chinese new year first of all there was a lot of <unk>.
Activity in China, very high level of domestic travel.
In China, which was I think a positive positive sign.
And then it seems that the consumer activities.
Has picked up.
It's quite quite strong people are out and about.
And I think that's what we're hearing from our team on the ground and I think that's that's positive so.
As we progressed through the quarter here certainly the January month was what was weak because of the COVID-19 infections and <unk>.
The Chinese new year holiday falling in January this year, but.
I think the expectation is that that will progress as we moved through the quarter here in early early signs just in terms of consumer activity certainly support that so.
That's our expectation and then things.
We will normalize.
In the back half of the year, we will see volumes.
You will be more at our normal level.
And I think that lines up with what most most folks most economists are expecting.
I think theres, a pretty is a growing level of confidence around.
The expected GDP for the year and the 5% range I think the stimulus actions are in place and now with with Kobe, having burned through pretty quickly and I think a lot of pent up frustration and pent up demand from a very long and difficult Covid period bear in China, I think that speaks.
Probably a bounce that seems to be the prevailing view, but that's what we're seeing right now David.
Very good and just on the battery materials, given the strong start to your volumes up 63%.
Is there some applied to your EBITDA forecast this year of 45 to 50.
I would say the 45 to 50, obviously, a pretty strong number up.
From the 29 that we.
<unk>.
So I think that that guide that we've given we feel very good about but it's <unk>.
Pretty pretty strong number and higher than the 50 plus percent I think we communicated at Investor day. So.
I think thats.
A very strong result, and we're continuing to invest behind this.
This one and I think the value proposition from our customers.
It's really showing through not only.
The product quality the range of CCA is we have the ability to blend conductive carbons and cmt's.
And then our ability to support them with regional capacity expansions and I think that'll be the theme here over the next couple of years. So we feel we feel very good about it David.
Thank you very much.
Thank you. Our next question comes from Joshua Spector with UBS. Your line is open.
Hey, guys. This is James Cameron on for Josh.
I was just wondering about.
With the disruption disruption you've seen in China has that had any impact on the carbon black spreads you are seeing.
Sorry, the carbon black.
Alright reinforcement spreads.
I see okay.
As Eric as Eric commented, we are expecting in Q2 to be impacted to.
The range of $10 million to $15 million in China.
The impacts of the.
The COVID-19 outbreak so that's a combination of both.
Some volume and margin.
Margin impact so as you know is volumes.
Our weaker and as people are holding some inventories naturally there is some.
Pressure on on the pricing, but as the demand begins to pick up here as we come out of Chinese new year.
Would expect and the unit margins would move back to.
A more traditional level, but the range, we were expecting in the quarter from both the demand and margin.
Impacts would be in that $10 million to $15 million range that Eric referenced.
Okay. Thanks, and then just as a quick follow up.
If we think about moving into next year, you have pretty strong reinforcement pricing gains this year.
Should we think about the durability of those.
Can you hold on to them is there potential for even more pricing.
Yes, so I think the way to think about that is to come back to the structural dynamics in.
In the business and so the business in reinforcement materials as is.
Is principally a regional business.
So the regional supply demand dynamics are.
Are very important and what's been happening over the last number of years.
Continued tightening.
There with especially in the west with the more mature regions.
Effectively no no capacity additions and I think the rising.
Cost of.
Sustainability, which is important to our customers, so I think that that supply and demand.
Tightness the commitment to sustainability.
These these trends are.
Our quite structural and therefore, we feel very good about the place that we're in right now.
In terms of pricing and margins and difficult to comment beyond.
This year other than to re communicate that and even the negotiating period that we had this year. We did have some customers that closed multiyear agreements.
Those agreements included.
Price increases again for 2024 so.
I think that.
That's a sign that it would be.
Consistent with the structural setup that we see in the industry.
Okay, great. Thank you.
Thank you. Our next question comes from Jeff <unk> with Jpmorgan. Your line is open.
Thanks very much.
Hey, Jeff.
Your SG&A expense was down year over year in the first quarter.
What's that about.
And should SG&A expense grow year over year or shrink.
Jeff maybe I'll ask Eric to take that one.
Yes sure.
So in Q1 of 'twenty, one just a reminder, the purification solutions with scale in the numbers so.
Wallet zero EBIT impact, you'll see it in revenue cost of sales and SG&A and so the main reason you see the decline from 'twenty one 'twenty two.
Purification solutions not being included in that number when you're looking at that.
GAAP financial statements.
And so and then your second part of the question on well SG&A grow I think yes would be the answer I think.
So pulling out.
We're making some investments in the growth vectors, particularly battery materials and then as you would expect there is.
Cost of living adjustments to salaries that would also impact.
Can you talk about.
Russia exports in carbon black in calendar 2022 in the end did much less carbon black get to the west or the amount that they usually produce and how do you see 2023, playing out for Russia.
Ukraine production.
Yes.
Ill take that one Jeff so.
Yes.
The picture I think very clearly our customers.
Particularly in Europe , who are the biggest consumers of the <unk>.
And material.
Have had.
Decidedly moved away from that I think for obvious reasons, both security of supply, but also the reputation.
Impacts here, so I think that that trend is.
Is very is very clear now Russia did continue to produce.
And material was exported it seems to be.
Difficult to exactly trace where it's going but I think we can conclude that it's not having any material impact in Europe .
Materially net shortage in Europe , it's been.
Created even further tightness there and.
And supported the recent negotiation so I think that that picture is pretty clear.
The material was flowing.
Is a little more difficult my sense is that some of it might flow to places like Turkey, and other out into smaller markets.
And.
But that would not have much much impact on the overall dynamics and I think the way our negotiations pointed out I think thats.
That would be consistent with that view.
Your volumes in reinforcement materials were at negative five for the quarter and you said that.
There are still issues going on in China, So I assume that volumes will again be negative.
The second quarter.
So.
In rough terms do you expect to your carbon black and <unk>.
Your reinforcement volumes to be about flat for the year.
Yes, I think on the on the volume picture, Jeff I think Thats Thats, a reasonable view I think we.
We would expect full year volumes in reinforcement to be probably up modestly which would be in line with expectations for tire production from LLC LNG right now is projecting about plus 1% or something like that and.
We would we would expect.
Our volumes to be in line looked at obviously the shape of the year.
Is is is a little bit different because of the China COVID-19 impacts, but I think that high level takeaway that you have Jeff is is a reasonable one up modestly as kind of the bottom line, we would expect.
And then lastly in.
What's going on in the.
In the silicones sidewalk sales market I would've thought that there would have been a large inventory destock in the December quarter. It may be a meaningful destocking March quarter. So is that another one where.
Volumes will be negative in the first half.
Maybe you can get back to flat, maybe you can for the year.
Yes, So let me let me comment on the P&C segment performance chemical So we would expect the full year volumes to be up in the fiscal year in the low single digits with positive year over year comps in the second half.
And then.
More specifically of course in battery materials, we would expect the volumes to be in that 50% plus that we communicated at Investor day, but if you roll all of performance chemicals together, we would expect to be up in the low single digits, but again the shape impacted by destocking across.
Q1, and some into Q2 and the China effect in our Q2 within comps turning positive in the second half to then blend into a full year growth.
In the low single digits, that's a reasonable way to think about.
The performance chemicals segment.
But what about the fumed metal oxides itself.
Yes, so definitely silicones.
You are definitely seeing some pressure in some destocking and as a result.
The same flows through into silicon.
And I think thats, because there is a certain amount of the sidewalks veins and silica that goes into markets like construction and those are weaker for sure. So there is some destocking to reflect that.
The weaker demand outlook in construction.
And then you've also got the China impacts China mix about half of the world's silicones.
And about half of the world's silica and so you've got the China phenomenon playing out.
With Covid in our in our December and into our Q2, so I.
I think the shape in silicon and silicones will be will be similar you'll see it be.
<unk> in the first half and then and then beginning to improve and normalize in our back half of the year. So that's what we see Jeff.
Great. Thank you so much.
Thank you. Our next question comes from Laurence Alexander with Jefferies. Your line is open.
Good morning, it's Dan Rizzo on for Laurence. Thank you for taking my question with the new capacity that you have coming online in CCA.
Alright.
Elsewhere within battery materials is that already contracted the customers. So when the new capacity comes on line and you already have it sold or is this something you are going to go to the market with.
Hi, Dan.
So I would say the way to think about that as.
We are selling to most of the major battery producers in.
In the world today, So I think I commented in the past that the top eight it's pretty concentrated industries of the top eight makeup eight players make up close to 90%.
The of the market and we're currently selling to six of the top eight with development programs.
With the remaining two so I think we're on a good path here.
With already established commercial.
Arrangements and volumes than our new capacity would really be in place to.
Serve their growth. So it's really that's the that's the way to that's the way to think about it now.
Now the new the new capacity that we recently announced.
Is capacity that will.
Come online and have the impacts.
After 2024, so we already have enough capacity and between existing and what projects have already been underway too.
To support our Investor day.
Growth objectives that we communicated. So this is really an investment thats sort of funding. The next the next wave of growth with a particular focus on the U S. As there is a real buildup in momentum.
To establish a supply chain here in the U S.
Okay and then.
I don't know if I missed this or not but do you expect any new capacity in specialty black rubber black.
Or meaningful new capacity in the next two to three years.
You see wide.
What are you guys also planning yourself.
Yes, so in terms of our capacity in our specialty carbons, we did bring on a.
New.
Our new plant in Xuzhou, China, So and Eric his comments you mentioned that the cost of that came online in the quarter, but of course the volumes on snowing, yet because of the weak China environment, but that will give us growth over the next.
A number of years. So we feel very good about the capacity investments for specialty carbons in the next couple of years don't see the need for further investment beyond that we think that will support the growth in the business nicely.
And so that's that's with respect to specialty carbons.
In reinforcement materials.
We continue to have a philosophy of trying to support our customers here by.
Creating capacity through improvements in overall equipment effectiveness or OE.
Looking next at low cost Debottleneck, and then being very disciplined and strategic as it relates to.
New new units.
So the one place where.
We envision.
A new unit of capacity would be in the highest growth region of the world, which is in ASEAN in.
In Indonesia, specifically for us.
If I just kind of so that's that's what we're contemplating but if I just pull it up to the industry level in reinforcement materials.
Not seen any announcements in reinforcement materials in the mature markets.
Other than Orion had.
Tranche of capacity that came on.
In Europe and Asia.
Thank you.
Probably primarily sold at this stage.
I think the market is.
He is pretty snug and expect it to be in the next few years just based on the fact that there haven't been any.
Any new announcements and you think about kind of a three year runway to build to build something like permit and build.
It takes some time so that's how we would see the kind of overall industry view.
Alright. Thank you. Thank you very much that was really helpful.
Thank you. Our next question comes from Chris <unk> with loop capital. Your line is open.
Yes. Good morning, I had a question on the upside that you referred to in your reinforcement materials for the calendar year 'twenty three I know you mentioned pricing and mix were drivers there, but I'm curious if if volumes.
We're also.
Positive volumes relative to prior expectations were also an outcome of the the balance of those contract negotiations just asking because you have this downdraft in China affecting at least.
First quarter of calendar 'twenty three so curious if.
With better volumes in the other regions are contributing to the upside there.
Pat.
If consequent unit variances are part of the lift.
Yes.
So it's principally price.
And mix.
Chris as we as.
As we closed out so in that 25 million number net number that Erica.
Commented on that increment versus what we had communicated in our last call a $5 million is principally a price and mix and so as we closed out final agreements of course, given the structural dynamics in the industry. There was more and more competition for the remaining capacity and so the last.
Cooper agreements closed.
Stronger place than we had anticipated at the point when we last communicated in November so there was not.
Volume in that.
That $25 million net number that Eric commented on.
Got it that's helpful. And then just in the performance chemicals and just wondering you mentioned the destocking in <unk>.
Fumed metal oxide <unk> silica.
Just wondering about where else you are seeing.
That softness or Destocking is it.
Pronounced.
The silicon as well as the <unk>.
After batches or is it kind of across specialty.
Where is it most acute and in what region that'd be helpful. Thank you.
Yeah sure so in terms of Destocking.
Performance chemicals typically experiences.
Deeper destocking and restocking cycle.
Then say reinforcement materials, because the value chains are longer here, there could be 345 people.
Ian a chain all the way to the end to the end product, whereas in.
Our business like reinforcement, it's more shallow of the value chain us to the tire producers to them to the customer. So that's a dynamic that's.
Part of the industry. So just a just a reminder on that.
Now, we see that Destocking seems to be.
Coming to an end as we move.
Out of Q1 and into the early part of Q2 here.
And so that's that's a positive sign commodity prices have.
Have come off from their peak, which is good normally what you see when commodity prices, whether you are talking about oil or polymers or energy prices. When those start dropping people want to pull back on inventories because we don't want to be caught with high cost inventory and so you have a bit of this destocking phenomenon I think with those.
Having come off their peak.
I think that supports.
Kind of a stabilizing around this destocking phenomenon. So so that's what we're that's what we're seeing here there are certain and I would say that's consistent across the major product lines in performance chemicals, So carbons fumed silica and specialty compounds I would say they are.
They are seeing.
At a high level is similar.
Similar dynamic here.
Chris.
Got it and then one last one on battery materials, because it's obviously a good story and a nice growth driver for you guys.
Through the lens of me following lithium company, we'd see a lot of.
Concern about downstream in that value chain from battery cathode battery.
About security of supply and.
Just given the constraints on the supply of battery materials. So just wondering is that something that surfacing in your discussions and relationships with your customers concerns about security of supply and how is that manifesting in terms of your supply agreements. Thank you.
Yes, Thanks, Chris.
So for sure the security of supply of materials.
<unk>.
Central to the batteries for sure that is.
Getting a lot of attention I think what what gets the most attention of course are the large volume material. So.
Yeah.
The graphite.
Large volume materials, which are heavily concentrated in China and so as you were.
As youre seeing the regional build out of battery plants in the U S and Europe .
The growing tensions.
With China.
It's it's amplifying the.
The important so.
Supply security and I think that.
That is generally true I would say in the space, where we play in conductive carbon additives again.
It doesn't.
Get the headline that the very large volume.
Material concerns would get but I think customers clearly understand and want regional supply and when they look at Cabot.
They see.
They see.
Our value proposition that that I think is compelling to them because of.
The products we have.
The capacity that we have around the world our commitment to expand around the world and our ability to do it.
And scale up in a way that supports their.
Their needs I think that that value proposition.
Is really showing through and I think it is one of the drivers of why our volumes are outperforming the market growth rate and have been for consistently for for some time here. So probably wont read about it on the front page of the paper like some of the other materials, but that dynamic is important in ours and our materials as well.
I appreciate the color. Thanks.
Thank you and I'm not showing any further questions at this time I would like to turn the call back over to Sean <unk> for any closing remarks.
Yes.
Great. Thank you Michelle and thank you everyone for joining today. Thank you for your continued support of Cabot and we look forward to speaking with you again next quarter.
Take care.
This concludes today's call. Thank you for your participation you may now disconnect everyone have a great day.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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