Q1 2024 Cabot Corporation Earnings Call

February 6, 2024

Yeah.

Operator: Good day, and thank you for standing by. Welcome to Cabot's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Good day and thank you for standing by welcome to Cabot's first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question answer session to ask a question Justin you'll need to press star one on your telephone you will then hear in order.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Treasurer, and Investor Relations. Please go ahead.

Made it message advising your hand this race to withdraw your question. Please press star one again. Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Steve Delahunt, Vice President Treasurer and Investor Relations. Please go ahead Sir.

Steven J. Delahunt: Thanks, Norma. Good morning. I would like to welcome you to the Cabot Corporation Earnings Teleconference. With me today are Sean Keohane, CEO and President, and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our first quarter of fiscal year 2024, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available on 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. However, each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Steven J. Delahunt: Thanks, Brandon Good morning, I would like to welcome you to the Cabot Corporation earnings Teleconference. With me today are Sean Keohane, CEO, and President and Erica Mclaughlin Executive Vice President and CFO.

Steve Delahunt: Last night, we released results for our first quarter fiscal year 2024 copies of which are posted in the Investor Relations section of our website.

Steve Delahunt: Slide deck that accompanies this call is also available on 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.

Steve Delahunt: Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Steven J. Delahunt: Additional information regarding these factors appears in the press release we issued last night and in our 10-K for the fiscal year ended September 30, 2023, and in 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.

Steve Delahunt: Additional information regarding these factors appears in the press release, we issued last night and in our 10-K for the fiscal year ended September 32023, and in subsequent filings, we make with the SEC all of which are also available on the company's website.

Steve Delahunt: In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures.

Steve Delahunt: That involve adjustments to GAAP results.

Steve Delahunt: non-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.

Steven J. Delahunt: The non-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 investor section of our website. I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by an update on our execution against our strategy, and then discuss the company's recent cash flow performance. Erica will review the first quarter financial highlights in the business segment results. Following this, Sean will provide a strategic summary and closing comments and open the floor to questions. John.

Steve Delahunt: I will now turn the call over to Sean who will discuss the first quarter highlights followed by an update on our execution against our strategy and then discuss the company's recent cash flow performance.

Sean D. Keohane: Eric will review the review the first quarter financial highlights and the business segment results.

Sean D. Keohane: Knowing this Sean will provide a strategic summary, and closing comments and open the floor to questions Sean.

Sean D. Keohane: Thank you, Steve and good morning, ladies and gentlemen, and welcome to our call today.

Sean D. Keohane: I am pleased with our first quarter results, which were aligned with our expectations and reflected strong year over year growth.

Sean D. Keohane: We delivered adjusted earnings per share of $1 56.

Sean D. Keohane: Which is up 59% as compared to the same period in the prior year setting us off to a strong start to fiscal year 2024.

Sean D. Keohane: I would like to thank our entire global Cabot team for their resilience and commitment to execution as we navigate these dynamic times.

Sean D. Keohane: EBIT in reinforcement materials was up 37% year over year, demonstrating the structural improvements we have made in recent years to the business and a structure, we tight supply demand balance in the mature regions.

Sean D. Keohane: Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call today. I am pleased with our first quarter results, which were aligned with our expectations and reflected strong year-over-year growth. We delivered adjusted earnings per share of $1.56, which is up 59% as compared to the same period in the prior year, setting us off to a strong start to fiscal year 2024. I would like to thank our entire global Cabot team for their resilience and commitment to execution as we navigate these dynamic times.

Sean D. Keohane: We also concluded our customer agreements with strong pricing and mix improvements in all regions that total an annualized increase year over year of $75 million.

Sean D. Keohane: Net of inflationary and other cost increases, we expect the pricing and product mix benefits to equate to an EBIT increase of approximately $15 million per quarter for the remaining three quarters of fiscal year 2024, as compared to the same quarters of fiscal 2023.

Sean D. Keohane: These results reflect the favorable supply and demand outlook and cabot's value proposition of supply reliability quality and sustainability leadership.

Sean D. Keohane: EBIT in performance chemicals was up 17% compared to the first quarter of fiscal 2023 as demand in this segment appears to have generally stabilized and the effects of destocking have diminished.

Sean D. Keohane: EBIT and reinforcement materials were up 37% year over year, demonstrating the structural improvements we have made in recent years to the business and a structurally tight supply and demand balance in the mature region. We also concluded our customer agreements with strong pricing and mixed improvements in all regions that totaled an annualized increase year over year of $75 million. Net of inflationary and other cost increases, we expect the pricing and product mixed benefits to equate to an EBIT increase of approximately $15 million per quarter for the remaining three quarters of fiscal year 2024 as compared to the same quarters of fiscal 2023. These results reflect the favorable supply and demand outlook and Cabot's value proposition of supply reliability, quality, and sustainability leadership.

Sean D. Keohane: While we did see some signs of pickup in our automotive applications.

Sean D. Keohane: <unk> and other key end markets for this segment remained consistent with the September quarter.

Sean D. Keohane: Cash flow was strong in the quarter, which supported the return of $55 million to shareholders through a combination of share repurchases and dividends and.

Sean D. Keohane: And finally, we continue to be recognized for our leadership and sustainability for.

Sean D. Keohane: For the fifth consecutive year, we were named to Newsweek's list of most responsible companies.

Sean D. Keohane: This distinction recognizes our strong performance in the areas of environmental social and governance and we are very proud of this recognition.

Sean D. Keohane: With the company off to a strong start to our fiscal 2024 and a track record of disciplined execution I am confident in our ability to deliver continued earnings and cash flow growth consistent with our creating for tomorrow strategy.

Sean D. Keohane: As we discussed last quarter the EBIT performance in the reinforcement materials segment has increased dramatically over the past eight years supported by the long term resilience of the replacement tire market and an increasingly tight supply demand balance in the mature regions.

Sean D. Keohane: Even performance chemicals was up 17% compared to the first quarter of fiscal 2023, as demand in the segment appears to have generally stabilized and the effects of destocking have diminished. While we did see some signs of pickup in our automotive applications, demand in other key end markets for this segment remained consistent with the September quarter. Cash flow was strong in the quarter, which supported the return of $55 million to shareholders through a combination of share repurchases and dividends. And finally, we continue to be recognized for our leadership and sustainability. For the fifth consecutive year, we were named to Newsweek's list of the most responsible companies.

Sean D. Keohane: The industry is also facing stricter environmental regulations that require producers to make significant abatement investments to ensure reliable and sustainable supply to our customers.

Sean D. Keohane: These investments raised the barriers to entry for additional capacity roughly doubling the cost of new capacity.

Sean D. Keohane: Furthermore, I believe we have structurally improved our performance through a commitment to commercial and operational excellence across the company.

Sean D. Keohane: Over the past decade, we have invested in the marketing and sales capabilities of our team and relentlessly pursued continuous improvement across our manufacturing network to drive excellence in yields OA and energy recovery.

Sean D. Keohane: As a result of these factors I believe the outlook for this business remains strong.

Sean D. Keohane: This distinction recognizes our strong performance in the areas of environmental, social, and governance, and we are very proud of this recognition. With the company off to a strong start to fiscal 2024 and a track record of disciplined execution, I am confident in our ability to deliver continued earnings and cash flow growth consistent with our Creating for Tomorrow strategy. As we discussed last quarter, the EBIT performance in the reinforcement materials segment has increased dramatically over the past eight years, supported by the long-term resilience of the replacement tire market and an increasingly tight supply-demand balance in the mature region. The industry is also facing stricter environmental regulations that require producers to make significant abatement investments to ensure reliable and sustainable supply to our customers. These investments raise the barriers to entry for additional capacity, roughly doubling the cost of new capacity.

Sean D. Keohane: Our expectation is that we will see continued earnings growth driven by enhanced pricing and product mix.

Sean D. Keohane: Volumes that move in line with growth of passenger and freight miles driven.

Sean D. Keohane: Differentiated capacity adds in high growth markets, such as Indonesia.

Sean D. Keohane: Continued efficiency benefits from yield OE in energy recovery.

Sean D. Keohane: And finally innovation contributions through our evolve sustainable solutions and <unk> technology platforms.

Sean D. Keohane: In our fiscal 2023 performance chemicals results were impacted by significant destocking, but we have seen these impacts diminish in our most recent quarters.

Sean D. Keohane: While we do not expect the same impact to our sales volumes from Destocking in fiscal 2024, we have not yet seen signs that some of our key end markets such as building and construction infrastructure and consumer durables are moving back to prior levels.

Sean D. Keohane: This segment is comprised of our core group of businesses with a GDP plus growth outlook and strong earnings potential.

Sean D. Keohane: In addition, we are building out our strategic positions in battery materials and inkjet two growth vectors that offer compelling long term growth and where we believe we have a strong right to win.

Sean D. Keohane: In battery materials, we expect the market to grow between 20, and 30% over time, and we are well positioned with the leading global EV battery makers, particularly as they expand in the western economies.

Sean D. Keohane: [inaudible] Over the past decade, we have invested in the marketing and sales capabilities of our team and relentlessly pursued continuous improvement across our manufacturing network to drive excellence in yields, OEE, and energy recovery. As a result of these factors, I believe the outlook for this business remains strong. Our expectation is that we will see continued earnings growth driven by enhanced pricing and product mix, volumes that move in line with growth of passenger and freight miles driven, differentiated capacity ads in high growth markets such as Indonesia, continued efficiency benefits from yield, OEE, and energy recovery, and finally, innovation contributions through our Evolve Sustainable Solutions and E2C technology platform. In fiscal 2023, our performance chemicals results were impacted by significant de-stocking.

Sean D. Keohane: In inkjet, we are winning share with printer Oems that are serving the packaging market as it transitions from traditional analog printing to digital.

Sean D. Keohane: EBIT in this segment is expected to grow north of 20% per year, and we are well positioned to capture this growth.

Sean D. Keohane: We remain confident that these businesses can be material contributors to cabot's earnings profile in the coming years.

Sean D. Keohane: With this portfolio of businesses, we have been delivering strong earnings growth over time.

Sean D. Keohane: When we met in December of 2021 at our Investor Day, We had just completed fiscal year 2021, and had achieved adjusted earnings per share of $5 <unk>, which represented a compound annual growth rate of 12% from 2015.

Sean D. Keohane: We set a three year target at that Investor day, with the expectation to grow adjusted earnings per share between 8% and 12% by 2024.

Sean D. Keohane: Our current outlook for fiscal 2024 puts us in this band and would reflect a 9% CAGR at the midpoint of our guidance range.

Sean D. Keohane: While the macroeconomic economic environment has weakened since Investor day in 2021, we continue to manage the businesses dynamically and execute to deliver on our commitments I remain confident.

Sean D. Keohane: But we have seen these impacts diminish in our most recent quarters. While we do not expect the same impact to our sales volumes from de-stocking in fiscal 2024, we have not yet seen signs that some of our key end markets, such as building and construction, infrastructure, and consumer durables, are moving back to prior levels. This segment is comprised of a core group of businesses with a GDP plus growth outlook and strong earnings potential. In addition, we are building out our strategic positions in battery materials and inkjet, two growth vectors that offer compelling long-term growth and where we believe we have a strong right to win. In battery materials, we expect the market to grow between 20 and 30% over time, and we are well positioned with the leading global EV battery makers, particularly as they expand in the Western economy. In Inkjet, we are winning share with printer OEMs that are serving the packaging market as it transitions from traditional analog printing to digital.

Sean D. Keohane: Confident in the resilience and strength of our portfolio and in achieving the corporate Investor day target for adjusted earnings per share growth.

Sean D. Keohane: In addition to strong growth in adjusted earnings per share the Cabot portfolio has robust cash flow characteristics.

Sean D. Keohane: On a trailing 12 month basis, our strong execution has resulted in operating cash flow of $648 million.

Sean D. Keohane: Free cash flow yield over that same time period was eight 3%, which puts us in the top quartile of the S&P 500 chemicals index.

Sean D. Keohane: Our cash generation power allows us to pursue a balanced capital allocation strategy focused on funding strategic investments to deliver long term earnings growth and returning cash to shareholders, while maintaining a strong investment grade balance sheet.

Sean D. Keohane: We have maintained a continuous and growing dividend since $19 68, and that commitment remains a core part of our capital allocation priorities.

Sean D. Keohane: Over the last 12 months, we paid $89 million in dividends, including an 8% increase in may reflecting our confidence in the long term cash flow outlook for the company.

Sean D. Keohane: We expect to continue to raise the dividend over time as our earnings grow.

Sean D. Keohane: We also repurchased $114 million of shares over the last 12 months.

Sean D. Keohane: EBIT in this segment is expected to grow north of 20% per year, and we are well positioned to capture this growth. We remain confident that these businesses can be material contributors to Cabot's earnings profile in the coming years. With this portfolio of businesses, we have been delivering strong earnings growth over time. When we met in December of 2021 at our Investor Day, we had just completed fiscal year 2021 and had achieved adjusted earnings per share of $5.02, which represented a compound annual growth rate of 12% from 2015. We set a three-year target at that Investor Day with the expectation to grow adjusted earnings per share between 8% and 12% by 2024. Our current outlook for fiscal 2024 puts us in that band and would reflect a 9% CAGR at the midpoint of our guidance range.

Sean D. Keohane: We plan to offset dilution every year and we will be opportunistic with additional purchases based on our outlook for cash flow and the timing of growth investment opportunities.

The dividends paid and shares repurchased totaled $203 million in the past 12 months equating to a total payout ratio of 61%.

We also set a corporate discretionary free cash flow target at our December 21, Investor day, which was to generate in excess of $1 billion of discretionary free cash flow over three years. We are also on track to achieve this target in fiscal 2024.

Sean D. Keohane: The strength of our cash flow generation and disciplined capital allocation are fundamental to the strong Cabot investment thesis and our priority for this management team.

Sean D. Keohane: I will now turn it over to Erica to discuss the segment and financial performance in the quarter Erika.

Erica Mclaughlin: Thanks, Sean I'll start with discussing results for the company and then review the segment results adjusted EPS for the first quarter fiscal 2024 was $1 56 compared to 98 in the first quarter of fiscal 2023 with growth coming from both the reinforcement materials and performance chemicals segments.

Erica Mclaughlin: Cash flow from operations was strong at $105 million in the quarter, which included a working capital increase of $46 million discretionary free cash flow was $118 million in the quarter.

Sean D. Keohane: While the macroeconomic environment has weakened since Investor Day in 2021, we continue to manage the businesses dynamically and execute to deliver on our commitment. I remain confident in the resilience and strength of our portfolio and in achieving the Corporate Investor Day target for adjusted earnings per share growth. In addition to strong growth and adjusted earnings per share, the Cabot portfolio has robust cash flow characteristics. On a trailing 12-month basis, our strong execution has resulted in operating cash flow of $648 million. Free cash flow yield over that same time period was 8.3%, which puts us in the top quartile of the S&P 1500 Chemicals Index.

Erica Mclaughlin: We ended the quarter with a cash balance of $244 million and our liquidity position remained strong at approximately $1 2 billion cash.

Erica Mclaughlin: Capital expenditures for the first quarter of fiscal 2020 was $54 million and we continue to expect $250 million to $275 million of capital spending for the fiscal year.

Erica Mclaughlin: Additional uses of cash during the first quarter were $22 million for dividends and $33 million for share repurchases.

Erica Mclaughlin: That balance is $1 3 billion and our net debt to EBITDA was one five times.

Erica Mclaughlin: The operating tax rate for the first quarter of fiscal 2024 was 28% and we anticipate our operating tax rate for fiscal 2024 will be in the range of 28% to 30%.

Erica Mclaughlin: One additional item to note is the benefits seen in the general unallocated income as we discussed last quarter. This line item was general unallocated income and expense includes currency exposures related to our net asset positions, mainly in South American currencies and investment income we earned in that region as well.

Sean D. Keohane: We have maintained a continuous and growing dividend since 1968, and that commitment remains a core part of our capital allocation priority. Over the last 12 months, we paid $89 million in dividends, including an 8% increase in May, reflecting our confidence in the long-term cash flow outlook for the company. We would expect to continue to raise the dividend over time as our earnings grow. (Inaudible) We plan to offset dilution every year and will be opportunistic with additional purchases based on our outlook for cash flow and the timing of growth investment opportunities. The dividends paid and shares repurchased total $203 million in the past 12 months, equating to a total payout ratio of 61%.

Erica Mclaughlin: Interest income on our global cash balances during.

Erica Mclaughlin: During the quarter, we experienced a foreign currency loss due to a government imposed devaluation in Argentina and.

Erica Mclaughlin: On December 13th the Argentinean government devalued the currency from 365 pesos per dollar to more than 800, resulting in a foreign currency loss of $33 million on that day, we treated this as a certain item consistent with how we treated the Argentina government evaluation in August and.

We have created similar government imposed devaluations in other countries, most recently being Venezuela.

Erica Mclaughlin: The market depreciation of the Argentinean peso throughout the rest of the quarter, which was an expense of $7 million is included in operating results as only the impact on the day of the government evaluation was treated as a certain item.

Erica Mclaughlin: During the quarter interest and investment income in Argentina outpaced the foreign currency losses in operating results unless the driver of general unallocated income of $13 million in the first quarter.

Erica Mclaughlin: While currency movements are quite difficult to predict as we look ahead, we are expecting in the range of $7 million to $9 million per quarter for general unallocated income driven by interest and investment income and then net foreign currency impacts on our cash balances.

Sean D. Keohane: We also set a corporate discretionary free cash flow target at our December 21 Investor Day, which was to generate in excess of a billion dollars of discretionary free cash flow over three years. We are also on track to achieve this target in fiscal 2024. The strength of our cash flow generation and disciplined capital allocation are fundamental to the strong Cabot investment thesis and are a priority for this management team. I will now turn it over to Erica to discuss the segment and financial performance in the quarter. Erica.

Erica Mclaughlin: Now moving to reinforcement materials during the first quarter EBIT for reinforcement materials was $129 million, which was an increase of $35 million as compared to the same period in the prior year. The increase was driven by higher pricing and product mix and our 2023 calendar year customer agreements and higher volumes.

Erica Mclaughlin: Globally volumes were up 2% in the first quarter as compared to the same period of the prior year due to the 11% growth in Europe, and 7% in Asia as demand in those regions improved.

Erica Mclaughlin: Looking to the second quarter of fiscal 2024, we expect the reinforcement materials EBIT to improve sequentially due to the outcome of our calendar year 2024 customer agreements and modestly higher sequential volumes.

Now turning to performance chemicals, EBIT increased by $5 million in the first fiscal quarter as compared to the same period of fiscal 2023.

Erica Mclaughlin: The increase was driven by higher volumes in specialty carbons and specialty compounds and fumed metal oxides product lines as the Destocking. We experienced in 2023 was not a significant factor in the first quarter of fiscal 2024.

Erica J. McLaughlin: Thanks, Sean. I'll start by discussing the results for the company and then review the segment results. Adjusted EPS for the first quarter of fiscal 2024 was $1.56 compared to $0.98 in the first quarter of fiscal 2023, with growth coming from both the reinforcement materials and performance chemicals segments. Cash flow from operations was strong at $105 million in the quarter, which included a working capital increase of $46 million. Discretionary free cash flow was $118 million in the quarter.

Erica Mclaughlin: Looking ahead to the second quarter of fiscal 2024, we expect a sequential increase in volumes driven by seasonality impacts more than offset by higher costs sequentially, including $4 million of higher costs associated with maintenance activities and the impact of reducing inventory levels.

Erica Mclaughlin: I will now turn the call back over to Sean to discuss the fiscal year outlook Shawn.

Sean D. Keohane: Thanks Erica.

Sean D. Keohane: Moving to our 2024 outlook, we feel very good about the first quarter results and the remainder of the year we.

Sean D. Keohane: We are reaffirming our outlook for adjusted earnings per share in the range of $6 30 to $6 80.

Sean D. Keohane: Which is up 22% at the midpoint year over year.

Sean D. Keohane: In terms of the assumptions that underpin our outlook. The key drivers of earnings growth continue to develop as we expected.

Sean D. Keohane: We had a strong outcome to our calendar year 2020 for reinforcement materials customer agreements, reflecting the structurally tight supply demand dynamics and the importance of regional supply security quality consistency and sustainability leadership to our customers.

Sean D. Keohane: The improved pricing and mix from our calendar year 2024 agreements will drive margin improvement in fiscal 2024.

Sean D. Keohane: We continue to believe that the Q4 2023 volume run rate is a good basis for segment volumes in fiscal 2024, which would imply low single digit percentage growth compared to fiscal year 2023.

Sean D. Keohane: These factors will drive our expectation for another year of strong EBIT growth in the reinforcement materials segment.

Sean D. Keohane: The performance chemicals segment is still expected to be impacted by weakness in certain end markets with volumes on average expected to be similar to the fourth quarter of fiscal 2023.

Erica J. McLaughlin: Our debt balance was $1.3 billion, and our net debt to EBITDA was $1.5 times. The operating tax rate for the first quarter of fiscal 2024 was 28 percent, and we anticipate our operating tax rate for fiscal 2024 will be in the range of 28 to 30 percent.

Sean D. Keohane: Regarding margins for the segment, we continue to expect relatively consistent margins to the Q4 exit rate.

Sean D. Keohane: Cash generation is expected to remain strong and we intend to return a robust amount of cash to shareholders through dividends and share repurchases.

Sean D. Keohane: Overall I am very pleased with how the company is positioned today and I am confident in the outlook for the year.

Speaker Change: Thank you very much for joining us today and I'll now turn the call over for our Q&A session.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced we ask that you. Please limit your questions to one and one follow up please.

Erica J. McLaughlin: One additional item to note is the benefits seen in the general unallocated income. As we discussed last quarter, this line item of general unallocated income and expense includes currency exposures related to our net asset positions, mainly in South American currencies and investment income we earn in that region, as well as interest income on our global cash balances. During the quarter, we experienced a foreign currency loss due to a government-imposed devaluation in Argentina. On December 13th, the Argentinian government devalued the currency from 365 pesos per dollar to more than 800, resulting in a foreign currency loss of $33 million on that day.

Please standby, while we compile the Q&A roster one moment for our first question. Please.

Speaker Change: Our first question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

David I. Begleiter: Hi, it's David <unk> here for Dave.

David I. Begleiter: On China can you talk about your outlook for the Q.

David I. Begleiter: Specific to China, and what type of volume outlook is embedded in the full year guidance.

Speaker Change: Sure Hi, David So maybe maybe an update on.

Speaker Change: In China, and I'll sort of pull the lens back a bit in terms of what what we're seeing there.

Speaker Change: I would say the Chinese economy appears to have stabilized, albeit at a lower level of growth than we've seen historically.

Speaker Change: And it is showing some signs of marginal improvement in the recent months.

Speaker Change: We've definitely seen some pockets of stronger demand in certain sectors, notably entire driven by replacement tire exports and the automotive OE sector.

Erica J. McLaughlin: We treated this as a certain item, consistent with how we treated the Argentina government evaluation in August and how we have treated similar government-imposed devaluations in other countries, most recently Venezuela. The market depreciation of the Argentinian peso throughout the rest of the quarter, which was an expense of seven million dollars, is included in operating results as only the impact on the day of the government's evaluation was treated as a certain item. During the quarter, interest and investment income in Argentina outpaced the foreign currency losses in operating results and was the driver of general and allocated income of $13 million in the first quarter. While currency movements are quite difficult to predict, as we look ahead, we are expecting in the range of $7 to $9 million per quarter for general and allocated income, driven by interest and investment income and the net foreign currency impacts on our cash balance.

Speaker Change: The growth I think in the replacement tire exports is likely assign that supply chains are destock in the west and there is a need for more tire inventory.

Speaker Change: But the latest economic indicators released in Q4 in the calendar Q4 of 'twenty three and for the full year Cal.

Speaker Change: Calendar 'twenty four.

Speaker Change: Were largely consistent with market expectations.

So so I think we're seeing some some stability here that the housing market, which accounts for about 25% of China's overall economy is still.

Speaker Change: Quite weak and we believe it'll it'll take some time to replace this this demand driver.

Speaker Change: But the government is trying to stimulate consumer confidence.

Speaker Change: And.

Speaker Change: And we're seeing actions on that front.

Just came back from a two week trip to China, and I think there is a pretty consistent narrative that the government has stimulus plans around.

There are so called three major projects, which are.

Speaker Change: Building out affordable housing urban renovation and what Theyre, calling dual use infrastructure, so things like <unk> and EV charging in renewable energy and power distribution. These types of forms of of infrastructure. So I think these efforts.

Erica J. McLaughlin: Moving to reinforcement materials, during the first quarter, EBIT for reinforcement materials was $129 million, which was an increase of $35 million as compared to the same period in the prior year. The increase was driven by higher pricing and product mix in our 2023 calendar year customer agreements and higher volume. Globally, volumes were up 2% in the first quarter as compared to the same period of the prior year due to 11% growth in Europe and 7% in Asia as demand in those regions improved.

Speaker Change: We see them materialize, we will definitely drive demand for chemicals, but we'll have to see how things develop coming out of Chinese new year I think the next the next few months will be important.

Speaker Change: And we will be monitoring the situation closely and we will continue to actively manage our our business there and in this dynamic.

Speaker Change: Situation. So overall I think growth expectations would probably be kind of in line with the latest macroeconomic indicators out of China, which sort of has GDP growth in the 4% to 5% range something like that in that zone.

Erica J. McLaughlin: Looking to the second quarter of fiscal 2024, we expect the reinforcement materials EBIT to improve sequentially due to the outcome of our calendar year 2024 customer agreements and modestly higher sequential volumes. Now turning to performance chemicals, it even increased by $5 million in the first fiscal quarter as compared to the same period of fiscal 2023. The increase was driven by higher volumes in the specialty carbons, specialty compounds, and few metal oxides product lines, as the destocking we experienced in 2023 was not a significant factor in the first quarter of fiscal 2024. Looking ahead to the second quarter of fiscal 2024, we expect a sequential increase in volumes driven by seasonality impacts, more than offset by higher costs sequentially, including $4 million of higher costs associated with maintenance activities and the impact of reducing inventory I will now turn the call back over to Sean to discuss the fiscal year outlook. Okay, Sean?

Speaker Change: Okay got it and then battery materials do you still expect EBITDA to be up in 24, given all the incremental challenges I guess in some parts of the EV battery Chen.

Speaker Change: Yes, definitely the sentiment across the EV and battery chain is.

Speaker Change: Is somewhat depressed right now.

Speaker Change: Would expect EBITDA to grow in fiscal year 'twenty four based on continued year over year volume growth and a better product mix in China, as we optimize our participation and drive a higher penetration of our performance grades.

Speaker Change: I think growth in fiscal 'twenty four is expected to be more second half driven as Oems and battery makers are expected to reduce.

Speaker Change: What are pretty high inventory levels.

Speaker Change: This coming quarter in the March quarter.

Speaker Change: So that's that's definitely a factor in China today outside of China, we're expecting volumes to be higher than then fiscal year 'twenty three.

Speaker Change: Though again.

Speaker Change: The ramp is somewhat difficult to.

Speaker Change: <unk> two project here, but overall, we'd expect to grow profitability in fiscal 'twenty four I would say roughly in line with battery production growth.

Sean D. Keohane: Thanks, Erica. Moving to our 2024 outlook, we feel very good about the first quarter results and the remainder of the year. We are reaffirming our outlook for adjusted earnings per share in the range of $6.30 to $6.80, which is up 22% at the midpoint year over year. In terms of the assumptions that underpin our outlook, the key drivers of earnings growth continue to develop as we expect. We had a strong outcome for our calendar year 2024 reinforcement materials customer agreements, reflecting the structurally tight supply and demand dynamics and the importance of regional supply security, quality, consistency, and sustainability leadership to our customers. The improved pricing and mix from our calendar year 2024 agreements will drive margin improvement in fiscal 2024.

Speaker Change: <unk> probably the.

Speaker Change: The best way to think about it.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: Our next question comes from the line of Laurence Alexander from Jefferies. Your line is now open.

Laurence Alexander: Good morning, and reinforcement materials, how much of your volumes are now covered by multiyear contracts.

Laurence Alexander: On multi year contracts.

Laurence Alexander: Very little.

Laurence Alexander: Laurence.

Laurence Alexander: They're largely all one year one year agreements.

Laurence Alexander: Okay.

Laurence Alexander: In fiscal 'twenty, four we had a residual of two year agreements from last year. So we'll have the second year in 2024.

Laurence Alexander: And then the negotiations that.

Laurence Alexander: That we had this year, where we're one year one.

Laurence Alexander: One year agreements.

Laurence Alexander: And that was really reflecting our our view on on on our outlook I would say multi year discussions were a more minor part of the conversation and given the market environment. We were negotiating this year, we were not seeking multiyear deals.

Laurence Alexander: And how.

Laurence Alexander: How much can you debottleneck capacity.

Sean D. Keohane: We continue to believe that the Q4 2023 volume run rate is a good basis for segment volumes in fiscal 2024, which would imply low single-digit percentage growth compared to fiscal year 2023. These factors will drive our expectation for another year of strong EBIT growth in the reinforcement material segment. The performance chemical segment is still expected to be impacted by weakness in certain end markets, with volumes on average expected to be similar to the fourth quarter of fiscal 2023. Regarding margins for the segment, we continue to expect relatively consistent margins to the Q4 exit rate.

Laurence Alexander: Across your system each year.

Laurence Alexander: Yes, so the way that we think about capacity Lawrence here really to two levers one is continuing to drive.

Laurence Alexander: What we call OE overall equipment effectiveness and so this is really driving.

Laurence Alexander: Up the the uptime and the assets.

Laurence Alexander: As well as the throughput rates and minimizing off quality those three factors.

Laurence Alexander: Calculate to what's called OE and of course that is the first priority.

Laurence Alexander: For us because that is the most.

Laurence Alexander: Most capital efficient way to to grow capacity and over a period of time here, we have substantially improved the OA and so I think you can you can expect to get a point or two of OA.

Sean D. Keohane: Cash generation is expected to remain strong, and we intend to return a robust amount of cash to shareholders through dividends and share repurchases. Overall, I'm very pleased with how the company is positioned today, and I'm confident in the outlook for the year. Thank you very much for joining us today, and I'll now turn the call over to our Q&A session. Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again.

Laurence Alexander: Each year that kind of an.

Laurence Alexander: An increase and then the second lever is what we call capital efficient de bottlenecks and so this would be where there is relatively minor capital required to Debottleneck, a particular unit operation and the plant.

Laurence Alexander: In order to unlock some additional capacity and I would say every carbon black plant has.

Laurence Alexander: Has a.

Laurence Alexander: And options set of of Debottleneck that.

Laurence Alexander: Can be done some more capital efficient than others, but.

Laurence Alexander: But these are generally very capital efficient ways. So if you then take those two levers and match them up against what is a low single digit growth rate.

Laurence Alexander: From a demand standpoint, we feel confident that we've got growth runway here.

Operator: Please wait for your name to be announced. We ask that you please limit your questions to one and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

Laurence Alexander: For for multiple multiple years.

Laurence Alexander: And then.

Laurence Alexander: The.

Laurence Alexander: Carbon the last summer's projects.

Laurence Alexander: If you invested more could you accelerate market adoption or is it purely sort.

Laurence Alexander: Sort of customer considerations at this point.

Laurence Alexander: Yes.

Laurence Alexander: It's more about customer adoption because.

Laurence Alexander: It is.

Laurence Alexander: Our high performance, but a novel technology, new technology that.

David L. Begleiter: Hi, it's David Huang here for Dave. I guess first on China, can you talk about your outlook for the two segments specific to China and what type of volume outlook is embedded in the four-year guidance?

Laurence Alexander: That does have.

Require some change in the customers' production process.

Laurence Alexander: You're basically making some changes to the front end of their plant the mixing part of their plant.

Sean D. Keohane: So maybe an update on China, and I'll sort of pull the lens back a bit in terms of what we're seeing there. I would say the Chinese economy appears to have stabilized, albeit at a lower level of growth than we've seen historically, and it is showing some signs of marginal improvement in recent months. We've definitely seen some pockets of stronger demand in certain sectors, notably in tires, driven by replacement tire exports and the automotive OE sector. And the growth, I think, in replacement tire exports is likely a sign that supply chains are destocked in the West and there's a need for more tire inventory. But the latest economic indicators released in Q4, in the calendar Q4 of 23, and for the full year, in the calendar 24, were largely consistent with market expectations. And so I think, you know, we're seeing some stability here. The housing market, which accounts for about 25% of China's overall economy, is still quite weak.

Laurence Alexander: And so that it's really about the customer adoption time more than anything else now we have seen very clear adoption in the market segment for off the road tires. These are large earth, moving tires, and Thats, where particularly the.

Laurence Alexander: The wear and cut in chip performance of this enhanced compound really really really plays very strongly so that's the first place where youre seeing customers commercialize their commercial a lot of commercial tires out there right now in this space I think the next place would be in.

Laurence Alexander: Truck and bus tires.

Laurence Alexander: Where they're trying to improve.

Laurence Alexander: Both the wear.

Characteristics, but also balance the.

Laurence Alexander: The fuel economy of the rolling resistance.

Laurence Alexander: And our elastomer composites.

Laurence Alexander: Materials play.

Laurence Alexander: Play play well there and so those we have a number of customers that are.

Laurence Alexander: In in extended road tests right now in that application. So it's a conservative market understandably from a qualification standpoint, but the driver here.

Laurence Alexander: Think is is really just that I think.

Sean D. Keohane: And I think there's a pretty consistent narrative that the government has stimulus plans around their so-called three major projects, which are building out affordable housing, urban renovation, and what they're calling dual-use infrastructure. So things like 5G and EV charging and renewable energy and power distribution, these types of forms of infrastructure. So I think these efforts, if we see them materialize, will definitely drive demand for chemicals. But we'll have to see how things develop coming out of the Chinese New Year. I think the next few months will be important, and we'll be monitoring the situation closely. And we'll continue to actively manage our business there in this dynamic situation. So overall, I think growth expectations would probably be kind of in line with the latest macroeconomic indicators out of China, which sort of have GDP growth in the 4% to 5% range, something like in that zone. Okay, I got it.

Laurence Alexander: The compelling nature of the value proposition has been.

Laurence Alexander: Becoming more evident here over the last several years.

Laurence Alexander: And so I think it's about them working through their adoption cycle.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question. Please.

Speaker Change: Our next question comes from the line of Chris Capps with loop capital markets. Your line is now open.

Chris Kapsch: Yes. Good morning, I had a question just on the pricing and mix gains that you mentioned in reinforcement materials.

Chris Kapsch: Just curious how balanced that was across regions or was there more.

Chris Kapsch: More of an affirmative step change in Europe, given the sanctions that are happening.

Chris Kapsch: Against the Russian source carbon black this year.

Speaker Change: Yes, good morning, Chris.

Speaker Change: So in the in the prepared remarks, you got.

Speaker Change: The net impact, which we're we're very pleased with it but let me try to give you a little bit of color here by region and see if that helps I would say first in terms of Europe.

Speaker Change: Definitely the upcoming ban on Russian supply to the EU.

Speaker Change: Drove strong demand from customers to secure.

Speaker Change: Supply and we engaged with our long standing partners here first.

Speaker Change: Followed by other customers looking for security and local supply from within the regions and I think customers have.

Speaker Change: Have recognized the long term value of cabot's stability and and I think the contract outcomes. They are affirm that view so we definitely saw.

Sean D. Keohane: And then on battery materials, do you still expect EBITDA to be up in 2024, given all the incremental challenges, I guess, in some parts of the EV battery? Yeah, definitely. The sentiment across the EV and battery chain is, you know, somewhat depressed. Right now, we would expect EBITDA to grow in fiscal year 24, based on continued year-over-year volume growth and a better product mix in China, as we optimize our participation and drive a higher penetration of our performance grades. Now, I think growth in fiscal 24 is expected to be more second half driven as OEMs and battery makers are expected to reduce what are pretty high inventory levels this coming quarter, in the March quarter. So that's definitely a factor in China today.

Speaker Change: Impact from that that phenomenon that you raised in the in the Americas, even with a bit softer demand in the second half of 2012 2024.

Speaker Change: Due to the sort of transient destocking that occurred in the replacement chain I think the outlook for tight supply demand fundamentals remains in the Americas, and we realized price increases in this region.

Speaker Change: And as well across the board.

Speaker Change: And I think again, our customers continue to recognize the value proposition of of regional supply and consistent.

Speaker Change: Quality and our sustainability leadership and related to that are need to pass along higher operational costs associated with environmental compliance and the need to earn a return on that capital. So so thats.

Sean D. Keohane: Outside of China, we're expecting volumes to be higher than fiscal year 23, though again, the ramp is somewhat difficult to project here. But overall, we'd expect to grow profitability in fiscal 24, I would say roughly in line with battery production growth. That's probably the best way to think about it. Okay. Thank you.

Speaker Change: That's the Americas and in Asia as you know the majority of our business is negotiated on a monthly or quarterly spot basis for those global customers, where we do negotiate annual agreements we achieved price increases in this region as well.

So really across the board with.

Speaker Change: Probably a little bit stronger outcomes in the European region because of the.

The Russia sanction phenomenon.

Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Lawrence Alexander from Jeffreys. Your line is now open.

Speaker Change: That's helpful.

Speaker Change: On the follow up.

Speaker Change: <unk>.

Speaker Change: I guess sort of bigger picture because.

Speaker Change: The Companys performance has done well the returns are improved.

Speaker Change: It sort of validates the structural improvement for the industry.

Laurence Alexander: Good morning. In reinforcement materials, how much of your volumes are now covered by multi-year contracts? On multi-year contracts, very little. Lawrence Lawrence Lawrence Lawrence Lawrence Lawrence. They're largely all one-year agreements. Okay, we in fiscal 24, we had a residual of two-year agreements from last year. So we'll have the second year in 2024. And then the negotiations that we had this year were a one year, one year agreement, and that really reflected our view on Outlook. I would say multi-year discussions were a minor part of the conversation. And given the market environment we were negotiating in this year, we were not seeking multi-year deals.

Speaker Change: Yet embedded in the valuation of the stock is some skepticism I guess that there'll be some reversion.

Speaker Change: And I'm just curious about your comments about.

Speaker Change: The barriers to entry.

Speaker Change: And the two ex <unk>.

Speaker Change: Multiple to stand up new capacity just wondering if you.

Speaker Change: Yes.

Speaker Change: What your thoughts are on.

Speaker Change: The skepticism I guess by the market about the structural improvement in the industry and also juxtaposed against there was an example fairly recently one of your competitors.

Speaker Change: Did.

Speaker Change: Some small additions granted they are targeted at looks like southeast Asia, where.

Speaker Change: Where the growth rates are higher so I'm wondering if you could just comment overall on.

Speaker Change: Just the competitive landscape in that too.

Speaker Change: The structural thesis about the industry. Thank you.

Speaker Change: Sure Chris.

Speaker Change: So well.

Speaker Change: In the prepared remarks.

Chris: I commented on the long term execution of our strategy and how.

Speaker Change: How we have now over.

Speaker Change: Long period of time demonstrated.

Speaker Change: Quite strong earnings growth and so.

I think there are a lot of proof points there that.

Sean D. Keohane: [inaudible] How much can you de-bottleneck capacity across your system each year? Yeah, so the way that we think about capacity, Lawrence, is really two levers. One is continuing to drive what we call OEE, overall equipment effectiveness. And so this is really driving up the uptime in the assets, as well as the throughput rates and minimizing off quality. Those three factors calculate to OEE.

Speaker Change: That the structural.

Speaker Change: The dynamics are.

Speaker Change: Very different particularly in reinforcement materials and as I've said.

Speaker Change: Said in the past I think if you go way back in history in this business.

Speaker Change: Hugh you did see a different set of structural dynamics, primarily because there was a <unk>.

Speaker Change: Migration out of the West end too.

Speaker Change: China.

Speaker Change: And that that.

Speaker Change: That tire migration.

Sean D. Keohane: And of course, that is the first priority for us because that is the most capital efficient way to grow capacity. And over a period of time here, we've substantially improved the OEEs. And so I think you can expect to get a point or two of OEE each year.

Speaker Change: It has been over now for a number of years and so.

That demand picture in each region is much more stable I think number one number two.

Speaker Change: There have been a number over that period of time of supply side reductions in capacity.

Speaker Change: That have consistently.

Sean D. Keohane: That's kind of an increase. And then the second lever is what we call capital efficient de-bottlenecks. And so this would be where there is relatively little capital required to de-bottleneck a particular unit operation in the plant in order to unlock some additional capacity. And I would say every carbon black plant has an option set of de-bottlenecks that can be done, some more capital efficient than others.

Speaker Change: Tightened up the balance.

Speaker Change: And that's been that's been playing out now for.

Seven eight years.

Speaker Change: Something in that in that range and then when you overlay.

Speaker Change: The environmental cap.

Capital that is required if you can get new capacity permitted in any jurisdiction.

Raises the barriers to entry.

Sean D. Keohane: But but these are generally very capital efficient ways. So if you then take those two levers and match them up against what is a low single-digit growth rate from a demand standpoint, we feel confident that we've got growth runway here for multiple, multiple years, and them with the carbon elastomers projects. If you invested more, could you accelerate market adoption, or is it purely— Yeah, it's more about customer adoption because, you know, it is high performance, but a novel technology, new technology that does require some changes in the customer's production process. You know, you're basically making some changes to the front end of their plant, the mixing part of their plant, and so, you know, it's really about the customer adoption time more than anything Now, we have seen very clear adoption in the market segment for off-the-road tires. These are, you know, large earth-moving tires, and that's where they wear particularly well.

Speaker Change: The cost recovery and earning earning a return on the capital.

Speaker Change: Is.

Speaker Change: Quite a different number from.

Speaker Change: From from historical and then finally, I would say the importance of having regional supply while this business has always been.

Speaker Change: A regionally driven business.

Speaker Change: I think today with the call it de risking our decoupling or regional supply security. However, you want to sort of phrase.

Speaker Change: The trend is.

Speaker Change: It's pretty clear that there is a level of.

Speaker Change: So to onshoring back to two regions.

Speaker Change: In an effort to try to Derisk, our global supply chains, and so again. This business has always been regionally driven but I would say the emphasis on that the importance of that has only gotten has only gotten stronger so I think the.

Speaker Change: The structural dynamics here.

Speaker Change: Are quite different and quite compelling and on top of those market factors. We've done a number of things as I commented on in the prepared remarks too.

Sean D. Keohane: And the cut-and-chip performance of this enhanced compound really, really, really plays very strongly. So that's the first place where you're seeing customers commercialize it. There are a lot of commercial tires out there right now in this space. I think the next place would be in the truck-and-bus tires, where they're trying to improve both the wear characteristics but also balance the... [inaudible] Thank you.

Speaker Change: Improve the performance of our business sort of self help if you will.

Speaker Change: Really driven up over a long period of time through operational excellence, our OE performance.

Speaker Change: We always are driving.

Speaker Change: Our yields making investments to drive yield and then finally energy recovery is really critical not only to the economics of the business, but also to our sustainability goals. If we can produce cogeneration power. So I think all of those self help measures combined with.

Operator: Thank you. One moment for our next question, please. [inaudible] Yeah, good morning.

Speaker Change: The industry structure comments that I made.

Christopher John Kapsch: I had a question just on the pricing and mixed gain that you mentioned for reinforcement materials. Just curious how balanced that was across regions, or was there, you know, more of an affirmative step change in Europe given the sanctions that are happening against the Russian source carbon black this year? Yeah, good morning, Chris. So in the prepared remarks, you got the net impact, which we're, you know, we're very pleased with. But let me try to give you a little bit of color here by region and see if that helps.

Speaker Change: Create a quite.

Speaker Change: Different looking business and now Youre seeing proof points play out over a very long period of time.

Speaker Change: Okay.

Speaker Change: That's helpful, but just any thoughts on the on the Birla additions and is that just.

Speaker Change: Keeping up with growth in certain regions is it helping backfill the displacement of the Russian supply I appreciate it. Thanks.

Speaker Change: Yes, yes, sure sorry, Chris forgot about that.

Speaker Change: <unk>.

Speaker Change: Our view on that dates back to.

Speaker Change: Announcements that might be almost 10 years old.

Speaker Change: And never never fully Dee.

Speaker Change: Acted acted on so.

Sean D. Keohane: I would say, you know, first in terms of Europe, definitely the upcoming ban on Russian supply to the EU drove strong demand from customers for secure supply. And we engaged with our longstanding partners here first, followed by other customers looking for security and local supply from within the regions. And I think customers have recognized the long-term value of Cabot stability. And, I think the contract outcomes there affirm that view. So we definitely saw an impact from that, that phenomenon that you raised. In the Americas, even with a bit softer demand in the second half due to higher operational costs associated with environmental compliance and the need to earn a return on that capital. So that's what the Americas are like.

Not sure how how firm.

That that most recent announcement is when you put it in the history.

Speaker Change: Of prior announcements announcements that have been made that being said they are targeted in the ASEAN region.

Speaker Change: If they do come to fruition and that is expected to be the highest growth region for tire production.

Speaker Change: And so.

Speaker Change: So that would that would certainly make sense.

Speaker Change: On the margin tire production is capacity is moving into ASEAN rather than China.

Speaker Change: The need for <unk>.

Speaker Change: Carbon black.

Speaker Change: We will certainly we will certainly grow there.

Speaker Change: It's possible that there is there is some backfill to the Russian supply that's anticipated in that announcement as well, but we feel like between the growth in ASEAN and the fact that Europe does need.

Sean D. Keohane: And then in Asia, as you know, the majority of our businesses negotiate on a monthly or quarterly spot basis. For those global customers where we do negotiate annual agreements, we achieve price increases in this region as well. So, really across the board with, you know, probably a little bit stronger outcomes in the European region because of the Russia sanction phenomenon. That's helpful.

Speaker Change: Some structural supply.

Speaker Change: To backfill that Russian material.

Speaker Change: We think it.

Speaker Change: It should be in balance, but questions about whether or not it.

Speaker Change: It actually happens.

Speaker Change: Thank you.

Speaker Change: Thank you just as a reminder, ladies and gentlemen to ask a question Thats Star one one and please wait for your name to be announced one moment for our next question.

Sean D. Keohane: And the follow-up was, was, I guess, sort of a bigger picture because, you know, the company's performance has done well, and the returns are improved. It sort of validates the structural improvement for the industry, yet embedded in the valuation of the stock is some skepticism, I guess, that there'll be some reversion. And I'm just curious about your comments about, you know, the barriers to entry and, you know, the 2x multiple to stand up new capacity. Just wondering, you know, what your thoughts are on the skepticism, I guess, by the market about the structural improvement in the industry. And also, you know, juxtaposed against, there was an example fairly recently where one of your competitors did announce some small additions. Granted, they're targeted.

Speaker Change: Our next question comes from the line of Joshua Spector with UBS. Your line is now open.

Speaker Change: Okay.

Speaker Change: Hey, guys. This is James Cameron on for Josh.

James Cameron: I just wanted to poke on some of the data we saw in the reinforcement market specifically.

James Cameron: Specifically with respect to the America is I think.

James Cameron: The data we were tracking pointed reinforcement.

James Cameron: Replacement tires being up 10% year over year and some of the some of the weakness that I'm sure came through the numbers with.

James Cameron: OE tires being down about 8%.

James Cameron: I had a hard time kind of.

James Cameron: Balancing that against the minus 7% year over to you.

James Cameron: Called out in Americas, I was just wondering if you could point to.

James Cameron: Anything you saw in the Delta there.

James Cameron: Yes.

Speaker Change: Well I would say it's really.

Speaker Change: Driven by demand in the region remember this is Americas, both north and south.

Speaker Change: I think south was probably.

Speaker Change: A little weaker than North America. So that's that's impacting here and we also.

Speaker Change: Year end inventory adjustments made by customers as well.

Sean D. Keohane: It looks like Southeast Asia and where, you know, where the growth rates are higher. So, wondering if you could just comment overall on, you know, just the competitive landscape and the, you know, structural thesis about the industry. Thank you. Sure, Chris.

And we think there was definitely.

Speaker Change: Some of that.

Speaker Change: Happening, but our expectation here is that we will see sequential improvement in our fiscal Q2, so the march quarter here.

Speaker Change: And then a return to year over year growth.

Sean D. Keohane: So, well, you know, in the prepared remarks, I commented on the long-term execution of our strategy and how we have now, over a very long period of time, demonstrated quite strong earnings growth. And so, I think there are, you know, a lot of proof points there that the structural dynamics are very different, particularly in reinforcement materials. And as I've said in the past, I think, you know, if you go way back in history in this business, you see, you did see a different set of structural dynamics, primarily because there was a tire migration out of the West and into China. And that tire migration has been over now for a number of years. And so, that demand picture in each region is much more stable, I think, number one. Number two, there have been a number of supply-side reductions in capacity over that period of time that, you know, have consistently, you know, tightened up the balance. And that's been playing out now for, you know, seven, eight years, something in that range.

Speaker Change: In the second half so.

Speaker Change: Not not particularly concerned about it and our assessment is really driven.

Speaker Change: Driven by by those factors.

Speaker Change: Okay. Thank you.

Speaker Change: Then on the PC side.

Speaker Change: You called out some pretty solid volumes in the quarter.

Speaker Change: I think over the past couple you've had some headwinds on the pricing side.

Speaker Change: Or is that starting to turnaround or are you still seeing pressure there.

Speaker Change: So I'm not sure that last statement was accurate I think our comments more recently have been that margins. In this segment have generally been holding up relatively well.

Speaker Change: And the biggest challenge in the segment has been volume has been volume weakness, but we definitely on the volume side.

Speaker Change: Did see some now.

Speaker Change: Nice improvement.

Speaker Change: In the quarter net was driven by specialty carbons and specialty compounds and fumed metal oxides, so really.

Speaker Change: Kind of across the board. So I think that was positive to see.

Speaker Change: After.

Speaker Change: A pretty extended period of Destocking in where we were seeing negative.

Sean D. Keohane: And when you overlay the environmental capital that is required if you can get new, you know, capacity permitted in a jurisdiction, it certainly raises the barriers to entry. And, you know, the cost recovery in earning a return on the capital is, you know, quite a different number from historical. And then finally, I would say the importance of having regional supply. While this business has always been a regionally driven business, I think today with the, call it, you know, de-risking or decoupling or regional supply security, however you want to phrase the trend, it's pretty clear that there is a level of sort of on-shoring back to regions and an effort to try to de-risk global supply chains. And so, again, this business has always been regionally driven, but I would say the emphasis on that, and the importance of that, has only gotten stronger. So, I think the structural dynamics here are quite different and quite compelling.

Speaker Change: Year over year.

Speaker Change: So I think that's that's a positive.

Speaker Change: Signal here.

Speaker Change: I think the timing of.

Speaker Change: Recovery in this segment.

Speaker Change: Beyond this sort of the next leg will will depend I think on on how things develop in some of our key end markets building construction infrastructure consumer durable goods things like this.

Speaker Change: And so far.

Speaker Change: Those arent showing any.

Speaker Change: Signs of inflection so.

Speaker Change: I think we're pleased to see.

Speaker Change: Perhaps.

Speaker Change: Turning point, where we're where we're no longer.

Speaker Change: Seeing negative year over year comps.

Speaker Change: But whether or not these end markets pick up and drive the next leg of growth with perhaps a bit cautious here until we.

Speaker Change: Until we get a number of months under our belt here, but definitely pleased to see.

Speaker Change: This stabilization and hopefully the signs of a turn here.

Speaker Change: Okay. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of John Roberts with Mizuho. Your line is now open.

Sean D. Keohane: And on top of those market factors, we've done a number of things, as I commented on in the prepared remarks, to improve the performance of our business, sort of self-help, if you will. We've really driven up, over a long period of time, through operational excellence, our OEE performance. We are always driving our yields, making investments to drive yield. And then, finally, energy recovery is really critical, not only to the economics of the business but also to our sustainability goals if we can produce co-generation power. So, I think all of those self-help measures combine with the industry structure comments that I made to create a quite different-looking business. And now, you're seeing proof points play out over a very long period of time. That's helpful.

John Roberts: Thank you Sean this precipitated silica business for sale would that fit with the reinforcement business.

John Roberts: Hey, John.

John Roberts: I think we're always.

John Roberts: Looking at.

Sean D. Keohane: M&A two to enhance the portfolio I would say the way we think through it is first if there.

John Roberts: Is M&A that would.

John Roberts: Would help our existing businesses in terms of.

John Roberts: Our global footprint to serve customers and build that build that position out I would say number one number two in our chosen growth factors.

John Roberts: In battery materials.

John Roberts: In inkjet.

John Roberts: If there are attractive.

John Roberts: Opportunities there that would strengthen our.

John Roberts: Our position then we are always looking at those and then I think the third area would be are there are there are logical adjacencies.

John Roberts: Where the combination of.

Sean D. Keohane: But just any thoughts on the burla additions? And is that just, you know, keeping up with growth in certain regions? Is it helping backfill the displacement of the, you know, Russian supplies? Appreciate it. Yeah, yeah, sure. Sorry, Chris; I forgot about that.

John Roberts: Of our business and another one would be would be accretive now with respect to precipitated silica specifically.

John Roberts: I think there are a couple of ways to think about it. One is you could get basic in the precipitated silica. The other is that you could use your.

Sean D. Keohane: So, our view on that dates back to announcements that might be almost 10 years old and never fully acted on. So, I'm not sure how firm that most recent announcement is when you put it in the history of prior announcements that have been made. That being said, they're targeted in the ASEAN region if they do come to fruition, and that is expected to be the highest growth region for tire production. And so, that would certainly make sense as, on the margin, tire production capacity is moving into ASEAN rather than China. The need for carbon black, you know, will certainly grow there. It's possible that there's some backfill to the Russian supply that's anticipated in that announcement as well, but we feel that between the growth in ASEAN and the fact that Europe does need some structural supply to backfill the Russian material, we think it should be in balance. But questions about whether or not it actually happens.

John Roberts: Your technology platform like <unk>.

John Roberts: To incorporate.

John Roberts: Other materials into <unk>.

John Roberts: <unk>.

And advanced formulation and.

Speaker Change: That's certainly something that.

Speaker Change: We look at and.

Speaker Change: Think about so so it's definitely something that we evaluate the prioritization of how we look at things would be strengthen our existing position one.

Speaker Change: Number two.

Speaker Change: Invest in explore M&A to support the growth vectors and then three evaluate adjacencies such as.

Speaker Change: The one you just described.

Speaker Change: Okay.

Speaker Change: Normal I'm not sure did we lose connection here Mr. Roberts do we have another question.

Speaker Change: Just that one thank you all right. Thank you.

Speaker Change: Thank you John.

Speaker Change: Im showing no further questions I'd like to hand, the conference back over to Mr. Cohen for closing remarks.

Operator: Thank you. Thank you. This is a reminder, ladies and gentlemen, to ask a question, the star 1-1, and please wait for your name to be announced.

Cohen: Okay, great. Thank you Norma and thank you all for joining the call today and for your support of Cabot and I look forward to speaking with you again next quarter. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect everyone have a wonderful day.

Operator: One moment for our next question. Our next question comes from the line of Joshua Spector with UBS. Your line is now open. Hey guys, this is James Cannon, author of Josh.

Cohen: Okay.

Joshua David Spector: I just wanted to touch on some of the data we saw in the reinforcement market, specifically with respect to the Americas. The data we were tracking pointed to reinforcement or replacement tires being up 10% year over year, and some of the weakness that I'm sure came through the numbers with OE tires being down about 8%. I had a hard time kind of balancing that against the minus 7% you called out in America's. I was just wondering if you could point to anything you saw in the Delta.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Thank you.

Cohen: Yes.

Cohen: Sure.

Cohen: Okay.

Cohen: Yes.

Sean D. Keohane: Yes. Well, I would say it's really, you know, driven by demand in the region. Remember, this is America, both North and South. I think South America was probably a little weaker than North America.

Cohen: Okay.

Cohen: Sure.

Cohen: Okay.

Cohen: [music].

Cohen: Yes.

Cohen: Okay.

June.

Sean D. Keohane: So that's impacting here. And we also see year-end inventory adjustments made by customers as well. And we think there was definitely some of that happening. But our expectation here is that we'll see sequential improvement in our fiscal Q2, so the March quarter here, and then a return to year-over-year growth in the second half. So I'm not particularly concerned about it.

Cohen: [music].

Cohen: Okay.

Cohen: Sure.

Cohen: Yeah.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: [music].

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Sure.

Cohen: Yeah.

Cohen: Okay.

Cohen: Yes.

Cohen: Sure.

Sean D. Keohane: And our assessment is really driven by those factors. Okay, thank you. And then on the PC side, you called out some pretty solid volumes in the quarter. I think over the past couple of years, you've had some headwinds on the pricing side. Are you, is that starting to turn around, or are you still seeing pressure? Yeah, so I'm not sure that last statement was accurate.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: [music].

Okay.

Cohen: Okay.

Cohen: Yes.

Cohen: Sure.

Sean D. Keohane: I think our comments more recently have been that margins in the segment have generally been holding up relatively well, and the biggest challenge in the segment has been volume. But we definitely on the volume side did see some nice improvement in the quarter that was driven by specialty carbon, specialty compounds, and a few metal oxides. So really kind of across the board.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

[music].

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: [music].

Sean D. Keohane: So I think that's positive to see after, you know, a pretty extended period of de-stocking where we were seeing negative year over year comps. So I think that's a positive signal here. I think the timing of recovery in the segment, you know, beyond this or the next leg will depend, I think, on how things develop in some of our key end markets, building construction, infrastructure, consumer durable goods, things like this. And so far, you know, those aren't showing any signs of inflection.

Cohen: Yes.

Cohen: Okay.

Cohen: Sure.

Cohen: Yes.

Cohen: Okay.

Cohen: [music].

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Sean D. Keohane: So, you know, we're pleased to see that perhaps a turning point where we're, we're, we're no longer seeing negative year over year comps. But whether or not these end markets pick up and drive the next leg of growth, we're perhaps a bit cautious here until we get a number of months under our belts here. But I am definitely pleased to see the stabilization and, hopefully, the signs of a turn here. Okay, thank you.

Cohen: Yes.

Cohen: Thanks.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Hum.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Operator: Thank you. One moment for our next question. Our next question comes from the line of John Roberts with Mizuho. Your line is now open.

Cohen: Yes.

Cohen: Okay.

John Roberts: Thank you. Sean, there's a precipitated silica business for sale. Would that sit with the reinforcement business? Hey, John.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Okay.

Cohen: Okay.

Sean D. Keohane: I think we're always looking at M&A to enhance the portfolio. I would say the way we think through it is first, if there is an M&A that would help our existing businesses in terms of their global footprint to serve customers and build that position out, I would say number one. Number two, in our chosen growth factors, so in battery materials and inkjet, if there are attractive opportunities there that would strengthen our position, then we are always looking at those. And then, I think the third area would be, are there logical adjacencies where the combination of our business and another one would be accretive? Now, you know, with respect to precipitated silica specifically, I think there are a couple ways to think about it. One is that you could get basic in the precipitated silica.

Cohen: Okay.

Okay.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Thanks.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Sean D. Keohane: The other is that you could use your technology platform, like E2C, to incorporate other materials into an advanced formulation. And that's certainly something that we look at and think about. So it's definitely something that, you know, we evaluate. The prioritization of how we look at things would strengthen our existing position, one. Number two, invest in or explore M&A to support growth. And then three, you know, evaluate adjacencies such as the one you just described. Norma, I'm not sure. Did we lose the connection here? Mr. Roberts, do we have another question? No. Nope. Just that one.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: Sure.

Cohen: Okay.

Okay.

Cohen: Thanks.

Cohen: Okay.

Cohen: Yeah.

Cohen: Yes.

Cohen: Okay.

Cohen: Please.

Cohen: Okay.

Cohen: Yes.

Cohen: Please.

Cohen: Okay.

Cohen: Yes.

Okay.

Cohen: Okay.

Operator: Thank you. Alright, thank you. At this time, I'm asking no further questions.

Okay.

Yes.

Cohen: Okay.

Operator: I'd like to hand the conference back over to Mr. Keohane for closing remarks. Okay, great. Thank you, Norma, and thank you all for joining the call today and for your support of Cabot. I look forward to speaking with you again next quarter. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Cohen: Okay.

Cohen: Yes.

Cohen: Okay.

Cohen: [music].

Cohen: Okay.

Cohen: Yes.

Yes.

Okay.

Operator: [inaudible] ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Yifei Huang, Yifei Huang, Cabot Corp ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day and thank you for standing by. Welcome to Cabot's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Cohen: Okay.

Cohen: Great.

Cohen: Okay.

Steven J. Delahunt: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Treasurer, and Investor Relations. Please go ahead.

Cohen: Okay.

Cohen: Right.

Cohen: Okay.

Okay.

Cohen: Okay.

Steven J. Delahunt: Thanks, Norma. Good morning. I would like to welcome you to the Cabot Corporation Earnings Telecom. With me today are Sean Keohane, CEO and President, and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our first quarter of fiscal year 2024, copies of which are posted in the investor relations section of our website. The slide deck that accompanies this call is also available on 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. However, each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Cohen: Okay.

Cohen: Thank you.

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Cohen: Okay.

Sean D. Keohane: The non-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 investor section of our website. I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by an update on our execution against our strategy, and then discuss the company's recent cash flow performance. Erica will review the first quarter financial highlights in the business segment results. (Inaudible) John.

Cohen: Okay.

Cohen: Yes.

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Sean D. Keohane: EBIT and reinforcement materials were up 37% year over year, demonstrating the structural improvements we have made in recent years to the business and a structurally tight supply and demand balance in the mature region. We also concluded our customer agreements with strong pricing and mixed improvements in all regions that totaled an annualized increase year over year of $75 million. Net of inflationary and other cost increases, we expect the pricing and product mixed benefits to equate to an EBIT increase of approximately $15 million per quarter for the remaining three quarters of fiscal year 2024 as compared to the same quarters of fiscal 2023. These results reflect a favorable supply and demand outlook and Cabot's value proposition of supply reliability, quality, and sustainability leadership.

Cohen: Okay.

Cohen: Yes.

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Sean D. Keohane: Even in performance, chemicals was up 17% compared to the first quarter of fiscal 2023, as demand in the segment appears to have generally stabilized and the effects of destocking have diminished. While we did see some signs of pickup in our automotive applications, demand in other key end markets for this segment remained consistent with the September quarter. Cash flow was strong in the quarter, which supported the return of $55 million to shareholders through a combination of share repurchases and dividends. [inaudible] And finally, we continue to be recognized for our leadership and sustainability. For the fifth consecutive year, we were named to Newsweek's list of the most responsible companies.

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Sean D. Keohane: Furthermore, I believe we have structurally improved our performance through a commitment to commercial and operational excellence across the company. Over the past decade, we have invested in the marketing and sales capabilities of our team and relentlessly pursued continuous improvement across our manufacturing network to drive excellence in yields, OEE, and energy recovery. [inaudible] Our expectation is that we will see continued earnings growth driven by enhanced pricing and product mix, volumes that move in line with growth of passenger and freight miles driven by differentiated capacity ads in high growth markets such as Indonesia, continued efficiency benefits from yield, OEE, and energy recovery, and finally, innovation contributions through our Evolve Sustainable Solutions and E2C technology platform. In fiscal 2023, our performance chemicals results were impacted by significant de-stocking.

Cohen: Okay.

Cohen: Yes.

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Cohen: Yes.

Speaker Change: Good day and thank you for standing by welcome to Cabot's first quarter 2024 earnings Conference call.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question within your question you will need to press star one on your telephone you will then hear an automated message advising your hands race to withdraw your question. Please press star one again, please be advised for today's conference is being recorded I would now.

Sean D. Keohane: But we have seen these impacts diminish in our most recent quarters. While we do not expect the same impact to our sales volumes from destocking in fiscal 2024, we have not yet seen signs that some of our key end markets, such as building and construction, infrastructure, and consumer durables, are moving back to prior levels. This segment is comprised of a core group of businesses with a GDP plus growth outlook and strong earnings potential. In addition, we are building out our strategic positions in battery materials and inkjet, two growth vectors that offer compelling long-term growth and where we believe we have a strong right to win. In battery materials, we expect the market to grow between 20 and 30% over time, and we are well positioned with the leading global EV battery makers, particularly as they expand in the Western economy. In Inkjet, we are winning share with printer OEMs that are serving the packaging market as it transitions from traditional analog printing to digital.

Speaker Change: I'd like to hand, the conference over to your Speaker today, Steve Delahunt, Vice President Treasurer, and Investor Relations. Please go ahead Sir.

Thanks, Norma good morning, I would like to welcome you to the Cabot Corporation earnings teleconference with.

Steven J. Delahunt: Today are Sean Keohane, CEO, and President and Erica Mclaughlin Executive Vice President and CFO.

Steven J. Delahunt: Last night, we released results for our first quarter of fiscal year 2024 copies of which are posted in the Investor Relations section of our website.

Steven J. Delahunt: A slide deck that accompanies this call is also available on the Investor relations portion of our website and will be available in conjunction with the replay of the call.

Steven J. Delahunt: During this conference call, we will make forward looking statements about our expected future operational and financial performance.

Steven J. Delahunt: Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Steven J. Delahunt: Additional information regarding these factors appears in the press release, we issued last night and.

Steven J. Delahunt: In our 10-K for the fiscal year ended September 32023, and in 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.

Steven J. Delahunt: That involve adjustments to GAAP results.

Steven J. Delahunt: non-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.

Steven J. Delahunt: I will now turn the call over to Sean who will discuss the first quarter highlights followed by an update on our execution against our strategy and then discuss the company's recent cash flow performance Eric.

Sean D. Keohane: Eric who will review the review of the first quarter financial highlights and the business segment results.

Sean D. Keohane: Following this Sean will provide a strategic summary, and closing comments and open the floor to questions Sean.

Sean D. Keohane: Thank you, Steve and good morning, ladies and gentlemen, and welcome to our call today.

Eric: I am pleased with our first quarter results, which were aligned with our expectations and reflected strong year over year growth.

Sean D. Keohane: We delivered adjusted earnings per share of $1 56.

Sean D. Keohane: Which is up 59% as compared to the same period in the prior year setting us off to a strong start to fiscal year 2024.

Sean D. Keohane: I would like to thank our entire global Cabot team for their resilience and commitment to execution as we navigate these dynamic times.

Sean D. Keohane: We also concluded our customer agreements with strong pricing and mix improvements in all regions that total an annualized increase year over year of $75 million.

Sean D. Keohane: While the macroeconomic environment has weakened since Investor Day in 2021, we continue to manage the businesses dynamically and execute to deliver on our commitment. I remain confident in the resilience and strength of our portfolio and in achieving the corporate Investor Day target for adjusted earnings per share growth. In addition to strong growth and adjusted earnings per share, the Cabot portfolio has robust cash flow characteristics. On a trailing 12-month basis, our strong execution has resulted in operating cash flow of $648 million. Free cash flow yield over that same time period was 8.3%, which puts us in the top quartile of the S&P 1500 Chemicals Index.

Sean D. Keohane: These results reflect the favorable supply and demand outlook and cabot's value proposition of supply reliability quality and sustainability leadership.

While we did see some signs of pickup in our automotive applications demand in other key end markets for this segment remained consistent with the September quarter.

Sean D. Keohane: Our cash generation power allows us to pursue a balanced capital allocation strategy focused on funding strategic investments to deliver long-term earnings growth and returning cash to shareholders while maintaining a strong investment grade balance sheet. We have maintained a continuous and growing dividend since 1968, and that commitment remains a core part of our capital allocation priority. Over the last 12 months, we paid $89 million in dividends, including an 8% increase in May, reflecting our confidence in the long-term cash flow outlook for the company. We would expect to continue to raise the dividend over time as our earnings grow. We also repurchased 114 million shares over the last 12 months. We plan to offset dilution every year and will be opportunistic with additional purchases based on our outlook for cash flow and the timing of growth investment opportunities. The dividends paid and shares repurchased totaled $203 million in the past 12 months, equating to a total payout ratio of 61%.

Sean D. Keohane: Cash flow was strong in the quarter, which supported the return of $55 million to shareholders through a combination of share repurchases and dividends.

Sean D. Keohane: And finally, we continue to be recognized for our leadership and sustainability for.

Sean D. Keohane: For the fifth consecutive year, we were named to Newsweek's list of most responsible companies.

Sean D. Keohane: This distinction recognizes our strong performance in the areas of environmental social and governance and we are very proud of this recognition.

Sean D. Keohane: These investments raise the barriers to entry for additional capacity roughly doubling the cost of new capacity.