Q1 2025 Cabot Corp Earnings Call

February 4, 2025

Speakers presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automatic message advising Yohanan Reyes. Please note that today's conference is being recorded.

Thank you for watching!

Speaker Change: I'll now hand, the conference over to your Speaker host, Dave Delahunt, Vice President Treasurer, and Investor Relations. Please go ahead.

Thank you for watching!

Speaker Change: Are you thinking about taking another flight? I'm sorry cook dude is going to increase the cost to spend again ok It's been around for a while I'm coming Bye

Dave Delahunt: Thank you Olivia and good morning, I would like to welcome you to the Cabot Corporation earnings teleconference with.

Dave Delahunt: With me today are Sean Keohane, CEO, and President and Erica Mclaughlin Executive Vice President and CFO.

Dave Delahunt: Last night, we released results for our first quarter of fiscal year 2025 copies of which are posted in the Investor Relations section of our website.

Dave Delahunt: Slide deck that accompanies this call is also available in the Investor relations portion of our website and will be available in conjunction with the replay of the call.

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

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

Dave 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 32024, and in subsequent filings, we make with the SEC all of which are also available on the company's website.

Dave Delahunt: In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. These 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 invest.

<unk> section of our website.

Sean Keohane: I will now turn the call over to Sean who will discuss the first quarter highlights.

Sean Keohane: Although the Companys recent cash flow performance and then discuss the key takeaways from our recent Investor day, we held in December.

Speaker Change: As in our 10-K for the fiscal year ended September 32024, and in subsequent filings, we make with the SEC all of which are also available on the company's website.

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

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

Speaker Change: In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. These 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 <unk>.

Speaker Change: Thank you, Steve and good morning, ladies and gentlemen, welcome to our call today.

Speaker Change: In the first fiscal quarter, we continued to execute at a high level in a mixed economic environment generating results in line with our expectations and leading to EBIT growth in both of our segments. We.

Speaker Change: <unk> section of our website.

Speaker Change: We delivered adjusted earnings per share of $1 76.

Speaker Change: I will now turn the call over to Sean who will discuss the first quarter highlights followed.

Which is up 13% as compared to the same period in the prior year positioning us well with a strong start to fiscal year 2025.

Speaker Change: Although the Companys recent cash flow performance and then discuss the key takeaways from our recent Investor day, we held in December.

Speaker Change: Erica will review the first quarter financial highlights and the business segment results.

I'd like to thank our entire global Cabot team for their agility and continued commitment to execution as we navigate these dynamic times.

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

Speaker Change: EBIT in reinforcement materials was $130 million up 1% year over year in what remains a challenging global environment.

Speaker Change: Thank you, Steve and good morning, ladies and gentlemen, welcome to our call today.

Speaker Change: In the first fiscal quarter, we continued to execute at a high level when a mixed economic environment generating results in line with our expectations and leading to EBIT growth in both of our segments. We.

Speaker Change: Results in this business continued to demonstrate the value of the structural improvements we have made over the years to the business and our continued commitment to commercial and operational excellence.

Speaker Change: We delivered adjusted earnings per share of $1 76.

Speaker Change: EBIT in performance chemicals was up 32% compared to the first quarter of fiscal 2024, largely due to higher volumes as demand. In this segment has generally stabilized and volumes have reconnected to underlying demand drivers in key end markets.

Speaker Change: Which is up 13% as compared to the same period in the prior year positioning us well with a strong start to fiscal year 2025.

Speaker Change: We'd like to thank our entire global Cabot team for their agility and continued commitment to execution as we navigate these dynamic times.

Speaker Change: Cash flow was strong in the quarter, which supported investments in maintenance compliance and growth capital projects as well as the return of cash to shareholders through a combination of share repurchases and dividends.

Speaker Change: EBIT in reinforcement materials was $130 million up 1% year over year in what remains a challenging global environment.

Speaker Change: The cabinet portfolio has strong cash flow characteristics, which enables a balanced capital allocation strategy focused on funding our high confidence high return growth projects and returning cash to shareholders.

This balance of profit growth and cash return can be achieved while maintaining our strong investment grade balance sheet.

Speaker Change: In the quarter, we generated operating cash flow of $124 million.

Speaker Change: We also invested $77 million in capital expenditures, which included growth investments to construct our new Indonesia capacity for reinforcement materials and capacity for growth in battery materials.

Speaker Change: We also returned $66 million to shareholders through $24 million of dividends and $42 million of share repurchases.

Speaker Change: Since fiscal 2015, our dividend per share has grown at a compound annual growth rate of 8%.

Speaker Change: This balance of profit growth and cash return can be achieved while maintaining our strong investment grade balance sheet.

Speaker Change: We remain committed to a continuous and growing dividend and expect to maintain an industry competitive dividend yield and payout ratio over time.

Speaker Change: In the quarter, we generated operating cash flow of $124 million.

Speaker Change: We also believe that share repurchases are an attractive use of cash in this quarter, we purchased $42 million of shares.

Speaker Change: Looking over a longer horizon, we have reduced our outstanding share count by 13% since fiscal 2015, as we have maintained a steady commitment to share repurchases.

Speaker Change: We also returned $66 million to shareholders through $24 million of dividends and $42 million of share repurchases.

Speaker Change: During the quarter, we also held an investor day in December.

Speaker Change: Since fiscal 2015, our dividend per share has grown at a compound annual growth rate of 8%.

Speaker Change: We appreciate the support from our investors as we had a great turnout.

Speaker Change: I'd like to now provide a brief recap of this event.

Speaker Change: We remain committed to a continuous and growing dividend and expect to maintain an industry competitive dividend yield and payout ratio over time.

Speaker Change: During the day, we reviewed the successful achievement of our 2021 Investor day goals discussed our company vision and strategy provided.

Speaker Change: We also believe that share repurchases are an attractive use of cash in this quarter, we purchased $42 million of shares.

Speaker Change: Provided an outlook for our segments and communicated an updated set of three year financial targets.

Speaker Change: Looking over a longer horizon, we have reduced our outstanding share count by 13% since fiscal 2015, as we have maintained a steady commitment to share repurchases.

Speaker Change: As I shared at Investor Day, I believe that Cabot offers a compelling investment thesis.

Speaker Change: Are creating for tomorrow strategy is the right one to drive continued growth and shareholder value creation.

Speaker Change: During the quarter, we also held an investor day in December.

Speaker Change: This strategy is built on the pillars of grow innovate and optimize and we drive execution with a disciplined operating platform of commercial and operational excellence.

Speaker Change: We appreciate the support from our investors as we had a great turnout.

Speaker Change: To now provide a brief recap of this event.

Speaker Change: During the day, we reviewed the successful achievement of our 2021 Investor day goals discussed our company vision and strategy provided.

Speaker Change: Our excitement and confidence in our outlook for growth is underpinned by our global footprint and strong product portfolio that is aligned with three key macro trends.

Speaker Change: Provided an outlook for our segments and communicated an updated set of three year financial targets.

Speaker Change: The first macro trend is the changing mobility landscape towards electric vehicles, which is expected to drive growth across the Cabot portfolio.

Speaker Change: As I shared at Investor Day, I believe that Cabot offers a compelling investment thesis.

Speaker Change: Second the build out of global infrastructure is expected to drive demand for important applications in our portfolio from specialty carbons for power distribution cables to fumed silica for wind turbine blades.

Speaker Change: Are creating for tomorrow strategy is the right one to drive continued growth and shareholder value creation.

Speaker Change: This strategy is built on the pillars of grow innovate and optimize and we drive execution with a disciplined operating platform of commercial and operational excellence.

Speaker Change: And third the sustainability transition, where our customers are increasingly seeking more circular and sustainable offerings to meet the needs of their downstream customers.

Speaker Change: Our excitement and confidence in our outlook for growth is underpinned by our global footprint and strong product portfolio that is aligned with three key macro trends.

Speaker Change: We have set clear growth goals targeting an adjusted earnings per share CAGR of 7% to 10% over the next three years with growth expected in both business segments.

Speaker Change: The first macro trend just the changing mobility landscape towards electric vehicles, which is expected to drive growth across the Cabot portfolio.

Speaker Change: This management team has a proven track record of execution over a long period of time, and we are committed to continuing that high level of execution going forward.

Speaker Change: Second to build out a global infrastructure is expected to drive demand for important applications in our portfolio from specialty carbons for power distribution cables to fumed silica for wind turbine blades.

Speaker Change: And finally cash flow and capital allocation.

Speaker Change: The Cabot portfolio has strong cash flow characteristics and this is the source of our value creation strategy.

Speaker Change: And third the sustainability transition, where our customers are increasingly seeking more circular and sustainable offerings to meet the needs of their downstream customers.

Speaker Change: We expect to continue growing the discretionary free cash flow of the company and we will deploy that cash in a balanced and disciplined fashion with a focus on funding advantage growth investments and returning significant levels of capital to shareholders.

Speaker Change: We have set clear growth goals targeting an adjusted earnings per share CAGR of 7% to 10% over the next three years with growth expected in both business segments.

Speaker Change: The execution of our strategy has driven exceptional shareholder value creation over the last three years. We are very proud of that track record and are confident we will continue to do the same in the coming years.

Speaker Change: This management team has a proven track record of execution over a long period of time, and we are committed to continuing that high level of execution going forward.

Speaker Change: I'll now turn the call over to Erica to discuss this segment and financial performance in the quarter Erika.

Speaker Change: And finally cash flow and capital allocation.

Speaker Change: The Cabot portfolio has strong cash flow characteristics and this is the source of our value creation strategy.

Erica Mclaughlin: Thanks, John I will start with discussing results for the company and then review the segment results.

Erica Mclaughlin: Adjusted earnings per share for the quarter first quarter of fiscal 2025 grew 13% from $1 56 in the first quarter of fiscal 2024 to $1 76 with growth coming from both our reinforcement materials and performance chemicals segments.

Speaker Change: The execution of our strategy has driven exceptional shareholder value creation over the last three years, we have.

Erica Mclaughlin: As Sean noted cash flow from operations was strong at $124 million in the quarter, which included a working capital increase of $38 million discretionary free cash flow was $114 million in the quarter.

Speaker Change: We're very proud of that track record and are confident we will continue to do the same in the coming years.

Speaker Change: I'll now turn the call over to Erica to discuss this segment and financial performance in the quarter Erika.

Erica Mclaughlin: We ended the quarter with a cash balance of $183 million and our liquidity position remained strong at approximately $1 $3 billion.

Erika: Thanks, John I will start with discussing results for the company and then review the segment results.

Erika: <unk> earnings per share for the quarter first quarter of fiscal 2025 grew 13% from $1 56 in the first quarter of fiscal 2024 to $1 76 with growth coming from both our reinforcement materials and performance chemicals segments.

Erica Mclaughlin: Capital expenditures for the first quarter of fiscal 2025 or $77 million and we continue to expect $250 million to $300 million of capital spending for the fiscal year <unk>.

Erica Mclaughlin: Additional uses of cash during the first quarter were $24 million for dividends and $42 million for share repurchases.

Erika: As Sean noted cash flow from operations was strong at $124 million in the quarter, which included a working capital increase of $38 million discretionary free cash flow was $114 million in the quarter.

Erica Mclaughlin: Our debt balance was $1 2 billion and our net debt to EBITDA was one three times.

Erica Mclaughlin: The operating tax rate for the first quarter of fiscal 2025 was 28% and we continue to anticipate our operating tax rate for fiscal 2025 to be in the range of 27% to 29%.

Erika: We ended the quarter with a cash balance of $183 million and our liquidity position remained strong at approximately $1 $3 billion.

Erica Mclaughlin: Now moving to reinforcement materials during the first quarter EBIT for reinforcement materials was $130 million, which was an increase of $1 million as compared to the same period of the prior year.

Erika: Capital expenditures for the first quarter of fiscal 2025 or $77 million and we continue to expect $250 million to $300 million of capital spending for the fiscal year.

Erica Mclaughlin: The increase was driven by higher volumes and favorable pricing and product mix from the calendar year 2024 customer agreements, partially offset by a less favorable geographic mix and lower energy Center revenue.

Erika: Additional uses of cash during the first quarter were $24 million for dividends and $42 million for share repurchases.

Erika: Our debt balance was $1 2 billion and our net debt to EBITDA was one three times.

Erica Mclaughlin: Globally volumes were up 1% in the first quarter as compared to the same period of the prior year due to a 2% growth in Asia Pacific and 1% in Europe and demand in those regions.

Erika: The operating tax rate for the first quarter of fiscal 2025 was 28% and we continue to anticipate our operating tax rate for fiscal 2025 to be in the range of 27% to 29%.

Erica Mclaughlin: Looking to the second quarter of fiscal 2025, we expect reinforcement materials EBIT to improve modestly as compared to the first quarter volumes.

Erika: And moving to reinforcement materials.

Erika: The first quarter EBIT for reinforcement materials was $130 million, which was an increase of $1 million as compared to the same period of the prior year.

Erica Mclaughlin: Volumes are expected to remain relatively consistent with the first quarter.

Erica Mclaughlin: We anticipate a more favorable geographic mix with seasonal volume improvement and the impact from contract gains in Europe offset by lower volumes in Asia due to the lunar new year holiday.

Erika: The increase was driven by higher volumes and favorable pricing and product mix from the calendar year 2024 customer agreements.

Erika: Really offset by a less favorable geographic mix and lower energy Center revenue.

Erica Mclaughlin: Now turning to performance chemicals EBIT.

Globally volumes were up 1% in the first quarter as compared to the same period. The prior year due to a 2% growth in Asia Pacific and 1% in Europe as demand in those regions.

Erica Mclaughlin: EBIT increased by $11 million in the first fiscal quarter as compared to the same period in fiscal 2024. The increase in the first quarter was due to higher volumes across the segment, partially offset by higher costs.

Erika: Looking to the second quarter of fiscal 2025, we expect reinforcement materials EBIT to improve modestly as compared to the first quarter.

Erica Mclaughlin: <unk> were higher by 8% in the quarter compared to the same period in the prior year as we saw volumes, we connect to underlying demand drivers as compared to the destocking behavior in the prior year.

Erika: Volumes are expected to remain relatively consistent with the first quarter, we anticipate a more favorable geographic mix with seasonal volume improvement and the impact from contract gains in Europe offset by lower volumes in Asia due to the lunar new year holiday.

Erica Mclaughlin: Costs were higher due to this timing of plant maintenance and the impact of new assets in this segment.

Erica Mclaughlin: Looking ahead to the second quarter of fiscal 2025, we expect modest sequential EBIT improvement from seasonally higher volumes in North America and Europe.

Erika: Now turning to performance chemicals EBIT.

Erika: EBIT increased by $11 million in the first fiscal quarter as compared to the same period in fiscal 2024. The increase in the first quarter was due to higher volumes across the segment, partially offset by higher costs.

Erica Mclaughlin: I'll now turn the call back over to Sean to discuss the fiscal year outlook Shawn Thanks Erika.

Sean Keohane: Moving to our 2025 outlook, we feel good about the first quarter results and we are reaffirming our fiscal year 2025 outlook for adjusted earnings per share in the range of $7 40 to $7 80.

Erika: Williams or higher by 8% in the quarter compared to the same period in the prior year as we saw volumes reconnect to underlying demand drivers as compared to the destocking behavior in the prior year.

In terms of assumptions that underpin our outlook. The reinforcement materials segment is expected to remain at a similarly strong level of EBIT for the fiscal year as compared to fiscal 2024.

Erika: Costs were higher due to the timing of plant maintenance and the impact of new assets in this segment.

Erika: Looking ahead to the second quarter of fiscal 2025, we expect modest sequential EBIT improvement from seasonally higher volumes in North America and Europe.

Sean Keohane: This is based on our current view that global production levels for the tire and auto markets are expected to be relatively flat year over year.

Erika: I'll now turn the call back over to Sean to discuss the fiscal year outlook Shawn Thanks Erika.

Sean Keohane: We expect to see an increase in volumes as our new capacity comes online in Indonesia in the back half of the year and ramps up into 2026.

Speaker Change: Moving to our 2025 outlook, we feel good about the first quarter results and we are reaffirming our fiscal year 2025 outlook for adjusted earnings per share in the range of $7 40 to $7 80.

Sean Keohane: Also included in our outlook is the impact from the reinforcement materials customer negotiations.

Sean Keohane: Overall base prices on a global basis concluded similar to the prior year with volumes higher in Europe, but lower in South America.

Speaker Change: In terms of assumptions that underpin our outlook. The reinforcement materials segment is expected to remain at a similarly strong level of EBIT for the fiscal year as compared to fiscal 2024.

Sean Keohane: The outlook includes pricing and mix outcomes as it relates to the expected regional and customer volumes as well as cost changes and continued operational improvements.

Speaker Change: This is based on our current view that global production levels for the tire and auto markets are expected to be relatively flat year over year.

Sean Keohane: On balance given the weaker market environment, we concluded the customer negotiations with reasonable outcomes.

Speaker Change: We expect to see an increase in volumes as our new capacity comes online in Indonesia in the back half of the year and ramps up into 2026.

Sean Keohane: We believe commercial excellence is an important competency and we will continue to pursue a disciplined approach. So that we are paid a fair value for the investments we have made to ensure supply reliability quality innovation and sustainability leadership.

Speaker Change: Also included in our outlook is the impact from the reinforcement materials customer negotiations.

Speaker Change: Overall base prices on a global basis concluded similar to the prior year with volumes higher in Europe, but lower in South America.

Sean Keohane: In terms of performance chemicals, given that volumes have reconnected with underlying demand fundamentals. The segment is expected to continue to perform in the current EBIT range of 45 million to $55 million per quarter for the year.

Speaker Change: The outlook includes pricing and mix outcomes as it relates to the expected regional and customer volumes as well as cost changes and continued operational improvements.

Sean Keohane: With volume growth expected year over year.

Sean Keohane: This range would result in strong year over year EBIT growth for the fiscal year as higher volumes contribute meaningfully to EBIT performance.

Speaker Change: On balance given the weaker market environment, we concluded the customer negotiations with reasonable outcomes.

Speaker Change: We believe commercial excellence is an important competency and we will continue to pursue a disciplined approach. So that we are paid a fair value for the investments we have made to ensure supply reliability quality innovation and sustainability leadership.

Sean Keohane: We expect volume growth across our application set specifically benefiting from the build out of global infrastructure, where our pilot products play an important role in the manufacturer of wind turbine blades as well as the performance of power distribution cables as.

Speaker Change: In terms of performance chemicals, given that volumes have reconnected with underlying demand fundamentals. The segment is expected to continue to perform in the current EBIT range of 45 million to $55 million per quarter for the year.

Sean Keohane: As the agent greta's renewed and new distribution lines related to connect alternative energy sources to the grid, we expect our products geared to wind energy and the wire and cable applications to grow strongly.

Sean Keohane: Our outlook includes foreign currency rates and market interest rate projections as of the end of January.

Speaker Change: With volume growth expected year over year.

Speaker Change: This range would result in strong year over year EBIT growth for the fiscal year as higher volumes contribute meaningfully to EBIT performance.

Sean Keohane: Our current guidance does not include any adverse impacts from the tariffs announced over the weekend between the U S and Mexico, Canada and China.

Speaker Change: We expect volume growth across our application set specifically benefiting from the build out of global infrastructure, where our pilot products play an important role in the manufacturer of wind turbine blades as well as the performance of power distribution cables as.

Sean Keohane: Given the timing of the tariff announcements and related delays, we are still assessing the potential impact.

Sean Keohane: The impact could be a bit different by country.

Sean Keohane: For China, we import a very limited amount of volume from China into the U S. So we expect the direct impact of these tariffs to be minimal.

As the agent greta's renewed and new distribution lines are laid to connect alternative energy sources to the grid, we expect our products geared to wind energy and the wire and cable applications to grow strongly.

Sean Keohane: If production in China is reduced for tires are other exported products than our demand in China could be impacted.

Speaker Change: Our outlook includes foreign currency rates and market interest rate projections as of the end of January.

Sean Keohane: However, we would then expect to see production levels outside of China potentially increase.

Our current guidance does not include any adverse impacts from the tariffs announced over the weekend between the U S and Mexico, Canada and China.

Sean Keohane: For Mexico, where we operate one reinforcement materials plant, we expect a minimal direct impact on our production in Mexico as it is primarily sold into the Mexican market.

Speaker Change: Given the timing of the tariff announcements and related delays, we are still assessing the potential impact.

Sean Keohane: For Canada, we operate two plants that manufacture products for our reinforcing carbons specialty carbons and specialty compounds product lines.

Speaker Change: The impact could be a bit different by country.

Speaker Change: For China, we import a very limited amount of volume from China into the U S. So we expect the direct impact of these tariffs to be minimal.

Sean Keohane: A large portion of the production at these plants is sold in Canada, but also there is production sold to customers in the U S.

Speaker Change: If production in China is reduced for tires are other exported products than our demand in China could be impacted.

Carbon black products that we produce in Canada and sell into the U S represents approximately 10% of the carbon black we sell in North America.

Speaker Change: However, we would then expect to see production levels outside of China potentially increase.

Sean Keohane: Almost all of these customers are under agreements that allow cabot to pass through taxes and similar charges such as tariffs.

Speaker Change: For Mexico, where we operate one reinforcement materials plant, we expect a minimal direct impact on our production in Mexico as it is primarily sold into the Mexican market.

Sean Keohane: We are also working with our customers on potential alternative supply sources within our large plant network.

Speaker Change: For Canada, we operate two plants that manufacture products for our reinforcing carbons specialty carbons and specialty compounds product lines.

Sean Keohane: In all cases, if the tariffs are implemented there could be a downstream impact on our customers' businesses and this could impact underlying demand levels. We are working to better assess the broader impacts of these tariffs on things such as GDP foreign currency rates inflation and overall demand.

Speaker Change: A large portion of the production at these plants is sold in Canada, but also there is production sold to customers in the U S.

Speaker Change: Carbon black products that we produce in Canada and sell into the U S represents approximately 10% of the carbon black we sell in North America.

Sean Keohane: The situation remains very dynamic and developing a full understanding of this will take time as we observe how negotiations evolve.

Speaker Change: Almost all of these customers are under agreements that allow cabot to pass through taxes and similar charges such as tariffs.

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

Speaker Change: We are also working with our customers on potential alternative supply sources within our large plant network.

Sean Keohane: Our board's recent $10 million share repurchase authorization supports our expectation of continued share repurchases.

Speaker Change: In all cases, if the tariffs are implemented there could be a downstream impact on our customers' businesses and this could impact underlying demand levels. We are working to better assess the broader impacts of these tariffs on things such as GDP foreign currency rates inflation and overall demand.

Sean Keohane: We continue to execute our growth agenda and remain on track for additional capacity to come online in Indonesia for reinforcement materials in the back half of the fiscal year.

Sean Keohane: With our continued capacity investments in battery materials in China.

Speaker Change: The situation remains very dynamic and developing a full understanding of this will take time as we observe how negotiations evolve.

Sean Keohane: Overall I am very pleased with how the company is positioned today.

Sean Keohane: We have the right strategy and capital allocation priorities and I am confident in our team's agility and execution capabilities. Thank.

Speaker Change: Cash generation is expected to remain strong and we expect to return a robust amount of cash to shareholders through dividends and share repurchases.

Sean Keohane: Thank you very much for joining us today and I'll now turn the call over for our question and answer session.

Our board's recent $10 million share repurchase authorization supports our expectation of continued share repurchases.

Sean Keohane: Thank you.

Sean Keohane: As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.

Speaker Change: We continue to execute our growth agenda and remain on track for additional capacity to come online in Indonesia for reinforcement materials in the back half of the fiscal year.

Sean Keohane: These standby, while we compile the Q&A roster.

Speaker Change: With our continued capacity investments in battery materials in China.

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

Speaker Change: Overall I am very pleased with how the company is positioned today.

Speaker Change: We have the right strategy and capital allocation priorities and I am confident in our team's agility and execution capabilities.

Chris Perrella: Hi, Good morning, everyone, It's Chris Perrella on for Josh.

Chris Perrella: Could you just speak a little more on the contract terms for reinforcement materials that you realized in 2025 and how they compare to the last couple of years and then is there any benefit still leftover from the big.

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

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question simply press Star one again.

Chris Perrella: Increases that you got in 2023, I know some of those contract terms were extended out a couple of years.

Hi, Chris how are you.

Speaker Change: These standby, while we compile the Q&A roster.

Speaker Change: Yes, let me let me provide an update on the contract outcomes here. So as I think youll recall pricing in our customer agreements is comprised of a base price as well as adjusters that change each month for changing input costs and other costs in terms of the base prices.

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

Chris Perrella: Hi, Good morning, everyone, It's Chris Perrella on for Josh.

Chris Perrella: You just take a little more on the contract terms for reinforcement materials that you realized in 2025 and how they compare to the last couple of years and then is there any benefit still leftover from the big <unk>.

Speaker Change: We remained relatively flat year over year for our calendar year 'twenty five agreements as compared to the 2024 agreements.

Speaker Change: And then in terms of volumes as expected we increased volumes in Europe as many customers were looking for additional supply given the sanctions on Russia and Belorussian supply that came into full effect in the 2024 calendar year. However volumes in the Americas were challenging given the continued imported.

Chris Perrella: Increases that you got in 2023, I know some of those contract terms were extended out a couple of years.

Chris Perrella: Hi, Chris how are you.

Speaker Change: <unk> tires into the region.

Speaker Change: And so in North America, our contract volumes concluded pretty consistent with last year.

Speaker Change: But we did see a reduction in volumes in South America.

Speaker Change: I think overall, if you look at the reinforcement materials segment, we're expecting that based on those outcomes in a number of other factors that go into running the business that will remain at a similarly strong level of EBIT for fiscal 'twenty five as compared to 2020 for despite a challenging macro environment as we.

Speaker Change: We remained relatively flat year over year for our calendar year 'twenty five agreements as compared to the 2024 agreements.

Speaker Change: We'll look at the end markets here, certainly production levels for tires and auto OE are expected to remain relatively flat year over year. So the.

Speaker Change: The 2024 calendar year, however volumes in the Americas were challenging given the continued imported Asian tires into the region.

Speaker Change: The underlying sort of market backdrop as is.

Speaker Change: And so in North America, our contract volumes concluded pretty consistent with last year.

Speaker Change: Not so strong it's pretty flattish.

Speaker Change: But we did see a reduction in volumes in South America.

Speaker Change: We do expect as I mentioned in my prepared remarks that we will see an increase in volumes as we.

Speaker Change: Exit the back part of the year as our new capacity in the Indonesia comes back.

Speaker Change: Comes back online so I think overall when you when you look at the outcomes here and the expectation for this segment. It includes the pricing and mix outcomes.

Speaker Change: We'll look at the end markets here, certainly production levels for tires and auto OE are expected to remain relatively flat year over year. So the.

Speaker Change: As it relates to the expected regional and customer volumes as well as cost changes and of course continued operational excellence improvements in the business, we've talked about that quite a bit at the.

Speaker Change: The underlying sort of market backdrop as is.

Speaker Change: The Investor day.

Speaker Change: Not so strong it's pretty flattish.

Speaker Change: No I appreciate that thank you and then just with the Indonesia startup how should we expect.

Speaker Change: We do expect as I mentioned in my prepared remarks that we will see an increase in volumes as we.

Speaker Change: EBIT to improve off of that or are there some startup headwind cost you have to.

Speaker Change: Exit the back part of the year as our new capacity in the Indonesia comes back.

Speaker Change: To overcome.

Speaker Change: Load volume into the plant.

Speaker Change: Comes back online so I think overall when you when you look at the outcomes here and the expectation for this segment. It includes the pricing and mix outcomes.

Speaker Change: Yes, that's exactly right I mean, typically what you see is that the plant will start up in the back half of the year and then you have to work through.

Speaker Change: Customer qualifications and and then the ramp of volume So we would certainly be expecting.

Speaker Change: A material contribution in 2026 with I would say very modest back half.

Speaker Change: The Investor day.

Speaker Change: No I appreciate that thank you and then just with the Indonesia startup how should we expect.

Speaker Change: Benefit in 2025.

Speaker Change: Low low single digit millions kind of as you're you're really absorbing the cost and starting up in and working through that customer qualification period. So modest in the back half of this year and then of course ramping.

Speaker Change: EBIT to improve off of that or are there some.

Speaker Change: Chart up headwind cost.

Speaker Change: To overcome.

Speaker Change: Load volume into the plant.

Speaker Change: Yes, that's exactly right I mean, typically what you see is that the plant will start up in the back half of the year and then you have to work through.

Speaker Change: Ramping up.

Speaker Change: Sharply in 2026.

Speaker Change: Thank you Sean.

Speaker Change: Thank you.

Customer qualifications and and then the <unk>.

Speaker Change: And our next question coming from the line of John Roberts with Mizuho Group. Your line is now open.

Speaker Change: Ramp up of volumes, so we would certainly be expecting.

Speaker Change: A material contribution in 2026 with I would say very modest back half burner.

Speaker Change: Thank you and nice quarter.

Speaker Change: Is it fair to say Youre benefiting from the increased tire imports into the U S.

Speaker Change: Benefit in 2025.

Speaker Change: Your Asian customers volume growth is outpacing any.

Speaker Change: Low low single digit millions kind of as you are you really absorbing the cost and starting up in and working through that customer qualification period. So modest in the back half of this year and then of course ramping.

Speaker Change: Impact you are having to use customers.

Speaker Change: Hey, John Thanks for the comments on the quarter.

Speaker Change: So as you know we participate.

Speaker Change: Ramping up.

Speaker Change: And a very global way, so really no matter where volumes.

Speaker Change: Sharply in 2026.

Speaker Change: Thank you Sean.

Speaker Change: Developed in the World I would say, we're where we're able to secure our or our share of those volumes and I think that's a that's again a function of.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of John Roberts with Mizuho Group. Your line is now open.

Speaker Change: Thank you and nice quarter.

Speaker Change: Our global footprint.

John Roberts: Is it fair to say Youre benefiting from the increased tire imports into the U S.

Speaker Change: But there are differences in.

Speaker Change: In margin levels by by region and so in the in the western regions. We.

Speaker Change: Your Asian customers volume growth is outpacing any.

Speaker Change: We do earn higher margins there the dynamics in.

John Roberts: Impact you are having to use customers.

John Roberts: Hey, John Thanks for the comments on the quarter.

Speaker Change: In place there in terms of.

John Roberts: So as you know we participate.

Speaker Change: Supply in investments that are required around sustainability and supply security.

John Roberts: And a very global way, so really no matter where volumes.

Speaker Change: And all of those factors.

Speaker Change: Driver.

Speaker Change: A different margin profile, so as as Asian imports.

John Roberts: Developed in the World I would say, we're where we're able to secure our or our share of those volumes and I think that's again a function of.

Speaker Change: Have increased I would say that that has been a headwind that we've had to absorb from a margin standpoint, even though the volumes.

John Roberts: Our global footprint.

John Roberts: But there are differences in.

Speaker Change: We do we do capture because of the.

John Roberts: In margin levels by by region and so in the in the western regions.

Speaker Change: Very distributed footprint that we have but we've been able to to manage that pretty well and our expectation going forward is that we would continue to manage that in terms of the underlying financial performance of the business and continuing to consolidate the structural improvements that we've made in this business over a number of years.

We do earn higher margins there the dynamics in.

John Roberts: In place there in terms of.

John Roberts: Our supply and investments that are required around sustainability and supply security.

John Roberts: And all of those factors.

John Roberts: Dry bulk.

Speaker Change: And then in specialty blacks oil prices have been rising do you need to go out to get additional price here to kind of hold your margins in specialty blacks.

John Roberts: A different margin profile, so as as Asian imports.

John Roberts: Have increased I would say that that has been a headwind that we've had to absorb from a margin standpoint, even though the volumes.

Speaker Change: Yes, generally that's the case, John we do have some customers that are under a formula arrangements similar to reinforcement materials.

John Roberts: We do we do capture because of the.

John Roberts: Very distributed footprint that we have but we've been able to to manage that pretty well and our expectation going forward is that we would continue to manage that in terms of the underlying financial performance of the business and continuing to consolidate the structural improvements that we've made in this business over a number of years.

Speaker Change: But.

Speaker Change: This business tends to be.

Speaker Change: More oriented towards spot.

Speaker Change: Pricing and so we would be.

Speaker Change: <unk> out in the marketplace.

Speaker Change: Adjusting prices to deal with that and I think as you've probably followed in our commentary here over the.

Speaker Change: The last many years, we've done a real good job of managing the margins here in this and that's certainly what our expectation is as we as we go forward.

Speaker Change: And then in specialty blacks oil prices have been rising do you need to go out to get additional price here to kind of hold your margins in specialty blacks.

Speaker Change: Thank you.

Speaker Change: Yes, generally that's the case, John we do have some customers that are under a formula arrangements similar to reinforcement materials.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of David Begleiter with Deutsche Bank. Your line is now open.

Speaker Change: But.

Speaker Change: This business tends to be.

David Begleiter: Thank you good morning.

Speaker Change: More oriented towards spot.

Speaker Change: Sean on reinforcement earnings for 2025, I believe your initial guidance was for it to be up year over year.

Speaker Change: Pricing and so we would be out in the marketplace.

Speaker Change: Adjusting prices to deal with that and I think as you've probably followed in our commentary here over.

Speaker Change: Now it's flat is that due to the outcome of the tire contract negotiations, where they were they worse than you expected and was due to a more competitive market.

Speaker Change: And the last many years, we've done a real good job of managing the margins here in this and that's certainly what our expectation is as we as we go forward great. Thank you.

Speaker Change: Good day, thank you.

David Begleiter: Hey, David Thanks.

David Begleiter: So our outlook for reinforcement materials is to be operating at a similarly strong level as we do.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of David Begleiter with Deutsche Bank. Your line is now open.

David Begleiter: In 2020 for obviously a number of factors go into this outlook.

David Begleiter: Thank you good morning.

Speaker Change: Sean on reinforcement earnings for 2025, I believe your initial guidance was for it to be up year over year.

David Begleiter: Sort of a market level, the underlying demand expectation globally for tire production and for auto OE.

Speaker Change: Now it's flat is that due to the outcome of the tire contract negotiations with a with a worst than you expected and was due to a more competitive market and good day. Thank you.

David Begleiter: Is pretty flat, so that's sort of the basic.

David Begleiter: Sort of market environment that we're in.

David Begleiter: I said in the.

David Begleiter: In the prepared comments that.

David Begleiter: Our pricing and the contract outcomes.

David Begleiter: Hey, David Thanks.

David Begleiter: Our outlook for reinforcement materials is to be operating at a similarly strong level as we did.

David Begleiter: Included concluded I think a reasonable.

David Begleiter: <unk> here based pricing.

David Begleiter: Maintaining relatively flat year over year, we did pick up some volumes in Europe as expected as the final.

David Begleiter: In 2020 for obviously a number of factors go into this outlook.

David Begleiter: Sort of a market level, the underlying demand expectation globally for tire production and for auto OE.

David Begleiter: Impact of sanctions went into went into place.

David Begleiter: But in the Americas, the impact of tire imports.

David Begleiter: It's pretty flat so that's sort of the basic.

David Begleiter: It has challenged the demand outlook from customers. So that that's certainly another factor and then there are there are other moving parts as you know well in this sort of complex global business in terms of FX rates that are a headwind in energy center movements and and.

David Begleiter: Sort of market environment that we're in.

David Begleiter: I said in the.

David Begleiter: In the prepared comments that.

David Begleiter: Our pricing and the contract outcomes.

David Begleiter: Included concluded I think a reasonable.

David Begleiter: Grace here based pricing.

David Begleiter: And obviously offsetting cost inflation through operational excellence all of those factors come together.

David Begleiter: Maintaining relatively flat year over year, we did pick up some volumes in Europe as expected as the final.

David Begleiter: To have us expecting a result in a similar level to 2000 22024.

David Begleiter: Impact of sanctions went into went into place.

David Begleiter: So that's how I would sort of think through it and again, starting with the underlying demand fundamentals are pretty flattish.

David Begleiter: But in the Americas, the impact of tire imports.

David Begleiter: For our end markets.

David Begleiter: Understood and then going back to an earlier question on those 23 contracts for sure somewhere multiyear are those benefits so flowing through to you on our base pricing.

David Begleiter: Impact.

David Begleiter: Energy center movements, and and obviously offsetting cost inflation through operational excellence all of those factors come together.

David Begleiter: We did not have any.

David Begleiter: Any multi years that with that extended from 2023.

David Begleiter: Into into 2025 now.

David Begleiter: To have us expecting a result in a similar level to 2000 22024.

David Begleiter: Perfect. Thank you.

David Begleiter: Okay.

David Begleiter: So that's how I would.

David Begleiter: Thank you.

David Begleiter: Sort of think through it and again, starting with the underlying demand fundamentals are pretty flattish.

Speaker Change: Our next question coming from the line of Kevin <unk> with Jefferies. Your line is now open.

David Begleiter: For our end markets.

Speaker Change: Hi, This is Kevin actually on for Laurence Alexander Thank you for taking my question.

David Begleiter: Understood and then going back to an earlier question on those 23 contracts for sure somewhere multiyear are those benefits so flowing through to you on our base pricing.

Speaker Change: Just wanted to dig a little deeper on some of your end markets I guess, specifically, what's your outlook on sort of a non auto related sales are in 2025.

David Begleiter: Impact.

Speaker Change: Sure Hi, Kevin.

David Begleiter: We did not have any.

Speaker Change: So the non auto related sales would would of course be.

David Begleiter: Any any multi years that that extended from 2023.

Speaker Change: Primarily concentrated in our performance chemicals.

David Begleiter: Into 2025 now.

Speaker Change: Segment, which is made up of end market exposures that include auto but also.

David Begleiter: Perfect. Thank you.

David Begleiter: Okay.

David Begleiter: Thank you.

Infrastructure and industrial applications consumer applications as well as the building and construction end market sectors. So.

Kevin: Our next question coming from the line of Kevin <unk> with Jefferies. Your line is now open.

Kevin: Hi, This is Kevin actually on for Laurence Alexander Thank you for taking my question.

Speaker Change: In our Investor day, we outlined sort of what those what those exposures look like.

Kevin: Just wanted to dig a little deeper on some of your end markets I guess, specifically, what's your outlook on sort of a non auto related sales are in 2025.

Speaker Change: We're certainly seeing strength in our infrastructure related end markets.

Kevin: Sure Hi, Kevin.

Speaker Change: And I think thats driven a lot by expansion in alternative energy that continues to grow energy demand in general.

Kevin: So the non auto related sales would would of course be.

Primarily concentrated in our performance chemicals.

Speaker Change: Is rising.

Kevin: Segment, which is made up of end market exposures that include auto OE, but also.

Speaker Change: Driven in part by.

Speaker Change: AI and data center needs, but also because of renewal of the aging grid infrastructure.

Kevin: Infrastructure and industrial applications consumer applications as well as the building and construction end market sectors. So.

Speaker Change: So there's both demand increase as well as renewals.

I think driving a good outlook.

Kevin: In our Investor day, we outlined sort of what those what those exposures looked like.

Speaker Change: In some of these broader industrial exposures that we participate in.

Kevin: We're certainly seeing strength in our infrastructure related end markets.

Speaker Change: I'd say, our consumer market exposures, we would expect to track pretty closely with GDP outlooks, and then on housing and construction.

Kevin: And I think thats driven a lot by expansion in alternative energy that continues to grow energy demand in general.

Speaker Change: That remains.

Speaker Change: I would say more more muted.

Speaker Change: Certainly if we go deeper into a rate cut cycle. Then we would expect to see some benefit building in housing and construction, but I don't think there's really any strong evidence of.

Kevin: Is rising.

Kevin: Driven in part by.

Kevin: AI and data center needs, but also because of renewal of the aging grid infrastructure.

Kevin: So there's both demand increase as well as renewals.

Of those markets picking up I would say there is sort of stable and maybe.

Kevin: I think driving a good outlook.

Kevin: In some of these broader industrial exposures that we participate in.

Speaker Change: Bouncing along at the at the bottom right now, but it would really come down to how rates.

Kevin: I'd say, our consumer market exposures, we would expect to track pretty closely with GDP outlooks, and then on housing and construction.

How rates move if you if you sort of boil it all up for <unk>.

Speaker Change: Performance chemicals were expecting.

Speaker Change: Good solid growth rates.

Kevin: That remains.

Kevin: I would say more more muted.

Speaker Change: Sort of mid mid single digits, maybe a little higher across the whole basket of applications for for the fiscal year, but with some differences depending on on applications.

Kevin: Certainly if we go deeper into a rate cut cycle. Then we would expect to see some benefit building in housing and construction, but I don't think there's really any strong evidence of.

Speaker Change: Understood. Thank you and then since you just mentioned grades.

Speaker Change: Question, I guess regarding a cyclical turn I guess it seems like some expectations around.

Kevin: Of those markets picking up I would say there is sort of stable and maybe.

Speaker Change: Credit easing in stimulus, if maybe ease a bit and I guess I was just wondering.

Kevin: Bouncing along at the at the bottom right now, but it will really come down to how rates.

Speaker Change: You guys can give an outlook for <unk>.

Kevin: How rates move if you if you sort of boil it all up for <unk>.

Speaker Change: So far in the back half of the year, but I mean.

Speaker Change: Yes in terms of a turn.

Kevin: Performance chemicals were expecting.

Speaker Change: I guess it sounds like you maybe sell it sounds like you're expecting something more like a gradual improvement rather than a.

Kevin: Good solid growth rates in.

Kevin: Sort of mid mid single digits, maybe a little higher.

Sort of more significant turn.

Speaker Change: Yeah, Kevin It was difficult to hear the first part of your question would you mind just repeating that for me.

Kevin: Cross the whole basket of applications for <unk> for the fiscal year, but with some differences depending on on applications.

Speaker Change: Sure, Yes, so basically since you mentioned raising questions about cyclical right I guess it sounds like you're it sounds like youre expecting proven to be a little bit more gradual rather than rather than like a quick turn.

Kevin: Understood. Thank you and then since you just mentioned great.

Kevin: Question, I guess regarding a cyclical turn I guess it seems like some expectations around.

Kevin: Credit easing in stimulus, if maybe ease a bit and I guess I was just wondering.

Speaker Change: I've heard some other company management, basically sort of temper expectations and cough, a little improvement to be a little more gradual.

Kevin: You guys can give an outlook for so far in the back half of the year, but I mean.

Speaker Change: Yes, yes, okay, great, yes, no I missed the word rates when you were talking about the turn there so well I think what we have in our outlook is sort of the market expectation for rate cuts through the balance of the year that in more recent months that has been tempered versus I think where it was.

Kevin: Yes in terms of a turn.

Kevin: I guess it sounds like you maybe sell it sounds like you're expecting something more like a gradual improvement rather than a.

Kevin: Sort of more significant turn.

Speaker Change: Yeah, Kevin It was difficult to hear the first part of your question would you mind just repeating that for me.

Speaker Change: Some months ago, where there was I think a higher expectation for.

Speaker Change: For a number of rate cuts in.

Speaker Change: In 2025, so I think it probably will be a little more gradual as.

Speaker Change: I've heard some other company management, basically sort of temper expectations and cough, a little improvement to be a little bit more gradual.

As the world's still in Central Bank still try to balance this.

Speaker Change: Growth versus getting to inflation targets, we're not quite there yet so.

Speaker Change: So I think that it will be probably a little more gradual and how that ultimately trickles down into housing and.

Speaker Change: Construction is obviously.

Speaker Change: A delay or an onset.

Speaker Change: It's a late onset for that to happen. So I think thats right. It will be a little more gradual when those end markets that are very sensitive to rates and thats largely what are what our expectation is and of course when you bake that in with all the other end market exposures that we have in performance chemicals again, we're expecting or.

Speaker Change: Some months ago, where there was I think a higher expectation for.

Speaker Change: For a number of rate cuts in.

Speaker Change: In 2025, so I think it probably will be a little more gradual as.

Speaker Change: As the world still in Central Bank still try to balance this.

They're all volume growth rates to be.

Speaker Change: Growth versus getting to inflation targets, we're not quite there yet so.

Speaker Change: Quite good in the sort of mid single digits to maybe a little bit better.

Speaker Change: So I think that it will be probably a little more gradual and how that ultimately trickles down into housing.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you.

Speaker Change: And as a reminder to ask a question. Please press star one on your Touchtone phone.

Speaker Change: Housing and construction there is obviously.

Speaker Change: A delay or an onset.

Speaker Change: And our next question coming from the line of Jeff Zekauskas with Jpmorgan. Your line is now open.

Until late onset for that to happen. So I think thats right. It will be a little more gradual when those end markets that are very sensitive to rates and thats largely what are what our expectation is and of course when you bake that in with all the other end market exposures that we have in performance chemicals again, we're expecting or.

Speaker Change: Hi, this is <unk>.

Speaker Change: Sure Josh.

Speaker Change: You talk about which product lines within the performance chemicals segment drove the 8% volume growth.

Speaker Change: It seems silicon battery materials, master batch, where others and if all product lines grew which ones through more on which ones less thank you.

Speaker Change: They're all volume growth rates to be.

Speaker Change: Quite good in the sort of mid single digits to maybe a little bit better.

Speaker Change: Got it thank you very much.

Erika: Hi, This is Erika so we did see growth across all product lines within the segment.

Speaker Change: Thank you.

Speaker Change: And as a reminder to ask a question. Please press star one one on your Touchtone phone.

Speaker Change: A year.

Speaker Change: If we comment on the larger business is carbons and compounds grew more than 5% to 6% range.

Speaker Change: And our next question coming from the line of Jeff Zekauskas with Jpmorgan. Your line is now open.

Speaker Change: And then our fume metal oxides product line.

Speaker Change: Hi, this is <unk>.

Speaker Change: The most more around a 20% growth rate.

Speaker Change: Sure Josh.

Speaker Change: You talk about which product lines within the performance chemicals segment drove the 8% volume growth.

Speaker Change: Okay. Thank you.

Speaker Change: Quantify the year over year Energy center revenue loss.

Speaker Change: It seems silicon battery materials Master Bachelor others, and if all product lines grew.

Speaker Change: It wasn't more than last time $30 million this quarter, which region contributed to that.

Speaker Change: One is through more on which ones less thank you.

Speaker Change: Decline.

Speaker Change: Sure. So again the loss on an EBIT type basis and margin basis was about $5 million.

Erika: Hi, This is Erika so we did see growth across all product lines within the segment.

Speaker Change: Over a year.

Speaker Change: If we comment on the larger businesses.

Speaker Change: Headwind year over year in the reinforcement materials segment.

Speaker Change: <unk> <unk> compounds grew more than 5% to 6% range.

Speaker Change: Driven by Europe and China.

Speaker Change: Revenue.

Speaker Change: And then our fume metal oxides product line.

Speaker Change: Thank you and allocated corporate costs were $4 million less negative year over year.

Speaker Change: The most more around a 20% growth rate.

Speaker Change: Okay. Thank you.

Speaker Change: So what drove that and is that going to be the case for the next quarter.

Speaker Change: You quantified the year over year Energy center revenue loss.

Speaker Change: It wasn't more in less than $30 million this quarter, which region contributed to the decline.

Speaker Change: So that was really just the timing of some corporate.

Speaker Change: Expenses, I'd say, so lower spend on some corporate meetings as well as board related costs. So.

Speaker Change: Sure. So again the loss on an EBIT type basis and margin basis was about $5 million.

Speaker Change: That that would be why year over year were down $4 million if.

Speaker Change: Headwind year over year in the reinforcement materials segment.

Speaker Change: If you look to the remainder of the quarters I think you would see a little bit higher by more than 2000 $14 million to $16 million per quarter range for the rest of the year, usually Q2, just because of the timing of certain expenses is a bit higher than the other quarters.

Speaker Change: Driven by Europe and China.

Speaker Change: Revenue.

Speaker Change: Thank you and allocated corporate costs were $4 million less negative year over year.

Speaker Change: Thank you.

Speaker Change: So what drove that and is that going to be the case for the next three quarters.

Speaker Change: Thank you.

Speaker Change: And I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Sean go ahead for any closing remarks.

Speaker Change: So that was really just the timing of some corporate expense.

Speaker Change: Expenses, I'd say, so lower spend on some corporate meetings as well as board related costs.

Speaker Change: Great. Thank you very much for joining us today and we appreciate your continued support of Cabot. It was great to see you all at our Investor day, a little over a month ago and we look forward to speaking with you again next.

Speaker Change: That that would be why year over year were down $4 million.

Speaker Change: If you look to the remainder of the quarters I think you would see a little bit higher probably more in the $14 million to $16 million per quarter range for the rest of the year, usually Q2, just because of the timing of certain expenses is a bit higher than the other quarters.

Speaker Change: Next quarter. Thank you.

Speaker Change: This does conclude today's conference. Thank you for your participation and you may now disconnect.

Speaker Change: Thank you.

Thank you.

Speaker Change: And I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Sean go ahead for any closing remarks.

Sean: Great. Thank you very much for joining us today and we appreciate your continued support of Cabot. It was great to see you all at our Investor day, a little over a month ago and we look forward to speaking with you again next.

Speaker Change: Next quarter. Thank you.

Speaker Change: This does conclude today's conference. Thank you for your participation and you may now disconnect.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Okay.

[music].

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Good day, Thank you for standing by and welcome to Cabot's first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Just a question. During the session you will need to press star one on your telephone you will then hear an automatic message advice.

Speaker Change: And this race. Please note that today's conference is being recorded I will now hand, the conference over to your Speaker host, Dave Delahunt, Vice President Treasurer and Investor Relations. Please go ahead.

Dave Delahunt: Thank you Olivia and good morning, I would like to welcome you to the Cabot Corporation earnings teleconference.

Dave Delahunt: Me today are Sean Keohane, CEO, and President and Erica Mclaughlin Executive Vice President and CFO.

Dave Delahunt: Last night, we released results for our first quarter of fiscal year 2025 copies of which are posted in the Investor Relations section of our website.

Dave Delahunt: 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.

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

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

Dave Delahunt: In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.

Dave 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 investors section of our website.

Sean Keohane: I will now turn the call over to Sean who will discuss the first quarter highlights followed.

Sean Keohane: Although the Companys recent cash flow performance and then discuss the key takeaways from our recent Investor Day, we held in December Erica.

Sean Keohane: <unk> will review the first quarter financial highlights and the business segment results.

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

Sean Keohane: Sean.

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

Sean Keohane: In the first fiscal quarter, we continued to execute at a high level when a mixed economic environment generating results in line with our expectations and leading to EBIT growth in both of our segments.

Sean Keohane: We delivered adjusted earnings per share of $1 76.

Sean Keohane: Which is up 13% as compared to the same period in the prior year positioning us well with a strong start to fiscal year 2025.

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

Sean Keohane: EBIT in reinforcement materials was $130 million up 1% year over year in what remains a challenging global environment.

Sean Keohane: Results in this business continue to demonstrate the value of the structural improvements we have made over the years to the business and our continued commitment to commercial and operational excellence.

Sean Keohane: EBIT in performance chemicals was up 32% compared to the first quarter of fiscal 2024, largely due to higher volumes as demand. In this segment has generally stabilized and volumes have reconnected to underlying demand drivers in key end markets.

Sean Keohane: Cash flow was strong in the quarter, which supported investments in maintenance compliance and both capital projects as well as the return of cash to shareholders through a combination of share repurchases and dividends.

Sean Keohane: The cabinet portfolio has strong cash flow characteristics, which enables a balanced capital allocation strategy focused on funding our high confidence high return growth projects and returning cash to shareholders.

Sean Keohane: This balance of profit growth and cash return can be achieved while maintaining our strong investment grade balance sheet.

Sean Keohane: In the quarter, we generated operating cash flow of $124 million.

Sean Keohane: We also invested $77 million in capital expenditures, which included growth investments to construct our new Indonesia capacity for reinforcement materials and capacity for growth in battery materials.

Sean Keohane: We also returned $66 million to shareholders through $24 million of dividends and $42 million of share repurchases.

Sean Keohane: Since fiscal 2015, our dividend per share has grown at a compound annual growth rate of 8%.

Sean Keohane: We remain committed to a continuous and growing dividend and expect to maintain an industry competitive dividend yield and payout ratio over time.

Sean Keohane: We also believe that share repurchases are an attractive use of cash in this quarter, we purchased $42 million of shares.

Sean Keohane: Looking over a longer horizon, we've reduced our outstanding share count by 13% since fiscal 2015, as we have maintained a steady commitment to share repurchases.

Sean Keohane: During the quarter. We also held an investor day in December we.

Sean Keohane: We appreciate the support from our investors as we had a great turnout.

Sean Keohane: I'd like to now provide a brief recap of this event.

Sean Keohane: During the day, we reviewed the successful achievement of our 2021 Investor day goals discussed our company vision and strategy provided.

Sean Keohane: Provided an outlook for our segments and communicated an updated set of three year financial targets.

Speaker Change: As I shared at Investor Day, I believe that Cabot offers a compelling investment thesis.

Speaker Change: Are creating for tomorrow strategy is the right one to drive continued growth and shareholder value creation.

Speaker Change: This strategy is built on the pillars of grow innovate and optimize and we drive execution with a disciplined operating platform of commercial and operational excellence.

Speaker Change: Our excitement and confidence in our outlook for growth is underpinned by our global footprint and the strong product portfolio that is aligned with three key macro trends.

Speaker Change: The first macro trend is the changing mobility landscape towards electric vehicles, which is expected to drive growth across the Cabot portfolio.

Second to build out a global infrastructure is expected to drive demand for important applications in our portfolio from specialty carbons for power distribution cables to fumed silica for wind turbine blades.

Speaker Change: And third the sustainability transition, where our customers are increasingly seeking more circular and sustainable offerings to meet the needs of their downstream customers.

Speaker Change: We have set clear growth goals targeting an adjusted earnings per share CAGR of 7% to 10% over the next three years with growth expected in both business segments.

This management team has a proven track record of execution over a long period of time, and we are committed to continuing that high level of execution going forward.

Speaker Change: And finally cash flow and capital allocation.

Speaker Change: The Cabot portfolio has strong cash flow characteristics and this is the source of our value creation strategy.

Speaker Change: The execution of our strategy has driven exceptional shareholder value creation over the last three years.

Speaker Change: We're very proud of that track record and are confident we will continue to do the same in the coming years.

Speaker Change: I'll now turn the call over to Erica to discuss this segment and financial performance in the quarter Erika.

Erica Mclaughlin: Thanks, John I will start with discussing results for the company and then review the segment results.

Erica Mclaughlin: Yesterday's earnings per share for the quarter first quarter fiscal 2025 grew 13% from $1 56 in the first quarter of fiscal 2024 to $1 70 with growth coming from both our reinforcement materials and performance chemicals segments.

Erica Mclaughlin: As John noted cash flow from operations was strong at $124 million in the quarter, which included a working capital increase of $38 million discretionary free cash flow was $114 million in the quarter.

Erica Mclaughlin: We ended the quarter with a cash balance of $183 million and our liquidity position remained strong at approximately $1 $3 billion.

Capital expenditures for the first quarter of fiscal 2025 or $77 million and we continue to expect $250 million to $300 million of capital spending for the fiscal year.

Erica Mclaughlin: Uses of cash during the first quarter were $24 million for dividends and $42 million for share repurchases. Our debt balance was $1 2 billion and our net debt to EBITDA was one three times.

Erica Mclaughlin: The operating tax rate for the first quarter of fiscal 2025 was 28% and we continue to anticipate our operating tax rate for fiscal 2025 to be in the range of 27% to 29%.

Erica Mclaughlin: Now moving to reinforcement materials during the first quarter EBIT for reinforcement materials was $130 million, which was an increase of 1 million as compared to the same period of the prior year the.

Erica Mclaughlin: The increase was driven by higher volumes and favorable pricing and product mix from the calendar year 2024 customer agreements.

Erica Mclaughlin: <unk> offset by a less favorable geographic mix and lower energy Center revenue.

Erica Mclaughlin: Well the real volumes were up 1% in the first quarter as compared to the same period of the prior year due to a 2% growth in Asia Pacific and 1% in Europe as demand in those regions.

Erica Mclaughlin: Looking to the second quarter of fiscal 2025, we expect reinforcement materials EBIT to improve modestly as compared to the first quarter.

Erica Mclaughlin: Volumes are expected to remain relatively consistent with the first quarter, we anticipate a more favorable geographic mix with seasonal volume improvement and the impact from contract gains in Europe offset by lower volumes in Asia due to the lunar new year holiday.

Erica Mclaughlin: Now turning to performance chemicals EBIT.

Erica Mclaughlin: Costs were higher due to the timing of plant maintenance and the impact of new assets in this segment.

Erica Mclaughlin: Looking ahead to the second quarter of fiscal 2025, we expect modest sequential EBIT improvement from seasonally higher volumes in North America and Europe.

Sean Keohane: I'll now turn the call back over to Sean to discuss the fiscal year outlook John Thanks Erika.

Speaker Change: This is based on our current view that global production levels for the tire and auto markets are expected to be relatively flat year over year.

Speaker Change: We expect to see an increase in volumes as our new capacity comes online in Indonesia in the back half of the year and ramps up into 2026.

Speaker Change: Also included in our outlook is the impact from the reinforcement materials customer negotiations overall base prices on a global basis concluded similar to the prior year with volumes higher in Europe, but lower in South America.

Speaker Change: The outlook includes pricing and mix outcomes as it relates to the expected regional and customer volumes as well as cost changes and continued operational improvements.

Speaker Change: On balance given the weaker market environment, we concluded the customer negotiations with reasonable outcomes.

Speaker Change: With volume growth expected year over year.

Speaker Change: This range would result in strong year over year EBIT growth for the fiscal year as higher volumes contribute meaningfully to EBIT performance.

Speaker Change: We expect volume growth across our application set specifically benefiting from the build out of global infrastructure, where our products play an important role in the manufacturer of wind turbine blades as well as the performance of power distribution cables as.

Speaker Change: As the agent greta's renewed and new distribution lines are laid to connect alternative energy sources to the grid, we expect our products geared to wind energy and the wire and cable applications to grow strongly.

Speaker Change: Our outlook includes foreign currency rates and market interest rate projections as of the end of January.

Speaker Change: Our current guidance does not include any adverse impacts from the tariffs announced over the weekend between the U S and Mexico, Canada and China.