Q4 2025 Cabot Corp Earnings Call
Speaker #1: Good day, and thank you for standing by. Welcome to the Q4 FY 2025 Cabot Earnings Conference Call. At this time, all participants are in a listen-only mode.
Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone.
Speaker #1: You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Speaker #1: I would now like to hand the conference over to your speaker today. Steve Delahunt, Vice President, Investor Relations and Treasurer. Please go ahead, sir.
Speaker #2: Thanks, Michelle, and 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.
Speaker #2: Last night, we released results for our fourth quarter of fiscal 2025, copies of which are posted in the Investor Relations section of our website.
Speaker #2: The slide deck that accompanies this call is also available in the Investor Relations portion of our website. And we'll be available in conjunction with the replay of the call.
Speaker #2: During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risk and uncertainties that could cause actual results to differ materially from those projected in such statements.
Speaker #2: Additional information regarding these factors appears under the heading "Forward-looking Statements" in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2024, and in subsequent filings we make with the SEC.
Speaker #2: 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.
Speaker #2: Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled 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.
Speaker #2: Also, as we do typically each year, I would like to remind you that over the next several weeks, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards.
Speaker #2: I will now turn the call over to Sean, who will discuss the fiscal 2025 highlights, our cash flow results, and our strategic highlights for the year.
Speaker #2: Erica will review the corporate financial details and business segment results for the fourth quarter and fiscal year. Following this, Sean will provide a 2026 outlook and some closing comments, and then open the floor to questions.
Speaker #2: Sean?
Speaker #3: Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call. Before we move into year-end highlights, I'd like to take a moment to share an important update regarding our investor relations leadership.
Speaker #3: As
Speaker #1: 1.5 billion. Which gives us tremendous flexibility to invest in strategic organic and inorganic projects, to grow the long-term earnings of the company while returning a significant amount of Second, underwriting high confidence organic and inorganic growth investments to deliver long-term earnings growth.
Speaker #1: And third, returning capital to shareholders through dividends and share repurchases. The strength of our cash flows allows us to execute against these priorities while maintaining our strong investment grade balance sheet.
Speaker #1: In fiscal year 2025, we paid $96 million in dividends, including a 5% increase announced in May, reflecting our confidence in the long-term cash flow outlook of the company.
Speaker #1: We have maintained a continuous and growing dividend since 1968, and we would expect to continue raising the dividend over time as our earnings and cash flows grow.
Speaker #1: We also repurchased 168 million of shares in fiscal year 2025, which reduced our outstanding share count by 3%. And when combined with dividends, total 264 million of capital returned to shareholders.
Speaker #1: Overall, we feel very good about our long-term cash generation power and balance sheet strength, which provides us with great strategic flexibility. During our fiscal year, we also made important progress on key elements of our Creating for Tomorrow strategy.
Speaker #1: I’ll spend a few minutes now highlighting some important accomplishments that are part of our strategy to deliver long-term shareholder value creation. In July, we announced that Cabot has entered into a definitive agreement to acquire Bridgestone's reinforcing carbon plant in Mexico.
Speaker #1: This manufacturing facility is located in close proximity to CABOT's current reinforcing carbon facility in Altamira, Mexico, and strengthens our partnership with Bridgestone through the long-term supply of reinforcing carbon products from this plant.
Speaker #1: The facility also has the capacity to manufacture additional reinforcing carbons providing flexibility to support broader customer needs and future growth opportunities for CABOT. The transaction is expected to close in the second fiscal quarter subject to regulatory approvals and to be accretive in the first year.
Speaker #1: This is an example of how we are deploying our strong cash flow to fund an attractive acquisition that strengthens our portfolio, drives incremental growth, and is accretive to earnings.
Speaker #1: We are pleased with the earnings progression and strategic developments in our performance chemical segment. Despite persistent end-market weakness and certain important sectors such as automotive and construction, while we believe the end markets of automotive and construction will improve over time from their current cyclical lows, we are focused on targeted applications where the macro trends are favorable.
Speaker #1: Specific sectors include infrastructure and alternative energy, digitalization, and consumer-driven applications. Success across these sectors was an important contributor to the earnings increased earnings in the segment in fiscal '25.
Speaker #1: The demand for conductive carbons for power distribution cables is supported by growth in power generation and distribution, and this application is expected to grow in the 8% range through the end of the decade.
Speaker #1: Fume silica for the CMP application is one where we saw strong double-digit growth in 2025 as broad digitalization and automation trends drive a greater need for semiconductor chips.
Speaker #1: And finally, consumer spending has been a pretty resilient driver of economic growth globally, and our specialty carbons, specialty compounds, fume silicas, and Erica materials are all benefiting from this strength.
Speaker #1: Sustainability is central to who we are at CABOT, and we continue to be recognized for excellence. As we discussed last quarter, we are proud to have received a platinum rating from ECOVATUS for the fifth consecutive year.
Speaker #1: ECOVATUS is the world's largest and most trusted provider of business sustainability ratings with more than 150,000 rated companies. A platinum rating is the highest level of achievement and places CABOT among the top 1% of companies in the manufacturing of basic chemicals.
Speaker #1: This prestigious recognition underscores CABOT's commitment to transparency and provides our customers with visibility into our sustainability performance. In the fourth quarter, we also published our 2025 sustainability report, outlining our progress to date and our direction for the future.
Speaker #1: In this publication, we reported our strong progress against our calendar year 2025 goals and also unveiled our 2030 sustainability targets which reflect our ambition to continuously drive measurable impact for our stakeholders.
Speaker #1: And finally, we continue to make strong progress in building a leading battery materials business that we believe can become a material contributor to CABOT over the long term.
Speaker #1: Our strategic development approach is based on a mix of organic technology development efforts that build on our core conductive carbons and thermal management technologies.
Capital expenditures for the fourth quarter of fiscal, 2025 were 64 million, and we expect Capital expenditures in fiscal, 2026 to be between 200 to 250 million.
Additional uses of cash during the fourth quarter were 25 million for dividends and 39 million for share repurchases. Our debt balance is 1.1 billion and our net debt to ibida remained at 1.2 times.
The operating tax rate for fiscal year 2025 was 27%, compared to 26% in fiscal 2024. The higher tax rate was driven by the geographic mix of earnings and the new OECD Global Minimum Tax implementation, which increased our tax rate in certain lower tax jurisdictions. We anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%.
Now, moving to reinforcement materials, it decreased by $4 million in the fourth quarter, compared to the same period last year, primarily due to lower volumes, which were down 5% year-over-year.
Decline in volumes is due to weaker customer demand, driven by the uncertainty, from tariffs and a weaker global macroeconomic environment.
In the Americas, the lower volumes were also driven by the continuation of elevated levels of Asian Tire Imports.
Regionally volumes were down 7% in the Americas and 6% in asia-pacific while volumes in Europe, were up 5%.
The lower volumes are partially offset by continued optimization and cost-reduction efforts in the segment.
EB. But for fiscal, 2025 was 29 million below the prior year, driven by 5% lower volumes, volumes declined in both the Americas and Asia, and the decline in volumes was partially offset by lower costs, and favorable foreign currency impacts.
Ately 15 to 20 million dollars driven by lower volumes in the Americas and Europe and increased competitive intensity in Asia.
Seasonally lower volumes in the Americas and Europe are also expected to negatively impact Regional. Mix volumes are also expected to be sequentially lower as customers manage, their year-end inventory levels.
Now, turning to Performance chemicals during the fourth quarter, fiscal, 2025 ebit for the segment decreased by 2 million, as compared to the same period in the prior year. The decrease in the fourth quarter was due to lower volume volumes were lower by 5% year-over-year, primarily due to lower volumes in the European region, particularly in construction, related applications.
Even in fiscal 2025 was 30 million higher than the prior year. The increase was driven by higher volumes in a few metal oxides and Battery materials product lines. The segment also benefited from continued optimization and cost reduction efforts throughout the year.
Looking ahead to the first quarter of fiscal 2026. We expect ebit to remain relatively consistent with the fourth quarter, as modest sequential volume Improvement, is expected to be. Largely offset by the timing of higher costs.
I'll now turn it back to Sean to discuss the 2026 Outlook.
Sean. Thanks Erika.
Fiscal year, 2025 certainly developed differently than we expected just 1 year ago.
Automotive production and the Western economies contracted in 2025 and elevated, Asian Tire Imports into Western geographies continue to persist.
Additionally, Global manufacturing PMI was in or near contraction territory, from most of 2025 and the expected interest rate cut cycle, was slower than expected leaving the housing and construction sector in a trough.
In addition, 2025 was characterized by global trade turbulence, which is making it very difficult to determine long-term durable demand levels, as we look to 2026, we don't yet. See signs of improvement across these Dimensions while trade policy is trending toward regionalization and this aligns well with our model of make and regions sell and region, it would likely take some time for end markets and Supply. Chains to find their new normal.
In 2026. We now expect light vehicle, oil production in North American Europe to decline for a third year in a row.
In terms of the tire sector, the persistent elevated level of tire imports from Asia has reduced domestic tire production in the Americas and Europe, thereby creating a more challenging competitive environment for tire manufacturers and their suppliers, including carbon black producers.
Furthermore, global manufacturing PMI continues to straddle 50, with no clear catalyst to move firmly above 50 and into expansionary territory.
With this is a market backdrop, we expect adjusted earnings per share in fiscal year 2026 to take a step back from our strong performance in 2025.
Acknowledging. There is significant uncertainty in both end market demand and the range of outcomes in our annual Tire contract negotiations. We expect fiscal year 2026, adjusted earnings per share to be between 6 dollars and 7 dollars.
Our range includes various scenarios related to volumes and pricing outcomes across our businesses.
The lower end of the range would reflect the weak demand environment and pricing pressures in 2026.
The higher end of the range would reflect the ability to largely offset pricing pressures with volumes optimization, cost savings and benefits from our growth Investments.
As we think about the segment outlook for fiscal 2026. In reinforcement, materials we are currently negotiating, our calendar year contracts,
While we expect outcomes to be varied across customers, our expectation is that overall contract outcomes will be lower than the prior year.
Our customers are facing challenges in the western regions from Asian Tire Imports, along with macroeconomic uncertainty and are pushing hard on suppliers giving these Dynamics.
This is causing challenging contract discussions with our customers that are taking longer to close.
In addition, I would say the utilization situation and the Western regions is similar or slightly worse than the prior year.
Tire imports from Asia have increased modestly year to date into the US.
They've decreased modestly in South America, while they have risen more materially in Europe in 2025.
Therefore, it is a challenging picture for local production of tires in the Americas and Europe, which in turn impacts our business in those regions.
Participation in demand in Asia.
But it is a competitive market at this time. Requiring us to balance volumes and margins.
Regarding performance. Chemicals in 2025, we have seen rather strong demand in Asia, muted levels of demand in the Americas and challenging demand patterns in Europe
We anticipate these Trends will continue in 2026.
The challenges in Europe are also related to end product imports from Asia into Europe, which is impacting demand pulled through from our customers in the region.
We are seeing positive demand in Asia as our customers benefit, from strong export levels and we utilizing our capacity there quite well.
While in market demand and construction and auto remains in a cyclical, trough, we are seeing strong and improving demand and attractive and markets, like battery materials, as well as specific sectors, including infrastructure and alternative energy, digitalization, and consumer-driven applications.
We expect these growth areas along with continued optimization across the segments to enable year-over-year growth in segments. Ebit.
we expect cash flow from operations to remain strong and our net debt to Evita to remain in a similar range to 2025
We expect the cash flows from operations will fund our Capital expenditures, a strong dividend and share repurchases in the range of 100 to 200 million.
As we think about our longer-term Outlook in the targets we set for 2027 at our investor Day last year, it is clear that the assumptions we had 1 year ago are not playing out as planned.
the targets were established based on a certain set of assumptions for our key and markets,
Specifically Automotive production was forecasted to grow at a higher rate than we now see. And the Western markets were projected to be positive, which has not been the case in 2025 or the 2026 forecast,
We expected Tire production to grow globally including in the western markets but the persistent level of Asian Tire Imports has impacted demand for our product in the Americas and Europe resulting in a negative Regional mix.
With the change in the US administration's policy towards electric vehicles. The outlook for batteries in the US has also been reduced
And finally, the interest rate cut cycle, that was projected, at that time has been slower to develop, resulting, in a delayed pickup in housing and construction sector.
In addition to these end market factors, the global trade negotiations are creating significant uncertainty. We have not yet seen a stable period to interpret a new normal for our ten markets.
Given where we are today in our expectation. For 2026, the implied recovery needed to achieve these targets. By 2027 is not expected. We will of course monitor the external environment and its impacts on our business and continue to update you as our visibility improves
Certain of our end markets are suffering from cyclical, headwinds particularly the automotive and building and construction sector. But we expect volumes in these applications, will improve over time as interest rates, cut are cut and strengthen the consumer.
The biggest Dynamic that is yet. Unclear is the impact of Asian Tire. Imports on Tire production volumes in the western markets,
At this point, we are observing mixed signs.
In the US, there is a range of tariff levels, that impact tires and anti-dumping duties that have been levied on certain producers.
We have not seen a decrease in Imports into the US based on the most recent data, which is here to date, July, and it remains too early to determine if these actions will have a material impact on the flow of tires.
In South America, we are seeing some evidence that trade actions are having a positive impact on the level of Tire Imports into Brazil.
Currently Dior a tariffs on passenger car and truck buyers as well as anti-dumping duties on tires from certain countries, including China and Thailand on a year. Day basis, through August, we have seen a decline in Tire Imports into Brazil, so that sign is encouraging.
In Europe there are very modest tariffs in place at this time on passenger car and truck tires, the EU is currently investigating allegations of dumping of passenger car tires from China and potential. Provisional measures may be introduced as early as December 2025.
on truck tires, there are currently anti-dumping duties in place, whether these levels are sufficient to change, trade flows, remains unclear,
in addition to trade policy by different countries, we are also observing that the global Tire Majors appear to be taking steps to improve competitiveness and defend their tier 2 brands
Production and the Western regions, but the magnitude and timing remain uncertain at this time.
While there is uncertainty from the global trade Dynamics and its impact on our end market demand, we are focused on leveraging, our strengths to navigate the situation and position cabinet for long-term success.
It starts with our capability as a strong operator. Over the past decade, we've created significant value through disciplined, execution of our operating platform of commercial and operational excellence.
In this turbulent time, our efforts and operational excellence will skew more towards yield and costs rather than asset availability.
On the commercial Excellence front, our strategy will seek to balance pricing and volume and we will remain laser focused on executing in TN markets with our favorable Tailwinds.
As a global leader in our respective product lines. We have a large network of competitive assets and leading technologies that enable optimization to best serve, our customers, and maximize returns in the current environment. Our Focus will be on global asset optimization efficiency programs and cost reductions
to more challenging environment. We expect cash flow and liquidity to remain strong in our investment. Grade balance sheet offers great strategic flexibility to execute our creating for tomorrow strategy.
And finally, we will continue to be disappointed in our allocation of capital.
We expect to deploy Capital against high confidence. Strategic growth areas, such as battery materials, while maintaining a meaningful return of capital to shareholders.
Cabin is well positioned to navigate, the current uncertainty and this management team brings a track record of experience and disciplined execution. Both of which are important in these Dynamic times.
Thank you. And I will now turn the call back over for a question and answer session.
To address your question. Please press star 1 1 again. 1 moment for our first question.
Our first question will come from the line of John Roberts with meizuo. Your line is open, please go ahead.
Um, thank you. Are you seeing any volatility in your rubber black, uh, operating rates regionally, or is it relatively stable? I, I know it's shifted, but I don't know if it's shifted in its stabilized or it's still volatile.
Yeah, John. Um, I would say it's largely stable, but stable when the context of, um, uh, you know, the elevated Tire Imports and how those, uh, have had an impact on, um, on demand and in any given region. But, uh, if you look for example, in uh, in North America,
You know, you'll see that tire Imports where, uh, we're up modestly on a year-to-date basis. So that translated into largely stable, operating levels in in North America. So that's really the the factor that's at play here, but, um, but we've been, largely stable,
And then are you being impacted At All? By Dow silicone, rationalization efforts in Europe.
Um so as uh as you know Dao has announced the closure of their um soanes plant uh in Barry Wales and we have a fume silicon plant next door to them. Uh where we exchange uh some feed stock and materials, as part of a long-term agreement that goes out through the end of 2028 and we're currently in discussions, with Dao on exactly how they'll perform against that, uh, contract.
Thank you.
Thank you. 1 moment for our next question.
Our next question comes from the line of David beg letter with
Stretch your bank. Your line is open. Please go ahead.
Hi, this is Emily Fusco on for Dave, B glider. Maybe a question on Tire contract prices. How, how much do you expect 2026 prices to be down or Expectations by region and maybe if you could give some color on what percentage of negotiations have been settled. Thank you.
26 given all of the uh turbulence. I can't comment on Final outcomes here as we're we're obviously far from done and this is competitive uh information.
Thank you. And 1 moment for our next question.
Our next question comes from the line of Joshua Spectre with UBS. Your line is open, please go ahead.
Good morning, it's Chris Paula on for Josh. Um could you elaborate on the uh, for the performance chemicals? The the underlying assumptions that you you have baked into the guidance for this year in terms of of volume and growth, uh, volume and price expectations or mixed expectations.
Sure. So uh, in performance chemicals, if you think about the basket of applications that we sell into it, typically, you know over a longer period of time, we'll grow at sort of 1 and a half to 2 times uh GDP. Uh, now what we are seeing in this segment is certain applications particularly those in automotive and construction related, um, are uh, are currently in what I would say is a, a cyclical trough. And so over time, we certainly expect those to improve, but the expectation of, uh, any material Improvement into 2026, I think is is
Fairly limited. Now, where we do have, um, very positive expectations is in our targeted growth areas that I commented on, in my, uh, prepared remarks areas, including battery materials, uh, the infrastructure, uh, applications the broad Trends around digitalization and how that's uh driving uh, increased demand for our fume, silica for the CMP application for chip manufacturing. Those types of applications continue to uh exhibit strong uh growth and uh we're performing well there. So when we look at the overall expectation for volumes, we certainly expect volumes to be up in, uh, in in 2026. But again, uh, a mix of, uh, some headwinds that are more than off being offset by, um, by these targeted, uh, applications with strong, strong Tailwind.
And is there a width depending on the application mix in your expectations? Is there a, is there a mix-up list or is this, uh, you know, I know the battery materials is kind of higher value, but is there a mix-up lift expected this year?
Yeah, I would say the mix uh is probably pretty balanced. Uh, these applications that are growing well have good strong margins, but as you might recall, um, volumes that get pulled through from the automotive sector, typically have pretty high margins as well, uh, because that business tends to be specified. So so I would say the the margin uplift from um from mix would be, you know, fairly I would say fairly fairly balanced. The trade-offs would be fairly balanced there.
All right, thank you, Sean.
Thank you. And
A question.
1 1.
On the line of Kevin Ito with Jeffrey's, your line is open. Please go ahead.
Uh, yeah, thank you. Um, asking on behalf of Lawrence. Um, I was just wondering if you could share a little bit about how maybe the regional utilization rates to kind of shook out during the quarter. Um, you know, maybe by region if you if you have that sort of data, thanks.
Sure sure. So the the regional picture has not really changed much from our prior, uh, comments certainly in the western regions the impact from Tire Imports. Uh, from Asia has reduced domestic production from our customers. I think if you if you go around the world, what what you'll see in in North America is that utilizations are
North America region that has been impacted by Tire Imports. But as I commented, uh, we're starting to see trade policy and tariff policy, begin to impact the level of Tire Imports, reducing the level of Tire Imports in the most recent data. So, so that's encouraging and hopefully will, uh, shift things back a bit in the region there to improve, uh, utilizations. Uh, but right now, those, uh, those remain in the 70s, uh, at this point. And then, if you look at asia-pacific, we we're running at, you know, quite High, uh, utilizations across our Asia, uh, assets. As we typically do. And here, we're really, um, you know, choosing carefully, um, you know, the customers and products that we're supplying to maximize the value out of our, uh, our Asian assets and to align our, our capacity with customers that uh, really value our value.
Proposition of product, performance and quality and Supply reliability. So that's, that's a bit of a, a walk around the world in terms of utilizations, I would say, that's largely been the story throughout, uh, 2025. So, no, no. You know, recent shift in that. And again, uh, the question as we move forward is how to Regional volumes develop in large part, uh, given. Um, you know, how how Tire Imports are likely to play out.
Understood, thank you very much.
Thank you. And I would like to hand the conference back over to Sean Cohen for closing remarks.
Great. Thank you very much for joining us today. Apologies for the technical difficulty at uh at the very beginning there, but I'm glad we were able to get back connected here. Thank you for joining, appreciate your support of cabin and we look forward to talking to you again, uh, throughout the next quarter. Thank you.
this concludes today's conference call, thank you for participating and you may now disconnect