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March 09, 2023 12:32 PM

Cabot weathers strong Q1 headwinds, poised for growth with EVs

Erin Pustay Beaven
Rubber News
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    Cabot acquired plant ianjin-Battery Materials-main_i.jpg
    Cabot Corp.

    The first quarter of fiscal 2023 turned out to be a rather challenging one for Cabot Corp., but the specialty chemicals and performance materials company managed to sculpt some successes along the way.

    "I am pleased with our first-quarter results as they were in line with our expectations, and the strategic developments that informed our full-year guide in November remain on track," Cabot CEO and President Sean Keohane said during a recent financial results call. "Overall, we are very pleased with our strategic progress, and we feel the company is well-positioned for another year of earnings growth."

    Yes, he said, growth will come, despite the headwinds on the horizon.

    And the Boston-based company faced its fair share of strong headwinds in the first quarter, but showed its resiliency in the process.

    Sean Keohane

    "In the first fiscal quarter," Keohane said, "we delivered adjusted earnings per share of 98 cents despite significant headwinds including lower demand in China due to significant levels of COVID outbreak, elevated levels of customer destocking across most value chains and softness in key end markets in performance chemicals."

    Net sales for the quarter stood at $965 million, representing just a $3 million drop year-over-year. Net income was $54 million for the first three months of 2023, a year-over-year increase of $143 million.

    EBIT within the Reinforcement Materials segment increased by $9 million year-over-year, totaling $94 million for the first quarter of 2023. Segment EBITDA for the three-month period came in a $111 million, up $8 million year-over-year.

    "EBITDA in Reinforcement Materials was up 11 percent year-over-year, demonstrating the structural improvements we have made in recent years to the business and the resilience of the replacement tire market," Keohane said. "We also concluded our tire customer contracts [with] better pricing than we originally forecasted back in November, underscoring Cabot's value proposition for supplier reliability, quality and sustainability."

    Meanwhile, Reinforcement Materials segment volumes were down globally in the first quarter of 2023. Volumes throughout Asia fell about 6 percent, while EMEA and the Americas each showed 5 percent volume declines. Cabot attributes those drops to the resurgence of COVID-19 outbreaks in China and year-end destocking beyond the normal seasonal effect.

    Within the Performance Chemicals segment, EBIT decreased 44 percent on the quarter to $29 million. Segment EBITDA came in at $46 million, down from the $70 million for Q1 2021. These declines, Cabot said, were the direct result of "lower volumes, higher fixed costs from new capacity additions, and an unfavorable foreign currency impact."

    A number of factors weighed on the segment's volume totals during the first three months of FY23, though they were primarily driven by elevated year-end inventory reduction, softness in key markets such as construction and China's COVID-19 outbreaks.

     

    Boost from battery materials

    Despite the challenges faced by Performance Chemicals, the segment found strength with battery materials, which saw a 63-percent, year-over-year increase in volume. It's an area where Cabot sees significant opportunity for growth, and it is positioning itself to best harness that potential.

    "I've talked quite a bit about the growth in battery materials over the last few quarters as I believe it represents a transformation opportunity for Cabot, driven by growth in demand for electric vehicle and lithium ion battery," Keohane told investors.

    Cabot expects global demand for battery materials, such as its conductive carbon additives, to grow between 20 and 30 percent throughout the coming decade. And the U.S., the company noted, could be poised to outpace global growth, given the anticipated acceleration in adoption of electric vehicles.

    To help meet this demand, Cabot is expanding conductive additive capacity in the U.S. with a $200 million, five-year investment at its Pampa, Texas, plant. The project, expected to be completed in 2024, will add 15,000 metric tons of capacity.

    For Cabot, however, the potential for growth from conductive carbon additives is global, though U.S. potential does remain a focal point.

    "At Cabot, we have been building our battery CCA product line for several years and have been extending our leadership program in this transformational space," Keohane said. "We currently have established capacity for CCA materials in the U.S., Europe and Asia, which provides our customers with security of supply, and gives Cabot an advantage over many competitors, which are operating largely in the Asia region. Our global footprint gives us the opportunity to expand capacity quickly to meet the expected sharp ramp in demand from our customers."

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