Cabot (CBT) - 2023 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements The unaudited consolidated financial statements for the quarterly period ended June 30, 2023, show a decrease in net sales and net income compared to the same period in 2022. Net sales for the third quarter were $968 million, down from $1,149 million year-over-year. Net income attributable to Cabot Corporation was $82 million for the quarter, compared to $97 million in the prior-year period. The balance sheet indicates total assets of $3,387 million as of June 30, 2023. Cash flow from operations for the nine months ended June 30, 2023, was a positive $457 million, a significant improvement from a $5 million use of cash in the prior-year period Consolidated Statements of Operations For the third quarter ended June 30, 2023, Cabot reported Net Sales of $968 million, a decrease from $1,149 million in the same period of 2022. Net income attributable to Cabot Corporation was $82 million, or $1.43 per diluted share, compared to $97 million, or $1.69 per diluted share, in the prior-year quarter. For the nine-month period, net income increased to $211 million from $115 million year-over-year, primarily due to a large asset impairment charge in the prior year not recurring Consolidated Operations Summary | Financial Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales and other operating revenues | $968 million | $1,149 million | $2,966 million | $3,209 million | | Gross profit | $223 million | $235 million | $614 million | $665 million | | Income from operations | $150 million | $168 million | $384 million | $246 million | | Net income attributable to Cabot | $82 million | $97 million | $211 million | $115 million | | Diluted Earnings per share | $1.43 | $1.69 | $3.65 | $1.99 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income attributable to Cabot Corporation was $67 million for the third quarter of 2023, a significant increase from $3 million in the same period of 2022. This was primarily driven by changes in foreign currency translation adjustments. For the nine-month period, comprehensive income was $321 million, compared to $36 million in the prior year, also largely due to favorable foreign currency translation adjustments Consolidated Comprehensive Income Summary | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $90 million | $106 million | $238 million | $140 million | | Other comprehensive income (loss), net of tax | ($21 million) | ($103 million) | $113 million | ($85 million) | | Comprehensive income (loss) attributable to Cabot | $67 million | $3 million | $321 million | $36 million | Consolidated Balance Sheets As of June 30, 2023, Cabot's balance sheet showed total assets of $3,387 million, a slight decrease from $3,525 million at September 30, 2022. Total liabilities decreased to $2,121 million from $2,493 million over the same period. Total stockholders' equity increased to $1,266 million from $1,032 million, driven by net income Consolidated Balance Sheet Summary | Balance Sheet Item | June 30, 2023 (In millions) | September 30, 2022 (In millions) | | :--- | :--- | :--- | | Total current assets | $1,602 | $1,820 | | Total assets | $3,387 | $3,525 | | Total current liabilities | $738 | $1,105 | | Total liabilities | $2,121 | $2,493 | | Total stockholders' equity | $1,266 | $1,032 | Consolidated Statements of Cash Flows For the nine months ended June 30, 2023, net cash provided by operating activities was $457 million, a significant turnaround from the $5 million used in the same period of 2022. Investing activities used $139 million, primarily for capital expenditures. Financing activities used $371 million, driven by net repayments of debt, dividends, and share repurchases. The company's cash and cash equivalents balance increased by $14 million to $220 million Consolidated Cash Flow Summary | Cash Flow Activity (Nine Months Ended June 30) | 2023 (In millions) | 2022 (In millions) | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $457 | ($5) | | Net cash provided (used) by investing activities | ($139) | ($31) | | Net cash provided (used) by financing activities | ($371) | $129 | | Increase (decrease) in cash and cash equivalents | $14 | $44 | | Cash and cash equivalents at end of period | $220 | $214 | Notes to the Consolidated Financial Statements The notes provide details on accounting policies, acquisitions, divestitures, contingencies, and segment information. Key items include the finalization of the Purification Solutions business sale, which resulted in an additional $3 million pre-tax loss. The company maintains a reserve of $38 million for respirator liabilities. A VAT matter was favorably resolved. Segment reporting shows Reinforcement Materials EBIT increased to $132 million in Q3 2023, while Performance Chemicals EBIT decreased to $32 million - In February 2022, the Company acquired Tokai Carbon (Tianjin) Co. for a net purchase price of $9 million, resulting in a gain on bargain purchase of $24 million[59] - The sale of the Purification Solutions business was finalized in Q1 fiscal 2023, resulting in an additional pre-tax loss on sale of $3 million[76] - The reserve for respirator liabilities was $38 million as of June 30, 2023, down slightly from $39 million at September 30, 2022[70] - A VAT-related legal matter was resolved favorably for the company in June 2023, making the possibility of a loss remote[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the decrease in Q3 2023 revenue and earnings to lower volumes and unfavorable pricing, particularly in the Performance Chemicals segment, driven by demand softness and customer destocking. The Reinforcement Materials segment showed stronger results with higher unit margins from improved customer agreements. The company maintains a strong liquidity position with $220 million in cash and $1.1 billion in borrowing availability. Capital expenditures for fiscal 2023 are projected to be approximately $250 million Results of Operations Consolidated net sales decreased by $181 million (15.8%) in Q3 2023 compared to Q3 2022, driven by lower volumes ($92 million) and unfavorable price/product mix ($56 million). Gross profit declined by $12 million due to lower volumes and higher fixed costs, partially offset by higher unit margins in Reinforcement Materials. Selling and administrative expenses increased due to a prior-year benefit from a land sale Results of Operations Summary | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net sales and other operating revenues | $968 million | $1,149 million | | Gross profit | $223 million | $235 million | - The decrease in Q3 net sales was driven by lower volumes in both segments ($92 million), unfavorable price and product mix ($56 million), negative foreign currency impact ($19 million), and lower by-product revenue ($8 million)[116] Segment Performance Analysis In Q3 2023, the Reinforcement Materials segment's EBIT increased by $19 million year-over-year to $132 million, driven by higher unit margins that offset lower volumes. Conversely, the Performance Chemicals segment's EBIT fell by $31 million to $32 million, primarily due to lower volumes from demand softness and reduced unit margins Segment Performance Summary | Segment (Q3 2023 vs Q3 2022) | Sales | EBIT | | :--- | :--- | :--- | | Reinforcement Materials | $624M vs $730M | $132M vs $113M | | Performance Chemicals | $307M vs $376M | $32M vs $63M | - Reinforcement Materials EBIT increased due to higher unit margins from favorable 2023 customer agreements, which more than offset lower volumes from reduced replacement tire demand[126][131] - Performance Chemicals EBIT decreased due to lower volumes from demand softness in key end markets (especially fumed metal oxides) and less favorable product mix in specialty carbons and battery materials[55] Liquidity and Capital Resources The company's liquidity position remains strong, with $220 million in cash and equivalents and $1.1 billion in borrowing availability as of June 30, 2023. Cash from operations for the first nine months of fiscal 2023 was $457 million, a significant improvement from the prior year. Capital expenditures for fiscal 2023 are expected to be approximately $250 million, focused on sustaining projects and capacity expansion in Performance Chemicals - As of June 30, 2023, the company had cash and cash equivalents of $220 million and borrowing availability of $1.1 billion under its revolving credit agreements[133] - Cash provided by operating activities totaled $457 million in the first nine months of fiscal 2023, compared to $5 million of cash used in the same period of fiscal 2022[136] - Projected capital expenditures for fiscal 2023 are approximately $250 million[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that information about market risks for the period ended June 30, 2023, does not differ materially from the disclosures provided in its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 - There have been no material changes in market risk disclosures since the company's 2022 Form 10-K[43] Item 4. Controls and Procedures Based on an evaluation as of June 30, 2023, the company's principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective. There were no material changes in internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[43] - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[43] Part II. Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2023, Cabot repurchased a total of 212,161 shares of its common stock at an average price of approximately $70.70 per share. These purchases were made under a publicly announced repurchase plan authorized by the Board of Directors Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 1 - May 31, 2023 | 195,000 | $70.65 | | June 1 - June 30, 2023 | 17,161 | $71.30 | | Total | 212,161 | ~ $70.70 | - As of June 30, 2023, approximately 3.7 million shares remained available for repurchase under the company's current authorization[47] Item 5. Other Information The company reported that during the fiscal quarter ended June 30, 2023, none of its directors or officers entered into, modified, or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - No directors or officers entered into, modified, or terminated Rule 10b5-1 trading plans during the quarter[47] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the company's amended By-laws, amendments to credit agreements, and certifications by the Principal Executive Officer and Principal Financial Officer - Key exhibits filed include amended By-laws (Exhibit 3.2), amendments to credit agreements (Exhibits 10.1, 10.2), and officer certifications (Exhibits 31.1, 31.2, 32)[50]