Cabot Corp Reports Fourth Quarter Diluted EPS of $0.50 and Adjusted EPS of $1.11

Fiscal Year 2021 Diluted EPS of $4.34 and Adjusted EPS of $5.02

Cabot Corporation (NYSE: CBT) today announced results for its fourth quarter and full fiscal year 2021.

Key Highlights

• GAAP EPS of $4.34 and record full year Adjusted EPS of $5.02 driven by record Reinforcement Materials EBIT of $329 million and strong Performance Chemicals EBIT of $211 million
• Solid fourth quarter results with year over year increases across all segments
• Battery Materials revenue doubled year over year and fiscal 2021 financial results in line with expectations
• Liquidity remained strong at approximately $1.3 billion; Net Debt to EBITDA ratio of 1.6 times as of September 30, 2021

Commenting on the results, Cabot President and CEO Sean Keohane said, “I am very pleased that we delivered record Adjusted EPS in fiscal 2021, with significant year over year growth across the segments. Reinforcement Materials led the way delivering an increase in EBIT of $167 million while Performance Chemicals also recorded strong results across all major product lines with an increase in segment EBIT of $93 million. The Cabot team executed extraordinarily well during the fiscal year as we navigated through the continuing COVID-19 pandemic. In addition, discretionary free cash flow reached a historical high of $353 million in the fiscal year and we paid $80 million in dividends to shareholders. We also reduced our net debt to EBITDA ratio from 2.5 times at the end of fiscal 2020 to 1.6 times at the end of fiscal 2021.”

Keohane continued, “In the fourth quarter, we delivered 63% growth year over year in Adjusted EPS from higher volumes and improved margins. We delivered these results while managing through plant outages, global supply chain disruptions, and the impact to our businesses from the semiconductor chip shortage on automotive production.”

Keohane concluded, “Our record fiscal 2021 financial performance demonstrates the strength of our businesses and successful execution of our corporate strategy. Furthermore, the investments that we have made throughout the year have laid the foundation for advantaged growth in the future.”

Financial Detail

For the fourth quarter of fiscal 2021, net income attributable to Cabot Corporation was $29 million ($0.50 per diluted common share). Net income reflects an after-tax per share charge from certain items of $0.61. Adjusted EPS for the fourth quarter of fiscal 2021 was $1.11 per share.

Segment Results

Reinforcement Materials – Fourth quarter fiscal 2021 EBIT in Reinforcement Materials increased by $8 million compared to the fourth quarter of fiscal 2020. The increase in EBIT was driven by higher volumes and strong pricing in Asia. Higher volumes were driven by demand increases across all regions compared to the same quarter last year, which was still recovering from COVID-19 customer shutdowns in fiscal 2020.

Global and regional volume changes for Reinforcement Materials for the fourth quarter of fiscal 2021 as compared to the same quarter of the prior year are set forth in the table below:

Performance Chemicals – Fourth quarter fiscal 2021 EBIT in Performance Chemicals increased by $20 million compared to the fourth quarter of fiscal 2020, primarily due to improved product mix driven by higher sales into automotive and conductive applications in our specialty carbons product line and higher pricing in our fumed silica product line. Performance Additives volumes increased 2% as compared to the fourth quarter of the prior year and Formulated Solutions decreased 8% as compared to the fourth quarter of the prior year, with both comparisons reflecting the impact of plant outages on sales volumes.

Purification Solutions – Fourth quarter fiscal 2021 EBIT in Purification Solutions increased by $4 million compared to the fourth quarter of fiscal 2020. The increase in EBIT was largely due to higher prices in our specialty applications and lower fixed costs resulting from the sale of our mine in Texas and the related long-term activated carbon supply agreement.

Cash Performance – The Company ended the fourth quarter of fiscal 2021 with a cash balance of $168 million. During the fourth quarter of fiscal 2021, cash flows from operating activities were a source of $100 million. Capital expenditures for the fourth quarter of fiscal 2021 were $80 million. Additional uses of cash during the fourth quarter included $20 million for the payment of dividends.

Taxes – During the fourth quarter of fiscal 2021, the Company recorded a tax provision of $30 million for an effective tax rate of 48%. The provision reflected a $7 million net charge for non-GAAP tax adjustments. The operating tax rate for fiscal year 2021 was 27%. We expect our operating tax rate for fiscal 2022 to be in the range of 27% to 29%.

Outlook

Commenting on the outlook for the Company, Keohane said, “Looking forward to fiscal 2022, we believe robust end-market demand will continue and the benefits from our growth investments will support another year of strong results. In our Reinforcement Materials segment, we expect to benefit from higher volumes driven by strong forecasted levels of tire production and higher pricing in our calendar year 2022 customer agreements as customers are placing a premium on supply security. In our Performance Chemicals segment, we anticipate continued demand growth across our broad set of applications, with particular strength in battery materials and inkjet packaging. While external challenges, such as rising input costs, global supply chain disruptions and the semi-conductor chip shortage, are likely to remain in the short-term, we expect they will moderate as we move through the fiscal year. Consistent with this outlook, we expect fiscal year 2022 adjusted earnings per share to be in the range of $5.20 to $5.60.

Keohane continued, “Overall, we are excited about the outlook for our high growth investments, particularly in batteries as electrification of the car fleet continues to build momentum. At the same time, we remain focused on generating strong discretionary free cash flow and returning cash to shareholders. We will share more about our long-term strategic and financial outlook at our upcoming Investor Day on December 2, 2021.”

Earnings Call

The Company will host a conference call with industry analysts at 8:00 a.m. Eastern time on Tuesday, November 9, 2021. The call can be accessed through Cabot’s investor relations website at http://investor.cabot-corp.com.

About Cabot Corporation

Cabot Corporation (NYSE: CBT) is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of reinforcement bber and specialty carbons, activated carbon, inkjet colorants, masterbatches and conductive compounds, fumed silica, and aerogel. For more information on Cabot, please visit the company’s website at: http://www.cabotcorp.com. The Company encourages investors and potential investors to consult the Cabot website regularly.

Forward-Looking Statements – This earnings release contains forward-looking statements. All statements that address expectations or projections about the future, including with respect to our expectations for our performance in fiscal year 2022, including our expectations for adjusted earnings per share and the strength of demand and the benefits of our investments, the factors that we expect will impact our results of operations, and our expected operating tax rate for fiscal 2022, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control and difficult to predict. If known or unknown risks materialize, or should underlying assumptions prove inaccurate, our actual results could differ materially from past results and from those expressed or implied by forward-looking statements. Important factors that could cause our results to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to, competition from other specialty chemical companies; volatility in the price of energy and raw materials; a significant adverse change in a customer relationship; safety, health and environmental requirements; unanticipated delays in, or increased cost of, site development projects; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations or global health matters; and fluctuations in foreign currency exchange and interest rates. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission (“SEC”), particularly under the heading “Risk Factors” in our annual report on Form 10-K for our fiscal year ended September 30, 2020, filed with the SEC at www.sec.gov. We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Use of Non-GAAP Financial Measures

To supplement Cabot’s consolidated financial statements presented on a generally accepted accounting principle (“GAAP”) basis, the preceding discussion of our results and the accompanying financial tables report Adjusted EPS, Total Segment EBIT, Total Segment EBITDA, Adjusted EBITDA, our operating tax rate, Free Cash Flow and Discretionary Free Cash Flow, all of which are non-GAAP financial measures. These non-GAAP financial measures are not computed in accordance with, or as an alternative to, GAAP, and the definitions of these measures may not be comparable to those used by other companies. Reconciliations of Adjusted EPS to net income (loss) per share attributable to Cabot Corporation, the most directly comparable GAAP financial measure, Total Segment EBIT, Total Segment EBITDA, and Adjusted EBITDA to income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, the most directly comparable GAAP financial measure of each such non-GAAP measure, operating tax rate to effective tax rate, the most directly comparable GAAP financial measure and Free Cash Flow and Discretionary Free Cash Flow to Cash flow from operating activities, the most directly comparable GAAP financial measure, are provided in the tables titled “Cabot Corporation Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate” and “Cabot Corporation Reconciliation of Non-GAAP Financial Measures.”

Management believes these non-GAAP measures provide investors with greater transparency to the information used by Cabot management in its financial and operational decision-making, allow investors to see Cabot’s results through the eyes of management, and better enable Cabot’s investors to understand Cabot’s operating performance and financial condition.

Adjusted EPS. In calculating Adjusted EPS, we exclude from our net income (loss) attributable to Cabot Corporation items of expense and income that management does not consider representative of the Company’s business operations. Accordingly, reporting earnings on an adjusted basis supplements the GAAP measure of performance and provides additional information related to the underlying performance of the business. For example, certain of the items we exclude are items that we are required by GAAP to recognize in one period that relate to activities extending over several periods or relate to single events that management considers to be unusual and infrequent, although not necessarily non-recurring. We refer to these items as “certain items.” Management believes excluding these items facilitates operating performance comparisons from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis and evaluates the Company’s operating performance without the impact of these costs or benefits. Management also uses Adjusted EPS as a key measure in evaluating management performance for incentive compensation purposes.

The items of income and expense that we exclude from our calculations of Adjusted EPS but that are included in our GAAP net income (loss) per share, as applicable in a particular reporting period, include, but are not limited to, the following:

• Global restructuring activities, which include costs or benefits associated with cost reduction initiatives or plant closures and are primarily related to (i) employee termination costs, (ii) asset impairment charges associated with restructuring actions, (iii) costs to close facilities, including environmental costs and contract termination penalties, and (iv) gains realized on the sale of land or equipment associated with restructured plants or locations.
• Non-recurring gains (losses) on foreign currency, which are primarily related to the impact of continued currency devaluations on our net monetary assets denominated in that currency.
• Legal and environmental reserves and matters, which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business.
• Executive transition costs, which include incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company.
• Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long-lived assets.
• Acquisition and integration-related charges, which include transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes.
• Gains (losses) on sale of investments, which primarily relate to the sale of investments accounted for under the cost-method.
• Inventory reserve adjustment, which generally results from an evaluation performed as part of an impairment analysis.
• Indirect tax settlement credits, which includes favorable settlements resulting in the recoveries of indirect taxes.
• Gains (losses) on sale of a business.
• Employee benefit plan settlements, which consist of either charges or benefits associated with the termination of a pension plan or the transfer of a pension plan to a multi-employer plan.

Cabot does not provide an expected GAAP EPS range or reconciliation of the Adjusted EPS range with an expected GAAP EPS range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on GAAP EPS in future periods.

Total Segment EBIT. Total segment EBIT reflects the sum of EBIT from our three reportable segments. In calculating Total segment EBIT we exclude from our income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, certain items and items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to corporate projects and initiatives.

Total Segment EBITDA. Total Segment EBITDA is equal to Total Segment EBIT (as defined above), but further adjusted for depreciation and amortization.

Adjusted EBITDA. Adjusted EBITDA reflects Total Segment EBITDA and is further adjusted for unallocated corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to corporate projects and initiatives.

Free Cash Flow. To calculate “Free Cash Flow” we deduct Additions to property, plant and equipment from cash flow from operating activities.

Discretionary Free Cash Flow. To calculate “Discretionary Free Cash Flow” we deduct sustaining and compliance capital expenditures and changes in Net Working Capital from cash flow from operating activities.

Operating Tax Rate. Our “operating tax rate” is calculated by excluding the income tax (expense) benefit on certain items and discrete tax items. The income tax (expense) benefit on certain items is determined using the applicable rates in the taxing jurisdictions in which the certain items occurred and includes both current and deferred income tax (expense) benefit based on the nature of the certain items. Discrete tax items include, but are not limited to, changes in valuation allowance, uncertain tax positions, and other tax items, such as the tax impact of legislative changes. Management believes that this non-GAAP financial measure is useful supplemental information because it helps our investors compare our tax rate year to year on a consistent basis and to understand what our tax rate on current operations would be without the impact of these items.

Cabot does not provide a forward-looking reconciliation of the operating tax rate range with an effective tax rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on the effective tax rate in future periods.

Explanation of Terms Used

Product Mix. The term “product mix” refers to the mix of types and grade of products sold or the mix of geographic regions where products are sold, and the positive or negative impact this has on the revenue or profitability of the business or segment.

Net Working Capital. The term “net working capital” includes accounts receivable, inventory and accounts payable and accrued expenses.