Q4 FY2026 CABOT EARNINGS CONFERENCE CALL - CABOT CORP

Financial Performance:

• Fiscal 2026 Q4 Adjusted EPS: $1.61; Full Year Adjusted EPS: $6.42.
• Q4 Segment EBIT: Reinforcement Materials $87M (down from $119M YoY); Performance Chemicals $60M (up 43% YoY).
• Full Year Segment EBIT: Reinforcement Materials $379M; Performance Chemicals $235M.
• Battery Materials delivered $43M EBITDA in FY2026 with a 26% margin.
• Cash Flow from Operations (CFO): $143M in Q4; $421M for Full Year.
• Discretionary Free Cash Flow: $117M in Q4; Full Year CapEx $207M ($55M quarterly).
• Shareholder Returns: $243M total in FY2026 ($97M dividends, $146M buybacks); $70M returned in Q4.
• Balance Sheet: $1.3B debt, $254M cash, $1.5B total liquidity; Investment-grade credit profile maintained.
• Effective Tax Rate: 29% for FY2026.

Guidance and Future Outlook:

• FY2027 Adjusted EPS Guidance: $6.15 – $6.75.
• FY2027 Battery Materials EBITDA: Expected in the "high $40M" range.
• FY2027 CapEx Guidance: $200M – $230M (approx. 50% maintenance, 50% growth).
• FY2027 Operating Tax Rate: Projected 28% – 30%.
• Battery Materials Capacity: $125M expansion (US/China) expected to contribute earnings in FY2028.
• FY2027 Outlook Drivers: Contract negotiation outcomes for 2027 and mixed regional demand scenarios.

Business Segments and Product Lines:

• Reinforcement Materials: Global volumes up 5% YoY in Q4, driven by Asia-Pacific and Americas; Indonesia capacity addition and Mexico acquisition completed and performing well.
• Performance Chemicals: EBIT grew 43% in Q4; margins expanded to 24% driven by higher-value applications in batteries and electronics.
• Battery Materials: Multi-year supply agreement signed with Powerco (Europe); capacity expansions in US and China to serve EV and energy storage demand.
• Strategic Acquisitions: Completed purchase of reinforcing carbons facility in Mexico from Bridgestone, enhancing Americas footprint.
• Product Focus: Strong growth in conductive additives for semiconductors (CMP slurries for AI chips) and electronics; silica for displays and conductive compounds.

Market and Competitive Landscape:

• Tire Production: Global forecast for flat growth (+0.3% in CY2026, +0.9% in CY2027); declines expected in Americas, Europe, and China, offset by Southeast Asia growth.
• Trade Dynamics: Anti-dumping duties in Europe (July 2026) and countervailing duties (Dec 2026) reducing Chinese tire imports; North America imports down 5%, Europe down 11%.
• Construction: Soft in China (-25% new construction) and Europe; resilient in US (+2% building permits).
• Competition: High intensity in China; Cabot maintains "attractive" margins and cash flow there despite lower levels vs. Western regions.
• Market Trends: 15% CAGR projected for battery demand through 2030; electronics demand growing at mid-to-high single digits.

Risks and Challenges:

• Contract Negotiations: 2027 customer agreements still ongoing (approx. one-third concluded); outcomes vary, creating earnings uncertainty for FY2027.
• Demand Weakness: Flat tire production growth and softness in traditional end markets (automotive, construction) in certain regions.
• Cost Pressures: Energy and feedstock costs impacting working capital balances (approx. $6M increase per barrel rise in feedstock costs).
• Geopolitical/Trade: Tariffs and trade flows shifting demand; need to adapt global footprint to regional mix changes.

Management Commentary and Tone:

• Leadership: Erica McLaughlin noted her first call as CEO, emphasizing continuity, disciplined execution, and investment in growth opportunities.
• Confidence: Management expressed strong confidence in the portfolio's strength, cash generation, and ability to navigate a dynamic environment.
• Strategy: Focus on "growing with key customers," optimizing global footprint, and disciplined capital allocation to protect investment-grade credit.
• Priorities: Completing restructuring, advancing organic growth (battery materials, electronics), and evaluating inorganic opportunities.

Analyst Questions and Answers:

• Contract Negotiations: ~33% concluded for 2027; outcomes vary by customer; FY2027 guidance range reflects current negotiation status.
• Freight/Energy: Freight largely regional and contracted; energy/feedstock cost impact managed via pricing mechanisms; main impact is working capital buildup.
• Reinforcement Earnings: FY2027 expected to be challenged YoY due to contract outcomes and flat demand; potential upside from lower imports in NA/EU not yet fully realized.
• Battery Materials: 2027 is an investment year with earnings pressure from capex; 2028 expected to see significant growth as capacity comes online.
• Oil Price Sensitivity: Pricing contracts maintain dollar margin per ton; lower oil would improve percent margins but impact working capital timing.
• China Market: Coal tar price volatility drives spot pricing; competitive environment remains high; margins are lower than Western regions but cash flow remains strong.
• Mexico Plant: Bridgestone agreement covers significant but not all capacity; additional market sales remain possible; no specific take-or-pay terms disclosed.

Other Key Points:

• Sustainability: Earned platinum EcoVadis rating for the 6th consecutive year (top 1% globally); improved score by 5 points; ACC Responsible Care awards received.
• Financing: Upsized credit facility to $1.3B; $350M senior notes offering at 4.95% coupon; refinanced debt maturity on favorable terms.
• Workforce/Liquidity: Officers will sell shares post-call for tax obligations related to RSU vesting.
• Restructuring: Continued focus on completing previously announced restructuring and cost optimization actions.