Q4 FY2026 CABOT EARNINGS CONFERENCE CALL - CABOT CORP

Explicit Guidance:

• FY2027 Adjusted EPS: Range of $6.15 to $6.75, reflecting mixed demand scenarios and ongoing calendar year 2027 customer agreement negotiations.
• FY2027 Operating Tax Rate: Range of 28% to 30%.
• FY2027 Capital Expenditures (CapEx): Range of $200 million to $230 million, split roughly 50/50 between maintenance and growth investments (including $125M battery capacity expansion and ~$10M reinforcement materials technology upgrades).
• Battery Materials EBITDA: Expected to be in the high $40 million range for FY2027, up from $43 million in FY2026, with new U.S. and China capacity expected to begin contributing to earnings in FY2028.
• Reinforcement Materials Q1 FY2027 EBIT: Expected to improve modestly sequentially from Q4 FY2026 due to favorable regional product mix, though year-over-year (YoY) expected to be lower due to 2026 customer agreement outcomes.
• Performance Chemicals Q1 FY2027 EBIT: Expected to be higher YoY but lower sequentially due to timing of higher costs and product mix shifts, reducing EBIT by approximately $6 to $8 million vs. Q4.
• Shareholder Returns: Commitment to maintain disciplined capital allocation and return cash to shareholders while preserving investment-grade credit profile; no specific dividend or buyback amounts disclosed for FY2027.

Business-Segment Outlook:

• Reinforcement Materials: Global tire production expected to grow 0.3% in CY2026 and 0.9% in CY2027. Regional dynamics: declines expected in Americas, Europe, and China in CY2026; 2027 sees growth in Southeast Asia and Europe, flat volumes in Americas, and decline in China.
  • Volume/Share: 2026 customer agreements resulted in lost market share in certain regions (Europe); volume growth anticipated in Southeast Asia and Mexico supported by Indonesia capacity and Mexico acquisition.
  • Pricing: Pricing mechanisms allow for pass-through of energy/feedstock costs to maintain dollar margin per ton; coal tar price volatility impacts revenue dollars but not dollar margin targets.
• Performance Chemicals: Diverse end-market exposure with strong momentum in batteries (15% CAGR projected through 2030) and electronics (mid-to-high single-digit growth).
  • Electronics Growth: Conductive compounds, specialty carbons, and fume silica for semiconductor CMP slurries expected to grow at 6–8% over coming years, driven by AI chip demand.
  • Soft Markets: Automotive production expected to decline 1.8% in CY2026 then stabilize with 0.5% growth in CY2027; Construction remains soft, particularly in China (decline in new construction) and Europe, while U.S. shows resilience.

Market and Competitive Outlook:

• Trade Flows & Tariffs:
  • North America: Tire imports down 5% YoY (through Aug 2026); tariffs on Asian tires increasing; potential for long-term support to regional tire production.
  • Europe: Anti-dumping duties on Chinese tires (25–45%) effective July 2026; additional countervailing duties (5–10%) expected Dec 2026; tire imports down 11% YoY.
  • South America: Imports up 21% YoY, pressuring regional production; Brazil's 25% tariff deemed insufficient to curb imports.
• Competition: China market remains high-intensity with spot pricing; margins lower than Western regions but returns remain attractive. Competitive intensity in China has not altered recently.
• Supply Chain: Increasing customer focus on local supply chains (e.g., Powerco agreement in Europe); Cabot leveraging U.S./China/UK facilities to serve major regions locally.

Macro / Industry Outlook:

• Energy & Feedstocks: Rising feedstock and energy costs generally passed through to customers in Reinforcement Materials; in Performance Chemicals, pricing actions used to protect margins. Energy price increases temporarily elevate working capital balances (~$6M increase per $1/barrel rise).
• Logistics: Freight costs viewed as manageable; logistics contracts are largely regional and well-negotiated.
• Economic Environment: Overall business environment described as "dynamic" and "mixed" with flat to modest global growth expectations; management emphasizes confidence in navigating volatility through cost management and volume growth in high-growth segments.
• Oil Prices: FY2027 guidance assumes forward oil curve (currently elevated); profitability modeled on stable dollar margin per ton, meaning percent margin fluctuates with oil but absolute profit per ton remains consistent.

Strategic Initiatives:

• Capacity Expansion: $125 million investment in U.S. and China conductive additive capacity (net of $50M DOE grant for UK capacity); new capacity expected to drive significant earnings growth in FY2028.
• M&A Integration: Mexico reinforcing carbons facility acquisition from Bridgestone integrated as planned; long-term supply agreement secures foundation for Americas growth.
• Restructuring: Focus on completing previously announced restructuring and cost optimization actions to improve efficiency and cost position.
• Inorganic Growth: Evaluating M&A for scale, geographic access, and adjacent technologies (batteries, conductive/electronic materials) over a 3–5 year horizon.
• Sustainability: Maintained platinum EcoVadis rating (top 1% globally); recognized with American Chemistry Council safety and stewardship awards.

Risks and Headwinds to Outlook:

• Customer Agreements: FY2027 EPS range contemplates varied outcomes from ongoing FY2027 tire customer negotiations (currently ~1/3 concluded).
• Demand Volatility: Flat global tire production and regional declines (China, Americas, Europe) pose headwinds for Reinforcement Materials.
• Trade Policy: Uncertainty regarding the timing and magnitude of countervailing duties and shifting trade flows.
• Input Costs: Energy and feedstock price volatility impacts working capital requirements, though dollar margins are protected.
• Execution Risk: Ability to capture volume growth in soft end markets (automotive, construction) and realize timing benefits from capacity expansions.

Management Tone on the Future:

• Confidence Level: High confidence in long-term value creation and ability to "manage through" the dynamic environment.
• Strategic Focus: Emphasis on "controlling what we can control," disciplined capital allocation, and translating organic growth opportunities into sustained volume.
• Transition: New CEO expresses strong alignment with team and commitment to continuity in financial discipline and investment-grade credit focus.
• Outlook Characterization: Acknowledges "challenging" near-term backdrop for Reinforcement Materials but highlights "attractive" long-term market opportunities in batteries and electronics for Performance Chemicals.

Miscellaneous:

• Shareholder Selling: Officers selling restricted stock for tax obligations over the coming weeks.
• Liquidity: Ended FY2026 with $1.5 billion liquidity and $1.3 billion in debt (4.95% coupon notes); strong credit profile maintained.
• Battery Partnerships: Multi-year supply agreement with Powerco supports localization of European battery supply chains.