CBT Q2 2025: 7% Volume Drop Drives Low-Single-Digit FY Outlook
- Tariff Resilience & Regional Production: The call discussed that most volumes are produced locally—over 95% within each region—and that U.S. tire import levels remained unchanged compared to last year. This localized production model limits tariff exposures, bolstering earnings stability in a volatile trade environment.
- Proactive Cost Management: Management highlighted fixed cost and procurement initiatives targeting approximately $30 million in savings for fiscal 2025. These measures, along with rationalized spending, help protect margins amid softer demand and pricing pressures.
- Strong Capacity Utilization & Disciplined Investment: Executives noted high capacity utilization—around 90% in China and in the upper 80% in Europe—while carefully pacing CapEx (with roughly $100 million earmarked for growth investments). This disciplined approach supports operational efficiency and positions the company for future growth.
- Tariff uncertainty and cautious customer behavior: Executives noted that escalating tariffs and global trade uncertainties have made customers cautious, resulting in lower order volumes and inventory pullbacks, with expectations for down low-single-digit volume declines in the second half of fiscal 2025.
- Regional weakness in key markets: Significant volume declines in the South American market (down around 20%) and a notable decline in Asia Pacific volumes due to China destocking signal persistent regional headwinds.
- Downside pressure from energy center revenues: The anticipated mid-single-digit millions impact headwind in the second half from lower oil prices—affecting energy center revenues in the Reinforcement Materials segment—could further erode overall profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -8% | Total Revenue declined from $1,019 million in Q2 2024 to $936 million in Q2 2025. This decrease is largely driven by a significant drop in the Reinforcement Materials segment (down 12% YoY), while Performance Chemicals remained steady. |
Reinforcement Materials | -12% | Revenues fell from $676 million in Q2 2024 to $594 million in Q2 2025, reflecting challenges such as a less favorable pricing and product mix and lower volumes. This weakness is consistent with prior periods where lower raw material costs negatively impacted this segment. |
Performance Chemicals | 0% (No change) | The segment held steady at $311 million in both Q2 2024 and Q2 2025, indicating that despite broader market pressures, the underlying demand drivers in this segment remained resilient. |
Net Income | +8% | Net Income improved from $97 million to $105 million, an 8% increase. This gain reflects margin improvements as lower Cost of Sales helped counteract the revenue declines seen in other segments. |
Cost of Sales | -10% | The decline in Cost of Sales from $773 million to $695 million (approximately 10%) is attributed to lower raw material costs and improved operational efficiencies, contributing positively to margin expansion. |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Tariff and Trade Policy Uncertainty | Q1 2025 noted potential impacts with minimal direct effects from China. Q4 2024 and Q3 2024 discussed tariffs affecting Asian tire imports and supply chain distortions. | Q2 2025 featured extensive discussion on how uncertainty is driving cautious customer behavior, lower volumes, and active countermeasures (pricing adjustments, cost savings, CapEx timing). | Recurring challenge has intensified, with management implementing more explicit mitigation actions. |
Regional Production and Market Dynamics | Q1 2025 highlighted a global footprint with regional volume improvements. Q4 2024 mentioned weather impacts and elevated Asian imports. Q3 2024 showed varied regional performance. | Q2 2025 emphasized the “make and sell in-region” model with mixed results: stable European volumes but declining volumes in the Americas due to softer contract outcomes and trade pressures. | Consistent focus with evolving caution, as sentiment becomes more critical in regions like the Americas. |
Capacity Utilization and Expansion Investments | Q1 2025 discussed rising capacity utilization with new capacity online and noted $77M in early CapEx. Q4 2024 detailed ongoing expansion projects and investments (Indonesia, air pollution control, battery materials). Q3 2024 was silent on this topic. | Q2 2025 reported steady utilization levels—with North America in the low 80% range and Asia Pacific around 90% (slightly lower due to tariff uncertainty)—and a revised CapEx forecast of $250–275M. | Steady trend with cautious adjustments, reflecting a deliberate pace of investment amid market uncertainty. |
New Capacity Start-up Challenges | Q1 2025 mentioned initial ramp‐up challenges at the new Indonesia plant with only modest benefits expected. Q4 2024 referenced operational hiccups (e.g. force majeure in Mexico), while Q3 2024 did not address it. | Q2 2025 did not highlight any new capacity start-up issues, suggesting that earlier challenges may have been resolved or become less prominent. | Challenges appear to have eased, indicating potential successful resolution or improved execution compared to earlier periods. |
Cost Management and Margin Discipline | Q1 2025 emphasized strong margin management in Specialty Blacks and structural improvements in Reinforcement Materials. Q4 2024 detailed higher maintenance costs and margin pressures. Q3 2024 contained no discussion. | Q2 2025 underscored robust cost savings initiatives (targeting $30M in savings) and disciplined margin management across segments through pricing adjustments and CapEx moderation. | Enhanced focus on cost discipline amid economic and tariff pressures, reinforcing proactive measures compared to previous periods. |
Performance Chemicals Growth | Q1 2025 reported 32% EBIT growth and an 8% volume increase. Q4 2024 noted modest EBIT gains, while Q3 2024 showed an impressive 72% EBIT increase and 9% volume upturn. | Q2 2025 showcased strong performance with 61% EBIT growth and a 4% volume increase, along with progress in battery materials applications. | Consistently robust growth with some fluctuations in magnitude—the segment remains a key positive driver. |
Reinforcement Materials Trends | Q1 2025 revealed slight EBIT improvement (+1%) and a 1% volume increase. Q4 2024 reported an EBIT drop ($11M lower) with regional volume declines, while Q3 2024 showed 3% EBIT growth and a 4% volume rise. | Q2 2025 saw EBIT decline of 12% YoY driven by volume drops (notably in the Americas) and lower contract outcomes, signaling challenges in key regions. | Worsened sentiment in Q2 2025, indicating significant headwinds relative to the mixed performance seen in earlier periods. |
Macroeconomic and Consumer Demand Dynamics | Q1 2025 focused on growth drivers such as EVs, global infrastructure, and sustainability; Q4 2024 acknowledged a turbulent economic backdrop and trade issues; Q3 2024 discussed slowing Chinese growth and a trade‐down in tire quality. | Q2 2025 highlighted heightened economic uncertainty from tariffs and cautious consumer behavior, with lower demand outlooks and pressures from declining energy prices. | Deteriorated macro sentiment in Q2 2025, as broader economic headwinds and consumer caution become more pronounced compared to earlier periods. |
Geopolitical Shifts and Local Supply Advantage | Q3 2024 addressed Russian import bans creating local supply shortages in Europe ; Q1 2025 and Q4 2024 did not specifically mention these themes. | Q2 2025 explicitly emphasized the “make and sell in-region” model and local supply advantage (e.g. USMCA compliance) to mitigate tariff impacts, underscoring strong regional positioning. | Emerging emphasis, with a growing focus on leveraging local supply advantages to navigate geopolitical risks and trade uncertainties. |
Battery Materials Strength | Q1 2025 only noted related capital investments; Q4 2024 highlighted strong margins, profitability, and a DOE-linked initiative with bifurcation of battery production between China and the West ; Q3 2024 was silent. | Q2 2025 reported a promising 10% volume increase year-over-year in battery materials and a focus on high-performance products for both China and Western economies. | Consistently strong performance with continued strategic focus, maintaining positive growth and differentiation even as Western market development lags slightly. |
Weather-related Supply Chain Disruptions | Q3 2024 detailed weather impacts (drought in Mexico, flooding in Brazil) with an estimated $5M cost impact. Q4 2024 noted force majeure at the Altamira plant due to drought. | Q2 2025 did not mention weather-related disruptions, suggesting these issues have receded or normalized [—]. | Diminished relevance, indicating that weather-related issues were less prominent in Q2 2025 compared to the challenges seen in Q3 and Q4 2024. |
Energy Center Revenue Pressure | Q1 2025 reported a $5M headwind due to declining energy revenue in Europe and China. Q4 2024 mentioned potential pressure from falling oil prices. Q3 2024 did not address this. | Q2 2025 maintained focus on moderate pressure, with a mid-single-digit million-dollar headwind attributed to lower oil prices impacting the energy centers. | Consistent, moderate pressure over time, with energy-related revenue challenges persisting at similar levels across periods. |
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Volume Bridge
Q: Why swing from plus to minus volumes?
A: Management explained that early expectations of low-single digit gains were revised after Q2’s 7% decline, reflecting cautious customer orders amid tariff uncertainty and inventory pullbacks, leading to down low-single digit guidance for the year. -
Pricing Dynamics
Q: What’s the trend in reinforcement pricing?
A: They noted that pricing remains steady—anchored by fixed contracts in the West—while spot pricing in Asia adjusts to raw material moves, keeping margins consistent despite cyclical raw material cost changes. -
CapEx Split
Q: How is CapEx divided between growth and maintenance?
A: Management indicated that of the forecast $250–$275M CapEx, about $100M is dedicated to growth investments—primarily the new Indonesian capacity—with the remainder supporting ongoing maintenance. -
Cost Savings
Q: How will the $30M savings be deployed?
A: They expect the savings to be recognized ratably—around $10M per quarter initially—stemming partly from temporary belt-tightening and partly from longer-term restructuring and procurement initiatives. -
Energy Revenues
Q: What happened to energy center revenue?
A: Energy center results were flat year-over-year in Q2, though management now foresees a mid-single-digit million headwind in the second half due to declining oil prices impacting overall earnings. -
Capacity Usage
Q: Any shifts in capacity utilization levels?
A: Current levels remain stable with North America operating in the low 80%, Europe in the upper 80%, and China near 90%; slight reductions in China might occur as caution sets in. -
Geo Split
Q: What’s the regional volume mix for reinforcement?
A: The split is roughly 60% North America and 40% South America, with the latter experiencing more significant declines due to local market pressures. -
SA Trend
Q: Will South American declines persist?
A: Management expects the sharp, nearly 20% drop in South American volumes to continue until trade uncertainties subside. -
Tire Imports
Q: Did U.S. tire imports speed up before tariffs?
A: They confirmed that U.S. tire imports remained at last year’s levels, showing no noticeable acceleration ahead of the new tariffs.
Research analysts covering CABOT.