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CABOT CORP (CBT)·Q2 2025 Earnings Summary

Executive Summary

  • Adjusted EPS rose to $1.90, up 7% year over year, while diluted EPS was $1.69; Performance Chemicals strength offset Reinforcement Materials volume headwinds .
  • Revenue of $0.936B missed Wall Street consensus of $1.020B, but EPS modestly beat consensus ($1.90 vs ~$1.86); revenue miss was driven by weaker tire demand and South America contract outcomes; EPS benefitted from mix, pricing and cost actions in Performance Chemicals *.
  • FY25 Adjusted EPS guidance was revised to $7.15–$7.50 (from $7.40–$7.80) on tariff-driven customer destocking; CapEx now expected at $250–$275M with ~$30M cost savings targeted in FY25 .
  • Capital return remained a catalyst: Cabot returned $70M via dividends and buybacks and raised the quarterly dividend 5% to $0.45 (annualized $1.80) .

What Went Well and What Went Wrong

What Went Well

  • Performance Chemicals EBIT increased 61% YoY to $50M; volumes up 4% driven by fumed metal oxides into construction and semiconductor applications, with targeted pricing and cost savings lifting profit per ton .
  • Management emphasized “operational excellence and agility,” noting adjusted EPS up 7% YoY and segment performance in line with expectations: “We delivered Adjusted EPS of $1.90… up 7%” .
  • Strong capital allocation: $70M returned in the quarter; dividend up 5% to $0.45; liquidity ~$1.2B and net debt/EBITDA 1.4x per CFO .

What Went Wrong

  • Reinforcement Materials volumes fell 7% YoY globally (Americas -9%, Asia Pacific -8%) with EBIT down 12% YoY to $131M on lower tire demand and South America contracts .
  • Revenue declined 8% YoY to $0.936B and missed consensus ($1.020B), reflecting demand softness and customer caution amid tariffs *.
  • Guidance cut: FY25 Adjusted EPS range lowered ~3.5% at the midpoint due to tariff uncertainty and slower GDP/energy prices affecting energy center revenues; management expects mid-single-digit millions headwind in 2H from lower energy prices .

Financial Results

Consolidated Results versus Prior Periods and Estimates

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$1.001 $0.955 $0.936
Diluted EPS ($)$2.43 $1.67 $1.69
Adjusted EPS ($)$1.80 $1.76 $1.90
Q2 2025 vs Consensus*Consensus*Actual
Revenue ($USD Billions)~$1.020*$0.936
Primary EPS ($)~$1.862*$1.90

Values marked with * retrieved from S&P Global.

Segment Breakdown

SegmentQ4 2024 Sales ($MM)Q1 2025 Sales ($MM)Q2 2025 Sales ($MM)Q4 2024 EBIT ($MM)Q1 2025 EBIT ($MM)Q2 2025 EBIT ($MM)
Reinforcement Materials$644 $611 $594 $123 $130 $131
Performance Chemicals$322 $311 $311 $44 $45 $50

Segment EBITDA Margins

SegmentQ1 2025Q2 2025
Reinforcement Materials EBITDA Margin (%)24% 25%
Performance Chemicals EBITDA Margin (%)21% 23%

Operating KPIs

KPIQ1 2025Q2 2025
Cash from Operations ($MM)$124 $73
Capital Expenditures ($MM)$77 $72
Cash Balance ($MM)$183 $213
Effective Tax Rate (%)28% 32%
Operating Tax Rate Guidance (%)27–29% 27–29%
Global RM Volumes YoY Change+1% -7%
Liquidity (~$B)~$1.3 ~$1.2
Net Debt / EBITDA (x)—1.4x
Dividend per Share ($)$0.43 prior $0.45 current

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$7.40–$7.80 $7.15–$7.50 Lowered
CapExFY 2025—$250–$275M Introduced/lowered timing
Operating Tax RateFY 202527–29% 27–29% Maintained
Dividend (Quarterly)Ongoing$0.43 $0.45 Raised
Share RepurchasesFY 2025—$100–$200M expected Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroFY25 guide initially $7.40–$7.80; did not incorporate new tariffs ; Q4 noted strong cash flow and outlook for FY25 .Guidance cut to $7.15–$7.50; customers curtailing orders and inventory; direct tariff exposure limited due to “make and sell in-region” (≥95% in-region volumes) .Caution rising; temporary destocking expected.
Reinforcement Materials DemandQ1: Americas down 1% on tire imports; APAC/EMEA up modestly .Global volumes -7% YoY; Americas -9%, APAC -8%; EBIT down 12% YoY; Q3 EBIT expected modestly down .Weaker vs prior; softness persists near term.
Performance Chemicals Mix & PricingQ1: EBIT +32% YoY on volumes reconnecting to end markets .EBIT +61% YoY; fumed metal oxides volumes higher; targeted price increases and savings lift margins .Improving; margin accretive mix sustained.
Energy Center RevenuesQ4 referenced energy/DFCF drivers .Q2: flat YoY; expect mid-single-digit $MM headwind in 2H on lower energy prices .Turning modestly negative in 2H.
Capital AllocationQ4: $692M CFO FY24; dividends and repurchases robust .$70M returned in Q2; dividend raised 5% to $0.45; expected $100–$200M repurchases FY25 .Continued shareholder-friendly actions.
Battery MaterialsQ4: DOE selection for $50M CNT facility support (terms pending) .Year-to-date battery volumes +10% with solid profit growth; focus on high-performance China segment and Western buildouts .Strategic progress; timelines temper in West.

Management Commentary

  • CEO Sean Keohane: “We delivered Q2 adjusted earnings per share of $1.90, up 7%… Reinforcement Materials… down 12% year-over-year… Performance Chemicals… driven by improved margins and higher volumes, particularly in the fumed silica product line” .
  • On tariffs: “Our businesses are largely insulated from direct tariff impacts… at least 95% of our volumes within those regions are produced in that same region… we expect to be able to pass on any tariffs through contractual formulas and spot pricing” .
  • CFO Erica McLaughlin: “Capital from operations was $73 million… Discretionary free cash flow was $110 million… liquidity position remains strong at approximately $1.2 billion… net debt to EBITDA was 1.4x” .
  • On cost actions and CapEx: “Executing fixed cost and procurement initiatives… $30 million of savings in fiscal year 2025… CapEx forecast now $250 million to $275 million” .
  • Capital returns: “We announced a 5% increase in our quarterly dividend” and “expect to repurchase between $100 million and $200 million of shares in fiscal 2025” .

Q&A Highlights

  • Reinforcement Materials volumes bridge: Americas weakness (South America declines amid elevated tire imports) and China normalization post-Lunar New Year drive -7% global volumes; Q3 RM EBIT seen modestly down QoQ .
  • Energy centers: Q2 “flat” YoY; expect mid-single-digit $MM headwind in 2H from lower energy prices (holding forward curve assumptions) .
  • Seasonal dynamics: Normal seasonal lift in ag/decorative coatings; China destocking offsetting seasonality due to tariff uncertainty .
  • Cost savings cadence: ~$30M FY25 with ~⅓ recognized in 1H (mostly Q2) and ~⅔ in 2H; more “ratable” at ~$10M per quarter from Q2 run-rate .
  • Capacity utilization: NA low-80s%, EMEA upper-80s%, China ~90% expected to pull down modestly on caution; not calling for recession .
  • CapEx mix: ~$100M growth CapEx in FY25; largest project is new Indonesia RM capacity .

Estimates Context

  • Q2 EPS modest beat: Actual $1.90 vs consensus ~$1.862; driven by Performance Chemicals mix/pricing and cost actions; Reinforcement Materials down but margins held * .
  • Q2 revenue miss: Actual $0.936B vs consensus ~$1.020B; shortfall concentrated in Reinforcement Materials volumes (Americas and APAC) *.
  • Street models likely to trim 2H revenue/volume assumptions and energy center contribution, while sustaining margin resilience in Performance Chemicals and incorporating $30M FY25 savings and CapEx pacing .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term demand risk: Tariff uncertainty is prompting customer destocking; expect softer volumes, particularly in Reinforcement Materials, into Q3; management cut FY25 Adjusted EPS to $7.15–$7.50 .
  • Margin durability: Performance Chemicals is outperforming with accretive fumed metal oxides volumes and pricing/savings; segment EBITDA margin rose to 23% in Q2 .
  • Cash returns intact: Dividend increased to $0.45 and $70M returned in Q2; FY25 repurchases targeted at $100–$200M, supported by liquidity ~$1.2B and net debt/EBITDA 1.4x .
  • Watch energy price sensitivity: Lower energy prices imply mid-single-digit $MM headwind in 2H to energy center benefits; limited in Q2 but relevant for back-half models .
  • Execution levers: $30M FY25 savings and CapEx timing adjustments ($250–$275M) provide buffer to weaker volumes; monitor realization cadence ($10M/quarter from Q2 run-rate) .
  • Strategic growth: Battery materials volumes +10% YTD with profit growth; continued focus on high-performance products and Western capacity buildouts (plus Indonesia RM project) .
  • Trading setup: Expect estimate revisions lower for revenue/2H volumes, partially offset by margin/savings; stock likely to react to tariff headlines and RM volume prints vs cautious guide .