Q3 2024 Earnings Summary
- Normalized Product Mix & Strong Volume Growth: Performance Chemicals have seen a 35% increase in adjusted EPS to $1.92 and the normalization of the product mix in key sectors (e.g., automotive and semiconductors) is expected to yield quarterly EBIT of $45–$55 million, supporting stable and growing margins.
- Local Supply Advantage from Geopolitical Shifts: The enforcement of sanctions on Russian and Belarusian carbon black has led to a shortage in the EU, driving customer demand for local sources, which could benefit CBT as it positions itself to capture this market opportunity.
- Resilient Demand Amid Favorable Macroeconomic Trends: Despite temporary headwinds, the company’s demand in key end markets like tires, auto OE, and electronics remains robust. Additionally, potential easing of inflation coupled with a forthcoming rate cut cycle is expected to further stimulate consumer spending, bolstering future earnings.
- Weather-related disruptions: Recurring severe weather events (e.g., Altamira instance and flooding in Brazil) resulted in an approximate $5 million impact in Q3 and could continue to disrupt production and customer demand.
- Trade policy uncertainties: Existing tariffs on Chinese tires and potential additional antidumping duties create supply chain distortions and add uncertainty to costs and margins.
- Weakening consumer sentiment and macro headwinds: Evidence of a trade-down effect in the tire industry combined with indications of a slower growth environment in key markets like China may adversely affect demand and profitability.
-
Earnings Outlook
Q: What is base earnings level?
A: Management expects quarterly EBIT in Performance Chemicals to range between $45 million and $55 million, assuming current volume levels and normalized product mix, reflecting stable operating performance. -
Tariff Impact
Q: Will tariffs affect tire imports?
A: Tariffs in the U.S., Europe, and South America are shifting tire flows and may push imports back toward normalized levels as supply chains adjust. -
Sanctions Effect
Q: Have Russian sanctions shifted buying behavior?
A: The ban on Russian and Belarusian carbon black imports into the EU27 has driven customers to secure local supplies, with no significant change in behavior since the measures were well-telegraphed. -
Trade Down
Q: Is there a trade-down effect on tires?
A: There are indications that consumers are opting for lower-priced, lower-quality tire options amid economic pressures, consistent with historical trends in stressed economic environments. -
China Outlook
Q: How is China's economy performing?
A: The Chinese economy appears stable but growing at a lower pace, with robust demand in key end markets like auto OE and electronics yet tempered by sluggish housing and low FDI. -
Majeure Cost
Q: What cost impacted from Altamira events?
A: Dual weather events, including the Altamira incident and Brazilian flooding, resulted in an approximate $5 million impact in Q3. -
Production Levels
Q: Has Russian production changed significantly?
A: Russian and Belarusian carbon black production remains close to the pre-invasion capacity, though export flows have shifted due to geopolitical factors. -
Build Sector
Q: Is there a bounce in construction demand?
A: Demand in the build and construction market for fumed silica remains stable with no significant bounce observed, indicating a gradual recovery.