Cabot Reports Q3 2026 Results: Full Earnings Call Transcript

Cabot (NYSE: CBT ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This content is powered APIs. 67, driven by strong performance in the Performance Chemicals segment.

The company is undergoing a leadership transition, with CEO Sean Keohane set to retire at the end of the fiscal year, and Erica McLaughlin appointed as the next President and CEO. Cabot Corporation is focusing on growth in battery materials, with expectations of approximately $40 million in EBITDA and continued capacity expansion in the US and China. The company maintained strong cash flow generation, with $75 million in operating cash flow, and returned $24 million to shareholders through dividends. Cabot received a Platinum Sustainability Rating from EcoVadis for the sixth consecutive year, highlighting its commitment to sustainability.

45, reflecting ongoing geopolitical uncertainties and raw material cost volatility. Continued investments in growth opportunities, particularly in battery materials, and maintaining a balanced capital allocation strategy were emphasized as key priorities. Full Transcript OPERATOR Good day and thank you for standing by. Welcome to Cabot Corporation's earnings teleconference for third quarter fiscal 2026.

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one and one on your telephone. Please be advised that today's conference is being recorded.

I would now like to hand the call over to your first speaker today, Mr. Robert Reese. Thank you. Please go ahead.

Robert Reese Thank you. Good morning. I'd like to welcome you to Cabot Corporation's earnings teleconference. With me today are Sean Keohane, CEO and President, and Erica McLaughlin, Executive Vice President and CFO.

Last night we released results for our third quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our Annual Report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measure presented should not be considered to be an alternative to a financial measure required by GAAP.

Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investor section on our website. I will now turn the call over to Sean, who will discuss the third quarter highlights, followed by several company and business updates. Erica will review the third quarter financial highlights and the business segment results. Following this, Sean will provide closing comments on our fiscal 2026 outlook and then open the floor to questions.

Sean Keohane, President and CEO Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. Before we begin our review of the quarter, I'd like to briefly address the leadership transition announced last week. After nearly 25 years with Cabot, including the last 10 years as President and CEO, I have decided to retire effective at the end of the fiscal year on September 30, 2026.

To support a smooth transition, I will continue in an advisory capacity through the end of the calendar year. My decision to retire reflects a thoughtful and well-planned succession process in partnership with our Board of Directors. Leading Cabot has been the privilege of my professional career and I am incredibly proud of what we have accomplished during my tenure as President and CEO.

We have strengthened our portfolio, significantly increased our business segment profitability, incubated and scaled our battery materials product line into a leading position, executed a consistent, disciplined approach to capital allocation, and focused relentlessly on creating value for our shareholders. While my decision is naturally based on personal considerations, I also believe it comes at an appropriate time for the company. Cabot is operating from a position of strength. We have a clear strategy, a strong balance sheet, an experienced leadership team, and significant opportunities ahead to grow.

I am thrilled by the Board's appointment of Erica McLaughlin as Cabot's next President and CEO. Having worked in partnership with Erica for many years, including during her most recent tenure as Chief Financial Officer and Head of Corporate Strategy, I have seen firsthand her ability to drive results, shape strategy, and lead through complexity. Many of you already know Erica well through her role as CFO. In her previous experience leading Investor Relations, prior to her appointment as CFO, Erica was Vice President of Business Operations for our Reinforcement Materials segment and General Manager of our tire business.

Erica understands our businesses and how they operate and has been my partner in driving a culture of disciplined execution. She has been deeply involved in shaping and executing our strategy, and she brings a strong track record of operational, financial, and strategic leadership. I'm confident she is the right leader to guide Cabot through its next phase of growth and value creation. With that, I'll turn it over to Erica.

Erica McLaughlin, Executive Vice President and CFO Thank you, Sean. I'm honored by the Board's confidence and excited to lead Cabot into its next chapter. Having spent nearly 25 years with the company, including most recently serving as CFO and Head of Corporate Strategy, I've had the privilege of helping to shape many of the strategic priorities that are driving our businesses today. As Cabot's President and CEO, I will remain focused on continuing to deliver long-term shareholder value.

I believe that Cabot is exceptionally well positioned as we enter this next chapter for the company. We have strong businesses with leading market positions, a healthy balance sheet, a proven operating model, and an experienced leadership team. Our priorities remain unchanged: continue delivering strong performance in our core businesses, advance our growth initiatives, invest in innovation, maintain disciplined capital allocation, and pursue opportunities that enhance long-term value creation.

As part of this transition, we have initiated a search for our next CFO to identify the best leader to support the company's continued growth and execution and who will continue to build upon Cabot's strong track record of financial discipline. We are also fortunate to have a strong and experienced finance and accounting organization with deep expertise, and I am confident in the team's ability to partner closely with me and the executive leadership team throughout the transition. I also want to thank Sean for his leadership, partnership, and unwavering commitment to the company.

His leadership has helped shape the company we are today and I am grateful to have had the opportunity to work alongside him through much of the journey. As we look ahead, I'm excited about the opportunities in front of us and confident in our ability to build on the strong foundation that Sean has established. I look forward to leading Cabot through this next chapter and continuing to create long-term value for our shareholders. With that, I'll turn it back to Sean to discuss the third quarter results.

Sean Keohane, President and CEO Thanks, Erica. 67, an increase of 4% sequentially. Our results reflect solid execution by our team. Our Reinforcement Materials segment delivered EBIT of 97 million in the quarter despite challenging market conditions and pricing headwinds from our 2026 annual tire customer agreements.

In Performance Chemicals, we delivered another strong quarter with segment EBIT of 68 million, up 19% year over year. These results demonstrate the strength of the business and the effectiveness of the actions we have taken to drive profitable growth across the portfolio. Despite the impact of sharply higher oil on our working capital balances, cash generation was robust in the quarter as we generated 75 million of cash flow from operations. Consistent with our balanced capital allocation framework, we returned $24 million to shareholders through dividends and invested $38 million in capital expenditures, including projects to advance strategic growth opportunities.

During the quarter we also received an important sustainability recognition, having earned a Platinum Sustainability Rating from EcoVadis for the sixth consecutive year. EcoVadis is the world's largest and most trusted provider of business sustainability ratings, assessing more than 150,000 companies globally. Achieving Platinum status, the highest level of recognition, places Cabot among the top 1% of companies in the basic chemicals manufacturing category.

This recognition reflects our continued commitment to transparency and responsible business practices while providing our customers and other stakeholders with an independent validation and clear visibility into our sustainability performance. While the operating environment remains challenging, with ongoing geopolitical tensions in the Middle East, continued volatility in energy and raw material costs, and mixed demand conditions across many of our end markets, our teams have remained focused on disciplined execution.

We have continued to adapt to changing market conditions, support our customers and advance the strategic initiatives that we believe are important to our long term growth. Progress in areas such as battery materials, network optimization and cost improvement initiatives highlight our ability to remain focused on what we can control while navigating an environment that remains dynamic. Overall, I am encouraged by our performance in the quarter and remain confident in our ability to execute through the current environment while continuing to strengthen Cabot's competitive position for the future.

As I have previously discussed, battery materials is an important part of Cabot's growth strategy. Fueled by strong underlying market momentum, we are rapidly scaling our business and excited about our progress and its long term value creation potential. I believe that the long term fundamentals of the battery market are highly attractive. Batteries are fast becoming a critical catalyst of the modern energy economy.

They are an essential component of energy grid stability and serve to enable the decoupling of energy generation from energy consumption. Batteries are part of the backbone of the digital revolution, providing the physical assurance layer for data centers and AI infrastructure where power reliability is key, and they are enabling the transition of mobility and are a foundational technology for emerging applications like drones and robotics.

Global battery demand is expected to more than double by the end of the decade, driven by continued growth in electric vehicles, expanding adoption of battery energy storage systems and emerging applications that require increasingly sophisticated battery technologies. Importantly, our opportunity extends beyond electric vehicles. Today, approximately 30% of battery demand is derived from non—EV applications, particularly energy storage, which continues to be one of the fastest growing segments of the market.

Given our leadership positions across electric vehicles, battery energy storage systems and other advanced battery applications, we believe Cabot is uniquely positioned to capitalize on this broad based growth. Operationally, the business continues to perform very well. I am excited about our continued momentum in battery materials this fiscal year and we are reaffirming our expectation of approximately 40 million of EBITDA in fiscal 2026. The product line continues to generate attractive earnings with trailing twelve—month EBITDA margins of approximately 24% as of the end of Q3.

Performance has been driven by strong execution of existing customer programs, increasing penetration in energy storage applications and the benefit of capacity that is now available to support growing customer demand. During the quarter, we also advanced a program to expand global conductive additive capacity within our battery materials product line through targeted investments in both the United States and China. These investments reflect our confidence in the long term growth opportunities we see in advanced batteries and enhance our broad global manufacturing footprint, which we view as one of our key competitive strengths.

Today, Cabot produces conductive additives for battery applications across all major geographies including the United States, Europe and China, allowing us to support customers as they increasingly localize battery production and establish new gigafactories in Western markets. This geographic reach enables us to serve global customers where they operate while providing the supply chain flexibility and regional support that is becoming increasingly important.

In addition, our broad range of conductive carbons, carbon nanotubes, carbon nanostructures, blends and dispersions allows us to develop tailored solutions that meet the diverse and demanding requirements of battery manufacturers and help optimize battery performance across a wide range of applications. S. S. manufacturing sites.

Given evolving electric vehicle market conditions and growing demand for battery energy storage systems, we believe this brownfield approach provides the most flexible and capital efficient way to support customer growth and synchronize the timing of new capacity additions to match our customer startup dates. In total, we expect to invest approximately $125 million in these capacity additions, with new capacity anticipated to come online in 2028. This allocation of growth CAPEX is already contemplated in our total CAPEX envelope that we are currently operating in.

Taken together, our global manufacturing footprint, broad technology portfolio, proven customer relationships, and targeted capacity investments position us well to support the evolving needs of battery manufacturers around the world. We believe these advantages will allow us to win in this application and capture long term growth of advanced batteries, making battery materials an increasingly meaningful contributor to shareholder value creation over time. I will now turn it over to Erica to discuss the financial and performance results for the quarter in more detail. 67.

This performance was driven by strength in our Performance Chemicals segment, partially offset by lower year-over-year earnings in Reinforcement Materials. Overall, our results reflect solid execution across the portfolio and were in line with our expectations for the quarter. We generated $75 million of operating cash flow while funding approximately $44 million of higher net working capital associated with rapidly rising raw material costs. We also invested $38 million in capital expenditures to support our asset base and strategic growth initiatives while returning $24 million to shareholders through dividends.

While we did not repurchase shares in the third quarter, we have repurchased $101 million thus far during the fiscal year and expect to be back in the market to repurchase shares in the fourth quarter. 3 billion. 4 times as of June 30. In the fourth quarter, we expect to refinance our public bond, which matures in September.

This is consistent with our disciplined approach to liquidity management and our focus on preserving strong financial flexibility. Our year-to-date operating tax rate was 29% and we're updating our expected fiscal 2026 operating tax rate range to 28% to 30%. The modest increase in the forecasted range reflects changes in our expected geographic mix of earnings for the fiscal year. Turning to capital expenditures, as I mentioned, during the quarter we spent $38 million.