BOSTON—Cabot Corp. remains focused on its long-term growth strategy and looks to make gains in the months ahead as the electric vehicle market steadies and finds its footing.
A challenging second quarter won't thwart that, according to CEO Sean Keohane.
"I continue to be excited about the outlook for our businesses and the momentum we have demonstrated as we execute against our Creating for Tomorrow strategy," Keohane said in a statement.
Overall, second-quarter sales dipped slightly year-over-year to $1.03 billion, down from the $1.09 billion a year ago. Sales for the six-month period ending March 31 were relatively flat, coming in at $1.99 billion, compared to $2.06 billion in 2022.
Net income, likewise, dipped slightly year-over-year for the quarter, coming in at $75 million compared to $107 million for the second quarter of 2022. For the sixth-month period, income was up significantly to $129 million from the $18 million a year earlier.
Still, given the economic uncertainties and particularly the challenges facing the automotive markets, Cabot is confident in its performance and remains optimistic about the year ahead.
"Our ability to deliver strong performance despite the challenging macro-economic backdrop reflects the strength of our portfolio, the agility and strong execution of our teams and the value customers place on Cabot's product offerings," Keohane said. "Looking forward, I believe these factors position us well for the remainder of fiscal 2023 and to achieve the goals outlined in our Fiscal 2022 Investor Day."
Ultimately, it was the strong performance within the Reinforcement Materials segment that buoyed Cabot in the second quarter. Here, EBIT increased by $21 million year-over-year. This, the company said, was driven by improved unit margins from better pricing and product mix in customer agreements. It was partially offset by lower volumes and higher costs.
"Reinforcement materials delivered a record quarter with EBIT up 21 percent year-over-year," Keohane said during a Q2 investors call. "Outlook for this business remains strong, driven by our leading market position, the long-term resilience of the replacement tire market and the favorable structural dynamics of this business."
The Performance Chemicals segment, meanwhile, faced some stiff headwinds. This led to a $42 million decrease in EBIT for the three months, when compared to the same period last year. This primarily was due to a decrease in volumes and lower unit margins in Cabot's fumed metal oxides product line.
"The Performance Chemicals segment had a challenging quarter as we experienced lower demand in China due to significant levels of COVID outbreak, softness in key end markets and continued inventory destocking," Keohane said during a call with investors.
Cabot also noted that while overall segment volumes declined 5 percent year-over-year, sales for battery material applications saw a volume growth of 45 percent.
"On the strategic front, we continue to make important long-term progress with the battery materials segment, with volumes growing 45 percent in the quarter despite the sharp sequential slowdown in electric vehicle sales in the March quarter," Keohane told investors.
Despite the softening market for electric vehicles sales and battery production, Cabot is confident that the company's future success is embedded in the new mobility space.
So Cabot is investing in a number of fronts—for battery materials and for tires.
Take, for instance, Evolve.
During the second quarter, the company took steps to further its position within the reinforcing carbons market and move even closer toward its sustainability visions with the launch of Evolve, a platform that clearly articulates the company's plan for its portfolio of tire-related materials. Evolve is intended to help tire makers achieve sustainability aims, while bringing to the market products with the enhanced performances that meet the demands of new mobility.
To do this, Cabot plans to leverage:
When it comes to opportunity, Cabot sees no shortages within the electric vehicle market and continues to bring to market solutions that will strengthen its position within the space.
This, Keohane said, is where the battery materials solutions fit. And despite the challenging quarter, he and the Cabot team remain optimistic about the potential that lies ahead.
"Diving deeper into battery materials, the electrification of mobility represents a significant growth opportunity for Cabot, and we continue to invest behind this macro trend," Keohane said. "While we believe the long-term trend of electric vehicle penetration is undeniable, market trends from quarter to quarter can be uneven. This is certain what the electric vehicle sector experienced in the March quarter."
Yes, electric vehicle sales ebbed during the three-month period, dropping about 27 percent by Cabot's estimates. This was attributed in part to COVID-19 outbreaks in China and sharp declines in prices for key raw materials that ultimately resulted in destocking across the value chain.
"We continue to believe that electrification will transform the mobility sector, and we are pleased with our commercial progress to date," Keohane said. "We have qualified for and are selling commercially to nine of the top 10 battery producers and are well-positioned with key auto OEMs as they build out battery production capacity.
"Cabot's value proposition—built on our unique product breadth, global footprint and our ability to scale up to meet the industry's regional needs—is resonating with customers. While the growth pathway may be uneven at times, we are investing to win over the long term, and we remain confident in our investor day projection of 50-percent-plus EBIT growth between 2021 and 2024."
Playing a role in that growth will be Entera Aerogel particulates, which Cabot introduced early in May. The thermal insulation additives are designed to help protect lithium-ion batteries from thermal runaway and do so with a light-weight solution.
The Entera aerogel particles portfolio ranges in size from microns to millimeters and includes Entera EV5200 aerogel, Entera EV5400 aerogel and Entera EV5800 aerogel.
"We believe thermal management will be an important design feature of safe batteries, and expect there will be a variety of application forms that serve this market," Keohane told investors. "Cabot's aerogel products provide customers with formulation flexibility to develop very thin formulations including blankets, pads, sheets, films, foams and coatings.
"Over time, we believe that our aerogel solutions can develop into a meaningful addition to our battery materials addressable market and further position Cabot as a critical materials supplier to support the global transition to vehicle electrification."
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