Cabot ready for recovery as auto, tire industries gain momentum

BOSTON—Despite a "dramatic COVID-19 impact" on its third quarter sales and earnings, Cabot Corp. sees signs of recovery in the market as production starts to pick up in the automotive and tire industries.

During the three months to end of June, the company's reinforcement materials segment, which includes rubber carbon black operations, reported a 57 percent year-on-year decrease in sales to $197 million, on 42 percent lower volumes.

Third quarter earnings (EBIT) went into negative territory, declining by $77 million to negative $5 million, due mainly to lower volumes, Cabot announced Aug 7.

Volumes, Cabot said, fell as a result of temporary shutdowns at tire and automotive plants in Europe and the Americas, which posted decreases of 51 percent and 59 percent, respectively. In Asia, volumes were down 26 percent.

However, Cabot noted a 45 percent sequential increase in volumes in the month of June as compared to May.

In addition, July volumes improved sequentially from June and were 9 percent below July of last year, according to the company.

"As the quarter progressed, our customers slowly restarted operations during May and June," President and CEO Sean Keohane said.

The improvement, he said, "is a positive indicator that we are exiting the quarter in a stronger position than where we started."

Also speaking during a Aug. 7 earnings call, Chief Financial Officer Erica McLaughlin said lower volumes, as well as the unfavorable impact of lower raw material costs, impacted the segment's earnings.

Looking ahead, she said Cabot expected that half of the lower raw material cost headwind would not repeat in the fourth quarter, ending Sept. 30.

"We anticipate a significant sequential improvement in demand and reinforcement materials, given that customer plans have come back online," McLaughlin said.

Keohane added the pandemic had "a dramatic impact" on Cabot.

"The scale of this disruption is unprecedented, but I am proud of the way our global team has managed through the crisis," he said.

According to Keohane, Cabot carried out "aggressive cost reduction efforts" during the COVID period and is on track to deliver $60 million in cost savings in the fiscal year.