Cabot Q1 Earnings Call Highlights

Key Points

• Cabot reported Q1 adjusted EPS of $1.53 (down ~13% YoY) with operating cash flow of $126 million, discretionary free cash flow of $71 million, returned cash via $24 million in dividends and $52 million of buybacks, and ended the quarter with $230 million cash and ~$1.4 billion liquidity (net debt $1.1 billion, net debt/EBITDA 1.2x).
• The main drag was Reinforcement Materials—EBIT fell 22% as volumes declined ~7% overall (Americas -15%, Asia Pacific -7%) and pricing from annual contracts was down roughly 7%–9%; management expects Q2 Reinforcement EBIT to be about $5–$10 million lower and is planning capacity rationalization plus an additional $30 million of cost cuts.
• Performance Chemicals, driven by battery materials, showed strong momentum with revenue up 39% and a trailing EBITDA margin of 22%, including a multiyear supply agreement with Volkswagen’s PowerCo, and Cabot narrowed FY‑2026 adjusted EPS guidance to $6.00–$6.50 while trimming capex to $200–$230 million to support free cash flow.

Cabot NYSE: CBT reported first-quarter fiscal 2026 results that management said reflected strong execution amid a difficult demand backdrop, particularly in its Reinforcement Materials business. The company posted adjusted earnings per share of $1.53, while operating cash flow totaled $126 million, supporting continued investment and shareholder returns.

Quarter highlights: Weakness in Reinforcement Materials, growth in Performance Chemicals

Chief Executive Officer Sean Keohane said Reinforcement Materials segment EBIT declined 22% versus the first quarter of fiscal 2025, driven primarily by lower volumes in the Americas and Asia Pacific. Performance Chemicals segment EBIT increased 7% year over year on a more favorable product mix and continued momentum in the company’s battery materials product line.

CFO Erica McLaughlin said adjusted EPS was 13% below the prior-year quarter, reflecting lower Reinforcement Materials EBIT that was partially offset by higher Performance Chemicals EBIT.

Reinforcement Materials: Pricing pressure, imports, and contract outcomes

Management described the global demand environment for Reinforcement Materials as challenging. Keohane said tire production has been depressed and has lagged vehicle miles driven, which he attributed to inflation delaying the replacement cycle and driving trade-down behavior at the lower end of the market.

Keohane highlighted the impact of tire imports from Asia into Western markets and said that while Western countries have taken increasingly aggressive actions to address unfair trade practices, Cabot has not yet seen tariffs or other measures result in a meaningful decline in imported tire flows. He noted that U.S. imports from Asia have declined sequentially in recent months but remain up about 4% year over year. In Brazil, he said tariffs helped slow passenger car tire imports, resulting in a 4% year-over-year decline in 2025 passenger car tire imports. In Europe, he said imports remain elevated, with an antidumping petition under review and a determination scheduled for June 2026.

Against that backdrop, Cabot concluded its calendar 2026 annual negotiations for Reinforcement Materials supply agreements. Keohane said pricing declined across Western regions, and Cabot lost volume in Europe while defending pricing levels. He characterized the pricing impacts as generally in the range of a 7% to 9% decline versus 2025 levels, reflecting the competitive environment and regional utilization pressures.

McLaughlin provided segment detail for the quarter, stating that Reinforcement Materials EBIT decreased by $28 million year over year, primarily due to lower volumes, which fell 7% overall. By region, volumes were down 15% in the Americas and down 7% in Asia Pacific, while Europe volumes increased 6%.

Looking to the second quarter, McLaughlin said Cabot expects a sequential decrease in Reinforcement Materials EBIT of approximately $5 million to $10 million, driven by the outcomes of its calendar 2026 customer agreements, partially offset by seasonal volume improvement. She added that Cabot expects EBIT improvement in the third and fourth quarters versus the second quarter, citing benefits from new capacity in Indonesia, the company’s acquisition in Mexico, and cost countermeasures.

Cost actions, capital spending, and capacity considerations

Keohane said Cabot delivered $50 million of cost savings in fiscal 2025 and expects to maintain those benefits in fiscal 2026. He also said the company is targeting an additional $30 million of cost reductions in fiscal 2026 through procurement savings, headcount reductions, and Reinforcement Materials initiatives, including technology deployment aimed at yield and manufacturing efficiencies extending into fiscal 2027.

Cabot also reduced its full-year capital spending plans to align with the current market environment. McLaughlin said first-quarter capital expenditures were $69 million and the company expects fiscal 2026 capital expenditures of $200 million to $230 million. Keohane said the updated plan is about $60 million lower at the midpoint compared with fiscal 2025 actuals, which he said should support robust free cash flow and continued shareholder returns.

In addition, Keohane said Cabot is finalizing plans to rationalize carbon black capacity in the Americas and Europe to better align its network with current demand levels, adding that the company will communicate decisions when made.

McLaughlin said Cabot ended the quarter with $230 million in cash and approximately $1.4 billion in liquidity. Discretionary free cash flow was $71 million. During the quarter, Cabot paid $24 million in dividends and repurchased $52 million of shares. Debt was $1.1 billion, and net debt to EBITDA was 1.2x as of December 31, 2025. The operating tax rate was 28%, and management reiterated a fiscal 2026 operating tax rate outlook of 27% to 29%.

Battery materials momentum and a PowerCo agreement

Keohane emphasized continued growth in Cabot’s Battery Materials product line, which he said posted revenue growth of 39% versus the prior-year quarter. He said trailing twelve-month EBITDA margins for the product line were 22%, and management pointed to electric vehicle and energy storage demand, new customer agreements, and capacity expansions as contributors.

Keohane also highlighted a multiyear agreement signed with PowerCo, a Volkswagen Group subsidiary. He described the agreement as strategically important and said it positions Cabot to participate as PowerCo expands a multi-site, multi-year gigafactory footprint in Western geographies. In response to an analyst question, Keohane said Cabot has not quantified the expected earnings contribution from the agreement due to confidentiality.

Management discussed battery energy storage systems (ESS) as a key growth driver. Keohane said demand for battery ESS is expected to grow at a 26% compound annual growth rate through 2030, driven in part by grid needs, renewables, and data center demand. He also said overall lithium-ion battery demand is projected to grow at roughly a 20% compound annual growth rate through 2030.

Updated fiscal 2026 guidance and segment outlook

Keohane said Cabot is narrowing its fiscal 2026 adjusted EPS guidance range to $6.00 to $6.50, reflecting final outcomes of the calendar 2026 Reinforcement Materials customer agreements.

• Reinforcement Materials: Management expects volumes to be relatively flat year over year, including the impact of first-quarter volumes and volume losses in Europe from the annual agreements, offset by volumes from new assets, including a new line in Indonesia and the company’s Mexico plant acquisition. Keohane said the acquisition closed at the end of January and will be consolidated starting in February. The outlook also reflects lower pricing year over year.
• Performance Chemicals: Management expects low single-digit volume growth year over year, driven by battery materials and tailwinds in certain end markets such as infrastructure and consumer, and expects to maintain gross profit per ton versus the prior year. McLaughlin said second-quarter segment EBIT is expected to be relatively consistent with the first quarter, with sequential volume improvement in Western regions offset by the timing of costs.

During the Q&A, Keohane said European demand weakness in silicones reflects broad housing and construction softness and stated Cabot’s demand had not been materially impacted by Dow’s silanes closure, noting Cabot reached an agreement to be compensated for any non-performance under the relevant contract. He also said the company’s cross-regional sales in Performance Chemicals are relatively small as a proportion of overall sales and have not led to material impacts from global trade tensions.

On Reinforcement Materials volumes in the Americas, Keohane said that in January volumes were up a little bit year over year and up sequentially from the seasonally weaker December quarter, which he said was additionally affected by year-end inventory management by customers.

About Cabot NYSE: CBT

Cabot Corporation is a global specialty chemicals and performance materials company headquartered in Boston, Massachusetts. Founded in 1882 by Godfrey Lowell Cabot, the company has grown into a diversified manufacturer with operations across North America, Europe, Asia and Latin America. Cabot serves a wide range of end markets, including automotive, industrial, energy, and consumer products, supplying essential ingredients that enhance performance, durability and functionality.

The company operates two primary segments: Reinforcement Materials and Performance Materials.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.