A month has gone by since the last earnings report for Cabot (CBT). Shares have added about 43% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cabot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cabot’s Earnings Surpass Estimates in Q2, Sales Miss
Cabot slipped to a loss of $1 million or a penny per share in the second quarter of fiscal 2020 (ended Mar 31, 2020) from a profit of $23 million or 39 cents per share in the year-ago quarter.
Barring one-time items, adjusted earnings per share were 77 cents, down from 99 cents in the year-ago quarter. Also, the figure surpassed the Zacks Consensus Estimate of 71 cents.
Net sales fell 15.9% year over year to $710 million in the quarter. It also lagged the Zacks Consensus Estimate of $773.9 million.
Reinforcement Materials’ sales fell 20.2% year over year to $355 million in the reported quarter. Earnings before interest and tax (EBIT) in the segment were $61 million, flat with the year-ago quarter.
Sales in the Performance Chemicals unit went down 3.5% year over year to $245 million in the reported quarter. EBIT fell 18.4% year over year to $31 million on lower margins from competitive pricing environment and softer product mix.
Sales in the Purification Solutions declined 11.1% year over year to $64 million in the quarter. EBIT rose 200% year over year to $3 million on higher margins from better pricing and product mix.
Cabot had cash and cash equivalents of $142 million at the end of the fiscal second quarter, down 19.3% year over year. The company’s long-term debt rose 77% year over year to $1,190 million.
Cash flow from operating activities was $24 million in the reported quarter. Capital expenditure was $51 million.
The company also returned $30 million through share repurchases and dividends to its shareholders during the quarter.
Cabot expects demand to be low in the fiscal third quarter due to the impacts of the coronavirus pandemic.
For the Reinforcement Materials unit, the company expects a substantial reduction in demand in the fiscal third quarter on account of temporary customer shutdowns in Europe and America.
In the Performance Chemicals unit, it anticipates the challenging price environment for fumed silica in Europe and China to continue. Moreover, the company expects a decline in automotive demand in Europe and America to negatively impact product mix in specialty carbons and compounds.
For the Purification Solutions unit, it expects a decrease in quarterly EBIT on a year-over-year basis due to the impacts of the coronavirus outbreak.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -79.28% due to these changes.
Currently, Cabot has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cabot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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