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Can Cabot Corp (CBT) Pull a Surprise This Earnings Season?

Zacks Equity Research

Specialty chemicals and performance materials producer, Cabot Corp. CBT, is  set to release second-quarter fiscal 2017 results after the market closes on May 1.  

Last quarter, the company delivered a positive earnings surprise of 21.74%. It reported adjusted earnings of 84 cents per share that beat the Zacks Consensus Estimate of 69 cents.

Net sales of $611 million rose 1.3% year over year, and exceeded the Zacks Consensus Estimate of $600 million. Fixed cost reductions and higher margins led to a year-over-year improvement in operating profits and earnings.

The company beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the other one, with an average positive surprise of 5.03%.

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Cabot Corporation Price and EPS Surprise


Cabot Corporation Price and EPS Surprise | Cabot Corporation Quote

Factors to Consider

In first-quarter fiscal 2017, Cabot Corp. performed well, with its adjusted earnings per share increasing 64.7% year over year. The increase was primarily driven by improvement in sales volume across all segments.

One of the key strengths of Cabot Corp. is the ability to generate robust cash flows. In the last reported quarter it generated cash flows of over $100 million from operations, which it used for capital investments and also returned $35 million to shareholders in the form of share repurchase and dividends.

According to the President and CEO, Sean Keohane, the company will continue to drive the core strategy which is focused on delivering value to shareholders. The company aims the annual adjusted earnings to grow by 7 – 10%, while implementing a balanced capital allocation investment strategy for growth and cash return to shareholders.

The company’s Reinforcement Segment saw its EBIT (earnings before interest and tax) increase by $14 million year over year in the last reported quarter. The higher EBIT was primarily driven by higher sales volume and unit margins arising from improved demand environment in China.  

The Purification Solutions EBIT increased by $9 million year over year in first-quarter fiscal 2017 mainly due to favorable inventory comparisons and higher volume due to MATS–related demand.

The Specialty Fluids segment’s EBIT increased by $2 million year over year in the first quarter fiscal owing to increased project activity in Asia that partly offset lower activities in North Sea.

The Performance Chemicals segment EBIT dropped around 1% to $205 million year over year in the last reported quarter mainly due to unfavorable product mix and higher maintenance cost associated with plant turnarounds. Cabot Corp. expects the demand of Performance Chemicals end-markets to remain strong, but margins are likely to be affected from higher oil prices.

The company, in the second quarter, expects reversal of inventory benefits it saw in the previous reported quarter.

Cabot Corp.’s shares gained 8.7% in the last three months, outperforming the Zacks categorized Chemical-Diversified industry’s gain of 4.2%.

Earnings Whispers

Our proven model does not conclusively show that Cabot Corp. is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Cabot Corp. is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 84 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cabot Corp. currently sports a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult. You can see the complete list of today’s Zacks Rank #1 stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

The Chemours Company CC has an Earnings ESP of +4.08% and sports a Zacks Rank #1.

Franco-Nevada Corp. FNV has an Earnings ESP of +10.00% and carries a Zacks Rank #3.

Agnico Eagle Mines Ltd. AEM has an Earnings ESP of +7.14% and carries a Zacks Rank #3.

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Cabot Corporation (CBT): Free Stock Analysis Report
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