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Edited Transcript of CBT earnings conference call or presentation 6-Aug-19 6:00pm GMT

Q3 2019 Cabot Corp Earnings Call

BOSTON Sep 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Cabot Corp earnings conference call or presentation Tuesday, August 6, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Erica McLaughlin

Cabot Corporation - Senior VP & CFO

* Sean D. Keohane

Cabot Corporation - President, CEO & Director

* Steven J. Delahunt

Cabot Corporation - VP of IR & Treasurer

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Conference Call Participants

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* Christine Louise Besselman

Deutsche Bank AG, Research Division - Research Associate

* Christopher John Kapsch

Loop Capital Markets LLC, Research Division - MD

* James Michael Sheehan

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Michael James Leithead

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Q3 2019 Cabot Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to your host, Mr. Steve Delahunt. Sir, you may begin.

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Steven J. Delahunt, Cabot Corporation - VP of IR & Treasurer [2]

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Thank you. Good afternoon. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Senior Vice President and CFO. Last night, we released results for our third quarter of fiscal year 2019, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-looking Statements in the press release we issued last night and in our last annual report on Form 10-K as filed with the SEC.

In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table at the end of our earnings release issued last night and available in the Investors section of our website.

I will now turn the call over to Sean Keohane who will discuss the key highlights of the company's performance. Erica McLaughlin will review the business segment and corporate financial details. Following this, Sean will provide closing comments and open the floor to questions. Sean?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [3]

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Thank you, Steve, and good afternoon, ladies and gentlemen. In the third quarter of 2019, we had to navigate a number of challenges in the business environment. Despite this, we delivered solid results with adjusted earnings per share of $1.

I was particularly pleased with the performance of our Reinforcement Materials segment, which generated a sequential improvement in profitability and the highest level of quarterly earnings since quarter 3 of 2018. I'm also encouraged by the continued progress of our transformation plan in Purification Solutions, which resulted in year-over-year improvement in this segment. During the quarter, we delivered strong cash flow performance, and we closed on the sale of our Specialty Fluids business, thereby achieving an important portfolio objective.

We did not see an improvement in the macroeconomic conditions in the third quarter, and the environment of the chemical industry as a whole was more challenging than anticipated. PMI continued to weaken globally. Automotive production remained a negative territory, and China remained soft. Exacerbating the situation was a lack of progress on the global trade front between the U.S. and China. While the direct impact of tariffs on our results was small, the lack of clarity on a global trade framework has created caution across the customer base. These high-level themes impacted our results, particularly in our Performance Chemicals segment.

Recognizing the current business environment, we took proactive steps to counteract the impacts we were seeing across the company. First, we continue to focus on opportunities where we can grow volumes. For example, Reinforcement Materials volumes in China grew year-over-year driven by a stable domestic market for replacement tires. Second, we continue to manage cost through a combination of productivity measures, tight management and discretionary spending and structural improvements related to our Purification Solutions transformation plan.

And third, we further tightened capital spending. Our full year forecast is now $230 million to $240 million and well below the full year guidance we gave at the beginning of the year as we are carefully balancing growth investments with prudent cash management. Finally, we continue our sustained focus on working capital to drive strong operating cash flow, which was in excess of $100 million in the quarter.

We remain committed to returning cash to our shareholders, and in the quarter, we increased our dividend by 6%. Total dividends paid in the quarter totaled $20 million. We also repurchased shares of $32 million in the quarter, and over the past 4 quarters, we have repurchased 7% of our outstanding shares.

While the current environment remains challenging, we are committed to the long-term growth plans in our core businesses and have conviction around the fundamentals of our markets and our strategy. On this front, we completed construction at our new fumed silica plant in Wuhai, China, which will contribute to the Performance Chemicals segment results starting in the fourth quarter.

Before I turn it over to Erica, I would like to take this opportunity to thank the Specialty Fluids team for their contributions to Cabot over many years and for their strong support during the sale process. I wish the business and all of their employees much success in the future.

I'll now turn it over to Erica to discuss the business results in more detail.

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Erica McLaughlin, Cabot Corporation - Senior VP & CFO [4]

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Thanks, Sean. I will discuss the segment results beginning with Reinforcement Materials.

EBIT from Reinforcement Materials for the third quarter of fiscal 2019 decreased by $2 million as compared to the third quarter of fiscal 2018. The pricing and mix benefits that we achieved from our 2019 customer agreements were more than offset by the impact of lower margins in China from a more competitive pricing environment. Globally, volumes declined 2% in the third quarter as compared to the same period of the prior year, primarily due to a 7% decrease in volumes in Europe from softer automotive production. In Asia, we delivered volume growth of 2% driven by higher volumes in China as the replacement tire market continues to be firm and we remain a preferred supplier.

We have been pleased with the results of the 2019 customer agreements, and our continued strong attention to pricing actions has largely addressed the cost of rising feedstock differentials in the quarter. As the feedstock environment presents a more complex set of issues than a typical annual contract negotiation, we're continuing to spend time educating customers on these topics as part of our 2020 negotiation process. Our view on this remains consistent, and that is that our increased costs must be passed down the value chain. This is consistent with the way the industry has worked for a long time and has been reflected in recent price increase announcements by most of the major carbon black players in North America that are intended to cover EPA surcharges, feedstock differentials and higher freight costs. Looking ahead to the fourth quarter, we expect similar results in Reinforcement Materials to those of the third quarter with the assumption that the current challenging business conditions continue.

Now turning to Performance Chemicals. EBIT decreased by $19 million year-over-year largely due to lower volumes and a less favorable product mix. The less favorable product mix was largely due to weaker demand in the more profitable automotive and fiber end market, which primarily impacted the specialty carbons product line in the quarter. Timing of orders in our fumed silica product line resulted in volumes declining 2% in Performance Additives while volumes were down 2% in Formulated Solutions due to lower sales in our inkjet product line.

Similar to Reinforcement Materials, there's a challenge for the segment from feedstock differentials and EPA-related compliance costs that we need to recover. We continue to implement pricing actions to address these, including a global feedstock surcharge that we announced today for all North American-produced specialty carbons.

Looking ahead to the fourth quarter, we expect to see sequential improvement in Performance Chemicals from increased volumes in our fumed silica product line, from the start-up of our new plant in China and the timing of offtake from our fence-line partners. These higher fumed silica volumes coupled with targeted customer actions in our specialty carbons business are expected to result in an improved segment mix sequentially.

Now moving to Purification Solutions. In the third quarter of fiscal 2019, EBIT increased by $7 million compared to the third quarter of fiscal 2018. This is driven by higher volumes in our specialty applications, including food and beverage chemicals and catalysts, in addition to improved margins from price increases in the specialty application. The business also reduced fixed costs in the quarter driven by savings from the previously announced transformation plan. Looking ahead to the fourth quarter, we expect to see sequential improvement in Purification Solutions driven by lower fixed costs from the actions being taken in our transformation plan.

Now moving to Specialty Fluids. In the third quarter of fiscal 2019, EBIT decreased by $1 million compared to the third quarter of fiscal 2018 due to the mix of project activity in the quarter. As we mentioned earlier, we have completed the divestiture of this business during the quarter, and going forward, this segment will no longer be part of our operating results.

I will now turn to corporate items. We ended the quarter with a cash balance of $147 million, and our liquidity position has improved to $1.4 billion. In the quarter, we issued $300 million public bonds, the proceeds of which are used to repay commercial paper. During the third quarter of fiscal 2019, cash flows from operating activities were $115 million, which includes a decrease in net working capital of $16 million, largely due to a reduction in inventory levels. We expect to see further improvement in operating cash flow for the fourth quarter as working capital should continue to be a source of cash in the quarter.

Total capital expenditures for the third quarter of fiscal 2019 were $58 million and are now expected to be approximately $230 million to $240 million for the full year. Discretionary free cash flow was $71 million in the third fiscal quarter, of which we returned cash to shareholders through $20 million in dividends and $32 million of share repurchases. The fiscal year-to-date and forecasted 2019 operating tax rate on continuing operations is 23%.

I'll now turn the call back over to Sean.

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [5]

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Thanks, Erica. Now I'd like to give you an update on our outlook for 2019. While 2019 has been a challenging year-to-date, we expect our fiscal 2019 adjusted earnings per share to be at a comparable level with our fiscal 2018 results with about 1/3 of our sales going into automotive applications and about 1/4 of our sales in China, maintaining our earnings level year-over-year as a result of actively managing to offset the challenging business and geopolitical headwinds.

The external forecast for recovery in China and stronger automotive OEM production have not materialized, and we can't say with high confidence that recovery is likely in the fourth quarter. As a result, we are assuming that both of these markets remain generally in line with what we experienced in our third fiscal quarter. Against the current backdrop of macro and market trends, we are focused on controllable measures.

Looking at overall company results sequentially, we do expect fourth quarter earnings to be higher than the third quarter driven by increased fumed silica volumes with the start-up our plant in China and the timing of fence-line partner orders. Improved purification results driven by our transformation plan will also contribute, and finally, we will continue to focus on cost measures.

Looking ahead, our priorities are clear: first, we will continue to leverage the strength of our global footprint and market-leading positions to manage the balance of volumes and margins and continue to push for pricing recovery of feedstock differentials. Second, we'll continue to execute cost and productivity measures to enhance long-term competitiveness. And finally, we will be aggressive stewards of cash as we focus on bringing down working capital levels and prudently managing the pace and timing of growth investments.

We are confident in the fundamentals of our core businesses, our leading positions in unparalleled geographic footprint and the robustness of the industries we serve. Our Advancing the Core strategy seeks to balance growth and leadership in our core businesses with robust cash return to shareholders. We have conviction that this is the right strategy for Cabot, and we are committed to delivering strong cash flows, investing for the future in our core businesses and returning cash to shareholders. Thank you very much for joining us today.

And I will now turn the call back over for our question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Michael Leithead of Barclays.

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Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [2]

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I guess first, from the earnings outlook, if we look at your goals of growing EPS at a double-digit CAGR, this year is essentially flat. So as we start to think about fiscal 2020, and I know it's early still, but are there certain things that should snap back in your mind and get you back on that 10% CAGR trend line off of 2018? Or is this year's $4 likely the new base we need to grow 10% or so off of into 2020? I guess what are kind of the moving parts in your mind there?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [3]

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Yes. Sure, Mike. So you're right, when we announced our outlook at Investor Day about a year ago, you might recall the build-out of that pathway. One of the key elements was overall volume growth in the 4% to 5% range across the portfolio, and, I think, clearly, we haven't seen that this year in 2019. Now how much of that is destocking that eventually bounces back? It's a little bit difficult to tell at this point. For sure, I think the whole chemical sector, ourselves included, have seen volumes that are disconnected from what we believe end-market demand to be. And so generally, that's a destocking phenomenon, and that certainly has played out over the course of the year.

So I think the question is how much of that comes back and what are the triggers for that to come back. And I think the biggest question right now is where does the global macroeconomic -- how does the global macro picture play out here. Do we see that there's some settlements around global trade that gives people confidence and, therefore, a trigger to be more aggressive in their order patterns and a replacement then of destocking? Or does the situation persist for a period of time? And that's pretty difficult to tell at this point here.

So I think what we'll be doing is -- over the next quarter is, of course, evaluating the current environment. And then we'll be in the middle of tire customer contract negotiations over the next quarter as well, so I think we'll be in a better position to address that question after we report the next quarter.

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Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [4]

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That's helpful color. And then I think last quarter on the earnings call when we're talking about the bridge for the back half of the year, you discussed the substantial EPA project this quarter that wouldn't repeat in 4Q and be a tailwind to 4Q earnings. Looking through the stuff, I don't seem to see any mention of the EPA project. So did that occur as anticipated? And should that benefit 4Q versus 3Q?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [5]

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We were -- you're right, Mike, we were planning a positive benefit from rebuilding inventories in Q4 coming out of an extended Q3 EPA-related shutdown. So this is one of the shutdowns that is tied to the industry consent decree. And of course, building up to that shutdown, we had built quite a bit of inventory, and then we're drawing down in this period of time. But the recent Hurricane Barry did impact one of our sites. And so the impact that we were getting from inventory change benefit was effectively offset here because with the outage at the plant, which is now back online, but with the outage at the plant, we haven't been able to rebuild inventories at a level that we had projected a quarter ago. So that's the offset.

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Operator [6]

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Our next question comes from Jim Sheehan of SunTrust.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [7]

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So could you clarify, on the differentials in feedstocks, have you been successful in passing that through only in Reinforcement Materials? Or am I hearing that wrong? Did you -- are you making progress in both of your business segments or just one of the segments so far?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [8]

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Yes. So important question, Jim, and one that is -- can be a source of confusion. And these businesses operate a little bit differently, so let me try to clarify for you. So first, let me start with Reinforcement Materials, and I would start by reiterating our underlying philosophy in this business, that feedstock costs are passed through the customers. And we execute this with our customers, as you know, through a pricing formula that adjusts with the market index to basically calculate their price.

And about a year ago, as MARPOL issue was emerging, we saw that there might be challenges to this, and so we introduced the delivery cost adjustment or a DCA into many of our contracts. And this DCA adjusts pricing if the index to our contracts differs from actuals so that this philosophy of pass-through is upheld. And this year, we have indeed seen increased differentials in the feedstock markets, and our DCA has adjusted pricing to ensure that those are passed through. And we've also put in place feedstock surcharges to any customers that did not have a DCA in their contract, and we'll continue to adjust these as needed.

So while we have seen differentials widen in reinforcement, it did not meaningfully impact our EBIT performance in the third quarter due to this contracting strategy in our implementation of feedstock surcharges. Of course, this is an evolving situation, as you know, and so we'll need to continue to ensure that we recover these costs going forward and continue to use the DCA concept with customers in our 2020 contracts in order to manage any further MARPOL-related uncertainty. So I think on Reinforcement Materials, the team is progressing well, and our foresight on the DCA concept, I think, has been working well.

In specialty carbons, it's a different business, and the philosophy in specialty carbons is a little bit different. The pricing is not as much tied to cost as it is more of a value-and-use pricing strategy. But that said, we do adjust prices as input costs move in a meaningful way. And so the differentials impact in specialty carbons is a bit more pronounced because this business tends to use low-sulfur feedstocks more than rubber blacks does. And of course, the low sulfur is impacted more by the MARPOL issue.

So what we are seeing currently is that North American feedstock markets have adjusted earlier than expected to MARPOL when the cost of these low-sulfur feedstocks is up relative to the index, thus creating a differential. So the focus now is on getting these price adjustments in place. And so as a result, we've announced today a $0.07 a pound surcharge effective in September that's intended to cover the cost of these rising differentials.

So same underlying situation but 2 different businesses and the approaches are slightly different. But the intent here is to get these recovered and passed along down the value chain. Reinforcement further ahead and quite pleased with progress there, still some work to do and stay vigilant. Specialty carbons, more work in front of us.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [9]

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Once your surcharges are in place, do you think that means that the differential problem is effectively fixed for 2020? Or do we still stay tuned on that?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [10]

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Well, difficult to tell because it's a moving target. And where pricing settles out on low sulfur, I think you need to accumulate enough activity and enough trades in order for an index to really firm up. And so I would say it's probably still too early for that, and everyone who's in this value chain is, I think, watching for that. But based on what we see today, if we successfully implement here, then we believe we'll have coverage.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [11]

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Terrific. And could you just talk about what you expect your utilization rates to be on the fumed silica plants in Wuhai for the fourth quarter? And where do you expect -- when do you expect that to be fully ramped up?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [12]

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Yes. So the start-up of a chemical plant, of course, doesn't reach full capacity instantaneously. It's always a ramp-up there as we get customers qualified. So I would say that we will be ramping to full production across the next quarter. That's how I would think about it.

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Operator [13]

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Our next question comes from David Begleiter of Deutsche Bank.

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Christine Louise Besselman, Deutsche Bank AG, Research Division - Research Associate [14]

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This is Christine on for David. Just 2 questions on China. Can you talk a little bit about the pricing dynamics in China this quarter and what your expectations are through the remainder of the year?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [15]

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Sure. So I think China is certainly a challenging environment in the short term. I think it's important to think about this both in the short term and the long term. So maybe a couple of thoughts to help out, and I'll start with the short term here.

First of all, auto production in China remains very weak, and so this -- the month of June was the 12th month in a row where auto production was down on a year-over-year basis, so pretty significant. I think on a year-to-date basis, auto production is down about 16% in China. And so you're probably all well aware of the factors that are driving that, but that has created a more -- that reduction in demand has created a more competitive environment in China and as a result, pricing has been under more pressure there over the last couple of quarters.

I think the other factor that's playing out in the short term is the trade dispute between U.S. and China because it just presents a lot of uncertainty. And companies are unable to really plan properly and so, as a result, are very cautious on inventory levels. And again, that creates -- or contributes to a more competitive environment in the carbon black side of things.

So we really need to see consumer sentiment firm up a bit in China, number one. I think that would help remove some of the uncertainty and give customers more clarity and confidence to fill out their supply chains. And then the second is that we would need to see automotive productions improve and these significant negative comps at least begin to reverse. And with that happening and a more -- firmer demand environment would begin to provide some support for pricing.

I think over the longer term, our view here hasn't changed in terms of China making almost 40% of the world's tires and carbon black, so important to recognize that. I think the second is that China still has the largest carpark in the world, and many of these cars have yet to hit their replacement cycle. And then our view on the feedstock side is that coal tar and carbon black production are fairly well balanced here as steel -- virgin steel production has slowed. So we think that, that picture remains intact.

And then, finally, I think the environmental enforcement in the long term will remain a priority for China. So these factors give us confidence in the long term. But we certainly have to work through this somewhat unprecedented short-term situation in China, and we're doing that. While we're not thrilled with the level of profitability that we're at, we are still quite profitable in China, and the overall results in the reinforcement segment this quarter were quite strong given that set of circumstances.

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Christine Louise Besselman, Deutsche Bank AG, Research Division - Research Associate [16]

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That was super helpful. And then just one question on Q4. Can you elaborate a little bit on what's driving the strong Q4 growth? I know that you mentioned, obviously, the fumed silica plant and then targeted customer actions, which most likely means price increases. And then on incremental cost measures, what other cost strings are you able to pull in order to hit that year-over-year implied 17% guidance?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [17]

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Yes. So the sequential path is driven by a few items you've touched on, but let me just try to frame it up perhaps a little bit more. So I think in Performance Chemicals, we expect increased volumes from the operation of the new plant in China as well as volumes from our fence-line partners that were weaker in Q3 and that weakness not repeating. So those 2 factors drive higher fumed silica volumes. And fumed silica tends to be the highest-margin product across the Performance Chemicals portfolio, so the mix gets better as a result.

We also have a number of targeted actions, both in terms of pricing as well as certain customer mix actions that we expect to contribute in the quarter. So there's a series of things there across Performance Chemicals. The second driver would be improvement in Purification Solutions in Q4 as they typically see some improvement from seasonality as well as incremental benefits from our transformation plan; and then, finally, reducing spending and continuing to drive productivity projects. So those 3 things.

If I give you a rough sense for that, I would say the first in the series of things across Performance Chemicals is probably in the $5 million to $6 million range. The improvement sequentially in purification is in the $2 million to $3 million range; and then on the cost actions, in the $4 million to $5 million range. So hopefully, that gives you a sense of the drivers and the magnitude and the level of controllability here. Given the uncertain environment that we're all facing, we're really focused on controllable measures as much as possible.

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Operator [18]

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Our next question comes from Chris Kapsch of Loop Capital Markets.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [19]

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Just a couple of follow-ups, I guess, focused on China. Sean, you mentioned slower virgin steel production, which I assume means a little bit less availability of coal tar. And so I don't know if that's causing any movement in the feedstock costs over there, but can you just talk about that juxtaposed against what's the pricing environment? I understand that since there's no real contracts over there, that the concept of differentials doesn't really apply to China. But just wondering if you're seeing the need to get pricing against the backdrop of higher costs. Or is that pretty well -- or are pricing and feedstock costs sort of matched right now?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [20]

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Yes. So in China, what we are seeing is that the feedstock costs have been somewhat volatile, but pricing tends to follow that. So less of a differential issue and more of -- I think what we need to see in China is more demand-side support. And with that, then pricing will improve and move back to levels that we had seen in the past and that we would consider more normal for the long term here. So as demand-side pressure begins to pick back up and you couple that with the feedstock market being imbalanced, we don't see -- once that demand situation improves, we don't see lots of excess feedstock so therefore pricing on the carbon black side should be -- should firm up.

So I think it's more of a demand issue in China, Chris, than, I think, it is a differentials issue.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [21]

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Okay. If -- and then if I could just follow up on the ramp of the new fumed silica plant there because I think you referenced your fence-line customers showing softer volumes in this fiscal third quarter. I'm assuming it's the same fence-line customer. I don't know if that's a good assumption. But just the confidence level that you're -- you'll see the volumes that you need to operate your plant at reasonable levels if that fence-line customer has weaker demand. And just what percent -- I'm assuming that silica goes back across the fence for elastomer application. What percentage of your capacity does that fence-line customer represent generally? And is it a take-or-pay arrangement in the new production?

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [22]

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Yes. So let me try to clarify a couple of things there. So first of all, the fence-line partner demand impact that I referenced in Q3 is not related to the China project, and so it's in our other fence-line network in the Western world. And so we feel pretty good that, that won't repeat.

On the China side, we brought the plant up on schedule and, late in the quarter, worked through commissioning and began the process of customer qualifications. This is all pretty typical stuff. And what we'll see is that this will ramp across the quarter. We feel quite good about the volume ramp-up here and have been building the commercial plans for this over the course of the past year.

In terms of the offtake of that to our fence-line partner versus what we sell in the open market, it's about half/half. And so we feel quite good about the offtake from the fence-line partner, and then the balance of it gets sold into our network, in open market customers in both China as well as, in certain cases, can be exported to other parts of the world or other parts of Asia. So we feel pretty good about that assumption, Chris, that's embedded in Q4.

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Operator [23]

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I'm showing no further questions at this time. I'd like to turn the conference back over to Sean Keohane for any closing remarks.

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Sean D. Keohane, Cabot Corporation - President, CEO & Director [24]

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Okay. Well, thanks, everyone, for joining today and for your continued support of Cabot, and look forward to speaking again with you next quarter. Thank you.

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Operator [25]

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Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.