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Why Is Cabot (CBT) Down 0.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Cabot (CBT). Shares have lost about 0.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cabot due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cabot's Q3 Earnings In Line, Revenues Miss Estimates

Cabot posted profit of $32 million or 55 cents per share in the third quarter of fiscal 2019 (ended Jun 30, 2019), down from $88 million or $1.40 in the year-ago quarter.

Barring one-time items, adjusted earnings per share were $1.00, down from $1.06 in the year-ago quarter. Earnings per share matched the Zacks Consensus Estimate.

Net sales fell around 1% year over year to $845 million in the quarter. It trailed the Zacks Consensus Estimate of $864.6 million.

The company faced a challenging environment in the quarter, hurting results across its Reinforcement Materials and Performance Chemicals divisions. It saw a weak business environment in China and sustained weakness in automotive production. These were, in part, offset by the positive impact of 2019 tire customer agreements and improved results in the company’s Purification Solutions unit.

Segment Highlights

Reinforcement Materials sales fell around 1% year over year to $461 million in the fiscal third quarter. EBIT in the segment was $72 million, down around 3% year over year. The results were hurt by reduced margins in China and lower volumes due to weak automotive production, partly offset by the favorable impact of the company’s tire customer agreements.

Sales in the Performance Chemicals unit dropped around 8% year over year to $251 million in the quarter. EBIT tumbled 34% year over year to $37 million, due to lower volumes and a less favorable product mix.

Sales in the Purification Solutions went up 4% year over year to $73 million in the quarter. The unit gained from higher volumes and prices in specialty applications.

The Specialty Fluids segment’s sales rose roughly 8% year-over-year to $13 million.

Financial Position

Cabot had cash and cash equivalents of $147 million at the end of the quarter, up around 12% year over year. The company’s long-term debt went up around 61% year over year to $1,017 million.

Cash flows from operating activities were $115 million in the reported quarter. Capital expenditures were $58 million.

Outlook

Cabot now envisions adjusted earnings per share for fiscal 2019 to be comparable to fiscal 2018. The guidance reflects a strong fourth quarter based on the startup of the company’s new fumed silica facility as well as targeted customer and incremental cost actions. The company will continue to manage its capital spending and reduce working capital levels amid the challenging business environment. It also remains focused on generating strong cash flows.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.44% due to these changes.

VGM Scores

At this time, Cabot has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cabot has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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