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Cabot (CBT) Down 2.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Cabot (CBT - Free Report) . Shares have lost about 2.7% 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 catalysts.

Cabot’s Earnings and Revenues Surpass Estimates in Q3

Cabot recorded a profit of $86 million or $1.48 per share in the third quarter of fiscal 2021 (ended Jun 30, 2021) against a loss of $6 million or 12 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share were $1.35 in the reported quarter against a loss of 7 cents in the year-ago quarter. The bottom line topped the Zacks Consensus Estimate of $1.19.

Net sales climbed 77% year over year to $917 million in the quarter. The metric beat the Zacks Consensus Estimate of $843.6 million. The company witnessed strength in volumes across all its segments. Implementation of price increases to maintain strong margins was beneficial amid headwinds from raw material costs. Moreover, targeted growth initiatives have brought in higher sales, including new adoptions at leading battery customers.

Segment Highlights

Reinforcement Materials’ sales shot up 143.1% year over year to $479 million in the quarter. Earnings before interest and tax (EBIT) in the segment were $85 million against a loss of $5 million in the year-ago quarter. The upside was led by improved pricing in Asia and significantly higher volumes across all regions, which was offset by the pandemic-related shutdowns.

Sales in the Performance Chemicals unit went up 37.7% year over year to $303 million in the fiscal third quarter. EBIT increased 157.1% to $54 million largely due to increased volumes and an improved product mix, boosted by higher sales in automotive applications and target-growth initiatives.

Sales in Purification Solutions grew 9.5% year over year to $69 million in the quarter. EBIT in the segment was $6 million, tripling from the prior-year quarter on the back of higher volumes in specialty applications and the benefits from insurance proceeds related to a plant outage in the first quarter of fiscal 2021.

Financial Position

Cabot had cash and cash equivalents of $173 million at the end of the fiscal third quarter, up 6.8% from the prior-year quarter’s level. The company’s long-term debt fell 6.5% to $1,088 million.

Cash flow from operating activities was $71 million, sharply falling from $149 million in the prior-year quarter.

Outlook

Cabot stated that it expects continued demand strength across all its segments for the fiscal fourth quarter. The company has increased guidance for adjusted earnings per share for fiscal 2021 to $4.85-$5.05 from the prior expectation of $4.70-$4.95. However, it anticipates certain headwinds in the fiscal fourth quarter in the form of an elevated level of fixed costs compared to the third quarter due to the timing of maintenance activities, negative impacts arising due to plant outages and higher feedstock differentials. Factoring in all the aspects, Cabot believes that it is well-positioned for fiscal 2022.

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 -10.77% due to these changes.

VGM Scores

Currently, Cabot has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

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 #2 (Buy). We expect an above average return from the stock in the next few months.


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