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Why Is Cabot (CBT) Up 15.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Cabot (CBT - Free Report) . Shares have added about 15.8% 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 Beats on Q1 Earnings & Sales, Raises FY22 Guidance

Cabot incurred a loss of $89 million or $1.57 per share loss in the first quarter of fiscal 2022 (ended Dec 31, 2021) against a profit of $60 million or $1.06 per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) were $1.29 in the reported quarter, up from $1.18 in the year-ago quarter. The figure topped the Zacks Consensus Estimate of $1.06.

Net sales increased around 30% year over year to $968 million. The metric also surpassed the Zacks Consensus Estimate of $815.2 million.

Segment Highlights

Reinforcement Materials’ sales increased 44.3% year over year to $541 million in the reported quarter. Earnings before interest and tax (EBIT) in the segment were $85 million, down 3.4%. The decrease in EBIT was led by higher costs associated with utilities and maintenance.

Sales in the Performance Chemicals unit went up around 13.1% year over year to $302 million in the quarter. EBIT decreased 3.7% to $52 million, primarily due to lower volumes across both Performance Additives and Formulated Solutions brought about by plant downtimes in the company’s fumed metal oxides and specialty compounds product lines.

Sales in Purification Solutions increased 3.4% year over year to $61 million in the quarter. The EBIT in the segment increased $2 million in the reported quarter. The increase largely stemmed from lower fixed costs. During the first quarter of fiscal 2022, an agreement was reached to divest the business. The transaction is expected to close in the second quarter of fiscal 2022.

Financial Position

Cabot had cash and cash equivalents of $179 million, up 21.8% from the prior year’s level. The company’s long-term debt fell 34.2% to $714 million from $1,085 million.

Cash used from operating activities was $49 million in the quarter compared with cash flow of $21 million in the prior-year quarter.

Outlook

Cabot expects continued strong end-market demand and benefits from growth investments. Looking ahead to the balance of 2022, Reinforcement Materials is expected to benefit from the customer agreements in the year. Growth in demand is anticipated for the Performance Chemicals segment, along with strength in battery materials and inkjet packaging. The company is on track with its long-term guidance to generate more than $1 billion during the next three years and expects a strong free cash flow to fund high-growth investments. It is also committed to returning capital to shareholders through dividends and share repurchases. Based on the positive outlook and strong fiscal first-quarter performance, it has raised its adjusted earnings per share outlook for fiscal 2022 to the range of $5.50-$5.90 from the previous view of $5.20-$5.60.

For the second quarter of fiscal 2022, it also expects demand improvement across all its key product lines and a boost in profitability.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Cabot has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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