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Cabot (CBT) Up 12.6% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Cabot Corporation (CBT - Free Report) . Shares have added about 12.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CBT 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's Earnings & Revenues Surpass Estimates in Q2

Cabot incurred net loss of $173 million or $2.80 per share in the second quarter of fiscal 2018 (ended Mar 31, 2018) against net profit of $74 million or $1.19 a year ago.

Barring one-time items, adjusted earnings for the reported quarter were $1.04 per share (up from 88 cents a year ago), which surpassed the Zacks Consensus Estimate of $1.00.

Net sales increased around 20.6% year over year to $818 million in the quarter. The figure also outpaced the Zacks Consensus Estimate of $744.2 million.

Segment Highlights

Reinforcement Materials sales increased 29% year over year to $454 million in the fiscal second quarter while EBIT for the segment jumped 46%, mainly driven by improved pricing and product mix from calendar year 2018 customer agreements and higher prices in Asia.

Sales for the Performance Chemicals rose almost 17.5% year over year to $268 million in the quarter and EBIT also increased 12% mainly due to favorable product mix and higher unit margins achieved by price increases that more than offset raw materials cost inflation.

Sales from the Purification Solutions edged down to $66 million from $67 million in the year-ago quarter. Lower volumes and margins from increased competition and lower demand in mercury removal applications affected profitability of the segment.

Sales of the Specialty Fluids segment decreased to $6 million from $7 million while profitability of the unit was impacted mainly due to lower project activity.

Financial Position

Cabot ended the fiscal second quarter with cash and cash equivalents of $179 million, up from $133 million a year ago.

The company’s long-term debt was down 5.2% year over year to $631 million as of Mar 31, 2018.

Cash provided by operating activities were around $36 million in the reported quarter.

Outlook

Going forward, Cabot expects the Reinforcement Materials segment to continue strong performance for the remainder of the year on the back of strong execution in a favorable market. For the Performance Chemicals segment, it expects to maintain margins while driving volume growth.

The company sees ongoing competitive pressures to impact results in the Purification Solutions unit amid lower variable costs and higher seasonal volumes in the second half of the year. For the Specialty Fluids segment, it expects the startup of drilling activity on previously awarded projects, which is likely to drive results in the balance of the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower.

Cabot Corporation Price and Consensus

 

Cabot Corporation Price and Consensus | Cabot Corporation Quote

VGM Scores

At this time, CBT has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of A on the value side, putting it in the top 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.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, CBT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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