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Why Is Cabot (CBT) Up 0.5% 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 0.5% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

Cabot Earnings and Revenues Trump Estimates in Q3

Cabot recorded net profit of $88 million or $1.40 per share in the third quarter of fiscal 2018 (ended Jun 30, 2018) compared with net profit of $47 million or 73 cents a year ago.

Barring one-time items, adjusted earnings per share in the reported quarter were $1.06 (up from 83 cents a year ago), which surpassed the Zacks Consensus Estimate of $1.03.

Net sales increased around 21.1% year over year to $854 million in the quarter. The figure also outpaced the Zacks Consensus Estimate of $831 million.

Segment Highlights

Reinforcement Materials sales increased 26.9% year over year to $466 million in the fiscal third quarter while EBIT for the segment jumped 45% mainly on strong volume growth and expansion of unit margins in Asia along with improved pricing and product mix from customer agreements.

Sales at Performance Chemicals rose almost 19.6% year over year to $274 million in the quarter and EBIT increased 21.7% mainly on pricing and volume growth on strong commercial execution.

Sales at Purification Solutions edged down to $70 million from $71 million in the year-ago quarter. Lower volumes and margins due to continuing competition in mercury removal applications, partly offset by lower fixed cost, affected profitability of the segment.

Sales at the Specialty Fluids segment were flat year over year at $12 million. However, EBIT at the segment declined 25% year over year due to mix of business compared to the prior year.

Financial Position

Cabot ended the fiscal third quarter with cash and cash equivalents of $131 million, down from $198 million a year ago.

The company’s long-term debt contracted 5.2% year over year to $630 million as of Jun 30, 2018.

Cash provided by operating activities was around $62 million in the reported quarter.

Outlook

Cabot expects the Reinforcement Materials segment to continue performing strongly in the fourth quarter on the back of solid operational and commercial execution. For the Performance Chemicals segment, it expects to maintain margins while driving volume growth in specialty Carbons and Formulations. However, volumes and fixed cost in Metal Oxide may be impacted by turnarounds of two fumed silica feedstock provider.  

The company expects competitive pressure to impact results at the Purification Solutions segment. However, it anticipates higher seasonal volumes in the fourth quarter. For the Specialty Fluids segment, it expects continued ramp up of drilling activity on recent projects to boost results in the fourth quarter.  

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Cabot has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cabot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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