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Why Is Cabot (CBT) Up 7.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Cabot (CBT - Free Report) . Shares have added about 7.8% 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 catalysts.

Cabot's Q1 Earnings Miss, Sales Surpass Estimates 

Cabot recorded net profit of $69 million or $1.14 per share in the first quarter of fiscal 2019 (ended Dec 31, 2018), against a net loss of $122 million or $1.98 in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) were 87 cents, up from 93 cents in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of 90 cents.

Net sales increased around 14% year over year to $821 million in the quarter. The figure outpaced the consensus mark of $778.4 million.

According to Cabot, performance in the Reinforcement Materials and Performance Chemicals units were affected by weaker environment in China along with softer automotive demand and customer inventory destocking. Notably, the company has reached an agreement to divest the Specialty Fluids unit for $135 million.

Segment Highlights

Reinforcement Materials sales increased 18.1% year over year to $457 million in the fiscal first quarter. EBIT in the segment was $62 million, flat year over year. The benefit from improved pricing and product mix as well as higher volumes was offset by the negative impact of lower margins in China. Margins were affected by lower pricing from weak automotive demand along with a decline of feedstock costs and high inventory levels.

Sales in the Performance Chemicals inched up around 0.9% year over year to $231 million in the quarter. EBIT declined 23.4% year over year to $36 million, due to lower volumes and higher costs associated with growth investments.

Sales in the Purification Solutions went down 7.1% year over year to $65 million in the quarter, while the same in the Specialty Fluids segment rose more than three-folds on a year-over-year basis to $19 million. Performance in the Specialty Fluids segment gained from a higher level of project activity on year-over-year basis.

Financial Position

As of Dec 31, Cabot had cash and cash equivalents of $142 million, down from $189 million a year ago. The company’s long-term debt expanded 6.3% year over year to $671 million.

Cash used by operating activities was around $39 million in the reported quarter.

Outlook

Cabot provided an update on adjusted EPS view for fiscal 2019, considering a challenging first half. It now expects adjusted EPS in the range of $4.20-$4.60, down from the previous projection of $4.35-$4.75.

The company expects the impact on automotive production from new emissions regulations in Europe and customer destocking to have sequentially lower impact in the second quarter of fiscal 2019.

Moreover, it expects Reinforcement Materials division to gain from the calendar year 2019 customer agreements. However, the unit faces headwinds like challenging environment in China and lower oil prices in the fiscal second quarter.

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 -18.65% due to these changes.

VGM Scores

Currently, Cabot has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 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. 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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