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Why Is Cabot (CBT) Down 7.6% 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 lost about 7.6% 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 Beat, Revenues Miss Estimates in Q2

Cabot swung to a profit of $23 million or 39 cents per share in the second quarter of fiscal 2019 (ended Mar 31, 2019) from a loss of $173 million or $2.80 in the year-ago quarter.

Barring one-time items, adjusted earnings per share were 99 cents, down from $1.04 in the year-ago quarter. However, the results surpassed the Zacks Consensus Estimate of 98 cents.

Net sales rose around 3% year over year to $844 million in the quarter. It trailed the Zacks Consensus Estimate of $906 million.

The company faced a challenging environment in the quarter. It saw pricing weakness in China, sustained weakness in automotive demand and higher raw material costs. These were, in part, offset by improved results across its Purification Solutions and Specialty Fluids units.

Segment Highlights

Reinforcement Materials sales fell around 2% year over year to $445 million in the fiscal second quarter. EBIT in the segment was $61 million, down around 23% year over year. The results were hurt by reduced margins due to lower prices in China and higher raw material costs, partly offset by the favorable impact of the company’s 2019 tire customer agreements.

Sales in the Performance Chemicals unit declined around 5% year over year to $254 million in the quarter. EBIT tumbled 33% year over year to $38 million, due to lower volumes and a less favorable sales mix.

Sales in the Purification Solutions went up 9% year over year to $72 million in the quarter, while the same in the Specialty Fluids segment rose four-folds on a year-over-year basis to $24 million. The Purification Solutions unit gained from higher volumes and prices in specialty applications. Performance in the Specialty Fluids segment gained from a higher level of project activity on year-over-year basis.

Financial Position

Cabot had cash and cash equivalents of $176 million at the end of the quarter, down around 2% year over year. The company’s long-term debt went up around 6% year over year to $672 million.

Cash flows from operating activities were $90 million in the reported quarter. Capital expenditures were $43 million.

The company also returned $70 million through share repurchases and dividends to its shareholders during the quarter.

Outlook

Moving ahead, Cabot is seeing signs of improvement in the business environment, however at a slower pace than what it had originally expected. The company expects adjusted earnings in the range of $4.05-$4.30 per share for fiscal 2019, down from the previous projection of $4.20-$4.60. The company will remain focused on managing costs.

Cabot sees results in Reinforcement Materials and Performance Chemicals to improve sequentially in the fiscal third quarter driven by recovery in volume and margin. The company also expects the unfavorable impact from the timing of raw material flow-through not to repeat in the third quarter. Moreover, it envisions the improvement in Reinforcement Materials and Performance Chemicals to be mostly offset by the impact of the divestiture of the Specialty Fluids segment in the third 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 -21.4% due to these changes.

VGM Scores

At this time, Cabot has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. It's no surprise Cabot has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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