Cabot Corporation's CEO Discusses F1Q12 Results - Earnings Call Transcript
Cabot Corporation (
)
F1Q12 Earnings Call
February 2, 2012 2:00 PM ET
Executives
Susannah Robinson – IR
Patrick Prevost – President and CEO
Eduardo Cordeiro – EVP and CFO
Brian Berube – VP and General Counsel
James Kelly – VP and Controller
Analysts
Saul Ludwig – Northcoast Research
Ivan Marcuse – KeyBanc Capital
Jeff Zekauskas – JPMorgan
Christopher Butler – Sidoti and Company
John Roberts – Buckingham Research
David Begleiter – Deutsche Bank
Lucy Watson – Jefferies
Presentation
Operator
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Good day, ladies and gentlemen and welcome to the first quarter 2012 Cabot earnings conference call. My name is Jeremy and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)
I would now like to turn the conference over to your host for today Ms. Susannah Robinson with Investor Relations. Please proceed, ma’am.
Susannah Robinson
Thanks, Jeremy. Good Afternoon. I would like to welcome you to the Cabot Corporation earnings teleconference. Here this afternoon are, Patrick Prevost, Cabot’s President and CEO; Eddie Cordeiro, Cabot’s Chief Financial Officer; Sean Keohane, General Manager of the Performance Segment; Fred von Gottberg, General Manager of the New Business Segment; Jim Kelly, Corporate Controller; and Brian Berube, General Counsel.
Last night, we released results for our first quarter of fiscal year 2012, copies of which are posted in the Investor Relations section of our website. For those on our mailing list, you received a press release either by e-mail or fax. If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations. The slide deck that accompanies this call is also available in the Investor Relations portion of our website, and will be available in conjunction with the replay of the call.
I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot’s actual results may differ materially from those expressed in the forward-looking statements. A list of factors that could affect Cabot’s actual results can be found in the press release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly our last Annual Report on Form 10-K. These filings can be found in the Investor Relations portion of our website.
I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the company’s performance for the quarter. Eddie Cordeiro will review the business segment and corporate financial details. And following this, Patrick will provide closing comments and open the floor to questions. Patrick?
Patrick Prevost
Thank you, Susannah and good afternoon, ladies and gentlemen. For the first quarter of 2012, despite a difficult global economic environment, our results benefited from the successful execution of our long-term strategy. We increased our margins through focused actions to improve the pricing and product mix of our businesses and by continuing to improve the efficiencies of our operations.
These efforts translated into a 9% increase in segment earnings year over year. Our commercial strategy focuses on innovation and value. We’re working very closely with our customers to develop new products or improve on the existing ones, to enable increased performance of their products. Enabling differentiation and making our customer successful is our aim. Beyond that, we see ourselves as leaders in the businesses we run. Here, our aim is to create value everyday by driving continual improvement in quality, service and reliability.
In the first quarter, we completed most of our contract negotiations for the next calendar year and are pleased with the results achieved. These agreements will yield higher margins and will start to impact results in our second fiscal quarter.
In the first quarter, we experienced some volume softness in the Core and Performance segment due to economic uncertainty, some seasonality effects and customer inventory destocking. Although, we do not know precisely how much of the volume decline was related to destocking, we’re already seeing a rebound in orders in January particularly in the Performance segment. This gives us some assurance that volumes will strengthen in the coming month.
From an economic point of view, the most challenging region of the world remains Europe, while we see improvements in the economy in North America. The most recent Purchasing Managers manufacturing index shows improvements in many countries around the world. And as a reminder, we have approximately 50% of our revenue in emerging markets and this gives us confidence that we should see business growth during the course of this year.
On the cost side, we benefited sequentially from lower maintenance spending and the impact of higher inventory levels. As mentioned during last quarter’s call, we planned important maintenance projects in the fourth fiscal quarter that did not reoccur this quarter. The majority of our finished product inventory built in the first quarter was planned in anticipation of some manufacturing downtime during the second quarter. For example, we will curtail our Colombian manufacturing operations for up to five weeks due to a significant maintenance shutdown at our neighboring feedstock supplier.
We’re also making additional strides in our efforts to improve our operating efficiencies. We manage multiple projects to improve energy usage and yield. We’ve been successful in improving our feedstock purchasing both in terms of price and product mix.
Finally, this quarter we announced the closure of our Honk Kong masterbatch operation and its consolidation into a more efficient facility in Tianjin, China. Once completed, we estimate the annual savings to be approximately $5 million per year. This marks the final move in a three-year strategic repositioning of the masterbatch business. We have migrated from smaller, less efficient assets to larger more cost effective and strategically placed assets and those are in China now and in the Middle East.
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