Cabot (CBT) To Report Q2 Earnings: What's In The Cards?

Cabot Corporation (NYSE:CBT) is set to release second-quarter fiscal 2018 results after the market closes on May 7.

In the last reported quarter, the company incurred net loss of $122 million or $1.98 per share against a net profit of $55 million or 86 cents recorded a year ago. However, adjusted earnings of 93 cents per share beat the Zacks Consensus Estimate of 78 cents.

Net sales increased around 17.8% year over year to $720 million in the quarter, also outpacing the Zacks Consensus Estimate of $644 million.

Cabot beat the Zacks Consensus Estimate in two of the trailing four quarters while missed in the other two, with an average positive surprise of 3.7%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Cabot, during its first-quarter fiscal 2018 earnings call, stated that it expects the Reinforcement Materials segment to benefit in the fiscal second quarter from customer agreements along with a firm spot market in Europe and Asia. Also, continued momentum in the specialty applications is expected to benefit the Purification Solutions segment while competitive ECS pricing prevails.

Moreover, the Performance Chemicals segment is expected to witness an improvement on a sequential basis owing to higher seasonal volumes and the favorable impact from price increases. However, the company also noted that the segment’s margin is likely to be adversely impacted by higher feedstock costs in specialty carbons and increased costs to support growth investments.

Consolidated revenues for Cabot for the fiscal second quarter is projected to rise 3.3% sequentially and 9.7% year over year, as the Zacks Consensus Estimate for the quarter is currently pegged at $744 million.

Reinforcement Materials unit demonstrated a healthy performance in the fiscal first quarter as sales jumped more than 31% year over year to $387 million. Profitability of the segment also improved owing to enhanced product mix and volumes relative to the last calendar year customer agreements, higher unit margins and improved pricing environment in China. The company expects the segment to benefit, in the fiscal second quarter, from the 2018 customer agreements and a favorable spot pricing environment, partly offset by seasonal weakness in volume in China and higher fixed costs.

Sales for the Performance Chemicals rose almost 11.7% year over year to $229 million in the fiscal first quarter while profitability declined mainly due to higher feedstock costs and higher fixed costs for plant maintenance. The company expects the segment to witness a pickup in volumes in the fiscal second quarter that will be partly offset by higher fixed costs.

Profitability for the Purification Solutions unit increased in the last reported quarter on benefits of a favorable product mix and receipt of royalty payments. In the fiscal second quarter, higher volumes from specialty applications are expected to be offset by an increasingly competitive MATS pricing environment and lower MATS volumes, per the company.

In the last reported quarter, the Specialty Fluids unit witnessed lower profits due to a lower level of project activity. The company expects a similar level of project activity in the to-be-reported quarter, but an uptick in project activity may be expected in the second half of 2018.

Cabot’s shares have lost 11.7% over the past three months, underperforming the industry’s 3.7% decline.

Earnings Whispers

Our proven model does not conclusively show that Cabot is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Cabot for the fiscal second quarter is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.00. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cabot currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Koppers Holdings Inc. (NYSE:KOP) has an Earnings ESP of +5.00% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Univar Inc. (NYSE:UNVR) has an Earnings ESP of +2.63% and holds a Zacks Rank #2.

DowDuPont Inc. (NYSE:DWDP) has an Earnings ESP of +2.91% and carries a Zacks Rank #3.

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