Why Is Cabot (CBT) Up 8.5% Since Last Earnings Report?

Zacks Equity Research
·4 min read

It has been about a month since the last earnings report for Cabot (CBT). Shares have added about 8.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Cabot Surpasses Earnings and Revenue Estimates in Q1

Cabot recorded a profit of $60 million or $1.06 per share in the first quarter of fiscal 2021 (ended Dec 31, 2020) compared with a profit of $41 million or 70 cents per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share were $1.18 in the reported quarter, up from 69 cents in the year-ago quarter. The figure topped the Zacks Consensus Estimate of 87 cents.

Net sales increased 2.6% year over year to $746 million in the quarter. It beat the Zacks Consensus Estimate of $691.6 million. The company saw strength in volumes and strong unit margins in the Reinforcement Materials segment.

Segment Highlights

Reinforcement Materials’ sales fell 1.1% year over year to $375 million in the reported quarter. Earnings before interest and tax (EBIT) in the segment were $88 million, up from $47 million in the year-ago quarter. The upside can be attributed to improved pricing and product mix in Asia and from Cabot’s calendar 2020 global customer agreements. Additionally, the segment witnessed lower costs and 1% higher volumes due to rise in demand in Europe and Americas.

Sales in the Performance Chemicals unit went up around 10.3% year over year to $267 million in the reported quarter. EBIT increased 31.7% year over year to $54 million mainly due to increased volumes and improved product mix in specialty carbons and compounds product lines, courtesy of higher sales in automotive applications.

Sales in Purification Solutions remained stable year over year at $59 million in the quarter. Loss for the segment was $2 million, same as prior year quarter. The decrease in fixed costs was offset by reduced mercury removal demand and increased costs owing to reduction of inventory levels.

Financial Position

Cabot had cash and cash equivalents of $147 million at the end of the fiscal first quarter, down around 15% year over year. The company’s long-term debt fell around 1% from the year-ago quarter’s figure to $1,085 million.

Cash flow from operating activities was $21 million for the quarter, down 80% year over year.

Outlook

Cabot stated that it expects near-term conditions to remain favorable while long term visibility is limited. It forecasts strength in demand in the second quarter with January levels higher than the prior year. It expects an increase in raw material and fixed costs sequentially and less customer inventory replenishment compared to the first quarter. On the basis of these factors, adjusted EPS is projected to be in the range of 90 cents to $1. The company expects that the pandemic resurgence or related factors will not have a significant disruption impact on the ongoing business environment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.81% due to these changes.

VGM Scores

Currently, Cabot has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cabot has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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