Why Cabot Shares Are Sliding Today

Cabot Corp CBT disclosed the impact of the current demand environment on its business segments.

Performance Chemicals segment: For April and May 2023, the company sees a sales volume decline of 13% vs. 2022 due to reductions across all product lines, except Battery Materials (on higher electric vehicle sales in China). 

For Q3 FY23, the company notes that sales volumes are improving Q/Q but at a slower-than-expected rate.

The company is witnessing weakness in China and soft global demand across several key end markets, such as construction and consumer applications. 

Consequently, CBT projects the segment EBIT to be only modestly higher Q/Q in Q3.

Reinforcement Materials segment: Sales volumes declined 8% in April and May 2023 vs. the same months of 2022 on decline across all regions, especially in the replacement tire market.

The company is experiencing a Q/Q increase in pricing and product mix and expects it to drive strong Y/Y growth in segment EBIT in Q3 and Q4 FY23.

Despite the expected strong adjusted EPS in H2 FY23 vs. H1, the company no longer expects FY23 adjusted EPS of $6.10-$6.50 for FY23.

Sean Keohane, President, and CEO said, "While the Performance Chemicals segment is facing some near-term headwinds, we expect the underlying end markets to grow over time to support the needs of various transportation, infrastructure and consumer applications. So while fiscal 2023 is proving to be more challenging than we expected due to the macro-economic weakness and a prolonged destocking cycle, I believe we will exit the year with fourth quarter financial results that set us up well for earnings growth and achievement of our 3-year target for adjusted earnings per share as outlined at our 2021 Investor Day."

Last month, CBT reported Q1 2023 revenues of $1.03 billion, missing the consensus of $1.11 billion, while adjusted EPS of $1.33 beat the consensus of $1.31. 

Price Action: CBT shares traded lower by 5.94% at $70.19 premarket on the last check Friday.