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Text: Last night we released results for our fourth quarter of fiscal year 2020, copies of which are posted in the Investor Relations section of our website.
In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results.
Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP.
Erica McLaughlin will review the business segment and corporate financial details.
I want to begin by recognizing our employees around the world for their continued commitment to the Company, to our customers, and to their community.
Managing through this pandemic has challenged us on every front, and I have never been more proud of our team.
As we manage through this pandemic, we established a set of guiding principles here at Cabot to protect the house first and prepare ourselves to be ready to win as the recovery takes hold.
I believe our performance to date reflects that balance.
For the quarter, total segment EBIT was $84 million, and adjusted earnings per share was $0.68, up $0.75 on a sequential basis.
This result was driven principally by improved results in Reinforcement Materials, which recovered nicely as demand in our key end markets increased sharply as compared to the third quarter.
Performance Chemicals results also improved in the quarter, as automotive-related demand began a recovery and our self-help initiatives took hold.
In Purification Solutions, we took another step forward in our transformation plan with the sale of our mine and the structuring of a long-term supply agreement for activated carbon with ADES, which better positions us to serve the mercury removal market.
We continued our intense focus on cash generation, delivering $99 million in operating cash flow in the quarter and $248 million for the second half, well ahead of our previously communicated expectation of $200 million of operating cash flow in the back half of the year.
Erica will go into more detail on the segment results a bit later in the call.
I would first like to share my perspective on the full fiscal year 2020 results.
There is no doubt this fiscal 2020 was the year unlike any other we've experienced, as we battle the global public health crisis and the associated economic fallout.
The global pandemic severely affected demand from our key tire and automotive customers, especially in the third fiscal quarter and that impact was reflected in our full-year results.
On the performance front, we delivered adjusted earnings per share $2.08.
While this result was well below prior levels and the earnings potential of the Company, I am very pleased with how we managed through the crisis and I believe the strength of Cabot was revealed.
Our strong balance sheet and cash generation power and our experienced management team allowed us to navigate the pandemic, while remaining focused on our advancing the core strategy.
As you know, our strategy is built on three pillars: first, investing for growth in our core businesses; second, driving application innovation with our customers; and finally, generating strong cash flows through efficiency and optimization.
In the Reinforcement Materials segment, the team did a great job delivering necessary price increases in our calendar year 2020 customer agreements, implementing new commercial terms to manage feedstock volatility and delivering cost reductions to partially offset the pandemic-driven demand reduction.
In the Performance Chemicals segment, the team was focused on self-help measures and laying the groundwork to restore profitability to historical levels.
In the year, we successfully implemented price increases in specialty carbons to offset the impact of higher MARPOL-related feedstock costs.
The segment also executed on a number of strategic priorities during the year.
We closed on the acquisition of Shenzhen Sanshun Nano, a leading producer of carbon nanotubes and formulations for the high-growth lithium-ion battery market, and customer qualifications in inkjet packaging applications continue to build momentum.
In the Purification Solutions segment, we closed on the sale of our lignite mine in Marshall, Texas to ADES and entered into a long-term supply agreement for lignite-activated carbon.
This transaction improves our efficiency while also removing a significant hurdle to divestiture of the business.
While the earnings environment was challenging, we remain intensely focused on cash flow generation and balance sheet strength.
During the year, we delivered strong operating cash flow of $377 million and free cash flow of $177 million, largely through tight working capital management.
The strong cash flow generation allowed us to repay debt, maintain our dividend, fund the Sanshun acquisition along with our capex commitments and retain our investment-grade credit rating.
And finally, ESG leadership has been a focus of ours for a long time and it is becoming ever more important to our stakeholders.
We recently launched our updated 2025 sustainability goals, which build on our existing leadership position.
By expanding our goals beyond a strict environmental focus to include areas such as product development, supplier sustainability, diversity and inclusion and community involvement, we believe all stakeholders will participate in our success.
Overall, I'm extremely proud of our team, and I believe we are well positioned and ready to win as the recovery takes hold.
Now, turning to an update on the current business environment.
We see underlying trends in both tire and automotive demand strengthening with month-on-month improvement continuing through October and into November.
The economic recovery is unquestionably linked to stabilizing the public health crisis and this remains the key to bringing consumer confidence and the economy back to its full potential.
China is a good example of where COVID transmission has remained low and the economy is strengthening with GDP up 5% year-over-year in the September quarter.
Looking at our key end markets, the trend is positive.
Automotive production represents approximately 25% of our sales, ranging from tires on new cars to a host of applications in Performance Chemicals, such as structural adhesives, batteries, coatings and plastics.
External forecasting firms report light vehicle auto production down 3% year-over-year globally in the September 2020 quarter, as compared to a decline of 43% in the June quarter.
Current industry forecast calls for an 18% drop in global auto builds for the full year, including a small decrease of 3% for the December quarter.
Now, moving to tire production.
Global replacement tire industry sales are now expected to decline 12% for the full calendar year of 2020 based on estimates from LMC.
Light vehicle replacement tire sales improved in all regions in the September quarter, down only 6% year-over-year, compared to a decline of 31% in the June quarter.
As with auto production, the December quarter is expected to approach 2019 levels with total replacement tire sales projected to be down 2% year-over-year according to LMC.
Building on the V-shaped recovery in the September quarter, we continue to see consistent improvement in terms of mobility and miles driven, and this bodes well for the replacement demand of tires, both in terms of passenger vehicles, as well as truck and bus.
As a reminder, the replacement tire market has historically been more resilient compared to other parts of the broader transportation sector.
I will start with discussing results in the Reinforcement Materials segment.
Given the global economic environment, the Reinforcement Materials segment delivered strong operating results with EBIT down $12 million, compared to the same quarter in fiscal 2019, but up $64 million sequentially, driven by improved global tire and automotive demand as compared to our third fiscal quarter.
The decrease in EBIT from the prior year was primarily due to lower volumes, partially offset by higher margins.
Globally, volumes declined by a 11% in the fourth quarter, as compared to the same period of the prior year, largely due to the impact of COVID and demand in Europe, the Americas, Japan and Southeast Asia.
Higher margins were driven by improved China pricing and higher pricing outside of China in our calendar year 2020 tire customer contracts.
Looking ahead to the first quarter of 2021, we expect an increase in EBIT due to our expectation for expanded unit margins.
This is driven by a continued sequential improvement from pricing in Asia as the market continues to recover.
Volumes are expected to remain in line with fourth quarter levels, as strength from the recovery offsets normal seasonal patterns.
Now, turning to Performance Chemicals.
EBIT increased by $4 million, as compared to the third fiscal quarter, driven by higher demand in automotive-related applications.
EBIT decreased by $16 million year-over-year, primarily due to 9% lower volumes in our Formulated Solutions business from the impact of COVID-19, a more competitive pricing environment in our fumed metal oxides product line, and a weaker product mix in our specialty carbons and fumed metal products -- metal oxides product lines from lower demand in automotive applications.
In the fourth quarter, volumes increased 2% year-over-year in Performance Additives, driven by increased volumes related to our recent energy materials acquisition.
Sequentially, Performance Additives volumes increased 3% and Formulated Solutions volumes increased by 1%, while we are pleased to see the sequential improvement in volumes, segment volumes continue to be impacted by the pandemic, particularly in demand for automotive and construction applications.
While the infrastructure end market, including wire and cable and pipe applications continue to hold up well in all regions.
Looking ahead to the first quarter of fiscal 2021, we expect a material sequential step up in EBIT, driven by higher volumes across the major product lines as our key end markets continue to recover and as we leverage the recovery in the automotive end market to drive product mix improvement in specialty carbons and compounds.
We also expect to see a price improvement as the segment benefits from actions to restore pricing in our fumed metal oxides business and as we execute higher prices in specialty carbons to offset rising environmental costs.
Moving to Purification Solutions, EBIT in the fourth quarter of 2020 decreased by $3 million, compared to the fourth quarter of last year.
The decrease was driven by lower volumes in the mercury removal applications and the unfavorable impact from reducing inventory levels to drive improved cash flow results.
Looking ahead to the first quarter, we expect to see a sequential volume decline driven by lower seasonal volumes in water and mercury removal applications and higher fixed costs due to a maintenance outage at one of our plants.
This is expected to be partially offset by lower depreciation and fixed costs due to the recently announced supply agreement and mine sale.
I will now turn to corporate items.
We ended the quarter with a cash balance of $151 million and our liquidity position remains strong at $1.4 billion.
During the fourth quarter of fiscal 2020, cash flow from operating activities were $99 million, including a decrease in net working capital of $7 million.
Capital expenditures for the fourth quarter of fiscal 2020 were $38 million, an additional uses of cash during the fourth quarter included $20 million for dividends.
During fiscal 2020 we generated $377 million of cash flow from operations, including a decrease in working capital of $185 million.
Capital expenditures for fiscal year 2020 were $200 million, which included both our targeted growth investments and the spend related to the North American EPA compliance.
Additional uses of cash during the fiscal year included $80 million for dividends and $44 million for share repurchases.
During the fourth quarter, the operating tax rate for fiscal year 2020 was 28% and we anticipate our operating tax rate for fiscal '21 to be in the range of 28% to 30%.
We expect capital expenditures to be between $175 million and $200 million in 2021 and this estimate includes continued EPA-related compliance spend and capital related to upgrading our new China carbon black plant to produce specialty products.
As we look ahead to 2021 I expect that it will be another dynamic year and we'll have to manage any future impacts from the pandemic in much the same way as we did in 2020.
Notwithstanding the challenges of COVID-19, we remain focused on executing our strategy and I would like to share with you our priorities for the upcoming year.
First, we will stay close with our customers to support their evolving needs and continue to differentiate Cabot through our product quality, service reliability and commitment to sustainability.
Second, we will continue to execute on our strategic growth initiatives, particularly energy materials, E2C and inkjet for packaging.
We are excited about the growth potential of these businesses and we have sustained our investment throughout this downturn so that we can capitalize on their full potential in the coming years.
Third, we'll continue to drive efficiency and optimization across our operation.
During fiscal year '20, we established a global business services organization to increase the efficiency and effectiveness of those processes that power our way of doing business.
We will further leverage this investment through the deployment of digital tools to simplify and automate our ways of working and I'm excited about the potential here to complement our strategic growth efforts.
Fourth, the role of bolt-on M&A in our existing businesses remains an important part of our growth story.
Over the past few years, we have made very important strategic acquisitions in our core spaces, including extending our geographic presence in our specialty compounds business through acquisitions in Canada and Southeast Asia, and by expanding our product offering in energy materials to include CNTs through our acquisition of Sanshun.
We will continue to look for opportunities to build out our pipeline and execute on opportunities of these types.
Finally, in an uncertain and dynamic environment, it will be critical that we keep tight control of costs and working capital in 2021.
We feel good about the momentum into fiscal year '21, but we must remain vigilant on cost and working capital.
I hope this gives you some color on our 2021 priorities and how they will help Cabot to extend our leadership position.
I will close out my prepared comments today by talking about our outlook as we start fiscal year '21.
Clearly, we are pleased with the momentum coming out of the fourth quarter of 2020 and we feel very good about how the first quarter is shaping up.
As Erica discussed, we expect a material step up in the Performance Chemicals segment and further strengthening in Reinforcement Materials, where performance is being driven by strong Asian spot pricing, the feedstock costs rise there and volume strength driven by stronger underlying demand and some level of inventory replenishments.
Based on this, we expect adjusted earnings per share in the first quarter to be in the range of $0.80 to $0.90.
On the cash side, we anticipate that operating cash flow will be strong as year-over-year earnings levels improve in fiscal '21, even though absolute net working capital levels will increase aligned with higher volumes.
Looking to the full-year of fiscal '21, there is still uncertainty related to the COVID-19 pandemic that impacts our longer-term visibility.
Our results will be influenced by the sustainability of the economic recovery, the outcome of our tire customer agreements, the pace of costs returning to the business to support the recovery and how we manage pricing in this dynamic environment.
As the year unfolds, we will be managing these factors carefully to match the dynamic environment.
Overall, I feel very good about the way the team has performed and the progress we have made in this unprecedented environment.
I'm optimistic about the first quarter and remain confident that the team will respond to any challenges we may face throughout the year.
The long-term fundamentals of our businesses are robust, our market positions in global presence is unmatched, and our balance sheet and liquidity provide strength and flexibility.
I am confident in our growth opportunities ahead and our ability to deliver on our strategic objectives.

user
compname reports q4 adjusted earnings per share $0.68.
compname reports fourth quarter diluted loss per share of ($4.81) and adjusted earnings per share of $0.68.
q4 adjusted earnings per share $0.68.
sees q1 adjusted earnings per share $0.80 to $0.90.
encouraged by pace of recovery in automotive and tire markets.
expect both yoy and sequential ebit improvement in q1.
not providing fiscal 2021 full-year earnings guidance at this time.

assistant