Reported Earnings Increased More Than 40% Compared To A Year Ago

BOSTON, July 23 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced results for its third fiscal quarter ended June 30, 2008.

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Highlights:

-- Significantly improved operating results: higher unit margins and seasonally strong volumes in Rubber Blacks and Performance Products; strong demand in emerging markets offset weaker volumes in the U.S. and Western Europe

-- Continued investments in emerging markets: Performance Segment announces a new masterbatch facility in Dubai and the signing of a joint venture agreement to build a second fumed silica facility in China

-- Achievements in new business development: letter of intent to commercialize Cabot Elastomer Composites (CEC), first shipments of cesium formate to Kazakhstan and new Aerogel shipments in construction sector

-- Active management of new business pipeline: closure of an under-performing project in Superior MicroPowders and reduction in inkjet manufacturing costs

    (In millions, except per share amounts)                Third Quarter
                                                           Ended June 30,
                                                       2008           2007
    Net sales                                          $ 840          $ 649
    Income from operations                                50             33
    Diluted earnings per share                        $ 0.43         $ 0.30
    Less: Certain items per share                      (0.09)         (0.04)
    Less: Discontinued operations per share                -          (0.01)
    Adjusted earnings per share                       $ 0.52         $ 0.35

Cabot Corporation reported third quarter 2008 net income of $27 million ($0.43 per diluted common share). Adjusted EPS was $0.52 per diluted common share, which excludes $6 million ($0.09 per diluted common share) of charges from certain items. This compares to third quarter 2007 net income of $20 million ($0.30 per diluted common share). Adjusted EPS was $0.35 per diluted common share, which excluded $3 million ($0.05 per diluted common share) of charges from certain items and discontinued operations. Details of the Company's financial results and certain items are provided in the accompanying tables.

Commenting on the results, Patrick Prevost, Cabot's President and CEO, stated, 'I am pleased with our performance this quarter. Our ability to improve margins and profitability is particularly notable given the volatile feedstock environment. Our geographic breadth and strong positions in emerging markets allowed us to maintain solid volumes despite weakening market conditions in the U.S. and Western Europe. We also made progress in our new business development efforts exemplified by the signing of a letter of intent with Michelin to commercialize our CEC technology, first shipments to Kazakhstan of cesium formate and new revenues for Aerogel. We will have to remain vigilant in light of the continued risks posed by raw material price volatility and a potential economic slowdown in developed economies.'

Segment Results

Core Segment

Rubber Blacks profitability increased compared to the third quarter of 2007 on strong unit margins ($15 million contribution) as price increases matched feedstock cost increases for most of the quarter. Volumes were stable (down 1%) with weaker demand in Western Europe and continued softness in North America offset by strong Asia Pacific volumes, particularly in China. Sequentially, profitability improved on strong unit margins ($13 million contribution) and increased overall volumes (up 2%). The time lag of feedstock related pricing adjustments in the Company's rubber blacks supply contracts and the immediate recognition of feedstock costs in North America due to the use of LIFO accounting had an unfavorable impact of $10 million versus $13 million in the third quarter of 2007 and $15 million in the second quarter of 2008.

Supermetals profitability declined compared to the third quarter of 2007 and sequentially, principally from lower volumes ($7 million and $9 million, respectively) due to softness in capacitor demand and a highly competitive market environment. The business continued to focus on cash, generating $18 million during the quarter, including a further reduction of inventory levels. Additionally, the business minimized purchases of raw materials and continued to assess additional fixed cost reductions.

Performance Segment

Profitability was flat compared to the third quarter of 2007 driven principally by an $8 million unfavorable LIFO impact associated with carbon black feedstock costs. Despite increasing feedstock costs, Performance Products increased unit margins both year over year and sequentially. Volumes remained strong, increasing 3% compared to the third quarter of 2007 and 2% sequentially, with strong growth in emerging regions. Fumed metal oxides was unfavorably impacted by increased raw material and energy costs. Overall demand remained solid. Volumes increased 2% compared to the third quarter of 2007 but declined 4% sequentially. Current quarter results were affected by a one time manufacturing disruption.

Specialty Fluids Segment

Performance met expectations during the third quarter. Profitability was down versus 2007 but remained in line with the second quarter's results. Shipments of cesium formate fluid to Kazakhstan commenced during the quarter as the business continues to diversify its geographic presence.

New Business Segment

Sales declined versus the third quarter of 2007 and were flat sequentially. Decreased volumes and an unfavorable product mix in inkjet colorants offset a continued recovery in the inkjet aftermarket sector, increased Aerogel revenues in construction and new business in the Superior MicroPowders security market. During the quarter, steps were taken to actively manage the portfolio of new business opportunities, which will improve performance immediately. These actions included workforce reductions and the elimination of under-performing projects. The associated costs for these actions are included in certain items outlined in the accompanying tables.

Cash Flow

Cabot's operations generated $40 million in cash during the third quarter of 2008, despite a continued increase in working capital from high carbon black feedstock costs. Capital expenditures were $54 million including spending on rubber blacks expansions in China and several energy centers. The Company repurchased 84,000 shares on the open market at a cost of $2.5 million.

Outlook

Commenting on the outlook for the remainder of fiscal 2008 and beyond, Prevost said, 'We remain solidly committed to our strategy and long term financial targets. Our Company is well positioned to meet our commitments to improve earnings and create shareholder value. We continue to aggressively manage the impact of increasing feedstock costs through price increases but we will continue to experience negative effects in the fourth fiscal quarter due to substantial hydrocarbon price increases in June and July. We are planning to eliminate most of the time lag in our rubber blacks supply contracts over the coming 18 to 24 months and have implemented monthly pricing adjustments where feasible. Demand remains solid across most of our businesses with our leading positions in emerging markets providing strong support. We are managing our new business efforts with renewed discipline, including taking concrete steps to work more closely with lead users and key partners and terminating under-performing projects where appropriate. Our commitment to high return investments in energy recovery projects and to attractive growth opportunities in emerging regions continues.'

Earnings Call

The Company will host a conference call with industry analysts to discuss its performance for the third quarter ended June 30, 2008. The call will be at 2:00 p.m. Eastern time on July 24, 2008 and can be accessed through Cabot's investor relations website at http://investor.cabot-corp.com.

Cabot Corporation, headquartered in Boston, Massachusetts, is a global performance materials company. Cabot's major products are carbon black, fumed silica, inkjet colorants, capacitor materials, and cesium formate drilling fluids. The Company's website is: http://www.cabot-corp.com.

Forward-Looking Statements

This earnings release contains forward-looking statements based on management's current expectations, estimates and projections. All statements that address expectations or projections about the future (including statements about the company's plans to manage the impact of changing raw material costs including plans to eliminate the time lag of feedstock related pricing adjustments in its rubber blacks supply contracts), strategy for growth, market position, and expected financial results are forward-looking statements. Some of the forward-looking statements may be identified by words like 'expects,' 'anticipates,' 'plans,' 'intends,' 'projects,' 'indicates,' and similar expressions. These statements are not guarantees of future performance and involve a number of risks, uncertainties and assumptions. Many factors, including those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Cabot, particularly its latest annual report on Form 10-K, could cause results to differ materially from those stated. These factors include, but are not limited to changes in raw material costs; costs associated with the research and development of new products, including regulatory approval and market acceptance; competitive pressures; successful integration of structural changes, including restructuring plans, and joint ventures; the laws, regulations, policies and economic conditions, including inflation, interest and foreign currency exchange rates, of countries in which the company does business; and severe weather events that cause business interruptions, including plant and power outages, or disruptions in supplier or customer operations.

Use of Non-GAAP Financial Measures

The preceding discussion of our results and the accompanying financial tables report adjusted EPS and also include information on our reportable segment sales and segment (or business) operating profit before taxes ('PBT'). Adjusted EPS and segment PBT are non-GAAP financial measures and are not intended to replace EPS and income (loss) from continuing operations before taxes, equity in net income of affiliated companies and minority interest, respectively, the most directly comparable GAAP financial measures. Both EPS and adjusted EPS are calculated on a diluted share basis. In calculating adjusted EPS and segment PBT, we exclude certain items, meaning items that are significant and unusual or infrequent and not believed to reflect the true underlying business performance, and, therefore, are not allocated to a segment's results or included in adjusted EPS. Further, in calculating segment PBT we include equity in net income of affiliated companies, royalties paid by equity affiliates, minority interest and allocated corporate costs but exclude interest expense, foreign currency translation gains and losses, interest income and dividend income. Our chief operating decision-maker uses adjusted EPS to evaluate the underlying earnings power of the Company. Segment PBT is used to evaluate changes in the operating results of each segment before non-operating factors and before certain items and to allocate resources to the segments.