By Liz White, ERJ staff
Boston, Massachusetts-Cabot Corp.'s chairman and ceo Kennett Burnes said the group was "not pleased with our results for the quarter, as we underperformed our own expectations by roughly 20 cents per share."
The Cabot chief pointed out that the "shortfall was attributable to significantly higher feedstock costs in carbon black," plus costs related to an ongoing labour situation at Cabot's Supermetals facility in Pennsylvania.
And he commented that Cabot needs to be able to follow feedstock costs better and look at ways of restructuring its price-adjustment mechanisms for carbon black, to reflect any changes.
Burnes was speaking as Cabot announced net income of $26 million for the third quarter of fiscal 2005 ended 30 June, compared with $42 million for the same quarter year ago. He point out that Cabot "had strong volumes in the quarter, and continues to have confidence in the underlying strength of our core businesses and remain excited about the growth potential in our new businesses."
Cabot's Chemicals Business reported operating profits of $30 million compared to $45 million for the same period in fiscal 2004, while its carbon black business reported a decrease of $13 million in operating profits compared to the third quarter of fiscal 2004-and a $16 million decrease compared to the second quarter of fiscal 2005.
Much of the impact on carbon black during the quarter was related to higher feedstock costs," Cabot stressed. The carbon black supplier went on to explain that, in earlier periods, "carbon black feedstock costs have not risen at the same rate as increases in crude oil prices."
This quarter, however, the reverse happened: carbon black feedstock costs rose significantly, "while crude prices were relatively flat, Cabot said. This had the effect of cutting $15 million off the profitability of the carbon black business compared to the second quarter of fiscal 2005 and $28 million compared to the third quarter of fiscal 2004.
"In the approximately ten-year period that we have had carbon black supply contracts with this type of price adjuster in place, this is the first quarter in which fluctuations in feedstock costs have had such a significant impact on our profitability." Burnes stressed.
â€¦ We were surprised by the magnitude of the negative impact this quarter and will be looking at ways we might restructure the price-adjustment formulas in these contracts to better reflect the current cost of feedstock in our pricing. Under the contracts feedstock cost increases were passed through to our customers as of the beginning of the current quarter," Burnes continued.
"We need to do a better job of following feedstock costs during the quarter which will enable us to communicate any significant trends when we have a public opportunity. Despite the foregoing, carbon black had very strong volumes during the quarter and we remain confident in the underlying strength of the business."