Executive Summary / Key Takeaways

• Resilient Core Business with Strategic Diversification: Cabot Corporation (CBT) demonstrates robust operational excellence in its core Reinforcement Materials and Performance Chemicals segments, consistently generating strong cash flow even amidst challenging macroeconomic conditions. Its "Creating for Tomorrow" strategy, focused on growth, innovation, and optimization, leverages a balanced global footprint and differentiated technology to mitigate regional volatility.
• Technological Edge Driving High-Growth Markets: CBT's specialized conductive carbons, fumed silica, and carbon nanotubes are critical enablers for high-growth sectors like electric vehicles (EVs), energy storage systems (ESS), and global infrastructure. Strategic investments, including a $50 million DOE grant for a U.S. battery materials plant and new product launches like LITX® 95F, position the company for significant long-term earnings growth in these areas.
• Disciplined Capital Allocation and Shareholder Returns: The company maintains a strong investment-grade balance sheet with a net debt-to-EBITDA of 1.3x. Management's balanced capital allocation prioritizes high-confidence growth projects, a competitive and growing dividend (5% increase in Q2 2025), and active share repurchases ($150-$200 million planned for FY2025), reinforcing its commitment to shareholder value.
• Navigating Macroeconomic and Tariff Uncertainties: Despite a challenging demand environment and tariff-induced customer caution, CBT reaffirmed its FY2025 adjusted EPS guidance of $7.15-$7.50. Proactive countermeasures, including $30 million in fixed cost and procurement savings, network optimization, and strategic acquisitions like the Mexico carbon black plant, are crucial for offsetting volume headwinds.
• Competitive Moats and Future Outlook: CBT's proprietary technology, strong brand, and global "make and sell in-region" model provide significant competitive advantages against both specialized and large-scale rivals. While near-term market volatility persists, the company's strategic alignment with secular growth trends and operational agility suggest a favorable long-term outlook, particularly as battery production bifurcates and infrastructure investments accelerate.

A Specialty Chemical Powerhouse Adapting to a Dynamic World

Cabot Corporation, founded in 1882, stands as a venerable leader in specialty chemicals and performance materials. The company’s enduring presence, marked by a continuous and growing dividend since 1968, speaks to a foundational resilience built over more than a century. Today, Cabot operates through two primary segments: Reinforcement Materials and Performance Chemicals, serving diverse global industries from automotive and infrastructure to electronics and alternative energy.

The company's overarching strategy, "Creating for Tomorrow," launched at its 2021 Investor Day, is built on the pillars of "grow, innovate, and optimize." This framework leverages Cabot's global footprint, operational excellence, and differentiated technology to drive consistent earnings and cash flow growth. This strategy has already delivered tangible results, with Cabot achieving a 12% adjusted EPS CAGR over the 2022-2024 period, hitting the top end of its target range, and generating over $1.2 billion in cumulative discretionary free cash flow, exceeding its initial goal.

Cabot's market positioning is bolstered by its "make and sell in-region" model, which largely insulates it from direct tariff impacts. This balanced geographic footprint, with assets and sales distributed across the Americas, EMEA, and Asia Pacific, is more critical than ever in the current global trade environment. The company's products, such as reinforcing carbons for tires and conductive additives for batteries, are integral to modern industrial processes, aligning with three powerful macro trends: the changing mobility landscape towards electric vehicles, the global buildout of infrastructure, and the accelerating sustainability transition.

Technological Edge: The Core of Cabot's Competitive Moat

Cabot's competitive advantage is deeply rooted in its proprietary technology and continuous innovation, which yield tangible, quantifiable benefits for its customers and, by extension, its financial performance. The company's expertise spans several critical material science domains:

• Conductive Carbons and Carbon Nanotubes (CNTs): These advanced materials are essential for lithium-ion batteries, particularly in electric vehicles (EVs) and energy storage systems (ESS). Cabot's technology enhances conductivity, extends cycle life, and improves processability in battery cells. For instance, the recently launched LITX® 95F conductive carbon is specifically engineered for ESS applications, delivering enhanced conductivity and long cycle life crucial for demanding residential, commercial, and industrial systems. This differentiation allows Cabot to command premium pricing and secure incumbent positions with leading battery manufacturers.
• Fumed Silica and Aerogels: Cabot is a leading provider of treated fumed silica, critical for adhesive formulations in wind turbine blades, where volumes increased 8% year-to-date through Q3 2025. Its aerogel, a hydrophobic, silica-based particle, offers superior thermal insulation. These technologies provide performance advantages in demanding applications, contributing to higher gross profit per ton in the Performance Chemicals segment.
• Engineered Reinforcing Carbons: Products like PROPEL E8 engineered reinforcing carbon black are designed to promote enhanced efficiency and increased durability for EV and high-performance tire formulations. This innovation directly addresses the evolving needs of the automotive industry, providing a competitive edge in the Reinforcement Materials segment.

Cabot's R&D initiatives are strategically aligned with these technological strengths. A significant development is the $50 million grant from the U.S. Department of Energy to develop a new U.S.-based manufacturing facility for battery-grade carbon nanotubes and conductive additive dispersions. This $180 million project, targeting a 2028 startup, is expected to generate internal rates of return (IRRs) in the 20% range. This investment aims to scale domestic capacity and accelerate the U.S. battery chemistry value chain, solidifying Cabot's leadership in a market projected to grow at a 40% CAGR through 2030 in North America and Europe.

These technological differentiators are not merely product features; they are fundamental to Cabot's competitive moat, enabling higher average selling prices, lower manufacturing costs through process optimization, and ultimately, better margins. They underpin the company's ability to maintain market leadership and drive long-term growth by providing solutions that are critical to its customers' own performance and sustainability goals.

Competitive Landscape: Agile Leader in Niche Markets

Cabot operates in a competitive landscape with both specialized and large-scale chemical players. Direct competitors like Orion Engineered Carbons in carbon black, Evonik Industries in fumed silica, and diversified giants like BASF SE and LyondellBasell Industries (LYB) present varying challenges and opportunities.

Cabot's Reinforcement Materials segment, with a TTM Gross Profit Margin of 25.16% and EBITDA Margin of 21.28%, compares favorably to Orion Engineered Carbons , which reported a 23% Gross Profit Margin and 5% Operating Profit Margin in its latest annual filing. While Orion Engineered Carbons is a prominent carbon black player, Cabot differentiates through a broader portfolio including engineered elastomer composites and a more diversified geographic footprint. Cabot's "make and sell in-region" model is a critical advantage, especially in the Americas, where elevated tire imports have impacted local production. While Orion Engineered Carbons (OEC) may excel in cost leadership for basic carbon black, Cabot's innovation in products like PROPEL E8 for EV tires and its strategic acquisition of Bridgestone 's Mexico carbon black plant for $70 million (expected to add $10M EBIT in year 1, $15M in year 2) strengthens its position and deepens customer partnerships.

In Performance Chemicals, Cabot's offerings in specialty carbons, fumed metal oxides, battery materials, and aerogels compete with Evonik Industries and BASF SE . Evonik Industries (EVK), a major global player in fumed silica, has shown consistent revenue growth and solid profitability. However, Cabot's specialized formulations for fumed silica and aerogels offer higher efficiency in applications like thermal insulation and batteries, leading to stronger customer loyalty and potentially superior margins. For example, Cabot's fumed metal oxides product line, which has above-average margins, saw significant volume growth (around 20% in Q1 2025) driven by demand in construction and semiconductor applications. While larger rivals like BASF SE (BAS) benefit from massive scale and R&D capabilities, Cabot's agility and focus on high-value additives allow it to carve out profitable niches. The company's battery materials strategy, targeting differentiated products in China and incumbent positions in Western economies, leverages its breadth of technology (conductive carbons, carbon nanotubes, blends) and global footprint.

Indirect competition comes from alternative solutions like bio-based materials and graphene, which could offer cheaper or more sustainable options. However, high R&D requirements, stringent regulatory approvals, and specialized manufacturing expertise act as significant barriers to entry, protecting Cabot's established market position and financial performance. Cabot's continuous recognition, such as the EcoVadis Platinum rating for sustainability, also enhances its brand and customer preference in an increasingly environmentally conscious market.

Financial Performance: Resilience in a Challenging Environment

Cabot's recent financial performance underscores its operational resilience despite a dynamic global backdrop. For the third quarter of fiscal 2025, the company reported adjusted earnings per share of $1.90, a slight decrease of 1% year-over-year, but in line with expectations. Net sales and other operating revenues for the quarter were $923 million, down from $1,016 million in the prior year, primarily due to lower volumes across both segments ($66 million combined) and less favorable pricing/product mix in Reinforcement Materials ($27 million). This volume decline was largely attributed to customer caution stemming from tariff uncertainties and a weaker global macroeconomic environment.

However, the company's ability to manage costs and optimize its network partially offset these headwinds. Gross profit for Q3 2025 decreased by $12 million year-over-year to $244 million, but this was mitigated by a $9 million increase in gross profit per ton, driven by optimization actions and cost management efforts. Selling and administrative expenses decreased by $6 million in the quarter, further demonstrating cost discipline. For the nine months ended June 30, 2025, net sales were $2.81 billion, down from $2.99 billion, but net income attributable to Cabot Corporation increased to $288 million from $243 million in the prior year period, largely due to lower foreign exchange losses in Argentina.

Segment Performance Highlights:

• Reinforcement Materials: Q3 2025 EBIT was $128 million, down 6% year-over-year. Sales decreased by $76 million, primarily due to lower volumes in the Americas and Asia Pacific. However, cost management efforts, including lower selling and administrative expenses and higher gross profit per ton, partially cushioned the impact. For the nine months, EBIT was $389 million, down from $414 million.
• Performance Chemicals: Q3 2025 EBIT increased by 4% year-over-year to $57 million, driven by higher gross profit per ton from cost management, targeted price increases, and optimization measures, despite a $12 million decline in sales due to lower volumes in auto-related applications. For the nine months, EBIT surged to $152 million, up 26.67% from $120 million, primarily due to higher volumes ($25 million) and improved gross profit per ton ($5 million), particularly in fumed metal oxides, inkjet colorants, and battery materials.

Cabot's cash flow generation remains a core strength. In Q3 2025, the company generated $249 million in operating cash flow, including a $101 million decrease in working capital. Discretionary free cash flow stood at $114 million for the quarter. The balance sheet remains robust, with $239 million in cash and cash equivalents and approximately $1.4 billion in total liquidity as of June 30, 2025. The net debt-to-EBITDA ratio was a healthy 1.3x, well within its debt covenants. This strong financial position supports Cabot's balanced capital allocation strategy, which includes $61 million in capital expenditures, $24 million in dividends, and $40 million in share repurchases during Q3 2025. The company recently increased its quarterly dividend by 5% to $0.45 per share, reflecting confidence in its long-term cash flow outlook.

Outlook and Strategic Trajectory

Cabot reaffirmed its fiscal year 2025 adjusted earnings per share outlook in the range of $7.15 to $7.50. This guidance reflects year-over-year EPS growth despite the challenging macroeconomic environment and tariff uncertainties. Management indicated that current demand levels would likely place results in the middle to lower end of this range, with potential for the higher end if recent tariff announcements translate into increased demand in the fourth fiscal quarter.

For the Reinforcement Materials segment, management expects a modest sequential EBIT decline in Q4 2025 due to anticipated higher costs, partially offset by higher volumes in Asia Pacific. The full fiscal year outlook for RM volumes is a low-single-digit percentage decline, a revision from earlier expectations due to tariff-induced customer caution. However, the segment's EBIT is still expected to be at a similarly strong level as fiscal 2024, supported by ongoing optimization and cost reduction efforts. The acquisition of Bridgestone (BRDCY)'s Mexico carbon black plant, expected to close in H1 fiscal 2026, is projected to be accretive in its first year, contributing approximately $10 million in annual EBIT in year one and $15 million in year two.

The Performance Chemicals segment is expected to see Q4 2025 EBIT decline sequentially and be relatively consistent with Q4 2024, driven by seasonally lower volumes and higher anticipated costs. For the full fiscal year, PC volumes are now expected to grow in the low-single-digit percentage, a moderation from earlier mid-single-digit projections. Despite this, the segment is anticipated to maintain an EBIT run rate of $45 million to $55 million per quarter, contributing strong year-over-year EBIT growth. Strategic growth drivers, such as conductive carbons for wire and cable (volumes up 15% YTD Q3 2025) and fumed silica for wind turbine blades (volumes up 8% YTD Q3 2025), remain robust.

Cabot is proactively implementing countermeasures to address market uncertainties, including fixed cost and procurement initiatives targeting $30 million in savings for fiscal 2025. Capital expenditures for fiscal 2025 are projected between $250 million and $275 million, including growth investments like the new Indonesia capacity for Reinforcement Materials (online H2 2025, material contribution in 2026) and continued investments in battery materials.

Key risks include the ongoing respirator liabilities, with a reserve of $34 million as of June 30, 2025, which could materially change due to various factors. The company is also in discussions with Dow regarding chlorosilane feedstock supply for its fumed metal oxides facility in Barry, Wales, following Dow (DOW)'s announcement to cease polysiloxane operations by mid-2026. Furthermore, the impact of new tax legislation (OBBBA) and the OECD global minimum tax could increase the operating tax rate for fiscal 2025 to 27-29%.

Conclusion

Cabot Corporation stands as a compelling investment opportunity, characterized by a resilient core business, a clear strategic roadmap, and a commitment to shareholder returns. The company's century-plus history of operational excellence and disciplined capital allocation provides a strong foundation, while its "Creating for Tomorrow" strategy effectively aligns its differentiated technologies with high-growth macro trends in electrification, infrastructure, and sustainability.

Despite facing near-term headwinds from global macroeconomic uncertainty and dynamic tariff policies, Cabot's proactive cost management, network optimization, and strategic investments in areas like battery materials and the Mexico carbon black plant demonstrate its agility and ability to adapt. The reaffirmation of its fiscal 2025 adjusted EPS guidance, coupled with robust cash flow generation and a growing dividend, underscores management's confidence in the company's ability to deliver consistent value. Investors should recognize Cabot's strong competitive positioning, driven by its proprietary technology and global footprint, as key enablers for sustained earnings growth as the world transitions towards a more electrified and sustainable future.