Cabot Corp (CBT) 2011 Q1 法說會逐字稿

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Good day, Ladies and Gentlemen.

Welcome to the Q1 2011 Cabot earnings Conference Call.

My name is Keith and I will be your Operator for today.

At this time all participants are in a listen only mode.

Later we will conduct a question and answer session.

As a reminder today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms.

Susannah Robinson, Director of Investor Relations.

Please proceed, ma'am.

Thank you, Keith.

Good afternoon, everyone.

I would like to welcome you to the Cabot Corporation earnings teleconference.

Here this afternoon are Patrick Prevost, Cabot's President and CEO; Eddie Cordeiro, Cabot's Chief Financial Officer; Dave Miller, General Manager of the Core Segment; Sean Keohane, General Manager of the Performance Segment; Fred von Gottberg, General Manager of the New Business Segment; Jim Kelly, Corporate Controller; and Brian Berube, General Counsel.

Last night, we released results for our first fiscal quarter of Fiscal Year 2011, copies of which are posted in the Investor Relations section of our website.

For those on our mailing list, you receive the Press Release either by e-mail or fax.

If you are not on our mailing list and are interested in receiving this information in the future, please contact me in Investor Relations.

The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

I remind you that our conversation today will include forward-looking statements which are subject to risks and uncertainties and Cabot's actual results may differ materially from those expressed in the forward-looking statements.

A list of factors that could affect Cabot's actual results may be found in the Press Release we issued last night as well as in our 2010 Form 10-K filings with the Securities and Exchange Commission, copies of which are available on our website.

I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the Company's performance for the quarter.

Eddie Cordeiro will review the business segment and corporate financial details and Patrick will provide closing comments and open the floor to questions.

Patrick?

Thank you, Susannah, and good afternoon.

Yesterday, we're very pleased to report strong first quarter earnings.

Adjusted earnings per share was $1.16, which included $0.38 of discrete tax items.

Excluding these items, adjusted earnings per share were $0.78 per share.

This represents our fifth consecutive quarter of strong performance and is a result of continued solid execution of our strategy.

With that, we remain on track to meeting our long term financial targets.

Our results were driven by each of our businesses in key strategic areas.

Our performance is particularly notable because global demand still remains below prior peak levels.

More specifically, we have been successful at increasing our unit margins with a focus on pricing and operating efficiency.

Our volumes were modestly higher year-over-year and we continue to see strong demand in emerging markets where we're well positioned.

We have maintained our strong cash position and continue to invest in our expansion and new business growth opportunities.

Overall, a very satisfying quarter and a good beginning to Fiscal Year 2011.

Let me give you some additional detail on our success at expanding margins, some market perspective as well, and an update on our growth initiatives.

Starting with the margins.

Over the past two years, we have focused on driving a step change in the margin performance of the Company.

We have optimized our product and customer mix and our pricing for the value we bring to our customers, including quality, reliability of supply, and service.

We are operating with an extremely efficient global manufacturing network and are expanding our already strong positions in emerging markets, and that with additional capacity investments.

Our energy recovery and yield technologies are materially contributing to our results.

Our disciplined focus on new business development is leading to more rapid commercial progress with our customers and improved financial performance.

Deserving special recognition today is our Super Metals Business.

Over the past two years, we have repositioned this business to focus on higher end technology and product offerings and have also restructured our cost base.

We have implemented substantial price increases across our product portfolio, optimized our product and customer mix, reduced inventory levels and restructured our manufacturing network to focus on our most efficient operations.

The market potential in products remains strong and as a result of our actions, the business is delivering significantly higher EBIT.

I'd also like to highlight that during the quarter, our tantalum supply chain was verified to be conflict free by an independent audit, giving our customers confirmation of our reliable supply of ethically sourced tantalum products.

We believe this is a strategic advantage.

For many years, as part of our corporate citizenship commitment, Cabot has held a policy of sourcing only conflict free tantalum ore.

We adhered to this policy before it was popular and prior to it receiving the worldwide press it does today.

Now moving to the markets we serve.

During the first quarter our end markets continued to recover with differences in growth rates by region.

We are optimistic that the discretionary nature --

the non-discretionary nature of our customers' products, will continue to drive demand growth as the global economies improve.

The tire and automotive sectors continue to strengthen worldwide, lead by the emerging economies, and most regions anticipate production at, or above 2008 levels by the end of this year.

The replacement tire market is gaining strength as economies stabilize and automobiles are recovering with increased consumer demand.

Looking at it regionally, China, South America, and Southeast Asia growth continues to remain very robust.

North America, Western Europe, and Japan, however, continue to lag these emerging markets.

The strong industry demand globally is driving current utilization rates higher and our customers look to partner with us for their growth.

Moving to the electronics market, we are seeing indications of a slowdown relative to an exceptionally strong 2010 performance as we progress into the seasonally weaker first calendar quarter.

However, demand for high performance devices such as Smartphones and Tablets, that typically use more tantalum remain strong.

Growth in the construction and infrastructure markets remain slow, especially in the mature regions of North America and Europe.

In the emerging markets, where we participate actively, we see acceptable growth.

Overall, demand in our end markets remain somewhat below peak levels but we anticipate returning to these levels on a global basis by the end of this year.

Let's now move to our growth projects.

Our investments in China, Southeast Asia and the Middle East have strengthened our leadership positions in these markets, and are allowing us to leverage the continued robust demand growth there.

During the quarter, we ramped up commercial shipments from our new black master batch plant in Dubai and anticipate operating at full capacity by the end of the year.

We continued construction of our expanded fume silica capacity in China and progressed in the bottle necking of our blacks facility in Indonesia.

We also began construction of a black master batch unit at our site in Jiangxi, China.

Once completed, it will be the first fully integrated master batch capacity in China.

And will allow us to benefit from the infrastructure build that drives demand in cable, type, and a broad range of other applications.

These investments are part of our extremely rich pipeline of growth initiatives and will allow us to build upon our competitive advantage in these regions.

Our customers value our geographic breadth and look to us as a reliable partner to accompany them as they grow internationally.

On the new business front, the success of [IFX] continues across all segments.

Revenues in our new business segment grew 18% over last year's first quarter and we are pleased with our continued commercial improvements.

Our acquisition of Oxonica Materials in 2010 is now contributing to superior micropowders revenues, well ahead of our original milestone targets.

And this compliments commercial progress being made in our security business.

In the Performance Segment, we're working closely with our customers to develop new value-added products, in both performance products and fume metal oxides.

We've had successes in applications such as toners, windmills, flat-panel displays and [addesives]These successes add to the strength of the segment which already post very strong margins.

Tire-related applications and Cabot elastomer composites contributed solidly to our business results in 2010.

In addition to the tire market in 2011, we are focused on commercializing products for non-tire users .

Today, we're working with over 20 performance rubber producers around the world to qualify Cabot elastomer composites for mining, defense, and automotive applications and are in advanced field trials with more than 10 of these potential customers.

All in all, our strong operating performance this quarter was a result of deliberate work to improve our margins, utilize our efficient operating network, and better serve our customers.

I will now ask Eddie Cordeiro to review the business segment and financial details of the quarter.

Thank you, Patrick.

I will start by giving you a bit of perspective on Company results as a whole and then move to the discussion of the individual segments.

Our first quarter was solid when compared to the first quarter of 2010.

Total segment profit increased by $9 million due to robust unit margins and modestly higher volumes.

These factors were partially offset by higher maintenance and additional spending to support our growth initiatives.

Sequentially, segment profit increased by $11 million.

These factors in the increase were higher unit margins and lower manufacturing costs.

Somewhat offset by seasonally lower volumes in the performance segment.

I will now discuss the details at the business level beginning with the core segment.

First quarter EBIT in the rubber blacks business decreased by $5 million when compared to the same quarter of fiscal 2010.

Timing of revenues in Cabot elastomer composites associated with achieving key milestones benefited results in the first quarter of 2010, driving most of the difference year-over-year.

Volumes grew by 2% with strong market demand particularly in emerging regions.

Unit margins increased as a result of a favorable product mix, higher pricing, and the benefit of additional energy centers coming online.

Although raw material costs were higher year-over-year, we have been successful at mitigating their effect by eliminating the contract lag and raising prices.

All of these positive factors offset higher maintenance investments and increased spending to support our growth activities.

Sequentially, EBIT increased by $10 million.

Higher unit margins resulted from favorable pricing and better manufacturing efficiency.

Additionally, maintenance costs decreased due to timing of spending.

Volumes were flat on a global basis compared to the fourth quarter of 2010 as market demand remained stable.

In the Super Metals Business, EBIT increased by $16 million when compared to the first quarter of 2010.

Higher prices and a favorable product mix were the principal drivers of the performance.

Lower raw material costs and higher volumes from the timing of certain shipments to customers, also benefited year-over-year results.

Sequentially, profitability increased by $10 million from higher prices, lower manufacturing costs, and higher volumes, again from the timing of shipments.

As Patrick mentioned earlier, our deliberate efforts to re-position the super metals business as a supplier of higher end tantalum power products are driving these segment results.

In the Performance Segment, EBIT decreased by $4 million when compared to the first quarter of 2010.

Price increases in a favorable product mix resulted in higher unit margins.

These factors, however, were more than offset by higher maintenance investment, spending to support our growth activities, and a $2 million unfavorable LIFO comparison from higher carbon black raw material costs.

In performance products, volumes were 1% higher, while volumes in few metal oxides were flat, when compared to the first quarter of 2010 when we were still seeing customers rebuilding inventory.

Sequentially, EBIT increased by $1 million from higher unit margins and lower sequential maintenance spending.

Volumes were seasonally lower in the segment with few metal oxides decreasing by 13% relative to an exceptionally strong fourth quarter of 2010 and performance products volumes declining 4%.

In the specialty fluids business, quarterly EBIT increased by $1 million when compared to the first quarter of 2010.

The increase was driven by higher sales volumes.

Sequentially, EBIT decreased by $8 million when compared to an exceptionally strong fourth quarter of 2010.

The decrease was a result of less drilling activity in the North Sea.

Sales in the specialty fluids business are project driven, evidenced by the lumpy revenues we experienced in this segment over the last several quarters.

We continue to focus on building a broader business by growing cesium formate beyond its core geography in the North Sea.

First quarter 2011 revenues in the New Business Segment increased by 18% or $3 million when compared to the first quarter of 2010.

The increase was driven by efforts to develop new markets for our products in the aerogel business and by growth in the security business, including revenue from the acquisition of Oxonica Materials in 2010.

Sequentially, segment revenues decreased, driven principally by lower revenues in aerogel due to the project nature of the business.

When compared to last year, quarterly segment EBIT increased while sequentially EBIT was down slightly.

The New Business Segment continues to operate on a positive cash flow basis.

The Company ended the first quarter with a cash balance of $388 million, a robust operating results offset a $47 million sequential increase in working capital.

During the quarter, we spent $31 million in CapEx and still anticipate spending approximately $250 million for the full year, as we ramp up investment in our pipeline of attractive growth projects.

During the first quarter of 2011, the Company recorded a tax benefit of $6 million.

This included discrete tax benefits of $25 million, most of which came from our decision to repatriate high tax dividends to the US.

Excluding these items, our quarterly operating tax rate was approximately 26%.

Now back to Patrick.

Thank you very much, Eddie.

Our strong performance over the past year demonstrates the earnings strength of our Company and gives me confidence about our future growth potential.

I'm pleased to see that the solid execution of our strategy has resulted in tangible earnings growth and value creation for our shareholders.

The actions we have taken to improve our margins, our investment decisions in emerging markets and the accelerated contribution of our new businesses have all been critical to our strong results.

We have a portfolio of leading technologies and efficient global operating network, a terrific global team and a strong balance sheet that will provide a solid base for our growth projects.

We're confident in our ability to meet our long term earnings per share and return on invested capital goals.

And are optimistic about the future as we continue on our journey in the league of top tier global specialty chemicals companies.

Thank you very much for joining us today and I'll turn the call back over for our question and answer session.

(Operator Instructions).

A question about the maintenance.

You talked about the higher maintenance spending in both the core and performance sectors.

I wonder if you can elaborate on that a little bit?

What magnitude of dollar increase in maintenance spending are you incurring?

What are you expecting to achieve from this spending?

And what level should we think about the maintenance spending as we go through the balance of the year comparing it to what you spent in the final three quarters of 2010?

Okay, so let me ask Eddie to address that.

Saul, thanks for the question.

I think one of the issues here is that on a comparative basis year-over-year, as we entered last year's First Quarter, we had locked down our expenses quite tightly, and so when you look at the expenses year-over-year, they are at a bit of an elevated level.

But I wouldn't say that they are out of the ordinary from a longer term run rate level of maintenance.

Would that mean that would we get into subsequent quarters that the numbers might be more comparable to what you spent in the same quarters a year ago and you wouldn't have that headwind, if you will?

We started to increase the maintenance spending towards the middle, or end of last year.

And what was the year-over-year increase, Eddie, in spending?

I don't think we can provide that, Saul.

Okay, next question.

On the CEC, you commented that you had some revenues in the First Quarter of last year which pretty much explain the delta in the EBIT.

I recall you had some CEC back in the third quarter but did you have that through last year?

And is that going to be a recurring theme or is that potential for some CEC revenues to come through as we move this year?

So, Saul, as you remember, the agreement we have with Michelin on CEC is a long term agreement and we can't provide any details because of the confidentiality agreement we have with them.

But if you remember, we mentioned that we have a milestone driven revenue program.

And what happened last year in that First Quarter 2010 is we recorded one of these milestones which didn't re-occur this quarter.

I think more importantly is the fact that we have started making significant progress with CEC in non-tire areas.

And we're starting to see revenue developing there.

This is in the mining defense and automotive areas and I mentioned in my speech earlier that we're in significant progress with about 20 companies in terms of testing this material, so we're very pleased with the interest that CEC is developing beyond the tire industry.

Of course, we're very pleased with the work we're doing with Michelin, but we see actually potential developing with CEC in the coming years beyond the Michelin agreement.

And then my final question.

You mentioned about sluggishness in North America.

You know, tire production is sort of booming here in North America, especially in truck tires.

I mean, every manufacturer is trying to produce every truck tire they possibly can because demand is soaring.

I'm a little perplexed why you would not be participating in the surging tire production here in North America?

Dave, could I ask you to take this question?

Sure, so the point around North America is really around, relative to Asia.

So we are seeing strong demand.

It's the rate at which the North American and European tire Markets are recovering relative to Asia, so we are seeing both of those Markets and we're definitely participating in that demand recovery.

Do you think you're losing any share?

2% volume growth where tire production is running up double digits.

We're participating very strongly in that demand recovery.

I don't want to get into a share discussion region to region.

Okay.

Thank you very much.

Thank you, Saul.

Laurence Alexander; Jefferies.

.

I guess first question on performance blacks.

Any reason why you haven't seen pricing power start to improve in that business?

Or what kind of economic environment would you need to start to see pricing show up in that segment?

Lawrence, I think we're quite pleased actually with pricing power and margins.

But I'm going to let Sean, perhaps, take this question to get into a little more detail.

Sure.

Hi Lawrence.

In the First Quarter, we saw pricing and margins.

They remained quite strong both up year-over-year end and sequentially.

So our efforts to continue to focus on product and customer mix and new products and pricing commensurate with the value we bring.

That all remained on track and we continue to pursue that strategy.

So the actual pricing in unit margins were up in the quarter and I would say we remain solidly on track to pursue our strategy of performance differentiation and getting paid commensurately for that.

So, is it reasonable for us to expect sort of a 1% to 2% pricing as being the best this segment can do?

Or is there an environment where that can improve?

I'm sorry.

Can you say that again?

Is 1% to 2% pricing, which seems to be what was reported this quarter, is that good for this business?

The quality of the business.

Or is there an economic environment where that can be expected to improve?

It really depends by application so we really have quite solid margins in the business.

And it really depends by application but our expectation here is that we're going to grow the earnings and profitability by this business by working with customers, developing new products, and value pricing those.

So my expectation is certainly we can grow the earnings of this business.

And then with the tantalum, with super metals business -- are there any shifts in the supply of tantalum ore that would affect margin structure going forward?

Let me take this.

We're seeing strong demand in the tantalum business.

And we've been working at the strategy of the business to refocus it on the high end area where we have a technology advantage and where customers are keen on buying these products that allow them further miniaturization.

So that's been one very important part of our shift in running that business.

The other one has been around insuring that we have the ore available to supply our customers and we're very comfortable with that.

We believe that if we focus on the high end side of the business, the volume and price of ore that we need, is going to be no issue in the future.

So we're very comfortable with the situation we're at.

And then, just as a return to Saul's question.

As you think about, sort of the production trends at the rubber tire industry, is the gap between tire production rates and your rubber black volumes, a timing issue?

Or a mix issue?

Or is it a structural, where they are beginning to reduce the amount of rubber black per tire?

Dave?

Yes.

To your last point, the answer is no.

In that the amount of rubber black needed for tires and the demand, as a result of tire production growth globally, is relatively unchanged.

I guess I would just want to emphasize that we are seeing our production and sales grow.

You mentioned mix and we're definitely shaping our mix to meet changing needs for our customers as well.

Thank you.

Jeff Zekauskas; JP Morgan.

When I look at your super metals margins over the past year, sometimes they've been 10%, and sometimes they've been 25%, and sometimes they've been 37%.

Is there a normalized number that you can think of?

Or what does one make of the volatility?

Are the current margins sustainable?

Or are they not sustainable in your opinion?

Jeff, what I think you're looking at numbers that are representative of a very volatile period that you never have experienced before.

So, the combination of the volatility of customer demand and end consumer demand for the products in which our products go into, plus the fact that we have a fairly wide range of product mix, is what you're seeing affecting these numbers.

So, I think you're not seeing something exceptional if you consider these factors.

And clearly we're continuing to work at focusing on the high end and we'll expect to see the margins continue to be very strong in this business.

So, it seems that something qualitative must have happened between the Fourth Quarter and the First Quarter.

That is you must have done something very different between the Fourth Quarter and the First Quarter to generate so much profit.

What did you do differently?

Or how can you frame the very sharp change in profits?

We had both volume and price effect during the quarter and I believe some of the volume was somewhat unusual, meaning that we had some business that was pulled forward.

So not representative of the normal volume for a quarter.

But the combination of that additional volume, plus very strong price increases, is what you're seeing.

Was there a sequential raw material change?

Or did your average raw materials change sequentially in super metals?

There was very minimal effect on a sequential basis.

Okay.

If I could just try a couple of short ones now.

Did you receive any milestone payments this quarter?

And if you did, how large were they and in what segment?

Are you speaking about a specific part of the business when you say milestones?

Any part of your new business, whether it's in new ventures, or whether it's in carbon black.

Were there any unusual clumps of operating income because of technological achievements that you made?

No.

There was nothing in the quarter.

No.

Okay.

And then lastly, there's oil has moved up a little bit.

Is that something that's likely to diminish your margins in carbon black in the shorter term?

Or are your prices ahead of that?

Or how do we think about the incremental margin flows in carbon black in the light of raw materials?

Right.

I think the biggest, or one of the biggest achievements, over the last few years of Cabot has been to quasi-eliminate the lag effect.

So I think that has happened and that is now in place, which means that to a great degree, we don't see the raw material fluctuation effects in our business any more.

And does that mean that we will not have any effects from raw materials in the future?

I can't go as far as that, but surely as we see disruptions in short-term volatility, we may continue to see some LIFO impact in our North American business.

But beyond that, I would say we've restructured our business in a way that we've really eliminated the major factors that affected us in the past.

And I think for us, the bigger worry is perhaps in the longer run, raw material price increases that could affect ultimate demand for our products and have a negative impact on GDP for example.

So I think that's really what we could potentially be worried about if we see a very large jump in oil prices.

So lastly, so is it fair to say, Patrick, that we're now at some kind of normalized margin in carbon black, excluding new plants that might come on or raw materials, volatility, but right now, we've reached some sort of plain of profitability.

Is that correct?

Let me put it this way.

I don't like normalized margins, so neither Dave nor Sean will be allowed to use that term.

I think we're continually working at expanding our margins and the top line level but also in our operating efficiency or through our operating .

So we've got projects, multiple projects to continue doing that.

But in terms of the noise that we may have had in the past, I would say that clearly, we're not going to see that going

And so with your patience, I guess one last one.

When you look at tantalum demand this year, do you think it will grow in line with chip demand?

Or square inches of silicon produced?

Is it sort of a 5% volume grower or a 10 or a zero?

What's the outlook like for volumes in tantalum?

This is a very difficult factor to predict I will say.

One of the things we look at is, of course integrated circuit shipments and that's an indicator for the health of our customers or the customers of our customers.

But if you think about the pipeline and the inventory effect in the pipeline, the difference in the types of products needed in different places, and the fact that we are more bias towards the electronic products that require my miniaturization, we believe that we may be in a sub segment of the electronics industry that is going to be growing at a faster and more steady pace than perhaps the overall integrated circuits data.

So we're quite optimistic about the prospects of the types of products we make and where those will be utilized and how that market will grow.

Okay.

Thank you very much.

Thank you, Jeff.

John Roberts; Buckingham Research Group

Why is the low end of the tantalum market increasingly unattractive?

In carbon black you served the low end and the high end and it's not either/or.

But when I listen to your comments on tantalum, if you adjust for the timing, it sounds like overall pounds are relatively flat on a trend and you're shifting your pounds from low end to high end.

Why not go after both rather than either/or?

It sounds like ore costs are declining and it's an oligopolistic and you're the largest

Well,

ore costs are actually not declining.

But I think it's a matter of relativeness, meaning that at the low end of the tantalum product chain you can make money.

But it's not the kind of money we're looking to make.

So we have decided that we want a more stable business with higher margins, more specialty business and that has been the result of some strategic work that we've done.

We believe that our technology differentiation capability and the type of equipment and operations we have, would actually be better utilized in the way we're doing that today.

So we're very comfortable with, let's say, the path we're going to take and believe that we can achieve superior returns.

The Press Release says lower raw material costs in super metals.

It just said ore costs are not declining?

The market prices are increasing.

So this is a temporary drop in your raw materials and they will trend up from here?

We think that over the year, the coming quarters, we should be seeing continued increase in the tantalum ore prices.

We believe however the way that we're positioned, there should be no issue with regard to passing on those costs if necessary.

Thank you.

Thank you, John.

Jay Harris; Goldsmith & Harris.

I'm going to pop in and out of tantalum, but I want to start with the balance sheet.

Have we passed a phase where you were still living off excessive tantalum raw materials?

Hi, Jay.

We continue to consume the excess inventory that we've been working down now for some time.

And can you share with us when you'll likely be back to a purchase model?

I think we feel pretty comfortable at least for the foreseeable future that we are confident in terms of our availability, our ability to supply our customers, Jay.

Okay, you don't want to answer the question.

You know, for competitive purposes I prefer not to.

Okay, when I look at your total inventory picture, I see a significant increase in finished goods.

What do you relate that to?

I'm sorry, Jay?

You're looking at the balance sheet?

The 209?

Yes, a significant increase in that 90 day period.

Yes.

So we had some pass through obviously of raw material costs as carbon black raw material prices went up.

But if you look at it on a days basis, the days has been pretty enough flat.

So, it's a price rather than a volume impact?

Yes.

Okay.

To change the subject.

You're clearly a $3 billion company.

You've got a large number of new businesses that you're nurturing.

Have you established any criteria for deciding when a business has gotten mature enough that you no longer want to grow it, or can't grow it, or milk it, as the case may be, do you have a divestiture criteria I guess is the nature of the question?

So Jay, first of all, with regard to the new business activities.

When I joined the company, we spent quite a bit of time betting the various activities we were in, be it in the New Business Segment, or in the Core and Performance Segment.

And we decided to focus on the ones that had the most potential and they were given marching orders and milestones to .

So we have a fairly disciplined process with regard to our new business activities and

Well I wasn't directing my attention solely to new businesses.

It just seems to me that the breadth of the companies interest constantly expands because of the new businesses.

Yes.

And I just wondered if, in general, you've come to a criteria which if matched by any of your businesses, that business might become a source, or a candidate to be harvested.

Yes.

I think, with regard to that, it's really about a very complex and broad strategic review that every one of our businesses gets basically tested against on the regular basis.

And looking at the various criteria, we decide that those businesses are solid inside our portfolio, or may need adjustments and that is basically a regular review.

But if we believe that a business does not fit, or does not meet our criteria, then clearly, we will consider portfolio activity.

Coming back to tantalum, what are you doing that gives you confidence that you'll be able to maintain your edge in the high value-added part of the capacitor market?

So, we have actually, technology that has been patented that allows us to produce powdered with a surface area that none of our competitors can match.

And we believe that is, and we don't know yet and we haven't reached the full potential of this technology.

So today already we are able to make products that can't be matched and we believe we have further potential in the future.

So that is one of the main features of why we believe we can win in the high end.

Thank you very much.

Thank you, Jay.

Andrew Dunn; Key Banc Capital Markets

Two questions.

I'll try to keep it brief.

First looking at your comments on the super metals segment, going to this kind of volume benefit from timing of shipments.

Can we read into that?

Was that a pull through from things that you would have otherwise recognized this quarter, into the last quarter?

And then my second question is, I think last quarter on your Conference Call you gave guidance that volumes were mid to high single digits below the peak levels.

And as we think about it, going forward, and you guide to getting back to peak levels around the end of the year, are we still looking at those kind of levels in terms of how far off you were in volume?

Yes.

So talking about the volume part, as we've been communicating over the last few quarters, we're still in this mode where we haven't returned to peak levels which were 2008 reference levels.

We believe that it will take another year to get there.

So, yes, I can confirm that.

With regard to the shipment question, I believe these were shipments that occurred that were advanced, and that we recognized as such.

Okay.

Great.

Thank you very much.

Thank you.

Christopher Butler; Sidoti & Company

Wanted to circle back to the raw material question, especially as it pertains to the rubber black business.

In the Press Release you'd mentioned that some of the sequential EBIT improvement was due to higher prices.

Now, with the new contracts and the fact that they are a lot quicker in passing on prices, I look at oil, your Fourth Quarter oil, was relatively flat compared to the increases we saw in the Fourth Quarter, I'm sorry in the First Quarter, so does that mean you're actually getting ahead of these price increases with your new contracts?

Let me ask Dave to take this question.

Yes.

I think that's a good assumption.

We did a lot of catch up and we're pushing through higher prices in our raw material costs quicker.

And would that be the contracts, or the non-contracts, that you're able to get through even faster than your material cost increases?

Yes.

It's actually pretty much broadly across the entire portfolio of the rubber black sales.

And shifting gears over to specialty fluids, you'd mentioned less drilling activity in the North Sea.

What are you seeing there that's changed since last quarter and how do you think prospects look for Fiscal 2011 at this point?

So on the specialty fluids, we're constantly suffering from the project nature of the business and the fact that we're at the whim of our customers delaying projects, shifting emphasis on this or that project, but fundamentally, we're through those quarters in the long run, we see the business winning.

We see the focus and the attention on the performance of that specialty fluids brings to the oil and gas industry increasing.

We're very happy with the conversations we have, and we have to be patient.

And I think a lot of the focus our team has, is on making sure that we're in the know, we're closely connected to the oil and gas companies to make sure that we're available when needed.

But in the long run, this is a high performance business with a lot of potential.

I appreciate your time.

Thank you very much, Chris.

David Begleiter; Deutsche Bank

Thank you, Patrick, can you comment on your carbon black capacity utilization rates as well as the industry's utilization rates?

What we're looking at today is a fairly tight operating environment for our carbon black assets.

As you know, we have gone through quite a bit of restructuring over the past years and demand has improved to the point where we're seeing tightness but we believe today, well we know today we're running high 80s to in and around the 90% utilization level.

We believe that we're at a high utilization rate than our competitors and that has lead us to launch a number of projects to increase capacity.

One of these projects we've announced that is the de-bottle necking in Indonesia, but we have another three to four projects that are of smaller scale but are related to us, basically utilizing current equipment in a better or more creative fashion to provide us with some more capacity to serve our customers.

So we're working diligently on that and that is capacity that is very cost

And

Patrick, given these higher rates, is it possible to get actually real pricing increases over and above raws on the contract portion of your business?

I guess absolutely, yes.

What would it entail?

What would you need to go out with a real price increase to your contract customers?

We have been going out with price increases every quarter, David, and have been doing it also in the longer term contracts, the ones that last a year for example.

Very good and just on CEC, can you sketch out over the next one to two years what you expect to happen as this develops?

And what's the longer term opportunity perhaps three to five years if you can look out that far?

Well, we can't be specific with regard to the agreement we have with our partner Michelin.

But what I mentioned earlier, is that we beyond that are managing actively diverse other markets such as mining, defense, and automotive.

And have some very active projects with very interested customers because the performance that these compounds bring are quite remarkable and provide a true differentiation against the current rubber materials or compounds.

What do you expect now since three years you begin to commercialize in that time frame?

We are already commercial in non-tire applications, albeit at a low level.

And the ramp up to a high level?

Well, I would speak more in quarters than years.

Very good.

Thank you.

Thank you, David.

Laurence Alexander; Jefferies & Company

I just wanted to given your balance sheet and cash flow outlook, what's your perspective on conducting M&A, or potentially adding another leg to the business, rather than just investing additional carbon capacity?

Right.

Laurence, first and foremost, we've got a fairly aggressive pipeline of projects in our existing businesses, and as you know, we're going to be spending 2.5 times the amount of CapEx this year than we did in the last two years.

So we are fairly busy with that, and are very confident that those projects are the highest value-added projects for our shareholders.

But certainly, as you remember, one of our strategic levers is portfolio management and we're looking at opportunities, have been looking at opportunities.

Last year we bought a very small business, Oxonica Materials, but when we see an opportunity that fits strategically, and is at the right price, we would certainly consider engaging.

So this is something that's part of us managing Cabot and its capabilities and a way to add value to the Company.

But it comes in lumps and it's very difficult to predict when and how it would occur.

And Cabot has had a history of conducting fairly long term investments in technologies.

If you were to look at M&A, do you have any financial criteria that you would use as hurdles?

Well, we would certainly make sure that we add value, with regard to where the Company is today.

And we would need to look at the cash needs and the impact on our balance sheet.

So this is a fairly complicated exercise and there's multiple variables when we would engage on that.

Thank you.

Thank you very much, Laurence.

Saul Ludwig; Northcoast Research.

Thank you.

A question on aerogel.

Patrick, it's very obvious as you pointed out that business is very lumpy and we had kind of a low lump in the First Quarter.

Two questions.

Is the backlog of business that you have in place right now, such that as we look through the balance of the year, we're going to have some good sized lumps in some future quarters?

That would be one question.

And then the final on aerogel, is when do you start to think about making this a serious business with a plant that you can defend and justify investing, and a plant to make more of this product, rather than in the small private plant that you've had for such a long time?

Okay.

First of all, it is a serious business.

And we're seeing a lot of, I would say, factors, such as energy recovery, and installation, driving demand.

But I'm going to let Fred von who runs our new business pick up on these two questions.

The question about backlog.

In particular, the lumpiness in the business is caused by our oil and gas segment which is very much project based.

And we did and have won four additional jobs over the last quarter and so we do have a very healthy backlog that you'll see coming through in the next few quarters.

But once again it is going to be lumpy and that's to be expected in that segment.

I think the more exciting thing in this business, is if you remember we grew the business by almost 60% last year.

And we are seeing macro trends around energy efficiency, particularly in Europe, drive utilization of aerogel.

And we started seeing products being released in the mass installation market that use aerogel.

And as that continues, hopefully we'll be able to drive sufficient volume to expand capacity.

But it's really based on market adopting it and then driving the need for additional capacity.

Thank you, and then finally, for Eddie, what was capital spending in the First Quarter, because on your balance sheet, your gross plant and equipment only went up $18 million from the end of September to the end of December, which would imply not a lot of cap spending or why was that increase so modest.

And any rethinking in the magnitude of cap spending this year?

Okay, Saul, Eddie had to excuse himself, so I guess capital spending in the First Quarter was $31 million.

And now I'm not sure about the follow-up comment you made which was related to our balance sheet, and I'm going to ask our Controller, Jim Kelly, to help with that.

The offsets that I can see is that we had some restructuring that's been going on where the assets have been removed from the books.

So you may just be seeing that as well, Saul.

Maybe that was that Italy thing?

A number of them that we've announced over the past couple years.

And the full year again, remind me on full year cap spending?

$250 million is our current forecast for the full year.

Do you think you'll actually hit that, or will that be a stretch based on where we are at this moment in time?

I would say the ramp up is proceeding, so it's very much in the realm of possibilities.

And we clearly want to spend that amount of money because we have very good projects and timing is of the essence here.

Thank you very much, Patrick.

Thank you, Saul.

John Roberts; Buckingham Research Please proceed.

Your rubber customers are facing a tough situation in butadiene which is sort in price.

Does that have any impact on the outlook for carbon black?

Do they reformulate perhaps for higher loading?

I'm not talking about your composites business, but the capacity that's out there for Danberry to blend carbon black in and, or does it allow you better pricing because butadiene has gone up so much?

Well, I would say it's not only butadiene and the synthetic rubber, but it's also natural rubber prices that have increased quite dramatically over the past quarters.

And the way we look at it, is our customers, these products are very much commodities, and all of our customers will have to deal with these prices.

And we'll be very much intent on passing through these price increases to their customers through the tires.

With regard to us on the carbon black side, we haven't seen any impact from these price increases with regard to usage of carbon black.

I mean, we've been going ahead with our own price increases which reflects the environment in which we are in terms of tightness, but also the fact that we have been focusing on the value we bring and focusing on differentiating with regard to our products.

Okay, thank you.

Thank you very much, John.

There are no other questions at this time so I'd now like to turn the call back over to Patrick Prevost for final comments.

Well, thank you very much for participating in the conference this afternoon.

Just a few last comments.

We're very pleased with our start in this Fiscal Year.

I believe that our strong strategic execution and recovery in the end markets are giving us the confidence that we have a good platform in place.

And that the work we've done over the past two years will position us well and that we can continue to grow this Company.

So we have a lot of confidence in that.

We wanted to thank you again and we look forward to speaking with you next quarter.

Ladies and Gentlemen, that concludes today's conference.

Thank you for participating.

You may now disconnect.

Everyone have a great day.