Cabot Corp (CBT) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Cabot first-quarter 2017 earnings conference call.

(Operator Instructions)

As a reminder today's conference call is being recorded. I'd now like to introduce your first speaker for today, Steve Delahunt, Vice President, Treasurer and Investor Relations. You have the floor, sir.

Good afternoon. I would like to welcome you to the Cabot Corporation earnings teleconference. Last night we released results for our first quarter of FY17, copies of which are posted in the Investor Relations section of our website. For those on our mailing list you received a press release by e-mail. If you are not on our mailing list and are interested in receiving this information in the future please contact Investor Relations. The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call.

During this conference call we will make forward-looking statements about our expected future, operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors can be found in the press release we issued last night and in our last annual report on form 10-K, that is filed with the SEC and available on the Company's 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 measure presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our Earnings Release issued last night and available in the investor section of our website.

I'll now turn the call over to Sean Keohane who will discuss the key highlights of the Company's performance. Eddie Cordeiro will review the business segment and corporate financial details. Following this, Sean will provide closing comments and open the floor to questions. Sean?

Thank you, Steve. Good afternoon, ladies and gentlemen. I'm pleased to see the strong improvement in operating results on a year-over-year basis as higher volumes across all segments drove a 65% increase in adjusted earnings per share.

The Reinforcement Materials segment delivered a 54% increase in EBIT, driven by the benefits from 2016 contracts in North America, improved margins, and a solid demand picture in China. In the Purification Solutions segment, strong MATS volumes and a seasonal inventory build resulted in a $9 million EBIT increase. In the Performance Chemicals segment, higher volumes were largely offset by an unfavorable metal oxides mix as the use of fumed silica in the CMP application continues to decline.

The overall quarter for the Company also benefited from a $7 million inventory build due to plant turnaround activities in anticipation of growth, as well as a $3 million foreign exchange benefit, neither of which is expected to repeat in the second quarter of FY17. In addition, due to our strong business results, we generated over $100 million in cash from operating activities, and used this strong cash flow generation to reinvest in our businesses and return cash to shareholders. We invested $22 million in capital expenditures in the quarter, while returning cash to shareholders through $19 million of dividends and repurchasing 305,000 shares for $16 million.

On the strategic front we announced a planned investment in new capacity to enhance production capabilities for plastic formulation, specifically for conductive compounds and engineering thermoplastic applications. Cabot has been formulating and selling conductive compounds in specialty master batches for more than 30 years and we've established a leading position based on the combination of our unique upstream carbon particle technology and downstream application know-how and channel.

We are a leader in the development and manufacturer of products aimed at growth trends, such as automotive lightweighting, and other specialty applications in packaging and medical equipment sectors. This planned investment will support growth and enable our continued development of these high-value applications.

In the first fiscal quarter of 2017, we completed calendar year negotiations with our major tire customers. The result was generally quite positive. And while we saw different outcomes across regions, we realized both volume and price gains on a consolidated basis.

The European carbon black market remains strong, which allowed us to strengthen pricing in line with the market along with achieving volume gains. Additionally, we were able to align the formulas in our customer agreements with more appropriate feedstock in Europe, resetting what had become disconnected with our feedstock markets. In the Americas we were successful for the second year in a row in regaining volumes in the region, while maintaining pricing consistent with the market environment.

I also want to take a minute to update you on the feedstock environment. I mentioned earlier we now have alignment in Europe between feedstock indices and the formularies in our customer agreements, so we feel good about Europe. In North America, the feedstock differentials we saw in 2014 and 2015 have returned to long-term historic norms.

In China, the coal tar discounts to fuel oil that we saw over the last few years have largely disappeared; however the feedstock environment in China remains dynamic. Feedstock is a strategic part of our business and we will continue to manage our various sources and supplier relationships to ensure the right balance of quality and economics. I will now turn it over to Eddie to discuss the financial results for the quarter in more detail. I will now turn it over to Eddie to discuss the financial results for the quarter in more detail. Eddie?

Thanks, Sean. I will discuss the segment results beginning with Reinforcement Materials. During the first quarter of 2017, EBIT for Reinforcement Materials increased by $14 million, as compared to the first quarter of 2016. The increase in EBIT was principally due to higher unit margins, along with favorable FX, and the benefit from increasing inventory, partially offset by higher maintenance costs. The higher unit margins were driven boy favorable 2016 contracts in North America and an improving China spot market.

Sequentially, Reinforcement Materials EBIT decreased by $2 million compared to the fourth quarter of FY16, driven by higher maintenance costs and lower volumes in the Americas, partially offset by improving margins. Sequentially, volumes decreased by 1% due to lower seasonal volumes in the Americas partially offset by strong volume growth in China. Looking ahead, we expect a benefit from the 2017 customer agreements in the second quarter, partially offset by seasonal volume weakness due to the Chinese New Year and unfavorable inventory impacts.

Now turning to Performance Chemicals, EBIT decreased by $1 million compared to the first quarter of FY16 due to higher fixed costs and lower margins, largely from the decline in the use of fumed silica in the CMP application, partially offset by higher volumes. Volumes increased by 1% in the specialty carbons and formulations business and 9% in the metal oxides business, largely driven by stronger China sales in key automotive and infrastructure sectors.

Sequentially, Performance Chemicals EBIT decreased by $9 million compared to the fourth quarter of FY16, primarily due to seasonally lower volumes, lower unit margins, and higher maintenance costs, partially offset by favorable inventory change. Sequentially, volumes decreased by 4% in specialty carbons and formulations and by 6% in metal oxides primarily from seasonal demand.

Looking ahead to the second quarter, we expect to see a pick up in volumes that will be offset by higher fixed costs and unfavorable inventory impacts. The business may also experience some margin pressure later in the year if oil remains at current levels.

First-quarter FY17 EBIT in Purification Solutions increased by $9 million compared to the first quarter of FY16 due to significantly higher mass volumes and a favorable impact from increasing inventory levels versus last year's inventory drawdown. Sequentially, Purification Solutions EBIT increased by $2 million compared to the fourth quarter of FY16, driven primarily by a favorable product mix and a favorable impact from increasing inventory levels as compared to the prior quarter. These favorable impacts were partially offset by lower seasonal MATS in North America water purification volumes. Looking ahead to the second quarter, we expect seasonally higher MATS volumes that will be offset by higher fixed costs, a more competitive MATS pricing environment and unfavorable sequential inventory impacts.

First-quarter FY17 EBIT in Specialty Fluids increased by $2 million as compared to the first quarter of FY16 as we benefited from an increased level of project activity in Asia and a stronger [fine season] in chemicals demand. Sequentially, Specialty Fluids EBIT decreased $3 million compared to the fourth quarter of 2016 as we saw reduced project activity in the North Sea. We expect a similar level of project activity for the next quarter with an uptick in activity in the second half of the year.

I will now turn to corporate items. We ended the quarter with a cash balance of $189 million, and our liquidity position remains strong at $1.2 billion. During the first quarter of FY17, cash flow from operating activities were $102 million, including a decrease in networking capital of $16 million. Capital expenditures for the first quarter of FY17 were $22 million.

Additional uses of cash during the first quarter included $19 million for dividends and $16 million for share repurchases. We recorded a net tax provision of $17 million for the first quarter, and our year-to-date operating tax rate was 24%, which also represents our current forecast for the year. As we look at the full year, we expect capital expenditures to be approximately $150 million. And I'll now turn the call back over to Sean.

Thanks, Eddie. We are pleased with the underlying business results for the first quarter. Looking across the segments, Reinforcement Materials is well positioned for growth after a successful negotiation season, and continue to see the environment in China firm up. In the Performance Chemicals segment, end markets remain attractive and we are investing for the future, but 2017 profit levels will be impacted by some near-term headwinds.

The Purification Solutions segment continues to see strong volumes from mass related business and we remain on track to deliver the seasonally adjusted $4 million to $5 million of EBIT per quarter we've discussed in previous calls. Finally, the Specialty Fluids segment continues to make good progress in the expansion into the Asia Pacific region, but as always the timing of projects in this business is uncertain.

We continue to drive our advancing-the-core strategy focused on 7% to 10% EPS growth over time and ongoing strong cash generation. We are maintaining discipline around our capital allocation framework, which balances reinvesting for growth in our core businesses and returning cash to shareholders. Thank you very much for joining us today. I'll now turn the call back over for our question-and-answer session.

(Operator Instructions)

Our first question comes from the line of James Sheehan from SunTrust.

Thank you. Good afternoon. Could you give us more color on the 2017 contracts? What price increases do you get in each region?

Let me characterize things overall. I would say that we are pleased with the outcome of the overall annual negotiations with the major tire customers. I think, in the aggregate, we grew our volume, market participation and expanded unit margins modestly, and in spite of some pricing pressure in certain markets, in particular, in Argentina, and I think a continued challenging pricing environment in North America.

But let me give a little color on the outcome of the negotiations. I think, as you all know, we agree with our major tire customers on annual, sometimes multi-year supply arrangements. And these are typically negotiated in the calendar quarter of the year. Things are a bit different in China and Asia as we agree with many of these tire producers on a quarterly rather than an annual basis. So, there's not much to comment on regarding Asia.

But let me try to give a little bit of color around each region. I'll start with Europe. On the demand side in Europe, the automotive market has been reasonably robust. We've seen pretty solid growth rates in terms of new car registrations. And on the supply side, two of our competitors did announce plant closures in the region, so that certainly tightened up supply a little bit.

As you know, for several quarters, we had been suffering from some compression in our pricing formulas as the fuel oil index that we have historically used became less liquid and disconnected from our actual cost. It's been a dynamic environment and our team's been working hard with our customers to rebuild our profitability there and I'm pleased by the results.

In the outcome of the negotiations we successfully expanded our participation in Europe, helping our customers by absorbing some of the volumes that were displaced by the plants that were closed by our competitors. And we are able to improve our base prices as well as reset the feedstock index to one that more appropriately tracks our feedstock costs. So, we feel pretty good about the overall situation in Europe. We've talked about that in previous calls in terms of where that was trending.

If we move on to the Americas, the situation is a little bit different. I think tire demand across the Americas was more sluggish. In South America, we're seeing continued economic weakness there and that kept downward pressure on tire purchases. And then in North America, tire purchases were actually relatively flat last year. So, unlike Europe, there were no structural supply changes in the Americas either. As a result, we saw some modest price declines in the Americas but we were successful for the second year in a row in recapturing share that we had lost moving from 2014 into 2015.

So, a lot of moving parts there, but overall, a good outcome, consistent with the direction that we had talked about in previous calls. And I'm certainly pleased with the effort of our business teams and also from the support from our customers.

Great, thank you. And then moving on to Purification Solutions, can you talk about any changes you're expecting in the regulatory environments? Would there be any chance that MATS rules would be relaxed in any way? And, also, with respect to coal prices or coal-based power utilities, is there going to be more support for those and do you expect that to favorably impact your demand?

A good question, Jim and one that is a bit difficult to predict exactly how the policies of the current administration will play out here. But I think our view at this point, as we look at things, we see it as unlikely that the MATS regulation would be overturned. This is something that's built from state regulations in a host of states, ultimately to a federal regulation that was then upheld by the Supreme Court. So, I think something that is pretty well settled in at this point, and the utilities have all made the investments and are using activated carbon to remove the mercury levels.

So, difficult to see that at this point there would be some change in that. And I think the administration's focus on EPA matters is probably geared more towards greenhouse gases and rolling back Obama's plans for the CPP, the Clean Power Plan. That's probably where the focus will be. And while President Trump has signaled some support for coal, I think, on balance, that would be net favorable for us, but difficult to see at this stage that it would have any specific impact. I think that's more of a statement than action at this point.

Great. And also on activated carbon, could you talk about your plans to enter the automotive application in a bigger way? I noticed that China has approved standards for their vehicles in 2020. Do you plan to participate in the Chinese market? And, if so, for what plants would you be supplying that market from?

You've touched on an important trend in this business and one that is underpinning one of our focused product development efforts, as most of the world is shifting to higher vapor fuel emission standards, and activated carbon is needed to meet those requirements. We definitely expect to see significant growth in Asia, in principally China. As you point out, I think in both North America and Europe this trend is more developed.

We participate in this today and are the number two share player in the market. But clearly the number one player has a significant share of the market here. So, our product development efforts have been focused here and we've actually been investing in this and have launched some new products into this market.

I think the important thing to understand about it is there is typically a time period where products get qualified and specified in. I think we're well down that path but it generally takes a couple years before you would get fully qualified and see the ramp in business there. So, that's an important market segment, one we are invested in and, again, have made good progress here getting new products out to the market.

Are you going to supply China from an existing plant?

I would say yes.

Thank you very much.

Thank you. Our next question comes from the line of Kevin Hocevar from Northcoast Research.

Hi, good afternoon, everybody. You gave great color on how the contract negotiation season went for Reinforcement Materials, but wondering if you could help us quantify what all that means sequentially for calendar year 2017. How much does that help your volumes? And how much, when you net it all out, does the pricing and incremental volumes help your EBIT as we go forward?

Thanks, Kevin. Maybe I'd just draw the lens back a little bit first to put the progress in this business into perspective. We are certainly pleased with the development in the business, and have been working intensely to restore earnings levels from the lows of 2014. Our position in the marketplace is clear that we are viewed by our customers, both the tire customers and industrial products customers, as the leader. And we're certainly focused on translating that position into improved performance.

Our strategy, as you know, is to leverage what I think is a unique global footprint so that over time we grow at market-rates with our customers, and that we continue to focus on the high-value products and applications in both tire and industrial products, and then, finally, drive ongoing productivity and efficiency in our plant. This is the strategy we're pursuing. I think the results of it are bearing out in what is a steadily increasing earnings picture, and we expect that to continue into 2017.

If you go back to 2015, our EBIT levels in this business were in the mid to high $20 million per quarter range in calendar 2015. And then in calendar 2016, we improved that up into the mid $30 millions range per quarter. And in 2017, we would expect that quarterly profit levels would continue to improve and we would likely see something in the $40 million to $45 million range per quarter. There will be certainly some variation between quarters due to seasonality and timing of maintenance, but you can see a very steady improvement here in the results as we pursue the strategy. So, we are pleased with that progress and that's how I'd frame up the expectations, Kevin.

Okay that's very helpful. And you commented in Performance Chemicals in your outlook that you expect to continue to benefit from robust demand but that rising oil prices could negatively impact the margin. So, wondering what that means to dollar EBIT. Does that mean that lower margins from higher feedstock costs would cause EBIT dollars to decline? Or would the volume help offset that and keep it stable, and maybe trends going forward will be similar to what we saw in the first quarter? There's also the inventory build that sounds like might negatively impact the second quarter. So, wondering if you could help frame up how all of that factors into performance in the Performance Chemicals segment throughout the balance of the year.

There's a lot going on here, Kevin, so let me try to help you understand the drivers and the impact and how they are playing out. Again, like in Reinforcement, I'd like to pull the lens back a bit first to start and underscore that this is a great business. We've got very attractive margins here, markets that are growing at good solid rates, a leadership position in these businesses, and I would say an overall structure that's favorable. It's a terrific business and you've seen that play out over the last several years here. We see real strong opportunities for growth and innovation and, in fact, we're investing accordingly for that.

But as we do move through 2017, there are some near-term challenges that we are managing, namely oil. We'll most likely experience some margin pressure related to higher oil prices throughout 2017. I think the amount of the impact will depend on the rate and magnitude of the moves of oil, as well as competitive dynamics. But that's certainly one that we're managing.

Another is foreign exchange. The continued strengthening of the dollar that we have seen recently will impact our international business results upon translation. A certain amount of this business is produced in the US and sold in other markets, so those profits when they translate back would have some impact.

And then, finally, we're seeing the market for CMP move steadily away from fumed silica as they go to smaller and smaller node sizes in the semiconductor market. So, when you think about the positives in terms of the growth and the new product development we're doing, and combine that against the effects of some of these headwinds in 2017, I'd say that the impact would be maybe roughly $5 million-ish per quarter for the balance of 2017 versus last year. But I think there's certainly uncertainty around where FX rates go and where oil goes and the recovery of oil movement. So, that one is a little bit more difficult to predict but I'd think about it in that way.

Okay, very helpful. And then you called out that MATS-related volume was strong in the quarter and in your outlook you expect higher volumes from MATS related. But you also called out that pricing should be competitive in your outlook. So, I'm wondering what you're seeing there. Is it still just an oversupplied industry even with MATS fully implemented and that's causing the pricing pressure? I'm wondering if you could give us some color on that.

Again, I'd probably start by pulling the lens back a bit. As we talked about last quarter, we feel the right way to be thinking about this business in 2017 is that we would be in the $4 million to $5 million EBIT range per quarter with some seasonality around that. And that's still our view here. And that improvement in EBIT year-over-year is significant and driven by a few different things. The first one is certainly volume growth from a full year of implementation of MATS. And that's certainly playing out.

We also, in the full year of 2017, will see reduced inventory headwinds versus last year, so that contributes to some of the improvement. And our focused efforts on new product development as well as some efforts in improving our variable costs in particular in our mine here in the US, those are contributing.

So, we still feel that that's the right way to think about the business. That being said, the environment in the MATS market is still competitive as people try to stake out positions in this rapidly growing or establishing application, so we are seeing some impact from that. But on balance we still think that the right way to think about it is as I've just laid out.

Okay, perfect. Thank you very much.

Our next question comes from the line of Laurence Alexander, from Jefferies.

Good afternoon. It's Dan Rizzo on for Laurence. You mentioned plastic formulation business. Could you just provide a little color on that? How new is it and is it something that's being commercialized? Just a little more input.

Dan, we have had, as part of our specialty carbons and formulations business, a business in specialty compounds in master batches for a long time, more than 30 years. This business is strategic to downstream business where we draw on the strength of our specialty carbon particle technology to develop compounds that need the performance from specialty carbons. You could call it a strategic formulation and channel play where we combine our upstream specialty carbons and the downstream formulation into plastic compounds to create value.

This has been part of our Company for a long time, and one where we see opportunities for growth, again given our strong backbone upstream in making specialty carbons and combining those in formulations to downstream to sell. That's the business and how it works. And this investment is geared to continue to grow our position here. In the markets we are in, we are the leader. We've got real strength in Europe and real strength in China, in particular. So, so not something new here.

You mentioned people taking their stakes in activated carbon and perhaps the push for vapor emissions in China might be a growth driver. But in the US a portion of the country is moving towards higher emissions, as well, the so-called California standard. I was wondering if that's something that could provide some upside or is that something you're not really staking your position in at this point?

You're right about that. Both the European and North American markets are more established in terms of the vapor emissions. And it appears that those will continue to ratchet, although we'll have to see given the apparent about-face on all of these topics from the Trump administration. But let's see how that plays out.

We certainly are in this market today and our product development efforts are geared to benefit from this. But I think it's important, our focused efforts are in markets where this regulation is really being established and where there's, I think, a more legitimate jump ball to win there.

Okay. And then, finally, you mentioned that your costs did not link with the fuel oil index that you were using. Has it relinked up or are you are just not using that index anymore? Has anything changed?

We, in the negotiations with our customers, work hard to help our customers understand that this impact was a structural one, and one that really needed to be addressed in order to keep the business healthy and on a good track. So, we spend a lot of time with our customers on that and help them understand that and, as a result, have been able to change the structure of those arrangements in terms of the index and the way that that formula works so that we feel it has a much better track to our actual purchase cost.

Thank you very much.

Thank you. Our next question comes from the line of Chris Kapsch from Aegis Capital.

Sean, just following up on that last point, you're talking about structurally having changed the index link in Europe specifically, not across the world; is that correct?

That's correct, yes. You might remember, Chris that some time in the past year or so we had commented on the feedstock situation and how in Europe we felt it was a structural disconnect and therefore needed to be addressed in the customer discussion. That's what I'm referring to, having addressed that.

Right. The feedstock differential was an issue in North America for awhile, too. And there was, at one point, the notion that the industry would try to structurally change that index link in North America, as well. But it sounds like that didn't happen in this round of negotiations of annual supply contracts, and maybe perhaps because it normalized. But can you just characterize the normalization? Will you get a year-over-year benefit in the fact that it has normalized now versus, say, the last couple years when there was adverse differentials? Could that be perceived as a de facto price increase?

And then just along those lines, to try to get a little more granular in the outcome of the North American contract negotiations, it sounded like you ceded price, setting aside the differential question, it sounds like you ceded price. Can you just provide some order of magnitude what the volume gain might have been and the price secession might have been?

Let me first, Chris, try to talk about the feedstock differentials in North America. You might recall that those moved from favorable differentials to unfavorable differentials. And that move was largely related to the opening of the arbitrage between Chinese coal tar and global fuel oil prices. When that opened up, a lot of the Asian carbon black producers switched from pulling feedstock in the Gulf Coast to taking Chinese coal tar because that arbitrage was beneficial.

Now, that has all reversed and or view on that is that it's unlikely to open back up because that arb opened up because of Chinese stimulus and stimulus in steel which created more coking and more coal tar. That certainly is not the case today. But what happened is, then, as that arbitrage closed, then people who traditionally bought in the Gulf Coast moved back and the differential started to swing in the other direction.

And then there are always some things that can happen here in terms of specific suppliers. And when they have outages or turnarounds, you can find things can move. But I would say, as we look at it, those differentials have returned to the long-term historical norms. That's how we see that one.

But the year-over-year affect, does it represent a de facto price increase with that having normalized this year versus, say, last year?

I don't think so, Chris, because we have been talking about this gradually normalizing here for a little while. This is not a recent phenomenon. So, I don't think you'd see anything material there. But we feel that it's in the right place -- or, a very reasonable place right now. And the factors that drove the movements we understand well and don't see those swinging in any large way. Hopefully that they stay around that historical norm level. That's our view.

Your second question was around the contracts, the tire negotiations in particular in North America. I would say that the North American demand environment was pretty much flat in terms of production over this past year. There were still lingering effects from passenger car anti-dumping duties from China, and then also more recently, the TBR, the duties against truck tires out of China. All of that lead to a certain amount of channel stuffing and, therefore, depressing a bit the overall production environment in North America. While sales may have been more healthy, production was more flat.

So, the environment was not as supportive in terms of growth as one might think about in terms of long-term fundamentals. So, as a result, market pricing did move down a little bit. We acknowledge that that was happening, but, on balance, felt that we ended up in a good place here in terms of restoring or regaining share back to previous levels, and at good prices.

Okay. And if I could just follow-up, you mentioned in the outlook for each segment some sequential inventory-related headwinds, I think in RM and Specialty and in Purification Solutions. Could you just elaborate on that? In Purification Solutions, in particular, I thought we were at a point where, with the MATS-related inventory that you had built ahead of the anticipated original MATS implementation date, that you'd be burning through that inventory, getting to a point now where you'd actually see beneficial inventory trends. So, that one is a little bit of a surprise. But if you could just elaborate on why there's inventory-related headwinds on cost accounting for each of the segments on a sequential basis that would be helpful. Thanks.

Yes, sure. Let me start with Reinforcement where, as we were working through the fall period and customer negotiations and had greater clarity about how those were going to shake out, and the volume growth associated with those, we did in fact produce more inventory so that we could ramp up and serve our customers, as committed. That was a certain build in the period that will not recur in the next period. So, that's a bit of the context there.

On Purification Solutions, at a high level I think you've captured it well and our view hasn't changed on this one. In terms of the absolute impact from inventory build in 2017 we expect very limited absolute impact. So, that is the case. Now, there may be some movements quarter to quarter but over the full year, we're not expecting significant absolute impact from that. But when comparing certain quarters there will be some favorability there. And on a full year basis, I think we still expect that to be in the $10 million range of benefit.

Okay, fair enough. And then if I could just follow-up on one more, because you mentioned China strength in a couple different businesses, RM and then in PC. Within PC it sounded maybe more like the metal oxide business. Do you have any insights into what really is driving the strength in China? For example, in RM, is there underlying economic strength? Or could this possibly just be tied to this one-time push by Chinese tire manufactures to export a bunch of tires ahead of those tariffs that are in the process of being implemented? And then any color on the metal oxide strength would be helpful, as well.

I think in terms of China, certainly on the RM, the Reinforcement side, we probably did see a little bit of benefit from tire producers trying to aggressively export truck tires ahead of the North American duties. But I think there are a couple of other factors playing out here, as well, in China.

One of them is that China has continued to pull certain stimulus levers to continue to grow the economy at the rate they are trying to grow it there. So, that has trickled through.

And we've also seen some enforcement actions that I think are providing overall support for our businesses, regulatory and enforcement actions. And I'd broadly characterize them as under an environmental umbrella. One of them is that China has imposed strict regulations and seems to be enforcing the amount of weight that trucks are rated to carry. China had been a chronic sort of abuser of that, in a sense, overloading trucks constantly. And with that happening, it means to move the same amount of freight, you've got to have more trucks on the road. So that's a positive factor for us.

And then I think the overall environmental enforcement level in China right now, I think is something that I see as different and positive, from our perspective, given the air quality problems in China. I think finally we are seeing what are on the books pretty strict environmental emission standards but we're seeing them being enforced much more. So, as that's happening, I think a couple of things are swinging a bit in our favor here.

One is the playing field is a little more level because, as the leader and a global player, we certainly comply with all of the standards and regulations. But now that playing field leveling a little bit. And I think some of our customers, having a preference for Cabot, given our stability and reliability in this area. So, how China enforces these things is always a little bit opaque, but I'm definitely seeing a different story today than we have in the past, and it's a more favorable one. So, I think those are the factors that are underpinning China.

Thanks for the color. Appreciate it.

Thank you.

(Operator Instructions)

I see no other questioners in the queue at this time, so I'd like to turn the call over to Sean Keohane for closing.

Thank you all for joining us again, and thank you for your support of Cabot. And I look forward to speaking with you next quarter.