Cabot Q4 profits fall 54% on contract lag

29 October 2008 22:22  [Source: ICIS news]

HOUSTON (ICIS news)--US carbon black producer Cabot’s fiscal fourth-quarter net profits plunged 54% to $11.0m (€8.7m) from $24m in the same quarter of 2007 in large part due to a time lag in the renewal of feedstock contracts, the company said on Wednesday.

Cabot makes carbon black for rubber used in auto tyres.

Net sales during the quarter ended 30 September were $853m, compared with $675m in the fourth quarter of 2007, the company said.

“Key drivers of this quarter's performance are first, as anticipated, the negative time lag effect in our [feedstock] rubber blacks supply contracts was unprecedented,” said Cabot president and CEO Patrick Prevost.

The time lag of feedstock pricing adjustments in the company’s rubber blacks supply contracts cost the company $34m during the quarter, compared with $13m in the same quarter of 2007, Cabot said.

“Rubber blacks nonetheless improved profitability [increasing by $13m from the 2007 fourth quarter] despite the difficult operating environment through strong margin and cost management,” Prevost continued.

“Second, the softening economic environment became more global in scope and affected our volumes during the quarter, particularly in the automotive and construction sectors,” Prevost said. “Third, our other income and expense was unfavourably affected by $9m from the non-cash translation of inter-company loans, denominated in US dollars, provided to our Brazilian subsidiary, whose currency depreciated during the quarter."

Looking to fiscal year 2009, Prevost said he was confident in the company’s long-term strategy but added he was “concerned about the global economic slowdown and its effect on demand in all of our key businesses”.

He added, “Notwithstanding this softening, the recent unprecedented decline in carbon black raw material costs will provide a significant contract lag benefit in the coming quarter”.

($1 = €0.79)

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By: Brian Ford
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