Responding to a global downturn that reduced rubber black volumes by 29% last quarter, Cabot has announced a major restructuring of its operations, including the closure of four plants and one regional office. Cabot will also mothball assets at two sites, reduce hours at one site, and delay the start-up of capacity in China. In its earnings announcement, released after the close of business on Wednesday, Cabot did not indicate which plants would be affected. Cabot will hold an earnings conference call on the results on Thursday, January 29, at 2:00 pm EST.
For the first quarter of FY 2009, Cabot Corporation reported net sales of $652 million and net earnings of $4 million ($0.06 per diluted share), compared to net sales of $711 million and net income of $36 million ($0.56 per diluted share) for 1Q FY 2008. Profitability benefited from favorable contract lag, offset by significantly lower volumes in all regions from lower demand in the tire and automotive industries and customer de-stocking.
Compared to the same period of fiscal 2008, Cabot’s Rubber Black volumes declined by 29% globally — North America decreased 22%; South America decreased 40%; the Europe, Middle East, Africa region decreased 29%; Asia Pacific (excluding China) decreased 26%, and China decreased 30%. The time lag of feedstock-related pricing adjustments in Cabot’s rubber blacks supply contracts benefited results by $22 million in the 1Q FY 2009, while the favorable LIFO impact was $10 million. This compares to an unfavorable contract lag impact of $9 million and an unfavorable LIFO impact of $6 million in the same period of 2008. Additionally, the Rubber Blacks Business recorded an $11 million unfavorable adjustment in order to reduce inventory values to current market prices.
Below is the section regarding the restructuring program.
Restructuring In response to a significant reduction in global demand, Cabot today announced a restructuring of its operations. Over the course of calendar year 2009, the Company intends to close four of its manufacturing operations and one regional office. In addition, Cabot plans to mothball assets at two sites, implement short worktime at one site and delay the start-up of new capacity in China. The restructuring is expected to result in an approximate $80 million cash charge and non-cash charges of approximately $70 million. A majority of the total costs will be incurred during fiscal 2009. The Company has already instituted hiring, travel and salary freezes, reduced capital spending plans by $50 million from fiscal 2008 levels, eliminated 300 contractor positions, reduced corporate costs and realized significant working capital reductions. This restructuring plan is expected to deliver in excess of $80 million of annual fixed cost savings in fiscal 2010 and result in a reduction of approximately 500 jobs, or 12% of Cabot’s global workforce.
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