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Cabot Corp. (CBT): Stock Poised to Beat Earnings in Q4?

Specialty chemicals and performance materials producer, Cabot Corp. CBT , is set to release fourth-quarter fiscal 2016 results after the market closes on Oct 31.

Last quarter, the company delivered a positive earnings surprise of 1.09%. It reported adjusted earnings of 93 cents per share that beat the Zacks Consensus Estimate by a penny. Net sales of $621 million slipped 10.5% year over year. However, cost reductions led to a year-over-year improvement in operating profits and earnings.

The company has beaten the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive surprise of 2.07%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Cabot Corp.is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP:Earnings ESP for Cabot Corp. is currently pegged at +7.45%. This is because the Most Accurate Estimate stands at $1.01 while the Zacks Consensus Estimate is pegged at 94 cents. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Cabot Corp. carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

What is Driving the Better-than-Expected Earnings?

In third-quarter fiscal 2016, Cabot Corp. performed relatively well, with its adjusted earnings per share surging 45.3% year over year. The increase was primarily driven by cost reduction as a result of restructuring measures undertaken by the company. In the third-quarter earnings call, management stated that it expected the Performance Chemicals and Specialty Fluids segments to perform moderately and results at the Reinforcement Materials and Purification Solutions segments to strengthen.

Cabot Corp. recently outlined a new strategy which includes investing for growth in the core operations, innovating applications with customers and generating strong cash flow through efficiency. Over time, the strategy is expected to boost earnings by 7%−10%.

The company's Specialty Fluids segment's EBIT increased by $7 million year over year in the third quarter of fiscal 2016. The segment also saw a rise in EBIT sequentially due to an increased level of project activity in the North Sea as well as in Asia. These projects are expected to continue to positively affect the fourth quarter. However, the profitability in the fourth quarter is not expected to be at the same level as seen in the third quarter.

Cabot Corp.'s Performance Chemicals segment saw an $11 million year-on-year increase in EBIT in third-quarter fiscal 2016 due to higher volumes as well as improved margins backed by a stronger product mix and lower raw material costs. However, in the fourth quarter, the segment's results are expected to moderate due to normal seasonal impact.

The company's Reinforcement Segment saw its EBIT increase by $3 million year over year in the last reported quarter. The higher EBIT was primarily due to lower fixed costs as a result of the restructuring initiatives taken earlier. Management is optimistic about the coming quarters on the basis of improved product mixes and the price increases being implemented in various regions.

CABOT CORP Price and EPS Surprise

CABOT CORP Price and EPS Surprise | CABOT CORP Quote

Stocks That Warrant a Look

Here are some other companies in the basic materials sector you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat this quarter:

The Chemours Company CC has an Earnings ESP of +25.71% and a Zacks Rank #1.

Koppers Holdings Inc. KOP has an Earnings ESP of +18.18% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

LyondellBasell Industries N.V. LYB has an Earnings ESP of +0.87% and a Zacks Rank #2.

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CABOT CORP (CBT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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