What's in Store for Cabot Corp. (CBT) in Q1 Earnings?

Specialty chemicals and performance materials producer, Cabot Corp. CBT , is set to release first-quarter fiscal 2017 results after the market closes on Feb 1.

Last quarter, the company delivered a positive earnings surprise of 6.38%. It reported adjusted earnings of $1.00 per share that beat the Zacks Consensus Estimate of 94 cents. Net sales of $619 million slipped 7.7% year over year. However, fixed cost reductions and higher margins 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 while missing the other two, with an average negative surprise of 0.89%. Let's see how things are shaping up for this announcement.

Factors to Consider

In fourth-quarter fiscal 2016, Cabot Corp. performed well, with its adjusted earnings per share increasing 35.1% year over year. The increase was primarily driven by lower fixed costs and higher margins.

Cabot Corp. recently outlined a strategy which includes investing for growth in the core operations, innovating applications with customers and generating strong cash flow through efficiency. Over the long term, the strategy is expected to boost earnings by 7−10%. Moreover, the company looks to return 50% of its discretionary free cash flow, further improving shareholder returns.

The company's Specialty Fluids segment's EBIT increased by $7 million year over year in the fourth-quarter 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.

Cabot Corp.'s Performance Chemicals segment saw a $9 million year-over-year increase in EBIT in fourth-quarter fiscal 2016 due to a stronger product mix and better price, along with lower raw material and fixed costs.

The company's Reinforcement Segment saw its EBIT increase by $11 million year over year in the last reported quarter. The higher EBIT was primarily driven by better pricing and product mix.

Overall, Cabot Corp. expects growth to remain moderate across all segments in 2017. Sequentially, the first quarter is expected to be weaker due to seasonality and higher maintenance costs for projected plant turnarounds.

Cabot Corp. has underperformed the Zacks categorized Chemical-Diversified industry in the last three months. The company's shares gained 8.1% while the gains recorded by the industry was 13.2%.

Earnings Whispers

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: The Earnings ESP for Cabot Corp. is +1.45% as the Most Accurate Estimate stands at 70 cents while the Zacks Consensus Estimate is pegged at 69 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Cabot Corp. currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1, 2 (Buy) or 3 have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Cabot Corp.'s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

Cabot Corporation Price and Consensus

Cabot Corporation Price and Consensus | Cabot Corporation Quote

Stocks That Warrant a Look

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

Vale S.A. VALE has an Earnings ESP of +34.29% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

Cliffs Natural Resources Inc. CLF has an Earnings ESP of +26.09% and a Zacks Rank #2.

Coeur Mining, Inc. CDE has an Earnings ESP of +54.55% and a Zacks Rank #3.

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Cabot Corporation (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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