Cabot Corporation Stock

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2026 Cabot Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded.

I am going to turn it over to our first speaker, Robert Rist, Vice President of Investor Relations. Please go ahead.

Thank you, Victor. Good morning. I'd like to welcome you to the Cabot Corporation earnings teleconference. With me today are Erica McLaughlin, CEO and President; and Steve Delahunt, Interim CFO and Treasurer.

Last night, we released results for our fourth quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this 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 the risks and uncertainties that could cause actual results to differ materially from those projected in such statements.

Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are also 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 a financial measure required by GAAP. Any non-GAAP financial measure 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 Investors section of our website.

Also, as we typically do each year, I'd like to remind you that over the next several weeks, in conjunction with the vesting of restricted stock awards under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards.

I will now turn the call over to Erica, who will discuss the fourth quarter highlights, followed by several company and business updates. Steve will review the fourth quarter financial highlights and the business segment results. Following this, Eric will provide comments on our fiscal 2027 outlook and then open the floor to questions. Erica?

Thank you, Rob. Good morning, ladies and gentlemen, and thank you for joining us today.

Before we get into our fourth quarter results and full year results, I'd like to say a few words about our recently announced leadership transition. I'm honored to be joining you today for my first call as Cabot's CEO, and I'm excited about what's ahead.

I'd also like to thank Sean for his leadership and for his support during this transition. We have strong businesses and a talented experienced team, and I'm fortunate to have that foundation to build on. Having the various roles I have had at Cabot over the past 24 years, I know our businesses and our team well, and you should expect continuity in how we manage the company, including our commitment to a strong balance sheet and investment-grade credit profile and our balanced capital allocation framework.

My focus is on investing behind growth opportunities while staying disciplined in how we run the business to deliver long-term value for our shareholders. I'll share more on our priorities for fiscal 2027 later in the call.

Now starting with our fiscal 2026 results. We finished the year with solid financial performance. In the fourth quarter, we delivered adjusted EPS of $1.61 with Reinforcement Materials generating $87 million of segment EBIT and Performance Chemicals delivering $60 million. We also generated $143 million in cash flow from operations during the quarter and returned $70 million to shareholders.

For the full year, adjusted EPS was $6.42, reflecting strong execution across the portfolio despite a dynamic operating environment. Reinforcement Materials delivered $379 million of segment EBIT and Performance Chemicals generated $235 million. Importantly, our earnings performance translated into strong cash generation. We generated $421 million of cash flow from operations for the year, giving us the flexibility to continue investing in the business while also returning significant cash to shareholders.

In total, we returned $243 million to shareholders during fiscal 2026, including $97 million through dividends and $146 million through share repurchases. Taken together, these results demonstrate the strength of our portfolio, our focus on disciplined execution and the cash-generating capability of the company.

Our progress this year also extended beyond our financial results. We advanced a number of strategic priorities that we believe strengthen our business and position us to create value over the long term.

Let me highlight a few of those accomplishments. First, we successfully completed the acquisition of a reinforcing carbons facility in Mexico from Bridgestone. This acquisition strengthens our regional manufacturing footprint and enhances our ability to serve customers in the Americas. The facility is performing well. Integration activities have been completed as planned, and we remain on track to meet our financial targets. The long-term supply agreement with Bridgestone also provides a strong foundation as we move forward.

Our progress this year also extended to our sustainability performance with continued recognition from external third parties.For the sixth consecutive year, we earned a Platinum sustainability rating from EcoVadis, its highest level of recognition.

EcoVadis assesses the sustainability performance and management systems of more than 150,000 companies across more than 185 countries, and our platinum rating places Cabot among the top 1% of companies assessed globally.

This year, we improved our overall score by 5 points, our largest year-over-year improvement to date, while once again earning an outstanding rating in both the environment and labor and human rights categories. We were also recognized by the American Chemistry Council with 2 2026 Responsible Care Awards. We received the Waste Management and Water Stewardship Award for an initiative at our Franklin, Louisiana facility, and nearly all of our U.S. manufacturing facilities received the ACC Facility Safety Award based on their 2025 safety performance, reflecting our continued focus on strong safety practices across our operations.

In addition, we also took actions to enhance our financial flexibility in a dynamic environment. Our long-standing investment-grade credit profile enabled us to upsize our corporate credit facility and refinance our debt maturity on favorable terms. We increased our corporate credit facility to $1.3 billion, completed a $350 million senior notes offering at a 4.95% coupon and ended the year with $1.5 billion of liquidity. This provides us with significant flexibility as we navigate the current environment and continue investing behind our strategic growth opportunities.

And finally, Performance Chemicals had another strong year of strategic execution and financial performance, delivering a new level of segment EBIT. These results reflect the focused effort to grow in key end markets such as batteries and electronics. Our progress in Battery Materials is a good example of how we are leveraging our global asset footprint and strong product development capabilities to drive meaningful growth.

Let me spend a few minutes on the milestones we achieved this year. As we've highlighted on recent calls, Battery Materials represents an important long-term growth opportunity for Cabot. Fiscal 2026 was another year of meaningful progress, both financially and strategically.

For the year, Battery Materials delivered $43 million of EBITDA with an EBITDA margin of 26%. We are pleased with both the earnings contribution and the attractive margin profile we are achieving as we grow the business. These results were supported by strong customer demand and higher volumes and reflect the strength of our differentiated product portfolio, our deep and expanding relationships with leading battery customers and our global manufacturing and technology footprint.

One of the examples of where we built momentum with customers is the multiyear supply agreement with PowerCo that we announced this year. This was an important milestone that expanded our partnership with a leading European battery manufacturer. The agreement supports PowerCo in the localization of the battery supply chain as new lithium-ion battery capacity is built in Europe to serve growing electric vehicle and energy storage demand.

Local supply is increasingly important to battery customers as they build more resilient and efficient supply chains. Our global manufacturing and technology footprint enables us to serve customers locally across the major battery regions.

During fiscal 2026, we also progressed a number of investments to support this growing customer demand. We are investing to expand our capacity in a disciplined and capital-efficient way.

As we discussed last quarter, we announced $125 million capacity expansion program in the U.S. and China. This amount is net of a $50 million grant from the U.S. Department of Energy that was agreed to this year to support our investments for advanced conductive additives capacity at existing U.S. Cabot locations.

In addition to the investments we are making in the U.S., we are also adding conductive additives capacity in China to support continued battery growth with key customers. We expect this new capacity to begin contributing to earnings in fiscal 2028. We are making these investments against what we see as an attractive long-term market backdrop with battery demand currently projected to grow at a 15% CAGR through 2030.

As we look specifically at fiscal 2027, we see this as an important investment year for Battery Materials. We expect to continue growing the business from the $43 million EBITDA delivered in fiscal 2026 and expect EBITDA to be in the high $40 million range in fiscal 2027. We expect the capacity expansions that we are making during fiscal 2027 will enable more significant growth in 2028 when the investments come online.

So as we look to the future, we believe we are putting the pieces in place for the next phase of growth in Battery Materials. We have an attractive market opportunity, strong customer relationships, a differentiated product portfolio and targeted capacity investments that will expand our ability to serve customers across all major regions as demand grows.

With that, I'll turn the call over to Steve to take you through our fourth quarter financial results and segment performance in more detail. Steve?

Thanks, Erica. In the fourth quarter, we delivered adjusted EPS of $1.61 with strong results in Performance Chemicals, partially offset by lower earnings in Reinforcement Materials.

For the full year, adjusted EPS was $6.42. Cash generation was a highlight of the quarter. We generated $143 million of cash flow from operations and $117 million of discretionary free cash flow, bringing full year operating cash flow to $421 million.

Capital expenditures were $55 million in the quarter and $207 million for the year. That reflects our balanced approach of maintaining and improving our existing operations while funding targeted growth investments, including in Battery Materials.

Our cash generation also allowed us to continue returning cash to shareholders, as Erica mentioned. Our balance sheet remains strong. We ended the year with $254 million of cash and cash equivalents, debt of approximately $1.3 billion and $1.5 billion of liquidity.

Following the refinancing actions completed during the year, we entered fiscal '27 with a solid investment-grade credit profile, meaningful financial flexibility. Our full year operating tax rate was 29%. Overall, we closed fiscal 2026 with strong cash generation and a solid balance sheet, which gives us the flexibility to keep investing in growth while returning cash to shareholders.

Let me now walk through the segment results in more detail, beginning with Reinforcement Materials. During the fourth quarter of fiscal 2026, EBIT for Reinforcement Materials was $87 million compared with $119 million in the prior year quarter.

EBITDA was $111 million and EBITDA margin was 18%. The year-over-year decline in earnings was primarily driven by lower gross profit per ton resulting from the outcomes of our calendar year 2026 customer agreements as well as a less favorable regional product mix. These impacts were partially offset by higher volumes.

Global volumes increased 5% year-over-year, driven by higher volumes in both Asia Pacific and the Americas, including higher volumes from our capacity addition in Indonesia and our acquisition in Mexico.

We were pleased with the volume performance in the quarter, particularly given the mixed demand environment across regions. While the outcome of the 2026 customer agreements has pressured year-over-year comparisons, our team remains focused on operational performance, close customer engagement and actions to improve the competitiveness and profitability of the business over the long term.

Looking ahead to the first quarter of fiscal 2027, we expect EBIT to improve modestly from the fourth quarter despite normal seasonal volume patterns. We expect the improvement to be driven primarily by higher gross profit per ton as regional product mix becomes more favorable. On a year-over-year basis, we expect EBIT to be lower, primarily reflecting the outcomes of our calendar year 2026 customer agreement.

Now turning to Performance Chemicals. Performance Chemicals finished fiscal '26 with another strong quarter, building on the momentum we've seen throughout the year. Segment EBIT increased 43% to $60 million from $42 million in the prior year quarter.

EBIT grew 30% to $83 million with EBITDA margin expanding to 24% from 21% over the same period. We're particularly pleased with the combination of earnings growth and margin expansion, which we believe reflects the strength of the portfolio and our continued focus on higher-value applications.

These results were supported by higher volumes in Battery Materials and Specialty Carbons compared with a year ago. We also benefited from a higher gross margin per ton, primarily driven by favorable product mix and lower costs.

Importantly, we continue to see good momentum in several of the attractive growth markets we've been targeting, which is helping to offset softer conditions in some of the more traditional end markets.

Looking ahead to the first quarter, we expect Performance Chemicals segment EBIT to be higher than the prior year period, primarily due to higher volumes, but below the strong level we delivered in the fourth quarter. Sequentially, we expect the timing of higher costs and a shift in the product mix to reduce EBIT by approximately $6 million to $8 million. The expected sequential change is primarily related to the timing of certain costs and seasonal sales patterns rather than a change in the underlying momentum of the segment.

Overall, we remain encouraged by the trajectory of the Performance Chemicals segment as we enter fiscal 2027 and by the growth opportunities across the portfolio. Below the segment level, we expect first quarter results to be impacted by higher corporate costs and a higher operating tax rate compared with the first quarter of fiscal 2026.

I will now turn it back to Erica to discuss our outlook and closing remarks. Erica?

Thanks, Steve. Before turning to our outlook, let me spend a few minutes on the current business environment for both our Reinforcement Materials and Performance Chemicals segments.

Overall, the business environment for Reinforcement Materials includes a backdrop of relatively flat expectations for global tire production. Industry forecasts point to a global tire production that is expected to grow at 0.3% in calendar year 2026 and grow at 0.9% in calendar year 2027. Within these global forecasts, there are differences in the tire production growth profile by region.

In 2026, tire production is expected to decline in the Americas, Europe and China, while strong growth in Southeast Asia is expected to support the modest global growth expectations. For 2027, the regional outlook also remains mixed with growth led by Southeast Asia and Europe, relatively flat volumes expected in the Americas and a decline in tire production in China.

In addition to the outlook for tire production, tire trade flows are also an important piece of the backdrop for Reinforcement Materials. Across North America, tariffs and trade measures on imported tires have increased in recent years, particularly on imports from Asia. With these measures in place, tire imports into the region are down 5% year-to-date through August.

While we have not yet seen this translate into higher tire production in 2026, over time, lower import levels could provide support for regional tire production and Reinforcement Materials demand in North America.

In Europe, anti-dumping duties took effect in July of 2026 on Chinese passenger and light truck tires with most in the range of 25% to 45% depending on the company. Countervailing duties are expected to be added in December 2026, which would increase the total duties assessed by company. These additional countervailing duties are expected to be in the range of 5% to 10%. Tire imports into Europe are down 11% year-to-date through August, with tire imports from China declining significantly, and some of that volume has shifted to tire imports from Southeast Asia.

Moving to South America. Rising tire imports continue to pressure regional tire production. While Brazil has maintained a 25% tariff on imported passenger car tires since 2023, these measures have not been sufficient to meaningfully curb imports or ease competitive pressure on domestic tire producers.

Tire imports into South America are up 21% year-to-date, continuing to weigh on regional tire production. These tire trends are expected to impact regional reinforcing carbons demand as reinforcing carbons demand levels usually track directionally with the tire production by region.

So as we look at the Reinforcement Materials overall, the external environment remains pressured with relatively flat demand projected and differences across regions. We expect the strongest areas of demand to be growth in Southeast Asia and Mexico, which are well supported by the investments we have made for capacity in Indonesia and the acquisition in Mexico.

In addition, we continue to optimize our global footprint to allow us to serve customers and to adapt as trade flow shift. Our long-standing relationships with leading tire makers allow us to work closely with them as they make choices around their capacity shifts. We will continue to remain nimble in our decisions to serve customers and improve the competitiveness of our global footprint.

If I move to Performance Chemicals, the business environment is mixed as this segment benefits from a more diverse portfolio of end markets to serve than our Reinforcement Materials segment.

As you will recall, this segment serves a broad range of end markets with automotive, infrastructure, batteries, electronics, construction and consumer applications. That diversity, combined with our participation in faster-growing applications, has been an important source of strength as our results this year demonstrate.

Across certain end markets, demand levels have been impacted by the broader geopolitical and economic conditions. For example, automotive production has been relatively subdued with global light vehicle production expected to decline 1.8% in calendar year 2026. It is expected that automotive industry will stabilize in calendar '27 with modest global growth of 0.5%, although trends will continue to vary by region. The strongest growth is expected in South America and Southeast Asia, while North America is expected to return to modest growth.

As a reminder, within Performance Chemicals, we participate in the automotive market across a range of applications, including coatings, adhesives and conductive compounds for various plastic parts.

Construction-related applications remain soft as well, particularly in China and Europe. New construction in China declined 25% year-over-year through August 2026, reflecting the continued weakness in the property market. European construction activity also remained in contraction with residential construction particularly weak. The U.S. has been more resilient with building permits up 2% year-to-date through August.

For Cabot, we supply products for silicone sealants, reinforcing composites and insulation materials that are used in construction end markets. At the same time, there are many areas of attractive growth across several end markets served by Performance Chemicals, such as batteries, conductive and electronics applications. Battery demand continues to benefit from growing electric vehicle adoption and stationary energy storage, supporting our expectation for 15% market growth through 2030.

In electronics, we see attractive growth opportunities across a range of applications, including our fumed silica used in CMP polishing slurries for the semiconductor industry, specialty carbons used in displays and specialty carbons and compounds for other conductive applications. Additional growth is driven by electrical grid modernization and energy infrastructure investments used due to data center growth that support demand for our specialty carbons and compounds used in power distribution cables.

Performance Chemicals has delivered strong EBIT growth over the last 3 years despite softness in some of our end markets. So while the market environment is not uniformly strong, our track record speaks to the strength of Cabot's broad range of products across Performance Chemicals and our global asset footprint that allows us to deliver volume growth aligned with these macro trends.

With this business environment in mind, we expect fiscal '27 adjusted earnings per share to be in the range of $6.15 to $6.75. This range reflects a variety of potential outcomes in what remains a dynamic environment. The range contemplates various demand scenarios as well as a range of potential outcomes for our calendar year 2027 customer agreements in Reinforcement Materials, which are still being actively negotiated. We will remain focused on commercial execution, cost management, completing our restructuring and optimization actions and ensuring disciplined capital allocation.

Our outlook also assumes an operating tax rate of 28% to 30% and capital expenditures in the range of $200 million to $230 million. Our investment plans include spending to maintain our existing operations along with targeted growth investments. We expect to generate favorable free cash flow supporting both our strategic investments and the return of cash to shareholders.

So while fiscal 2027 is expected to remain a mixed business environment, we remain confident in our ability to manage through the environment by focusing on the factors within our control, capturing growth where we see it and maintaining our financial discipline.

With that outlook in mind, let me turn to our priorities for fiscal 2027. First, we're focused on growing with key customers in attractive end markets. We're working closely with Reinforcement Materials customers to meet their demand needs around the world with strong quality, reliable supply and a broad product offering.

We continue to see growth opportunities in battery materials, conductive and electronic applications where our differentiated product and technical capabilities position us to participate in long-term demand growth. Our focus is on translating these opportunities into sustained volume growth across the portfolio.

Second, we'll continue to focus on ways to strengthen our competitiveness. Our commercial excellence and operational excellence programs remain central to how we run the business, and we will continue to adapt to the changing business environment to drive strong performance. We are focused on completing our previously announced restructuring actions and other cost optimization activities, and we believe that these are important steps to improve efficiency and strengthen our cost position.

Third, we'll continue to advance our organic growth projects while remaining disciplined about where we invest.

As I discussed earlier, we are investing in battery materials with additional conductive additive capacity with those investments expected to begin contributing in fiscal 2028. We will also continue investing in process technology enhancements to enhance our competitiveness in Reinforcement Materials.

Finally, we'll pursue inorganic opportunities that, one, strengthen our competitive position and complement our portfolio; two, drive growth; and three, provide attractive economic returns in a 3 to 5 year time frame.

We'll look for opportunities to increase scale, geographic access and participation across our carbon black and silica franchises, and we will also target adjacent materials and technology investments in high-growth areas. These areas include batteries, conductive and electronic materials.

We'll evaluate any opportunities with the same financial discipline we apply to our organic investments while protecting our investment-grade credit rating. Taken together, these priorities are about controlling what we can control in a dynamic business environment while continuing to invest in the areas that we believe will drive Cabot's longer-term growth. We believe the balance of near-term execution, targeted investment and disciplined capital deployment is the right approach as we enter fiscal 2027.

So in conclusion, Cabot is well positioned to deliver value for our shareholders. We have a very strong foundation that includes leading positions in materials that are critical to our customers' products, and we participate in high-growth applications that provide opportunity to expand the business and improve our product mix over time.

We have a strong competitive cost position and a flexible global footprint that allows us to serve customers around the world and adapt as business conditions change. And our strong cash generation, supported by our proven discipline around managing working capital and capital spending gives us the financial flexibility to invest through the cycle and enable Cabot to continue to grow, launch new products and enhance our competitive position. We'll continue to balance those investments with returning cash to shareholders while maintaining an investment-grade credit rating.

So while the near-term environment remains dynamic, these strengths give me great confidence in Cabot's ability to continue to execute well, deliver strong financial performance and strengthen our leadership position. I'm excited about the opportunities we have to grow and create long-term value for our shareholders. Thank you again for joining us today.

I'll now turn it over to Victor to open the floor for questions.

[Operator Instructions] Our first question will come from the line of David Begleiter from Deutsche Bank.

This is Emily Fusco on for Dave Begleiter. How are tire contract negotiations proceeding? And maybe if you could give any color on expectations by region or any what percentage of negotiations have been settled? Just any color there would be great.

Sure. Emily, thanks for the question. So right now, we're in the midst of our calendar year '27 tire customer negotiations. I'd say we've concluded about 1/3 of those negotiations at this stage. We are I would say the outcomes right now vary on a case-by-case basis and it's a bit premature to characterize final outcomes before the process is complete. So right now, the range that we've provided gives the best view of the progress and the outcomes we've seen to date. And of course, we provide fuller updates as the process concludes later in the year.

Our next question will come from the line of Peter Osterland from Truist Securities.

This is Alex on for Pete. I was wondering how you see the current energy, freight and logistics environment flowing through the P&L? And is there anything to point out in regards to higher freight prices, maybe keeping some tire imports incrementally out of some of the more freight-dependent markets?

Yes. So thanks, Alex, for the question. So I think as you know, most of our Reinforcement Materials products stay within regions. So the freight and logistics associated with moving products Reinforcement is largely just within region and properly, I'd say, contracted. So there's not too much impact we see from that. And then in our Performance Chemicals segment, where we do move some of our specialty materials across regions, also, I'd say, well-negotiated contracts on the logistics and then pricing that we would use as a lever to counteract any increases.

And so we've successfully implemented price increases as we've moved through 2026 in Performance Chemicals, as we've talked about before. And that would be -- we see our margins holding very nicely in that segment. The impact of higher energy and feedstock costs is probably more predominant than the logistics. And so these vary by segment as well. So in Reinforcement Materials, generally have the pricing construct to pass on higher feedstock and energy costs that helps protect the dollar margin profitability in that region. And then we also have what we call our energy centers, which produce steam or electricity. And as energy prices rise, that usually rises as well and so becomes more favorable for us.

In Performance Chemicals, the impact is also managed through pricing actions, which we've taken this year as we see pricing increase. And we've -- while this can vary over time and by quarter, we've been quite successful in protecting margins in our history and very disciplined in managing pricing and execution in that area. And so where you see the biggest impact, I would say, then on the rise in energy is in our working capital balances. So as the input costs rise, so does the value of inventory and accounts receivable that work them way through.

So in this environment, we have seen an increase in our net working capital balances that you can see in 2026. And we generally think of this as every dollar per barrel increase in our feedstock indices usually equates to about a $6 million increase in the working capital balance on the balance sheet. Now this takes time over a few quarters as we implement pricing and that flows through the balance sheet. But that's usually what we see. And then if energy prices come down, we see a release of that cash.

So overall, I think our contractual structures in Reinforcement Materials and the pricing actions we take in Performance Chemicals as well as the strong liquidity position we have leave us very well positioned to manage the periods of higher energy and feedstock costs.

Our next question comes from the line of John Roberts from Mizuho Securities.

This is Saurabh Dhir on for John Roberts. Congratulations on the new role, Erica, and good to see you back, Steve. I think the first question is, given the contract negotiations and the flat tire demand you're seeing right now, how should we think about the Reinforcement segment earnings this year versus last year based on the midpoint of your guidance? And then how are you factoring in the impact of lower tire imports into North America and Europe into your outlook?

Yes. So what I'd say is, as I answered earlier, that we're in the midst of these negotiations now and try to provide the backdrop of the environment we're seeing. So as you said, the market conditions do remain challenging right now with low growth in tire production. There are some positive signs in terms of the imports into North America and Europe specifically. But we've not seen the lower imports yet translate into higher production broadly, I'd say, in the Western regions. And so these are the business conditions with which we're doing the negotiations right now. And so this is what informs the range we've provided in terms of adjusted EPS at the $6.15 to $6.75 earnings per share rate, which would take into account different outcomes as we continue to complete these negotiations.

But as you're saying, the backdrop is challenging with the low growth, and we're early in terms of finalizing negotiations. So I'd say we've provided our best view of the range of outcomes in the range we have given.

Got it. And just secondly on the oil price, like what oil price are you embedding in your guidance? And can you help us understand like the sensitivity to the earnings of a meaningfully lower oil price scenario?

Sure. So we usually use just the forward curve at the time that we're doing the forecast. So this is pretty elevated at the current price. And then usually, the forward curve is relatively flat, to be honest, in most scenarios. As I talked about, the lower oil, really, we would reset pricing as the oil moves. And so from a profitability perspective, there would not -- there should not be a meaningful impact to us because we will keep our margin per ton amount consistent. That's how we set up the pricing arrangements we have.

What you do see and you see it in this quarter is the higher oil on a percent margin basis, you can see this in Reinforcement Materials does impact the calculation. And so as the revenue goes up because the pricing goes up, but yet our profit per ton in dollars is meant to stay the same, you can see that percentage be impacted. So what you would see in a lower oil, while we protect the dollar margin, you'd see the percent margin increase. But that would be what you see on the P&L.

And then what you see on the cash flow would really be a release of working capital come through over a few quarters as the pricing for buying the inventory goes down based on the lower oil and then the receivables would also decrease based on us resetting pricing as oil comes down.

Our next question will come from the line of Josh Spector from UBS.

It's Chris Perrella on for Josh. As I think about the outlook for Performance Chemicals next year, can you just walk through, I guess, your assumptions there? And what's driving, I guess, the slowdown in the battery materials consumption, at least temporarily?

Sure. I would say, as you talked about with the battery materials, I'd say 2027 is an important investment year for us. And so we'll begin to incur costs associated with bringing that new capacity online, which temper earnings for 2027. But then we would expect to see an increase in 2028 as that capacity enables our volumes to grow again at a higher rate. So I would just think about it sort of as 2027, setting up 2028 growth.

In terms of the other Performance Chemicals growth areas that we highlighted, we would expect those to continue. So electronics applications, one of our fastest-growing areas. I highlighted in my comments that one of the biggest opportunities is we sell fumed silica that's used as an abrasive in the CMP polishing slurries for semiconductors and we're a leading supplier to the major slurry producers. So if you think about the underlying driver there, AI is driving the demand for advanced chips and more complex chip designs, and there's more polishing steps that then go into this. So we expect this demand to be growing quite nicely in the mid to high single-digit rate over the next several years.

Beyond that application, we have materials that go into other electronic applications. For example, we produce conductive compounds that protect electronic components and packaging from static discharge, and that's growing nicely as well as specialty carbons that's used to improve image quality and electronic displays.

So overall, our electronic portfolio plays really well into the strength of Cabot, where we have high-purity materials and particle engineering that goes into these types of applications that are growing nicely over time. So overall, if you think of the conductive and electronic applications, we would expect growth in kind of the 6% to 8% range over the coming years. So this sets up Performance Chemicals nicely in '27 and beyond. But as I talked about in terms of the environment, there are applications within Performance Chemicals such as automotive that are still impacted by the economic outlook. And so those are a lower growth expectation for us.

All right. And then just a quick follow-up. I know the China coal tar price has been elevated. Can you talk about the impact in the September quarter and sort of how that impacts the market, especially with Asia RM pricing and demand?

Yes. So I'd say it's mainly a mix impact to us in terms of the Asia because as you could see in the volumes that we reported for Reinforcement Materials in the fourth quarter, Asia was a large growth driver of an increase in volume. So as you think about that, the regional mix of those volumes versus volumes in Western regions is less favorable.

In terms of the pricing, the China market is a predominantly spot pricing market. So as coal tar prices move, we move prices pretty instantaneously with the market and the rest of the carbon black producers do the same. So as coal tar moves around, we increase or decrease pricing associated with that move, and that's what we did in the fourth quarter.

And our next question will come from the line of Laurence Alexander from Jefferies.

This is Dan Rizzo. So just thinking about capacity CapEx for the next couple of years, you have $125 million capacity expansion in the U.S., China for conductive additives. I'm sorry if I missed this, but is there other expansions besides that, that I'm not remembering?

Those are the main expansions in terms of capacity, Dan. So we gave a range on CapEx of $200 million to $230 million for the year, probably about half of that is maintenance capital, about half of that would be growth CapEx. And so I'd say a majority of that spend is for the battery materials investments. We'll also have investments in technology advancements for Reinforcement Materials. These are yield and other process technologies that really improve the cost position of Reinforcement Materials. So there is some in that, maybe about $10 million of growth in that. And then we have a smattering of other smaller, I call them profit adding projects that we do at specific plant locations also to improve competitiveness.

Okay. And then with the plant in Mexico, the deal with Bridgestone, is that plant completely sold out of Bridgestone? Or is there additional capacity there that you could use for other people or other customers? And secondly, is there a take-or-pay component with that plant by Bridgestone?

So I'd say the Bridgestone agreement utilizes a significant portion of the capacity of that plant, but not all of it. So we have the ability to sell into the market additional capacity at that plant, which is nice. And then I'd say I can't give too many specifics on the long-term agreement with Bridgestone, but we're quite confident in the ability for us to execute that contract as planned in terms of Bridgestone taking the products we have agreed to.

And our next question will come from the line of Jeff Zekauskas from JPMorgan.

This is Lydia Huang on for Jeff. Can you talk about volume dynamics for Reinforcement in Europe? It seems like import levels have moderated. Are the volume declines customer-specific? Or is it a general trend in the market?

I'd say so overall, for tire production in Europe, I'd say it's -- we have not seen much of an increase this year even with tire imports declining. So it hasn't led to a robust tire production market. Our specific volumes being down, if you remember when we talked about the contract outcomes in the 2026 calendar year contracts, we did note that we had lost share in those contract outcomes. So that's the main driver of why our volumes have been down in this past quarter and earlier this year.

And so on China, it looks like Chinese carbon black prices surged and then round tripped in September, but not fully round trip. Is it entirely driven by coal tar prices? And how are your margins in China today?

Yes. So those changes, Lydia, would be driven by coal tar prices. So there was a spike in coal tar that drove the pricing up, and it's moderated somewhat, so it's come down. So I would say that's the main driver of why you see the pricing levels move. I wouldn't say there's a change really in the competitive environment in China. It remains a pretty high competitive intensity, I would say. And so that has not altered between the last couple of quarters.

In terms of our margin profile, I'd say it's still attractive and the business in China continues to make good money, good returns, high cash flow. So we're positive in terms of that. But when you look at the margin levels compared to, say, Western margin levels, they are lower, and that's been consistent for as long as we've been doing business in China.

And this concludes the question-and-answer session. I would now like to turn it back over to Erica for closing remarks.

Well, thank you all for joining us today. We appreciate your continued support of Cabot.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to Cabot Corporation's Earnings Teleconference for Third Quarter Fiscal 2026. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Mr. Robert Rist. Thank you. Please go ahead.

Thank you, Desmond. Good morning. I'd like to welcome you to Cabot Corporation's earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our third quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this 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 appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are 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 a financial measure required by GAAP.

Any non-GAAP financial measure 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 Investors section on our website. I will now turn the call over to Sean, who will discuss the third quarter highlights, followed by several company and business updates. Erica will review the third quarter financial highlights and the business segment results. Following this, Sean will provide closing comments on our fiscal 2026 outlook and then open the floor to questions. Sean?

Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. Before we begin our review of the quarter, I'd like to briefly address the leadership transition announced last week. After nearly 25 years with Cabot, including the last 10 years as President and CEO, I have decided to retire effective at the end of the fiscal year on September 30, 2026. To support a smooth transition, I will continue in an advisory capacity through the end of the calendar year. My decision to retire reflects a thoughtful and well-planned succession process in partnership with our Board of Directors. Leading Cabot has been the privilege of my professional career, and I am incredibly proud of what we have accomplished.

During my tenure as President and CEO, we have strengthened our portfolio, significantly increased our business segment profitability, incubated and scaled our battery materials product line into a leading position, executed a consistent disciplined approach to capital allocation and focused relentlessly on creating value for our shareholders. While my decision is naturally based on personal considerations, I also believe it comes at an appropriate time for the company.

Cabot is operating from a position of strength. We have a clear strategy, a strong balance sheet, an experienced leadership team and significant opportunities ahead to grow. I am thrilled by the Board's appointment of Erica McLaughlin as Cabot's next President and CEO. Having worked in partnership with Erica for many years, including during her most recent tenure as Chief Financial Officer and Head of Corporate Strategy, I have seen firsthand her ability to drive results, shape strategy and lead through complexity.

Many of you already know Erica well through her role as CFO and her previous experience leading Investor Relations. Prior to her appointment as CFO, Erica was Vice President of Business Operations for our Reinforcement Materials segment and General Manager of our Tire business. Erica understands our businesses and how they operate and has been my partner in driving a culture of disciplined execution.

She has been deeply involved in shaping and executing our strategy, and she brings a strong track record of operational, financial and strategic leadership. I'm confident she is the right leader to guide Cabot through its next phase of growth and value creation. With that, I'll turn it over to Erica.

Thank you, Sean. I'm honored by the Board's confidence and excited to lead Cabot into its next chapter. Having spent nearly 25 years with the company, including most recently serving as CFO and Head of Corporate Strategy, I've had the privilege of helping to shape many of the strategic priorities that are driving our businesses today. As Cabot's President and CEO, I will remain focused on continuing to deliver long-term shareholder value. I believe that Cabot is exceptionally well positioned as we enter this next chapter for the company. We have strong businesses with leading market positions, a healthy balance sheet, a proven operating model and an experienced leadership team.

Our priorities remain unchanged: continue delivering strong performance in our core businesses, advance our growth initiatives, invest in innovation, maintain disciplined capital allocation and pursue opportunities that enhance long-term value creation. As part of this transition, we have initiated a search for our next CFO to identify the best leader to support the company's continued growth and execution and who will continue to build upon Cabot's strong track record of financial discipline.

We are also fortunate to have a strong and experienced finance and accounting organization with deep expertise, and I am confident in the team's ability to partner closely with me and the executive leadership team throughout the transition. I also want to thank Sean for his leadership, partnership and unwavering commitment to the company. His leadership has helped shape the company we are today, and I'm grateful to have had the opportunity to work alongside him through much of the journey. As we look ahead, I'm excited about the opportunities in front of us and confident in our ability to build on the strong foundation that Sean has established. I look forward to leading Cabot through this next chapter and continuing to create long-term value for our shareholders. With that, I'll turn it back to Sean to discuss the third quarter results.

Thanks, Erica. I am pleased with our third quarter performance as we continue to execute well in a market environment that remains dynamic, delivering adjusted earnings per share of $1.67, an increase of 4% sequentially. Our results reflect solid execution by our team. Our Reinforcement Materials segment delivered EBIT of $97 million in the quarter despite challenging market conditions and pricing headwinds from our 2026 annual tire customer agreements. In Performance Chemicals, we delivered another strong quarter with segment EBIT of $68 million, up 19% year-over-year. These results demonstrate the strength of the business and the effectiveness of the actions we have taken to drive profitable growth across the portfolio.

Despite the impact of sharply higher oil on our working capital balances, cash generation was robust in the quarter as we generated $75 million of cash flow from operations. Consistent with our balanced capital allocation framework, we returned $24 million to shareholders through dividends and invested $38 million in capital expenditures, including projects to advance strategic growth opportunities.

During the quarter, we also received an important sustainability recognition, having earned a Platinum sustainability rating from EcoVadis for the sixth consecutive year. EcoVadis is the world's largest and most trusted provider of business sustainability ratings, assessing more than 150,000 companies globally. Achieving Platinum status, the highest level of recognition, places Cabot among the top 1% of companies in the basic chemicals manufacturing category. This recognition reflects our continued commitment to transparency and responsible business practices while providing our customers and other stakeholders with an independent validation and clear visibility into our sustainability performance. While the operating environment remains challenging with ongoing geopolitical tensions in the Middle East, continued volatility in energy and raw material costs and mixed demand conditions across many of our end markets, our teams have remained focused on disciplined execution.

We have continued to adapt to changing market conditions, support our customers and advance the strategic initiatives that we believe are important to our long-term growth. Progress in areas such as battery materials, network optimization and cost improvement initiatives highlight our ability to remain focused on what we can control while navigating an environment that remains dynamic.

Overall, I'm encouraged by our performance in the quarter and remain confident in our ability to execute through the current environment while continuing to strengthen Cabot's competitive position for the future. As I have previously discussed, battery materials is an important part of Cabot's growth strategy, fueled by strong underlying market momentum. We are rapidly scaling our business and excited about our progress and its long-term value creation potential. I believe that the long-term fundamentals of the battery market are highly attractive. Batteries are fast becoming a critical catalyst of the modern energy economy. They are an essential component of energy grid stability and serve to enable the decoupling of energy generation from energy consumption.

Batteries are part of the backbone of the digital revolution, providing the physical assurance layer for data centers and AI infrastructure where power reliability is key. And they are enabling the transition of mobility and are a foundational technology for emerging applications like drones and robotics.

Global battery demand is expected to more than double by the end of the decade, driven by continued growth in electric vehicles, expanding adoption of battery energy storage systems and emerging applications that require increasingly sophisticated battery technologies. Importantly, our opportunity extends beyond electric vehicles. Today, approximately 30% of battery demand is derived from non-EV applications, particularly energy storage, which continues to be one of the fastest-growing segments of the market.

Given our leadership positions across electric vehicles, battery energy storage systems and other advanced battery applications, we believe Cabot is uniquely positioned to capitalize on this broad-based growth. Operationally, the business continues to perform very well. I am excited about our continued momentum in Battery Materials this fiscal year, and we are reaffirming our expectation of approximately $40 million of EBITDA in fiscal 2026.

The product line continues to generate attractive earnings with trailing 12-month EBITDA margins of approximately 24% as of the end of Q3. Performance has been driven by strong execution of existing customer programs, increasing penetration in energy storage applications and the benefit of capacity that is now available to support growing customer demand.

During the quarter, we also advanced a program to expand global conductive additive capacity within our Battery Materials product line through targeted investments in both the United States and China. These investments reflect our confidence in the long-term growth opportunities we see in advanced batteries and enhance our broad global manufacturing footprint, which we view as one of our key competitive strengths.

Today, Cabot produces conductive additives for battery applications across all major geographies, including the United States, Europe and China, allowing us to support customers as they increasingly localize battery production and establish new gigafactories in Western markets. This geographic reach enables us to serve global customers where they operate while providing the supply chain flexibility and regional support that are becoming increasingly important.

In addition, our broad range of conductive carbons, carbon nanotubes, carbon nanostructures, blends and dispersions allows us to develop tailored solutions that meet the diverse and demanding requirements of battery manufacturers and help optimize battery performance across a wide range of applications. As part of this effort, we have redefined our U.S. expansion plans from the previously contemplated greenfield facility in Michigan to capacity additions at 2 existing U.S. manufacturing sites.

Given evolving electric vehicle market conditions and growing demand for battery energy storage systems, we believe this brownfield approach provides the most flexible and capital-efficient way to support customer growth and synchronize the timing of new capacity additions to match our customer start-up dates.

In total, we expect to invest approximately $125 million in these capacity additions with new capacity anticipated to come online in 2028. This allocation of growth CapEx is already contemplated in our total CapEx envelope that we are currently operating in.

Taken together, our global manufacturing footprint, broad technology portfolio, proven customer relationships and targeted capacity investments position us well to support the evolving needs of battery manufacturers around the world. We believe these advantages will allow us to win in this application and capture long-term growth of advanced batteries, making battery materials an increasingly meaningful contributor to shareholder value creation over time. I will now turn it over to Erica to discuss the financial and performance results of the quarter in more detail. Erica?

Thanks, Sean. Adjusted earnings per share for the third quarter of fiscal 2026 was $1.67. This performance was driven by strength in our Performance Chemicals segment, partially offset by lower year-over-year earnings in Reinforcement Materials. Overall, our results reflect solid execution across the portfolio and were in line with our expectations for the quarter. We generated $75 million of operating cash flow while funding approximately $44 million of higher net working capital associated with rapidly rising raw material costs.

We also invested $38 million in capital expenditures to support our asset base and strategic growth initiatives while returning $24 million to shareholders through dividends. While we did not repurchase shares in the third quarter, we have repurchased $101 million thus far during the fiscal year and expect to be back in the market to repurchase shares in the fourth quarter. We ended the quarter with $250 million of cash and cash equivalents, and our liquidity position remains strong at approximately $1.3 billion. Our debt balance was approximately $1.3 billion, and our net debt-to-EBITDA ratio was 1.4x as of June 30.

In the fourth quarter, we expect to refinance our public bond, which matures in September. This is consistent with our disciplined approach to liquidity management and our focus on preserving strong financial flexibility. Our year-to-date operating tax rate was 29%, and we are updating our expected fiscal 2026 operating tax rate range to 28% to 30%. The modest increase in the forecasted range reflects changes in our expected geographic mix of earnings for the fiscal year.

Turning to capital expenditures. As I mentioned, during the quarter, we spent $38 million. As we continue to carefully manage capital deployment and align spending with project timing, we are narrowing our expected fiscal 2026 capital expenditure range to $200 million to $215 million, reducing the high end of the range by $15 million. This updated forecast continues to support the investments we believe are required to maintain our global asset base and advance our key growth initiatives, including battery materials.

Overall, our balance sheet remains in excellent position, and our cash generation continues to be strong, which supports both strategic growth and cash return to shareholders.

Now moving to Reinforcement Materials. During the third quarter of fiscal 2026, EBIT for Reinforcement Materials was $97 million compared to $128 million in the prior year quarter. EBITDA was $117 million and EBITDA margin was 20%. The year-over-year decline in earnings was primarily driven by lower gross profit per ton resulting from the outcomes of our calendar year 2026 customer agreements. These impacts were partially offset by higher volumes and a more favorable regional product mix.

Global volumes increased 5% year-over-year, driven by higher volumes in both Asia Pacific and the Americas. Asia Pacific volumes increased 10%, while Americas volumes were up 4%, benefiting from continued ramp of our capacity addition in Indonesia and contributions from our recently acquired asset in Mexico. While pricing pressure from our annual contracts continues to impact year-over-year comparisons, the business continues to execute well in a challenging environment.

Our team remains focused on operational performance, leveraging our process technology expertise, customer engagement and executing the restructuring and other cost actions we have announced that are designed to enhance the business' competitiveness and profitability over the long term.

Looking to the fourth quarter, we expect a modest sequential decline in EBIT. This outlook is primarily driven by our expectation for lower seasonal demand and less favorable regional product mix, particularly in Europe.

Now turning to Performance Chemicals. Performance Chemicals delivered a strong quarter and continued to build on the momentum we have seen throughout fiscal 2026. Segment EBIT increased by $11 million year-over-year, driven by both higher volumes and higher gross profit per ton. Volume growth was led by battery materials, driven by continued growth in electric vehicle and battery energy storage applications as well as our strengthening participation with the market-leading global battery manufacturers.

We continue to benefit from our differentiated product portfolio, strong customer relationships and our ability to support customers globally as they scale production. We also delivered strong volume growth in our fumed metal oxides product line, where volumes increased due to higher demand in electronics-related applications.

Gross profit per ton improved compared to the prior year, driven by a combination of a favorable product mix and pricing actions implemented ahead of rising raw material costs. These pricing actions reflect the agility of our commercial teams and their ability to proactively manage changing cost dynamics. As we look to the fourth quarter, we expect lower seasonal volumes and our gross profit per ton to normalize as raw material costs are expected to catch up to the pricing actions we implemented in the third quarter. I will now turn it back to Sean to discuss our outlook and closing remarks. Sean?

Given the year-to-date performance and our expectations for the fourth quarter, we are tightening our fiscal 2026 adjusted earnings per share guidance range from $6 to $6.50 per share to $6.15 to $6.45 per share. There are several assumptions embedded across our guidance range, including expectations for energy prices, raw material costs and customer demand levels as we conclude the year. The guidance range reflects different demand and cost scenarios given the ongoing geopolitical uncertainty and recent volatility in oil-related prices. Despite these near-term dynamics, I believe that the underlying fundamentals of our portfolio remain healthy, and we continue to focus on those applications where there are strong tailwinds.

Infrastructure applications such as wire and cable are currently experiencing record order backlogs driven by grid renewal, alternative energy growth and power demand from the AI super cycle. This, in turn, is driving demand for our conductive carbons and compounds. Electronics applications, particularly semiconductors, are also experiencing robust AI-driven demand, which is resulting in strong growth of fumed silica for the CMP application.

And finally, we continue to see strong momentum in battery materials, driven by growth of electric vehicles, battery energy storage systems and emerging industrial applications such as drones and robots.

Our operating platform of commercial excellence and operational excellence underpins our approach and track record of disciplined execution. And in these turbulent geopolitical times, we expect to continue to execute asset optimization actions to drive efficiency and to support our customers' dynamic supply chain requirements. Our teams remain focused on effectively managing the factors within our control, and this rigor has supported our results this year.

Looking beyond fiscal 2026, we expect to continue to invest in attractive growth opportunities such as battery materials, advance operational improvement initiatives and optimize our manufacturing network to strengthen our competitive position and support long-term value creation. At the same time, we remain committed to a balanced capital allocation framework, maintaining our world-class asset base, funding high confidence growth projects and returning cash to shareholders through dividends and share repurchases while preserving balance sheet strength and financial flexibility. As we discussed earlier, I believe the company also enters this next chapter from a position of strength.

The recently announced leadership transition reflects a thoughtful succession planning process and provides continuity in both our strategy and execution. Erica has been deeply involved in shaping the strategic direction of the company and driving many of the initiatives that are contributing to our performance today. I'm confident the company is well positioned to build on its momentum and continue executing its long-term strategy.

In closing, while the operating environment remains dynamic, I believe Cabot is well positioned to deliver a strong finish to fiscal 2026 and continue creating long-term value for shareholders. Thank you very much for joining us today, and I will now turn the call back over for our question-and-answer session.

[Operator Instructions] The first question comes from the line of John Roberts of Mizuho Securities.

I don't envy the Specialty Blacks team in handling pricing right now in this oil environment. Is the plan to hold price on Specialty Blacks until oil settles down? Or how are you thinking about the bandwidth within which oil moves in your pricing actions?

We've worked together for a long time. You've covered Cabot for a long time, and I've really enjoyed that, and I know you'll enjoy continuing that with Erica, but thank you very much for that. In terms of the Specialty Carbons pricing dynamic, you're right. I mean, with oil volatility right now, that remains a top priority to manage that. This, of course, is something we've done for a very long time and do really well. And you can certainly see in Q3 that as oil moved very quickly, our teams executed in a very disciplined way and got pricing into the right place to reflect the higher oil prices.

So as we move forward, we would expect margins to normalize in Q4 as the higher raws catch up. with the pricing. That said, the environment is very, very dynamic. And so we remain on guard here and make sure that we're moving appropriately to manage pricing as oil moves. The primary way that we price in this market, of course, is based on value delivered in application. But that said, we have to respond to these dynamic raw material movements. And again, I think we have established a strong track record of doing that. So we'd expect the strong margins in this segment to continue, and we'd expect that we'd continue to drive favorable product mix as we're focusing in areas that have really strong tailwinds.

And then in the battery area, are your growth investments keeping up with the industry growth? Are you planning to expand ahead of industry growth here? Maybe talk a little bit about your share within what's going on inside the industry?

Yes, sure. So obviously, batteries is a top priority for us and really central to the overall company's growth strategy. And we think we're really well positioned here given the breadth of our portfolio, the only player in the world that has the breadth of conductive additive offerings and an ability to tailor blends and dispersions of those. So we think the product portfolio is uniquely positioned. And then our global footprint as customers are increasingly building gigafactories in the West. and looking for regional supply and supply chain security, we think our global footprint really positions us very well. I think one of the key things that we have been striving to do and doing successfully is to manage capacity additions so that we synchronize with our customers' timing as they're starting up their gigafactories.

And I think we've been really successful at doing just that. And more recently, we've been growing above the market rate, and we would have expectations that we continue to perform at that level. We think our product offering and regional asset base really positions us well to support customers. So the timing of these will come online to allow us to continue this trend that we're currently demonstrating.

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

This is Dan Rizzo on for Laurence. In terms of your Reinforcement Materials, I know that the headwind from tire imports was lessening or seem to be lessening. I wonder if that trend is continuing and what we should expect or we can expect some normalization at the end of the year here and into the next fiscal year?

Yes. So maybe a couple of comments. Obviously, the tire import dynamic is an important one, but one that has been quite dynamic. And so maybe a couple of updates since our last call on that front. The first I would say is that we're encouraged by the EU's decision to implement antidumping duties on Chinese tire imports. Recently, you might have tracked that announcement. And while there's a range of antidumping duties, most of the companies fall inside the range of 24% to 45% antidumping duty. And there are additional countervailing duties measures that could materially increase that total duty burden.

And the expectation is that provisional measures on the countervailing duties are possibly going to be announced by August, so this month. with an expectation of definitive measures by later in the year, December. So that is, I think, directionally positive for the European tire industry and something that we think over time would be a positive development. If you look at the level of tire imports into the EU on a year-to-date basis through April, they're down 16% as compared to the same period in 2025. So directionally positive. And so we'll have to see how these developments play out, but certainly a positive one.

On the North America front, tire imports are down about 3% on a year-to-date basis through April, again, same period and down about 2% into the U.S. specifically. So again, trend is encouraging and supportive of market fundamentals. So pleased to see that, but obviously a dynamic situation.

And just shifting over to batteries, which we talked about a bit. Is there a certain end market like EVs versus data storage that uses more of your products versus -- and at a higher margin? Or is it kind of universal? I mean you said you kind of tailor things specifically, but I was wondering if there's a specific subsegment that is more -- is better, I guess, for lack of a better word.

Yes. So obviously, there are a range of different applications in the battery market from EVs to battery energy storage to then emerging industrial applications like drones and robotics. And in each side of -- inside each of those applications, there are many different sub applications and customers that are targeting different parts of the market. So I would say the performance requirements and the range inside there, it differs substantially. And so I think that really fits the breadth of our product portfolio really well. So in certain cases, people may [Technical Difficulty]

Pardon for the interruption. The speaker has technical issues, please remain on hold. The conference will resume shortly. [Audio Gap] Ladies and gentleman, the speak is experiencing some technical difficulties. The conference will resume shortly. Please remain on hold.

Sorry, we are back now.

Please continue.

Hello?

Yes, Sean. Hello? We can hear you.

Desmond can you hear us?

Yes, we can hear you. Apologies. The speakers will be disconnecting shortly. Please remain on hold. Thank you for your patience. [Audio Gap] I believe we have the speaker connected. Please continue.

Desmond, apologies, folks, for that line getting cut off there. Hopefully, you can hear me okay now. Desmond, I assume you'll jump in if there's any difficulty in the transmission here. Let me just come back. I'm not sure exactly where I got cut off on Dan's question around battery materials and are we targeting? Are there differences across applications? And are we targeting in certain areas? Just a very quick recap on that. So obviously, there are many different applications inside of batteries from EVs to battery energy storage to emerging industrial applications like drones and robots. And then inside each of those applications, there are different chemistries from LFP to NCM technologies and then emerging things like semi-solid state and dry process and things like that. In each of those chemistries, in every single one, conductive additives are required.

So at a real basic level, I would say we're agnostic from a demand level. But of course, each one of those has a different performance requirement that customers are looking to tailor to. And this is where we believe the breadth of our conductive additives portfolio really positions us well to tailor solutions for customers. So if they're looking for fast charge performance and to accent that dimension of performance more, then we would tailor a package for that. If range, for example, is more important, then we're in a position to adjust. So it really depends, but the breadth of the portfolio really allows us to, to meet the customer requirements in each case.

Okay. And then my final question is, just so within Performance Chemicals, so battery is obviously doing extremely well. It's going to drive a lot of growth. You said wire and cable is okay, but that would suggest that kind of the rest of the portfolio is still somewhat lackluster and not really showing signs of improvement. Am I thinking about that correctly?

I would say not entirely, Dan. I think a couple of things I would highlight here. So overall, we're expecting in this segment that volumes would grow low single digits this year. But if you look at a normalized environment, we would expect this portfolio to grow at sort of 1.5 to 2x GDP. That would be the right long-range way to think about it. Now as we're sitting here today, there are some end markets in this segment that are experiencing headwinds. I would put automotive OE production in that category. I'd certainly put housing and construction in that category.

On the counterbalancing side of all of that, certainly, infrastructure remains very strong. So wire and cable, as you referenced, the electronics space, in particular, anything related to AI, data centers, semiconductors, that is quite strong and then battery materials. So I would say there's a sort of a difference across the breadth of this portfolio, some very, very strong tailwinds, some headwinds. But when you balance it all out, we would expect low single-digit growth this year. And on a normalized basis, you'd expect somewhere around 1.5 to 2x GDP as the growth rate for the basket of applications.

[Operator Instructions] Our next question comes from the line of David Begleiter from Deutsche Bank.

This is Emily Fusco on for David Begleiter. Do you have any early look at Battery Materials, maybe sales and EBITDA growth in fiscal '27? Or just any extra color you can provide there?

Yes, sure. So obviously, very pleased with the way the business is developing here. And I think you can see in our results that it's scaling up very rapidly. I think the first thing I'd point you to is just the growth expectations. The growth expectations in this market are -- it's expected to double by the end of this decade and a very strong compound annual growth rate.

And so our expectations are certainly greater than that. But I think if you just look at the growth rate of this market, it's expected to be quite strong. So I think there's measure of confidence and visibility around that, particularly as you see the emergence of battery energy storage supporting the whole AI super cycle here and then use cases around drones, robotics, things like that, that are really kind of emerging right in front of our eyes here. So I think strong growth fundamentals and most of the forecasters of this -- in this market space are pretty well aligned about the expectations here for strong growth through the end of the decade, and we would certainly expect to participate in that and have aspirations to do better than that.

[Operator Instructions] The next question comes from the line of Pete Osterland from Truist Securities.

So first, I just wanted to start on volume growth in Reinforcement Materials, just given that the numbers by region include the acquisition in Mexico and the expansion in Indonesia. Could you size what organic demand growth looked like in the Americas and Asia in fiscal third quarter ex those expansions? And looking into the fourth quarter, what are you seeing in your order books? Are overall demand dynamics largely stable?

Pete -- and welcome and appreciate you picking up coverage of Cabot and look forward to continuing the relationship. In terms of demand expectations or maybe the look back first, let me talk a little bit about it by region. So certainly, in the Americas, the favorable volume comparison that we reported in the Americas was driven by a number of different factors.

Our new asset in Mexico contributed to the year-over-year growth. And we also saw higher what we would call base business volumes compared to the prior year third quarter. So taken together, these resulted in a 4% increase in the Americas volumes versus the prior year with contribution up year-over-year from, obviously, the Mexico acquisition, but also in our base business. And as you think about going forward here into the fourth quarter, we normally experience some seasonality in this quarter. And so that's reflected in our outlook. But I would say the demand environment remains as expected with that normal seasonality embedded in it. And then in terms of Asia Pacific, certainly some benefit from the new capacity in Indonesia, which is enabling us to better serve customer demand in that region. So we had strong performance from a volume standpoint in Asia in the quarter, up about 10% across the whole Asia region.

Part of that is Indonesia, part of it is underlying demand. And then part of it is the year-over-year benefited from comparison to, I would say, a particularly weak quarter in the third quarter of fiscal '25, so last year in China. So taken together, certainly a strong quarter in terms of volume. And again, I think other than normal seasonality expectations, I would say things are sort of developing as expected.

Very helpful. And then just as a follow-up, switching over to the Battery Materials capacity expansion. If the market growth for battery products is what you expect, how many incremental years of growth are these expansions intended to size your capacity for? I guess when would you have to look towards the next phase of expansion as this high-growth market continues to grow?

Yes. Yes. And so important question here. And I think a couple of things, Pete, that have been important kind of hallmarks of how we're thinking about capacity. One is that our global network of assets really gives us a lot of optionality in order to expand capacity and try to synchronize that with our customers' expansions. And this is actually quite important, and there have been many cases, I'm sure you've seen in this battery space where companies get out over their skis on capacity too far ahead of demand developing.

And in our case, we've been really trying to pay close attention to that so that we support our customers, but do it in a way that's best synchronized and the global asset base really allows us a lot of optionality to do that. As we roll through the projects that I outlined here, those will come on at some point in 2028. And I think as a rough number, you might think about that probably supports our growth expectations for about 3 years, something like that. And between now and then, of course, we'll be developing the next wave of expansion options across our global network as we see how the market develops. But that's maybe a rough way to think about it.

[Operator Instructions] Our next question comes from Josh Spector of UBS.

It's Chris Perrella on for Josh. Sean and Erica, best of luck in the new roles and then the next step there. I had a question on the capital spending. On a longer-term basis, how much -- can you kind of calibrate where you should be? I know this is within the existing envelope. But how should we think about CapEx over the next couple of years? And is the Michigan project then off and the DOE grant then not no longer applicable?

Chris, so I can say for the capital, I think probably similar levels to what we've been spending if you look forward, would be appropriate. This would include the growth initiatives that we would spend on as well as maintenance type capital and compliance type capital. So I think that's how I would think about it. As we said in the prepared remarks, we've adjusted the plans from the announcement of the new plant in Michigan to adjust where we're expanding capacity to existing U.S. plants to meet the expectations for growth in batteries. And so as it relates to the DOE, I'd say we continue to be in discussions with the DOE regarding our potential grant that we announced in 2024, and we'd be able to expect to update you on this when we have concluded those discussions.

Okay. That's helpful. And then A follow-up question on Performance Chems. Is there an underlying mix shift along with the seasonality in the fiscal fourth quarter? And does that impact the unit margin as well? Or are we just -- is it just the catch-up on the raw material cost or the raw material costs catching up to the price increases you took?

Yes. I'd say it's primarily the latter, Chris. So the roll-through of the cost aligning with the prices would normalize the margin. And there is normal sequential seasonality, as you know, moving into the summer months here. So I'd say there could be minor mix impacts there, but the predominant factor moving Q3 to Q4 is the raw material cost flow through.

At this time, there are no further questions from the line. I would like to hand the call back to the management for closing.

Great. Well, thank you. Thanks very much, Desmond, and thank you all for joining the call today and for your continued support of Cabot Corporation. And again, as I begin plans for retirement here and handing over the company to Erica, I'm thrilled with the position that we're in here. And I want to also thank you for your support over the years and look forward to a bright future for Cabot under Erica's leadership. Thank you very much.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.

Thank you for standing by, and welcome to Cabot's Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Robert Rist, Vice President of Investor Relations. Please go ahead.

Thank you, Latif. Good morning. I'd like to welcome you to the Cabot Corporation's earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our second quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this 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 appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are 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 a financial measure required by GAAP. Any non-GAAP financial measure referenced on this call are reconciled to the most direct comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website. I will now turn the call over to Sean, who will discuss the second quarter highlights, followed by several company and business updates. Erica will review the second quarter financial highlights and the business segment results. Following this, Sean will provide closing comments on our fiscal 2026 outlook and then open the floor to questions. Sean?

Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. I am pleased with our strong execution during the second quarter as we continue to operate at a high level in a challenging and very dynamic environment, delivering adjusted earnings per share of $1.61. While the Iran conflict introduced a new dimension of geopolitical uncertainty during the quarter, the resilience of the Cabot team and our enduring strength as a company once again served as the foundation for strong execution. Our global footprint and highly developed operating platform of commercial and operational excellence enabled us to take quick actions to support our customers' evolving needs and implement countermeasures to address rapidly rising energy and transportation costs to protect profitability.

While we have an unwavering commitment to disciplined daily execution, we also remain focused on the long term, guided by our Creating for Tomorrow strategy and the pillars of grow, innovate and optimize. During these dynamic times, we continue to make important strategic choices that will strengthen the company and build long-term shareholder value. I will highlight a few of these areas of focus in my upcoming remarks, but I will first provide a bit of color on business performance in the quarter.

EBIT in Reinforcement Materials segment was $93 million, down 29% from the prior year quarter and in line with our expectations. The segment's 3% higher volumes as compared to the prior year were more than offset by lower gross profit per ton driven by calendar year 2026 customer agreement outcomes and increased competitive intensity in Asia Pacific. The Performance Chemicals segment delivered a strong quarter with EBIT of $59 million, up 18% from a year ago, supported by continued momentum in our high-value battery materials and specialty carbons product lines, combined with higher gross profit per ton from an improved product mix and optimization efforts.

This result was ahead of our expectation as demand levels were stronger than expected, particularly in March. Operating cash flow was again solid in the quarter. We generated $77 million in cash from operations, which allowed us to return $73 million to shareholders through a combination of dividends and share repurchases. Given the strength of our underlying cash flow generation and our confidence in the long term, earlier this week, we announced a 5% increase in our quarterly dividend. On an annualized basis, the new dividend rate will be $1.89 per share versus $1.80 per share previously. This increase is consistent with our balanced capital allocation framework where we seek to allocate cash to support long-term strategic growth and return capital to shareholders.

As we did last quarter, I want to briefly highlight our Battery Materials product line, which delivered another strong quarter and continues to be an increasingly important strategic growth driver for Cabot. We remain very well positioned in this space with a differentiated portfolio of conductive additives, formulations and blends supported by deep customer relationships across the global battery value chain. While the foundation of our battery materials product line is built around our strength in conductive additives, we continue to broaden our participation in this application through our fumed metal oxide products used in cathode and separator coatings and aerogel for thermal management.

Our strategy is to leverage our deep application know-how, strong customer relationships and global footprint to support customers as they build gigafactories globally. In the second quarter, Battery Materials delivered 43% revenue growth year-over-year, driven by continued growth in China as well as Europe. Trailing 12-month EBITDA margins were approximately 24%. Performance was driven by strong execution of our existing customer programs, increasing penetration in energy storage applications and the benefit of capacity that is now fully available to support customer demand. Complementing our strong revenue in Asia, we remain focused on supporting our customers in Western geographies as new gigafactory capacity comes online. The multi-year PowerCo agreement announced last quarter is a good example of this approach, reinforcing our role as a trusted partner to leading OEMs and supporting long-term growth. As a result, this business is scaling meaningfully, and we expect to generate approximately $40 million of EBITDA in fiscal year 2026.

Continued investment in battery energy storage systems alongside continued EV adoption is driving robust demand for our portfolio and reinforces our confidence in the long-term trajectory of this business. Data centers are a strategic focus area for us, and I would like to highlight how Cabot's materials are supporting the build-out of data center infrastructure, particularly as AI-driven demand continues to accelerate. At the center of this ecosystem are the data centers themselves, which require highly reliable storage. Battery energy storage systems or BESS, play a critical role in data centers by providing long-duration storage, power stabilization and uninterruptible power. And our battery materials product portfolio is a key enabler of performance in these systems. Our conductive additives, formulations and blends are designed to improve battery reliability, efficiency and life cycle performance, supporting the increasingly demanding requirements of energy storage applications tied to data centers.

Beyond our battery materials product line, our broader Performance Chemicals portfolio plays an important role across data center infrastructure applications. This includes materials used in power distribution cables, thermal management systems, adhesives and sealants as well as bonding paste for wind turbines that support renewable energy generation feeding into the grid. Taken together, this opportunity underscores how Cabot materials are critical across the power generation and storage value chain from renewable generation to distribution and battery storage, positioning us well as customers invest to support data center growth.

Turning to our network optimization initiatives. We are taking a series of proactive countermeasures to reinforce our leadership position and sustain strong margins and cash generation in the current business environment. As a reminder, on the cost reduction front, we have been executing programs targeting $30 million in savings during fiscal '26, including procurement savings, headcount reductions in reinforcement materials and associated supporting functions and accelerated deployment of process technology to improve yield and manufacturing efficiencies. We are on track to hit this target.

Furthermore, as we noted last quarter, we have reduced our capital expenditures to a range of $200 million to $230 million for the full year to align with the current environment. In addition, this quarter, we are also taking specific capacity rationalization actions to better align our manufacturing network with current demand levels and to optimize our footprint for long-term strategic value. Yesterday, we announced targeted asset rationalization actions in South America and Europe. We have ceased manufacturing operations at our Argentina reinforcing carbons facility, and we intend to cease production at multiple manufacturing lines at our Netherlands carbon black facility, subject to consultation processes.

The actions in total represent approximately 120,000 metric tons of capacity, targeting an annual run rate cost benefit of approximately $22 million with full delivery of cost saving benefits targeted by the middle of calendar 2027. The expected cash cost to execute these closures is approximately $24 million over the next 2 to 3 fiscal years. Importantly, we are working with our existing customers and anticipate maintaining sales with supply from other Cabot locations across our global network. These are difficult but necessary actions, and I want to thank our employees for their significant contributions to Cabot over the years. I believe these actions will improve our operating efficiency and further enhance the competitiveness of our global network as we navigate this challenging demand environment. I will now turn it over to Erica to discuss the financial and performance results of the quarter in more detail. Erica?

Thanks, Sean. Adjusted earnings per share for the second quarter of fiscal 2026 was $1.61 compared to $1.90 in the second quarter of fiscal 2025, a decrease of 15% year-over-year. This decline was driven primarily by lower results in our Reinforcement Materials segment, partially offset by growth in our Performance Chemicals segment. Cash flow from operations was $77 million in the quarter and discretionary free cash flow was $63 million in the quarter. The cash balance at the end of the quarter was $252 million, and our liquidity position remains strong at approximately $1.3 billion. Capex expenditures for the second quarter of fiscal 2026 were $45 million. And as Sean noted, we continue to expect $200 million to $230 million of capital spending for the full fiscal year. Additional uses of cash during the second quarter included $24 million for the payment of dividends and $49 million for share repurchases, totaling $73 million returned to shareholders during the quarter. Our debt balance was $1.3 billion, and our net debt-to-EBITDA ratio was 1.5x as of March 31. The operating tax rate for the second quarter was 28%, and we continue to anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%.

Now moving to Reinforcement Materials. During the second quarter, EBIT for Reinforcement Materials was $93 million, which was a decrease of 29% as compared to the same period in the prior year. The decrease was driven primarily by lower gross profit per ton from the outcomes of our calendar year 2026 customer agreements and increased competitive intensity in Asia. These factors more than offset a 3% increase in volumes year-over-year, driven by increases in all three regions. Regionally, volumes were up 5% in Asia, 3% in Europe and up 1% in the Americas.

Looking to the third quarter of fiscal 2026, we expect higher sequential EBIT from higher gross profit per ton from a favorable product mix and yield improvements from efficiency programs. We also expect a full quarter of operations with our acquired asset in Mexico. We anticipate the sequential EBIT improvement to be in the range of $5 million to $7 million. Now turning to Performance Chemicals. During the second quarter of fiscal 2026, EBIT for the segment was $59 million, an increase of 18% compared to the second quarter of fiscal 2025. The increase was driven by higher gross profit per ton, primarily due to a favorable product mix and optimization efforts.

Additionally, the second quarter fiscal 2026 volumes grew year-over-year in both the Battery Materials and Specialty Carbons product lines. Looking ahead to the third quarter of fiscal 2026, we expect segment EBIT to be relatively consistent sequentially. We anticipate stable volumes and gross profit per ton sequentially. Before I turn it back over to Sean, I wanted to briefly address how recent geopolitical developments in the Middle East and energy market dynamics impact the company. First, we have limited direct exposure to the Middle East from both a revenue and a raw material sourcing standpoint. In addition, our competitive global asset footprint enables us to support customers across geographies, providing supply chain resilience even when conditions in a particular region become disruptive. In terms of recovering rising input costs, our reinforcement materials contracts are structured with raw material pass-through mechanisms, which help protect our margins from feedstock cost volatility driven by higher oil prices.

Additionally, we have taken proactive pricing actions in Performance Chemicals, including a price increase of up to 20% in our Specialty Carbons and Specialty Compounds product lines implemented in March to offset rising input costs. As input costs across our product lines are impacted, we remain dynamic in our pricing actions to ensure we maintain our margins. Finally, we have continued to have strong cash flow generation and ample liquidity to fund working capital needs that are impacted by higher energy prices. With approximately $1.3 billion of liquidity as of the end of March, we have significant capacity to absorb these dynamics while continuing to invest in our business and return cash to shareholders. Our sales volumes have remained strong to date, and we've had minimal impact from customer disruptions. Thus, Cabot is well positioned to navigate these challenging conditions, and we will remain dynamic in this uncertain environment. I will now turn it back to Sean to discuss our outlook and closing remarks. Sean?

Thanks, Erica. As we look ahead to the remainder of fiscal year 2026, we are reaffirming our adjusted earnings per share guidance for the full year to be in the range of $6.0 to $6.50 per share. There are several assumptions embedded across our guidance range, including expectations for energy prices and broader macroeconomic factors. Despite higher input costs, we anticipate that we will maintain stable margins as we expect pricing actions to offset higher costs across both segments. A significant variable across our guidance range is our assumption around customer demand levels, particularly as we move to the fourth quarter of the fiscal year. We exited the second quarter with encouraging momentum as volumes accelerated in March and remained strong into April.

That said, the conflict in the Middle East introduces uncertainty, particularly as we move to the fourth quarter of the fiscal year. It is this area that we are monitoring closely, and our forecasted range contemplates various scenarios. If current demand levels largely hold with customers continuing to maintain order patterns despite elevated energy prices and macroeconomic uncertainty, we would expect performance to track toward the upper end of our guidance. If there is a softening in demand driven by potential supply chain disruptions or more cautious customer purchasing behavior in response to higher energy costs and broader economic uncertainty, we would expect lower volumes and performance to trend towards the lower end of our guidance range. These dynamics could be more pronounced in certain regions such as Asia, where customers rely more on the Middle East for raw materials. The midpoint of our guidance would assume a modest moderation in demand in the fourth quarter. While there are various scenarios possible, I have confidence that we will effectively navigate this dynamic environment. We will continue to make decisions that enhance our competitiveness and position the company for long-term success.

The capacity rationalization actions that we announced in Argentina and intend to take in the Netherlands are designed to better align our production footprint with demand, improve efficiency and ensure the long-term competitiveness of our global network. In addition, as noted earlier, we continue to drive cost countermeasures, including procurement savings, headcount reductions and accelerated deployment of process technology to improve yield and manufacturing efficiencies. These actions are incremental to each other and should compound structural benefits over time. We continue to execute a balanced and disciplined capital allocation framework, prioritizing capital expenditures to maintain our world-class assets and invest in high confidence growth projects while also returning capital to shareholders. Year-to-date, we have executed $100 million in share repurchases and announced an increase in the dividend of 5%. Our investment-grade balance sheet with $1.3 billion of liquidity and Net Debt-to-EBITDA of 1.5x provides significant flexibility to execute our Creating for Tomorrow strategy, funding growth investments, particularly in Battery Materials, while sustaining a robust level of cash return to shareholders.

In summary, I'm incredibly proud of the Cabot team. Our leaders have shown a remarkable ability to not only deliver solid financial results, but also to accelerate strategic initiatives despite market volatility. The dedication, experience, agility and operational focus of our management team give me immense confidence as we drive our Creating for Tomorrow strategy. Thank you very much for joining us today. And I will now turn the call back over for our question-and-answer session.

Thankyou. [Operator Instructions]. Our first question comes from the line of John Roberts of Mizuho.

It's Edlain Rodriguez on behalf of John. Sean, quick question. So if you're going to start seeing any softening in consumer demand, like when does that start to manifest itself? Like how much visibility do you have? Like when would you start seeing that if it does occur?

Sure. So maybe just a reminder in terms of our product portfolio and how that's distributed across end markets. I think it's a quite diverse end market exposure where we sell into the replacement market for tire, which generally ends up being quite resilient and largely nondiscretionary over time as well as significant infrastructure segments. And then finally, things that go into more consumer demand. So it's a fairly diverse portfolio. With respect to consumer demand, you would normally see some lag across our Performance Chemicals segment because the value chains end up there longer. There are often 4 or 5 steps between us and the ultimate consumer. And so you might see a lag there of a quarter or two before those impacts really show. I would say in Reinforcement Materials, weakness would tend to -- in consumer activity would tend to manifest a little bit faster. The value chains are a little more shallow. And so you would start to see that a little bit faster, generally maybe sort of within a quarter. So I would point out those differences between the two segments, which are really driven more by sort of the depth or length of the value chain.

Okay. Makes sense. And one last one. In terms of like the pass-through mechanism you have in reinforcement for raw materials, like how long is the gap? And like is there a lag between -- yes, how long is the lag? And also, is it the same up and down? Like do you get to keep it like longer when it's favorable to you? Or does it apply the same time frame?

Sure. You might recall that we have adjusted these formula mechanisms a number of years ago so that the pass-through matches the actual flow of the raw material. So there is no lag in our contract mechanisms. And then in the spot markets where we participate, we move quickly. As Erica commented in her remarks, we move quickly on pricing to make sure that we maintain our margins, and that's, in fact, what we're doing.

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

Two questions on Reinforcement Materials. One, can you give a sense for what's driving the mix tailwind into Q3 and how sustainable that should be? And secondly, can you give an update on how you're thinking about trade flows and the pressure from Asian imports into the U.S. market?

Yes, Laurence, the question on mix is largely a customer mix driven phenomenon. And so we would expect that to remain. So -- but that's largely what it is. In terms of the trade flows, I think there are -- it remains still a dynamic situation. Certainly, in North America, there's been some more, I would say, somewhat positive momentum here where if you look at tire imports over the last 6 months of reported data, so this would be from the September to February period, they're down 12% as compared to the 6 months prior to that.

So I think a potential positive sign seeing some evidence of moderation in the tire imports into North America. So that's good. I would say Europe remains more mixed. There are antidumping measures that are under review right now in Europe, the expectation for determination is June, so next month. And so as is often the case when there are such dynamics at play, you can have a bit of movement or excess of inventory that might get shipped in advance of tires shipped in advance of the determination of those duties.

So we'll have to see how that settles out. So it remains a dynamic situation, but some positive indications certainly in North America, and we're continuing to watch this and manage it and take appropriate actions where we see there are longer term trends emerging. Certainly, that's in part, influencing our decisions around our announced capacity rationalization.

Our next question comes from the line of Joshua Spector of UBS.

It's Chris Perrella on for Josh. Can you just take me through, I guess, the puts and takes of the Performance Chemicals performance in terms of mix shift? And is the 20% price increase that you guys have announced in March, is that across the entire segment? Or is that in specific value chains? And is that more about keeping up or maintaining margins? Or is there a potential for margin expansion there in the rest of the year?

Sure, Chris. So I would say the outperformance in Performance Chemicals was primarily driven by better volume and product mix, particularly in Specialty Carbons and Battery Materials, along with continued progress in optimization efforts here. So I think the mix uplift in Specialty Carbons and Battery Materials, we continue to be very positive about and continuing to grow those product lines, in particular in Battery Materials. We're seeing very, very strong growth here and have a leading position serving the global battery manufacturers and the expectation is that, that will continue. If you look at market forecast for growth driven by both battery energy storage, fueled by data center build-out, but also continued growth in EVs. The compound growth rate through the end of the decade is expected to be about 16%. So we would expect that, that lift would continue. With respect to the price increase question, the Specialty Carbons business has a mix of both contract and spot business, but I would say more spot, let's say, than typically in Reinforcement Materials. And so moving quickly on pricing is, of course, something that we do as part of managing this business. And with raw materials shooting up sharply and then associated costs, whether they're transportation costs, and other derivative costs, those are all moving up. And so the expectation is that we will recover and maintain our strong margins.

Our next question comes from the line of David Begleiter of Deutsche Bank.

Sean, nice results. So just in Battery Materials, what are your expectations for EBITDA margins this year? And as you scale the business up, how high can you go from a margin perspective in this business?

Yes, sure. Thanks, David, for that comment. In Battery Materials, I commented where our trailing 12-month EBITDA margins are at about 24%, and we think those are reflective of the high quality of this business. Certainly, as we look forward, we're thinking about the growth in this business compounding driven by a few different factors. One, of course, is just the overall volume. And as I had mentioned, the volume expectation is by the -- through the end of this decade that overall battery production will grow at a compound annual growth rate of 16%, and we would expect to certainly grow at or above given our overall strong portfolio and footprint. So the volume lever is certainly one. And then how we participate both with customers and applications is an important factor here. And we're very focused on partnering with the leading customers and the advanced products that they need. And so we're always looking to upgrade the mix as part of that by being very focused on our participation with customers and applications.

And then finally, as you've heard me comment before, we believe the long term, this business really bifurcates -- right now, still 75-ish or so percent of batteries are produced in China today. And while China will remain a very, very important market for us and is the lion's share of our business today, the growth outside of China as gigafactories are built there, we believe, will be a positive for our business because we believe customers will look for local supply, and we believe we've got a unique ability given our global footprint relative to competition to serve our customers and meet their needs globally. And so building out the regional western part of this portfolio will be a driver of value here over time.

On top of our core conductive materials, as I mentioned in my comments, we continue to look for ways to broaden our participation in this overall application. And so we sell fumed metal oxides today into the battery application and continue to work with customers to try to grow that application, particularly for cathode and separator coatings.

And then finally, aerogel and thermal management, as you may have noticed, has been picking up in terms of demand for thermal management in batteries. And so our participation here is something that we're investing in to try to enhance our position there. So all of these factors are really kind of rolling together for, I think, what's an exciting trend for us in the battery business.

And just in Reinforcement Materials, can you talk to the 3% volume growth for the quarter? Was there any pre-buying? And especially in Europe, what's driving that positive inflection in volumes in Europe, Middle East and Africa thankyou.

Yes. So we're certainly pleased to see that volumes were up year-over-year, and they were up across all regions year-over-year. So I think that is positive. In the Reinforcement business, we really don't believe there was any real pre-buying in the quarter. There likely was a little bit of accelerated purchasing in Performance Chemicals in the quarter. But in Reinforcement Materials, we don't believe that to be the case. So in terms of the year-over-year, again, we did see growth across all three regions, which is positive, including in Europe, where we were up a few percent there. I think in some ways, there were some customer-specific opportunities that emerged where we were able to support customers and pick up some spot business. And so that was probably the largest driver. And then in North America, during the quarter, we began the production taking ownership of the New Mexico asset. And so there was some contribution from that in the quarter as that -- as we took over that asset. We'd certainly expect that to continue to ramp now that we own it fully and start to have full quarter impacts from that.

[Operator Instructions]. I would now like to turn the call back over to Sean Keohane for closing remarks. Sir?

Great. Thank you very much, Latif, and thank you all for joining today on our Q2 earnings call, and thank you for your support of Cabot, and we look forward to continuing our dialogue next quarter. Have a great day.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter Fiscal Year 2026 Cabot Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would like now to turn the conference over to Robert Rist, Vice President, Investor Relations and Corporate Planning. Please go ahead, sir.

Thank you, Michelle. Good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO.

Last night, we released results for our first quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this call.

During this conference call, we will make forward-looking statements about our expected and future operational and financial performance. Each forward-looking statement is subject to the risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are available on the Investor Relations section of the 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 measure 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 Relations section of our website.

I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by several company and business updates. Erica will review the corporate financial details and the business segment results for the first quarter. Following this, Sean will provide an update to our 2026 outlook, discuss market demand drivers, provide some closing comments and then open the floor to questions. Sean?

Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. In the first quarter, we continued to execute at a high level in a challenging economic environment, delivering adjusted earnings per share of $1.53 in the quarter. EBIT in the Reinforcement Materials segment declined by 22% compared to the first quarter of fiscal 2025 in what remains a challenging demand environment. This decline was driven primarily by lower volumes in the Americas and Asia Pacific. EBIT in the Performance Chemicals segment increased by 7% compared to the first quarter of fiscal 2025 on a more favorable product mix and continued momentum in our Battery Materials product line. Later in the presentation, I'll spend more time highlighting the strong performance and momentum we see in this growth vector, including the exciting announcement of our multiyear agreement with PowerCo.

Operating cash flow was strong in the quarter, which allows us to invest to sustain our high-quality asset base and gives us the flexibility to invest in high confidence growth projects while returning significant levels of cash to shareholders. As we indicated in our fourth quarter fiscal 2025 call, the global demand environment, particularly in the Reinforcement Materials segment remains challenging. Tire production levels have been depressed and are lagging growth in miles driven as inflation has likely caused a delay in the replacement cycle and a trade-down effect at the lower end of the market.

In the Western geographies of the Americas and Europe, we have seen several years of tire production declines, which has impacted carbon black utilization rates. Tire imports from Asia continue to take share from domestically produced tires. And while Western countries are taking increasingly aggressive actions to address unfair trade practices, we have yet to see tariffs or other trade measures result in a meaningful decline in the flow of imported tires. In the United States, imports from Asia have declined sequentially in the last few months, but remain up approximately 4% year-over-year. In Brazil, tariffs have helped slow the flow of imported tires, particularly from China, resulting in a 4% year-over-year decline in 2025 of passenger car tire imports.

In Europe, tire imports continue to be at elevated levels as few protection measures have been implemented to date. The tire industry currently has an antidumping petition under review with a determination scheduled for June of 2026. It is against this backdrop that we conducted our annual negotiations in Reinforcement Materials for our calendar year 2026 supply agreements. As we communicated in November, these negotiations were challenging and took longer to conclude. As you know, our tire agreements are heavily concentrated in the Americas and Europe as Asia Pacific is largely a spot market. The level of tire imports from Asia into the Western regions contributed to a reduction in local tire production, leading to a decline in local carbon black capacity utilization in a more intense competitive environment.

In the Americas, we faced pricing pressure as carbon black industry utilization rates dipped below 80%. In Europe, the challenges were even more pronounced with both pricing and volumes coming under pressure as tire imports increased 8% year-to-date November 2025. Pricing declined across Western regions and in defending our pricing levels, we lost volume in Europe. Pricing impacts varied by region, but were generally in the range of 7% to 9% decline as compared to 2025 levels, reflecting the competitive pressures in the market. Across all regions, we continue to price our products based on our value proposition of reliable in-region supply, quality, sustainability and innovation. However, the competitive dynamics negatively impacted the outcome of the negotiations.

As we look forward, the picture on regional carbon black utilizations is a dynamic one. There are some recent signals that trade protection measures may be starting to have an impact on tire imports in the Americas, and we do see the global tire majors actively investing to reinvigorate and defend their Tier 2 tire brands. Furthermore, there is an expectation embedded in global data's tire production forecast for 2026 for growth in Western geographies as demand recovers from depressed levels.

While these factors would be supportive of an improving regional utilization picture for our Reinforcement Materials segment, we are taking a series of actions to reinforce our leadership and to provide a foundation for sustained strong margins and cash generation. In fiscal year 2025, we delivered $50 million of cost savings, and we expect to maintain these benefits in fiscal 2026. While we have new growth assets coming online that we anticipate will increase costs in fiscal year 2026, we expect these new assets will drive bottom line profitability. We also are focused on additional programs in fiscal 2026 that are targeted to reduce existing costs by another $30 million.

These programs include procurement savings, headcount reductions in Reinforcement Materials and benefits from accelerating technology deployment for improved yield and manufacturing efficiencies that we expect will be rolled out during fiscal 2026 and into fiscal 2027. In addition to cost actions, we have reduced our capital expenditures for the full year to align with the current market environment. We are tensioning this spend while continuing to maintain our assets and invest in attractive growth opportunities to sustain strategic momentum. We expect our new CapEx range to be approximately $60 million lower at the midpoint compared to 2025 actuals, which would support robust free cash flow generation, enabling us to sustain a high level of cash return to shareholders through dividends and share repurchases.

Finally, as a result of the declining carbon black utilization levels in Western geographies, we believe it is prudent to look at our network capacity and align it to current demand levels. With this in mind, we are finalizing plans to rationalize carbon black capacity in the Americas and Europe to position us to operate more efficiently, enhance profitability and maintain flexibility as we navigate this challenging demand environment. We will communicate any decisions when they are made.

Before I hand it over to Erica to discuss our financial performance, I also want to highlight an area of our portfolio that continues to perform well, our battery materials product line. We are a global leader in this space with the broadest range of conductive additives, formulations and blends and strong participation with leading global customers. Battery Materials represents a significant strategic opportunity for Cabot, and we are excited about the progress we've made and the momentum we see ahead. Our Battery Materials product line delivered another strong quarter with revenue growth of 39% compared to the first quarter of fiscal 2025. This growth reflects the continued momentum in electric vehicle and energy storage applications as well as the benefits of new customer agreements and capacity expansions that we believe position us well for sustained performance. EBITDA margins in this product line remain attractive running at 22% on a trailing 12-month basis, which underscores the strength of our technology and disciplined execution of our strategy.

Global demand for lithium-ion batteries is expected to accelerate meaningfully over the remainder of the decade, with the sector projected to grow at roughly a 20% compound annual growth rate through 2030. This expected growth is being driven by both the continued rise in electric vehicle adoption on a global basis and also by the rapid rollout of large-scale battery energy storage systems. We believe our LITX and ENERMAX brands are increasingly well positioned. These brands bring together our most advanced conductive additives, formulations and blends, solutions that are enabling superior battery performance in both EV applications and battery ESS installations.

A critical element of our battery materials strategy is to establish incumbency in the Western geographies as gigafactories are built there. Last month, we signed a multiyear agreement with PowerCo, and I want to take a moment to highlight why we believe this is such an important milestone for our battery materials product line. PowerCo is a subsidiary of Volkswagen Group, the second largest auto producer globally with a broad and deep lineup of electric vehicles. VW has made clear its strategic intent to produce a substantial portion of its own batteries through the build-out of several gigafactories, and this agreement positions Cabot squarely at the center of that strategy. The agreement represents the first step in what we expect will be a multisite, multiyear expansion of PowerCo's battery production footprint. Securing this agreement not only reinforces our leadership position in conductive additives formulations and blends for lithium-ion battery applications, but it also creates a strong foundation for growth as PowerCo scales its operations.

We are excited about the opportunity to grow alongside an industry leader and deepen our role as a trusted partner in the global EV battery value chain. Over time, we expect this agreement to be a material contributor to profit growth in our Battery Materials product line. It underscores the strength of our technology and the confidence our customers have in Cabot as a leader in this space.

As I mentioned, one area that is helping to fuel the strong growth in our Battery Materials product line is the rapidly growing battery energy storage systems application. These systems play a critical role in enabling clean, reliable and flexible power for the energy grid, renewable energy sources and the fast-growing network of data centers. As demand for uninterrupted power supply accelerates, driven in part by the proliferation of AI-enabled data centers, the demand for battery ESS is expected to grow at a 26% compound annual growth rate through 2030.

Cabot is well positioned to capitalize on this growth. Our advanced conductive additives, formulations and blends are designed to improve cycle life and enhance battery efficiency, delivering the performance that customers in this application require. As we look ahead, we anticipate that battery ESS will be a significant contributor to the long-term growth of our Battery Materials product line. We expect the combination of this rapidly expanding sector and the larger battery electric vehicle market to create a powerful growth engine for Cabot. With strong fundamentals, increasing demand for energy storage and Cabot's differentiated technology, we believe we are well positioned to create a high-growth business that can drive long-term shareholder value creation.

I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail. Erica?

Thanks, Sean. Adjusted EPS in the first quarter was $1.53. This performance was 13% below the same quarter last year, driven by lower EBIT in our Reinforcement Materials segment, partially offset by higher EBIT in our Performance Chemicals segment. Cash flow from operations was strong at $126 million in the quarter, which included a working capital decrease of $5 million. Discretionary free cash flow was $71 million in the quarter. We ended the quarter with a cash balance of $230 million, and our liquidity position remains strong at approximately $1.4 billion.

Capital expenditures for the first quarter of 2026 were $69 million, and we expect capital expenditures in fiscal 2026 to be between $200 million and $230 million. Additional uses of cash during the first quarter were $24 million for dividends and $52 million for share repurchases. Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x as of December 31, 2025. The operating tax rate for the first quarter was 28%, and we continue to anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%.

Now moving to Reinforcement Materials. EBIT decreased by $28 million in the first fiscal quarter compared to the same period last year, primarily due to lower volumes, which were down 7% year-over-year. Regionally, volumes were down 15% in the Americas and 7% in Asia Pacific, while volumes in Europe were up 6%. Volumes were impacted by lower production levels and year-end inventory management by our tire customers in the Americas and increased competitive intensity in Asia Pacific.

Looking to the second quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $5 million to $10 million, driven by the outcomes of our calendar year 2026 customer agreements, partially offset by higher volumes from seasonal improvements. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by the benefits from our new capacity in Indonesia and our acquisition in Mexico as well as improved costs from the countermeasures we are driving.

Now turning to Performance Chemicals. During the first quarter of fiscal 2026, EBIT for the segment increased by $3 million as compared to the same period in the prior year. The increase in the first quarter was due to higher gross profit per ton from a more favorable product mix and continued optimization and cost reduction efforts. Volumes were lower by 3% year-over-year, primarily due to lower demand in Europe. Looking ahead to the second quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the first quarter as sequential volume improvement in the Western regions is expected to be offset by the timing of costs. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by stronger volumes in the back half of the year.

I will now turn it back to Sean to discuss our 2026 outlook. Sean?

Thanks, Erica. As we look to the balance of fiscal year 2026, we are narrowing our adjusted earnings per share guidance range to between $6 and $6.50. This guidance incorporates the final outcomes of our calendar year 2026 annual Reinforcement Materials customer agreements that I discussed earlier. In terms of assumptions that underpin this outlook, in Reinforcement Materials, we anticipate volumes to be relatively flat year-over-year, which includes the impact of the first quarter volumes and some volume loss in Europe in our calendar year '26 customer agreements, which are offset by volumes from new assets, including our new line in Indonesia and our plant acquisition in Mexico. We closed this acquisition at the end of January and results will be consolidated starting in February.

Our outlook also reflects lower pricing year-over-year driven by the annual agreements that I discussed earlier. In Performance Chemicals, we anticipate low single-digit volume growth year-over-year, driven by our Battery Materials product line and tailwinds in certain end markets such as infrastructure and consumer. We expect to maintain our gross profit per ton as compared to the prior year. Our balance sheet continues to be very strong with net debt-to-EBITDA of 1.2x as of December 31, 2025. We anticipate continued strong free cash flow generation driven by robust operating cash flow and moderating CapEx spending. The combination of balance sheet strength and cash flow generating capacity allows for significant flexibility in our usage of cash, which we plan to invest to maintain our global asset base, drive strategic growth opportunities and return cash to shareholders through dividends and share repurchases.

While the current environment remains challenging, there are a number of factors that would provide support for an improved demand profile over the medium and longer term. As I've discussed, for Reinforcement Materials, demand in the Western geographies has been impacted by elevated tire imports and depressed tire sales. Looking forward, industry forecasts project domestic tire production in the Western regions to return to growth in 2026 and 2027. The rate and pace of this recovery will likely be influenced in part by trade measures on tire imports, such as tariffs and antidumping duties, which are currently playing out across the various regions.

In addition, pent-up demand for a delayed tire replacement cycle is expected to support volume growth as consumers return to more normal buying patterns as inflation abates and interest rates move down. At the same time, the global tire manufacturers are reinvigorating and leveraging their Tier 2 brands to defend share from Asian tire imports into Western geographies, which should help stabilize regional demand and support volume growth moving forward. In Performance Chemicals, we expect our diverse portfolio of applications to deliver GDP plus growth over time. While some end markets such as housing and construction and consumer durable applications remain subdued, we see strong growth prospects in certain applications that are driven by macro tailwinds.

As I discussed previously, our Battery Materials product line is expected to continue benefiting from the rapid build-out of battery energy storage systems and continued penetration of electric vehicles, particularly in Asia and Europe. Beyond batteries, our product sales into infrastructure-related applications continue to experience strong demand as our consumer and semiconductor-related applications. As we look ahead, we would expect a continued easing of inflation and a further rate cut cycle to be supportive of demand levels overall. Given our broad global footprint and recognized technology leadership, we believe we are well positioned to capture value as demand recovers. While the environment remains dynamic, we are focused on leveraging Cabot's strengths to position the company for long-term success. It starts with our leadership position. Cabot is a proven technology leader with the widest global scale in our industry, and this positions us well to win and outcompete others.

Our large global network of competitive assets and leading technologies enable us to optimize globally, serve customers effectively and maximize returns. In the current environment, our focus will be on global asset optimization, process technology deployment, efficiency programs and cost reductions to extend our leadership position and maintain our strong margins. The cash flow characteristics of Cabot and our investment-grade balance sheet are enduring strengths of the company. The financial capacity allows us to fund strategic growth opportunities while maintaining a high level of cash return through dividends and share repurchases. We expect cash flow and liquidity to remain strong, and our investment-grade balance sheet provides great flexibility to execute our Creating for Tomorrow strategy.

Finally, we see clear growth opportunities ahead and are investing to win. We are building momentum in our Battery Materials product line, which is a proven high-growth platform supported by strong macro tailwinds fueling the data center build-out and electrification of mobility. In the infrastructure sector, wire and cable applications and investments in alternative energy generation are experiencing robust growth, and Cabot's products and global footprint are well recognized by leading customers in these key applications. Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience, disciplined execution and a commitment to shareholder value creation. I am confident in our ability to execute our strategy and to return to a path for growth beyond 2026.

I will now turn the call back over for our Q&A session.

[Operator Instructions]

And our first question will come from John Roberts with Mizuho.

I think the Asia country tire export data leads the U.S. import data by a couple of months. What are you seeing on those tires that are leaving the ports in Asia?

John, I would say the picture kind of remains pretty consistent. I think in the Americas, we're definitely seeing in more recent months that the tire imports have been coming down a bit sequentially, certainly in North America. And I think the current data would be consistent with that. So we'll have to see how that plays out, but that would be the current view. And certainly, in South America, the import levels have -- as a result of tariff measures down there, particularly in Brazil, have resulted in a modest year-over-year decline. And again, I think current data would be consistent with that. So there can be turbulence here, of course, as regional -- as various regions implement various protective policies, you can have a bit of channel stuffing that can happen ahead of changes in those policies. But I would see that those directional trends, I think, seem to be continuing. So we'll be watching that closely.

In Europe, I think there haven't been significant measures put in place yet. There is an antidumping duty petition that's under review right now. So we'll have to see what happens there. So I would say the tire imports continue into Europe.

And is the volume weakness in Europe silicas just the construction silicones market? Or is it being exacerbated by Dow's silanes closure?

Yes. I would say, overall, our demand has not been materially impacted by Dow's silanes closure. We reached an agreement there to be compensated for any nonperformance or underperformance that contract calls for. I think Europe, just in general, is weaker in terms of housing and construction, which is a big end market for silicones. And so I would say it's more of a general market weakness than anything specific.

And the next question will come from Kevin Estok with Jefferies.

So just real quick, on your multiyear supply agreement with PowerCo, I guess, have you quantified what the, I guess, expected earnings contribution is from this agreement?

Kevin, we have not for obvious confidentiality reasons. But obviously, the agreement is an important one strategically because of how significant PowerCo, we expect will be given VW's very broad lineup of EVs and their intent to make a substantial portion of their own batteries, number one. Number two, as part of our strategy, we not only compete and do very well as a leader in China, but our strategy calls for establishing incumbency outside of China as battery gigafactories get developed. And this contract is an important one in that -- in pursuit of that strategy.

Okay. Understood. And I guess my second question would be just -- so obviously, you're largely a make-in region, sell-in region model. But I guess I was wondering what the magnitude of your cross-border specialty product sales where that were basically exposed to tariffs. And I guess, whether you had any pricing mechanisms that would recover some of those costs?

Sorry, Kevin, could you just repeat, you're talking about in the Reinforcement segment? Or are you talking about in Performance Chemicals?

Actually -- well, either of you, if you have any, I guess, any points there, yes.

Yes. No, the company is largely a make-in region, sell-in region. We do have some relatively small volumes of products in Performance Chemicals that move across regions, given the unique and specialty nature of certain technologies, they're not necessarily replicated in every region. And so there are some small cross-regional volumes that do move there, but they would be quite small in the overall -- as an overall proportion of Cabot sales. And so we've not really had any material impacts in those product lines as a result of the trade tensions that are underway globally.

And our next question will come from David Begleiter with Deutsche Bank.

Sean, can you talk to how your new Mexico plant fits into Americas manufacturing footprint now that you look to close capacity in the Americas?

Yes, sure, David. So the Mexico plant is an important one strategically. As you know, we already have a plant in Mexico in Altamira, very close by to where this plant is. So there will certainly be operational synergies as we integrate this site into our existing management structure there in Mexico. And Mexico continues to be an important market where there is tire expansion. And so we see this as an important strategic asset. I think the other thing to remember here is I think it's an important and strong signal of our long-term partnership with Bridgestone. This agreement has a long-term supply agreement, providing materials back to Bridgestone for use in their tire production in Mexico and in the Americas. So it's underpinned by a long-term agreement. So I think our view here is that it fits in strategically given our existing footprint and the integration with our assets there as well as the close partnership with customers that are investing in that region for growth in tire production.

Very clear. That's helpful. And one more question, Sean. Can you talk to on your annual contracts, how the volumes were realized by region, North America, South America and Europe for the upcoming -- for the current year?

Sure. So in terms of the contract agreements from a volume standpoint, I would say, overall, as was commented earlier, we're expecting volumes across Reinforcement to be relatively flat globally. And -- but if we look at the contract specifically, I would say in the Americas, there's basically no real change in share position here. So we would expect those volumes to sort of grow with market, which will be kind of flattish is the outlook, a little bit up perhaps, but in that range. And then in Europe, we did lose some volume in the contract negotiations there. And so we would expect European volumes to be down in 2026.

And our next question will come from Josh Spector with UBS.

I had 2 questions just on the Battery Materials piece. I mean I think if we go back a couple of years ago, you sized that business as something like $25 million in EBITDA, and we expected it to grow, then there was pricing pressure and it came down. So can you help us re-level set to the earnings in that business in fiscal '25? And then second, I think a lot of the growth in conductive additives were more about energy density. We talked about EV batteries and extended range. Does conductive carbons have the same value add in battery energy storage systems where maybe the space requirement isn't as much of a constraint. Just curious if you can comment on those 2 pieces.

Sure. Thank you, Josh. So in terms of the ESS application and the EV application, there are similarities in terms of expectations for battery performance, but there are also some differences. You highlighted one of the biggest ones, which is, obviously, in an EV, there's a space constraint. And so trying to pack more energy density into smaller space is important, and that leads to slightly different requirements in terms of the conductive additives and the blends or formulations of those additives to meet that requirement, whereas energy storage systems generally are less space constrained. And so I would say that's the most significant difference. In both cases, they require high-value conductive additives and blends and formulations of those to optimize the performance. So the profitability of both of these applications is quite good. So we're excited about the build-out there. Certainly, the momentum behind the build-out of energy storage is accelerating. And then outside of -- when you look at China and Europe for EVs, there's continued penetration there.

With respect to the overall profitability of the business, we have not disclosed a more recent number. You are correct back in that period of time where we were. And then the industry went through a sort of prolonged destocking cycle. So I would say it took a while to kind of level out. I think people realize that there was excess inventory of battery cells in '23 and into 2024. So there was kind of a normalizing that's been quite difficult to figure out what the current run rate is. That being said, we have been growing very nicely here in this business, and I commented earlier on our overall profit EBITDA margin level in this business.

So you can see that it's a material contributor to the Performance Chemicals segment and one that we believe will grow as the build-out outside of China happens to be a material contributor to Cabot. That's certainly our aspiration here, and we're making investments to make that happen. And we sit here today in a really strong position. We've got the broadest range of conductive additives and an ability to formulate blends of both conductive carbons and carbon nanotubes and carbon nanostructures. And I think that portfolio is a distinguishing one and then the global footprint that we offer as customers build out outside of China is an important feature of Cabot's position here, and we're very well positioned with the top global producers around the world as they're building out. So we feel like we're hitting the milestones here. And in any new business, there's always some choppiness as things evolve, but we're focused on the long term here and very pleased with the momentum we're seeing.

[Operator Instructions]

The next question comes from Lydia Huang with JPMorgan.

How does it affect your margins when you sell to a higher mix of lower-tier tires versus when you sell to more higher-tier tires? And have there been changes to your customer mix?

Lydia, so I would say in terms of the major customer mix, I would say, not major changes to that mix or profile as we look out into 2026. I think your question about profitability by tire, I think it's important to think about this in a couple of different ways. First of all, every tire has several grades of carbon black in it, depending on which part of the tire you're talking about. So each is specifically designed to impart performance in that part of the tire architecture. So segmentation is important for us, not only in terms of customers, which types of tires and then which grades of carbon black we try to tailor for different parts of each tire. And so the market choices and the segmentation are important.

Traditionally, what you find is that reinforcing grades impart more performance on the tire. Those are the ones that are on the tread or part of the tread architecture. And so that's very important in terms of delivering not only the wear but the fuel economy requirements of the tire. So you'd traditionally see higher performance related to those types of grades. But the segmentation is a very important part of how we run this business, both customer types of tires, whether they're for domestic or export as well as which products we try to tailor for different parts of the tire.

And how is reinforcement materials volume trending quarter-to-date in the Americas compared to the December quarter? And are the performances different in South America and in North America?

So in terms of volumes so far in January, we are seeing that volumes are up a little bit year-over-year in the Americas. And so I think that's -- in Europe, that's positive. And then if you look at sequentially, it's up some 15-ish percent or something in that range, I think, sequentially. But that's not a surprise. You normally have a seasonally weaker December quarter. And I think that was even more pronounced as you saw in our volume results for December because of significant inventory management by customers at the end of the year. So seeing a sequential step-up like that was expected. So on a year-over-year basis through January, it seems like it's developing fine and as expected.

Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Sean for closing remarks.

Great. Thank you, Michelle, and thank you all for joining today our Q1 call, and we look forward to talking with you again in the upcoming quarters, and thank you for your continued support of Cabot Corporation. Have a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day and thank you for standing by. Welcome to the Q4 FY 2025 Cabot earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Thanks, Michelle, and good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO.

Last night, we released results for our fourth quarter of fiscal 2025, copies of which are posted in the Investor Relations section of our website. 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 appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2024, and in subsequent filings we make with the SEC, all of which are also 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 measures 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 the table at the end of our earnings release issued last night and available in the Investors section of our website.

Also, as we do typically each year, I would like to remind you that over the next several weeks, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards.

I will now turn the call over to Sean, who will discuss the fiscal 2025 highlights, our cash flow results and our strategic highlights for the year. Erica will review the corporate financial details and business segment results for the fourth quarter and fiscal year. Following this, Sean will provide a 2026 outlook and some closing comments and then open the floor to questions. Sean?

Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call. Before we move into year-end highlights, I'd like to take a moment to share an important update regarding our Investor Relations leadership. As a [Technical Difficulty]

Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Ladies and gentlemen, please stand by. We are having technical difficulties and your conference will resume momentarily.

Ladies and gentlemen, thank you for standing by. I would now like to hand the conference back over to your speaker, Sean Keohane. Please go ahead, sir.

Thank you, Michelle, and apologies everyone. We seem to have a challenge with our connection there. So let me pick up where we left off. I want to first begin by taking a moment to share an update regarding our Investor Relations leadership.

As announced earlier, Robert Rist will be stepping into the role of Vice President of Investor Relations and Corporate Planning. He'll be transitioning into the role over the course of the first quarter of fiscal year 2026, succeeding Steve Delahunt, who will continue with Cabot as Vice President and Treasurer.

Rob has been with Cabot since 2007 and has held a number of key leadership roles across the company in corporate strategy, corporate planning and within our Reinforcement Materials segment and finance organization. He brings a strong understanding of our business and financial priorities, and his strategic insight and financial acumen will be instrumental as he helps lead our engagement with the investor community.

I want to sincerely thank Steve for his many contributions to our Investor Relations function over the past 9 years. His leadership has built a strong foundation for our investor engagement, and we are grateful for his continued service and treasury.

Steve and I have worked together in this capacity for my entire tenure as CEO, and I've always been impressed with his intellect, teamwork and most of all, how he lives our Cabot values of integrity, respect, excellence and responsibility. I'm confident that this transition will be seamless, and we look forward to continued momentum in our IR efforts.

Fiscal year 2025 was characterized by a turbulent macroeconomic, geopolitical and global trade environment, but it was a year in which the enduring strengths of Cabot were exhibited. We executed well and delivered strong results. In fiscal year 2025, we delivered a record adjusted earnings per share of $7.25, which represents an increase of 3% year-over-year. I'm very pleased with our performance, particularly in light of the fact that volumes across both segments were down year-over-year and substantially below our expectations at the beginning of the fiscal year.

Total consolidated EBIT increased year-over-year with Reinforcement Materials EBIT down 5% and Performance Chemicals EBIT up 18%. We continue to generate strong cash flow, which supported our capital priorities and a significant return of cash to shareholders. I'm immensely proud of the Cabot team for the resilience they demonstrated and the countermeasure mindset that they brought to their daily work to support our customers and deliver earnings growth in a very difficult and dynamic environment.

Looking a bit deeper at our financial metrics, fiscal year 2025 marked another year of strong overall performance in terms of profitability, cash flow generation and balance sheet strength. For the year, we generated adjusted EBITDA of $804 million, which was up 3% year-over-year and represents a 22% margin. While our end market volumes were down, we were able to more than offset this weakness by optimizing across our global footprint of assets, reducing costs and driving disciplined execution across our operating platform of commercial and operational excellence.

The quality of our returns remained strong with an adjusted ROIC of 18%, and we delivered these results while maintaining our strong balance sheet. In dynamic and turbulent times, balance sheet strength and liquidity are essential, and Cabot continues to exhibit these distinguishing features. We finished fiscal 2025 with net debt-to-EBITDA of 1.2x and liquidity of $1.5 billion, which gives us tremendous flexibility to invest in strategic organic and inorganic projects to grow the long-term earnings of the company while returning a significant amount of cash to shareholders.

Overall, I am very pleased with our performance across our financial metrics, and this puts us in a good position to navigate these uncertain times and remain committed to our long-term strategic growth priorities.

The Cabot portfolio has robust cash flow characteristics and fiscal 2025 marked another year of strong performance, where we generated operating cash flow of $665 million and free cash flow of $391 million.

The cash generation power of our portfolio is a central element of our shareholder value creation strategy. With these strong cash flows, we seek to allocate capital inside a balanced framework focused on 3 priorities: first, ensuring our asset base is well maintained to provide a reliable and sustainable offering to our customers; second, underwriting high confidence organic and inorganic growth investments to deliver long-term earnings growth; and third, returning capital to shareholders through dividends and share repurchases. The strength of our cash flows allows us to execute against these priorities while maintaining our strong investment-grade balance sheet.

In fiscal year 2025, we paid $96 million in dividends, including a 5% increase announced in May, reflecting our confidence in the long-term cash flow outlook of the company. We've maintained a continuous and growing dividend since 1968, and we would expect to continue raising the dividend over time as our earnings and cash flows grow.

We also repurchased $168 million of shares in fiscal year 2025, which reduced our outstanding share count by 3% and when combined with dividends, totaled $264 million of capital returned to shareholders. Overall, we feel very good about our long-term cash generation power and balance sheet strength, which provides us with great strategic flexibility.

During our fiscal year, we also made important progress on key elements of our Creating for Tomorrow strategy. I'll spend a few minutes now highlighting some important accomplishments that are part of our strategy to deliver long-term shareholder value creation.

In July, we announced that Cabot has entered into a definitive agreement to acquire Bridgestone's reinforcing carbon plant in Mexico. This manufacturing facility is located in close proximity to Cabot's current reinforcing carbons facility in Altamira, Mexico and strengthens our partnership with Bridgestone through the long-term supply of reinforcing carbon products from this plant.

The facility also has the capacity to manufacture additional reinforcing carbons, providing flexibility to support broader customer needs and future growth opportunities for Cabot. The transaction is expected to close in the second fiscal quarter, subject to regulatory approvals and to be accretive in the first year. This is an example of how we are deploying our strong cash flow to fund an attractive acquisition that strengthens our portfolio, drives incremental growth and is accretive to earnings.

We are pleased with the earnings progression and strategic developments in our Performance Chemicals segment despite persistent end market weakness in certain important sectors such as automotive and construction. While we believe the end markets of automotive and construction will improve over time from their current cyclical lows, we are focused on targeted applications where the macro trends are favorable. Specific sectors include infrastructure and alternative energy, digitalization and consumer-driven applications. Success across these sectors was an important contributor to the earnings -- increased earnings in the segment in fiscal '25.

The demand for conductive carbons for power distribution cables is supported by growth in power generation and distribution, and this application is expected to grow in the 8% range through the end of the decade. Fumed silica for the CMP application is one where we saw a strong double-digit growth in 2025 as broad digitalization and automation trends drive a greater need for semiconductor chips.

And finally, consumer spending has been a pretty resilient driver of economic growth globally and our specialty carbons, specialty compounds, fumed silicas and aerogel materials are all benefiting from this strength.

Sustainability is central to who we are at Cabot, and we continue to be recognized for excellence. As we discussed last quarter, we are proud to have received a Platinum rating from EcoVadis for the fifth consecutive year. EcoVadis is the world's largest and most trusted provider of business sustainability ratings with more than 150,000 rated companies.

A Platinum rating is the highest level of achievement and places Cabot among the top 1% of companies in the manufacturing of basic chemicals. This prestigious recognition underscores Cabot's commitment to transparency and provides our customers with visibility into our sustainability performance.

In the fourth quarter, we also published our 2025 sustainability report, outlining our progress to date and our direction for the future. In this publication, we reported our strong progress against our calendar year 2025 goals and also unveiled our 2030 sustainability targets, which reflect our ambition to continuously drive measurable impact for our stakeholders.

And finally, we continue to make strong progress in building a leading Battery Materials business that we believe can become a material contributor to Cabot over the long-term.

Our strategic development approach is based on a mix of organic technology development efforts that build on our core conductive carbons and thermos management technologies, coupled with strategic M&A to broaden our product lines and access new technologies. In fiscal 2025, we executed well against our strategy, growing total contribution margin by 20% year-over-year. We continue to pursue what we call a bifurcation strategy with tailored approaches to China, coupled with a focus on building incumbency in the western geographies, where local supply and service is of strategic value.

Product development is essential in this fast cycle industry, and we made important progress on this front in 2025. We recently launched a new conductive carbon product developed for use in lithium-ion batteries for energy storage systems, or ESS. This high-performance conductive additive delivers enhanced conductivity, longer cycle life and improved processability for ESS cells used in residential, commercial and industrial applications.

The global ESS market is growing rapidly, driven by the rising demand for grid flexibility, the transition to renewable energy and the need for storage solutions that support the rapid build-out of data centers. Our LITX 95F solution addresses these challenges by delivering key performance and efficiency advantages that are vital for accelerating ESS adoption.

In addition to our segmented efforts to capture the ESS opportunity, we continue to realize strong volume growth in our high-performance conductive additive blends. This was a core thesis of our decision to acquire Shenzhen Shanshan Nano Materials (sic ) [ Shenzhen Sanshun Nano New Materials ], and I'm very pleased with the strong growth in sales of these products to leading global battery producers in 2025.

As we look ahead in this business, our outlook remains positive, supported by the expectation that the lithium-ion battery market will grow at a compound annual rate of approximately 20% over the next 3 years. We believe we are well positioned to capitalize on this growth opportunity and build a global leadership position that creates significant long-term value for our shareholders.

I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail.

Thanks, Sean. Adjusted EPS in the fourth quarter was $1.70. This performance was 6% below the same quarter last year, driven by lower EBIT in both our Reinforcement Materials and Performance Chemicals segments.

Cash flow from operations was strong at $219 million in the quarter, which included a working capital decrease of $69 million. Free cash flow was $155 million in the quarter.

We ended the quarter with a cash balance of $258 million, and our liquidity position remains strong at approximately $1.5 billion.

Capital expenditures for the fourth quarter of fiscal 2025 were $64 million, and we expect capital expenditures in fiscal 2026 to be between $200 million to $250 million. Additional uses of cash during the fourth quarter were $25 million for dividends and $39 million for share repurchases.

Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x.

The operating tax rate for fiscal year 2025 was 27% as compared to 26% in fiscal 2024. The higher tax rate was driven by the geographic mix of earnings and the new OECD global minimum tax implementation, which increased our tax rate in certain lower tax jurisdictions. We anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%.

Now moving to Reinforcement Materials. EBIT decreased by $4 million in the fourth quarter compared to the same period last year, primarily due to lower volumes, which were down 5% year-over-year. The decline in volumes was due to weaker customer demand driven by the uncertainty from tariffs and a weaker global macroeconomic environment.

In the Americas, the lower volumes were also driven by the continuation of elevated level of Asian tire imports. Regionally, volumes were down 7% in the Americas and 6% in Asia Pacific, while volumes in Europe were up 5%. The lower volumes were partially offset by continued optimization and cost reduction efforts in the segment.

EBIT for fiscal 2025 was $29 million below the prior year, driven by 5% lower volumes. Volumes declined in both the Americas and Asia, and the decline in volumes was partially offset by lower costs and favorable foreign currency impacts.

Looking to the first quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $15 million to $20 million, driven by lower volumes in the Americas and Europe and increased competitive intensity in Asia. Seasonally lower volumes in the Americas and Europe are also expected to negatively impact regional mix. Volumes are also expected to be sequentially lower as customers manage their year-end inventory levels.

Now turning to Performance Chemicals. During the fourth quarter of fiscal 2025, EBIT for the segment decreased by $2 million as compared to the same period in the prior year. The decrease in the fourth quarter was due to lower volumes. Volumes were lower by 5% year-over-year, primarily due to lower volumes in the European region, particularly in construction-related applications.

EBIT in fiscal 2025 was $30 million higher than the prior year. The increase was driven by higher volumes in the fumed metal oxides and battery materials product lines. The segment also benefited from continued optimization and cost reduction efforts throughout the year.

Looking ahead to the first quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the fourth quarter, as modest sequential volume improvement is expected to be largely offset by the timing of higher costs.

I'll now turn it back to Sean to discuss the 2026 outlook. Sean?

Thanks, Erica. Fiscal year 2025 certainly developed differently than we expected just 1 year ago. Automotive production in the Western economies contracted in 2025 and elevated Asian tire imports into Western geographies continue to persist. Additionally, global manufacturing PMI was in or near contraction territory for most of 2025, and the expected interest rate cut cycle was slower than expected, leaving the housing and construction sector in a trough.

In addition, 2025 was characterized by global trade turbulence, which is making it very difficult to determine long-term durable demand levels. As we look to 2026, we don't yet see signs of improvement across these dimensions. While trade policy is trending toward regionalization, and this aligns well with our model of make in region, sell in region, it will likely take some time for end markets and supply chains to find their new normal.

In 2026, we now expect light vehicle auto production in North America and Europe to decline for a third year in a row. In terms of the tire sector, the persistent elevated level of tire imports from Asia has reduced domestic tire production in the Americas and Europe, thereby creating a more challenging competitive environment for tire manufacturers and their suppliers, including carbon black producers.

Furthermore, global manufacturing PMI continues to straddle 50 with no clear catalyst to move firmly above 50 and into expansionary territory. With this as a market backdrop, we expect adjusted earnings per share in fiscal year 2026 to take a step back from our strong performance in 2025. Acknowledging there is significant uncertainty in both end market demand and the range of outcomes in our annual tire contract negotiations, we expect fiscal year 2026 adjusted earnings per share to be between $6 and $7.

Our range includes various scenarios related to volumes and pricing outcomes across our businesses. The lower end of the range would reflect a weak demand environment and pricing pressures in 2026. The higher end of the range would reflect the ability to largely offset pricing pressures with volumes, optimization, cost savings and benefits from our growth investments.

As we think about the segment outlook for fiscal 2026, in Reinforcement Materials, we are currently negotiating our calendar year contracts. While we expect outcomes to be varied across customers, our expectation is that overall contract outcomes will be lower than the prior year.

Our customers are facing challenges in the Western regions from Asian tire imports along with macroeconomic uncertainty and are pushing hard on suppliers given these dynamics. This is causing challenging contract discussions with our customers that are taking longer to close. In addition, I would say the utilization situation in the Western regions is similar or slightly worse than the prior year.

Tire imports from Asia have increased modestly year-to-date into the U.S. They've decreased modestly into South America, and they have risen more materially into Europe in 2025. Therefore, it is a challenging picture for local production of tires in the Americas and Europe, which in turn impacts our business in those regions. Our capacity in Asia enables participation in demand in Asia, but it is a competitive market at this time, requiring us to balance volumes and margins.

Regarding Performance Chemicals, in 2025, we have seen rather strong demand in Asia, muted levels of demand in the Americas and challenging demand patterns in Europe. We anticipate these trends will continue in 2026. The challenges in Europe are also related to end product imports from Asia into Europe, which is impacting demand pull-through from our customers in the region. We are seeing positive demand in Asia as our customers benefit from strong export levels, and we're utilizing our capacity there quite well.

While end market demand in construction and auto remains in a cyclical trough, we are seeing strong and improving demand in attractive end markets like battery materials as well as specific sectors, including infrastructure and alternative energy, digitalization and consumer-driven applications. We expect these growth areas, along with continued optimization across the segment to enable year-over-year growth in segment EBIT.

We expect cash flow from operations to remain strong and our net debt to EBITDA to remain in a similar range to 2025. We expect the cash flows from operations will fund our capital expenditures, a strong dividend and share repurchases in the range of $100 million to $200 million.

As we think about our longer-term outlook and the targets we set for 2027 at our Investor Day last year, it is clear that the assumptions we had 1 year ago are not playing out as planned. The targets were established based on a certain set of assumptions for our key end markets. Specifically, automotive production was forecasted to grow at a higher rate than we now see, and the Western markets were projected to be positive, which has not been the case in 2025 or the 2026 forecast.

We expected tire production to grow globally, including in the Western markets, but the persistent level of Asian tire imports has impacted demand for our product in the Americas and Europe, resulting in a negative regional mix.

With the change in the U.S. administration's policy towards electric vehicles, the outlook for batteries in the U.S. has also been reduced. And finally, the interest rate cut cycle that was projected at that time has been slower to develop, resulting in a delayed pick up in housing and construction sector. In addition to these end market factors, the global trade negotiations are creating significant uncertainty, and we have not yet seen a stable period to interpret a new normal for our key end markets.

Given where we are today and our expectation for 2026, the implied recovery needed to achieve these targets by 2027 is not expected. We will, of course, monitor the external environment and its impacts on our business and continue to update you as our visibility improves.

Certain of our end markets are suffering from cyclical headwinds, particularly the automotive and the building and construction sector, but we expect volumes in these applications will improve over time as interest rates are cut and strengthen the consumer. The biggest dynamic that is yet unclear is the impact of Asian tire imports on tire production volumes in the Western markets. At this point, we are observing mixed signs.

In the U.S., there is a range of tariff levels that impact tires and antidumping duties have been levied on certain producers. We have not seen a decrease in imports into the U.S. based on the most recent data, which is year-to-date July, and it remains too early to determine if these actions will have a material impact on the flow of tires.

In South America, we are seeing some evidence that trade actions are having a positive impact on the level of tire imports into Brazil. Currently, there are tariffs on passenger car and truck tires as well as antidumping duties on tires from certain countries, including China and Thailand. On a year-to-date basis through August, we have seen a decline in tire imports into Brazil. So that sign is encouraging.

In Europe, there are very modest tariffs in place at this time on passenger car and truck tires. The EU is currently investigating allegations of dumping of passenger car tires from China and potential provisional measures may be introduced as early as December 2025. On truck tires, there are currently antidumping duties in place. Whether these levels are sufficient to change trade flows remains unclear.

In addition to trade policy by different countries, we are also observing that the global tire majors appear to be taking steps to improve competitiveness and defend their Tier 2 brands. Both trade policy and actions by the global tire majors to defend their brands could have a favorable effect on tire production in the Western regions, but the magnitude and timing remain uncertain at this time.

While there is uncertainty from the global trade dynamics and its impact on our end market demand, we are focused on leveraging our strengths to navigate the situation and position Cabot for long-term success. It starts with our capability as a strong operator. Over the past decade, we have created significant value through disciplined execution of our operating platform of commercial and operational excellence. In this turbulent time, our efforts on operational excellence will skew more towards yield and cost rather than asset availability.

On the commercial excellence front, our strategy will seek to balance pricing and volume, and we will remain laser-focused on executing in key end markets where there are favorable tailwinds.

As a global leader in our respective product lines, we have a large network of competitive assets and leading technologies that enable optimization to best serve our customers and maximize returns. In the current environment, our focus will be on global asset optimization, efficiency programs and cost reductions.

Despite the more challenging environment, we expect cash flow and liquidity to remain strong, and our investment-grade balance sheet offers great strategic flexibility to execute our Creating for Tomorrow strategy.

And finally, we will continue to be disciplined in our allocation of capital. We expect to deploy capital against high confidence strategic growth areas such as battery materials while maintaining a meaningful return of capital to shareholders.

Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience and disciplined execution, both of which are important in these dynamic times.

Thank you, and I will now turn the call back over for our question-and-answer session.

[Operator Instructions] Our first question will come from the line of John Roberts with Mizuho.

Are you seeing any volatility in your rubber black operating rates regionally? Or is it relatively stable? I know it's shifted, but I don't know if it's shifted and it's stabilized or it's still volatile.

Yes, John, I would say it's largely stable, but stable in the context of the elevated tire imports and how those have had an impact on demand in any given region. But if you look, for example, in North America, you'll see that tire imports were up modestly on a year-to-date basis. So that translated into largely stable operating levels in North America. So that's really the factor that's at play here, but we've been largely stable.

And then are you being impacted at all by Dow's silicone rationalization efforts in Europe?

So as you know, Dow has announced the closure of their siloxanes plant in Barry Wales, and we have a fumed silica plant next door to them where we exchange some feedstock and materials as part of a long-term agreement that goes out through the end of 2028. And we're currently in discussions with Dow on exactly how they'll perform against that contract.

Our next question comes from the line of David Begleiter with Deutsche Bank.

This is Emily Fusco on for Dave Begleiter. Maybe a question on tire contract prices. How much do you expect 2026 prices to be down or expectations by region? And maybe if you could give some color on what percentage of negotiations have been settled.

Sure. So what I can tell you is that we have completed roughly 25% of our contracts at this point, which is behind where we were at this time last year, where we were closer to 45% of the negotiations complete. And I think it's taking a little longer this year in part because everyone is having a difficult time trying to project exactly where their demand expectations should be for 2026, given all of the turbulence.

I can't comment on final outcomes here as we're obviously far from done, and this is competitive information.

Our next question comes from the line of Joshua Spector with UBS.

It's Chris Perrella on for Josh. Could you elaborate on the -- for the Performance Chemicals, the underlying assumptions that you have baked into the guidance for this year in terms of volume and growth -- volume and price expectations or mix expectations?

Sure. So in Performance Chemicals, if you think about the basket of applications that we sell into, it typically over a longer period of time, will grow at sort of 1.5x to 2x GDP. Now what we are seeing in this segment is certain applications, particularly those in automotive and construction related are currently in what I would say is a cyclical trough. And so over time, we certainly expect those to improve, but the expectation of any material improvement into 2026, I think, is fairly limited.

Now where we do have very positive expectations is in our targeted growth areas that I commented on in my prepared remarks, areas, including battery materials, the infrastructure applications, the broad trends around digitalization and how that's driving increased demand for our fumed silica for the CMP application for chip manufacturing. Those types of applications continue to exhibit strong growth, and we are performing well there. So when we look at the overall expectation for volumes, we certainly expect volumes to be up in 2026. But again, a mix of some headwinds that are more than being offset by these targeted applications with strong tailwinds.

And is there -- with -- depending on the application mix and your expectations, is there a mix uplift? Or is this -- I know the battery materials is kind of higher value, but is there a mix uplift expected this year?

Yes. I would say the mix is probably pretty balanced. These applications that are growing well have good strong margins. But as you might recall, volumes that get pulled through from the automotive sector typically have pretty high margins as well because that business tends to be specified. So I would say the margin uplift from mix would be fairly, I would say, fairly balanced. The trade-offs would be fairly balanced there.

[Operator Instructions] And our next question will come from the line of Kevin Estok with Jefferies.

I'm asking on behalf of Laurence. I was wondering if you could share a little bit about how maybe the regional utilization rates kind of shook out during the quarter, maybe by region, if you have that sort of data?

Sure, sure. So the regional picture has not really changed much from our prior comments. Certainly, in the Western regions, the impact from tire imports from Asia has reduced domestic production from our customers. I think if you go around the world, what you'll see in North America is that utilizations are somewhere between 75% and 80%. They're higher in Europe, I would say, somewhere in the 85-ish percent range, in part because Europe is a region that is net short of carbon black capacity and there's value that's placed on local supply. And we also had some contract volume pick up in last year's agreements. So overall, the utilizations are running in a higher place there.

South America, they are lower and South America is a region that has been impacted by tire imports. But as I commented, we're starting to see trade policy and tariff policy begin to impact the level of tire imports. They're reducing the level of tire imports in the most recent data. So that's encouraging and hopefully will shift things back a bit in the region there to improve utilizations. But right now, those remain in the 70s at this point.

And then if you look at Asia Pacific, we're running at quite high utilizations across our Asia assets as we typically do. And here, we're really choosing carefully the customers and products that we are supplying to maximize the value out of our Asian assets and to align our capacity with customers that really value our value proposition of product performance and quality and supply reliability.

So that's a bit of a walk around the world in terms of utilization. I would say that's largely been the story throughout 2025. So no recent shift in that. And again, the question as we move forward is how do regional volumes develop in large part, given how tire imports are likely to play out.

And I would like to hand the conference back over to Sean Keohane for closing remarks.

Great. Thank you very much for joining us today. Apologies for the technical difficulty at the very beginning there, but glad we were able to get back connected here. Thank you for joining. Appreciate your support of Cabot, and we look forward to talking to you again throughout the next quarter. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.