In hand with this news, the company announced it would cut 500 jobs, some 12% of its workforce, as part of a comprehensive restructuring plan.
Net sales of US$652 million were recorded in the first quarter of fiscal 2009, compared with $711 in the first quarter last year. This represents a decline of 8.3%. Net income for the quarter was $4 million, as opposed to $36 million in Q1 2008.
Commenting on the results, Cabot President and CEO Patrick Prevost stated, "our results were heavily affected by an unprecedented decline in demand across the tire, automotive and construction industries. These declines are associated with aggressive customer de-stocking and lower underlying demand. Despite the difficult operating environment, our continued focus on cash, working capital and capital expenditures, as well as the benefit of lower carbon black feedstock costs, generated $91 million of operating cash flow during the quarter."
The profitability of Cabot’s Rubber Blacks business increased by $6 million, driven principally by a favourable contract lag, compared to an unfavourable impact in the same period of fiscal 2008. This result was partially offset by significantly lower volumes in all regions, stemming from lower demand in the tyre and automotive industries and customer de-stocking. Volumes declined by 29% globally: North America decreased 22%; South America decreased 40%; the Europe, Middle East, Africa region decreased 29%; Asia Pacific (excluding China) decreased 26%, and China decreased 30%.
In response to a significant reduction in global demand, Cabot says it intends over the course of the 2009 calendar year to close four of its manufacturing operations and one regional office. In addition, Cabot plans to mothball assets at two sites, implement shorter work time arrangements at one site and delay the start-up of new capacity in China. As previously stated, 500 jobs will be lost due to these measures.
Cabot has already instituted hiring, travel and salary freezes, reduced capital spending plans by $50 million from fiscal 2008 levels, eliminated 300 contractor positions, reduced corporate costs and realised significant working capital reductions. This far-reaching restructuring is expected to result in an approximate $80 million cash charge and non-cash charges of approximately $70 million. A majority of the total costs will be incurred during fiscal 2009. During the following fiscal year, says Cabot, the plan should deliver annual fixed cost savings of more than $80 million.
Commenting on the outlook for fiscal 2009 and beyond, Prevost added: "In expectation of a weak 2009 across all geographies, we are moving rapidly to address the new economic environment. The business outlook remains uncertain and demand in the second quarter is likely to be weak. We continue to be concerned about the automotive and construction end markets.”
"Although the operating environment is challenging, our robust cash position gives us significant flexibility,” Prevost continued. “We remain committed to our strategy and continue to invest prudently in our new business opportunities which are poised to improve materially this year. Meeting customer needs is a top priority and we are well positioned to respond during the restructuring and as their demand recovers." (Tyres & Accessories/Staffordshire, U.K.)
