Cabot Corporation
Q4 2020 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by and welcome to the Cabot Corporation Fourth Quarter 2020 Earnings Conference Call. 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, Treasury and Investor Relations. Thank you. Please go ahead, sir.
  • Steve Delahunt:
    Thank you, Shana. Good morning. I would like to welcome you to the Cabot Corporation fourth quarter earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Senior Vice President and CFO.
  • Sean Keohane:
    Thank you, Steve, and good morning, ladies and gentlemen. I'd like to welcome everyone to our fourth quarter 2020 earnings call. I want to begin by recognizing our employees around the world for their continued commitment to the company, to our customers and to their community. Managing through this pandemic has challenged us on every front, and I have never been more proud of our team. As we manage through this pandemic, we established a set of guiding principles here at Cabot to protect the house first and prepare ourselves to be ready to win as the recovery takes hold. I believe our performance to date reflects that balance. For the quarter, total segment EBIT was $84 million and adjusted earnings per share was $0.68, up $0.75 on a sequential basis. This result was driven principally by improved results and reinforcement materials, which recovered nicely as demand in our key end markets increased sharply as compared to the third quarter.
  • Erica McLaughlin:
    Thanks, Sean. I will start with discussing results in the Reinforcement Materials segment. Given the global economic environment, the Reinforcement Materials segment delivered strong operating results with EBIT down $12 million compared to the same quarter in fiscal 2019, but up $64 million sequentially driven by improved global tire and automotive demand as compared to our third fiscal quarter. The decrease in EBIT from the prior year was primarily due to lower volumes, partially offset by higher margins. Globally volumes declined by 11% in the fourth quarter as compared to the same period of the prior year, largely due to the impact of COVID on demand in Europe, the Americas, Japan and Southeast Asia. Higher margins were driven by improved China pricing and higher pricing outside of China in our calendar year 2020 tire customer contracts. Looking ahead to the first quarter of 2021, we expect an increase in EBIT due to our expectation for expanded unit margins. This is driven by continued sequential improvement from pricing in Asia, as the market continues to recover. Volumes are expected to remain in line with fourth quarter levels as strengths on the recovery offsets normal seasonal patterns. Now turning to Performance Chemicals. EBIT increased by $4 million as compared to the third fiscal quarter, driven by higher demand in automotive related applications. EBIT decreased by $16 million year-over-year, primarily due to 9% lower volumes in our Formulated Solutions business. From the impact of COVID-19 a more competitive pricing environment in our fumed metal oxides product line and a weaker product mix in our specialty carbons and fumed metal oxides product lines from lower demand in automotive applications.
  • Sean Keohane:
    Thanks, Erica. As we look ahead to 2021, I expect that it will be another dynamic year and we'll have to manage any future impacts from the pandemic in much the same way as we did in 2020. Notwithstanding the challenges of COVID-19, we remain focused on executing our strategy, and I would like to share with you our priorities for the upcoming year. First, we'll stay close with our customers to support their evolving needs and continue to differentiate Cabot through our product quality, service reliability, and commitment to sustainability. Second, we'll continue to execute on our strategic growth initiatives, particularly energy materials, E2C and inkjet for packaging. We are excited about the growth potential of these businesses, and we have sustained our investment throughout this downturn so that we can capitalize on their full potential in the coming years. Third, we'll continue to drive efficiency and optimization across our operation. During fiscal year '20, we established a global business services organization to increase the efficiency and effectiveness of those processes that power our way of doing business. We will further leverage this investment through the deployment of digital tools to simplify and automate our ways of working, and I'm excited about the potential here to compliment our strategic growth efforts. Fourth, the role of bolt-on M&A in our existing businesses remains an important part of our growth story. Over the past few years, we have made very important strategic acquisitions in our core spaces, including extending our geographic presence in our specialty compounds business, through acquisitions in Canada and Southeast Asia and by extending our product offering in energy materials to include CNTs through our acquisition of Sanshun. We will continue to look for opportunities to build out our pipeline and execute on opportunities of these types. Finally, in an uncertain and dynamic environment, it will be critical that we keep tight control of cost and working capital in 2021. We feel good about the momentum into fiscal year '21, but we must remain vigilant on cost and working capital. I hope this gives you some color on our 2021 priorities and how they will help Cabot to extend our leadership position. I will close out my prepared comments today by talking about our outlook as we start fiscal year '21. Clearly, we are pleased with the momentum coming out of the fourth quarter of 2020, and we feel very good about how the first quarter is shaping up. As Erica discussed, we expect a material step up in the Performance Chemical segment and further strengthening in Reinforcement Materials, where performance is being driven by strong Asian spot pricing, the feedstock costs rise there and volume strength driven by stronger underlying demand and some level of inventory replenishment. Based on this, we expect adjusted earnings per share in the first quarter to be in the range of $0.80 to $0.90. On the cash side, we anticipate that operating cash flow will be strong as year-over-year earnings levels improve in fiscal '21, even though absolute net working capital levels will increase aligned with higher volumes. Looking to the full year of fiscal '21, there is still uncertainty related to the COVID-19 pandemic that impacts our longer-term visibility. Our results will be influenced by the sustainability of the economic recovery, the outcome of our tire customer agreements, the pace of costs returning to the business to support the recovery and how we manage pricing in this dynamic environment. As the year unfolds, we will be managing these factors carefully to match the dynamic environment. Overall, I feel very good about the way the team has performed and the progress we've made in this unprecedented environment. I'm optimistic about the first quarter and remain confident that the team will respond to any challenges we may face throughout the year. The long-term fundamentals of our businesses are robust. Our market positions and global presence is unmatched and our balance sheet and liquidity provides strength and flexibility. I'm confident in our growth opportunities ahead in our ability to deliver on our strategic objectives. Thank you very much for joining us today. And I will now turn the call back over for our question-and-answer session.
  • Operator:
    Our first question comes from Mike Leithead with Barclays. Your line is open.
  • Michael Leithead:
    Great. Thanks. Good morning, guys.
  • Sean Keohane:
    Good morning, Mike.
  • Erica McLaughlin:
    Good morning.
  • Michael Leithead:
    I guess, first on the outlook, maybe for Sean, can you give us a bit more color around demand trends into the fiscal first quarter and specifically how you're seeing your customers handle general inventory levels and year-end seasonality? And maybe for Erica related to that, as we think about the first quarter guidance, anything funky or abnormal we should consider as we use that as a baseline kind of building out the rest of the year in our models?
  • Sean Keohane:
    So, Mike, maybe I'll take the first part and then hand off to Erica. So we're definitely seeing our key end markets improve as we progress through the quarter here. And so I think that's definitely encouraging. Automotive end market continues to strengthen as does the tire market. And there's likely some replenishment that is happening in the quarter. It's difficult to see that exactly. But if you look at auto production forecasters and tire forecasters, there's likely some replenishment there because everybody really just paired inventories to a pretty extreme level. And so there's likely some of that is happening here. That being said, we're not at this stage seeing a full-on restocking to historical levels. I think people still are operating with a measure of caution here because the outlook related to the pandemic is pretty uncertain. Certainly, caseloads are rising in most of the world, which is discouraging. Now that's offset a bit by the encouraging news around vaccine, but timing of all that and how it plays out is still leaving people in a fairly cautious posture, I would say. But that's what we're seeing on the inventory side in our key end markets, but maybe over to Erica for some further commentary on the Q1 guide.
  • Erica McLaughlin:
    Sure. So I don't think there's anything terribly unusual might going on in Q1, but as Sean mentioned, there is some level of inventory replenishment we think happening that may not continue in the latter quarters. And the pricing in Asia is quite strong. And so we often as our feedstock costs they’re rising or able to price ahead of that and the flow through enhances the margin. And so that's happening in Q1. As you know, specifically in Asia, it's mostly a spot market and how that plays out for the remainder of the quarter is still a bit unknown. So I would caution not to probably take the first quarter and multiply by four because I think the uncertainty out there in terms of how does the recovery happen? What does the inventory levels look like, pricing dynamics? And then as our volume increases, we will have some costs flow through related to volume come through as well. So those are the factors as Sean talked about that will likely influence the Q2 through Q4 quarters.
  • Michael Leithead:
    Great. Thank you. And then maybe just quickly on Purification Solutions. In the outlook commentary and the release you reintroduced some language around exploring strategic alternatives. Obviously, you just sold your mine, you're executing on the transformation plan in that business. Is it fair to say that the business is in a better position today to have conversations around monetizing it and fair to say those conversations are probably picking up to a degree as we sit here today?
  • Sean Keohane:
    So, Mike, I'll take that one. So as you know, we've been working on the transformation plan for the last couple of years here and the sale of the mine and the supply agreement for activated carbon is part of that process. And we believe that improves the efficiency of the business, particularly as it relates to serving the mercury removal market. And we also believe that this transaction removes a hurdle from a buyer's perspective. And so selling the business still remains a top priority for Cabot. And given the current environment, we'll be marketing it when the timing is right, but I would anticipate that to be more likely in the near-term than the longer term.
  • Michael Leithead:
    Okay. Thank you.
  • Operator:
    Thank you. Our next question comes from David Begleiter with Deutsche Bank. Your line is open.
  • David Begleiter:
    Thank you. Good morning.
  • Sean Keohane:
    Hi, David.
  • David Begleiter:
    Hi there. Can you just comment on the status of your tire price negotiations? I know that is still not done yet, but any update on where they stand today?
  • Sean Keohane:
    Yes. So as you know, well, David, we negotiate these annual agreements with our major customers in the back half of the year. And that's the case this year as well. As we're still negotiating with a number of customers, I can't share any specifics as that information I think is commercially sensitive. And I'm sure you can understand that. What I can say is that we're looking at external indicators such as increasing miles driven data. I think the upward revisions in auto production forecast and tire forecasts that I commented on earlier and the recovery of order pattern from our customers in recent months and so this is favorable in terms of tire and carbon black demand. But given that we're still in the middle I can't comment any further.
  • David Begleiter:
    Understood. And just on the cost side, Sean, how should we think about costs in '21 versus '20 in terms of some of the temporary costs that you were able to realize in 2020 as they flow back into '21?
  • Sean Keohane:
    Yes, yes. So we obviously like everyone, I think manage costs pretty aggressively in '21, implemented a bunch of actions here to sort of protect the house, as I said. And so some of these are structural and some of them are temporary. So structural things, for example, creating our global business services function and really streamlining our back office processes, et cetera, those types of things would be structural. And then on the more temporary side, you would have things like volume related costs coming down, as well as a rebalancing of our maintenance spend to match that with demand. And so in the full year, we took these sort of base operating costs down by $68 million. And we'd expect to hold onto approximately half of those costs reductions. You can think about it roughly as half. Half of them will likely return if the demand is strong because the volume related portion will flow back and we'll want to step up some preventative maintenance, so that we keep the assets running at the level that's part of our value proposition. So I would say half, half David is reasonable.
  • David Begleiter:
    Thank you very much.
  • Operator:
    Thank you. Our next question comes from Josh Spector with UBS. Your line is open.
  • Josh Spector:
    Hi. Good morning, everyone.
  • Sean Keohane:
    Good morning.
  • Josh Spector:
    Hey, good morning. So just within Asia in terms of your volumes for the quarter, I was wondering if you could parse out what the China domestic market did versus the export market versus the rest of Asia. So maybe we've got some granularity around that.
  • Sean Keohane:
    Yes. So, Josh, I think a couple of things with respect to volumes. I would say, Asia in particular, in China was recovering pretty well in the quarter. And that's I think related to overall China's handling of the pandemic and the return of consumer confidence. So I think that was quite strong. Our volumes -- and China's the biggest part, I mean with China making 35% to 40% of the world's tires, that's clearly the single biggest market. Our volumes lags the market there by design in the quarter. So we were very much focused on pricing and margin restoration at the expense of volume. We think that's the right play at this stage. And as volumes continue to strengthen there with higher prices and margins, then we think the volume picture will begin to normalize more to market, but this was our Cabot specific approach here. I think the other thing I would say is in Asia South, so ASEAN you could think about it as broadly, demand was pretty strong in that region in part because there's been preferential tire investment into that region over the last few years. And also those producers, some of them, for example, when Thailand they are concerned about pending duties on tires into the U.S. And so there was some, I would say, building of the channel there to get out ahead of any of that. So demand was pretty strong there, but we also oriented more towards price and margin restoration in the quarter. And you could think about ASEAN and China being almost one big market in terms of flows tires and carbon black, they behave in a somewhat similar way. And so we were just like China focused a little more on pricing, but the underlying demand trends were quite strong because of the COVID recovery in China in terms of the public health crisis has been quite good cases, had been very, very low there.
  • Josh Spector:
    Okay. Thanks. That's helpful. And I guess, I mean, sticking on volume, looking at your 1Q guide my math is maybe you're guiding to volumes up high single-digit percent on the Reinforcement side. One, I guess, is that correct? And two, like where is it most up by region? Is it catch up within Asia or within the rest of the world that there's some catch up on that side of things. Thanks.
  • Sean Keohane:
    Yes. Yes. So our Q1 volume expectation is pretty consistent with the Q4. So you could think about this sequentially being pretty flattish, I would say. And so we have some continued recovery building offset by some seasonal -- traditionally seasonal softness. And so those are sort of offsetting and our view is sequentially that volumes will be pretty flat.
  • Erica McLaughlin:
    Yes. And I think if you're thinking about year-over-year, we'd still be down slightly year-over-year. We would not expect the volumes would be higher than the prior year Q1.
  • Operator:
    Thank you. Our next question comes from Jeff Zekauskas with JPMorgan. Your line is open.
  • Jeffrey Zekauskas:
    Thanks very much.
  • Sean Keohane:
    Good morning, Jeff.
  • Jeffrey Zekauskas:
    Hi, good morning. Can you discuss what happens to the specialty carbon black that goes into the EV market this year? That is what were your volumes or revenues last year? What are they this year that operating profits go up or down, do prices change? Did you lose share, did you gain share? Could you give us a little bit of a review of what's going on there?
  • Sean Keohane:
    Yes. Sure, Jeff. So obviously, the EV market is an important market for us and one that we're investing in not only for new grades of traditional furnace blacks, but also with the acquisition of our CNT Sanshun acquisition. And we think that compliment is the right strategic mix because conductive carbon additives will continue to be a key part of the battery chemistry. But we see a trend towards CNTs and blends of formulations of CNTs and carbon blacks as we go forward. So we think our position areas is actually quite unique in the industry. Now in terms of 2020, a couple of things. One is obviously with the automotive pullback in general, the EV market was impacted somewhat by that. But if I try to look through that, because there the strength of the EV market has been pretty good here in the last 3, 4, 5 months, we see that the growth rate in the 20% to 25% a year for lithium-ion batteries being intact. This was our key assumption and our strategy here. And we see that as being intact. Now the way to think about our sales, because we've got a transition period here, you might remember that our traditional sales into energy materials was kind of in the $20 million to $30 million a year range. We've commented on that before. And then we purchased Sanshun, which had a trailing 12 months of sales of close to $30 million. So you could kind of think about that in the $50 million to $60 million run rate sales level. And now that it seems that EV market is -- it's kind of back to a normal run rate. You could call that the base, and then we would expect to grow that base consistent or better than market as we win share here. In terms of profitability of the business, we don't disclose that, but we're very much in an investment phase right now as we are developing new products and with the Sanshun acquisition we -- they -- we acquired a new plant that has unused capacity. So there's kind of a filling up that needs to happen. And so the combination of new products, qualification costs and unused capacity, the profits in this business are going to build over the coming years. And our view on this remains -- remains consistent that we see this market for conductive carbon additives growing over the next 5 years to about a $1 billion of conductive carbon additive value revenue. And so if we achieve our market share levels that we've had in specialty carbons traditionally, and we have unit margins in the range of where Performance Chemicals is, and I think both of those are reasonable assumptions. Then you can see that over the next 4, 5 years, this should build to a material contribution for Cabot.
  • Jeffrey Zekauskas:
    Okay. Thank you for that complete answer. Historically, what Cabot tends to do is it tends to take its cash flow from carbon black business and invest in new businesses, like the old Formulated Solutions business. When you think Sean of the strategic path forward, is Cabot really focused in carbon black and fumed metal oxides and sort of small acquisition in that matrix? Or do you feel you need to go further a field in order to create value?
  • Sean Keohane:
    Yes. Yes. A good question, Jeff. And you follow the company for a long time, and I would say, our advancing the core strategy is really taking the best parts of previous strategies in Cabot. So number one, we believe our core businesses of carbon black fumed silica, specialty compounds, these businesses have good underlying fundamentals to them, and we want to continue to invest for growth in those businesses. So we're not in a position of harvesting to drive new businesses the way that Sam Bodman executed the strategy some years back where it was more of a harvest and invest in a broad portfolio of new businesses, new chemistry businesses. We think these core businesses, we want to continue to invest and strengthen our leadership position there. That being said, we are making some targeted new business investments. And so this is pulling on some of the bits of brilliance from Sam's strategy. And this is -- but in places that make sense. So energy materials given the importance of conductive carbon additives is clearly one of those places. As packaging evolves and moves from analog printing to digital printing, we think exploiting our inkjet position clearly makes sense. And then E2C is another one where it's still in the tire business, but as the tire industry moves towards more and more sustainable solutions, we believe this one clearly makes sense for us. So are we going as far field is in the past with things like aerogel and stuff like that? No, we're doing things that are very good fits with our core businesses. And what we want to do is strengthen our core businesses and then get the leverage of these targeted growth investments. That's the intent of the advancing the core strategy and what we're pursuing.
  • Jeffrey Zekauskas:
    Okay. And then lastly, maybe this is for Erica. The revenues in Reinforcement Materials were $325 million in the quarter and your segment earnings were roughly $60 million. And if you go back to last year, you were burning $60 million with $450 million in revenues. So can you talk about why the level of EBIT is more or less the same even though the revenues are lower by $125 million. What is the real dynamics that allow us to understand these changes?
  • Erica McLaughlin:
    Yes. So the major driver, Jeff, is really just the price of oil on the revenue. So that drives the top line as we adjust our pricing. But as you know, as we think about the EBIT, what we try to do with our formulas is while we adjust for the input price, we would be holding our margins whole. And so that's essentially what you see and you see the revenue decline because of the raw material input costs. And then I'd say the other factors, obviously, volume is lower. So the volume has declined. When we said 11% year-on-year, but we've been able to offset that as best we can with cost reductions. So that's helped the EBIT line offset some of the volume impact.
  • Jeffrey Zekauskas:
    Do you have lower raw material costs rippling through your income statement because raw materials fell so much earlier in the year, and now you're getting the benefit of those lower raw material costs or not?
  • Erica McLaughlin:
    If you just looked at the revenue line, yes, we have lower raw material costs flowing through that. But in terms of a margin profile, I wouldn't say no. I don't think we have our pricing and our cost are not mismatched to our benefit at this point. But we've been able to hold those margins as our formulas are intended to do while the input costs have come down. And so you see the revenue come down, but not the margin.
  • Jeffrey Zekauskas:
    Okay, great. Thank you so much.
  • Erica McLaughlin:
    Sure.
  • Operator:
    Thank you. Our next question comes from Laurence Alexander with Jefferies. Your line is open.
  • Laurence Alexander:
    Good morning. I have two quick ones. First, for specialty business -- for specialty blacks, do you expect your mix effect to be positive or negative next year? And secondly, with respect to the amount of restocking that might happen in the reinforcement blacks, not so much the timing, but can you give a sense for just the sheer volume that needs to be -- that with the industry would need to recalibrate or need to bring back into the system to get back to kind of a more normal range?
  • Sean Keohane:
    Yes. From a volume standpoint, Laurence on that?
  • Laurence Alexander:
    Right, right. Just how much are they behind, so to speak or underwater, so to speak?
  • Sean Keohane:
    Yes. Yes. Okay, good. So let me take in the order that you presented them. First of all, good morning. And so in terms of specialty carbons, we would expect a mix improvement in 2021, because we are seeing a recovery in the automotive end market and our higher margin products tend to orient more there, things like automotive coatings, high-end engineered plastic applications, things like structural adhesives, those would be higher margin products. And those will be flowing through as we see the auto recovery. So, yes, to an improved mix. And I think that will probably be accented even a bit more by our participation in energy materials as that continues to grow as the battery piece of it. So that's the first point. On the volume question, I think the best way to think about it in some ways is to try to look through 2020, because it's such a year full of distortions. And so, if you look at what LMC is projecting in the tire industry '21 versus '19, certainly a very sharp recovery off of '20, but if you look '21 versus '19, it will still be down, maybe somewhere in the order of 5%, 6% something in that range. And so I think that's probably the cleanest way to look through. So we're seeing very sharp recovery now, which is good and that recovery is likely going to continue as long as we don't have a big reversal in terms of COVID related economic impacts. But there'll still be a little further ground to cover to get back to what you call normal or what I might say with the '19 volume levels.
  • Laurence Alexander:
    Okay. Thank you very much.
  • Sean Keohane:
    Thanks, Laurence.
  • Operator:
    Thank you. Our next question comes from Chris Kapsch with Loop Capital Markets. Your line is open.
  • Chris Kapsch:
    Hi, good morning.
  • Sean Keohane:
    Good morning, Chris.
  • Chris Kapsch:
    Good morning. I also had a follow-up on the comments you made about the fundamentals in the Chinese market. And from what I can see, that's been part of the surge in carbon black spot prices. But the most pronounced portion of that increase has been in the fourth quarter. But I'm just wondering if you could further characterize or provide color on what's going on? You mentioned some linkage to the underlying feedstock costs being a push, but obviously it was a strong ongoing recovery there as well. I think everybody sees monthly auto sales having turned positive year-over-year. So just really wondering, I guess if the move in carbon black spot prices, is it more of a demand-pull price move or is it more of a cost push pricing move? And then I have follow-up.
  • Sean Keohane:
    Yes. So I would say it's demand led, Chris. So demand has improved sharply there, after also a very sharp pullback. Now they experienced a little bit earlier than the rest of the world. So they experienced it more in that March quarter, but it was a very sharp pull back in demand. And as a result volumes declined, but also prices and margins declined across the industry. But what we're seeing now is that demand led recovery, which is good. The link to feedstock is just a function of how this market operates, because it's a spot market we tend to price every month. And as coal tar prices have moved up, we priced sort of instantaneously, I would say. Yet you see the flow through from an accounting standpoint would lag that a little bit because of the inventory we have in feedstock and finished product. So it's sort of an accounting lag. And so as a result, we get some positive benefit, but that's a function of how we play in the spot market whereas in contracted part of the market, which is really not in play for China, those tend to be matched more.
  • Chris Kapsch:
    Got it. And then in the past the characterization of the competitive landscape in China has been you competing with pretty fragmented array of smaller regional, or even mom and pop players. And I know a lot of those mom and pops have been sort of shuttered permanently. But at some, I think in the past, you've characterized your positioning as having an advantage in terms of sourcing feedstock vis-à-vis the local competitors that may not have be as sophisticated and had to lean on the -- solely on the crude coal tar. And I'm just wondering with this dynamic now, is there any opportunity for you to -- you still have that competitive advantage or is there any opportunity to further take advantage of that? And is there any even some raw material costs arbitrage given the moving feed stocks over there? Any color around those dynamics will be helpful. Thank you.
  • Sean Keohane:
    Yes. So our competitive position, we lead in the industry and are the most profitable player in China. And I would say our advantage comes from our scale at almost 500,000 tons of carbon black, something in that range. So scale technology and how we drive yields, throughputs and energy recovery, all of that is an advantage for us. And then on the feedstock side, China is predominantly a coal tar based carbon black market ourselves included. I think the important strategic lever around feedstock management is how you have arrangements with your suppliers and strategic partners. And so in some cases, those are just strategic purchasing relationships. In other cases, they're fence line relationships with our joint venture partners who are in the coking and coal tar related businesses. And so we think the combination of these gives us a strategic advantage here. So I think the benefit in China and why we outperform our competitors is because of those primary forces. In terms of the -- ARB, so the ARB story is really one of coal tar related to decant oil. And so coal tar inside of China, decant oil outside of China, and at times when the prices have disconnected, for example, when coal tar was very low relative to fuel oil, then you saw Chinese carbon black flowing out of China. What you see right now is actually the ARB is closed. It's actually kind of the opposite where the coal tar prices are higher than fuel. So we don't see any ARB there, so China will be for China and the flows of carbon black out of China right now are not being enhanced by any open ARB.
  • Chris Kapsch:
    That's helpful. Thank you, Sean.
  • Sean Keohane:
    Okay.
  • Operator:
    Thank you. Our next question is a follow-up from Josh Spector with UBS. Your line is open.
  • Josh Spector:
    Hey, thanks for taking my follow-up. Just a couple of quick ones. Erica, I guess question on tax rate, your guide for next year was similar to higher for this year. I guess, what are you thinking the medium longer term about the tax rate for Cabot?
  • Erica McLaughlin:
    Yes, so I think we guided this year is 28% in 2020 is where we were 28% to 30% for next year. I think probably the big sensitivity there is geographic mix of earnings, and so that's what could help drive that down. So as we get to a full recovered state, I think you could see that start to move down a bit, 28% to 27% or so is probably a longer term type rate once we get back to, I think, a bit of a more normal demand mix.
  • Josh Spector:
    Okay. Thanks. That's helpful. And I guess, earlier the comments around the cost savings and that rolling back some of the temporary cost actions, just trying to think about how much of the temporary costs are already rolled back in your 1Q guidance and how much is left to come back in the rest of the year?
  • Erica McLaughlin:
    Yes, I would say there's probably very little coming in through Q1. I think we have very, very tight cost controls still in place. So most of that would be more of a Q2 through Q4.
  • Josh Spector:
    Got it. Thank you.
  • Erica McLaughlin:
    Sure.
  • Operator:
    Thank you. Our next question comes from Kevin Hocevar with Northcoast Research. Your line is open.
  • Kevin Hocevar:
    Hey, good morning, everybody.
  • Sean Keohane:
    Good morning, Kevin.
  • Kevin Hocevar:
    I was hoping to reconcile a couple of the comments made specifically on Asia, because it sounds like, Sean, given some good comments in terms of the underlying strength of that market and strong pricing there. But your volumes are down 16% in Asia in the quarter. So I guess, can you help me understand what did the -- because it sounds like the markets were overall fairly strong. So what do you think that the market did versus where your volumes were? And it sounds like you were firmer on price than maybe others. Are you starting to see others maybe catch up to you in terms of pricing as the quarter progressed and ended the first quarter and maybe to the point, you'll start seeing the gap narrow in terms of your volumes versus the industry. I guess, I'm just trying to reconcile the good commentary on the underlying volumes and pricing versus where your volumes are at currently.
  • Sean Keohane:
    Yes. Yes. So, Kevin, I think much as I already commented, I think the demand, the underlying demand in China was strong. And as I said, we lagged that from a volume standpoint by design because we wanted -- given the pricing and margin pressure that occurred in 2020 across the carbon black industry in China, because of the collapse in demand, we oriented first on restoring to good strong historical price and margin levels. And so that initially comes at the expense of volume. Now given this as a spot market, your ability to toggle volumes as things firm up is there. It's not like you're boxed out, you're back in the market every month, but the right place to start was price and margin. And I would expect that I can't comment on what others are doing, but there are some published indices on pricing for carbon black in China, and that's clearly up. So it appears that -- and this wouldn't be a surprise to me that others, the industry we track and the industry was not making money in 2020. So they need to have a healthier margin level. So when I connect those dots, I think prices are clearly moving up. But our orientation initially was on margin restoration and I would expect them as things progressed in 2021 that our volume performance normalizes with where market is.
  • Kevin Hocevar:
    Okay, great. And then on the -- I think in the Performance Chemicals segment, I think last quarter, you indicated that the fourth quarter would see a fairly sizable headwind from I believe some turnarounds that some of your customers, and I think maybe some costs associated with ramping your new facility. So curious how big of a headwind that was in the quarter and is that over? So when you think about the sequential improvement, that you're, it sounds like you expected pretty strong sequential improvement into the first quarter. Are those things behind you at this point?
  • Sean Keohane:
    Yes. So we’re expecting a material step up sequentially in profitability, in this segment and where we've been focused on self-help measures to move us back to the more historical levels of profitability and we're definitely expecting a material step up there. I think a few things are driving that. One is clearly automotive recovery and the pull through there both volume, but more importantly mix. And that being firmer in the December quarter, while that began in the September quarter, I think it'll be more pronounced in the December quarter. So that will definitely help. We are moving pricing up in fumed silica, particularly in China and that's beginning to take hold. And then, we're still maintaining a pretty tight posture on cost management as just as Erica commented, kind of more broadly we're still maintaining that. And so those would be the major drivers. It would be pushing the material step up, Kevin.
  • Kevin Hocevar:
    Okay. All right. Thank you.
  • Operator:
    Thank you. And I'm currently showing no further questions at this time. I would like to turn the call back over to Sean Keohane for closing remarks.
  • Sean Keohane:
    Great. Thank you again for joining us and for your support of Cabot. And I look forward to speaking with you again next quarter. Have a great day.
  • Operator:
    Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.