Oct 31, 2012
Executives
Erica McLaughlin – VP IR Patrick M. Prevost – President and CEO Eduardo E.
Cordeiro – EVP and CFO David A. Miller – EVP and GM, Core Segment and GM, Americas Region Sean D.
Keohane – SVP and GM, Performance Segment
Analysts
Ivan M. Marcuse – KeyBanc Capital Markets John E.
Roberts – Buckingham Research Group, Inc. Kevin Hocevar – Northcoast Research Partners, LLC Jeffrey Zekauskas – JPMorgan Laurence Alexander – Jefferies & Co.
Christopher W. Butler – Sidoti & Co.
LLC
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Cabot Earnings Conference Call. My name is Erica, and I’ll be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.
(Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Erica McLaughlin, please proceed.
Erica McLaughlin
Thank you, Erica. Good afternoon.
I would like to welcome you to the Cabot Corporation earnings teleconference. Last night, we released results for our fourth quarter and full fiscal year of 2012, copies of which are posted in the Investor Relations section of our website.
For those on our mailing list, you’ll receive this press release either by email or fax. If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations.
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 the call. I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot’s actual results may differ materially from those expressed in the forward-looking statements.
A list of factors that could affect Cabot’s actual results can be found in the press release we issued last night and are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly in our last Annual Report on Form 10-K. These filings can be found in the Investor Relations portion of our website.
Also, as we typically do each year, I would like to remind you that over the next several months, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company may sell shares to pay tax and other obligations related to these awards. I will now turn the call over to Patrick Prevost, who will discuss the key highlights of the company’s performance.
Eddie Cordeiro will review the business segment and corporate financial details. Following this, Patrick will provide closing comments and open the floor to questions.
Patrick?
Patrick M. Prevost
Thank you, Erica, and good afternoon, ladies and gentlemen. I’m sure that many of you are calling from the New York and New Jersey area.
And with the last few days, the Hurricane Sandy coming thru that area, I hope that you’ve been spared and, you know, if things are – and hope that things are on the mend for you. Let me get on with the business of Cabot.
In 2012, we continued our transformation to a higher margin Global Specialty chemicals company. First of all, we achieved another year of robust results, with $3.34 of adjusted earnings per share, a 37% improvement over last year.
Our suggest was driven by multiple factors, specifically our value pricing, improved product mix, energy efficiency investments and the introduction of new product. We also made great progress in completing new capacity expansions to support future growth.
We started up new capacity over the past year for a number of our businesses, including 50,000 tons of Rubber Blacks capacity in Indonesia, South America and Europe, 10,000 tons of Fumed Silica capacity in China. And we also doubled the capacity for two lines at our Inkjet Colorants facility here in Massachusetts.
In addition, we exercised our portfolio management lever with the divestiture of the Tantalum business and the acquisition of Norit. Combined, these transactions will improve the stability of the company’s earnings and open up new higher-growth diversified end markets.
When I joined the company in 2008, we announced our strategy to deliver earnings growth through leadership and Performance Materials. Today, we have nearly tripled the earnings power we had in 2008, and we have improved our adjusted ROIC from 8% to 12%.
We’ve achieved this through our four-prong strategy of capacity and emerging market expansion, margin improvement, new products and new business growth, and portfolio management. We are transitioning our global footprint towards lower cost, more energy efficient capacity in the highest growing market.
We’ve improved our commercial and operational capability to extend our leadership position globally, and our portfolio businesses continue to demonstrate its value for potential. You can see that 2012 EBIT in the Reinforcement Materials is almost doubled what it was in 2008, and this despite a mixed economic environment.
Our Advanced Technologies segment contributed 49 million in 2012, as compared to a loss of 7 million in 2008. We also maintain our strong results in Performance Materials in spite of a challenging environment and higher cost from our recent capacity addition.
All of this work resulted in a 72% improvement in total segment EBIT over fiscal 2008 level. And this is not the end of our transformational journey.
We continue to improve, optimize and strengthen the financial and operating potential of our company. And we’re very pleased by what we have accomplished so far.
Our 2012 accomplishments set a good foundation to meet our 2014 target of $4.90, to $5 adjusted earnings per share. We have a solid plan in place, and this plan is about margin improvement, capacity expansions to capture growth opportunities, new product introductions, and delivering value from the acquisition of Norit.
All of our segments will contribute to the growth. Our focus on margin improvement includes understanding the value and use of our product, continually reducing our cost to serve and investing in process technology to improve our yields and reduce our energy consumption.
We have installed new process technology this year to meet both our sustainability goals and our financial return expectations. We have completed a high-value capacity expansions in 2012 in Reinforcement and Performance Materials as well as in Inkjet Colorants.
We’re progressing well with our new carbon blacks site in China, and our Fumed Silica investment in Barry and Wales. These projects will provide volume leverage as demand grows.
Our focus on innovation drives the new product and business development across all segments. We’re committed to meeting the changing needs of our customers.
During 2012, we launched a number of new products and have a pipeline of ideas and projects for the coming years. Finally, we have multiple teams dedicated to the integration of Norit, and we’re active at identifying and delivering multiple synergy.
This transaction is a great fit with our portfolio, and met our M&A criteria of a leading industry position, unique technology, and strong financial performance. The markets served by Norit are characterized by high growth.
As purification of air, water, food and pharmaceuticals are key global challenges in the future. I’m pleased with our accomplishments to date, and our confident in our ability to meet our next set of objectives in the future.
I’ll now spend a few minutes discussing our fourth quarter of fiscal 2012 results. We are in a challenging environment with multiple regions of the world experiencing slowing growth.
Volumes in Reinforcement Materials were at 5% below the fourth quarter of fiscal 2011. Although destocking seems to be abating, we’re still operating in a weak demand environment, resulting in utilization levels of approximately 80% during the quarter.
In addition, we experienced some unfavorable margin impacts from high-cost feedstock moving through our supply chain, unexpected sourcing costs from a raw material supply disruption, and a more competitive environment in China. On the positive side, we’re leveraging our new Fumed Silica and Specialty Compound capacity and serving the needs of our customers in China with this added capacity.
As volume continues to grow in the Performance Materials segment, we’re offsetting the incremental fixed cost associated with this new capacity. We are pleased with our fourth quarter results in Advanced Technologies where we experienced continued strong performance in Specialty Fluid and high volumes in our Inkjet Colorants business as we capture growth in commercial printing application.
The integration of Norit in to Cabot is proceeding well, and we continue to look at generating synergies between the two companies. A short-term performance is being impacted by changes in North America power generation from coal to natural gas, due to the currently low natural gas price.
Our long-term growth projections for activated carbon in [inaudible] removal applications are very solid, but are being affected by current economic in the short-run. All of our end markets such as water, food and beverage, pharmaceutical, chemicals and catalysts, are growing at or above expected rates in most world markets.
Our solid results this quarter, despite the challenging environment are a testament to the progress we’ve made in the last few years. I will now turn it over to Eddie to discuss the fourth quarter fiscal results in more detail.
Eddie?
Eduardo Cordeiro
Thank you, Patrick. For the fourth fiscal quarter, total segment EBIT from continuing operations was 96 million, which was 17 million higher than last year’s fourth quarter.
The increase as compared to the prior year was driven by higher pricing and improved product mix that more than offset lower volume. Sequentially, total segment EBIT decreased 13 million, resulting from lower unit margins in Reinforcement Materials, which I will discuss in more detail shortly.
We also experienced seasonally lower volumes in our Specialty Carbons and Compounds business. Now I will discuss the details of the segment level, beginning with the Reinforcement Materials.
During the fourth quarter of 2012, EBIT for Reinforcement Materials increased by 3 million as compared to the fourth quarter of 2011. The increase was driven principally by higher margins, as higher prices and lower manufacturing cost were partially offset by 5% lower volumes.
Volumes declined in the fourth fiscal quarter of 2012, as compared to the same quarter of 2011 in all regions, except China, due to the weak global environment. Sequentially, EBIT decreased 18 million driven by lower unit margin as a result of three issues that each contributed equally to the $18 million decline.
The first impact was from high-cost feedstock in inventory that moved through our supply chain at a slower rate than we anticipated in Europe and Southeast Asia. As a result, we experienced a margin squeeze.
The second was due to an unplanned supply disruption at one of our feedstock suppliers in South America. This required us to source products from other plants within our network, and we incurred additional cost because of this event.
The third is related to the competitive environment in China where we are balancing our volume in price management decision. These unfavorable impacts were partially offset by 1% higher volumes.
The macroeconomic environment continues to be challenging, and the near-term remains uncertain. Based on conversations with customers, we believe the near-term volumes will remain soft through the rest of the calendar year.
In light of the current environment, we will have paid some of our previously-announced capacity additions to align with demand. We have successfully completed 50,000 tons of efficient expansions around the world to support our long-term growth.
We remain on track with our 130,000 ton greenfield plant in China, which will start-up in late 2013. We will continue to prioritize future expansions that favor high-growth geographies and high-value product.
We are pleased with our yield and energy recovering investment to date, and will continue to invest in these attractive products that will reduce our cost structure, and improve the competitiveness of our facility. In Performance Material, EBIT increased by 7 million as compared to the fourth quarter of 2011.
The increase was driven by higher volumes and lower Manufacturing cost, volumes in Fumed Metal Oxides increased 12% driven by growth and demand for Electronics Application, and higher sales from our new capacity in China, while Specialty Carbons and Compounds volumes increased 3%. Sequentially, Performance Materials EBIT decreased by 4 million, principally due to seasonally lower volumes in Specialty Carbons and Compounds.
Volumes in Fumed Metal Oxides increased by 5% sequentially, while volumes in Specialty Carbons and Compounds decreased 11%. We were pleased to see another quarter of positive volume progression in our Fumed Metal Oxides business as we continued to leverage our new capacity.
We expect our Fumed Silica expansion in Wales, where we have a bench line partnership with Dow Corning, to be completed by the end of calendar year 2012. We are well positioned to capture volume growth with our new capacity investment.
In addition, our new product introductions are contributing to our solid performance and we remain confident in our new product pipeline. Advanced Technologies’ EBIT increased by 2 million from the fourth quarter of fiscal 2011.
The EBIT increase resulted principally from higher volumes in our Inkjet Colorants business as we are utilizing our new capacity for the growth we are seeing in office and commercial printing applications. We also experienced higher volumes in our Elastomer Composites business as we are progressing well with Michelin in the commercialization of CEC.
Sequentially, Advanced Technologies’ EBIT increased by 4 million, principally due to higher volumes in our Aerogel business, as well as favorable Inkjet Colorants product mix from strong demand in office and commercial printing application. We experienced another strong quarter for our Specialty Fluids business, with some high-value product sale.
In managing our portfolio of new business opportunities, we review progress against revenue target and strategic milestones. As such, primarily related to the Aerogel and Security Materials businesses, we have taken action that will reduce the segment workforce by approximately 10%, and we’re in the process of consolidating facilities.
In addition, we are eliminating two underperforming corporate business development projects. The combination of these efforts will deliver savings of approximately $10 million by fiscal year 2014.
We are pleased to see that our Inkjet Colorants demand for the commercial and office printing industry is continuing to grow. In the Elastomer Composites, we received validation of CEC’s superior performance in mining application, and we made our first commercial sale to a mining customer in the fourth quarter.
We will also reach additional milestones in our CEC-Michelin partnership in the coming year. Despite the on-going quarter-to-quarter variability in Specialty Fluids, we made significant progress winning business in geographic areas outside of the North Sea, including jobs in India and Malaysia.
EBIT in Purification Solutions was $5 million, which represents 2 months of results for August and September, after the acquisition was completed on July 31. To give you an update on purchased accounting, we are still refining the balance sheet, but there are no material changes to what you have seen before.
Our inventory step-up is in line with what we originally estimated, and to be clear, this is running through certain items, and should be complete by the end of the first quarter. And we are now estimating that our total D&A for the business will be $50 million per year.
On an adjusted standalone basis, EBITDA for the fourth quarter of fiscal 2012 in Purification Solutions decreased by $4 million compared to the fourth quarter of fiscal 2011. The decrease in EBITDA was driven by unfavorable product mix, higher maintenance cost, and a 2% decrease in volumes from lower sales to the gas and air end-markets, partially offset by growth and other applications.
Sequentially, EBITDA declined $4 million, as compared to the third quarter of fiscal 2012. The 7% increase in volumes was more than offset by the unfavorable impact of declining inventory level and higher maintenance cost.
For the full fiscal year ended September 30, on an adjusted standalone basis, we saw EBITDA decline $4 million in fiscal 2012 as compared to fiscal 2011. EBITDA declined from 5% lower volumes and higher maintenance cost that were only partially offset by higher pricing in margins.
The decline in volumes was driven by lower sales to the gas and air end-markets, primarily for mercury removal in the U.S. The low price of natural gas in the U.S.
caused coal utility utilization to decline, reducing demand for activated carbon for mercury removal. While the near-term outlook for mercury removal applications is challenging, we remain confident in the long-term growth potential of this segment, as well as the other markets we serve.
I will now turn to the corporate items. We ended the quarter with a cash balance of 120 million, which was a decrease of 287 million from June.
The driver of the decrease was the use of cash for the acquisition of Norit, and $108 million of capital expenditures. This was partially offset by solid operating results and a decrease of 64 million in network and capital, which includes an additional 121 million of Norit networking capital.
The company ended the fourth quarter of fiscal 2012 with a debt balance of 1.4 billion, an increase of 720 million from June, due to the financing, the Norit acquisition. This increased our interest expense to 15 million for the fourth quarter of fiscal 2012 as compared to $10 million for the fourth quarter of fiscal 2011.
We recorded a net tax provision of zero for the fourth quarter, which included a benefit for tax-related certain items of $10 million. Our operating tax rate on continuing operations for the fourth quarter and full fiscal year were 26% and 25% respectively.
As we look to fiscal 2013, we expect capital expenditures to be in the range of 250 to 300 million inclusive of Norit, and we anticipate the operating tax rate to be between 25 and 26%. I’ll now turn the call back over to Patrick.
Patrick Prevost
Thank you, Eddie. We’re pleased with our fiscal 2012 results, as we saw another year of growth in our segment earnings and EPS, despite of this difficult economic environment.
With a divestitures of Supermetals and the acquisition of Norit, we’ve also strengthened our portfolio. As we look ahead to 2013, the uncertain conditions in Europe, a slowing Chinese economy and a weak U.S.
recovery, make us cautious about the near term. We expect the current environment to continue through this calendar year.
However, due to the nondiscretionary nature of many of our products, we anticipate demand to recover in 2013. We remain focused on factors of performance that are within our control, including new and innovative product introductions that will help us differentiate our offering, the implementation of yield and energy efficient technologies which will reduce our cost, the completion of our competitive new capacity in China and Wales, and the integration of Norit, which provides a new platform of growth for the company.
We are pleased with our fiscal year performance as we continue on our growth trajectory towards our adjusted EPS target of $4.90 to $5 in fiscal 2014. We have strengthened our overall competitive position through strategic capacity additions, value pricing, [inaudible] energy efficiency and new product.
These actions, combined with a return to a more stable macroeconomic environment, give us confidence that we will achieve our adjusted EPS target. Thank you very much for joining us today and I will now turn the call back over for our question-and-answer session.
Operator
(Operator instructions). And our first question comes from the line of Ivan Marcuse with KeyBanc.
Please proceed.
Ivan M. Marcuse – KeyBanc Capital Markets
Hi, guys. Thanks for taking my question.
Patrick M. Prevost – President, CEO
Hi, Ivan.
Ivan M. Marcuse – KeyBanc Capital Markets
In the Rubber Blacks business, when you look at all the capacity that you’ve been brining on and you continue to bring and in the competitiveness that you mentioned in China, and then you look at the general weakness in the entire industry, how do you improve margins in fiscal ’13 or do you need some help from the microenvironment?
Patrick M. Prevost – President, CEO
Well, first of all, I would say, you know, volumes are key factors in this business, so we’ll not deny that 80% utilization rate are rates that will allow us to achieve the superior financial performance. So we’re going to need to see an improvement in the – on the volumes side during the course of next year.
Now, we’re somewhat optimistic about that happening because we believe that the destocking that has occurred over the last quarter and the abating of that destocking indicates that we perhaps have reached the bottom of the low demand period and we’re still very confident looking at the long-term data that focused that annual growth for tires is still, in spite of the complexity of the economic situation we’re dealing with, a growth rate that is, I would say, robust. Now, in the meantime, of course, we’re looking at multiple ways of managing the environment and a lot of our effort, as I mentioned earlier, are focused on the energy and efficiency of our operations as well as trying to get our yields improved and getting feedstock purchased advantously.
So these are the things that we’re majoring on and you know, this is what we’ll be spending our time on until we see a recovery of the economy. With regard to capacity additions, we’ve been focusing our capacity additions on areas where we believe we could leverage existing site and that – and in areas where we could add capacity in a high-margin product production.
So we’ve been very selective in terms of what we’re looking at. And then in China, we just believe that’s the market that is going to continue to grow at a very high pace or way above the global average and we need to continue to develop opposition in that market and that’s the reason for the new investment that we’re working on in the [inaudible].
Ivan M. Marcuse – KeyBanc Capital Markets
Did you maintain your value add pricing strategy even in this current environment or do you see pricing, you know, being a little bit more competitive until things are improved?
Patrick M. Prevost – President, CEO
Right. So what we mentioned is that we’ve seen a more competitive environment in China and here, I must say that there’s a bit of a balance between price and volume that’s going on and as we’re going to be bringing up a greenfield plant later in fiscal year 2013, we’re in need of – to maintain our position in a still maturing market, but that is growing at a very rapid pace.
So here, I would say we have had to work on pricing to maintain our volume position. The other markets, we continue to drive pricing in a – I would say a strong way.
We’re, specifically in North America, engaging with our customers to renew our – allotted contract for calendar year 2013 and we’re very confident that we’ll be achieving increases in prices.
Ivan M. Marcuse – KeyBanc Capital Markets
Do you see volumes and, in the near term, is it positive that you guys see a sequential uptick form third quarter to fourth quarter, do you imagine that will be the same sort of trend sort of going into your fourth quarter to first quarter or do you see a sequential sort of downtick going to more seasonality?
Patrick M. Prevost – President, CEO
So you know, as we look at the first quarter and as I mentioned in the speech earlier, we – we’re not hopeful to see an improvement in the quarter. So we’re currently planning for a quarter that is somewhat similar to the fourth quarter, actually our volume in October or as far as we’ve seen of October, very much matching the trend that we saw in the fourth quarter.
Ivan M. Marcuse – KeyBanc Capital Markets
So sequentially, if it stays flat, could the volumes get – you know, the year-over-year comparisons get very easy. So I mean, on a year-over-year basis, sequentially, you should see – I mean, they should be flat, correct?
Patrick M. Prevost – President, CEO
I think that’s a way to look at it. Yep.
Ivan M. Marcuse – KeyBanc Capital Markets
Great. Thank you for taking my questions.
Patrick M. Prevost – President, CEO
No. problem.
Thanks, Ivan.
Operator
Our next question comes from the line of John Roberts with Buckingham Research. Please proceed.
John E. Roberts – Buckingham Research Group, Inc.
Good afternoon.
Patrick M, Prevost – President, CEO
Good afternoon, John.
John E. Roberts – Buckingham Research Group, Inc.
The demand for – from coal-fired plants for active carbon must have been done much more than the 2% for overall Norit. Could you comment about how much it was down double digit percentages or what and what’s the margin differential that accounts for the unfavorable mix?
Patrick M. Prevost – President, CEO
So you know, as you correctly noted, we’re seeing the competition between coal and natural gas generated at Power and we’ve seen during the course of this year natural gas winning, that is clearly effect – is effecting the activated carbon sales and we’re currently looking specifically in the area – in the gas and air market at a 9% decline year on year, and about the same on a quarter-on-quarter comparison. We do, however, seen on the sequential basis an increase of about 16%, which is more of a reflection of seasonality.
That gives you perhaps a picture of the environment that we’re – that we’re dealing with. But let me just come back to the [inaudible] topic.
I mean, we still believe that this business is one that will continue to grow in the long run. We – we’re holding to our projections today as we did before the acquisition.
We see a significant upside there and we believe that the adoption of the regulations in 2015 are intact. So a lot of what’s happening between now and then is working with the various co-fleet owners and to be – to remind you, we mentioned that in the last quarter, we – our assumption with regard to this business is that somewhat – somewhere between 15 to 20% of the coal fleet that’s existing currently and there’s about 978 coal-based utilities, will retire over the coming years, a couple of years, three years.
And we’ve assumed that of that remaining coal fleet, only about 50% would be needing activated carbon and the result of this would be that we would still see about a tripling of the active carbon needs within the next five-year period, so in 2017. Something that we’ve also not talked about, or that we have not talked about at the last call as that we’re also in the injection equipment business, and that’s a business that is a small business, or has been a small business up until now.
And this is to design and to put in place the activated carbon injection equipment into the coal fire utilities, and we’ve put a certain number of these – of this equipment in place, but we’re seeing over the next two, three years, approximately 450 to 500 of these equipments needing to be implemented, and each of them is about approximately $1 million piece of equipment. And we’re currently gearing up to dealing with that increase in demand.
Of course, we are not the only ones that are capable of doing this, but we’ve got a team that is working very closely, and very diligently, as we see the coal utilities gearing up for the 2015 deadline.
John E. Roberts – Buckingham Research Group, Inc.
You’re not relying on natural gas prices coming back up to stimulate demand?
Patrick Prevost – President, CEO
We currently believe that the natural gas prices would need to be in the $4 to $5 range to provide a bit of an arbitrage situation with coal. We’re not there yet, but I would say that the indications are that the gas prices are slowly increasing.
If you remember, we were close to $2 in April of this year, and you know, if you look at the natural gas rig count, it’s come down by more than half in the last two years. So I would say, in general, the natural gas producers are not able to make money at the current gas prices, and I think there is a strong indication that we should see the prices coming up, and again, they are already – they were – I looked this morning, they were at $3.73 on the [inaudible].
John E. Roberts – Buckingham Research Group, Inc.
Thanks, very much.
Patrick Prevost – President, CEO
Thank you, John.
Operator
Our next question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed.
Kevin Hocevar – Northcoast Research Partners, LLC
Hi, guys, good afternoon.
Patrick M. Prevost – President, CEO
Good afternoon.
Kevin Hocevar – Northcoast Research
In terms of the rubber black segment, there was a couple of those sequential issues that hit the quarter in terms of the supply disruption, the impact in China, and the higher feed stock cost. I'm just wondering of those, are any expected to flow through going forward?
I'm assuming the high cost inventory was just the one quarter thing, but is the disruption of supply fixed? And then do you expect the Chinese issues to flow forward into 2013?
Patrick M. Prevost – President, CEO
Yes, so as we look at these three elements that led to the $18 million EBITDA decline, one is clearly a one-time effect, which was the supply disruption in South America, so that will not reoccur in the fourth quarter, in the first quarter, sorry. The high feed stock cost is continuing to flow through, so there will be still some impact in the first quarter.
And then of course the competitive environment in China we believe will continue in the first quarter, so I think that should give you a bit of a sense of how we're thinking about the impact of those in the current quarter.
Kevin Hocevar – Northcoast Research Partners, LLC
Okay, and then I believe previously, the guidance for 2013 for Norit was $0.30 to $0.35 of accretion, so have you seen anything that would change that number? And also, what's the growth rate that you assume in that number for the mercury emission activated carbon?
Is that above or below that 30% kind of long-term expected growth rate?
Patrick M. Prevost – President, CEO
Yes, the 30% long-term rate is still valid. But it's going to be one that, of course, is going to have a bit of a cliff feel to it, so we believe that in the long run, that's correct.
In the meantime until we reach 2014, we think that the demand levels are going to be flattish let's say at this stage. With regard to the $0.30 to $0.35 accretion that we've indicated in the call last quarter, we're still holding to that.
There's a lot of puts and takes where we've only owned the business for a few months. But at this stage, we're still comfortable with these numbers.
Kevin Hocevar – Northcoast Research Partners, LLC
Okay, and then finally in terms of volumes, I know we've talked about sequentially don’t expect much pickup at all going into the final quarter of the calendar year. But could there be any benefit from – I know that the Chinese impart tariff rolled off at the end of September.
And I know tire shipments were really weak at the end of September. And tire dealers inventories were really low.
So I'm just wondering if any of that will flow down to you guys and maybe there could be a – I guess the question is, is there upside here in the first quarter if there's some restocking of inventories at these tire dealers?
Patrick M. Prevost – President, CEO
At this stage, we're not seeing any of that. I mean clearly considering how low the volume is across the world, you hope to see some of that happening, but we're not counting on it at this stage.
As we speak to our customers, we're not getting a very positive and optimistic feel at least through the end of the calendar year. Then on the question with regard to the elimination of the Chinese duties, we saw no effect on the imposition of those, so we're just not expecting anything on the removal.
Kevin Hocevar – Northcoast Research Partners, LLC
Okay, great, thank you very much.
Patrick M. Prevost – President, CEO
Thank you.
Operator
Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.
Jeffrey Zekauskas – JPMorgan
Hi, good afternoon.
Patrick M. Prevost – President, CEO
Good afternoon, Jeff.
Jeffrey Zekauskas – JPMorgan
I was wondering if you could stick a little bit more at length about the competitive conditions in China. In that in general, I think it has feed stock advantages and maybe a more complex or a more differentiated product line than some of the other competitors.
So I was wondering, why has the I guess its price competition, why has that emerged now rather than at some other time? And can you describe the dynamics around that and whether it's confined to certain product lines, or it's across the board, or what the reasons are for it?
Patrick M. Prevost – President, CEO
Yes, the environment is complex, but I think if you list up out of the various puts and takes on the moving parts, the main driver here is that the economy has slowed. And the Chinese businessmen are very astute.
And they tend to be very quick at managing cash and inventories. And that has led to some volume declines in the Chinese market and increased the competitive environment clearly.
Now you're right in terms of our position in China. I believe that we have the most sophisticated assets technology.
We have skill. And we have the products that people want in addition to the fact that we've been delivering what I would call an above average service.
Of course, we're not underestimating our competitors, but I clearly think that we are and continue to be a leader in China. Now as we participate in that market, we're seeing the market mature and develop.
But all in all, the market is still that of an emerging economy in terms of the type of tires that are needed. We're seeing an increase in the more sophisticated products and the needs for our more sophisticated products to achieve these high performance products.
But there's still a fairly large portion of the market that is what I would call more traditional or standard tires. And as the economy slowed down, the competition increased.
And we have a new facility coming on stream in August of next year. And we're clearly very driven and focused to make sure that we continue to participate and support our customers in the Chinese market and provide the base and platform to get the new capacity loaded as soon as it's up.
Jeffrey Zekauskas – JPMorgan
Thank you, that's helpful. In performance materials, I think in your transcript, you talked about 12% volume growth in fumed metal oxide and 3% growth in special blacks, but the sales were flat year-over-year.
Why is that? Why not a greater level of sales growth?
Patrick M. Prevost – President, CEO
Yes, I think as you may remember, a lot of the end markets for the performance segment are in the construction infrastructure electronics industry. And we've seen a fairly sluggish environment in these markets.
And a good portion of our business also is in Europe in the performance segment, so we've been affected by that. Specifically on the SMO side our fumed metal oxide, so we've seen good growth lately because we've started up our new high performance facility in Jiangxi, China.
And the performance and the cost base of that new facility is giving us a lot of potential and is giving us the geographic mix that we've not had in the past. So we're getting some very good traction in the China and Asia market.
Jeffrey Zekauskas – JPMorgan
And then lastly, I was hoping that Ed might talk a little bit about general unallocated income or expense. I think it was a positive million versus last year at negative four.
What were the components of that change?
Eduardo E. Cordeiro – EVP, CFO
I think the difference in that Jeff is going to be LIFO in fact.
Jeffrey Zekauskas – JPMorgan
So was there a positive raw material impact on that line?
Eduardo E. Cordeiro – EVP, CFO
My recollection from this year is that it's flat and so there was no impact. And that there was a slight negative impact last year of $3 million.
Jeffrey Zekauskas – JPMorgan
Okay, thank you very much.
Patrick M. Prevost – President, CEO
Thank you, Jeff.
Operator
Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed.
Laurence Alexander – Jefferies & Co.
Good afternoon. Just to clarify the comments about the Norit's sales growth being flattish.
Was that just for the mercury removal applications year-over-year or was that for the entire segment? And given the weakness in that part of the end market mix, do you think the margins in that segment will say depressed until that part of the business picks up?
Patrick M. Prevost – President, CEO
I'm sorry, Laurence. I missed the first half of your question.
Would you please repeat it?
Laurence Alexander – Jefferies & Co.
Certainly, I think it was a comment that the volume trends for the purification segment could be flattish. I just wanted to clarify is that for the entire business or is that just for the coal fire power plants section?
Patrick M. Prevost – President, CEO
No, as I mentioned, this is only for the mercury removal section. The remainder of the business we believe will continue to grow at the rates we had indicated, Laurence.
Laurence Alexander – Jefferies & Co.
And then just to follow up on that, do you expect to be at return margins to their prior level without an acceleration in the coal fire application? Or do you need that to get your margins back up?
Patrick M. Prevost – President, CEO
I would say it is difficult to assess at this stage. We're not close or I'm not close enough to the business yet to be able to give you a very educated answer.
But we're of course dealing with a market that's not growing. We could see increased competition.
Laurence Alexander – Jefferies & Co.
And then I guess lastly as you look at your geographic footprint particularly in Europe and given the weaker economic outlook, do you need another round of restructuring either in performance blacks, rubber blacks, or in Norit to adjust for that?
Patrick M. Prevost – President, CEO
No, we've done our restructuring in 2009 and we had some additional closures actually over the last few years that actually dealt with the continued economic weakness in Europe. So at this stage, we believe that we have the assets we need.
We've actually invested in a few of the assets in Europe to strengthen their unique position in terms of products and mix. And we believe we're well positioned for when the market returns.
Laurence Alexander – Jefferies & Co.
Thank you.
Patrick M. Prevost – President, CEO
Thank you.
Operator
Your next question comes from the line of Christopher Butler with Sidoti and Company. Please proceed.
Christopher W. Butler – Sidoti & Co. LLC
Hi, good afternoon everyone.
Patrick M. Prevost – President, CEO
Good afternoon, Chris.
Christopher W. Butler – Sidoti & Co. LLC
Sticking with the Norit a little bit, now that you have it under your belt for a couple months, could you talk to the synergies that you see and expect? And have those changed as it pertains to your accretion expectation?
Is that bridging the gap a little bit between the soft demand and your maintenance of expected accretion?
Patrick M. Prevost – President, CEO
There's a lot of puts and takes as you get closer to the business after an acquisition and you validate your assumptions. But overall, despite the fact that the mercury removal market is affected by the low natural gas prices, we're very pleased with what we're seeing.
We're seeing a very strong Norit team with a very similar culture to ours, which is actually helping. And we're very pleased with the speed at which integration is occurring and the positive attitude of the Norit team to its Cabot.
We've been doing a lot of work with regard to looking at synergies in the markets, but also from a technology point of view, so we on day one have started technology exchanges to see how we can accelerate the learning on both sides. We of course have a larger skill on the technology front, which is going to benefit Norit.
And we're already starting to see exchanges in capabilities in that respect. As you may remember, we also have a lot of hope to leveraging Norit into emerging markets in a way that they have not been able to do in the past.
And we're much more comfortable doing business in Asia Pacific and South America. And we've made some changes organization wise to basically provide some support to Norit in these markets with appointments of Cabot folks.
So there's a lot going on and we're very pleased with the way the two companies are coming together.
Christopher W. Butler – Sidoti & Co. LLC
And if we're looking at the increase in inventory, is that directly attributed to Norit?
Patrick M. Prevost – President, CEO
On our balance sheet you mean?
Christopher W. Butler – Sidoti & Co. LLC
Yes.
Patrick M. Prevost – President, CEO
Yes, that's correct.
Christopher W. Butler – Sidoti & Co. LLC
And just finally, can you quantify the impact on rubber blacks for the high cost feed stocks and the supplied disruption? And did that impact the volume as well in South America?
Patrick M. Prevost – President, CEO
The impact was all-in-all $18 million. And the three events that we've indicated are roughly $6 million each, so the supply disruption in South America, the high cost feed stock inventory, and the supply chain, so the margin squeeze there is about $6 million.
And another $6 million coming from competitive environment in China.
Christopher W. Butler – Sidoti & Co. LLC
Did that slow your volume in South America?
Patrick M. Prevost – President, CEO
No, basically what happened in South America was that we had to look at alternative sources to make sure that we kept our customers whole. And having to do that created a $8 million impact on our bottom line, but we’ve managed the situation and you know, have kept our customers operating.
Christopher W. Butler – Sidoti & Co. LLC
I appreciate your time.
Patrick M. Prevost – President, CEO
Thank you.
Operator
We have a follow-up questions coming from the line of Ivan Marcuse with KeyBanc. Please proceed.
Ivan M. Marcuse – KeyBanc Capital Markets
Thanks for the time. Real quick, I think a couple of quarters ago you mentioned on the receivable notes that you had for the [inaudible] that the interest income coming from there would be in – that would fall into one quarter.
Is that in first quarter and how much will that be?
Patrick M. Prevost – President, CEO
Eddie, could you …
Eduardo E. Cordeiro – EVP, CFO
Yeah. So it should be in the January timeframe, so that would be the March quarter.
Ivan M. Marcuse – KeyBanc Capital Markets
Got you. And what would the expectation be for that interest income?
Eduardo E. Cordeiro – EVP, CFO
We’re expecting it will be approximately 15 million.
Ivan M. Marcuse – KeyBanc Capital Markets
Okay, great. And then the second question is, on the Specialty Foods business, how much as that up year over year in EBIT?
Eduardo E. Cordeiro – EVP, CFO
You know, the Specialty Foods business is now embedded in the Advanced Technologies. Now we will continue to provide color on the business, of course and you can see the revenue.
What I would say is that we’ve had the – again, a good quarter in the fourth quarter, roughly in line with the previous two quarters and – but again, I think what’s very important to note here is that the, you know, the business has not changed in terms of its volatility and because of the project nature of our customers, we’re looking at potentially a couple of weaker quarters ahead of us. But very difficult to plan, this business continues to be that.
Ivan M. Marcuse – KeyBanc Capital Markets
So the next couple of quarters should be sequentially a lot weaker?
Eduardo E. Cordeiro – EVP, CFO
The next couple of quarters are going to be weaker than the last few.
Ivan M. Marcuse – KeyBanc Capital Markets
Great. Thanks.
Operator
We have no further questions. I will now turn the call back over to Patrick Prevost for closing remarks.
Patrick M. Prevost – President, CEO
All right. Thank you very much for attending the call today.
As I said earlier, we’re – on an annual basis, we’re pleased with our performance and we’re confident in the strength of the company. We’re looking at a first quarter that because of the economic environment, will be weaker, but we’re confident in terms of recovering 2013.
So thanks again and looking forward to speaking with you next quarter.
Operator
Thank you for your participation in today’s call. You may now disconnect.