Cabot Corp. (CBT) Q3 2026 Earnings Report, Transcript and Summary

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]

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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.