Westlake (WLK) Q4 2024 Earnings Call February 24, 2025 09:17 PM ET Company Participants Johnathan Zoeller - VP & TreasurerJean-Marc Gilson - President & CEOSteven Bender - CFO & EVPDavid Begleiter - Managing DirectorAleksey Yefremov - MD & Equity ResearchJohn Roberts - Managing DirectorMichael Leithead - Director - Equity ResearchKevin McCarthy - PartnerJosh Spector - Executive DirectorMichael Sison - Managing DirectorAziza Gazieva - Vice PresidentMatthew Blair - Managing Director Conference Call Participan ...

Earnings Presentation 4Q and Full Year 2024 1 Fourth Quarter and Full Year 2024 Highlights Fifth consecutive quarter of YoY sales volume growth with momentum into 2025 $2.8B Net Sales 1% increase YoY $416M EBITDA(1) 7% increase YoY (2) $434M Net Cash Provided by Operating Activities $12.1B Net Sales 3% decrease YoY $2.3B EBITDA(1,2) 12% decrease YoY(2) $1.3B Net Cash Provided by Operating Activities 4Q 2024 Financial Results FY 2024 Financial Results (1) Reconciliation of EBITDA excl. Identified Item to Net ...

Core Insights - Westlake Chemical reported $2.84 billion in revenue for Q4 2024, a year-over-year increase of 0.6%, but fell short of the Zacks Consensus Estimate by -2.12% [1] - The company's EPS for the same period was $0.06, a significant decline of -91.67% compared to $0.72 a year ago, representing a surprise of -94.23% against the consensus estimate of $1.04 [1] Financial Performance Metrics - Net external sales in Performance and Essential Materials were $1.86 billion, slightly below the average estimate of $1.88 billion, reflecting a year-over-year decrease of -1% [4] - Net external sales in Housing and Infrastructure Products reached $981 million, slightly below the estimated $986.27 million, but showed a year-over-year increase of +3.7% [4] - Net external sales for Housing Products were $818 million, compared to an estimate of $827.85 million, marking a +2.9% change year-over-year [4] - Essential Materials within Performance and Essential Materials reported $741 million, below the estimate of $826.41 million, indicating a -4.1% change year-over-year [4] - Infrastructure Products in Housing and Infrastructure Products achieved $163 million, exceeding the estimate of $151.67 million, with a year-over-year increase of +8% [4] - Performance Materials reported $1.12 billion, slightly below the average estimate of $1.15 billion, reflecting a +1.3% change year-over-year [4] - EBITDA for Housing and Infrastructure Products was $188 million, surpassing the average estimate of $150.48 million [4] - EBITDA for Performance and Essential Materials was $220 million, below the average estimate of $294.76 million [4] Stock Performance - Westlake's shares have returned -6.8% over the past month, underperforming the Zacks S&P 500 composite, which changed by -0.5% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance in the near term [3]

Financial Performance - Westlake Chemical reported quarterly earnings of $0.06 per share, missing the Zacks Consensus Estimate of $1.04 per share, and down from $0.72 per share a year ago, representing an earnings surprise of -94.23% [1] - The company posted revenues of $2.84 billion for the quarter ended December 2024, missing the Zacks Consensus Estimate by 2.12%, and slightly up from $2.83 billion year-over-year [2] Market Performance - Westlake shares have declined approximately 4.3% since the beginning of the year, while the S&P 500 has gained 2.2% [3] - The current Zacks Rank for Westlake is 4 (Sell), indicating expected underperformance in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.51 on revenues of $3.05 billion, and for the current fiscal year, it is $7.44 on revenues of $12.64 billion [7] - The estimate revisions trend for Westlake has been unfavorable ahead of the earnings release, which may impact future stock movements [6] Industry Context - The Chemical - Plastic industry, to which Westlake belongs, is currently ranked in the bottom 19% of over 250 Zacks industries, suggesting potential challenges ahead [8]

Financial Performance - Westlake reported fourth quarter 2024 net sales of $2.8 billion, a 1% increase year-over-year, driven by a 3% sales volume growth[6]. - The company achieved a net income of $7 million for the fourth quarter, which includes a one-time non-cash tax charge of $45 million[10]. - Full year 2024 net sales totaled $12.1 billion, with net income of $677 million, reflecting a decrease from $1.1 billion in 2023[13]. - EBITDA for the fourth quarter of 2024 was $416 million, a 7% increase from $390 million in the same period last year[12]. - Gross profit for Q4 2024 was $328 million, significantly up from $199 million in Q4 2023, contributing to a total gross profit of $1,957 million for the year, down from $2,219 million[31]. - The company reported a net income of $19 million in Q4 2024, recovering from a net loss of $487 million in Q4 2023, with a total net income of $647 million for the year compared to $522 million in 2023[31]. - Earnings per share for Q4 2024 were $0.06, a recovery from a loss of $3.86 per share in Q4 2023, with annual earnings per share increasing to $4.66 from $3.73[31]. Segment Performance - The Housing and Infrastructure Products segment reported an annual income from operations of $807 million and EBITDA of $1.1 billion[4]. - Performance and Essential Materials segment net sales for 2024 were $7.8 billion, a decrease of $0.5 billion compared to 2023, with a loss from operations of $204 million[21]. - The Housing and Infrastructure Products segment reported net sales of $981 million in Q4 2024, up from $946 million in Q4 2023, while the Performance and Essential Materials segment saw a slight decrease in sales to $1,862 million from $1,880 million[37]. - The Performance and Essential Materials segment reported net external sales of $2,019 million for the three months ended September 30, 2024, compared to $1,880 million in the same period of 2023, reflecting a growth of 7.4%[52]. - The Housing and Infrastructure Products segment achieved an operating income margin of 18% for the three months ended September 30, 2024, up from 13% in the same period of 2023[49]. Cash Flow and Liquidity - The company generated $434 million in net cash from operating activities in the fourth quarter and $1.3 billion for the full year 2024[15]. - Westlake's cash and cash equivalents stood at $2.9 billion, with total debt of $4.6 billion as of December 31, 2024[15]. - Cash and cash equivalents at the end of 2024 were $2,935 million, down from $3,319 million at the end of 2023[35]. - The company’s operating cash flow for 2024 was $1,314 million, a decrease from $2,336 million in 2023[35]. - Free cash flow for the three months ended September 30, 2024, was $254 million, compared to $149 million in the same period of 2023, marking an increase of 70.5%[46]. Future Outlook - The company anticipates continued growth in the Housing and Infrastructure Products segment due to increased demand for residential housing in the U.S.[9]. - Westlake plans to focus on cost-saving initiatives and new product innovations to enhance earnings growth in 2025[9]. - Westlake Corporation plans to continue focusing on operational efficiency and strategic investments to enhance long-term growth prospects[26]. Restructuring and Costs - The company incurred restructuring, transaction, and integration-related costs of $8 million in Q4 2024, down from $22 million in Q4 2023[31].

Core Viewpoint - Westlake Chemical (WLK) is expected to report quarterly earnings of $1.04 per share, reflecting a 44.4% increase year-over-year, with revenues projected at $2.89 billion, a 2.4% increase from the previous year [1]. Earnings Estimates - The consensus EPS estimate for the quarter has been revised upward by 0.9% over the past 30 days, indicating analysts' reassessment of their projections [2]. - Changes in earnings estimates are crucial for predicting investor reactions, as empirical studies show a strong correlation between earnings estimate trends and short-term stock performance [3]. Revenue Projections - Analysts predict 'Net external sales- Performance and Essential Materials' will reach $1.88 billion, a 0.1% increase from the prior year [5]. - The consensus for 'Net external sales- Housing and Infrastructure Products' is estimated at $986.27 million, reflecting a 4.3% increase year-over-year [5]. - For 'Net external sales- Housing and Infrastructure Products- Housing Products', the estimate stands at $827.85 million, indicating a 4.1% year-over-year change [6]. - 'Net external sales- Performance and Essential Materials- Essential Materials' is projected at $826.41 million, showing a 6.9% increase from the previous year [6]. - 'Net external sales- Housing and Infrastructure Products- Infrastructure Products' is expected to reach $151.67 million, a 0.4% increase year-over-year [7]. - 'Net external sales- Performance and Essential Materials- Performance Materials' is estimated at $1.15 billion, reflecting a 3.5% increase from the prior year [7]. EBITDA Estimates - The consensus estimate for 'EBITDA- Housing and Infrastructure Products' is projected at $150.48 million, down from $173 million in the previous year [8]. Stock Performance - Westlake shares have decreased by 2.3% over the past month, contrasting with a 4.7% increase in the Zacks S&P 500 composite, and the company holds a Zacks Rank 4 (Sell), indicating expected underperformance in the near future [8].

Core Viewpoint - Wall Street anticipates a year-over-year increase in earnings for Westlake Chemical, driven by higher revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - Westlake Chemical is expected to report quarterly earnings of $1.04 per share, reflecting a year-over-year increase of 44.4% [3]. - Revenues are projected to reach $2.89 billion, marking a 2.4% increase from the previous year [3]. Estimate Revisions - The consensus EPS estimate has been revised 0.93% higher in the last 30 days, indicating a reassessment by analysts [4]. - A positive Earnings ESP reading suggests a potential earnings beat, particularly when combined with a strong Zacks Rank [8]. Earnings Surprise Prediction - The Most Accurate Estimate for Westlake is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -2.55%, indicating bearish sentiment among analysts [10][11]. - Westlake currently holds a Zacks Rank of 4, complicating predictions for an earnings beat [11]. Historical Performance - In the last reported quarter, Westlake was expected to earn $2.12 per share but only achieved $1.41, resulting in a surprise of -33.49% [12]. - Over the past four quarters, Westlake has beaten consensus EPS estimates twice [13]. Conclusion - Westlake does not appear to be a strong candidate for an earnings beat, and investors should consider additional factors before making investment decisions [16].

Core Viewpoint - Westlake Chemical Partners (NYSE: WLKP) is recognized for its high dividend yield, but it is considered fairly priced at current levels [1]. Company Overview - Westlake Chemical Partners owns ethylene production plants in the U.S. [1]. - The company is appealing to investors due to its disciplined capital allocation and ability to generate exceptional returns on capital [1]. Investment Philosophy - The investment philosophy emphasizes buying high-quality stocks and businesses that can compound invested capital over long periods [1].

Investment and Strategic Initiatives - Westlake Corporation's subsidiary, Westlake Innovations, has invested in Universal Matter, Inc., which focuses on supplying high-quality and sustainable graphene and advanced materials aimed at decarbonization [1] - This investment aligns with Westlake's commitment to developing a sustainable future through enhancements in manufacturing and strategic investments in innovative technologies and startups [1] Technological Advancements - Universal Matter utilizes patented Flash Joule Heating technology, developed at Rice University, to produce tunable graphene in various morphologies [8] - This technology enables cost-effective, industrial-scale upcycling of carbon waste into high-quality graphene, facilitating its integration into downstream industrial products [8] Market Context and Performance - Westlake noted a disparity in the recovery rates from the recent decline in global manufacturing and industrial activity, but anticipates a potential acceleration in macroeconomic recovery due to fiscal and monetary support [6] - The company aims to focus on developing and launching innovative products to meet consumer demands and enhance long-term shareholder value [6] Industry Positioning - Graphene presents numerous performance and sustainability benefits applicable across Westlake's Performance & Essential Materials and Housing & Infrastructure Products business lines, indicating a strategic opportunity for collaboration with Universal Matter [5]

Product Launch - Westlake Corporation's unit, Westlake Royal Building Products, has launched Dryroll, a universal ridge vent and weather block designed to optimize roof protection and attic ventilation by exhausting heat and moisture from the roof [1] - Dryroll features rollable installation, blending smoothly with the roof and reducing unappealing field vents and roof penetrations, with aluminum sides that conform seamlessly to the roof [2] - The product offers superior airflow with 15.6 square inches of ventilation per linear foot, outperforming many other ridge vent options [2] Product Specifications - Dryroll is easy to handle and transport, available in two lightweight roll options: 11.6" wide at 3.7 pounds and 14.4" wide at 4.6 pounds, meeting IAPMO ER-2015 design specifications [3] - It is specifically designed for use with Newpoint Concrete Roof Tile and is a key component of the Westlake Royal Cool Roof System, enhancing ventilation and energy efficiency [4] - The Westlake Royal Cool Roof System can enable homes to achieve up to 22% in energy savings annually [4] Market Context - In the third-quarter call, Westlake Corporation noted a disparity in the recovery rate from the recent decline in global manufacturing and industrial activity, but expects macroeconomic recovery to potentially accelerate due to fiscal and monetary support [5] - The company plans to focus on developing and launching innovative products to meet consumer demands, enhance plant profitability, and generate long-term shareholder value [5]