Westlake Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2025
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Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation First Quarter twenty twenty five Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speakers' remarks, you will be invited to participate in a question and answer session.

Operator

As a reminder, ladies and gentlemen, this conference is being recorded today, 05/02/2025. I would now like to turn the call over to your host today, John Zeller, Westlake's Vice President and Treasurer. Sir, you may begin.

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

Thank you. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter twenty twenty five results. I'm joined today by Albert Chao, our Executive Chairman Jean Marc Gilson, our President and CEO Steve Bender, our Executive Vice President and Chief Financial Officer and other members of our management team. During the call, we will refer to two reporting segments: Performance and Essential Materials, which we refer to as PEM or Materials and Housing and Infrastructure Products, which we refer to as HIP or Products. Today's conference call will begin with Jean Marc, who will open with a few comments regarding Westlake's performance.

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

Steve will then discuss our financial and operating results, after which Jean Marc will add a few concluding comments and we will open up the call to questions. Today, management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10 ks for the year ended 12/31/2024, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website.

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

This morning, Westlake issued a press release with details of our first quarter results. This document is available in the Press Release section of our website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today, two hours following the conclusion of this call. This replay may be accessed via Westlake's website.

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

Please note that information reported on this call speaks only as of today, 05/02/2025, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage at westlake.com. Now I'd like to turn the call over to Jean Marc Gilson. Jean Marc?

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Thank you, John, and good morning, everyone. We appreciate you joining us to discuss our first quarter twenty twenty five results. For the first quarter of twenty twenty five, we reported EBITDA of $288,000,000 on net sales of $2,800,000,000 As has been the case in recent quarters, Westlake benefited from the diversity of our businesses and our low cost, highly integrated business model during the first quarter of twenty twenty five. Our HIP segment performed well despite winter storms slowing home constructions in certain parts of The U. S.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

And an uptick in mortgage interest rates that slowed sales of completed homes by the nation's large builders, both of which weighed on our sales of our products in the quarter. The broad portfolio and expensive footprint of our HIP segment with its solid 20% EBITDA margin and asset light cash generative business model, partially offset the first quarter headwinds that we experienced in our PEM segment. Our PEM segment results reflected a confluence of events, converging to deliver results below our expectations. Specifically, a strong run up in feedstock and energy prices increased PEM's cost by approximately $100,000,000 year over year, while at the same time we undertook two planned turnarounds and experienced unplanned outages that impacted our EBITDA by approximately $80,000,000 This confluence of events resulted in extraordinary margin compressions, which drove PEMS EBITDA to be $180,000,000 lower than the first quarter of twenty twenty four. Global demand remains well below historical levels and recent disruptions from tariffs have weighted on global growth.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

While we navigate the uncertain macroeconomic environment, we are taking immediate and targeted actions to adjust to the business conditions, to improve profitability and grow the business. First, we are focused on rightsizing our operations for the current economic realities. On this front, during the first quarter, we continued to make progress with optimizing our manufacturing footprint, including taking the actions in our Epoxy business that we announced last fall to drive improvements in our costs and earnings in the coming months. Charges for these actions were accrued in 2024 and we are continuing to assess our asset portfolio to improve our financial performance. Second, we are raising our cost reduction target for 2025 by $25,000,000 to a new range of $150,000,000 to $175,000,000 building on the $40,000,000 of cost reductions we achieved in the first quarter.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Additionally, we are reducing our capital spending forecast for 2025 by 10% to $900,000,000 to support our cash generation this year. We are monitoring market conditions and we will adjust this capital spending level as needed. Third, we are improving our cost structure and operational reliability. Last month, we successfully completed our Petra 1 ethylene plant turnaround after running the unit for a record eight point five years. This is the second ethylene plant turnaround since 2023 and we expect both plants to deliver reliable production with an eye towards achieving yet another future record of operations between turnarounds.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Also, in the first quarter, we completed the new VCM tie ins at our Geismar plant during its turnaround, which will provide enhanced reliability across our entire chlorovinyl production chain. The VCM tie in will also allow us to replace the current mercury cell capacity being rationalized this year with new, more environmentally friendly membrane cell capacity with no material impact on our overall capacity. These major sites completed their turnaround work in the second quarter and are now ramping up to address market demand. We are pleased to have completed these significant operational milestones with the associated benefits from improved operational reliability that they will provide well into the future. In this protracted down cycle, we believe that these actions will better position us and ensure Westlake will continue to create value for its shareholders.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

I would now like to turn over our call to Steve to provide more detail on our financial results for the first quarter of twenty twenty five.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Thank you, Jean Marc, and good morning, everyone. Westlake reported a net loss of $40,000,000 or $0.31 per share in the first quarter on sales of $2,800,000,000 Net income for the first quarter of twenty twenty five decreased $214,000,000 from the first quarter of twenty twenty four. The year over year decline in net income was primarily due to higher North American feedstock and energy cost of approximately $100,000,000 planned turnarounds and unplanned outages that impacted EBITDA by approximately $80,000,000 as well as unfavorable changes in HIP sales mix. When compared to the fourth quarter of twenty twenty four, net income decreased by $47,000,000 in the first quarter, as the seasonal increase in sales volume did not fully offset higher feedstock and energy cost, turnaround and outage impacts and the sales mix changes. For the first quarter of twenty twenty five, our utilization of the FIFO method of accounting resulted in a favorable pre tax impact of $66,000,000 compared to what earnings would have been reported on the LIFO method.

Steven Bender
Steven Bender
CFO & EVP at Westlake

This is only an estimate and has not been audited. Before I discuss the details of our segment results, I want to provide some high level thoughts on the quarter. Compared to the record year ago period, financial results in our HIP segment during the first quarter reflected lower average sales prices. This was a result of winter storms, which slowed new construction of homes in certain parts of The United States and higher interest rates that drove fewer housing permits impacting our volumes and pricing in our Pipe and Fitting and Siding and Trim businesses. While winter storms delayed the normal start of the construction season, we were pleased with HIP's EBITDA margin of 20% in the first quarter, which typically experiences lower seasonal demand.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Turning to our PIM segment, our first quarter results reflected a number of headwinds, most of which we believe are transitory. The most significant was the year over year increase in feedstock and energy cost of approximately $100,000,000 As a result of protracted down cycle negatively impacting industry wide sales volumes, we were unable to realize higher average sales prices in the first quarter to offset these higher cost. Additionally, planned turnarounds and unplanned outages reduced our first quarter of twenty twenty five EBITDA by approximately $80,000,000 The turnarounds were completed in the second quarter and now ramping up to meet demand. We continue to take proactive steps to right size our PIM business for the current demand environment, including actions to improve profitability of our epoxy assets in The Netherlands, where we took the charge to earnings in 2024. Additionally, substantially all of the approximately $40,000,000 of company wide cost savings generated in the first quarter of twenty twenty five are in our PIM segment.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And we continue to drive to reduce costs beyond our company wide raised target of 150,000,000 to $175,000,000 for the full year of 2025. Moving to the specifics of our segment performance, our housing and infrastructure product segment produced EBITDA of $2.00 $3,000,000 on $1,000,000,000 of sales. EBITDA decreased $61,000,000 year over year due to a 2% decline in sales volumes and a 3% decline in average sales prices. Sales volumes during the first quarter of twenty twenty five was impacted by a significant pre buying activity late in 2024 in pipe and fittings. Thus, the change in product mix and a slower start to the construction season due to the winter weather contributed to lower segment EBITDA margin when compared to the first quarter of twenty twenty four.

Steven Bender
Steven Bender
CFO & EVP at Westlake

When compared to the fourth quarter of twenty twenty four, Hip segment sales of $1,000,000,000 rose 2% driven by a 4% sequential increase in sales volume that more than offset a 2% decline in average sales price. Housing product sales of $838,000,000 in the quarter increased $20,000,000 due to sales volume growth, particularly for siding and trim and roofing. Infrastructure product sales of $158,000,000 in the first quarter of twenty twenty five decreased $5,000,000 from the fourth quarter of twenty twenty four due to some customers pre buying in the fourth quarter of twenty twenty four that they would normally have bought in the first quarter of twenty twenty five. Moving to our PIM segment, first quarter EBITDA of $73,000,000 was below first quarter of twenty twenty four EBITDA of $253,000,000 due primarily to significant higher North American feedstock cost and energy cost, including a 59% increase in natural gas cost and a 42% increase in ethane cost. Weak global industrial and manufacturing activity during the first quarter and some flattening of the global cost curve led to delays in our price initiative increases resulting in 2% decrease in PIM's average sales price.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Sales volumes also declined 2% year over year, driven by lower global demand for PVC resin and polyethylene. As a result of these factors and the impact of planned turnarounds and unplanned outages, PIM's first quarter EBITDA margin of 4% was below the first quarter of twenty twenty four EBITDA margin of 13%. On a sequential basis, PIM's segment EBITDA of $73,000,000 in the first quarter decreased by $147,000,000 from the fourth quarter of twenty twenty four, as a result of the higher North American feedstock and energy cost and the impact of the planned turnarounds and unplanned outages that I previously discussed. Compared to the fourth quarter of twenty twenty four, PIM sales volumes was down 1% driven by polyethylene while average sales prices were flat. Shifting to our balance sheet, as of 03/31/2025, cash and investments were $2,500,000,000 and total debt was $4,600,000,000 with a staggered long term fixed rate debt maturity.

Steven Bender
Steven Bender
CFO & EVP at Westlake

For the first quarter of twenty twenty five, net cash used from operating activities of $77,000,000 was impacted by cash outlays associated with the planned turnarounds that I previously mentioned, as well as our typical seasonal increase in working capital to support seasonal changes in demand for our products. Additionally, we used $30,000,000 of cash to repurchase shares of Westlake common stock, while returning $68,000,000 of cash to shareholders in the form of dividends during the quarter. We continue to look for opportunities to strategically deploy our balance sheet in order to create long term value. Now, me provide some guidance for your models. Given the macroeconomic uncertainty and an uptick in mortgage interest rates combined with slower starts in new home construction, we now expect 2025 revenue and EBITDA margin in our housing and infrastructure product segment be towards the low end of the previously communicated range of 4,400,000,000 to $4,600,000,000 of revenue, with EBITDA margin between 2022%.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Our revised outlook reflects continued mix shifts impacts on revenue and EBITDA margin. We continue to expect positive sales growth for HIP in 2025. Expected total cap expenditures for the company has been lowered by 10% to $900,000,000 as we optimize our business. As Jean Marc mentioned, we are now targeting 150,000,000 to $175,000,000 of companywide savings in 2025, with roughly $40,000,000 achieved in the first quarter. For the first year of twenty twenty five, we expect our effective tax rate to be approximately 23% and we expect cash interest expense to be approximately $160,000,000 Now I'd like to turn the call back over to Jean Marc to provide the current outlook of our business.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Jean Marc?

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Thank you, Steve.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

As 2025 progresses, our efforts will be focused on executing several proactive and decisive actions to enhance margins, optimize our footprint, and improve our cost structure and operational reliability. These are all actions that are within our control and that will position Westlake to create greater value as we navigate this business cycle. Global trade tensions have intensified and we estimate the direct impact from recent tariff announcement on our business is largely manageable. A large majority of our products and sales are USMCA compliant and limit our exposures at this moment. While it remains unclear, our trade negotiation will conclude and as we clearly assess the impact they may have on demand for our products, we are taking proactive steps to reduce all direct impacts to product we import that are subject to significant duties.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Our HIP businesses are primarily domestic in nature and the supply chains are relatively insulated by recent tariff announcement through the USMCA. As Steve mentioned earlier, while we are now expecting hip revenue and EBITDA margin to be towards the low end of our previous guidance ranges, we continue to expect positive hip sales volume growth for 2025. Turning to PEM, we expect the direct impact from recent tariff announcements on our cost and supply chains to also be manageable. However, in the wake of the tariff announcement, we have seen increased volatility in commodity prices and currency rates, which may impact our PEM segment in the second quarter and full year of 2025. Until negotiations on tariff are finalized, we expect the uncertainty to persist and we are prepared to take action to adjust to changing conditions.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Let me remind you of Westlake's foundational strength, which have served us very well over many decades. I want to focus on five in particular that I believe will differentiate us from peers during the current period of uncertainty. The first of these is our integrated business model from ethylene all the way through the building products, insulating us from supply chain disruptions and enabling us to capture margin along this integrated chain. Second is the diversity of our businesses, supported by the strength of earnings in HIP and the leverage to macroeconomic upturns in PEM, which is a key source of resilience and opportunity throughout the business cycle. Third is our globally advantaged feedstock and energy position in North America, where 85% of our products are manufactured.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Fourth is our strong investment grade balance sheet with $2,500,000,000 of cash and securities and no near term debt maturities, which helps support our ability to reward shareholders through share repurchases and our unbroken string of quarterly dividends for over twenty years since our IPO. Fifth is our low cost manufacturing culture with an emphasis on the safety and reliability of our plants. While no one can predict the future, the best we can do is to prepare for many potential outcomes. I believe that the key strengths that I just outlined position us to succeed across a wide range of potential outcomes in the current uncertain macroeconomic environment. Thank you very much for listening to our first quarter earnings call.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

I will now turn the call back over to John.

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

Thank you, Jean Marc. Before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity into our results, is available on our website and a replay of this teleconference will be available two hours after the call has ended. Michelle, we will now take questions.

Operator

Thank you. Our first question is going to come from the line of Patrick Cunningham with Citi. Your line is open. Please go ahead.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citi

Hi, good morning Jean Marc and Steve. I guess maybe I want to just start off on the hip, specifically on price cost. It seems like more margin degradation is implied. Can you first remind us the typical timeline for price realization there and your level of confidence in passing through inflation?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes, Patrick, this is much more this hip market is much more stable in pricing dynamics unlike the PIM segment, which moves on a monthly and sometimes more frequent basis. And so I would say in the hip segment, we see more stability in price nominations. And so certainly in an environment where we see dynamic in some of the input cost, we're able to actually provide more price stability there. That doesn't mean we're not exposed to some of the changes in the market conditions, but it's much more stable in price across the entire change.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citi

Understood. Very helpful. And I know you've discussed the direct impacts of this trade uncertainty being manageable. What do you anticipate retaliatory tariffs in China will do to PE operating rates and domestic prices?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Well, it's hard to project what may occur there, but certainly when we think about the direct impacts, because it's hard to anticipate what the indirect impacts could be. But simply as we think about the mix of polyethylene that we produce, which is largely going into domestic packaging applications that our exposure to the Asian market for most of the low density polyethylene that we produce and some of the specialty and differentiated forms really are not targeted for those markets. And so the markets that we're focusing our products into is really more of that specialty end of the chain and less exposed to really those kind of dynamics that you see in the Asian markets.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citi

Thank you.

Operator

You. And one moment for our next question. Our next question is going to come from the line of Jeffrey Kauskas with JPMorgan. Your line is open. Please go ahead.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Thanks very much. Can you let us know how the PVC industry performed in the first quarter? Were volumes up or down or by how much?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. So Jeff, the industry continues to in the first quarter see a bit of a build in inventory in anticipation of the construction season. So I would say that operating rates for the industry were probably in the 80s in that range. Of course, construction season doesn't really start until we get it really into the late portions of the first quarter and into the second quarter. So they would typically be in the low to mid 80s.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

In your slides, in describing the PEM segment, you said that there were declines in chlor alkali and PVC resin prices sequentially. I thought PVC resin prices went up in the first quarter. I thought there was a price increase in February and in March. Did you have a different experience or maybe posted prices were different than the experience of interest?

Steven Bender
Steven Bender
CFO & EVP at Westlake

So Jeff, when you think about the change that we saw, we remember we saw some price resets at the end of the year that carried into the first month or so of the first quarter. And to your point, there were price increases realized over the course of February and March. And so as we think about what we experienced, there have been, I agree with you, have been increases over course of the first quarter. But there were some kind of market resets that occurred at the end of the year.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

And you talked about declines in chlor alkali, is that both in chlorine and caustic or only in chlorine, but not in caustic?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Now, we've continued to see some continued strength really in chlorine and as we enter the season now, excuse me, as we enter the season for bleaching and for construction materials, that demand for chlorine will continue. There may be there are some of course regional pressures, of course, in all these product offerings, both in chlorine, of course, and in caustic that may occur at the end of the year during a slow period of construction and demand for bleaching materials and water treatment materials in January, December. But as you think about the onset of the construction season and the onset of the water treatment season, we've seen some stability in fact in caustic some price increases the first quarter.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Okay. Thank you very much, Steve.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

You're welcome.

Operator

One moment for our next question. Our next question comes from the line of John Roberts with Mizuho. Your line is open. Please go ahead.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you. I think a driver for HIPS was gaining share at distributors because of your ability to fill more of an order than competitors that have more narrow product lines. How's that going? And does this kind of environment make it harder to gain share because it's more competitive? Or is it easier to gain some share here?

Steven Bender
Steven Bender
CFO & EVP at Westlake

So, John, I would say that and you can see from our prepared remarks that we expect to continue the revenue growth in our business. And I think that speaks directly to the question you're asking. I think the broad offering that we offer in our HIP segment has allowed us to continue to gain share in that market. Our focus is really meeting the needs of the customer's customer, which is the homebuilder. And in those dialogues that we have with the home builders, the nationwide builders, we find that there is really good selection of those product offerings and that allows us to have that penetration into our distributor customers.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And so we do see good growth in the range of product offerings with our distributors and ultimately going to our end customer.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

Thank you. You're welcome.

Operator

One moment for our next question. And our next question is going to come from the line of Mike Whitehead with Barclays. Your line is open. Please go ahead.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

Thanks. Good morning, team.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Good morning, can you talk more

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

Good morning. You talk more about the mix shift impact that you're calling within hip? Just what businesses are generating above average margin that maybe are seeing a disproportional slowdown here?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes, good question. So in the fourth quarter, because of some of the weather, we did see a pull forward of some of the pipe and fittings businesses in the fourth quarter. And of course, with some of the winter season we saw and because of the temperatures, it's harder to put some of that material into the ground. The ground is frozen in parts of the northern portions of The United States and Canada. And so, less pull on that in the early stages of the first quarter.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Of course, that was backfilled with some of the volumes we saw in our exterior building products business as well as in compounds. So it was really the pull forward of some of our pipe and fittings business in fourth quarter.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

Got it. That's helpful.

Michael Leithead
Michael Leithead
Director - Equity Research at Barclays

And then second, is epoxy generating positive EBITDA today? And do you need to take further actions to improve that business' profitability?

Steven Bender
Steven Bender
CFO & EVP at Westlake

It remains a challenged business. And as you can see, Mike, as we spoke to it, we're taking proactive steps really to really address this. You can see that we took the charge in third quarter of last year. And you can see in our prepared remarks, we're moving forward to take steps to really improve the bottom line results of that business.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Alexey Yefremov with KeyBanc Capital Markets. Your line is open. Please go ahead.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Good morning, everyone. You mentioned mix in your sales in Q1. Could you comment on what's happening in pricing in specific categories? And I was wondering pipe and fittings, were prices flat or up? And is there any difference between large and small diameter products?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes, there is more value really in the larger diameter business. As you might recall, we're the only player with really the pipe and the fittings combination. And so I would say that that's really where we're seeing the strength. I would say that when we think about price, it does vary across the country. And so it's hard to quote an overall price, but I would say that with some of the push through in PVC resin, there's sometimes a bit of a lag in getting that all the way through in our pipe and fittings applications.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And so you have seen, therefore, some margin compression in that pipe and fittings business. That's more of a lag than an inability to ultimately get that pricing of that resin through. But the value proposition that we see in the larger Pipe business is really why we've continued to stay so very focused in that business. There are so many players and it's a much more fragmented market in the much smaller diameter forms of pipe. That's where we play a much smaller role, because frankly, it's a smaller value added segment of the business.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Thanks, Steve. And staying with FIP, you just mentioned that overall after discounts, it sounds like your PVC pricing was lower in Q1. Just broadly, petrochemical prices are lower. Was any of that benefit hit in the first half or this year in terms of margins?

Steven Bender
Steven Bender
CFO & EVP at Westlake

I'm sorry, could you repeat that? I didn't quite fully hear your question.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Sorry, the question really is about lower PVC prices and lower petrochemical prices in general, at least at this moment. And would any of that benefit HEP margins?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes, so as we think about the run up and now we've actually seen some normalization of some of those energy prices we experienced in the first quarter. But I would say some of the price nominations we've seen specifically in PVC have come through in terms of recognizing higher prices, but getting the early portions of the first quarter.

Steven Bender
Steven Bender
CFO & EVP at Westlake

I hope

Steven Bender
Steven Bender
CFO & EVP at Westlake

I answered your question. Was trying to understand your question Arun.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Sorry, Steve, you broke up a little bit at least on my part. I'm not sure if it's an issue for the whole call. But the question was really about lower raw material costs for HIP.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. And so we're not really seeing a degradation in pricing in our Building Products business as result of those lower prices in some of the inputs. As I mentioned earlier to one of the questioners, we see a much more stability in Building Products pricing. And so therefore, we don't see a transference of the high degree of volatility you typically see in the more commodity oriented materials translated into building products. Prices tend to be significantly more stable on the building product side.

Operator

Thank you. And one moment as we move on to our next question. Our next question comes from the line of Josh Spector with UBS. Your line is open. Please go ahead.

Josh Spector
Josh Spector
Executive Director at UBS Group

Hi, good morning. I wanted to ask specifically on PVC exports in PEM. Are you making any money on the exports of PVC at this point? I'm trying to understand kind of the negative EBIT and some of the shift down. And I guess depending on your answer there, do you need to flex any of your U.

Josh Spector
Josh Spector
Executive Director at UBS Group

S. Operations just given some of your assets are net short ethylene and probably less advantaged? Are there opportunities for you to pull levers to improve that? Or is my analysis wrong?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Josh, I would say that the export pricing that we're seeing prices have trended higher. The domestic price we're seeing in PVC really reflect the export prices. But I agree that the export margin is very narrow, but it is a positive margin. So no need to really flex the, if you will, the front end of manufacturing chain.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. I'll leave it there. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Please go ahead.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Hey, good morning.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Morning.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

In terms of your outlook for 2Q and I know you don't get into specifics, but directionally should HIP EBITDA get better? And then if PEM could get better, why? And what would need to drive that for an improvement in EBITDA for PEM in 2Q versus 1Q?

Steven Bender
Steven Bender
CFO & EVP at Westlake

So Mike, as we look at some of the forecasters such as NAHB for housing starts and even housing permits for the twenty five year, we see those numbers forecasted to be in the $1,300,000 range. The second quarter and the third quarter tend to be seasonally strong from a construction perspective. And you can see our commentary and guidance for hip that we do expect revenue growth. And so I do expect that as we start into the second quarter and the third quarter, we'll continue to see growth in those activities. You can see the guidance we're providing in revenue.

Steven Bender
Steven Bender
CFO & EVP at Westlake

So, the ramp up that we typically see, we do expect in the second quarter. And so, I do expect that we'll be able to continue to get traction really And that is really what is driving the PVC pricing. We've seen some traction in the first quarter in PVC pricing over the course of the first quarter so far this year. And that's really driving that.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Okay. And then in PEM sequentially?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. And so with that sequential pickup that we're seeing in downstream demand in construction materials, those prices that we talked about earlier in PVC that we've been able to nominate in February and March, April settled relatively flat, we believe. Those sequentially should be constructive because you get the compounding effect of those prices coming through that we were able to put in place in the first quarter will carry on into the second quarter.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Right. And the headwind in feedstocks in TAM for Q1, does that improve materially in 2Q?

Steven Bender
Steven Bender
CFO & EVP at Westlake

So as we think about gas as an example for fuel, we've seen that gas is now in the neighborhood of about 3.5%. And ethane has started to trend lower from the first quarter. Ethane ran up fairly significantly in the middle portion, the late portion of the first quarter. And ethane has trended lower over the month of April and so far in May relative to the peaks that we saw in the first quarter. So that will be a positive headwind or positive tailwind, I should say.

Michael Sison
Michael Sison
Managing Director at Wells Fargo Securities

Great. Thank you.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

You're welcome.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Pete Osterlin with Truist Securities. Your line is open. Please go ahead.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

Hey, good morning. Thanks for taking the questions. Good wanted to ask much of the $80,000,000 of outage costs were planned versus unplanned in the first quarter? And could you size the expected costs associated with these outages in the second quarter?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. And so Pete, planned outages for the turnarounds was about two thirds of that $80,000,000 And so, as you heard me in my prepared remarks say that we're ramping up now to meet demand for the turnarounds that we took for both the Petro one unit that was in turnaround as well as our Geismar VCM tie ins. So those units are ramping up over the course of April and May. I expect them to be in fuller rates by in May.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

Understood. Thank you. And then just as a follow-up, on your plans to reduce CapEx by 10% this year, if overall market conditions meaningfully worsen, how much could you or would you be willing to cut this year beyond that?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Well, we actually will take a look at the market conditions as you noted. And of course, we pull back on spending related to safety and reliability. But we will be focused on making sure that any other activities are certainly being looked at very closely. But safety of course is job one, we'll of course maintain a safe and operable plant and reliability continues to be an important element in our business. We'll take a look and see what those market conditions dictate.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And if changes lower are dictated, we'll take those actions.

Pete Osterland
Pete Osterland
Equity Research Analyst at Truist Securities

All right. Thank you.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Welcome.

Operator

Thank you. One moment for our next question. And our next question is going to be from the line of Matthew Blair with TPH. Your line is open. Please go ahead.

Matthew Blair
Managing Director at TPH&Co

Great. Thank you and good morning. Could you talk about the M and A pipeline? Is market weakness shaking anything loose? Or is M and A just not really a consideration right now?

Matthew Blair
Managing Director at TPH&Co

Thank you.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Matthew, the acquisition opportunities has always been an important element in the growth of our business. And I would say the dialogues that we have across both segments continue to be good. And I would say, we're always thoughtful about how we deploy capital to an acquisition, but I would say there are opportunities in the marketplace and we'll assess those and the value those bring on an ongoing basis. But in markets such as this, there are always good opportunities, and we'll look at those and act on those if those are good opportunities. We have a strong balance sheet and an investment grade rated balance sheet.

Steven Bender
Steven Bender
CFO & EVP at Westlake

So with the cash and the under leveraged position we have, we see good opportunities. We'll be able to act accordingly.

Matthew Blair
Managing Director at TPH&Co

Sounds good. And then construction is weak across the board, but could you talk about any patterns and any differences you're seeing in residential versus commercial? Thank you.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Well, we don't really address the commercial market, so I can't speak to that market. But I will say that certainly some of the higher interest rates are causing some cautiousness by buyers. But I would say that our guidance has really been consistent, that we see housing starts last year at 1.3% consistent with the guidance we see from forecasters like NAHB and others such as John Burns, we're forecasting starts to be in the $1,300,000 range. And that's our view and that's the guidance on which we built our guidance around.

Matthew Blair
Managing Director at TPH&Co

Great. Thanks.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

You're welcome.

Operator

Thank

Operator

you. And our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open. Please go ahead.

Kevin McCarthy
Partner at Vertical Research Partners

Yes, thank you and good morning. As you look across your portfolio, do you see any examples of businesses where you think volumes are being negatively affected by the international trade chaos in say April or May? Or is that not the case and the volume experience is on par with what you would normally expect seasonally?

Steven Bender
Steven Bender
CFO & EVP at Westlake

No, I'd say, Kevin, that there has been cautiousness, I would say, by customers for exports. And so therefore, I'd say that's caused some just cautiousness across the spectrum in many of our products. And so I would say that we're watching and in dialogue with the customer base that we have across all of our product spectrums. It's affecting not only our chemical customer base, but also our building products customer base with some of the uncertainty. And so that's why I'd say that as we look forward, we're building plans to deal with a macroeconomic situation in both sides of our business.

Kevin McCarthy
Partner at Vertical Research Partners

Okay. And then secondly, if I may, Steve, polyethylene spot export prices seem to be ebbing a little bit in recent weeks. Can you update us on what your expectations are for resin selling prices, polyethylene resin that is in the next month or two here, including the contract market?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yeah, the contract market, April has not yet settled even though we're the first few days of May at this stage. So, it's hard to see where that will ultimately land. Certainly those price nominations, we've got a $05 price nomination, that really has just been pushed to May if we don't get that achieved in April. So we'll take a look and see how the markets begins to sort itself out. But as I say, at this stage, April has not yet settled.

Kevin McCarthy
Partner at Vertical Research Partners

Thank you very much.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

You're welcome.

Operator

Thank you. And our next question is going to come from the line of Arun Viswanathan with RBC Capital Markets. Sorry, your line is open. Please go ahead.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Great. Thanks for taking my question. Hope you guys are well. I guess, first off, just on caustic, I guess there's been some stability, some strength. Do you expect that to continue?

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

And I guess, you guys kind of operating maybe slightly below the market just given some of the maintenance or where would you kind of characterize industry in your own operating rates? Thanks.

Steven Bender
Steven Bender
CFO & EVP at Westlake

So when you think of where we are, we've seen price traction in the first quarter that will carry over into the second quarter from a caustic perspective. And as I mentioned, we've had some turnaround activity with the VCM tie ins that we had planned in the first quarter in Geismar. And so our operating rates in the first quarter were unusually low because of that turnaround that planned turnaround activity. But as we expect that the construction season will begin to pick up, the pull on chlorine will go into water treatment and into the construction materials. So we had I do expect some further pull on PVC.

Steven Bender
Steven Bender
CFO & EVP at Westlake

So I do expect operating rates for ourselves and for the industry to lift from where they were in the first quarter.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Okay. Thanks, Steve. And just curious on the impact of China and Chinese production on PVC. I mean, historically, we had their acetylene based production, but you could still ship North American PVC over there. Understanding you guys didn't necessarily participate in a lot of that, do you see any changes in, say, the midterm PVC outlook?

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Could it get more positive because of, you know, tariffs and maybe less imports or less Chinese exports entering different markets and maybe that would open up some extra export opportunities for

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

you guys? Thanks.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes, I think it's a really good question and it's hard to know exactly where all this may get sorted given the conversations on tariffs. But I would say that when we look at the opportunities being on the lower end of the cost curve positions us very well. The integrated chain we have gives us an ability to run our plants at average higher operating rates. And so the VCM that we added gives us what I would call more elbow operating room and more reliability over the cycle. And so we'll look for opportunities given how some of these trade negotiations may play through.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Clearly, some of the trade patterns have changed as a result of not only those discussions with Asia players, but also some of the European players have imposed higher tariffs as well. So we've seen change in trade patterns and we'll certainly take every opportunity we can to leverage that. But as you know, most of our manufacturing capacity is here. Most of our demand is here. We see a large amount of demand for resin domestically.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And of course, about a third of our PVC resin goes into building products. So our export exposure is much more limited than some of our other vinyl peers.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Thanks. You're welcome.

Operator

Thank you. One moment for our next question. Our next question is going to be from the line of Frank Mitsch with Fermium Research LLC. Your line is open. Please go ahead.

Frank Mitsch
President at Fermium Research

Thank you. Good morning and long time no speak. Hey Steve, I want to come back to the hip margin question. I'm not sure if I'm understanding this correctly, so would appreciate elucidation here. So I thought I heard you say that some of the higher margin pipes and fittings were sold and was pulled forward into the fourth quarter.

Frank Mitsch
President at Fermium Research

So that would lead to a negative mix effect in the first quarter. And so, you posted 20.4% EBITDA margins. And so, with that negative mix effect in 1Q, '1 would suspect that we'd probably get a lift in 2Q in terms of margins, so it would be some number above the 20.4% and so as part and parcel of that, the full year guide in terms of margins was guided towards the low end of twenty twenty to twenty two. So is there some sense of conservatism here? Am I misunderstanding?

Frank Mitsch
President at Fermium Research

Should we not expect margins in hip to be better in 2Q versus 1Q? Any help would be appreciated.

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. So Frank, as we think about the and you outlined the dynamics that I described in the first quarter quite well. And I would say as we think forward about the guidance we're providing in margin, there is of course some degree of conservatism built into that forecast, because I think the outlook that we see in interest rates and some of the dynamics really are unclear at this stage. So as you could see, we are seeing growth in share. You see that through the growth in revenue.

Steven Bender
Steven Bender
CFO & EVP at Westlake

And it's really unclear in terms of really how that will progress through the course of the year in terms of margin. We certainly will be looking to gain the share back in our higher value added products and pipe and fittings are one of those. But I would say that as we look forward, there is some conservative view built into that margin guidance.

Frank Mitsch
President at Fermium Research

Excellent. Thank you. And then lastly, last quarters we've seen some buybacks. Unfortunately, Mr. Market seems to be giving you another opportunity here.

Frank Mitsch
President at Fermium Research

How should we think about Westlake and buybacks in 2Q and beyond?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Well, Frank, certainly as you know, we have authority from the board to act as we see opportunities to do so and we have liquidity to be able to act. We'll be looking at where we think the best deployment of that capital is. And as you could see, we took those actions recently and we'll assess those opportunities prospectively. We obviously don't guide quarter by quarter our activity in the market, but certainly we'll look at those opportunities and assess is that the best place to deploy our capital. If it is, we'll certainly act, but there's some other good growth opportunities in our business.

Steven Bender
Steven Bender
CFO & EVP at Westlake

I mentioned some of the opportunities through acquisitions. We're also expanding our footprint in PVCO pipe as well in Wichita Falls, Texas. So there are some good opportunities that we see, but we'll also assess are there opportunities in our own stock.

Frank Mitsch
President at Fermium Research

Terrific. Thanks so much. You're welcome.

Operator

Thank you. And our next question is gonna come from the line of Vincent Andrews with Morgan Stanley. Your line is open. Please go ahead.

Turner Hinrichs
Turner Hinrichs
Analyst at Morgan Stanley

Hi. This is Turner on for Vincent. It would be great to make sure that we're level setting for the $100,000,000 of energy and feedstock headwinds correctly. Was all of this just related to energy markets tightening? Or were there some onetime headwinds related to the winter storms you mentioned that we should back out ahead of accounting for energy costs quarter over quarter in the second quarter?

Steven Bender
Steven Bender
CFO & EVP at Westlake

No, Turner. It was all related to just really the dynamics that you mentioned in both ethane, ethylene and nat gas.

Turner Hinrichs
Turner Hinrichs
Analyst at Morgan Stanley

Okay. Great, great. It'd be great to get some color on CapEx as well in light of the $100,000,000 reduction of your full year guide. Can you quantify your maintenance CapEx? And what was taken out with this reduction?

Steven Bender
Steven Bender
CFO & EVP at Westlake

Yes. So part of that, of course, that was removed is really, as I mentioned earlier, we're looking at our operations in the epoxy arena that we took a charge for in the third quarter of twenty twenty four. As I mentioned, we're looking at actions related to our ECH and AC facilities there. So as we think about the charge that we've took in the third quarter of last year, We do expect there'll be diminished capital spending in those operations in The Netherlands, but we'll also look across the entire organization and see are there opportunities to really tighten the belt on some of our operations. So ordinary maintenance in the business runs in the neighborhood of $700 to $800,000,000 And so therefore, as I mentioned, safety and reliability would not be those areas where we would be pulling back on capital.

Turner Hinrichs
Turner Hinrichs
Analyst at Morgan Stanley

Okay. Thank you.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

You're welcome.

Operator

Thank you. And our next question is going to come from the line of Hassan Ahmed with Olympic Global Advisors. Your line is open. Please go ahead.

Hassan Ahmed
Senior Equity Analyst at Alembic Global Advisors

Good morning, Steve and Jean Marc. We've obviously over the last several quarters been hearing about a fair degree of sort of capacity rationalization happening on the ethylene polyethylene side of things. Could you comment a bit on what you guys are hearing globally on the PVC side? And part and parcel with that, what the global cost curves are looking like within PVC?

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

Yes. I mean, if you look at the PVC market, it's been an oversupplied market globally. I mean, is overcapacity certainly in Asia. It's been a market that has tended to rationalize in Europe now. As you remember, Europe used to be an exporter of PVC across the world.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

And because of raw material cost and certainly energy cost, that has stopped. So the situation is not yet completely sorted out. There is still some rationalization that needs to take place in Europe. But you also see upstream and on the ethylene side that some of the crackers that are operating in Europe are also not really profitable and you have started seeing some major producer to rationalize some of their production there. So I think there is still some ways to go.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

We are not really exposed in terms of ethylene in Europe. We are a buyer of ethylene. But we actually have seen a reduction in price in ethylene. And I think it's putting pressure certainly on ethylene producer in Europe. So I think there is still some ways to go in terms of restructuring around the world in some of these commodities.

Hassan Ahmed
Senior Equity Analyst at Alembic Global Advisors

Very helpful, very helpful. And as a follow-up, continuing with sort of the overcapacity theme, obviously, we're sort of swimming in oversupply on the epoxy side of things as well. But then there are some glimmers of hope around the whole sort of anti dumping sort of duties potentially being imposed. So where do we stand on that? And are you guys in the camp that as and when those anti dumping duties do get imposed, you could see at the very least a return to positive EBITDA there?

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

So yes, these anti I mean, dumping have been somehow been put in place in The U. S. And in Europe. I think there was an expectation in Europe that prices would start going up. We've seen a little bit of that.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

We've seen certainly a pickup, a small pickup in terms of demand. But the expectation that it's going to dramatically improve profitability, I think it's going to be a little bit difficult to achieve. As a reminder, some of the major producer, certainly out of Korea have not been impacted by some of these anti dumping and so tariffs. And so that has put a little bit of a damp on our expectations of a quick return to high profitability. I would say that the situation in The U.

Jean-Marc Gilson
Jean-Marc Gilson
President & CEO at Westlake

S. Is pretty similar. And we've seen certainly better performance in The U. S, but not to the extent where the market has changed dramatically.

Hassan Ahmed
Senior Equity Analyst at Alembic Global Advisors

Very helpful. Thank you so much.

Operator

Thank you. At this time, the Q and A session has now ended. Are there any closing remarks?

Johnathan Zoeller
Johnathan Zoeller
VP & Treasurer at Westlake Chemical Partners

Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our second quarter results.

Operator

Thank you for participating in today's Westlake Corporation first quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.

Executives
Analysts
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Key Takeaways

  • First quarter results: Reported EBITDA of $288 million on $2.8 billion of sales but a net loss of $40 million, as the PEM segment’s earnings fell $180 million year-over-year due to higher feedstock/energy costs (+$100M) and planned/unplanned outages (−$80M), while HIP delivered a resilient 20% EBITDA margin.
  • Management is accelerating cost reduction plans by raising 2025 targets to $150–175 million (with $40M achieved in Q1) and cutting capital spending 10% to $900 million to bolster cash flow amid market headwinds.
  • Operational enhancements completed in Q2 include the Petra 1 ethylene turnaround and Geismar VCM tie-ins, which are expected to improve reliability and lower costs across Westlake’s integrated chlorovinyl chain.
  • For 2025, Westlake forecasts HIP revenue and EBITDA margin at the low end of its $4.4–4.6 billion and 20–22% ranges with positive sales volume growth, while remaining prepared to adjust capital and cost structure in response to ongoing tariff and macroeconomic uncertainty.
  • Westlake highlights its integrated model, North American feedstock advantage, diverse portfolio, strong investment-grade balance sheet ($2.5 billion cash) and low-cost manufacturing culture as key differentiators through the business cycle.
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Earnings Conference Call
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