Westlake - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 printed net sales of $2.84B, diluted EPS of $(6.06) GAAP and $(0.29) excluding identified items; EBITDA was $(431)M GAAP and $313M ex-identified items, driven by a $727M non-cash goodwill impairment in North American Chlorovinyls and $17M shutdown accruals.
• HIP remained resilient but softened sequentially (EBITDA $215M, 20% margin) on lower volumes and ~$20M period costs; PEM improved reliability but pricing headwinds (PVC export mix shift) kept EBITDA ex-items at $90M.
• Consensus vs actual: EPS missed (consensus $0.22 vs $(0.29) ex-items), revenue missed ($2.95B vs $2.84B), and EBITDA ex-items missed ($371M vs $313M) as pricing/mix offset reliability gains; 11 EPS and 13 revenue estimates were tracked by S&P Global*.
• Management lowered HIP’s 2025 guidance to the low end of prior ranges ($4.2–$4.4B sales, 20–22% EBITDA margin), reaffirmed 2025 capex ~$900M and 2025 cash interest ~$160M, and outlined 2026 self-help: $200M cost saves plus ~$100M annual loss removal from Pernis closure.

What Went Well and What Went Wrong

What Went Well

• HIP stability despite housing softness: “Our HIP segment performed very well, holding sales in line with the prior-year period” with sales $1.09B and EBITDA $215M; demand firm in siding/trim/roofing; pipe & fittings volumes supported by municipal infrastructure.
• Reliability improving in PEM: EBITDA ex-items rose sequentially ($90M vs $52M), with a $36M tailwind from better plant reliability; volumes up 1% QoQ despite 4% price decline.
• Strategic actions: Pernis shutdown to remove ~$100M annual losses beginning late 2025 into 2026; cost savings plan accelerating toward $200M in 2026 (75% in PEM).

What Went Wrong

• Large non-cash impairment: $727M goodwill impairment in North American Chlorovinyls drove GAAP losses (EPS $(6.06), EBITDA $(431)M) and PEM reported EBITDA $(654)M.
• Pricing pressure and mix: Company ASP down 2% QoQ and 5% YoY; PEM ASP −4% QoQ and −7% YoY (PVC pricing/export mix), HIP ASP roughly flat QoQ and −1% YoY with lower-margin mix.
• One-time and accounting headwinds: ~$20M period costs in HIP and estimated FIFO headwind ~$37M (≈$32M PEM, ≈$5M HIP) depressed margins; HIP EBITDA margin 20% (22% excluding these period costs/FIFO).

Transcript

Speaker 2

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation third quarter 2025 earnings conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, October 30, 2025. I would now like to turn the call over to today's host, Jeff Hawley, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Speaker 4

Thank you, Stefan. Good morning everyone and welcome to the Westlake Corporation conference call to discuss our third quarter 2025 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 our 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. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments and we'll open the call up to questions.

During the third quarter of 2025, we recorded a non-cash impairment charge of $727 million representing all of the goodwill associated with our North American chlorovinyls business unit. We also accrued expenses of $17 million related to previously announced facilities closures. We refer to these expense items, which in aggregate were $744 million, as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income, and earnings per share on this call exclude the financial impact of the identified items. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the Investor Relations section of our website.

Today, management is going to discuss certain topics that will contain forward-looking information 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-K for the year ended December 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. This morning, Westlake issued a press release with details of our third 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. Please note that information reported on this call speaks only as of today, October 30, 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 would like to turn the call over to Jean-Marc Gilson.

Speaker 3

Jean-Marc, thank you Jeff, and good morning everyone. We appreciate you joining us to discuss our third quarter 2025 results. For the third quarter of 2025, we reported EBITDA of $313 million on net sales of $2.8 billion. Compared to the second quarter of 2025, sales and EBITDA decreased as improved production and sales volume in our PEM segment was more than offset by lower sales volume in our HIP segment and PEM's lower average selling price. While North American residential construction demand has softened in 2025, HIP sales volume and total sales were comparable to those in 2024. This sales resiliency illustrates the strength of our relationships with key customers and our broad and deep portfolio as we continue to grow in this important market.

As compared to the third quarter of 2024, HIP's margin and EBITDA were negatively impacted by a sales mix shift to lower price and lower margin products as our key customers work to address the home price affordability impact felt by home buyers. In addition, HIP's EBITDA includes some period-related administrative, restructuring, and integration expenses in the third quarter of 2025 that are expected to be of a non-recurring nature. Overall, our HIP business is performing well in light of the affordability headwinds facing the new home construction market. We remain very positive on HIP's long-term growth outlook supported by the need to rebuild the North American housing stock following over a decade of underbuilding of homes, and we have continued to invest in the HIP business to accelerate our growth.

The construction of a new PVCO pipe facility in North Texas to be completed in 2026 and the recently announced acquisition of ACI are some visible examples of our commitment to HIP through these exciting growth-oriented investments. The ACI acquisition significantly expands our global compound business by introducing silicone and crosslink polyethylene compounds into our portfolio, and it also importantly widens our access to new automotive, electrical, and power markets. We expect to close the ACI acquisition in the first quarter of 2026. Turning to PEM, compared to both the prior quarter and prior year periods, our third quarter earnings and margins reflect the softer global demand for many of our PEM products, particularly PVC resins. Our improved operational performance and resulting increase in sales volume in the third quarter helped offset some of the reduction in prices resulting from the global supply demand imbalance.

This global imbalance in supply demand in the chlorovinyl chain, coupled with the challenging macroeconomic environment, has resulted in an extended trough. As a result, during the third quarter of 2025, we took a non-cash impairment charge of $727 million for all of the goodwill associated with PEM's North American chlorovinyl business. While significant, the charge represents only a small portion of our net investment in the business, and we remain positive in the outlook for chlorovinyls. We remain committed to this business as the global need for its products, which are critical to industries ranging from building materials to water to manufacturing, remains intact while the current trough continues to persist. We advanced several strategic actions to improve PEM's performance centered around three key pillars. Number one, improve plant reliability to lower unit production cost. This pillar is beginning to show results in the third quarter. Two, reduce cost.

We are on track to achieve our $100 million to $175 million of company-wide structural cost reduction in 2025, and we are taking further actions to achieve another $200 million of structural cost reduction in 2026. Approximately 75% of these cost reductions are attributable to the PEM segment, and these cost reductions will lower PEM's cost and improve our global competitiveness.

Speaker 1

3.

Speaker 3

optimize our manufacturing footprint, we have taken strategic actions to close facilities such as Pernis in the Netherlands and our Wusu PVC resin facility in China. We will take other appropriate asset optimization actions to improve our financial performance as needed. Our relentless focus on these three pillars demonstrates Westlake's continued efforts to adjust our cost structure in response to changing global macroeconomic conditions. Advancing these strategic actions in the coming months is a critical driver to improve our cost and return our PEM segment to levels of profitability that provide an appropriate return on investment. To summarize the third quarter, our HIP businesses continue to perform well and provide a very valuable platform of earnings stability.

While profitability in our PEM segment is challenged by the ongoing trough, we believe our determined drive to deliver on the elements of this three pillar strategy will return PEM to profitability, improve the competitiveness of our assets, and deliver the financial performance we expect. I would now like to turn our call over to Steve to provide more detail on our financial results for the third quarter of 2025.

Speaker 1

Steve, thank you, Jean-Marc, and good morning, everyone. As a reminder, my comments regarding the income from operations, EBITDA, net income, and earnings per share all exclude the financial impact of the identified items. Westlake reported a loss of $38 million, or $0.29 per share, in the third quarter on sales of $2.8 billion. The loss in the third quarter of 2025 was $26 million higher than the second quarter of 2025, primarily due to lower average sales price, primarily in PVC resin. In our PEM segment, the challenging global macroeconomic environment and imbalance in supply and demand for many of PEM's products has resulted in an extended trough. As a result, during the third quarter of 2025, we took a non-cash impairment charge of $727 million for all of the goodwill associated with PEM's North American core Vinyls business.

While this impairment reflects the near-term challenges the North American core Vinyls business faces, we believe the cost reduction actions we are taking, combined with the improved plant reliability, will turn this business to levels of profitability that it is capable of generating for the third quarter of 2025. Our utilization of the FIFO method of accounting resulted in an unfavorable pre-tax impact of $37 million compared to what earnings would have been if we had reported on the LIFO method. This is only an estimate and has not been audited at a segment level. Approximately $32 million of the unfavorable impact was at PEM, and the remaining $5 million unfavorable FIFO impact was at HIP. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter.

Our HIP segment performed well, holding sales in line year over year despite the slowdown in North American residential construction activity, which highlights our important market position with our key customers, supported by our coast-to-coast market coverage in a wide range of product offerings. While sales were in line with prior year levels, HIP's margins and earnings during the quarter were impacted by unfavorable changes in sales mix and several period-related expenses. Meanwhile, our PEM segment sales volumes benefited from improved plant reliability compared to the second quarter of 2025. However, average sales prices decreased 4% quarter over quarter, which more than offset the impact of the improved sales volumes on segment earnings. Moving to the specifics of our segment performance, our HIP segment delivered EBITDA of $215 million on $1.1 billion of sales.

When compared to the second quarter of 2025, HIP segment sales volumes were 6% lower, particularly for pipe and fittings, which had exceptionally strong sales volumes in the second quarter that may have reflected some pull forward of demand. Sales volumes for global compounds also declined sequentially, driven by slower industrial and manufacturing activity. Meanwhile, demand for siding and trim and roof remained firm. Average sales price for HIP was unchanged sequentially. Lower sales volume combined with the $20 million period-related expense items and the $5 million FIFO impact that I previously mentioned drove a decline in HIP's EBITDA margin to 20%. Adjusting for the period-weighted expenses and the FIFO impact, HIP's EBITDA margin in the third quarter of 2025 would have been 22% compared to 24% in each of the second quarter of 2025 and the third quarter of 2024.

Looking at HIP's results on a year-over-year basis, when compared to the third quarter of 2024, HIP's sales fell less than 1% as a 0.5% increase in sales volumes was offset by a 1% decline in average sales price. The year-over-year increase in sales volume, despite the challenging backdrop for North American residential construction, was driven by a solid double-digit sales volume growth in pipe and fittings, and on a year-to-date basis through the end of the third quarter, pipe and fittings sales volumes have grown nearly 10% as compared to the first three quarters of 2024. Thus, our pipe and fittings business continues to perform very well with a solid outlook for growth supported by municipal water infrastructure investments and U.S. government funding coming from the infrastructure bill.

To summarize HIP's results, the business continues to perform well in the face of the affordability issues surrounding residential construction, and we continue to be pleased with the stability and profitability this business delivers. We continue to view HIP as a vehicle for inorganic growth as demonstrated by the recent announcement to acquire ACI's global compound solutions business. ACI brings important technologies and market access, particularly with global automotive manufacturers. We believe that this acquisition will greatly expand the breadth of our product offering and the market reach for global compounds business, expanding our sales and earnings growth. Turning to our PEM segment, third quarter sales of $1.7 billion fell by $46 million from the second quarter of 2025, driven by a 4% decline in average sales price that more than offset a 1% increase in sales volume.

The decline in average sales price was the result of broadly lower core vinyl prices, primarily for PVC resin, and a shift in our sales mix toward export markets where selling prices tend to be lower. Improved reliability and our global competitive feedstock and energy position in North America drove a 1% sequential increase in sales volume, resulting in a $38 million increase in EBITDA compared to the second quarter of 2025. On a year-over-year basis, PEM's third quarter sales of $1.7 billion were 13% lower, driven by a 7% decline in average sales price and a 6% decline in sales volumes. As Jean-Marc Gilson discussed, the continued softness in global manufacturing and industrial demand combined with low-priced Asian sales in the global marketplace have pressured pricing for many of PEM's products, particularly PVC resin.

The lower year-over-year average sales price combined with lower sales volume drove a decline in PEM's EBITDA to $90 million in the third quarter of 2025 compared to $297 million in the third quarter of 2024. As Jean-Marc Gilson mentioned, we remain confident in our ability to improve PEM results and deliver meaningful profitability improvement in our PEM segment. Shifting to our balance sheet, as of September 30, 2025, cash and investments were $2.1 billion and total debt was $4.7 billion with a staggered fixed rate maturity schedule for the third quarter of 2025. Net income provided by operating activities was $182 million while capital expenditures were $239 million. We continue to look for opportunities to strategically deploy our balance sheet in order to create long-term value. Now let me provide some guidance for your models.

We continue to expect Housing and Infrastructure Products revenue to be in the range of $4.2 to $4.4 billion with an EBITDA margin between 20% and 22% for 2025. However, given lower North American residential construction activity and the $20 million of period-related cost incurred in the third quarter, we now expect to be towards the lower end of each of these ranges. We continue to expect total capital expenditures for Westlake in 2025 to be approximately $900 million. Through the end of the third quarter, we achieved approximately $115 million toward our 2025 company-wide structural savings target of $150 million to $175 million, and we are driving actions now to take an additional $200 million of structural cost reductions by 2026 as part of our PEM Profitability Improvement Strategy. For the full year of 2025, we expect cash interest expense to be approximately $160 million.

Now I'd like to turn the call back over to Jean-Marc to provide some thoughts on actions the business is now taking to grow earnings in 2026 and beyond.

Speaker 3

Jean-Marc, thank you, Steve. Looking forward, we are taking proactive steps to improve our financial performance. Our HIP segment will continue to execute its successful strategy utilizing three key levers. First, winning with the winners. As we demonstrated this year, even in a slower market, the value of our brands and our broad national footprint delivers significant value for HIP's customers. As a supplier of choice to building product distributors and large national home builders, we expect to generate long-term organic sales growth of 5% to 7% per annum. Second, new product innovation. Our HIP business continues to commercialize breakthrough new technologies that create value for our customers, such as our PVCO pipe products. This advanced molecular oriented PVC pipe was introduced in 2021 and has experienced solid customer adoption by delivering water solutions with 40% less PVC.

Construction on our new PVCO plant in North Texas continues with an expected startup in the latter part of 2026 to meet growing customer demand. Third, acquisitions. HIP has demonstrated a proven track record of accretive acquisitions. Our HIP businesses compete in relatively fragmented industries with significant opportunities for both bolt-on and strategic acquisitions. We see significant opportunities to leverage our sales and distribution platforms that are currently in place to create synergies and drive earnings growth. Shifting to PEM, our drive to return this segment to profitability revolves around our three-pillar profitability improvement strategy, which I have already detailed and which is well underway. While we are optimistic that global demand growth for PEM's product will improve, we are squarely focused on actions within our control while the global supply and demand picture improves.

This includes improving the reliability of our plants so that we can predictably serve our customers. As a reminder, in 2025, PEM's EBITDA was negatively impacted by approximately $200 million from operating issues. We also have identified significant operational cost savings as part of our company-wide $200 million cost savings target for 2026. Finally, strategic asset optimization actions that we have already taken, such as the Pernis shutdown, are expected to generate over $100 million a year in additional savings starting next year. As we progress into 2026, we will continue to optimize our network and take action when and where necessary to drive improved profitability at our PEM segment. Before I open the call to your questions, I want to close by highlighting Westlake's foundational strengths, which continue to serve us well.

These strengths include a diversified and complementary portfolio of businesses, a vertically integrated business model, a globally advantaged feedstock and energy position in the U.S., and our investment grade rated balance sheet with $2.1 billion of cash and securities. As we end 2025 and transition into 2026, we will continue to capitalize on these strengths to create value for our shareholders. Thank you very much for listening to our third quarter earnings call. I will now turn the call back over to Jeff.

Speaker 1

Jeff.

Speaker 4

Thank you, John. Mark, 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. Steven, we will now take questions.

Speaker 2

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by for our first question. Our first question comes from the line of David Bigelider of Deutsche Bank. Your line is now open.

Speaker 1

Thank you.

Speaker 4

Good morning, Jean-Marc, we've seen in polyethylene an increasingly weakening spot market. How will that affect your earnings in the fourth quarter? What does that mean, if anything, for the October price increase you have out there for polyethylene? Thank you.

Speaker 3

Yeah, thank you for the question. No, you're right. We are seeing, I would say, a little bit of a weakening in polyethylene prices. At the same time, ethane is still staying in the mid-$0.20s in terms of price, and this is certainly putting pressure on our ethylene margins. There is plenty of supply in the polyethylene segments. We have a very good position, very good operating efficiency in the quarter. We're expecting the same over the next quarter. We will do our best to gather and create as much value as we can in that segment. Overall, it's been tough, but I would say relatively stable in the polyethylene segments. As you expect, the last quarter is always subject also to some seasonality, and that's probably what we're going to see in conjunction with a stable to a little bit lower prices in the last quarter.

That's what we expect getting into the last quarter.

Speaker 4

Given the pressures you're seeing in the commodity chemical space, are you, the board, still committed to this current portfolio construct with a building products business, with a petrochemical business, or is there a thinking that perhaps these businesses somewhere down the road are best served being separated?

Thank you.

Yeah, certainly we are looking at various combinations of business. We believe in the strength of two businesses being together. As we know that our PVC business is a major supplier to our HIP business in North America, and we believe that with the balance of supply and demand globally improving over the next few years, with our cost restructuring, our PVC vinyl business in the U.S. will be much better positioned to serve our customers both domestically and overseas. As we see interest rates coming down, it will certainly help the housing construction business in the U.S., which will also improve our HIP business as well as our PVC business. We believe that there are synergies being together, but we understand from the valuation of the chemical and construction building material business, they are different. We are hoping that the market.

Speaker 1

Can see some of the parts.

Speaker 4

We'll evaluate options as we go.

Thank you.

You're welcome.

Speaker 1

Thank.

Speaker 2

You. Our next question comes from the line of Frank Mitsch of Fermium Research. Your line is now open.

Speaker 4

Hey, good morning and thank you. You know, you discussed some of the weakness in the polyethylene markets. PVC hasn't exactly been covering itself in glory. What is your, you know, what is your near and midterm outlook on the PVC side of things? What will it take to get it back on track?

Speaker 3

Yeah, thank you for the question. I will start and then we'll hand it over to Steve. The forecast for—you're right, I mean the chlorovinyl chain is being challenged this year with prices.

Speaker 1

Going down.

Speaker 3

We are taking efforts on the cost side to make sure that we are in a position to compete even at these low prices. That is why we have started additional cost savings on top of previous ones. We are hopeful that we will get back into a position where we will deliver acceptable financial returns in that segment in a not too distant future.

Speaker 1

Just to add on, Frank, as Jean-Marc was noting, big focus and actions being taken now for cost reductions, improving reliability. We're already seeing those results in the third quarter. Here we are well into the fourth quarter already seeing improved operating reliability, which allows us to reduce that unit cost. Big efforts on that front. Admittedly, it may take some further supply reductions in the marketplace. Frankly, as you think about what is happening already and been announced in the European market, you've already seen reductions in core alkali announcements, both in core alkali as well as in PVC. I think some of those higher cost players have already begun to take actions to address the oversupply and high cost positions.

Speaker 4

Thank you so much. Steve, if I could follow up on the ACI acquisition. You noted in the release what the sales were in 2024. I was wondering if you might be able to give us an idea what transpired in 2025. Are we looking at HIP margin type of business? Anything on DNA.

As we look at.

Model 2026 with the ACI acquisition built into the company?

Speaker 1

Yeah. Frank, good question. The ACI business is very strong and it's a global compounding business in that crosslink, polyethylene and silicone business. It does have good margins in that business. Of course, compounding businesses don't tend to have very high end ranges of margins, but I would say the range that you're seeing in our HIP segment are reflective of what I would expect to be delivered as we integrate ACI into our business. We think we have compelling synergies with our existing compounds business that is already a global business. I do expect the margins that you see in our HIP segment should be reflective of what we achieve once we get these synergies achieved in the ACI acquisition.

Speaker 2

Thank you.

Speaker 1

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Aleksey Yefremov of KeyBanc Capital Markets. Your line is now open.

Speaker 1

Thanks. Good morning everyone. I was hoping you could just discuss further in detail the sources of this revision to your HIP guidance, how it affects your maybe initial views of 2026 for the HIP segment. I'm sorry, Aleksey, could I get you to say that again? You were a little faint as you were asking that question.

Speaker 3

Apologies.

Speaker 1

I was just asking why the new HIP guidance is lower. What product lines or what was the reason behind it? Any initial thoughts on HIP in 2026? Thank you. I'm sorry, your question initially was a little faint. Thank you for that question. I'd say that with the shifting in product mix that we saw occurred in the third quarter, addressing affordability bonds many of our customers, we saw a shift from the mix of products in that space. As we think about the period related cost we had in the third quarter, it also had an impact in the overall 2025 guidance that we have provided. I think a lot of those costs that we had that were period related are largely non-recurring in nature. As we think about the outlook for 2026, our guidance for construction activities is similar to what we've seen in 2025.

If you listen to some of the conversations that are occurring publicly with some of our larger home builders nationwide, they're guiding to some of our levels of construction activity and we are believing to work very closely with those home building construction companies. I think our expectation is while we see rates likely to continue to drift further down on the short end of the curve, I do expect that the longer end of the curve will drift lower. We do expect there will be more activity in the construction level in 2026. I would still say we expect the range of construction activity to be 1.3 to 1.4 million housing starts, frankly, very similar to 2025. Remember, only half of our HIP business is new construction. I want to remind you that the other half is repair and remodeling.

The repair and remodeling business has continued to perform very well. This is why we think that we'll continue to see good continuing performance in 2026. Thanks, Steve. Was hoping to get some color on caustic soda market, domestic and export.

Speaker 4

What is your view for the rest of the year?

Speaker 1

I'd say the market in caustic is well supplied. We expect that as we look forward into the market. While the consultants have some indication of price momentum, I would expect that pricing in the market remain relatively stable at this stage. I think the market is well supplied. I would say the same is true on the chlorine side as well.

Speaker 2

Okay, thank you. Our next question comes from the line of Patrick Cunningham of Citi. The line is now open.

Speaker 1

Hi, good morning.

Speaker 4

Maybe just a follow-up on ACI, more of a general question. Are you seeing more opportunities on the PVC compounding or other sort of material side relative to the building product space, just given where the difference in valuations is? If you could just comment on what the pipeline in general looks like.

Speaker 1

Yeah, I'd say, Patrick, that there are opportunities that we see in expanding the footprint of HIP both in product offering and ranges, whether they're in the compounding sector or our pipe and fittings businesses or our exterior building products business, the Royal business. I'd say there's ongoing good dialogue that we have with parties who may choose to monetize some of those assets. It's always a function of how does that fit into our business and the associated synergies. I'd say there's really good opportunity as we look forward, but we're always looking for those synergistic fits into our overall portfolio. Understood.

Speaker 4

Maybe just on the quarter, on quarter sequential weakness on PVC. You mentioned a shift to export markets. Is this sort of a reversion back to your normal level of exports given the better operating rates, or is there something abnormal here in terms of higher split towards export markets?

Speaker 1

I think the industry has historically exported PVC resin in the 40% of production. Our shift back to some exports was simply improving reliability over the course of the third quarter. I think going back, as you may recall, our historic levels of exports are below that industry average of 40% or so. We're in the mid-30% to low-30% on an average basis. Simply just improving reliability, improving production, and putting some of that extra production back into historic market levels as we have in the past. Great.

Speaker 4

Thank you so much.

Speaker 1

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of John Roberts of Mizuho. Your line is now open. Thank you.

Speaker 1

Did you get an opportunity to bid for the OxyChem business, or was the antitrust there just even too far for you?

Speaker 4

This administration and something Oxy maybe didn't.

Speaker 1

I cannot obviously speak to transactions that we consider. It's a large transaction and we are a very large player in this space. We do have to be mindful that there could be regulatory issues around such a transaction. I would say that we're constantly looking for good opportunities, certainly whether it be in the HIP side of our business or on the PEM side of the business. There's always opportunities that we look to, to see if there's real synergy, value, and real opportunities to grow the business in a value-added way. Thank you. You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Hassan Ahmed of Alembic Global Advisors. Your line is now open.

Morning, John, Mark and Steve. In your prepared remarks you talked a fair bit about sort of cost savings and asset optimization and the like. Just trying to get a better sense of a bridge to 2026 EBITDA wise. It seems you guys will get $200 million in cost savings in 2026, an incremental $100 million from the footprint optimization. If I heard correctly, you had operational issues in PEM accounting for around $200 million in 2025, which won't be there in 2026, and obviously some accretion from the acquisition. Is it fair to assume that, via self help and these things that I just laid out, on a year over year basis, all else equal, EBITDA next year would be $500 million higher than this year?

Speaker 1

Yeah, no, as I think, as you think about the pillars that Jean-Marc spoke to and the efforts that we have underway for cost reduction, improved reliability, and asset optimization, I think you've outlined well the guidance that we're trying to speak to in terms of the actions in Pernis, the cost reduction initiatives, and the opportunity to improve reliability. When you think of the reliability challenges, the unplanned outage we had this year, a higher level of planned turnarounds in 2025, but also a number of unplanned outages as well as we think about 2026, of course there are going to be some planned turnarounds and of course there could be some unplanned outages. I think you've outlined the direction that we're moving to improve reliability, reduce our cost, and really act on opportunities to rationalize assets that are not performing well, to really improve the bottom line.

I think you kind of framed the thinking that we have. Fair enough.

As a follow up, kind of linking a couple of the past questions together, this $727 million impairment associated with the PEM segment, how should we think about that in light of some of the valuation data points provided by the Oxychem deal? Obviously, that says something about the fundamentals there. Berkshire coming in and maybe scooping these assets up at the bottom of the cycle. How does that fit into this impairment you guys took? Again, going back to one of the earlier questions, just potentially thinking about the overall portfolio, is there some sort of valuation leakage with the way the business is set up today?

The impairment is a mechanical process that one has to undertake on an ongoing basis. When you think about the extended trough that we've seen in the core vinyls business, it was clear to us that that impairment was necessary to be taken. I think you saw from our prepared remarks that we see the business really in a condition to continue to see good demand over the medium to long term. We think it really positions the business to continue to return a very solid return on assets as we go forward. The positioning that we have, we think, is well positioned to capture that value medium to long term. Clearly, we're in these trough conditions today and those trough conditions really are the drivers behind that impairment. That is really just a mechanical process that one has to undertake on a regular basis.

Nevertheless, we think the investment that we've made is well positioned and will continue to really reap the benefits of this investment over time. That's not to say that we won't make sure all assets are performing well as they should. If they don't, we'll assess where the right value proposition sits.

Very helpful. Steve, thank you so much.

Welcome.

Speaker 2

Thank you. Our next question comes from the line of Josh Spector of UBS. Your line is now open.

Speaker 1

Yeah, good morning. I just wanted to ask around the $20 million of period related expenses in HIP. Can you tell us what exactly that was and is that really a one quarter cost or is that something that maybe lingers for a few more quarters? No, I called these out as period related because they really are administrative and transition and integration related. They really are non-recurring in the nature of those items, which is why I call them out as period related. Would you expect more integration costs in the fourth quarter? Are these numbers included in that $200 million reliability bucket you've called out or is this entirely separate? I do not see those at this stage in the fourth quarter and I don't see those as likely to be near term repeating. Okay. Thank you.

Speaker 4

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Matthew Blair of Bank of America. Your line is now open.

Speaker 1

Thanks. How are you thinking about operating rates in polyethylene? Because it feels like the industry is running a bit, I guess, how should I say this? If the industry does run hot, it feels like product starts to back up domestically.

Speaker 4

I think we saw that in July and August.

Speaker 1

I don't know if I'm extrapolating too much off of shorter duration or shorter, fewer data points. What's your perception there? How do you think about your own utilization rates as you think about operating rates? We recognize that operating these plants to service our customers is important, but at the same time, we're going to be operating these facilities in a manner that creates real value. If those operating rates are hovering today for the industry in the mid-80% to low-80% range, we certainly had some planned plant maintenance we undertook in the third quarter. I would expect that our operating rates for the year will be slightly lower than the industry average. As we think about our polyethylene assets, we'll continue to make sure the operating rates reflect the value add that we see in the marketplace. If we need to adjust those operating rates accordingly, we will.

Thanks.

Speaker 4

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Duffy Fisher of Goldman Sachs. Your line is now open.

Speaker 1

Yeah.

Speaker 4

Good morning, guys.

Speaker 3

If you back into the number for.

Speaker 4

HIP, you know, just with what you've given us, because we've got the year at the low end at the front and the 20%, you get a little under $150 million, which is down 20% year on year, roughly equal to Q3, which was down about 20%. You don't have the period cost you just said. How should we think about that back half number basically being a base to grow into 2026? It seems like HIP numbers should be down next year, just given how low we are in the back half relative to the year. Any guidance on that would be helpful.

Speaker 1

Yeah. Duffy, we see the seasonal construction period begin to slow in Q4. If you think about the new construction activity that typically occurs in the fourth quarter, it tends to be slower. As we look forward, I just want to remind you that half of our HIP business is repair and remodeling, so it's not entirely tied to the new construction markets that we see the nationwide builders dealing with at this stage. We still remain very constructive in our outlook for 2026 in terms of how we see the HIP business continuing to perform. There, of course, is seasonality in the first quarter and in the fourth quarter. As we look at the fourth quarter that we're in today, going into the early stages of first quarter, there is naturally seasonality.

This is why we're guiding not only to the lower end of this range for the period related expenses we had in third quarter, but also of the slowing that we typically see in the fourth quarter. As we look forward into 2026, recognizing that half our business is new construction, the other half is repair and remodeling, we still remain relatively constructive in our outlook. That constructive outlook is really tied to the dialogue that we're having with these nationwide builders who, while they are working down their completed and unsold inventory, still seem to be moving forward with their construction plans.

Speaker 2

Fair enough.

Speaker 4

If I could just go back to the write down in the PEM section, chlorovinyls. Obviously, everything has to be forward looking, right? The fact we've been in a long trough, it's not a backward looking write down, it's your expectations going forward. What's changed, I guess, kind of in your 10-year outlook for chlorovinyls and how much of the hit is downstream and how much of the hit would be at the chloralkali level?

Thank you.

Speaker 1

Yeah, this was of course, just really on a chlor alkali base. As we think about the discounted cash flows that one has to run for the assessment of goodwill impairment, you can recognize that the extended trough we have triggered that impairment. When we think about the fact there was no impairment of the assets themselves, it signals really the fact that we believe that this business continues to perform and will perform well in the medium to long term. It's just the extended nature of this trough really in the core vinyls business. Great.

Speaker 4

Thank you, guys.

Speaker 1

Welcome.

Speaker 2

Thank you. Our next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open.

Speaker 1

Hey, good morning, this is Turner Hinrichs on for Vincent. I wanted to level set a little bit for your comments on outages. You all mentioned earlier, of course, the issues constituting around $200 million impact this year. You also had the Petro One turnaround, I believe, in addition to that, $80 million. In the absence of unplanned outages, how are you all thinking about maintenance costs next year relative to this year? Is that the right way of framing it? Yeah, as I say, 2025 was a much heavier year for planned outages, planned turnarounds. As I think about 2026, we don't have an ethylene cracker planned outage for turnaround. We only have some of the smaller units, and those occur on a pretty regular basis every two to three years, whether they are PVC or chlor alkali or polyethylene assets, which typically turn every two to three years.

The relative maintenance expense for turnarounds in 2026 should be much lower than they were in 2025. Okay, thanks. I think that answers the question. How are you thinking about, if you can provide any color on this, go forward CapEx? Specifically, if the market environment remains relatively similar next year to this year, is it safe to assume that CapEx might still be in the $900 million range or perhaps a billion dollar range? Yeah, we're continuing to finalize our budget plans for 2026, but I would say that I would expect it to be similar in relative size.

Speaker 2

Great.

Speaker 1

Thanks so much. You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Pete Osterland of Truist Securities. Your line is now open.

Speaker 4

Hey, good morning. Thanks for taking the questions. Within PEM, you had a $36 million tailwind from improved plant reliability in the third quarter. Do you expect this to be a sequential tailwind in the fourth quarter as well? What is a reasonable amount to expect to? Could it be another $35 million or so?

Speaker 1

While we have seen some improved reliability, I would expect that we'll continue to see improved reliability in the fourth quarter. The amount of that reliability dollar wise is really attributable to the assumptions that you might have on pricing. I have to refer back to you in terms of what your assumptions are for pricing in the model. We are seeing improved reliability in Q3 and in Q4. I do expect a tailwind, but the quantification of that is really a function of what pricing assumption you might have in your models. Got it. Thanks.

Speaker 4

I also just wanted to follow up on your plans for the $200 million of cost saves in 2026. Could you share the cadence you expect throughout the year for actioning those cost savings? I guess how much of that $200 million do you expect will actually be realized in 2026 EBITDA relative to 2025?

Speaker 1

I do expect actions, I do expect those all to be pocketed in 2026. Actions actually are underway now. Whether these are actions that relate to supply chain, to feedstock, to a wide range of what I would say are structural costs that are coming out of the business, we'll begin to provide a little bit more color in 2026 as we get into the actions in terms of the cadence. I do fully expect to pocket that $200 million in 2026 because actions clearly are underway, well defined, and well actioned at this stage and beginning to materialize in 2026. Of course, we have actions underway for 2025 as well. As I mentioned, we've had $115 million achieved toward our $151 million, $75 million target in 2025.

We expect that we are moving forward and many of these leverage the actions in 2025 that will continue to be additive in 2026.

Speaker 4

Thanks a lot.

Speaker 1

You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Matthew Blair of TPH. Your line is now open.

Speaker 1

Great.

Speaker 4

Thank you and good morning. You mentioned a few times the affordability issues in the U.S. housing market. How are you responding here? Are you introducing more low cost products? Are you changing the raw materials on any of your existing products? Maybe this doesn't warrant a change in strategy from you, but could you discuss that?

Speaker 1

When you think about our HIP businesses, we do have the range of good, better, best range of products, and that allows us to be able to address the affordability issues that some of the builders may have as they think about trying to address the affordability issues of homes. I spoke earlier about some of the product mix shift that we saw in Q3, and that's part of the reasoning behind some of that product mix shift, moving products from maybe good, better, best to be able to address the affordability issues that we see builders approaching us and discussing. Sounds good. Could you also discuss why.

Speaker 4

You re-upped the ethylene supply agreement with the MLP? Does this raise costs at a time when margin, when the industry is in a tough spot, or is it the general idea to just preserve your optionality in case the MLP equity markets ever come back?

Speaker 1

Thank you. Good question. We continue to see, I think, good value in the partnership in its position today. The extension of this agreement is actually very much as was originally envisioned back in 2014 when we constructed the partnership and launched that into the marketplace. It was designed to have an ability to extend that contract yearly, year after year, as the end of that 12-year contract expires, which is the end of 2026. Renewing that contract or moving forward with that is reflective of the original construct of that ethylene sales agreement that was originally put in place in 2014. If you look at the way the contract for the ethylene sales agreement is constructed today, actually we're very close to that $0.10 margin already. There's really no give up on either side of the equation.

The C Corp as well as the partnership are getting, in effect, market pricing in today's market. If you look at cash margin, that's really not how the agreement is structured. It's really on a fully loaded basis. That's really where the market is today. That's why both the C Corp and the partnership have agreed to extend this contract. Great. Thank you. You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Arun Viswanathan of RBC Capital Markets. Your line is now open.

Speaker 1

Arun, thanks for the time. There you are.

Speaker 4

Sorry about that, guys. Thanks for the question.

Speaker 1

I guess just going back to caustic soda, you noted that caustic soda is well supplied and you don't expect a price increase.

Speaker 4

I don't know if that's what you said, but I guess I was under the impression that maybe there was a.

Speaker 1

$50 increase announced, and you could get.

Speaker 4

Maybe 20 of that in the coming months. Maybe you can just elaborate on what you're seeing there in caustic soda.

Speaker 1

Thanks. Yeah. Arun, as I said, the market is well supplied. If you look at where the consultants are with their forecast for prices, they do have nominated in their forecast price increases. This is the time of year where you see a curtailment of chlorine production as we reach a slowing season in construction, which impacts PVC slowing just because of the seasonality. There is normally a slowdown in the production of chlorine and therefore caustic soda production, which is the basis behind their driver for the price increase. Whether it be one consultant or another, they have roughly $25 a ton in their forecast. Certainly, my comment really was that the market simply is well supplied. To the extent there are opportunities to improve pricing, we'll certainly act on those.

Speaker 2

All right, thank you. Our next question comes from the line of Kevin McCarthy, Vertical Research Partners. Your line is now open.

Speaker 3

Yes, thank you.

Speaker 1

Good morning. With epoxy resins having been removed from Annex 2, would you provide an update on how you see that market unfolding over the next several quarters? Yeah, Kevin, with our shuttering of the Pernis facility in Europe and our ability to source feedstocks, both LER and BPA, in a very cost-effective manner, our downstream businesses are beginning to perform much better with that lower cost input feedstock. Our European, North American, and Asian businesses in epoxy are expected to continue to perform well. The challenge we had in our epoxy business simply was the fact that we had higher cost of production in Europe. As we see the market today, I see some improvement in overall epoxy pricing.

I'd say our focus these days is very much in the downstream formulated aspects of the epoxy business that we have in Europe, in the Americas, as well as in Asia. As a follow-up or clarification, when exactly will the $100 million of goodness related to the Pernis closure begin to flow through? Does that happen in the first quarter or how would you characterize that? Yeah, the losses that we were incurring there, the plant has been shuttered and we're in the process of bringing the unit down or brought the unit down safely in the third quarter. The benefits that we're beginning to see are beginning to accrue in Q4 and forward into 2026. Of course, there'll be some severance cost and such that you'll see flow through, but the benefit that we're seeing to the bottom line will begin to come through in Q4 and into 2026.

Very good. Thanks very much. You're welcome.

Speaker 2

Thank you. Our next question comes from the line of Michael Sison of Wells Fargo. Your line is now open.

Speaker 1

Hey, guys, just curious. I think I understand some of the pluses for 2026, but if demand stays in the trough, which a lot of companies have said they haven't seen evidence that we're going to pick back up anytime soon. You noted polyethylene, PVC, caustic, chlorine are both oversupplied. It feels like feedstock costs could go higher. Do you think margins, industry margins for PEM could go lower in 2026, given that scenario? It's really hard to make that call, Mike, when you think about the market that we see today, the outlook we see, and I'm looking at outlooks from the consultants on pricing, price remains fairly stable. If you look at the average price as one of the better known consultants for 2025 and compare that to their forecast for 2026, it's basically flat for the course of 2026 versus the year 2025.

Certainly we have, and Jean-Marc made comment about this, our feedstock costs have certainly risen, and you're seeing some higher costs for ethane, and there could be some further compression. Of course, that ethane is going into derivatives downstream. If those derivatives downstream can't support that higher feedstock, then higher prices may not fully materialize in ethane. I would say as we look forward, we're certainly looking at our customer demand picture and also looking at what our customers are saying and how we operate the business. I would say the consultants suggest that prices should be relatively flat from 2025 to 2026 in the core vinyls business.

Speaker 2

Great.

Speaker 1

Thank you. You're welcome.

Speaker 2

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

Speaker 1

Yes.

Speaker 4

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

Speaker 2

Thank you for participating in today's Westlake Corporation third 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.