WESTLAKE CORP (WLK)·Q2 2025 Earnings Summary

Executive Summary

• Net sales were $2.953B; GAAP diluted EPS was -$1.11 due to $130M of “Identified Items” (Pernis closure and China PVC unit cessation), while EPS excluding Identified Items was -$0.09; EBITDA was $210M and $340M excluding Identified Items .
• HIP (Housing & Infrastructure Products) delivered strong sequential improvement with $1.160B sales and $275M EBITDA (24% margin), offset by PEM (Performance & Essential Materials) which saw outages, tariff-related export disruptions, and higher feedstock/energy costs; PEM EBITDA ex-Identified Items fell to $52M (3% margin) .
• Guidance: FY25 HIP revenue range lowered to $4.2–$4.4B, margin maintained at 20–22%; company capex ~$900M; cost savings target raised to $150–$175M for 2025 with a new $200M structural reduction goal by 2026; chlorovinyl production expected to normalize in Q3 as Geismar tie-ins settle .
• Versus Wall Street (S&P Global): Q2 revenue missed slightly ($2.953B vs $2.985B*), EPS missed (-$0.09 vs $0.02*), and EBITDA missed ($301M* vs $328M*); these reflect operational disruptions and cost headwinds; margins were resilient in HIP but pressured in PEM (Values retrieved from S&P Global).
• Near-term catalysts: chlorovinyls throughput recovery in Q3, execution on expanded cost-reduction plan, and continued municipal water pipe demand supporting HIP, while tariff/trade normalization and pricing nominations in PVC/PE could aid PEM .

What Went Well and What Went Wrong

What Went Well

• HIP delivered $275M EBITDA and a 24% margin on $1.160B sales; sequential HIP sales rose 16% on +14% volumes and +2% pricing; municipal water infrastructure demand drove Pipe & Fittings strength .
• Management executed cost actions: >$75M of company-wide savings achieved in H1 toward a $150–$175M FY25 target and added a new $200M structural reduction goal by 2026; CEO: “Our focus for the remainder of 2025 will be on running our plants well and reducing our controllable costs…” .
• Strategic footprint optimization: Pernis epoxy site closure positions Epoxy on a path to profitability; CFO highlighted pernicious losses >$100M/year at the site, now addressed with actions aiming for profitability in 2026 .

What Went Wrong

• PEM volumes and margins were pressured by planned turnarounds/unplanned outages (≈$110M Q2 EBITDA impact YoY), tariff-related export disruptions, and higher North American feedstock/energy costs; sequential PEM loss from operations increased .
• Company EBITDA (ex-Identified Items) fell sharply YoY to $340M vs $744M in Q2 2024, driven by PEM volume decline, higher input costs, and lower pricing in both segments; GAAP EBITDA was $210M .
• Free cash flow was -$132M in Q2, reflecting $135M operating cash flow and $267M capex; working capital swings and outage-related payable/receivable dynamics pressured cash conversion .

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “Our overall financial performance in the second quarter of 2025 reflected several headwinds, many of which we believe are transitory in nature…HIP sales of $1.2 billion were similar to the prior year period despite lower U.S. housing starts…” .
• CEO: “Our focus for the remainder of 2025 will be on running our plants well and reducing our controllable costs…we are expanding…to target an additional $200 million of cost reductions by 2026…our chlorovinyls production is returning to normal rates during the third quarter” .
• CFO: “PIM segment EBITDA of $52 million…was below 2024…due to $83 million of higher ethane and natural gas cost, a $67 million higher year over year impact from planned turnarounds and unplanned outages and a 2% decline in average sales prices” .
• CFO: “We now expect 2025 housing and infrastructure products revenue to be in the range of $4.2 billion to $4.4 billion with an EBITDA margin between 20–22%…we continue to expect total capital expenditures…approximately $900 million” .
• CEO: “Longer term, we remain very positive on the outlook for our HIP business to organically grow at a 5% to 7% compound annual growth rate” .

Q&A Highlights

• HIP margins: Management maintained 20–22% FY25 EBITDA margin despite lowering revenue guidance; seasonal strength expected in Q3; demand in municipal water infrastructure remains robust .
• Tariff dynamics: Brazil caustic exports largely insulated via duty drawback for alumina/paper exports; monitoring retaliatory risks; export disruptions affected Q2 volumes .
• Outage impact bridge: Majority of the ~$110M Q2 outage impact was planned; Q3 should still carry some residual but improving; no major H2 turnarounds expected .
• Structural cost program: New $200M reductions by 2026 are expected to be structural, broad-based across PEM footprint, and not capex-heavy .
• Pricing outlook: PVC July settled flat; August nominations at $0.03; PE nominations for July/August reflect higher ethylene costs and recovering demand; realization remains a swing factor .

Estimates Context

Values retrieved from S&P Global.
Notes: Company also reported EBITDA of $210M GAAP and $340M excluding Identified Items . EPS excluding Identified Items (-$0.09) is consistent with company’s adjusted view .

Key Takeaways for Investors

• HIP remains the earnings anchor: 24% Q2 margin and solid municipal water demand support FY25 margin resilience even as revenue guidance was trimmed; watch seasonal Q3 performance and 4Q weather-driven variability .
• PEM recovery is operationally levered: Chlorovinyls rates normalizing in Q3 post-tie-in work; reduced outage drag should lift volumes, with pricing nominations in PVC/PE a potential margin tailwind if realized .
• Cost actions are material: >$75M savings achieved in H1; $150–$175M FY25 target and new $200M structural reductions by 2026 can reset the cost base and improve cycle earnings power .
• Cash discipline: Capex guided at ~$900M; Q2 FCF was negative (-$132M) amid elevated capex and working capital; monitor H2 working capital unwinds and outage normalization for cash conversion improvement .
• Estimates likely to reset lower near term: Q2 misses on revenue/EPS/EBITDA reflect transient operational issues; as reliability improves and cost programs scale, medium-term consensus should reflect higher normalized margins, especially in PEM (Values retrieved from S&P Global).
• Strategic optionality: Management remains open to M&A (bias to HIP) and to actions to reduce net short ethylene when economically compelling; footprint optimization (Pernis closure) supports epoxy profitability in 2026 .
• Dividend continuity: Quarterly dividend raised to $0.53 (payable Sep 4) from $0.525 in Q1; underscores balance sheet flexibility amid cycle .

Appendix: Additional Source Details

• Identified Items totaled $130M (Pernis closure accrual $108M, inventory write-off $15M, Huasu PVC unit cessation $7M) in Q2; GAAP vs adjusted reconciliations provided in press release .
• Segment detail: HIP income from operations rose $74M sequentially; PEM loss from operations (ex-Identified Items) increased sequentially due to 6% volume decline and lower production levels .
• Conference call logistics and earnings release availability were announced July 22; Q2 dividend declaration Aug 8; epoxy collaboration press release June 12 .