WESTLAKE CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• During the fourth quarter of 2024, both segments saw year-over-year sales volume and EBITDA growth. HIP had a 7% growth in sales volume driven by demand for pipe and fittings, siding and trim. PEM's volume grew 1% due to export market demand and higher polyethylene production.
• HIP segment achieved record income from operations and EBITDA margin in 2024, with sales volume growth of 8%. Began construction on a new PVCO manufacturing plant in Wichita Falls, Texas. Returned approximately $325 million to shareholders through dividends and share repurchases. Finished 2024 with a solid investment-grade rated balance sheet with $2.9 billion of cash and cash equivalents.
• Took decisive action in reducing structural costs, with $50 million in cost savings in the fourth quarter of 2024, bringing total cost savings for the year to $170 million, exceeding the target.

Segment Performance

• HIP Segment: In 2024, HIP achieved record income from operations of $807 million and a record EBITDA margin of 24%, driven by 8% sales volume growth. HIP's EBITDA in 2024 was $1.1 billion, contributing 85% of the total segment's operating income. In the fourth quarter of 2024, HIP sales rose year-over-year with a 7% increase in sales volume, and its EBITDA margin improved compared to the prior year period.
• PEM Segment: Fourth quarter EBITDA of PEM was $416 million, an increase of $26 million from the fourth quarter of 2023. Volume grew 1% year-over-year driven by export demand and increased production. Full-year 2024 EBITDA of PEM was lower than 2023 due to lower global sales prices and margins from weaker demand and maintenance outages.

Guidance

• Housing industry consultants forecast housing starts for 2025 will be similar to 2024 at 1.3 million. HIP segment expects revenue between $4.4 billion and $4.6 billion with an EBITDA margin of 20% to 22% in 2025.
• Expect to deliver $125 million to $150 million in cost reductions in 2025. Effective tax rate for 2025 is expected to be approximately 23%, and cash interest expense is expected to be approximately $160 million. Total CapEx spend is expected to be similar to depreciation run rate, including a planned turnaround at the PetroOne ethylene unit.
• HIP's sales volumes growth continues to look solid ahead of the spring building season.

Risks

• Global macroeconomic uncertainties overhanging demand growth in 2025.
• Potential impact of tariffs and retaliatory tariffs on US exports, as seen with product flow shifts in the past.
• Louisiana tax law changes and their potential economic impact, though discussions are ongoing to mitigate it.

Question and Answer Q: On the HIP margins, how to think about the dynamics behind the expected margin degradation in 2025?

A: Steve Bender mentioned it's more of a product mix shift expected, with a slight change in product mix having an impact on margin.

Q: On the $125 million to $150 million of cost cuts in 2025, how is the mix playing out by division?

A: Steve Bender said there will be continued efforts in both businesses, with areas like logistics and procurement being big contributors.

Q: On PEM, bridge from Q4 to Q1 given FIFO impacts and PetroOne outage?

A: Steve Bender said there were headwinds in feedstocks and pricing at the end of 2024, with price nominations in product portfolio offerings to address demand and input cost pressures.

Q: On epoxy performance in Q4 and expectations for first half of 2025?

A: Steve Bender said the business continues to see improvement, with trends expected to improve into 2025 though full recovery not expected until beyond 2025.

Q: On volume and price change for the year?

A: Steve Bender said PEM had about 6% volume improvement year-on-year and HIP had 8% volume improvement, while price was down 12% in PEM and 6% in HIP.

Q: On relative priority of reducing net short position in ethylene versus potential M&A on the HIP side?

A: Steve Bender said it's about the value proposition, with acquiring additional ethylene considered in the same context as M&A, and debottlenecking the cracker JV being a possible route to consider with refreshed capital estimates.