Westlake Corporation Q3 FY2025 earnings call

• HIP: Performed well despite residential construction challenges, with organic sales growth expected 5%-7% annually, new product innovation like PVCO pipe, and potential accretive acquisitions. Construction of a new PVCO plant in North Texas is ongoing with expected start-up in late 2026. - PEM: Faced soft global demand for products like PVC resins, took a goodwill impairment charge. Implemented 3 pillars to improve performance: improve plant reliability, reduce costs (on track for $150M-$175M in 2025 and aiming for $200M in 2026, ~75% from PEM), and optimize manufacturing footprint (e.g., closing Pernis facility).

The HIP segment delivered EBITDA of $215 million on $1.1 billion of sales, contributing approximately 39.3% to total net sales of $2.8 billion. Despite North American residential construction slowdown, HIP held sales in line year-over-year but was impacted by sales mix shifts and period-related expenses. The PEM segment had sales of $1.7 billion, down from prior periods, with EBITDA of $90 million. It took a noncash impairment charge of $727 million for goodwill associated with its North American chlorovinyl business, contributing approximately 60.7% to total net sales.

• HIP revenue expected in range of $4.2 billion to $4.4 billion with EBITDA margin 20%-22%, now towards lower end due to residential construction slowdown and period-related costs. - Total capital expenditures expected approximately $900 million for 2025. - Company-wide structural cost reduction target of $150 million to $175 million achieved ~$115 million in 2025, aiming for $200 million in 2026 as part of PEM profitability strategy. - Cash interest expense expected ~$160 million for full year 2025.

• Macro-economic uncertainties affecting global demand for PEM products. - Supply-demand imbalances in the chlorovinyl chain impacting PEM's pricing and margins. - Regulatory risks associated with potential acquisitions or business transactions.

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

A: Yes. Thank you for the question. No, you're right. We are seeing a, I would say, a little bit of a weakening in polyethylene prices. At the same time, ethane is still seeing in the mid-20s in terms of price, and this is certainly putting pressure on our ethylene margins. There is plenty of supply in the polyethylene segment. We have a very good position, very good operating efficiency in the quarter and we will do our best to gather and create as much value as we can in that segment. So overall, it's been tough, but I would say relatively stable in the ethylene segment. We are -- 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. So that's what we expect getting into the last quarter.

Q: You discussed some of the weakness in the polyethylene markets. PVC hasn't exactly been covering itself in glory. What is your near and midterm outlook on the PVC side of things? And what will it take to get it back on track?

A: Yes. So -- yes, thank you for the question. I will -- I'll start and then will hand it over to Steve. The forecast for -- you're right. I mean, the chlorovinyl chain has been challenged this year with prices going down. And hence, we are taking, I mean, efforts on the cost side to bring -- to make sure that we are in a position to compete even at these low prices. So that's why we have started the additional cost savings on top of previous ones. And 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.

Q: 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 materials side relative to the building products space, just given where the difference in valuations is? And then maybe if you could just comment on what the pipeline in general looks like.

A: Yes. 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. And it's always a function of how does that fit into our business and the associated synergies. So 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.