Westlake Corp Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Patrick Cunningham - Citi Investment Research (US) - Analyst : A question on the HIP guidance. I think previously, you had some price mix headwinds that have you pointing to the lower end of the margin range. And now the sales guide is lower, but the margin guidance is intact. Should we still expect margins on the low end? Or have some of those mix headwinds normalized versus your prior expectations?

Question: Patrick Cunningham - Citi Investment Research (US) - Analyst : Great. And for my follow-up, the biggest change in the tariff regime has been fresh tariffs on Brazil, the threat of retaliatory tariffs. How should we think about the risk to both chlorovinyls and caustic soda, given this has been such an attractive export market for the industry and for Westlake?

Question: Duffy Fischer - Goldman Sachs & Company, Inc. - Analyst : I want to go back to HIP if we could. So you talked about earlier some areas of HIP that we're seeing pricing pressure, all of the low gauge pipe. Could you go through, I guess, two questions there. What percent of the portfolio do you think is actually seeing kind of excessive competitive pricing versus what part is holding stable? And then just the second part, at the midpoint, your revenue is now down 5%. But again, the margins are stable. So why isn't there a decremental margin degrading. Is there a mix shift improvement in there? Just kind of -- versus first quarter to today, why don't margins change? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Duffy Fischer - Goldman Sachs & Company, Inc. - Analyst : Great. And then if we just go back from the less downtime in Q3 versus Q2 from the ramp-up of the plant, roughly how much less hit do you have from that? And what were operating rates chlorovinyls Q2 to Q3, how much do we actually get to improve operating rates?

Question: John Roberts - Mizuho Securities USA, LLC - Analyst : On M&A, could valuations become cheap enough in PEM opportunities that you would acquire something significant there? Or is your M&A focus exclusively over on the hip side?

Question: Vincent Andrews - Morgan Stanley & Co. LLC - Analyst : In PEM, as part of the initiatives to improve plant reliability, will there be a CapEx component of that either onetime in nature? Or is there any risk that your maintenance CapEx needs to be revised higher?

Question: Vincent Andrews - Morgan Stanley & Co. LLC - Analyst : Okay. And then if I could just ask you in terms of HIP, is it a fair assessment from the answers already that we'll see a similar margin in 3Q as we saw in 2Q and then sort of the swing factor of where you wind up for the full year is going to be how soft 4Q is? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Frank Mitsch - Fermium Research LLC - Analyst : As someone who probably ought to go back and take a class on tariff impacts 101, I'm wondering if you could elaborate on the comment about your caustic exports to Brazil and the fact that some of that is being processed there and then you'll have a duty drawback. So just conceptually, how much -- of the amount that you're exporting of caustic to Brazil, how much is subject to this duty drawback? And if you could just elaborate on what's exactly that all means.

Question: Frank Mitsch - Fermium Research LLC - Analyst : So that would -- it would go to 0. So if Brazil throws out a 50% tariff on caustic as long as the customer buys your caustic and reexport out the product, that 50% goes to 0. Is that how we should think about it?

Question: Frank Mitsch - Fermium Research LLC - Analyst : Terrific. Very helpful. And Jean-Marc, just curious, you made the comment that you're already seeing plant reliability improvement here in the third quarter. Any color, any examples that you could provide on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Aleksey Yefremov - KeyBanc Capital Markets Inc. - Analyst : I wanted to go back to HIP margins. You revised your sales guidance down by 7%, but maintain the margin. So could you discuss what is going better than expected such that there's no negative operating leverage in this segment?

Question: Aleksey Yefremov - KeyBanc Capital Markets Inc. - Analyst : And I was hoping you could give us some sense of monthly trends in HIP orders. Have you seen a negative inflection or are things steady as you went through the summer?

Question: Kevin McCarthy - Vertical Research Partners LLC - Analyst : If we rewind the clock three months, it seems to me that Wall Street analysts generally underestimated the industry operating rates in the ethylene chain, for example, and perhaps also for Westlake. And listening to you today, it sounds like those operating rates and the trade flows are in the process of normalizing. So I was wondering if you could comment on how much harder you might be able to run your crackers and your polymer assets in the third quarter relative to the second quarter? Is it a low single-digit uplift or a high single-digit percentage uplift or somewhere in between? Any guidance on that operating leverage dynamic would be very helpful.

Question: Kevin McCarthy - Vertical Research Partners LLC - Analyst : Okay. And then as a follow-up, can you provide an update on your polyethylene resin pricing outlook? For example, have you settled any July contracts in the US? And how much pricing are you seeking for August?

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : So for them, you noted that volumes would be better in the third quarter. Can you talk about where you think industry margins sort of ended 2Q? Should they be better sequentially in the various chains, chlor-alkali, polyethylene and such in the third quarter versus the second quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : Okay. And then what do you think about seasonality? Typically, the fourth quarter for you all is the weakest quarter. It's been an unusual year. So how do you think about the normal seasonal trends as we head into the fourth quarter, given you've had some tough turnarounds in the second, maybe those don't -- those all go away by the fourth. And just directionally, how you see that unfolding for the second half?

Question: Josh Spector - UBS Securities LLC - Analyst : First, I wanted to follow up on HIP, and you've talked about this in various ways. But if I look at your updated guidance, in the first half in HIP sales, you were down around 3% year-on-year. Your second half HIP outlook is about up 3% year-on-year. So curious if you could talk to two things there. I mean, one, the visibility by the markets? And then two, how you think we should think about your performance relative to housing, considering the outlook has gotten worse, but maybe your second half outlook has gotten a little bit better or maybe even unchanged?

Question: Josh Spector - UBS Securities LLC - Analyst : Okay. And then just one other clarification just around the Pernis shutdown. So $100 million drag on a trailing basis. Do you get a benefit in second half versus first half from the shutdown? Or is that more of a 2026 effect?

Question: Bhavesh Lodaya - BMO Capital Markets (US) - Analyst : Within the HIP segment, can you size up the municipal water applications market for us? Like what's -- maybe what's the total size? How fast is it growing? And if possible, what -- who are the key competitors that you compete with over there?

Question: Bhavesh Lodaya - BMO Capital Markets (US) - Analyst : Got it. And as a follow-up, within this pipes and fittings, I would say, subsegment, I believe you mentioned pricing was down year-over-year, but obviously, your overall pricing is up 2% sequentially for the HIP segment. Would you say the pricing pressures we have seen in pipes and fittings are behind us? Or are you still seeing sequential pricing headwinds there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Hassan Ahmed - Alembic Global Advisors - Analyst : A question around chlor-alkali supply, particularly within North America. I mean, over the last couple of quarters, there's been some fear in the marketplace that there's been some new projects announced. But I mean, as I look at it, it seems that there is one expansion on the table and, call it, two greenfield projects. And one of those two greenfield projects doesn't even have an FID. And the expansion project, the number out there seems to be higher than eventually where it'll end up. So just would love to hear your views on what the supply picture looks like through the end of the decade. And should it be worrisome or not?

Question: Hassan Ahmed - Alembic Global Advisors - Analyst : Understood. And just in terms of the products that you produce, be it on the ethylene, polyethylene side, be it on the chlorovinyl side of it, what rumblings are you hearing in terms of rationalization of those capacities in China in particular?

Question: Peter Osterland - Truist Securities Inc. - Analyst : So first, I just wanted to ask what percentage of your volumes in PEM were sold into export markets during the second quarter? And how does that compare to what you see as normal? And how would you expect that mix between domestic and export sales to change in the third quarter?

Question: Peter Osterland - Truist Securities Inc. - Analyst : A follow-up question I had, just on the $200 million of incremental cost savings that you announced today, do you have an estimate you can share for the incremental cash outlays that you expect in order to realize these new cost savings?

Question: David Begleiter - Deutsche Bank Securities Inc. - Analyst : Jean-Marc and Steve, of the $110 million of outage impacts in Q2, how much can we add back for Q3?

Question: David Begleiter - Deutsche Bank Securities Inc. - Analyst : Understood. And of the new cost savings of $200 million, how much would you view as permanent or structural? And how much would be temporary relative to when volumes do come back? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 05, 2025 / 3:00PM, WLK.N - Q2 2025 Westlake Corp Earnings Call

Question: Matthew DeYoe - BofA Global Research (US) - Analyst : I apologize if you covered this a little bit because I know it's been a bit of a talking point in the discussion today, but you're net short ethylene and have been for a while now. And I know you've been comfortable there. But as your peers tie up some of this excess position, prices are moving higher. And I know Lyondell is maybe delayed here, but I think they remain committed to Flex 2. So like does this change your view on how you want to position the business over the next five years? Is there any desire to kind of tie this up?

Question: Matthew DeYoe - BofA Global Research (US) - Analyst : Okay. And look, HIP had a good quarter. It was definitely better than we were expecting. So I don't want to kind of dig too much on it. But I mean, the flip side to the stable margins, looks like it was an 80% decremental margin. And so is this kind of just a mix issue or want or to -- or tough comps, obviously, might be part of that, but I just want to get a little bit better sense of what's going on under the surface.

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities, Inc. - Analyst : Just looking at spot PVC prices that are almost approaching all-time lows. Could you talk a little bit about the global supply-demand outlook for PVC? Clearly, the demand side is affected by weak construction trends. But what about the supply side? How much global capacity do you expect to be added in PVC this year and next year? And what are you seeing in terms of operating rates for China PVC plants?

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities, Inc. - Analyst : Great. And just looking at the pressures on free cash flow in the quarter, it looked like one pressure was due to another use of working capital. I'm