Westlake Corp Q4 2024 Earnings Call Transcript

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

Question: John McNulty - BMO Capital Markets - Analyst : So I guess the first one would just be on the hit margins. It looks like you're looking for a little bit of margin degradation as we look to 2025, I guess, can you help us to think about the dynamics behind that, especially in what looks to be a growth environment for you, at least for your platform? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: John McNulty - BMO Capital Markets - Analyst : Got it. Okay. And then on the $125 million to $150 million of cost cuts that you're looking for this year, sounds like a lot of it is going to be in the PEM segment, but can you just confirm kind of roughly how you see that mix playing out by division?

Question: Patrick Cunningham - Citi - Analyst : We've heard over the last few weeks, a bit of a tougher outlook for some of the homebuilders, maybe some suggestions of a more Hawkish Fed. Any concerns this leads to further volume pressure on your end? Or is this sort of what you're kind of seeing in your mix declines? And maybe if you could comment on the areas of strength, whether it's R&R, or public infrastructure, benefits from PVCO that kind of gives you confidence in that 5% to 7% target for the year?

Question: Patrick Cunningham - Citi - Analyst : Understood. And then just a question on tariffs, specifically on PVC. Have you seen any impact on trade flows from some of the existing ABDs and tariffs against the US. And do you expect potential for these tariffs and maybe even retaliatory tariffs down the road to have a negative impact on US exports?

Question: Salvator Tiano - Bank of America Securities - Analyst : Firstly, I want to go back to your HIP guidance. And you mentioned that the margin issue is mostly a shift to -- in the mix. So firstly, can you elaborate a little bit on what are these products that you expect to gain share versus what may lose share or you may not grow as much? And secondly, last year, I think you started with a similar guidance, perhaps actually even lower on the margin front and you delivered 24% EBITDA margin. So how conservative, I guess, would be the same way to ask, is this guidance? And what's the opportunity for upside here as we saw last year?

Question: Salvator Tiano - Bank of America Securities - Analyst : Okay. Perfect. And I also wanted to ask specifically about pipes and feeding. There was a note in your presentation that there were competitive pressures there. And I believe that has been the main source of margin upside for you in the past couple of years. So can you elaborate a little bit more on what's going on there, whether it's lower demand increase or increased supply and what's kind of the outlook for '24 versus -- - for '25 versus '24 specifically for this product?

Question: David Begleiter - Deutsche Bank - Analyst : Just on PEM, can you help us with the bridge from Q4 to Q1 given the FIFO impact, the Petro 1 outage, higher ethane prices and other drivers?

Question: David Begleiter - Deutsche Bank - Analyst : Very good. And just on epoxy, Steve, can you address your performance in Q4 and your expectations for at least maybe the first half of the year?

Question: Jeff Zekauskas - JPMorgan Chase & Co - Analyst : Can you tell us what the volume and price change was for the year in each of your 2 segments? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Jeff Zekauskas - JPMorgan Chase & Co - Analyst : And price?

Question: Jeff Zekauskas - JPMorgan Chase & Co - Analyst : Okay. And the thing about your your PEM business is your EBIT was negative. Where does that come from? Is that PVC that is what businesses inside of PEM had negative EBIT?

Question: Aleksey Yefremov - KeyBanc Capital Markets Inc. - Analyst : For free cash flow in '24 was relatively modest compared to EBITDA or net income. Could you provide any outlook for '25, again as a percent of EBITDA net income or any other way?

Question: Aleksey Yefremov - KeyBanc Capital Markets Inc. - Analyst : And maybe as a follow-up to that, Steve, as you are growing your HIP business. Is that the business that requires more working capital in that -- will it be more capital intensive and perhaps your free cash flow conversion would be lower as that business grows going forward?

Question: John Roberts - Mizuho Group - Analyst : On the PEM 1% volume growth, you mentioned that export polyethylene was up. So presumably, the rest of the business had flat to down volume. Epoxy was down. Could you maybe give us some volume commentary on the other parts of the PEM portfolio?

Question: John Roberts - Mizuho Group - Analyst : And will the Louisiana tax law change affect the go-forward taxes at all?

Question: Michael Leithead - Barclays - Analyst : Great. I want to go back to the HIP revenue guidance. At the midpoint, I believe it's about 4% growth year on year. How should we think about the relative price and volume contributors to that? Should we expect price to continue to be a drag in volume to be up above that 4% number? Or just how should we think about 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. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Michael Leithead - Barclays - Analyst : Okay. But I guess my question was, do you expect price to be negative in '25 or no?

Question: Michael Leithead - Barclays - Analyst : Okay. Fair enough. And then just bigger picture. You have a very nice building products business that's growing within Westlake Corporation. You highlight the success in a new slide in the deck. -- but your stock price and your equity valuation today is currently trading cheaper than many of your commodity chemical peers. I guess how do you think about addressing or closing that valuation discrepancy such as through buybacks, separating the company or just other means?

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Steve, just to follow up on the comment that you just made. How would you describe the amount of patients that management would have in enduring a highly undervalued enterprise. In the past, I think you've extolled the virtues of of integration, right, upstream and HIP and downstream for that matter. But if this sort of valuation disconnect were to persist, might you take action in terms of separating the businesses at some point in the years to come. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Fair enough. I wanted to ask about the recent months. So I appreciate your reporting the fourth quarter results. But here on the February 24, I was wondering if you could comment on your recent demand experience in major product lines like polyethylene and PVC in January and February relative to normal seasonality. Is that on par or any better or worse than you might have previously anticipated?

Question: Josh Spector - UBS Equities - Analyst : Steve, I wanted to ask about the price decline sequentially in PEM. In terms of what you posted, it seems to be a decent amount lower than some of the headline prices that have been out there. I assume a decent chunk of that as you serve more to the spot market than the contract market as you normally do seasonally. But I'm curious if you could answer, did you sell more into the spot or export markets than you typically do. And how do you expect that to trend over the next couple of quarters? Is that mix in PEM potentially a tailwind over the next couple of quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Josh Spector - UBS Equities - Analyst : Okay. Understood. That's helpful. And I could just ask one other on pricing. One of the main consultants did a pretty big adjustment to contract posted prices and sometimes when this is done, there's some other discounting behind the scenes or some other moving parts. Just curious if you can comment on your realized price on domestic markets in PVC and if that had any impact either in the quarter or as you look at the next couple of quarters?

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : In terms of the 20% to 22% EBITDA margin outlook for '25, I mean do you see that as sort of your trough margin, meaning if existing -- if housing starts finally improve and if the home sales primarily improve. Does that margin go up from here?

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : Got it. And then as a follow-up for PEM, yes '24 looks like a trough year, obviously, and it feels like most folks have said in these areas that '25 could be another tough year. So do you think anything gets better in terms of the fundamentals for chlor-alkali or polyethylene? And directionally, should EBITDA just be similar in '25 versus '24? Or is there a potential for improvement? I mean could it get worse? Given how the markets are looking?

Question: Hassan Ahmed - Alembic Global Advisors - Analyst : I just wanted to go back to the question about, so I just wanted to go back to the question about value recognition, particularly with what you guys are guiding to and have reported within the HIP segment. I mean one of the interesting lines that I sort of came across in your prepared remarks was how such a large offtake of PVC resin from the PEM segment, goes into the HIP segment. So obviously, you have lesser exposure to weaker economies. So obviously, you're benefiting from this dynamic on the PEM side. You're benefiting from the integration on the HIP side of it. I mean -- so clearly, separation is out of the question. So again, going back to sort of getting a bit more granular around what will take for value recognition to happen? Is it just as simple as quarter after quarter, you guys reporting results, which are better than both your PEM and HIP peers and the market eventually waking up to that concept.

Question: Hassan Ahmed - Alembic Global Advisors - Analyst : Very helpful. And as a follow-up, on the PAM side of things, so I could get a bit more specific around chlor-alkali in particular. And I understand, I mean, your exposure, obviously, is far more on the merchant side to the caustic soda market. But a couple of consultants have come out with fairly negative sort of views on the near to medium-term prospects of chlor-alkali, particularly taking a look at some of the capacity increments that are happening and also where sort of -- where current pricing for the ECU sits relative to the marginal producers. And it seems the ECU price is still significantly higher than marginal producer economic suggesting maybe downside in pricing. And that, to me, seems a bit divergent relative to the comments you guys are making on caustic soda pricing. So what am I missing over here?

Question: Matthew Blair - TUDOR PICKERING & CO. SEC - Analyst : Could you discuss the M&A landscape? I know there are a few comments looking to kind of how you're looking to deploy capital going forward. And you have the nearly $3 billion in cash sitting on the balance sheet. Has deal flow picked up? Or is it declining? And are you interested in any plan assets? Or would this be mostly in HIP?

Question: Matthew Blair - TUDOR PICKERING & CO. SEC - Analyst : Sounds good. And then the past two years, HIP has had a pretty big quarter over quarter improvement in EBITDA margins. If you compare Q4 going to the starting point this year is 19%. So how likely is it that HIP EBITDA margins in Q1 '25 would actually be higher than your full year 20% to 22% guidance. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Pete Osterland - Truist Securities - Analyst : Within HIP growth into your infrastructure revenue stream turned positive in the fourth quarter for the first time in several quarters. What is your outlook for growth into infrastructure during 2025 relative to your overall guidance for HIP?

Question: Arun Viswanathan - RBC Capital Markets - Analyst : So I guess maybe I'll just ask about the pricing side again and the demand side. So it sounds like from your comments, you are seeing some potential green shoots slightly better demand. Maybe you can just elaborate that on that in PEM. What you're seeing there? And similarly, I think you noted that price was down 12% in '24. And I think you noted that you do expect price to finish the year higher in '25 versus '24. So would you expect to make up all of that 12% ground, and that will be led mainly by the chlor-alkali side? I know epoxy and vinyls maybe still seems a little bit challenged, but maybe you can just kind of provide a little bit more detail on both demand and price in PEM. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 24, 2025 / 4:00PM, WLK.N - Q4 2024 Westlake Corp Earnings Call

Question: Arun Viswanathan - RBC Capital Markets - Analyst : Great. And then I just wanted to ask about the potential pending PVC litigation. Any comments there? I know that some of the other players have received a US DOJ subpoena. Is that something that you guys have any updated comments on.

Question: Turner Hinrichs - Morgan Stanley - Analyst : This is Turner Henrichs on for Vincent. So I was wondering, how do you think about the relative priority of reducing your net short position in ethylene versus potential M&A on the HIP side of the business? And do you have any color on the cost that it would take to debottleneck your cracker JV to free up capacity if that's the route you would choose to take?

Question: Turner Hinrichs - Morgan Stanley - Analyst : Great. That makes sense. I appreciate all the color. And on the cost savings plan. So you all mentioned $125 million to $150 million of targeted cost savings this year. What do you expect the cash costs of these savings to be?