Q1 2022 Westlake Corp Earnings Call
Yes.
Good morning, ladies and gentlemen, thank you for standing by and welcome to the Westlake Corporation first quarter 2022 earnings conference call. During the presentation. All participants will be in a listen only mode. After the Speakers' remarks, you will be invited to participate in a question and answer session. As a reminder, ladies and gentlemen this.
Is being recorded May three 2022, I would now like to turn the call over to today's host, Jeff Holly Westlake, Vice President and Treasurer, Sir you may begin.
Thank you.
Everyone and welcome to the Westlake Corporation Conference call to discuss our results for the first quarter of 2022.
We additionally, we'd like to thank everyone, who was able to attend our recent investor day, which occurred on April seven.
The webcast and presentation from the Investor day are available in the Investor Relations section of our website for those of you who are unable to attend.
I'm joined today by Albert Chao, our President and CEO , Steve Bender, Our executive Vice President and Chief Financial Officer, Roger <unk>, Our Chief operating officer and other members of our management team we.
We have included an earnings presentation, which we will reference during our call today that can be found in the best Investor Relations section on our website.
During the call we will refer to ourselves.
Our recently established reporting segments, the housing and infrastructure products segment, which we refer to as hit and the performance.
<unk> is an essential materials segments segment, which we referred to as Pat.
Today's conference call will begin with Albert who will open with a few comments regarding Westlake performance.
Steve will then discuss our financial and operating results.
Robert will then add a few concluding comments and we'll open the call up to questions.
Today management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs as well as assumptions made by and information currently available to management.
These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake 's Form 10-K for the year ended December 31, 2021, and other SEC filings.
We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website.
This morning, Westlake issued a press release with details of our first quarter results. This document is available in the press release section of our website at Westlake Dot com.
A replay of today's call will be available beginning today two hours following the conclusion of this call.
This replay may be accessed by dialing the following numbers domestic callers should dial 855, 850 92056 <unk>.
International callers may access the replay at 4045373406 the.
The access code for both numbers is 4246547 <unk>.
Please note that information reported on this call speaks only as of today may three 2022, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.
Finally advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at Westlake Dot com.
Now I would like to turn the call over to Albert Chao Albert.
Hey, Jeff Good morning, everyone.
We appreciate you joining us to discuss our first quarter 2022 results.
I am pleased to announce that we reported record results in the first quarter of 2022.
We achieved record quarterly sales of one for $1 billion.
Record quarterly net income of $756 million.
And record quarterly EBITDA of $1 $3 billion.
These record results.
Given by the compelling attributes of Westlake, we spoke about in our recent investor day, including resilient earnings from our specialty portfolio with globally advantaged cost positions.
<unk> added branded products in growing markets.
And his strong track record of acquisitions, and creating long term value.
We benefited from these attributes combined with end market demand trends in.
Industrial and consumer packaging housing construction.
Industrial manufacturing.
Coatings and wind energy markets.
Strong revenue growth driven by the robust housing and construction activity.
The value of our leading brands and the equally strong revenue growth in our specialty portfolio independent segment driven.
Driven by gains in polyethylene and PVC as.
As long as caustic soda old drove record sales.
The strength in these markets.
Mitigated the impacts of rising energy and raw material costs.
As well as supply chain disruptions.
Driving record EBITDA and strong EBITDA margins in the quarter.
I want to thank all of our employees for their hard work and dedication in helping us achieving these results.
We completed our acquisition of <unk> Global epoxy business effective February one.
Which is being rebranded Westlake policy.
This acquisition adds to Westlake scale are differentiated and specialty product portfolio.
With our globally advantaged feedstock and energy cost position in North America and.
And with a long track record of operational strengths.
These important attributes enable us continue to deliver more resilient earnings and a variety of economic environments, while positioning us well for the future.
Since mid 2021, we invested $3 $8 billion to significantly expand and drive specialization.
And diversify our portfolio of branded products across our businesses.
These new businesses accelerate westlake existing capability to continue our growth and execute on many opportunities with their financial attractive financial attributes.
And hence in Westlake existing leading positions and scale.
I think it's important to highlight the magnitude of the growth we have already delivered.
Supported by our recent acquisitions total year over year first quarter 2022 sales growth in Penn was 63% and in hips was 19, 9%.
Steve will provide further details on our results.
This significant contribution to sales net income and EBITDA all of these acquisitions and the magnitude of the transformation we have undertaken since 2021.
We experienced margin expansion in <unk> by leveraging our best in class cost position.
Driven by vertical integration and a large north American footprint.
With globally advantaged cost low cost raw material and energy.
Our leading positions in Chlor vinyls contributed significantly to our results this quarter.
Our strength in caustic soda PVC and specialty PVC markets drove our margins higher.
Industrial and consumer packaging demand also drove the strong results of pen.
And our specialty polyethylene, which is over 40% of our polyethylene capacity made significant contributions this quarter as well.
I'll focus on the specialty and differentiated products.
Nobody has a clear margin advantage in our product mix distinguishes us from other commodity producers.
With our market leading positions in hip we realized see dividends earnings schools from a value added strong brand name product offerings with attractive secular growth trends.
The first quarter.
We were able to reap the benefits of the continuation of the momentum from 2021, North American housing and construction activity with our leading product positions and brands.
These factors drove robust demand for PVC resin and building products and our sales volume.
Sales volumes, they've been really improved as we benefited from that strong demand dynamic.
We are continuing to integrate the acquisitions, we have made over the past year and are capturing the.
Benefits. These best businesses have brought us to greatly expand its portfolio.
I'd now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2022.
Thank you Albert and good morning, everyone.
The market trends, we experienced in the second half of 2021 continued in the first quarter.
The housing construction and repair and remodeling markets, which when paired with strong demand in industrial and consumer packaging and industrial manufacturing activity drove record performance from broad based pricing gains in both segments, along with volume gains from the businesses, we acquired in 2021 and the first quarter of 2022.
This quarter, we reported record results for Westway can Fujian sales of $4 $1 billion net.
Net income of $756 million.
Income from operations of over $1 billion for the first time ever and EBITDA of $1 $3 billion.
The first quarter of 2022 net income increased $514 million from the first quarter of 2021 as a result of a healthy market conditions and solid margin gains across Pam and hip portfolios.
There are several key components that contributed to these results with a global footprint and North American cost advantages.
They captured the benefit of a vertically integrated production chain with a globally competitive ethane power natural gas and salt.
And North American manufacturing footprint, well situated to serve.
<unk> domestic demand, which also provides most cost advantages to serve export markets and leadership and a growing portfolio of specialty higher margin value added branded products.
Both of our segments had solid earnings with <unk>.
<unk> margins anchored by robust demand in packaging housing construction medical automotive industrial markets first.
First quarter 2022 year over year average sales prices and volumes for Westlake were up 46% and 26% respectively.
Driven by very strong demand across product portfolios and contributions from our acquisitions.
This strong demand and pricing initiatives more than offset the persistent supply chain disruptions and inflationary impacts of our cost.
Our utilization of the FIFO method of accounting resulted in favorable impacts of $48 million compared to what earnings would have been reported if we'd use the LIFO method of accounting.
I will now discuss the performance of our two segments.
We will begin with housing and infrastructure products.
The hip segment EBITA of $258 million in the first quarter of 2022 increased by $153 million from the first quarter of 2021.
EBITDA margins in the quarter improved to 21% versus 17% in the first quarter of 2021.
<unk> segment sales for the first quarter of 2022 or $1 2 billion, an increase of $609 million in the first quarter of 2021 and $177 million increase over the fourth quarter of 2021.
And housing products sales were $972 million in the first quarter of 2022 <unk>.
$129 million higher than the fourth quarter of 2021, reflecting the strength across our product offerings, including building products pipe and fittings or <unk>.
<unk> industrial recycled products servicing the residential markets.
Our housing products business continued to benefit from strong repair and remodeling activity and new construction in the residential markets in North America.
Our pipe and fittings business has benefited from the increase in housing construction activity and the tight supply conditions for PVC pipe.
The strength, we have seen in residential construction has been driven by higher margin offerings, and our building products pipe and fittings as well as wire and cable compounds.
Industry consultants, including the National Association of Homebuilders, The Harvard Joint Center for housing studies indicate continued strong market conditions for remodeling, while the U S census data reports new housing starts continuing at elevated levels.
<unk> strong demand for single and multifamily construction spending.
Now turning our attention to infrastructure products sales.
Sales for the first quarter were $252 million, an increase of $48 million over the fourth quarter of 2021.
Infrastructure products benefited from strength in our larger diameter pipe fittings businesses servicing the nonresidential markets.
These products serve a wide variety of sectors, including agriculture municipal water services health care transportation industries, among many others.
We expect the the infrastructure investments and jobs acts will provide further demand strength as states and municipalities begin to develop and start construction projects to address our nation's long neglected infrastructure needs.
Now I'll move to discuss the results of our performance in our central materials segment.
Let's wake as the global leader in Chlor Vinyls markets with an integrated manufacturing chain in the U S, which has an advantaged feedstock cost position and our specialty product portfolio in Europe .
When paired with a strong market fundamentals for these products, we delivered another quarter of record results.
For the first quarter of 2022 P. M segment delivered EBITDA of $1 1 billion, an increase of $613 million from the first quarter of 2021 on $2 $8 billion of sales.
<unk> segment sales increased due to strong demand and favorable market conditions.
During the quarter, our new <unk> business contributed to our earnings with higher sales prices and strong sales volumes.
For the first quarter of 2022, Tim experienced strong price momentum across the portfolio for.
Performance materials, which includes PBC polyethylene in a policy had sales of $1 9 billion. This was an.
Increase of $725 million over the first quarter of 2021 and increased $265 million when compared to the fourth quarter of 2021.
The solid demand for PVC was anchored by continued robust economic activity and end use markets, including construction and home remodeling, which was evident in our hip results that I just discussed.
These factors drove strong PVC sales prices in the segment and strong integrated margins.
Polyethylene benefited from the robust demand in industrial and consumer packaging markets driven by price gains while volumes were hampered due to logistical constraints.
Elevated energy prices continue to drive a proxy demand in the wind energy markets.
Some markets in Europe , and Asia, such as automotive slowed and our policy intermediates business.
Turning to our central materials, which includes caustic soda styrene and coordinated derivatives.
Sales of $903 million and was an increase of $365 million compared to the first quarter of 2021 and increased $107 million when compared to the fourth quarter of 2021.
Our caustic soda business largely based in North America saw continued pricing gains in the first quarter of this year as global industrial manufacturing activities improved over 2021 as industrial production in Europe , and Asia face significant energy price increases.
Net cash.
Provided by operating activities was robust at $700 million for the quarter.
As of March 31 <unk>.
Cash and cash equivalents were $1 1 billion and total debt was $5 2 billion.
Westlake has given notice to redeem $250 million of debt on may 14th 2022.
Capital expenditures for the first quarter were $263 million.
We are maintaining our forecast for capital expenditures to be between 750, and $850 million, which will support our operations.
Including our recent acquisitions, lower our cost and drive efficiencies, including projects to Debottleneck Bcm ADC in PVC in several sites.
This also includes spending to increase our investment in the <unk> joint venture to 50%, which was completed in the first quarter.
For the full year of 2022, we expect our effective tax rate to be approximately 23%.
We also expect cash interest expense to be approximately $170 million.
Annual depreciation and amortization is expected to be approximately $1 billion.
And based on our current view of demand and pricing I'm also maintaining our earlier revenue guidance for hips revenue in 2022 to increase by 50% to 60% from our reported revenues of $3 $1 billion in 2021 now.
Now I will turn the call back over to Albert to provide our current outlook for our business Albert.
Thank you Steve.
The U S housing and remodeling repair markets are both performing well.
The U S census housing data and harvest, leading indicator of remodeling activity support outlook for continued growth in housing and construction related spending in 2022.
Industry consultants note that inventories of new homes available for sale remained low and the amount of under building over the last 15 years.
Has left a deficit of $5 6 million homes.
Homebuyer demand fundamentals are being driven by home upsizing historic under building and more people working from home in spite of the recent rise in mortgage interest rates.
We model has continued to report solid demand for whole home renovation projects as.
As consumers anticipate the remaining homes over a longer period and spending more time at the houses.
New housing starts remained elevated in.
And the leading indicators for construction activity.
<unk>.
Including a rising housing permits and historically low unemployment are forecasting sustained growth over the next several years.
The value of our premium brands and breadth of our products provides westlake deleverage to expand our reach in the housing market with higher value added specialty products, while driving strong resilient earnings power.
<unk> segment.
In Perm growth in urbanization, and global economic economies and population keep the outlook remaining favorable as performance materials using everyday products, such as housing packaging health care automotive and wind energy.
Drive up truly drive our polymer demand for PVC polyethylene and epoxy.
West Lakes value added specialty polyethylene portfolio.
Combined with our globally advantaged cost position in North America.
Drives higher margin and more resilient profitability.
Increasing industrial manufacturing.
Men for essential materials, such as caustic soda and growing is expected to materially exceed supply additions in the coming years supporting a robust outlook.
Boxing extends west lakes and market exposure to higher growth sustainability oriented markets, such as wind energy as well as automotive and aerospace light weighting.
As a leading producer of these performance and essential materials, we are well positioned over the next decade to benefit from secular demand growth.
Given by the needs for the application of formulated differentiated and specialty products.
We view all aspects of our business.
<unk> lens.
And keep our capital disciplined focused on accretive initiatives.
Our ongoing digital initiatives.
And innovations further refine and optimize operations and provide incremental savings.
We have saved tens of millions of dollars each year.
By investing in these kinds of innovations.
We invest in opportunities that further our strategy of product expansion and increases our vertical integration and sales channel capabilities to meet the needs of our customers.
Westlake has a strong commitment to sustainability and achieving our ESG initiatives with our announced 20% carbon intensity reduction goal by 2030.
We see sustainability as an important value driver.
We have developed and launched a wide range of sustainable products.
Including consumer products using recycled plastic material.
One pellet solutions.
Which helps our customers create sustainable products as well as bio based solutions for building materials.
As part of our sustainability commitment and to meet the needs of society.
Product innovation pipeline will continue to introduce new and sustainable products.
These are just a few examples of Wessex efforts.
In a move towards a more sustainable world, while driving earnings growth.
While we see volatility driven by economic and geopolitical factors that could impact our business current market conditions remain favorable.
My confidence in our business fundamentals.
<unk> enable us to deliver more resilient earnings and cash flows in a variety of economic environments.
Thank you very much for listening to our first quarter earnings call.
I'll now turn the call back over to Jeff.
Thank you Albert.
Before we begin taking questions I would like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website and a replay of this teleconference will be available two hours. After the call has ended.
We will provide that number again at the end of the call will John Yes, we will now take questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone and to withdraw your question. Please press the pound key.
Our first question comes from Aleksey <unk> of Keybanc capital markets. Your line is open.
Thank you and good morning, everyone.
Can you discuss where your current margins in the epoxy business span their.
In absolute terms or relative to the overall segment and also.
How do you see those margins evolving.
In the short term certainly in the second quarter versus first and also.
Where do these margins stand relative to the mid cycle.
Yes. Thank you Alex this is Roger earns a couple of comments on that I think what we see today in Epocrates is a little bit three parts of the world with three different speeds.
We're still seeing quite strong demand in North America, which is supporting.
Supporting good pricing.
Europe is a bit of a moderate case is certainly with the Russian Ukrainian impact slowing things a little bit and then China with the Covid Lockdowns.
Has slowed down quite a bit and so we're starting to see.
Still quite quite good margins, but over time with China, lockdown expecting to see a little bit more exports out of China and more competition coming from China.
But today I would say overall label two to correct or cover all of the raw material costs that we're seeing globally.
Thank you and the second question also on margins, but at this time.
<unk> segment.
You were at 21% or so EBITDA margin this quarter, how do you think your overall average would look like for the year.
Yes, I mean, I think I think at our Investor Day, we were talking about you know our goal was to start to get up into the high teens to 20% I think we would still stick with that.
We'll see it depends on a little bit what pricing does as we go on forward on raw materials, but but overall, yes, we're happy with the improvement we've made.
Thanks, a lot.
And our next question comes from Kevin Mccarthy of vertical research. Your line is open.
Good morning, everyone. I was wondering if you could comment on your near term outlook for caustic soda prices.
Through the trade press I read that you had put forth a proposed increase of $200 per ton.
Is that accurate.
And how much of that.
Are you realizing and April and May recognizing that you know one of your competitors seems to have suffered a significant outage in Louisiana.
Yes, Thank you Kevin Roger again.
We did put out a price increase on caustic as described we are seeing continued solid demand for caustic and chlorine. Both in fact, both sides of the <unk> are quite strong.
And were especially on the membrane caustic is quite tight and so we're continuing to see support there and strength and we will continue to support the price increases.
Okay, and then on PVC resin.
Of your industry peers are.
Announced interest in a joint venture.
Structure are partnership anyway, whereby they would integrate downstream into PVC resin.
What are your thoughts with regard to PVC resin expansions either on your own or as part of a partnership.
Yes, I mean I guess this is Roger again, I'll make one more comment and see if Albert and Steve want to jump in but.
I mean, PBC is very core for us and so we will continue to follow the growth in that market as needed. We are integrated as you know from from ethylene through the chain and so we will continue to support that I think.
Talking about what you are reporting there obviously to make PVC, it's coming through the chlorine chain you need EDC and so thats a component of getting to PVC at the end of the game, but we will continue to support the growth in the PVC market as needed.
Thank you.
And our next question will come from Mike lighted.
Barclays. Your line is open.
Great. Thanks.
I wanted to start with I think U S. Natural gas is around $8 in F&B to you today. So can you just talk about what youre seeing kind of what your outlook or expectation there.
Maybe related to lease.
And it's really early still in the second quarter, but just given the dramatic move in natural gas.
Obviously ethane any sort of early estimate of what our playbook tailwind might be.
Price was flat.
Yes, so Mike good question and if I think if we drew the end of the quarter today and as you recall my notes are comments that we had a $48 million FIFO benefit in the first quarter and if we drew the end of the quarter today.
Think about it gasses up ethane is up but ethylene is lower and so it would probably be similar to where we ended the first quarter. If we ended the second quarter today, it's hard to know where things may trend into the month of May and June , but it's but if we ended the quarter today, we'd probably be similar to where we are.
For the first and in the first quarter.
And just general thoughts on U S natural gas outlook.
While this is Albert and we're looking at IHS forecast. They are looking at the second half natural gas.
The drop 2% to $3 and three to $4 range, rather than at todays elevated price yes.
Okay, and maybe just finally, Steve.
You mentioned there were some debt that you gave notice to earlier.
Is there any other debt pay down or do you think as we did this year how should we think about.
The remainder of the cash flow is being spent this year excess cash flow whether M&A.
M&A versus shareholder return.
So Mike when we think about the opportunity to deploy that capital we've talked about our guidance and in capital expenditures. This year between $750 $850 million Youre right. We have already given notice and expect to retire that debt. Later this month $250 million that was coming due really in July just.
Accelerated that retirement 60 days and so when you think about the other opportunities. We certainly will continue to look at deployment of capital to reward our shareholders through share buybacks and dividends and look for ways in which we can be investing accretively and opportunities Roger mentioned opportunities that we have under.
With some of the expansions that we've already talked about it in a variety of locations EDC VC and PVC, but we'll also look for ways in which we can put capital to work from.
Further debt retirement I have some debt that will come due later this year for one of our projects Rs co Gen.
And we also have some debt that could be optionally redeemable. If it makes sense later this year as well so we'll look at deploying that capital the most efficient way.
It benefits the company and our shareholders.
Great. Thank you Youre welcome.
And our next question comes from David Begleiter of Deutsche Bank. Your line is open.
Thank you good morning, Alberto can you discuss.
I believe April ethylene contracts are still in negotiation.
What's your thoughts or maybe they have settled today, because your thoughts on where that might fall out for April .
Yes.
History.
We have announced price increases for six cents a pound for April and for May.
In polyethylene.
April polyethylene price have not settled yet.
But we think there's a good momentum to have a price increase in April as well.
Very good and all but just your thoughts on the <unk> margin holding up from here or it might be even going higher.
Housing were to soften in.
Chlorine into PVC were to soften as well.
Would that be likely a potential outcome.
A higher EBIT margin on that.
The scenario.
Yes, as you know we are moving to the second quarter.
Second quarter, a typically strong full construction, which is PBC related.
And as well as strong for water treatment and Thats coring related.
So typically second quarter is where margins expense for PVC and portfolio.
And caustic soda as well as a result.
Thank you.
Youre welcome.
And our next question comes from Mike Sison of Wells Fargo. Your line is open.
Hey, guys, great start to the year.
Thank you I'm just curious when you think about the margins that youre seeing in Pam.
Yeah.
There.
Why can't that sort of sustained for them for the full year and I know.
Industry consultants have it sort of coming down in the second half, but any reason it couldnt be the new normal I guess.
Yes, Thank you Mike it's Roger.
But I was maybe cut the business into three pieces I think on the vinyl side, certainly North American vinyls.
It's a pretty pretty good outlook pretty strong outlook.
I think for polyethylene as Albert mentioned, we see first half of the year holding quite good.
And then epoxy as I say, we'll see a little bit what happens in China on epoxy, but overall I'm not sure the.
Each particular business is going to stay exactly where it is but when we put it all together I do think 2022 should still be a reasonable year as far as we can see.
Second quarter and into third.
Got it and then in terms of seasonality what is your second quarter be the best quarter for EBITDA for the company and then.
Third quarter, maybe come down comes down a little bit so sort of that one three that you did in the first quarter is.
It's kind of a good baseline to think about.
While it typically.
Industry up in the second and third are the best quarters for construction and demand for packaging and people applications that all of that and usually the first in the fourth quarter.
All Veeco was however, I think it's also dependent on the economy.
As you know the top a volatile economy slowing down with high interest rate.
I'll do that.
The oil prices still staying high and U S has.
The lowest cost position to serve.
Only the needs of the U S, but global needs for our products. So that's a different combination and we don't know what the.
The future of geopolitical and economic impact would have on the world and our industry.
Great. Thank you.
Youre welcome.
And our next call question comes from Steve Byrne of Bank of America. Your line is open.
Thanks, It's actually Matt Deyoe on for Steve.
Wanted to ask a little bit on the epoxy business.
We're.
Kind of where did that flesh out for the end of last year.
From an EBITDA level and a revenue level. If you can kind of give us a sense for what.
Ended up time.
So Matthew did not did not.
Published their results for the end of last year when they when they end of the year because of the series of transactions They had with American Securities.
So we see publicly reported was the nine months ended for four <unk> as a public entity.
So I can't yet.
Similarly, you would know what the <unk> was at this point, but.
I hear you.
And so I would say the market continued to be quite elevated and so good demand you heard roger's outlook in terms of how we see kind of the parts of the world currently in terms of Asia, Europe , and the North American markets.
But I think it's clear that the mark that the proxy businesses performing well given the headwinds we're seeing in Asia and the concerns that we have about.
Headwinds with the economic backdrop, but nevertheless, the business is performing well.
Yeah understood and.
Quick question on the margin increase in hip a little bit I don't.
I know you said probably is performing a bit better than maybe what you expect long term.
And I'm still learning the cadence of the new business, but I don't think about it as a business that should normally be capable of that big of a sequential increase.
So is there like some.
Margin expansion in PVC compound thing that's more commodity or is this just.
Good execution or what.
Well I think certainly as you think about.
With our hip business you certainly see again, a strong underlying demand picture really in the construction markets in the infrastructure markets. When you think about what's what's occurring with the repair and remodeling. We see continued strong repair and remodeling and even in the face of rising mortgage rates you see still a fair amount of construction <unk>.
Activity, even in the face of rising mortgage rates, certainly the compounding business PVC compounding business.
Is a good business and continues to perform well.
And so I think what you've seen in the guidance that we provided in the hip side of the businesses that high teens and you see us reaching at 21% margin in the first quarter on Perm Perm.
<unk> continues to perform very well you heard us speak about some of the strength, we're seeing in the business and we've certainly seen producers with price nominations out both in caustic PVC and polyethylene.
So both segments are performing quite well and I think have very good very good backdrops.
Understood. Thank you.
Youre welcome.
And our next question comes from Ryan This will have to plan of RBC capital markets. Your line is something.
Great. Thanks for taking my question.
I guess I'll.
Try to ask a similar question a slightly different way. So you guys were up at the $1 3 billion dollar level of EBITDA and in Q1.
So arguably the full year.
Could have some seasonality in Q4.
But you should have some some positive seasonality in Q2 and Q3 so.
Is there any reason to believe that the full year couldn't be better than 5 billion are there any discrete items, we should know about.
Whether it be synergies or <unk>.
M&A contribution or anything else that you see.
And the next couple of quarters.
Yeah. So Arun, we don't see any items that I would call as discrete items at this stage and certainly from a.
EBITDA guidance as you know we don't provide forward looking EBITDA guidance, but I think you see the momentum and the pricing dynamics that we outlined in the perm side of the business.
And from our comments you could see that the hip side of the business has still got very strong performance both in construction as well as repair and remodeling, but we.
We don't see any what I would call forward looking discrete items that I would specifically call out.
Okay. Thanks, Steve and then.
Another question on sustainability so.
Given that we have seen some pretty serious inflation.
Are you seeing a little bit better adoption of some of your sustainable products, just given that the price differential or a price premium for them.
Potentially has narrowed versus Virgin plastic.
And potentially could narrow even further as we go into Q2 and Q3.
The inflation thanks.
Yes. Thanks. This is Roger maybe a couple of questions on that we are seeing actually some nice uptake on some of our low carbon products. So our greenville cost deacon and Greenville, PVC as well.
We're now seeing sales in Europe , we continue to work on our.
Post consumer recycled polyethylene and those are continuing to be seen quite well from our customers. So I think we'll continue to push that.
As far as.
Margins pricing we are getting.
Some some small premiums on all of our low carbon products right. Now so we are seeing some future potential in that growth as well.
Thanks.
Our next question comes from Exxon Ahmed.
Alembic Global your line is open.
Good morning, Albert and Steve.
The first question on Chlor alkali prices.
Just trying to get a sense I understand demand like you said for both chlorine and caustic, particularly in the U S is strong.
And I also understand chlorine being a fairly local market and cost state kind of being a more global market I'm, just trying to get a better sense of what sort of role in this pricing strength.
Europe is playing with natural gas prices, where they are in Europe , and Europe , having up savings.
Fairly decent.
<unk> Chlor alkali presence.
Yes. Thanks. This is Roger again, sorry.
We're seeing very high pricing in Europe with the raw material push that that's coming in Europe , we're seeing quite high prices and cost take the increases in April in fact in caustic in U S and Europe were very significant.
So over time of course, that's going to attract import pressure. So I think we will see Europe , starting to have import pressure from from both U S and Asia in time.
But it's the high price point in the World right now.
Understood understood and just sticking to the European team.
As I take a look at the LNG market in the U S. It seems they have been 14 terminals that have been approved.
And there are some segments of the market that are questioning longer term the sustainability of cheap natural gas in the U S and part and parcel with that the sustainability of quality ethane advantage. So what are your guys thoughts on that.
Well Hassan I think U S. We have a large very large us shale gas base.
Natural gas and oil.
Reserves and I think if the demand is there there'll be more exploration production.
The Marcellus has one of the biggest gas field in the world and the demand has something really tight march because the low price of gas.
Gas prices move up you will see a much more <unk>.
<unk> in that area. So.
So we believe that it will be actually more production of gas and oil.
There'll be more gas liquids and want to help more supply of ethane as well.
Very helpful. Thank you so much either.
Yes.
Our next question comes from Josh Spector of UBS. Your line is open.
Yeah, Hi, Thanks for taking my question.
Just wanted to try again.
One more time I'd be curious would you be willing to quantify kind of the contribution to the quarter either sales EBITDA or perhaps the run rate sales.
Sales and EBITDA fitness today.
Josh I'm not going to call out any specific business within this segment, but what I would say it made a nice contribution in the course of the two months in which we owned it having closed in February 1st.
What I would say is that we do see that business, making nice contributions over the course of the year, but we aren't calling out the individual contribution in a particular segment per se.
Okay fair enough.
And just another follow up kind of on the margin side of things.
I mean, I think generally we see a lot of the downstream business is pushing through price margins moved lower you guys are seeing the opposite is there a bit of a change in pricing strategy or are you getting more premium for some of your more premium products or something else going on under the hood or if it's more of a timing that some of the price cost and maybe some volume leverage.
In the quarter benefiting you.
And I'll, let Roger add to the comments here, but I would say that as you saw the acquisition of Boral brought along a large number of higher value added branded products and with that range our portfolio of higher value added branded products really comes associated improvement margins and so.
You get a full run rate of a quarter without the inclusion of integration and transaction related costs. We had in the fourth quarter you get a full run rate of the contribution of those higher value added branded products and I think with the backdrop of the strong market conditions, we've seen in Q1 in housing construction.
That certainly is a nice tailwind so I think that the combination of both that really contributed to the strong performance of hip in Q1.
I wanted to say all but one for Ed that we are looking at automation and.
Digitization that will further reduce our costs both.
Hip, adding pen, but more importantly, hip because the labor content and hip.
And improve our production rates. So we're actually trying to leverage more out of the assets we purchased.
Okay. Thank you.
Youre welcome.
And our next question comes from Matthew Blair of Tpa Your line's open.
Hey, good morning, Albert Stephen Roger Good morning morning, Matthew.
If I look at the housing starts data the share of multifamily to total.
It's only about 22% year to date last year. It was around 24% five year average is 29% should we think of that as an extra kicker.
On top of just the baseline strong housing starts numbers.
Yes, I think when you think of the contribution that we see really with starts and of course remember half of our hip business has benefited from the repair and remodeling and certainly the numbers for.
For the first quarter in R&R were also quite strong. So we're seeing strength really from not only the permits and starts that you you commented on but also the strength, we're seeing in underlying repair and remodeling activity.
That remains pretty provides a nice floor in this business from a demand picture.
Investor you also potentially with rising mortgage rates, there could be more investments in multifamily.
And the cost with a very low unemployment rate and.
The demand for housing remains there and with the we see in the.
The age bracket of house buying.
It's moving towards that for next 10 years on the.
The high side, so if people cant afford to buy a home.
Living apartments, so the construction activity.
Lynn.
We think that because of the.
People upsizing the homes moving spending more time in the homeless potentially the mortgage rates will not impact the choice that much but they.
Could still moving to bigger apartments, and all that so I think the construction activity will continue to be pretty robust in coming years.
Sounds good and then the release mentioned hydrogen briefly if you could expand on that.
Far away are you from revenue opportunities from hydrogen.
Yes, George I would just say I mean, we have revenue up we have revenue today from hydrogen right because we make hydrogen in our chlor alkali units.
So I think as we look forward and hydrogen becomes much more part of a new.
That's where our premium on hydrogen starts to come in and Thats, what we have to continue to work, but the hydrogen we make today. We currently sell from a number of our sites, where we use it internally for our own Bernie.
Great. Thank you.
And at this time the Q&A session has ended are there any closing remarks.
I think we have a few more minutes to take remaining questions. If there are any additional folks on the line.
And I'm, sorry, I had outage Angel Castillo is our next questionnaire of Morgan Stanley . Your line is open.
Good morning, this is Alex on for Angela.
Wondering how much cost inflation, you're expecting in Q2 relative to <unk> and how much were you able cover in Walton County.
With price increases versus productivity. Thank you.
So the.
Question as it relates to first quarter, you could see from the performance of the underlying businesses that the increases that we saw in pricing activity really were able to overcome the cost creep that naturally.
Has come into the marketplace and so we actually expanded.
Margins in both segments.
And we're able to offset any price pressure that we saw in cost.
Certainly you see the price nominations out for polyethylene caustic and PVC and we see strong picture really in the housing and infrastructure product space as well so while it's hard to see full fully us through into the second quarter, certainly given the strong backdrop in demand and the pricing initiatives that we certainly have announced.
At this stage.
Certainly we hope that we will be able to get some or a portion.
All of these price nominations that we have announced four across the product portfolio.
Very helpful. Thank you and then I believe Youre short about a billion pounds of ethylene are you thinking about investing in ethylene and potentially extending your capacity in the future.
Yes. Thanks, Melissa this is Roger I mean, we continue to look at opportunities there as we've talked a little bit earlier today the margins in ethylene at the moment are quite low with ethane prices kicking up in ethylene coming down but.
Fundamentally we have a belief in integration and we will continue to look at opportunities to see if something would make sense over time.
Thanks.
As a reminder to ask a question you will need to press star one on your telephone.
And our next question will come from Kevin Mccarthy of vertical research. Your line is open.
Thank you for taking my follow up I had a question on your reported volumes in the press release I think you indicated volume growth of 25, 8%.
Imagining that may include some contribution contribution from the deals that you've done.
That's the case would you comment on the underlying pure volume exclusive of the portfolio changes.
Yeah, So Kevin we did see strength, obviously volumetric Lee in the contribution of having the <unk> businesses added into.
February and March in the first quarter, but the volume increase is obviously in hip where really as Roger noted really the strength really in the hip side of the business and that has really given the ramp up we see a normal construction activity in the first quarter.
Good weather in the first quarter, and so really ramping up of that activity in the hip.
<unk> side of the business.
Our comments.
We made about our parts. He is certainly they made a nice contribution volumetric Lee, but we're not calling out specific increases in any of these.
Components of the business segment per se.
Kevin.
If you look at our <unk>.
First quarter compared with fourth quarter of 2021.
Oh, the hip business already in place. So we have a full hip business, we still have six 8% volume increase.
That's the organic volume increase and.
And in the Perm business.
Sure.
Compared with the fourth quarter of 2021, the first quarter of 2022.
Went up by 11, 3% by volume and proxy business, it's a very small part of it by volume wise.
Okay. Thank you for that and then.
I wanted to ask you for your updated thoughts on capital deployment, you've done for meaningful acquisitions, I don't know $3.8 billion or so.
And yet you are generating a lot of cash and your EBITDA is rising so your leverage ratios I suppose will settle out below one turn of 2022 EBITDA.
So how are you how are you thinking about potential for additional acquisitions and or some share repurchases in this market.
So Kevin it's.
As I say it continues to be an opportunity, where we'll look to deploy the capital in the most thoughtful way most value added way and so we can think about the opportunities to deploy it organically you've seen us talk about some of these expansions in <unk> and PVC look for other opportunities to organically expand where it makes good sense.
<unk>.
The acquisition opportunities are very.
Episodic and so we will look for opportunities and continue to pursue those youre right. We've invested in four transactions in the last.
Many months about $3 $8 billion, and we will look for ways in which we can employ that in a very cost effective way.
But we'll also look to see where we can deploy that capital back to shareholders in the forms of dividends or share buyback and we certainly have authorities from the board to be able to buy shares and certainly we've continued to pay dividends on a very regular predictable basis and raise those dividends on a regular basis. So I think we're focused on making sure that the shareholder gets gets rewarded both.
In share buybacks and dividends, but also rewarded to appreciation in value and price.
Deploying the capital in value creative ways. So we'll look at all of those but it's hard to specifically call out timing for any acquisition or any organic opportunity. It's really a function of really finding the right value in putting the capital to work and Thats really been our practice over many years.
Understood. Thanks for indulging my follow ups.
Happy to.
Now at this time the Q&A session has ended are there any closing remarks.
Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our second quarter 2022 results.
Thank you for participating in today's Westlake Corporation first quarter earnings Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has ended and may be accessed until 859 P. M. Eastern time on Tuesday May 10, 2022, the replay can be assessed.
By calling the following numbers.
Caller should dial 8558592056 international callers may access the replay at 4045373406.
Access code for both numbers is 4246547 goodbye.
Yes.
Okay.
Sure.
[music].
Yes.
[music].
Sure.
Yes.
[music].
Yes.
Okay.
Yes.