Q3 2022 Westlake Corp Earnings Call
Okay.
Yeah.
Good morning, ladies and gentlemen, and thank you for standing by and welcome to the Westlake Corporation third quarter 2022 earnings conference call.
During the presentation, all participants will be in a listen only mode.
The Speakers' remarks, you will be invited to participate in a question and answer session.
Ladies and gentlemen, this conference is being recorded today November three 2020, Q 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.
Morning, everyone and welcome to the Westlake Corporation Conference call to discuss our results for the third quarter 2022.
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.
During the call we will refer to our two reporting segments performance.
Performance in our central materials, which we referred to as pen or materials and.
In housing and infrastructure products.
Which we refer to as hip or products.
Today's conference call will begin with Albert who will open with a few comments regarding Westlake performance Steve.
Steve will then discuss our financial and operating results after which Albert will 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 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 third quarter results. This document is available in the press release section of our website at Westlake Dot com.
We have also included an earnings presentation.
Which can be found in our in the Investor Relations section on our website.
A replay of today's call will be available beginning today two hours following the conclusion of this call.
This replay may be accessed via Westlake website.
Please note that information reported on this call speaks only as of today November 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'd like to turn the call over to Albert Chao Albert.
Hey, Jeff Good morning, everyone.
We appreciate you joining us to discuss our third quarter 2022 results.
In this morning's press release.
Reported net income for the third quarter of 2022.
$401 million.
Our $3 10 per share on sales of $4 billion.
We're all keenly aware of the changes in the global economic conditions with rising interest rates high energy prices and decelerating growth across our end products and markets.
That have occurred since midyear 2022.
During the third quarter, our earnings were pressured by higher energy costs, particularly in Europe .
Celebrating industrial and construction activity.
And inventory destocking by our customers.
Westlake has proactively taking steps to navigate these market uncertainties.
To align our production to meet demand and prioritize higher value products.
Our energy and feedstock advantage in North America, where over 85% of our global production capacities positioned provided.
Opportunities to reach export markets.
Domestic construction and building demand for PVC in the U S slowed.
Thus our product portfolio with a concentration in North America.
<unk> to leverage the benefits from the structural cost advantage in feedstocks too and power.
This cost advantage combined with our ability to scale our operations to meet market conditions.
Westlake in a good position to navigate through this challenging economic environment.
Slowing demand for PVC and building products tightened markets for Chlor alkali and dose improved markets for caustic soda.
As a leading chlor alkali producer in North America pricing strength in caustic soda positioning us to capture strong margins in our quarterly.
In this quarter, partially offsetting lower margins in our other products.
Our leading positions in large diameter, PVC pipe and fittings continue to perform well in the third quarter and is well situated to benefit from government spending infrastructure projects for years to come.
I would now like to turn our call over to Steve to provide more detail on our financial results for the third quarter 2022.
Thank you operator, and good morning, everyone.
This quarter Westlake reported net income of $401 million or $3 10 per share on sales of $4 million, which includes a $70 million or <unk> 42 cents per share legal charge for pending litigation matter.
Net income for the third quarter of 2022 decreased $206 million from the third quarter 2021, and $457 million from the third quarter of 2022.
As Eric mentioned in his opening remarks, our results were impacted by the slowing economic environment, which began to unfold late in the second quarter and continued throughout the third quarter and a $70 million charged to our cost of goods sold from our pending litigation matter.
Rising global energy prices, particularly in Europe , which began in early 2022 continued throughout the third quarter, while lagging economic growth in Asia, and Europe combined with rising interest rates in the U S led to softer demand for many of our products globally and pressured profitability.
We proactively lowered operating rates, we shifted our sales mix to match market conditions. For example in Europe , we reduced production for Chlor vinyls and epoxy resins to match demand.
While in North America, we shifted PVC resin and polyethylene sales to export markets to offset weaker domestic demand, including from our own hip segment.
These efforts allowed us to maintain a solid EBITDA margin of 20%.
Moving to our segment performance our performance in our central materials segment third quarter 2022, EBITDA decreased $385 million from the third quarter of 2000 $21 million to $561 million on sales of $2 7 billion.
As compared to the third quarter of 2021, the performance materials portion of this segment increased sales by $101 million to $1 7 billion largely driven by contributions from our acquisition of a policy earlier this year.
Meanwhile, our central materials sales increased $288 million.
Year over year to $1 billion, driven by higher sales prices for caustic soda.
As compared to the prior year period, our earnings were impacted by lower integrated margins for all of our products and our performance materials business, especially in the PVC export markets lower production and sales volumes for Chlor alkali and PVC resin, particularly in Europe .
Higher feedstock fuel and power cost and higher turnaround activity.
These headwinds these headwinds were partially offset by higher production and sales volumes for polyethylene and higher prices for caustic soda, where the global supply demand balance tightened as a result of lower operating rates.
Segment EBITDA of $561 million decreased $601 million from the second quarter of 2022.
This sequential decrease in EBITDA is a result of lower integrated margins are our performance materials.
Particularly PVC lower production and sales volumes for our Chlor vinyls, and epoxy resins higher feedstock fuel and power cost and the $70 million litigation charge.
Compared to the previous quarter. We also benefited from higher sales prices for caustic soda and higher production and sales volumes for polyethylene.
And our building products business hip segment EBITDA for the third quarter of 2022 increased $117 million to $254 million when compared to the third quarter of 2021, which did not include the businesses. We acquired from Boral industries in the fourth quarter of last year.
Housing product sales increased $482 million compared to the third quarter of 2021.
With pricing gains across all of our products along with contributions from the businesses. We acquired in the second half of 2021.
Infrastructure product sales were up $30 million from the prior year period with higher sales pricing across multiple end markets, including irrigation automotive and medical industries.
When compared to the second quarter of 2022 hip segment EBITDA of $254 million decreased $56 million housing.
Housing product sales of $1 billion decreased $98 million, while infrastructure product sales of $227 million decreased $36 million from the second quarter of 2022.
The lower sales and earnings were a result of lower production and sales volumes across all lines in our hip business.
Turning to the balance sheet and cash flows as of September 32022, cash and cash equivalents were $1 8 billion and total debt was $4 8 billion.
Our consistent focus on cash flow generation and working capital management support record net cash provided by operating activities for the quarter of $947 million.
While our capital expenditures for the third quarter of 2022 were $318 million, resulting in solid free cash flow of $629 million.
<unk> balance sheet is well positioned for all phases of the market cycle with trailing 12 month net debt to EBITDA leverage below one times is staggered long term fixed rate debt maturity schedule with no substantial long term maturities until 2026.
In 2022, we renewed our revolving line of credit for five years and expanded it to $1 $5 billion in ensuring additional long term liquidity.
Based on our current view of housing demand construction activities and pricing we are reaffirming our earlier guidance for hip revenue in 2022 to increase by 50% to 60% from 2021 with full year revenue for 2020 to be between $4 5 billion and $5 billion.
Let me provide some guidance for your models.
Our utilization of FIFO method of accounting provides the benefit of rising cost and a headwind in periods of lowering costs as compared to what our results will be reported on a LIFO method.
As a result of the lower cost environment in the third quarter of 2022, we had an unfavorable FIFO impact of $26 million compared to what earnings would have been reported on.
On the LIFO method for the full year of 2022, we expect our effective tax rate to be approximately 23% interest expense to be approximately $170 million.
Capital expenditures of approximately $1 billion and depreciation and amortization expense is expected to be about $1 billion.
Now, let me turn the call over to Albert to provide some current outlook of the business Albert.
Steve.
We have significant scale and leading market positions.
And our products across many geographies and value chains.
And are very well positioned to navigate inflation and elevated interest rates high energy and feedstock cost in Europe .
Any impact from existing geopolitical tensions.
With approximately 85% of our payment capacity concentrated in North America, a benefit from globally cost advantaged feedstocks.
Fuel and power costs.
Our integrated operations.
The flexibility to adjust our position to match demand and optimize our business in a variety of market conditions.
And our hip segment.
Currently rising interest rate.
Has impacted affordability, leading to reductions in new housing starts.
Although we are entering the season seasonal winter slowdown in construction activity.
Near term demand should be bolstered by the current lease started and finished housing stock which is at a recent high.
The doubling of mortgage rates over the past six months will likely lead to lower new housing starts as we move through 2023.
However.
The slowing of new residential housing starts.
I encourage people to invest in and upgrade our current homes.
Spurring demand for our products for repair and remodeling or R&R activity.
Which represents about 50% of our housing products offerings.
These factors combined.
Combined with our housing stock that averages 40 years old across the country.
Divide a strong foundation for our repair and remodeling market.
New home construction.
Further historical under building of new homes over the past decade.
And favorable demographics.
Support attractive long term fundamentals.
The reason recently passed infrastructure Bill.
Spur new demand for both of our segments.
As our PVC resin and pipe and fittings products.
A well suited to refurbish America's aging water infrastructure.
A proxy products are critical in windmill blades for alternative energy productions.
As well as coatings on bridges and other structures.
We will also continue to benefit from the integration of the recently acquired businesses and our steady stream of innovative products.
Expanding our overall market product offerings, and providing more opportunity to cross sell products improve our operations and generate efficiencies and increased vertical integration of our operations.
We have a strong balance sheet.
Ample liquidity at.
And our long dated fixed rate debt balance.
With no meaningful near term maturities.
The combination of robust cash flow generation capability.
And an investment grade rated credit profile.
Enable us to deploy capital in a disciplined manner to grow shareholder value as we advance our sustainable.
Sustainable product offerings.
We're.
Are you doing to innovate to drive value now and into the future.
We are committed to increasing the sustainability of our operations and our product offerings and advancing our ESG initiatives.
Our product innovation pipeline continues to introduce new and sustainable products.
As we work towards reducing our carbon intensity.
And to meet the needs of society, such as lower carbon based caustic soda and PVC vinyl.
<unk> based solutions for building materials.
<unk> carbon footprint PVC pipe.
In a post consumer recycle based polyethylene.
In consumer products.
Using recycled plastic material.
Looking ahead to remainder of the year.
Given the normal seasonal declines in construction activity in the fourth quarter.
Volumes and prices will reflect this lower demand level.
While lower feedstock and energy cost may soften this impact.
As we head into 2023.
The global macroeconomic environment remains very dynamic.
That said, we expect our north American feedstock and few advantage will continue.
We undertake cost reduction of efforts.
Manage our business to match market conditions.
We expect to see a release of working capital in the fourth quarter.
And we intend to deploy that capital in a shareholder friendly manner.
<unk> the use of our recently board approved $500 million increase in our share repurchase authority.
Thank you very much for listening to our third quarter earnings call.
I will 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 information again at the end of the call Hailey, we will now take questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced with limited time, we'll only have time for one question and a follow up please standby, while we compile the Q&A roster.
Our first question will come from Michael <unk> from Wells Fargo. Michael Your line is open.
Hey, guys.
Hi, Julien.
I guess my first question is when you think about.
Some momentum in chlorine and caustic pricing and you look historically they've had momentum heading into recession can you maybe talk about the potential for those to stay pretty pretty healthy as we head into 2023.
Hey, Michael It's Roger currency here, Yes couple of calling on that we are certainly seeing momentum on the chlor alkali side of the business continuing.
But as chlorine demand kind of pulls back on the PVC and other derivatives, we will see production dropped a little bit which is certainly supporting pricing on the caustic side, but we're also still seeing good strength on the the merchant chlorine side I would say outside of PVC and the other big polymers.
So we expect that to continue at least say in through Q1.
Okay, and then in terms of your EBIT margin in about mid teens now.
When you think about a downturn in 2023 for housing debatable.
To what degree.
Where do you think margins will settle in for that segment.
Given that.
It's been above 20% for the last prior couple of quarters, and we're sort of back to the mid teens.
So Mike Steve when you think about the performance that we've had in the preceding three quarters, we delivered a 20% margin in the most recent quarter for hip and we had north of that in the previous two quarters and so I think you see that business has got significant scalability to it and.
And we think though while we see the headwind certainly in housing starts we think that business continues to perform very well given the headwinds and the affordability of <unk>. So that business, we continue to see performing very well.
Great. Thank you Youre welcome.
Okay. Our next question will come from <unk>.
All lines.
Yes, John .
Sorry go ahead.
Sure Good morning, Albert and Steve just to divest for John we.
Within your hip segment can you provide some color on where the inventory levels out at at yours, and your customers' level right now and then we didnt within that is there a difference between your PVC and non PVC based products.
So from an inventory level, you've seen some of the Destocking that's occurred and as Albert noted in his comments certainly we're entering a slower construction season over the course of the fourth quarter and typically the fourth quarter and the first quarter of the years are seasonally slower in the construction season because of weather.
And so you would imagine that as we think about the inventory levels for our business and for our customers levels. They have certainly destock because of those seasonal concerns and certainly because of some of the headwinds. We've seen in housing have also de stocked accordingly, but as we look forward, we continue to see opportunities to build.
Two customer demand levels for those inventory levels.
Got it and then on PVC.
<unk> seen some notable price declines over the past three to four months when do you think BDC spot and contract prices stabilize and what do you think needs to happen for that to happen.
Hey, Bob This is Roger yes, we've seen PVC prices dropped.
Dropping certainly.
Significantly in the export markets.
Certainly more than the domestic market I think we have two things going on we have the normal seasonal slowdown that we would always see as we come to the end of the year, but we've also had the I'd say, our mentality shift of coming out of Covid for almost two years PVC has been extremely tight you couldnt get enough people were ordering often in early I would say and there is a bit of a shift.
Now to say, okay supply is available and so the inventories are running down because the buyers know that they are able to get it now when they want it so I think that shift a little bit the whipsaw of inventory reduction in addition to the normal seasonal slowdowns.
And the real driver on this though is is China, China demand is still quite slow.
Seen China actually.
Increased our exports quite significantly in the second quarter, but we've seen those reduced in the third quarter and in fact, we're going into the fourth quarter now with China exports being similar to what I would say is 'twenty one because.
Actually the carbide producers that are non integrated are underwater today and the integrated carbide producers are basically flat and so it's just becoming.
An issue, where China's demand is slow, but we see their production slowing to match.
Thank you. Our next question comes from Al Keith If Rivas from Keybanc capital.
Thank you good morning, everyone.
Wanted to follow up on the PVC price question.
There's quite a bit of difference there as im sure Youre aware between domestic contract in export prices.
So I guess the question is partially people actually.
Customers transacting.
Current domestic contract price.
Or are they getting deep discounts and is this more of a price discovery issue or are you truly getting.
Fairly significant premium in the domestic market and if so do you think this premium can be sustained for some time.
Yes.
This is Albert as Walter said.
That's a major reduction in export prices, because China, rather in China as the largest producer of PVC in the world and largest consumer PVC in the world, but because the lockdown economic slowdown, especially province in the construction industries <unk> dropped sharply and export despite the high cost with carbide position.
And many of the countries around the world, especially in developed countries to not accept a carbide based PVC.
As raw material. So we don't see impacting the north American market to the downstream finished part on PBC in the U S mainly as construction materials and not much about Congress material finished products op.
Export to the U S and Asia.
So even though the export market prices low we don't see.
Huge impact on the domestic market prices, even though it doesn't impact however, it does impact our export price so when U S companies export PVC.
A match.
Export PVC price was impacted by Chinese PVC exports.
Thank you Albert.
I looked at it recently.
Changes in the LNG market.
European energy prices are much lower.
Recently, there is some more specifics around <unk>.
Germany, capping industrial power prices as well.
Caustic soda prices are up meaningfully.
Could you.
Sure.
Maybe.
Some sense of chloro vinyls profitability could actually improved from the fourth quarter given all these dynamics.
Do you think it's still okay.
Alexander.
EBITDA is still flat to down in Q4.
Yes, Roger Q3 was extremely difficult in Europe with the spike in both natural gas and energy pricing and so with what we're seeing today, especially if that was to hold we would see Europe being significantly better than Q4.
For Chlor vinyls.
Alright. Our next question is coming from the line of Kevin Mccarthy.
Vertical research partners.
Yes, good morning.
If market conditions slowing how will you manage the company differently for example.
On the Perm segment, I think you referenced turning down some operating rates in Chlor alkali and vinyls and <unk> in Europe .
Do you think youll need to throttle back operating rates in the U S or accelerate maintenance activity for example that would be my first question.
Yes, so its rodger again, sorry, I think if I look at where we are sitting here in Q4, we had in Q3, a quite significant turnaround activity and in Q4 today in our proxy business. We've got several of our plants down for turnaround so as demand has pulled off.
Fortuitously, we've had our turnarounds planned at this time, so we're able to get a fair amount of the maintenance done here in Q3 and in Q4.
In preparation for that I think the other piece, we'll see both in hip segment and in the <unk> business.
We continue to work on creating synergies from the acquisitions and we will be accelerating that.
The coming quarters as business slows down just a little bit and we've been able to come back and bring our all of our processes manufacturing delivery into a much more let's say organized way as opposed to that.
The pace that's been in the last 18 months.
Okay.
Secondly.
We don't have a tremendous amount of history for your hip segment, you re segmented the company and Theres been acquisition activity and so forth. So can you how would you characterize typical seasonality in the fourth quarter versus the third quarter, how much would we normally you expect sales to be down.
And then given the cyclical pressures.
Do you think this year would compare to a normal year.
Yes, so Kevin from a seasonality perspective, we have started seeing some of that come in obviously in late third quarter and part of that was weather driven part of that was also because of the affordability issues and so as you get into the fourth quarter, you do see some of that seasonality come into play and so.
The slowness that we typically see has started to come into the period of time.
That we're in today being mid November at this stage.
And so as we continue into the first quarter you will see.
That restart of construction activity begin to pick up mid first quarter of 'twenty three.
So we've seen that pull back already in the housing business in the third quarter.
You won't see a proportional drop in the fourth quarter as you've seen in the third quarter because of the strong headwinds you will continue to see I think some.
Restocking as we get into the first quarter.
Seasonal construction activity begins to reestablish itself.
Our next.
Question comes from.
Josh Spector from UBS go ahead Josh.
Yeah, Hi, Thanks for taking my question I just wanted to follow up on the European Energy response earlier, so just understanding it's smaller for you, but just wondering if there's any way to quantify the added sequential impact.
Between Q3, Q and how that impacted your pen segment.
Well.
As Roger said in the third quarter, the high energy cost both for natural gas and electricity.
Definite impact.
On the profitability and the demand for European products.
And even though right now we are seeing.
King.
It dropped the energy price.
We don't know how long that will continue and some other government incentives are not quantified yet and it's still going through a political approval process with you.
So we think that it will be.
Or long term impact and people talk about 2023, how much natural gas.
Storage European buildup, and depending of course with nobody knows.
Geopolitical dynamics going on in Europe .
So we think the European going forward, we'll still have energy crisis to face until the geopolitical issues result.
Okay, Thanks, and if I could just ask.
Willing to share your.
What are your operating rates in <unk> in North America versus Europe , and do they come down further in the fourth quarter.
From where we are today.
North American operating rates are commensurate with the industry operating rates.
And for Europe , and probably you can measure it is not well.
Published index also European industry rates, but has come down substantially as Roger has alluded to.
Yes.
Okay. Our next question comes from Frank Mitsch.
From the Permian.
Hey, good morning, if I could follow up on the on the <unk>.
Turnaround question that was asked earlier, just curious as to what the what the.
Net impact was of some of the outages.
In the third quarter and how we can compare and contrast that with what your planned outages are in the fourth quarter.
So Frank a lot of those expenses related to the turnarounds get capitalized and then get expensed over typically a period of five years and so.
The impact that Roger referred to is certainly impacting production, but the financial impact yet.
Capitalized and then we'll expense at over typically a five year period, so you'll see that increase in other assets on the balance sheet and then that gets amortized ratably over a five year period of time.
So not so we shouldnt think about.
A material shift.
In <unk>.
Profitability <unk>, just based on the planned and unplanned outages that you've experienced.
Okay.
It'll be relatively small impact driven by the turnaround of impact.
Thank you and given the fact that portfolio has materially changed.
Changed over the recent past I'm curious, how you think about.
The mythical.
Trough EBITDA levels or the earnings power of Westlake.
In a typical trough environment, how would you answer that question.
So as you think about.
The change in portfolio, Frank you're right and I think <unk> seen that when you look at the margin performance of the hip business you can see that it is very scalable and so certainly you can see the performance in the third quarter with a 20% EBITDA margin that business is not as capital intensive and it has the ability to scale well.
And either end of the cycle, you can add to or reduce lines operating lines.
And so it has an ability to be very scalable certainly as you know well on the chemical side.
There are certain levels from an operating rate perspective, where you end up having a lot of fixed costs that just goes absorbed because you get to too low an operating rate.
So you have a lot more scalability on the building products side and certainly you can see that the actions that we took in the third quarter reflect that and that's how we maintain a very strong 20% EBITDA margin in the hip side of the business.
Yes, Frank this is al but also no.
Many of our products really essential you see during the pandemic.
Our production and demand for our partners.
The increase and we believe that.
Our demand is still pretty strong other than building material, which is impacted by new construction, but we have.
Okay modeling, which is a 50% of our products and our building materials market that should be pretty still doing quite well during the downturn.
So we believe that near term, yes, there'll be fluctuations, but really on a relative basis the demand for our products still very strong.
And we have the cost of energy.
Energy cost advantage around the world.
Supply from North American productions.
We are leading producers of any other products.
And we believe housing market will return and new housing material, even though the discussion of a slowdown in new home construction with following about a high teens high single digit decline. So it's not a substantial decline in.
So we think that.
Near term there'll be fluctuations kilometer basis, which should be very strong positions.
Our next question comes from the line of Jon Raviv.
Yes.
Good morning, Matt Skowronski on for John .
Some new polyethylene capacity coming online in North America can you talk about how you envision high demand for the next few quarters.
Yes, it's Roger and I think we've got.
One plant that's kind of in the process of starting up now the others have been delayed a bit in the second quarter, but.
I think the market is actually priced this and this has been seen in unexpected for quite some time coming up so I think over the next three quarters, we'll see a bit more.
Supply come in but.
Global demand and certainly with the U S advantage.
Most of that will be exported.
Hey, Joe.
I think of those new capacities are high density in yellow the more commodity grades and for Westlake, 80% of our polyethylene is LDP and big part of that specialty otp.
Linear low side, we also have.
A portion of that is being specialty.
Hello, So it will have some impact, but not directly confronting those new capacities.
Understood. Thank you and then can you comment on your M&A pipeline and if you would consider a more substantial deal than the smaller bolt ons that <unk> been doing.
So we will continue as you would guess always Matt to look at opportunities that are out there and so it is always a function of looking at the right opportunity and the right value for that opportunity throughout any stage of the business cycle. So as you can see we still have a very strong balance sheet generated very strong liquidity and I. Thank you.
So in our prepared remarks that we'll look for ways to deploy that.
In value added ways.
There are a variety of ways to do that and so certainly as we see good opportunities that may compellingly. Good returns, we have the firepower to be able to do that and keep our balance sheet really in a strong position even after having done so.
Thank you.
Perfect. Our next question comes from the line of Hassan Ahmed.
Good morning, Albert and Steve.
Just wanted to take another crack at the trough earnings power question.
As I take a look at Q3, it just seemed like the business environment was the worst with everything right I mean ridiculously high European gas price is destocking.
China Covid Lockdowns.
PVC margin sort of.
Rick even to negative across the board. So so even in that environment. Obviously, you guys generated $800 million in quarterly EBITDA.
Not to mention epoxy margins, some competitors of yours, calling them even below trough.
So my question is is this 800 million.
A good sort of guesstimate of what trough quarterly sort of EBITDA should be so call it $3 2 billion annualized.
And so Sean good question and I think you can see there is still some.
Some forecast showing exit.
Prices certainly in PBC to trend to trend lower so I wouldn't want to suggest that the average price. We saw in say vinyls is reflective that certainly you've seen strength really is both.
Albert and Roger commented in the cost side of the business.
And as Roger also noted I think the market is factored in the new polyethylene additions that we see in the marketplace and their forecast for polyethylene prices.
But I would say that with the destocking levels that we've seen both in polyethylene and PVC and other products that we will continue to see I think opportunities to continue to grow the business, but I would say there is still risk and pricing that you're seeing some of the forecasts that are out there.
Understood understood very helpful and as a follow up.
We continue to see pricing momentum bullets in chlorine and caustic and the industry recently has done a very good job at focusing on value over volume right and it seems that discipline continues. So the question really is on the chlorine side in a recessionary environment I can continue to sort of <unk>.
We're comfortable that chlorine, obviously, its gaseous nature and the like is a very local market caustic obviously on the other hand is not so.
What.
Gives you guys state or comfort.
The current sort of caustic pricing regime in a recessionary environment would continue I mean could we sort of see a situation where.
Trade flows start sort of negatively impacting the caustic side of the market.
Yes, science, Roger I think Youre, a little bit right in the comment on Korea, and the way you export flooring as you export PVC normally so that's that will continue I think because of the U S position on feedstocks and raw materials versus the rest of the world. So I think there'll still be able to push chlorine now.
Caustic.
As that slows, though if if producers pull back it will reduce a bit the caustic volumes out there available and we'll keep that caustic side tight and we see this each cycle is they will move back and forth. If you think back in 'twenty. One caustic was about six months behind chlorine running up it usually comes late to the party and it stays a little longer at the party and we expect.
To see that again this time.
Alright. Our next question comes from the line of David Begleiter.
Thank you good morning.
You are a proxy profitability how it trended in Q3, and what you're looking forward, we're expecting or looking for in Q4.
Yes, Roger I think on a proxy we continue to see three cities, we see China, which is extremely difficult with demand dropping quite low and exports coming out of China.
Europe demand was better but with the high energy prices. It squeeze profitability certainly in Europe , and the U S continues to be the bright spot with both better better demand and lower costs. So.
I'd say overall we.
We would love to see China, restart Thats pretty significant move for especially for the wind energy business to see that where you're going but we continue to see U S. Okay.
As energy prices drop in Europe , once again that will be positive for our European epoxy business.
Very good and Steve just on <unk>.
Buybacks, maybe your cash balance.
How much cash do you want to carry going forward and should we expect some higher levels of buyback activity even in Q4.
So David.
When you think about the minimum cash balance you want to maintain its between $501 billion and so when you think about where we are in the cycle and as we commented we're going to see a pretty substantial inflow of working capital over the course of <unk> and <unk>.
And so when you think about where we ended the quarter at $1 $8 billion of cash and cash equivalents plus the inflow of a strong working capital inflow over the course of the next of the fourth quarter, we have substantial firepower to really deploy that in shareholder friendly ways.
And so I'm not too concerned about.
About the ability to either buy shares back or deploy it and other fashion. So there's plenty of capital really to put to work if we see the opportunity there.
Thank you very much.
Welcome.
Our next question comes from Andrew Costello.
Andrew Your line is open.
Hi, This is alyssa on for Andrew Thanks for taking my question.
You reaffirmed your 2022.
The new guidance of four five to 5 billion do you mind, breaking that down for us and maybe speak to your expectations on volume versus pricing.
Yes, so certainly when you see that we've seen some pullback in some of the pricing in PBC. As an example, we set certain seasonal prices in with many of our distributors. So there is an opportunity to see some opportunity to see some margin growth, but certainly given a seasonal slowdown.
In the winter months, certainly volumes will continue to slow.
The new starts, but certainly remember half of our.
Businesses in the repair and remodeling business and so certainly typically that.
That activity is much more resilient in periods, when we see a slowdown in new start activity.
So I do expect that we'll continue to see strength in the R&R side of the house.
Got it.
Helpful.
Noted earlier, you guys were able to maintain that 20%.
Margin in <unk> is there something happening under the Hood, there that we should be mindful of that.
Selling to allow you to sustain this level of profitability.
I think the comment that we spoke to is it is a combination of product mix as well as the ability to adjust.
Reduction to demand levels and so this business is very scalable and so as we see demand levels.
Ratchet up a ratchet down we have an ability given the.
The way this business operates to adjust.
On a very scalable manner.
So it's a business that is much more scalable than some of our more higher fixed cost businesses say on the chemical side of the house and so as demand adjust we can run production to meet that operating debt and meet that demand level.
Thank you. Our next question comes from the line of Matt <unk>.
Bank of America.
Yes.
Good morning so.
Obviously, a lot of puts and takes and we are still early in the quarter.
Let's see if I can.
Yes.
Get something idea on this one I guess, but obviously you mentioned lower.
Exit rate on vinyls prices oxy is still pretty weak, but we have lower gas prices lower ethylene cash cost higher chlor alkali levels.
So when you sit back.
And take a look at the bridge for next quarter I mean.
Using pen can kind of hold in here or do you expect the exit rate on vinyls and volumes.
Volumes to carry you lower quarter over quarter.
We will continue to see I think some declines really in PVC and polyethylene as we worked through the inventory levels and a slowing seasonally slowing area. So remember third quarter with an average really of that of that declining period of time and so we're certainly exiting at a time, where the average price.
And some of these volume some of these products will certainly average lower.
Can you talk a little bit about I guess your mix to export versus domestic PVC on the quarter you seem to say with U S. Slowing you put more into the export market I think you were.
Typically like 20% export.
Can you comment I guess on where that was for <unk>.
And so when you think about or when you think about the industry exports for polyethylene they tend to run.
Somewhere in the if you think about that the industry has been running traditionally.
In the high 30% to 40% and we typically export lower than that.
In the third quarter, we did have a more elevated level of exports both in polyethylene as well as in PBC. So the product shift in the third quarter was a higher mix of export exposure than as a typical run rate for ourselves.
Okay, and just a reminder for parts and components that we would like to ask.
Further questions.
Star one one on your telephone.
Yes.
Our next question comes from the line of Matthew Blair.
Hey, good morning, Albert and Steve.
Good morning, Matthew.
You mentioned that you had reduced operates to match up with demand does that apply to pay and the reason I ask because one of your.
Of your global competitors is talking about operators still in the mid 90% range and I'm wondering if you have any comments on that.
And so that was a comment related to the overall <unk> segment of the business and so certainly when you think about some of the performance related products that we produce especially in polyethylene.
Where you see higher value added, we certainly will again adjust market demands and market demands and that more specialty and we're stronger in the quarter I don't know Roger if you'd like to add I would say in polyethylene you'd noticed even in our press release, we actually said higher volumes in polyethylene. So our specialties have remained quite strong.
The demand is good on that side of the business and that's about half of our business at least.
Great. Thanks for the color and then is there still interest in your green caustic product in this environment.
Our pricing premiums for that product trending.
Yes, so we introduced.
Kind of a lower carbon costs seek in Europe , almost I guess a year now and it's continued to grow we're seeing demand in Europe .
Since then introduced the lower carbon PVC and then most recently.
<unk> attribute it ethylene.
Ethylene PVC, which actually has about 90% lower <unk>. So we're continuing to push down that path of creating products that are less cotwo intensive I think it's quite important for our industry.
Premiums premiums are related really to our cost to create those and we're continuing to cover any extra cost that we have on those.
Okay.
This time, our Q&A session has now.
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 fourth quarter and full year results.
Thank you everyone for participating participating in todays West Corporation third quarter earnings Conference call.
This call will be available for replay beginning two hours after the call has ended.
Yeah, Seth Westlake website, thank you and have a great afternoon.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Yes.
Yes.
Okay.