Q1 2024 Westlake Chemical Corp Earnings Call
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Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Westlake Corporation First Quarter 2024 Earnings Conference Call. During the presentation, all participants will be in listen-only mode. After the speaker's remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, May 1, 2024. I would now like to turn the call over to today's host, John Zeller, Westlake's Vice President and Treasurer. Sir, you may begin.
Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by welcome to the Westlake Corporation first quarter 2024 earnings conference call. During the presentation, all participants will be in listen only mode.
Speaker Change: After the Speakers' remarks, you'll be invited to participate in a question and answer session. As a reminder, ladies and gentlemen. This conference is being recorded today may 1st 'twenty 'twenty four I would now like to turn the call over to todays host John Zeller, Westlake, Vice President and Treasurer.
John Zeller: You may begin.
John Zeller: Thank you. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2024 results. I am joined today by Albert Chao, our President and CEO, Steve Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During the call, we will refer to our two reporting segments, performance and essential materials, which we refer to as PEM or materials, and housing and infrastructure products, which we refer to as HIP or products.
John Zeller: Thank you good morning, everyone and welcome to the Westlake Corporation Conference call to discuss our first quarter 2024 results.
John Zeller: And today by Albert Chao, our President and CEO.
John Zeller: Steve Bender, our executive Vice President and Chief Financial Officer, and other members of our management team.
John Zeller: During the call we will refer to our two reporting segments performance in our central materials, which we referred to as palmar or materials and 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 will then discuss our financial and all.
John Patrick McNulty: Today's conference call will begin with Albert, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which Albert will add a few concluding comments, and we will open the call to questions. As a reminder, during the fourth quarter of 2023, we recorded a non-cash impairment charge of $475 million related to the company's epoxy business, as well as a $150 million charge to fully resolve certain liability claims.
John Patrick McNulty: We refer to these two charges as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income, and earnings per share on this call exclude the financial impact of the identified item. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the investor relations section of our website.
John Zeller: Writing results after which Albert will add a few concluding comments and we will open the call up to questions. As a reminder, during the fourth quarter of 2023, we recorded a noncash impairment charge of $475 million related to the company's epoxy business as well as the $150 million charge to fully resolve.
Speaker Change: Certain liability claims.
Speaker Change: We refer to these two charges as the identified items in our earnings release and on this conference call references to income from operations EBITDA net income and earnings per share on this call exclude the financial impact of the identified items.
Speaker Change: As such comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the investor relation relations section of our website.
John Patrick McNulty: 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. Such forward-looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties.
Speaker Change: 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.
John Patrick McNulty: These risks and uncertainties are discussed in Westlake's Form 10-K for the year ended December 31, 2023, 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.com.
Speaker Change: These forward looking statements suggest predictions or expectations and.
Speaker Change: They're subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake Form 10-K for the year ended December 31, 2023, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing the SEC filings, which are also available.
Speaker Change: On our Investor Relations website.
Speaker Change: 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 we.
John Patrick McNulty: We have also included an earnings presentation, which can be found 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's website. Please note that information reported on this call speaks only as of today, May 1st, 2024, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay.
Speaker Change: We have also included an earnings presentation, which can be found in the Investor Relations section on our website.
Speaker Change: A replay of today's call will be available beginning today two hours following the conclusion of this call.
Speaker Change: This replay baby, maybe accessed via web West Lakes website.
Speaker Change: Note that information reported on this call speaks only as of today may <unk> 'twenty 'twenty four and therefore, you're advised that time sensitive information may no.
Speaker Change: Longer be accurate as of the time of any replay.
John Patrick McNulty: Finally, I would advise you that this conference call is being broadcast live through an internet webcast system that can also be accessed on our web page at westlake.com. Now, I'd like to turn the call over to Albert Chao. Albert. Thank you, John.
Speaker Change: Finally, I would advise you that this conference call is being broadcast live through an internet webcast system that can.
Speaker Change: Can also be accessed on our webpage at Westlake Dot com.
Speaker Change: Now I'd like to turn the call over to Albert Chao Albert.
Albert Yuan Chao: Thank you, John. Good morning, everyone.
Albert Yuan Chao: Thank you Joe good morning, everyone, where.
Albert Yuan Chao: We appreciate you joining us to discuss our first quarter 2024 results. For the first quarter of 2024, we reported net sales of $3 billion, a bid of $546 million. A net income of $174 million, or $1.34 per share. Both were an improvement from our fourth quarter of 2023 results, as we benefited from higher sales volume and lower fuel and power costs. Our results reflect a modest improvement from the destocking activity that occurred throughout 2023.
Albert Yuan Chao: We appreciate you joining us to discuss our first quarter 2024 results.
Albert Yuan Chao: For the first quarter of 2024.
Albert Yuan Chao: We reported net sales of $3 billion.
Albert Yuan Chao: EBITDA of $546 million.
Albert Yuan Chao: Net income of $174 million.
Albert Yuan Chao: Or $1.34 per share.
Albert Yuan Chao: Each was an improvement from our fourth quarter of 2023 results.
Albert Yuan Chao: As we benefited from higher sales volume and lower feedstock fuel and power costs.
Albert Yuan Chao: Our results reflected a modest improvement.
Albert Yuan Chao: From the Destocking activity that occurred throughout 2023.
Albert Yuan Chao: As we saw, higher sales volumes and pricing in many of our products began to improve. Our hip segment performed exceptionally well, generating record first quarter EBITDA and margins, while providing stability to our overall profitability and earnings with an asset-light, cash-generative business model. HIP sales volume grew an impressive 14% year over year, as our leading positions enabled us to capitalize on resilient North American residential construction and infrastructure activity.
Albert Yuan Chao: We saw higher sales volumes and pricing in many of our products begin to improve.
Albert Yuan Chao: Our hip segment performed exceptionally well.
Albert Yuan Chao: Generating record first quarter, EBITDA and margins while.
Albert Yuan Chao: While providing stability to our overall profitability and earnings with an asset light cash generative business model.
Albert Yuan Chao: Hip sales volume grew an impressive 14% year over year.
Albert Yuan Chao: As a leading positions enabled us to capitalize on resilient North American residential construction and infrastructure activity.
Albert Yuan Chao: This solid sales volume growth, combined with lower material costs and favorable sales may have dropped HIPPS's EBITDA margin to 25% in the first quarter of 2024, up from 20% in the prior year period. While our HIP segment continued to perform well, margins and earnings in our PEM segment reflected the weak global economic conditions in the first quarter of 2024. Our PEM segment reported lower net sales and margins when compared to the first quarter of 2023.
Albert Yuan Chao: The solid sales volume growth.
Albert Yuan Chao: Combined with lower material costs and favorable sales mix drove hips EBITDA margin to 25% in the first quarter of 2024.
Albert Yuan Chao: Up from 20% in the prior year period.
Albert Yuan Chao: Well hip segment continued to perform well margins and earnings in our payments segment reflected the weak global economic conditions.
Albert Yuan Chao: For the first quarter of 2024.
Albert Yuan Chao: Our payments segment reported lower net sales and margins.
Albert Yuan Chao: When compared to the first quarter of 2023.
Albert Yuan Chao: But we are encouraged by the sequential improvement in these metrics when compared to the fourth quarter of 2023. The sequential improvement in pen volumes from the fourth quarter of 2023 reflects demand beginning to recover and an end to the distorting activities we experienced throughout 2023. With this improvement in demand, we are also seeing some pricing trends improve as we enter the second quarter. Meanwhile, the competitive advantage provided by our low-cost feedstock energy positions in the U.S. Gulf Coast expanded during the first quarter of 2024 due to both higher global oil prices and lower U.S. feedstock and power prices, which positioned us well to compete in export markets.
Albert Yuan Chao: But we are encouraged by the sequential improvement in these metrics.
Albert Yuan Chao: When compared to the fourth quarter of 2023.
Albert Yuan Chao: The sequential improvement in volumes from the fourth quarter of 2023.
Albert Yuan Chao: Reflects demand beginning to recover and an end to the destocking activities, we experienced throughout 2023.
Albert Yuan Chao: With this improvement in demand, we're also seeing some pricing trends improve.
Albert Yuan Chao: As we entered the second quarter.
Albert Yuan Chao: Meanwhile, the competitive advantage provided by our low cost feedstock energy positions in the U S Gulf Coast <unk>.
Albert Yuan Chao: Expanded during the first quarter of 2024 due to both higher global oil prices.
Albert Yuan Chao: And lower U S feedstock and power prices.
Albert Yuan Chao: Which positioned us well to compete in export markets.
Albert Yuan Chao: At the same time, we are making progress on our cost reduction actions, and in the first quarter of 2024, we achieved approximately $35 million towards our previously communicated $125 to $150 million of targeted 2024 cost savings across the company, with a focus on improving the global competitiveness of our epoxy and European operations. While we are confident in our ability to reduce our costs to improve our competitiveness, our epoxy business continued to be pressured by Asian export volumes priced below market-based production costs as a result of April 3rd, as a member of the U.S. Epoxy Resin Producers Ad Hoc Coalition.
Albert Yuan Chao: At the same time, we're making progress on our cost reduction actions.
Albert Yuan Chao: In the first quarter of 2024, we achieved approximately $35 million towards our previously communicated $125 million to $150 million of targeted 2020 for cost savings across the company.
Albert Yuan Chao: With a focus on improving the global competitiveness of up a proxy and European operations.
Albert Yuan Chao: While we are confident in our ability to reduce our costs to improve our competitiveness.
Albert Yuan Chao: Proxies business continued to be pressured by Asian export volumes.
Albert Yuan Chao: <unk> below market based production costs.
Albert Yuan Chao: As a result on April 3rd.
Albert Yuan Chao: As a member of the U S. A proxy resin producers had hawk come coalition.
Albert Yuan Chao: We've participated in filing petitions with the U.S. International Trade Commission and the U.S. Department of Commerce requesting the initiation of anti-dumping and countervailing duty investigations regarding imports of certain epoxy resins from five Asian countries. We remain proponents of the free and fair trade of goods on a global basis. But we also remain committed to working with trade groups, such as the US Epoxy Resin Producers Ad Hoc Coalition, to use all the tools at our disposal to ensure a fair and level playing field in all the geographies in which we operate.
Albert Yuan Chao: Participated in filing petitions.
Albert Yuan Chao: With the U S International Trade Commission and the U S Department of Commerce.
Albert Yuan Chao: Requesting the initiation of anti dumping and countervailing duty investigations.
Albert Yuan Chao: Regarding imports of certain a proxy residence from five Asian countries.
Albert Yuan Chao: We remain proponents of the free and fair trade of goods on a global basis.
Albert Yuan Chao: But we also remain committed to working with trade groups such as the U S. A proxy resin producers AD hoc coalition to use all the tools at our disposal.
Albert Yuan Chao: To ensure a fair and level playing field.
Albert Yuan Chao: All of the geographies in which we operate.
Albert Yuan Chao: Overall, I'm pleased with the progress that we are making to improve our position, our portfolio of businesses, and create value for our shareholders. I would now like to turn the call over to Steve to provide more detail on our financial results for the first quarter of 2024.
Albert Yuan Chao: Overall, I'm pleased with the progress that we're making to improve our position our portfolio of businesses and create value for shareholders.
Albert Yuan Chao: I would now like turn to call over to Steve provide more detail on our financial results for the first quarter of 2024.
Mark Steven Bender: Thank you, Albert, and good morning, everyone. Westlake reported net income of $174 million or $1.34, per share in the first quarter on sales of $3 billion. Debt income for the first quarter of 2024 decreased $220 million from the first quarter of 2023. The year-over-year decline in net income was primarily due to lower average sales prices and margins in PEM, particularly in caustic soda, PVC resin, epoxy resin, which were partially offset by improved sales volumes, lower materials costs, and lower restructuring costs in HIP, will compare to the fourth quarter of 2023, net income, excluding identified items, increased by $81 million in the first quarter, primarily due to higher sales volumes driven by an uptick in seasonal demand and strong market growth, for cost-saving actions and lower restructuring costs.
Mark Steven Bender: Thank you Albert and good morning, everyone.
Mark Steven Bender: Westlake reported net income of $174 million or $1 34.
Mark Steven Bender: Per share in the first quarter.
Mark Steven Bender: First quarter on sales of $3 billion net income for the first quarter of 2024 decreased $220 million from the first quarter of 2023.
Mark Steven Bender: The year over year decline in net income was primarily due to lower average sales prices and margins and perm, particularly in caustic soda.
Mark Steven Bender: See resin epoxy resin, which were partially offset by improved sales volumes lower materials costs and lower restructuring cost in hip.
Mark Steven Bender: When compared to the fourth quarter of 2023 net income excluding identified items increased by $81 million in the first quarter, primarily due to higher sales volumes driven by an uptick in seasonal demand and strong market growth.
Mark Steven Bender: Cost saving actions and lower restructuring cost.
Mark Steven Bender: For the first quarter of 2024, our utilization of the FICO method of accounting resulted in a favorable pre-tax impact of $31 million compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited.
Mark Steven Bender: For the first quarter of 2024, our utilization of the FIFO method of accounting resulted in a favorable pre tax impact of $31 million.
Mark Steven Bender: To what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited.
Mark Steven Bender: Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The record first quarter results in our HIP segment demonstrate the progress we have made in integrating and optimizing the acquisitions of the last few years. HIP's strong 14% year-over-year volume growth in the first quarter, in part, reflects the benefits of the broad branded product set, combined with a much wider geographical footprint, driving cross-selling of our products through nationwide distributors, going into home construction and remodeling. The record first-quarter EBITDA margin of 25% was supported by our cost-savings initiatives, production optimization activities, and lower materials costs. These cost savings go well beyond...
Speaker Change: Before I discuss the details of our segment results I want to provide some high level thoughts on the quarter.
Mark Steven Bender: The record first quarter results and our hip segment and demonstrate the progress we have made in integrating and optimizing the acquisitions of the last few years.
Mark Steven Bender: Hip strong 14% year over year volume growth in the first quarter in part reflects the benefits of the broad branded product set combined with a much wider geographical footprint driving cross selling of our products nationwide distributors going into home construction and remodeling the.
Mark Steven Bender: The record first quarter two the.
Mark Steven Bender: The record first quarter EBITDA margin of 25% was supported by our cost savings initiatives production optimization activities and lower materials cost.
Mark Steven Bender: These cost savings go well beyond <unk>.
Mark Steven Bender: Typical Acquisition Synergies as we implement our efficiency-focused manufacturing culture and increase automation within our operations. Overall, we are very pleased with HIP's asset-light cash-generative business model and solid EBITDA margins. We hope that you will join us on June 13th as we host a HIP-focused investor teach-in event in New York to share more about the exciting progress and opportunities we're seeing in this important segment.
Mark Steven Bender: Typical acquisition synergies as we implement our efficiency focus manufacturing culture and increase automation within our operations.
Mark Steven Bender: Overall, we are very pleased with hips asset light cash generative business model and solid EBITDA margin.
Mark Steven Bender: I hope that you will join US on June 13th as we host a hip focused investor teach an event in New York to share more about the exciting progress and opportunities we're seeing in this important segment.
Mark Steven Bender: Turning to our PIMS segment, our first quarter results reflect the challenging global industrial and manufacturing macroeconomic environment. That said, we are encouraged by the improving trends for both sales volumes and pricing as we enter the second quarter. We took proactive steps to improve the financial performance of this segment, including progress toward our company-wide $125 to $150 million cost savings target for 2024 and our efforts to halt the flood of low-priced Asian imports in certain product categories.
Mark Steven Bender: Turning to our <unk> segment, our first quarter results reflect the challenging global industrial and manufacturing macroeconomic environment.
Mark Steven Bender: That said, we are encouraged by the improving trends for both sales volumes and pricing as we enter the second quarter.
Mark Steven Bender: We took proactive steps to improve the financial performance of this segment, including progress towards our company wide $125 million to $150 million cost savings target for 2024, and our efforts to halt the flood of low priced Asian imports in certain product categories.
Mark Steven Bender: Moving to the Specific Service Segment performance, our Housing and Infrastructure Products Segment produced record first quarter EBITDA of $264 million on $1 billion of sales. EBITDA increased $59 million year-over-year due to a solid 14% increase in sales volumes, improved product mix into higher margin products, and for Materials Costs and Acquisitions Synergy and Other Cost Savings Benefits. Notably, HIPP achieved an important milestone this quarter, with trailing 12-month EBIDA exceeding $1 billion for the first time.
Mark Steven Bender: Moving to the specifics of our segment performance, our housing and infrastructure products segment.
Mark Steven Bender: Produced record first quarter EBITDA of $264 million on $1 billion of sales.
Mark Steven Bender: EBITDA increased $59 million year over year due to a solid 14% increase in sales volumes improved product mix into higher margin products.
Mark Steven Bender: Laura materials costs and acquisition synergies and other cost savings benefits.
Mark Steven Bender: Notably hip achieved an important milestone this quarter with trailing 12 month EBITDA exceeding $1 billion for the first time.
Mark Steven Bender: This achievement is a testament to the hard work of our HIP colleagues and the synergies achieved across our business. When compared to the fourth quarter of 2023, HIP segment sales $1 billion rose 10%, driven by a 12% sequential increase in sales volume, which more than offset a 2% decrease in average sales price. Housing product sales of $879 million in the order increased $84 million due to solid sales volume growth, particularly in pipe and fittings and siding and trim.
Mark Steven Bender: This achievement is a testament to the hard work of our hip colleagues and the synergies achieved across our businesses.
Mark Steven Bender: When compared to the fourth quarter of 2023 hip segment sales 1 billion rose, 10% driven by a 12% sequential increase in sales volume, which more than offset a 2% decrease in average sales prices.
Mark Steven Bender: Housing product sales of $879 million in the quarter increased $84 million due to solid sales volume growth, particularly in pipe and fittings and siding and trim.
Mark Steven Bender: Infrastructure product sales of $165 million in the first quarter of 2024 increased $14 million from the fourth quarter of 2023 due to double-digit sales volume growth in our compounds resin business. HIP's EBITDA margin of 25% set a record for the first quarter and was the second highest for any quarter.
Mark Steven Bender: Infrastructure product sales of $165 million in the first quarter of 2024 increased $14 million from the fourth quarter of 'twenty three due to double digit sales volume growth in our compounds resin business.
Mark Steven Bender: Hips EBITA margin of 25% set a record for the first quarter.
Mark Steven Bender: Margin expansion from 20% in the prior year period was primarily due to lower materials costs and higher sales volumes, while the sequential improvement from 18% in the fourth quarter of 2023 was due to higher sales volume, improved sales mix, and lower restructuring costs as we optimized our manufacturing footprint. Moving to our PIMS segment, first quarter EBITDA of $253 million was below first quarter 2023 EBITDA of $615 million due to lower average selling prices, particularly for caustic soda and PVC, and epoxy resin, on a sequential basis.
Mark Steven Bender: And most of the second highest for any quarter and margin expansion from 20% in the prior year period was primarily due to lower materials costs and higher sales volumes, while the sequential improvement from 18% in the fourth quarter of 'twenty three is due to higher sales volume improved sales mix and a.
Mark Steven Bender: Lower restructuring cost as we optimized our manufacturing footprint.
Mark Steven Bender: Moving to our <unk> segment first quarter EBITDA of $253 million was below first quarter of 2023, EBITDA of $615 million due to lower average selling prices, particularly for caustic soda and PVC and epoxy resins.
Mark Steven Bender: PEMS segment EBITDA of $253 million in the first quarter increased by $52 million from the fourth quarter of 2023 as a result of higher sales volume, particularly for PVC and epoxy resin, lower feedstock, fuel, and power costs, and our cost savings actions.
Mark Steven Bender: On a sequential basis Tim.
Mark Steven Bender: Segment EBITDA of $253 million in the first quarter increased by $52 million from the fourth quarter of 2023 as a result, as a result of higher sales volumes.
Mark Steven Bender: Particularly for PVC and epoxy resin.
Mark Steven Bender: Our feedstock fuel and power cost and our cost savings actions.
Mark Steven Bender: As Albert mentioned, as we entered the second quarter, we were encouraged by the improvement in recent price trends and sequential sales volume growth, reflecting an end to the destocking we experienced in 2023 and reduced competition from low-priced Asian imports in Europe as a result of shipping disruptions in the Red Sea. Shifting to our balance sheet, as of March 31, 2024, cash and cash equivalents were $3.1 billion, and total debt was $4.9 billion, with a staggered long-term rate debt maturity schedule.
Speaker Change: As Albert mentioned as we enter the second quarter. We are encouraged by the improvement in recent pricing trends and sequential sales volumes growth, reflecting an end to the destocking, we experienced in 2023 and reduced.
Speaker Change: Competition from low priced Asian imports in Europe, as a result of shipping disruptions in the Red Sea.
Speaker Change: Shifting to our balance sheet as of March 31, 2024, cash and cash equivalents were $3 1 billion and total debt was $4 9 billion with a staggered long term.
Mark Steven Bender: For the first quarter of 2024, net cash provided by operating activities of $160 million was impacted by an increase in working capital as we grew our inventories and accounts receivable resulting from the seasonal uptick in demand I previously mentioned. We will continue to look for opportunities to strategically deploy our balance sheet in order to create long-term value. Now, let me provide some guidance for your modeling.
Speaker Change: Rate debt maturity schedule for the first quarter of 2024 net cash provided by operating activities of $160 million was impacted by an increase in working capital as we grew our inventories and accounts receivable, resulting from the seasonal uptick in demand I previously mentioned.
Speaker Change: We will continue to look for opportunities to strategically deploy our balance sheet in order to create long term value now.
Speaker Change: Now, let me provide some guidance for your modeling.
Albert Yuan Chao: As we view demand and prices, we continue to expect 2024 revenue in our housing and infrastructure product segment to be between $4 and $4.4 billion, with EBITDA margins around 20%. Westlake continues to execute with financial and operational discipline as we invest throughout the business cycle, and we expect our total capital expenditures to be approximately $1 billion in 2024, which is unchanged from our earlier guidance and is similar to our depreciation and amortization run rate.
Speaker Change: As we view.
Speaker Change: Demand and prices, we continue to expect 2020 for revenue and our housing and infrastructure products segment to be between four and $4 $4 billion with EBITDA margin around 20%.
Speaker Change: Westwood continues to execute with financial and operational discipline as we invest throughout the business cycle and we expect our total capital expenditures to be approximately one $1 billion in 2024, which is unchanged from our earlier guidance and are similar to our depreciation and amortization run rate.
Albert Yuan Chao: As a reminder, this includes the cost for the planned turnaround of our Petro 1 ethylene unit scheduled to begin in the second half of this year that is projected to last approximately 60 days. We will continue to target $125 to $150 million of cost savings in 2024, with roughly $35 million achieved in the first quarter. For the full year of 2024, we expect our effective tax rate to be approximately 23 percent, and we expect cash interest expense to be approximately $160 million. Now, let me turn the call back over to Albert to provide a current outlook on our business. Albert?
Speaker Change: As a reminder, this includes costs for planned turnaround of our Petro one ethylene unit scheduled to begin in the second half of this year that is projected to last approximately 60 days.
Speaker Change: We will continue to target the $125 million to $150 million of cost savings in 2024 with roughly $35 million achieved in the first quarter.
Speaker Change: For the full year of 2024, we expect our effective tax rate to be approximately 23% and we expect cash interest expense to be approximately $160 million.
Speaker Change: Now, let me turn the call back over to Albert to provide our current outlook of our business Albert.
Albert Yuan Chao: Our first quarter results once again demonstrated the value of our vertical integration strategy and the diversity of our segments in reducing the volatility of our overall earnings. Our hip segment continues to perform well, supported by favorable demographic trends. Lower material costs, the strong value of brands, and our own cost-saving and cross-selling initiatives. Meanwhile, results in our PEM segment reflected the macroeconomic backdrop of a slow but steady post-COVID economic recovery in Asia and mostly improving ISM Manufacturing Index readings in the U.S. and Europe. Well, recent trends over the past year have been challenging.
Albert Yuan Chao: Thank you Steve.
Albert Yuan Chao: Our first quarter results once again.
Albert Yuan Chao: Demonstrated the value of our vertical integration strategy.
Albert Yuan Chao: And the diversity of our segments.
Albert Yuan Chao: Do think the volatility of our overall earnings.
Albert Yuan Chao: Our hip segment continued to perform well.
Albert Yuan Chao: Reported by favorable demographic trends.
Albert Yuan Chao: Our material costs, the strong value of our brands and our own cost saving and cross selling initiatives.
Albert Yuan Chao: Meanwhile results in our Pep segment reflected the macroeconomic backdrop.
Albert Yuan Chao: The slow, but steady post COVID-19 economic recovery in Asia.
Albert Yuan Chao: And mostly improving ISN manufacturing index readings in the U S and Europe.
Albert Yuan Chao: While recent trends over the past year have been challenging.
Albert Yuan Chao: We continue to have a positive view of long-term demand, supported by the growing global need for clean water, transportation, renewable energy, packaging, and consumer goods. Our efforts to help our customers achieve their sustainability goals contributed to our sales growth in the first quarter. For example, sales volume for our pivotal post-consumer polyethylene resin increased sequentially by nearly 30% from the fourth quarter of 2023 as we are seeing increasing consumer adoption of the products, particularly for consumer trash bags to meet new regulations for post-consumer material usage. Our Green Wing PVC in Europe, now representing a significant portion of our European PVC sales, offers customers green PVC products.
Albert Yuan Chao: We continue to have a positive view for a long term demand supported by the growing global need for clean water transportation renewed.
Albert Yuan Chao: The renewable energy packaging and consumer goods.
Albert Yuan Chao: Our efforts to help our customers achieve their sustainability goals.
Albert Yuan Chao: Contributor to our sales growth in the first quarter.
Albert Yuan Chao: For example.
Albert Yuan Chao: Sales volume for our pivotal post consumer polyethylene resin Inc.
Albert Yuan Chao: Increased sequentially by nearly 30% from the fourth quarter of 2023.
Albert Yuan Chao: As we're seeing increasing consumer adoption of the product.
Albert Yuan Chao: Particularly for consumer trash bags to meet new regulations for post consumer material usage.
Albert Yuan Chao: Green being PBC in Europe, now representing a significant portion of our European PVC sales.
Albert Yuan Chao: Also as customers screen PVC products.
Albert Yuan Chao: These are just a few examples of innovative products Westlake has developed to improve customers' environmental footprint and support our long-term sales growth rate. At the same time, we continue to make investments in our plants and in manufacturing processes to reduce our impact on the environment. Before we open the call to your questions, I want to review our thoughts on our current outlook. Overall, global macroeconomic conditions remain sluggish, with restrictive monetary policy in place in many geographies, at lingering high rates of inflation weighing on consumer demand, in spite of the challenging backdrop.
Albert Yuan Chao: These are just a few example of innovative products Westlake has developed to improve customers' environmental footprint and support our long term sales growth rate.
Albert Yuan Chao: At the same time, we continue to make investments in our plants and our manufacturing processes to reduce impact on the environment.
Albert Yuan Chao: Before we open the call for your questions.
Speaker Change: I wanted to review our thoughts on our current outlook.
Speaker Change: Overall global macroeconomic conditions remained sluggish.
Albert Yuan Chao: With restrictive monetary policy in place in many geographies and lingering higher rates of inflation.
Albert Yuan Chao: Consumer demand.
Albert Yuan Chao: In spite of the challenging backdrop, we have continued to invest in innovative products to meet our customers' needs.
Albert Yuan Chao: We have continued to invest in innovative products to meet our customers' needs and deliver product solutions with unique properties and characteristics as the markets evolve. Results in our PEM segment are supported by our key strengths, namely our global scale with highly integrated, structurally advantaged North American assets that benefit from low-cost feedstock in our research and development facilities around the world that are developing products with solutions to meet customer needs. We believe that our HIP segment is positioned to perform well in this environment, supported by positive demographic trends and the need to rebuild housing stock and infrastructure in North America following years of underinvestment.
Albert Yuan Chao: And deliver product solutions with unique properties and characteristics as the markets evolve.
Albert Yuan Chao: Results in our payment segment are supported by our key strengths, namely our global scale was highly integrated structurally advantaged North American assets that benefit from low cost feedstock and our research and development facilities around the world that are developing products with solutions to meet customer needs.
Albert Yuan Chao: We believe that our hip segment is positioned to perform well in this environment.
Albert Yuan Chao: Supported by positive demographic trends.
Albert Yuan Chao: And the need to rebuild housing stock and infrastructure in North America.
Albert Yuan Chao: Following years of under investment.
Albert Yuan Chao: These secular tailwinds, combined with our strong branded product offerings, nationwide service, and cross-selling opportunities, should continue to drive sales volume growth, while our cost-saving and automation initiatives support continued solid margins. While we expect global economic conditions to slowly improve over the course of 2024, we are fortunate to have a strong investment grade balance sheet, with net debt below one-time trailing 12-month EBITDA and no significant near-term debt maturities. We view this solid financial position as a significant asset to create further long-term value for our shareholders, as we continue to evaluate ways to deploy our balance sheet as opportunities arise. Thank you very much for listening to our first quarter earnings call. I will now turn the call back over to John. Thank you.
Albert Yuan Chao: These secular tailwind.
Albert Yuan Chao: Combined with our strong branded product offerings nationwide service and cross selling opportunities.
Albert Yuan Chao: Should continue to drive sales volume growth.
Albert Yuan Chao: While our cost saving and automation initiatives.
Albert Yuan Chao: <unk> continued solid margins.
Albert Yuan Chao: While we expect global economic conditions to slowly improve over the course of 2024.
Albert Yuan Chao: We are fortunate to have a strong investment grade balance sheet.
Albert Yuan Chao: With net debt below one time trailing 12 months EBITDA.
Albert Yuan Chao: And no significant near term debt maturities.
Albert Yuan Chao: We view this solid financial position is a significant asset to create further long term value for our shareholders.
Albert Yuan Chao: As we continue to evaluate ways to deploy our balance sheet as opportunities arise.
Albert Yuan Chao: Thank you very much for listening to our first quarter earnings call I will now turn the call back over to Joe.
John Patrick McNulty: Thank you, Albert. Before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity on our results, is available on our website, and a replay of this teleconference will be available two hours after the call has ended. Liz, we will now take questions. Thank you.
Joe: 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.
Speaker Change: We will now take questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star-one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star-one-one again. Please stand by while we compile the Q&A list. Our first question comes from Patrick Cunningham at Citibank. Your line is open.
Speaker Change: 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 to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Patrick Cunningham at Citibank newer.
Patrick David Cunningham: Your line is open.
Patrick David Cunningham: Hi, good morning. Thanks for taking my questions.
Patrick David Cunningham: Hi, good morning, Thanks for taking my questions how.
Patrick David Cunningham: How much of the volume gains in <unk>.
Patrick David Cunningham: <unk> hit for the quarter, if you attribute to share gains how important that is cross selling ban and increased offerings versus maybe your larger homebuilding customers gaining share themselves and you just benefit from that additional volume opportunity.
Patrick David Cunningham: How much of the volume gains did it hit for the quarter? Would you attribute to share gains? You know, how important has cross selling been and increased offering versus maybe your larger home building customers getting share themselves, and you just benefit from that additional volume opportunity?
Patrick David Cunningham: Yes, Patrick it's Dave we've been able to really participate and grow with our customer base as you can and I think well understand as we sell into the distribution channel those distributors are well aligned with those large nationwide homebuilders.
Dave: And as those nationwide homebuilders continue to gain market share we're participating with their growth. So we continue to see very good progress really and partnering with those nationwide builders that they continue to gain market share and we're participating in that market share growth along with them.
Dave: Certainly the brand offerings that we have also have very good penetration in the repair and remodeling market. So it's not entirely all in the new construction arena.
Dave: Okay.
Speaker Change: Got it and then just on the sales and margin guide for Haptics you maintained it seems a bit light just in the context of the particularly strong first quarter and are there additional sort of price cost headwinds that you're baking into that outlook and maybe what's your outlook for volumes for the year.
Mark Steven Bender: Yeah, Patrick, it's Steve. We've been able to really participate in and grow with our customer base. As you can, as you I think you well understand, as we sell into the distribution channel, those distributors are well aligned with those large nationwide homebuilders. And as those nationwide homebuilders continue to gain market share, we're participating with their growth. So we continue to see very good progress really in partnering with those nationwide builders so that they continue to gain market share.
Speaker Change: Yes, so certainly we're all aware well aware that.
Speaker Change: We still are have an elevated interest rate environment and certainly we understand that many of these nationwide homebuilders are providing sales incentives a variety of sorts.
Mark Steven Bender: And we're participating in that market share growth along with them. Certainly, the brand offerings that we have also have very good penetration in the repair and remodeling markets, so it's not entirely all in the new construction arena.
Speaker Change: So as we see the year progress if we see the improvements in interest rate outlook and continue to see the strength of that many of these homebuilders speak to we will continue to assess really the kind of guidance that we provide but right. Now we think that this is prudent but we do think that we are off to a wonderful start and really look forward to continuing the trajectory.
Speaker Change: <unk> that our hip business is progressing on.
Speaker Change: Great. Thank you so much I'll pass it on.
Speaker Change: Please standby for the next call.
Speaker Change: Okay.
Speaker Change: The next question comes from Frank Mitsch from Fermium Research. Your line is now open.
Mark Steven Bender: Got it. And then just on the sales and margin guide for HIPP, which you maintained, it seems a bit light just in the context of the particularly strong first quarter. And are there additional sort of price and cost headwinds which you're baking into that outlook? Maybe what's your outlook for volumes for the year?
Frank Joseph Mitsch: Yes, hi, good morning, if I could just follow up on that on that last question in terms of maintaining the guide on hip how would you describe the visibility on your order books in that business do you have it through the second quarter or is it into the third quarter. How would you describe your visibility there.
Patrick David Cunningham: Yeah, so we're all well aware that we still have an elevated interest rate environment. And certainly, we understand that many of these nationwide homebuilders are providing sales incentives of a variety of sorts. So as we see the year progress, if we see the improvements in the interest rate outlook and continue to see the strength that many of these home builders speak of, we'll continue to assess the kind of guidance that we provide. But right now, we think that this is prudent. But we do think that we are off to a wonderful start and really look forward to continuing the trajectory that our HIP business is progressing on.
Frank Joseph Mitsch: Yeah. Frank Good question, we do have good visibility into the second quarter and I would say the backlog continues to remain quite strong we see it not only in our siding and trim business, but also on our pipes and fittings business, which are very good leading indicators in terms of the strength that we expect to see as we get into the second quarter with that hit.
Speaker Change: Business South of course, as we see a pull on pipe and fittings head as I say, it's a really good indicator of construction activity, we see in new construction going forward into the second quarter.
Operator: Great. Thank you so much. I'll pass it on.
Speaker Change: Terrific looking forward to the where does the June 13.
Speaker Change: Uh huh.
Speaker Change: Date, there and then if you could talk a little bit about the.
Speaker Change: The impact that the Red Sea shipping challenge head on your European operations.
Speaker Change: Sort of benefits that you see and how sustainable do you think those benefits are if you could talk about Europe, a little bit that'd be helpful. Thank you.
Speaker Change: Oh, yes.
Speaker Change: The Europe, the Red Sea situation would improve somewhat.
Speaker Change: While it is.
Speaker Change: During the first quarter, we did see a slowdown of imports to Europe.
Speaker Change: But the situation is still goes out and I think the.
Speaker Change: <unk> taken on shipping vessels continues.
Speaker Change: So the benefits.
Speaker Change: Your your localized European production units should continue through the second quarter at this point correct.
Speaker Change: Yes, so I think the volume, especially second quarter is usually the best quarter second and third quarter, the best quarter of the year. So we should see some volume improvement as well.
Speaker Change: Thank you so much.
Speaker Change: Youre welcome Frank.
Speaker Change: Please standby for the next question.
Frank Joseph Mitsch: Please stand by for the next call. The next question comes from Frank Mitsch from Fermium Research. Your line is now open.
Speaker Change: The next question comes from Turner Hinrichs with Morgan Stanley. Your line is now open.
Frank Joseph Mitsch: Hi, good morning. If I could just follow up on that last question in terms of maintaining the guide on HIP, how would you describe the visibility of your order books in that business?
Unknown Executive: Do you have it through the second quarter? Is it into the third quarter? How would you describe your visibility there?
Speaker Change: Oh, Hi, it's actually Vincent Andrews from Morgan Stanley.
Unknown Executive: Yeah, Frank, good question. You know, we do have good visibility into the second quarter, and I would say the backlog continues to remain quite strong. We see it not only in our siding and trim business but also in our pipes and fittings business, which are very good leading indicators in terms of the strength that we expect to see as we get into the second quarter with that HIP business. Of course, as we see a pull on pipe and fittings, that, as I say, is a really good indicator of the construction activity we see in new construction going forward into the second quarter.
Vincent Stephen Andrews: If I could ask you about the <unk> outlook for the second quarter, it looks like you're anticipating sort of a flattish outcome.
Frank Joseph Mitsch: Terrific. Looking forward to the, what is it?, June 13 date there.
Vincent Stephen Andrews: Could you help us understand.
Vincent Stephen Andrews: What's your expectations are on volume and pricing in particular to the caustic soda market or youre not anticipating any any any improvement it looks like there was a price increase for April though some of the trade presses contextualize that as maybe not being not being durable. So I would love to hear your outlook here.
Vincent Stephen Andrews: Yeah.
Speaker Change: Yes, I think again.
Speaker Change: So all of the increase demanding construction PVC in general.
Speaker Change: Generally globally, there's more coffee available.
Speaker Change: So as we move into the second and third quarter, we will see a leveling of the price increases we had as you mentioned.
Speaker Change: Between the first four months probably $35.
Speaker Change: It turned out in the U S. Our price increases and we see export prices improving globally.
Speaker Change: What.
Speaker Change: So we think that the price will be more or less flat I think so.
Speaker Change: Some other consultants are seeing.
Speaker Change: Depending how the general global economic conditions fares out in the second half of the year if that improves.
Speaker Change: Coffee prices improve otherwise will be pretty stable at today's levels.
Unknown Executive: And then, if you could talk a little bit about the impact that the Red Sea shipping challenge had on your European operations. What sort of benefits did you see, and how sustainable do you think those benefits are? If you could talk a little bit about Europe, that would be helpful. Thank you.
Unknown Executive: Oh, yes. I think the European Red Sea situation has improved somewhat. And while it was during the first quarter, we did see a slowdown of imports to Europe. But the situation still goes on, and I think the attack on shipping vessels continues.
Speaker Change: Okay, and then as a follow up Albert just on the M&A environment, you, obviously have a big pile of cash there and anybody else that might want to buy something that is still facing unattractive borrowing rates and who knows how long those borrowing rates will stay where they are but I'm. Just wondering if we're getting through a period of time, where maybe you're really advantaged as a buyer.
Albert Yuan Chao: Being able to be a cash buyer are you seeing anything opening up for you on the M&A front as we move through the balance of this year.
Unknown Executive: So the benefits for your localized European production units should continue through the second quarter at this point, correct? Yes, I think the volume, especially...
Unknown Executive: Yes, I think the volume, especially the second quarter, is usually the best quarter, or second and third quarter, the best quarter of the year. So we should see some volume improvement as well. Thank you so much.
Albert Yuan Chao: Yes, Vincent I would say that as we continue to look at opportunities across both the chemical side on the building products side of our business, we're going to continue to be very thoughtful about how we deploy capital certainly we're very focused at the return and as you know very well we've been very focused at making sure that through the cycle any investment, we're making is going to give us that risk adjusted.
Albert Yuan Chao: Rate of return so yes, we do think that the capital position a strong balance sheet. We have provides us really good opportunities, but it hasn't really changed how we think about investing over the cycle and the businesses, but we'll continue to have a very very I think pragmatic and very thoughtful approach looking at both sides of the business to continue that investment thesis.
Speaker Change: Okay. Thanks, everyone.
Albert Yuan Chao: Welcome.
Operator: Please stand by for the next question. The next question comes from Turner Hinrichs with Morgan Stanley. Your line is now open.
Speaker Change: Please standby for the next question.
Albert Yuan Chao: Okay.
Vincent Stephen Andrews: Oh, hi. It's actually Vincent Andrews from Morgan Stanley.
Speaker Change: The next question comes from.
Albert Yuan Chao: Alexi, Yeah from AV with Keybanc Your line is open.
Vincent Stephen Andrews: If I could ask you about the PEM outlet for the second quarter, it looks like you're anticipating sort of a flattish outcome. Could you help us understand, you know, what your expectations are for volume and price, and in particular for the caustic soda market? Are you not anticipating any improvement? It looks like there was a price increase for April, though some of the trade press contextualize that as maybe not being durable. So we'd love to hear your thoughts here.
Albert Yuan Chao: Yeah, I think, again, because of the increased demand in construction, PVC in general, generally, globally, there's more cost available. So as we move into the second and third quarters, we will see a leveling of the price increase that we had. As you mentioned, between the first four months, probably $35 a ton in the U.S. of price increases, and we see export prices improving globally somewhat. So we think that the price will be more or less flat.
Albert Yuan Chao: I think some of the consultants are saying, depending on how the general global economic condition fares out in the second half of the year, if that improves, then the cost price will improve. Otherwise, we'll be pretty stable at today's level.
Alexi: Thanks, and good morning, everyone Albert Steve on slide six.
Alexi: Thank you.
Albert Yuan Chao: Yes.
Albert Yuan Chao: Key categories.
Alexi: Products side and trim pipe et cetera.
Albert Yuan Chao: Just provide.
Albert Yuan Chao: Sales performance commentary do you have any of the categories stand out to you. So far this year is particularly strong or not.
Speaker Change: Yes, I would say I'd like to say that those that I spoke to really where as I say the pipe and fittings and sidings in SRAM are those that we continue to perform very very well in this business there.
Speaker Change: Really strong positioned in the marketplace with the competitors, we have a strong positioning in our fittings business and on our pipes business and of course siding and trim.
Speaker Change: Continuing to see really good improvement and boral businesses have brought roofing materials and windows as well as decorative stone. So I would say that acquisition has really continued to perform well and you can save from the results that those branded products contain to really be good selling points with our.
Albert Yuan Chao: Nationwide customer base.
Albert Yuan Chao: But I would say those that we called out specifically in this in this quarter the siding and trim in the pipe and fittings or are those really strongly performed.
Speaker Change: Understood and then maybe more of a big picture question.
Speaker Change: On your hip business, you're obviously looking for additional product line acquisitions, but.
Speaker Change: You talked before about potential opportunities to unlock the valuation discounts in that business as you think about those options.
Speaker Change: Is there a stock merger was another publicly traded or another large building products company an option.
Speaker Change: An option that would separate.
Speaker Change: The chemical business from our building products.
Albert Yuan Chao: Now, Vincent, I would say that as we continue to look at opportunities across both the chemical side and the building product side of our business, we're going to continue to be very thoughtful about how we deploy capital. Certainly, we're very focused on the return, and as you know very well, we've been very focused on making sure that, through the cycle, any investment we're making is going to give us that risk-adjusted rate of return.
Albert Yuan Chao: And then as a follow-up, Albert, just on the M&A environment, you obviously have a big pile of cash there, and anybody else that might want to buy something is still facing unattractive borrowing rates, and who knows how long those borrowing rates will stay where they are? But I'm just wondering if we're getting to a period of time where maybe you're really advantaged as a buyer being able to be a Are you seeing anything opening up for you on the M&A front as we move through the balances here? Now, Vincent, I would say that as we
Albert Yuan Chao: So, yes, we do think that the capital position, the strong balance sheet we have, provides us with really good opportunities, but it doesn't really change how we think about investing over the cycle in the businesses. But we'll continue to have a very, I think, pragmatic and very thoughtful approach looking at both sides of the business to continue that investment thesis. Thanks everyone.
Speaker Change: Yes, I mean, as we think about opportunities to build out the businesses looking at acquisition currencies, whether their cash.
Speaker Change: Our equity base are all issues that would be well considered it's just a matter of what the value proposition is and really what is of interest to the other side. So those considerations in that kind of currency or are freely available to us. It's just a matter of what is interesting and <unk>.
Speaker Change: <unk> oriented to the other side of the table.
Speaker Change: Thanks, a lot.
Speaker Change: Youre welcome.
Operator: Please stand by for the next question. The next question comes from us to Aleksey Yefremov with KeyBank. Your line is open.
Speaker Change: Please standby for the next question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question comes from Hassan Ahmed with Alembic Global Advisors. Your line is now open.
Aleksey V. Yefremov: Thanks and good morning, everyone. Albert or Steve, on slide six, you list the key categories of your products, siding, trim, pipe, etc. Do you just provide sales performance commentary? Do any of the categories stand out to you so far this year as particularly strong or not?
Mark Steven Bender: Yeah, I would say, Aleksey, that those that I spoke to really were, as I say, the pipe and fittings and the siding and trim are those that we continue to perform very, very well in this business. They're, I think, really strong positioned in the marketplace with their competitors. We have strong positioning in our fittings business and in our pipes business and, of course, siding and trim. You know, we continue to see really good improvement in the borehole businesses that bring roofing materials and windows, as well as decorative stones.
Hassan Ijaz Ahmed: Good morning, Albert and Steve.
Hassan Ijaz Ahmed: Good morning, guys.
Hassan Ijaz Ahmed: Just wanted to touch on the <unk>.
Hassan Ijaz Ahmed: Sort of qualitative points that you talked about with regards to your guidance and maybe sort of turned that into a bit of a quantitative side of things as well.
Hassan Ijaz Ahmed: I mean, you guys did $546 million in EBITDA in Q1 and from the sounds of it Youre talking about Destocking being behind you, obviously, we're going into a period of seasonal strength and the like.
Hassan Ijaz Ahmed: And it seems that there is volume and pricing momentum as well. So is it fair to assume that I mean 546 million annualized $2 2 billion.
Hassan Ijaz Ahmed: 2024, it appears like at the very least you would make note of $2 2 billion is is that kind of the right way of thinking about things.
Mark Steven Bender: So I would say that acquisition is really continuing to perform well, and you can see from the results that those branded products continue to really be good selling points with our nationwide customer base. But I would say those that we called out specifically in this quarter, the siding and trim, and the pipe and fittings, were those that really strongly performed.
Hassan Ijaz Ahmed: And as we think about guidance as you know, we don't provide kind of the consolidated company guidance that though we do provided for the building products business and I think as you can see from our prepared remarks that pricing seems to have stabilized at this point across the across the chain.
Aleksey V. Yefremov: And then maybe more of a big picture question about your HIP business. You're obviously looking for additional product line acquisitions, but you know, you talked before about potential opportunities to unlock valuation discounts for the business. As you think about those options, is this stock merger with another sort of publicly traded or another large building products company an option? an option that would separate the chemical business from the building products. Yeah, I mean, as we think about opportunities to build out,
Hassan Ijaz Ahmed: And that's I think very important but as we think about the outlook.
Mark Steven Bender: Yeah, I mean, as we think about opportunities to build out businesses, looking at acquisition currencies, whether they're cash or equity based, are all issues that would be well considered. It's just a matter of what the value proposition is and really what is of interest to the other side. So those considerations and that kind of currency are freely available to us. It's just a matter of what is interesting and valuable to the other side of the table.
Aleksey V. Yefremov: Thanks a lot.
Hassan Ijaz Ahmed: Questions still remain in terms of how we see the pricing trends in the back half of this year and volume trends. So we have a constructive outlook as you can see but we're not providing any numerical guidance for.
Operator: Please stand by for the next question. The next question comes from Hassan Ahmed with Alembic Global Advisors. Your line is now open.
Hassan Ijaz Ahmed: For Westlake and on a consolidated basis.
Hassan Ijaz Ahmed: Morning, Albert and Steve. I just wanted to touch on the sort of qualitative points that you talked about with regard to your guidance and maybe sort of turn that into a bit of a quantitative side of things as well. I mean, you guys did $546 million in EBITDA in Q1. And from the sounds of it, you're talking about destocking being behind you. Obviously, we're going into a period of seasonal strength and the like.
Hassan Ijaz Ahmed: And it seems that, you know, there is volume and pricing momentum as well. So is it fair to assume that, you know, I mean, $546 million annualized at $2.2 billion. So, you know, in 2024, it appears like, at the very least, you'll make north of $2.2 billion. Is that kind of the right way of thinking about things?
Speaker Change: Fair enough fair enough.
Speaker Change: Just changing gears to the oxy side of the business.
Speaker Change: One of your competitors that actually.
Speaker Change: Separately disclose as Theyre epoxy results.
Speaker Change: From those results at a bed.
Speaker Change: A proxy is kind of turning a corner.
Speaker Change: EBITDA positive for the first time in a couple of quarters. There so could you.
Mark Steven Bender: You know, Hassan, as we think about guidance, as you know, we don't provide kind of consolidated company guidance, though we do provide it for the building products business. And I think, as you can see from our prepared remarks, that pricing seems to have stabilized at this point across the chain. And that's, I think, very important. But as we think about the outlook, the question still remains in terms of how we see the pricing trends in the back half of this year and volume trends. So we have a constructive outlook, as you can see, but we're not providing any numerical guidance for Westlake on a consolidated basis.
Speaker Change: Talk a bit about what you guys are seeing.
Hassan Ijaz Ahmed: Fair enough, fair enough. And just changing gears to the epoxy side of the business, you know, one of your competitors that actually, you know, separately discloses their epoxy results, you know, from those results, it appeared that, you know, epoxy is kind of turning a corner, you know, EBITDA turned positive for the first time in a couple of quarters there. So could you, you know, talk a bit about what you guys are seeing in terms of the market dynamics there, the supply-demand fundamentals there, in a sort of, you know, business-to-business going-the-way-it's-going scenario, as well as in a scenario where these anti-dumping cases that are being brought about actually go through?
Speaker Change: Off the market dynamics, there the supply demand fundamentals there.
Hassan Ijaz Ahmed: And.
Hassan Ijaz Ahmed: Sort of.
Hassan Ijaz Ahmed: Business going to wave going scenario as well as in a scenario where these anti dumping cases that are being brought about actually go through.
Albert Yuan Chao: Yeah, we are seeing a slight improvement in epoxy prices across all the regions in the US, Europe, and Asia. And we are seeing some demand improvement as well. And we're also seeing a bit less imports into the US and Europe. So things are looking better. But I think the dynamics still a lot happens in renewable energy with windmills and with coatings which are associated with construction infrastructure. So I think the general economy globally would impact on the global demand for epoxy.
Speaker Change: Yes, we are.
Hassan Ijaz Ahmed: Seeing a slight improvement in our proxy prices.
Hassan Ijaz Ahmed: Through.
Hassan Ijaz Ahmed: All the regions in the U S Europe and Asia.
Hassan Ijaz Ahmed: And we are seeing some demand improvement as well.
Hassan Ijaz Ahmed: Also we see bit less imports.
Hassan Ijaz Ahmed: <unk> U S and Europe.
Hassan Ijaz Ahmed: So things are looking better, but I think the dynamics is still a lot happens.
<unk> energy was we mills and with Coty, which associate the way construction infrastructure.
Hassan Ijaz Ahmed: So I think the general economy globally.
Hassan Ijaz Ahmed: The impact on the.
Hassan Ijaz Ahmed: Global demand for proxy.
Albert Yuan Chao: So we are seeing a little bit of signs of improvement. Again, the dynamics are different. Asia is the weakest, and then Europe's a little better, and the US is the better region, generally speaking, for these three regions.
Hassan Ijaz Ahmed: So we are seeing some little bit of signs of improvement.
Frank Mitsch: Again, the dynamics are different in Asia.
Hassan Ijaz Ahmed: Is the weakest and then Europe to do better in the U S is that better region generally speaking for these three regions, but things could change.
Albert Yuan Chao: But things could change. Steve mentioned the second half with so much uncertainty from inflation and interest rates. Geopolitics and as well as elections. So, but on a longer term basis, we're very optimistic on both HIP and PEM, as we alluded to in our comments. And we work to reduce our costs, strengthen our positions in all these products, including M&As, and we are open to all ideas on M&As as well. And our goal is to really earn above-cost capital, and with a financial asset base, we can do deals that make sense to us.
Speaker Change: It is.
Hassan Ijaz Ahmed: As Steve mentioned.
Hassan Ijaz Ahmed: We don't know the second half with so much uncertainty from inflation interest rate.
Hassan Ijaz Ahmed: Sure.
Hassan Ijaz Ahmed: Politics, and as well as elections.
Hassan Ijaz Ahmed: So, but I think longer term basis.
Hassan Ijaz Ahmed: Very optimistic.
Hassan Ijaz Ahmed: Both hip and Penn segment, as we alluded to in our comments.
Hassan Ijaz Ahmed: And we work to reduce our cost strengthen our positions in all of these products, including M&A and we are open to all ideas on M&A as well.
Hassan Ijaz Ahmed: And our goal is to really earn above cost of capital and with our financial.
Hassan Ijaz Ahmed: Asset base that we can do.
Hassan Ijaz Ahmed: Very helpful, Albert and Steve. Thank you so much.
Albert Yuan Chao: Deals that makes sense to us.
Operator: You're welcome. Thank you. One moment for the next question.
Speaker Change: Very helpful Albert and Steve. Thank you so much.
Youre welcome. Thank you.
One moment for the next question.
Operator: Yes.
Mike Harris: And the next question comes from Mike Harris at Goldman Sachs. Your line is now open. Yeah, good morning.
Operator: And the next question comes from Mike Harris with Goldman Sachs. Your line is now open yes. Good morning pinch hitting for Duffy. This morning and have a question on hip on slide six in the earnings deck, you show a U S Tam of roughly $40 billion.
Mike Harris: Yeah, good morning. I'm pinch-hitting for Duffy this morning, and I have a question about HIP. On slide six in the earnings deck, you show a U.S. PAM of roughly $40 billion, and looking at the current annual HIP sales would suggest that, you know, even though you have a number one or number two market position, for the most part, we still only serve about 10% of that 10. If so, how should we think about the other 90%?
Mike Harris: And looking at the current annual hip sales that suggest that even though you have a number one or number two market.
Speaker Change: <unk> for the most part.
Speaker Change: <unk> serve about 10% of that Tam.
Mike Harris: So how should we think about the other 90% you can you pick up meaningful market share with the current portfolio or would it require more M&A and if more M&A how would you rank your answers.
Mike Harris: Listed growth opportunities. Thank you.
Mike Harris: And can you pick up meaningful market share with the current portfolio, or would it require more M&A? And if more M&A, how would you rank your interest in the listed growth? Yeah, Mike, good question. And the answer is, you've seen that we are.
Albert Yuan Chao: Yeah, Mike, a good question. And the answer is, you've seen that we're continuing to look at broadening the overall portfolio in our HIP segment; the acquisition of Boral and Alaska are really good examples of ways we're adding to that portfolio. This broad, total addressable market is one that we think has a good opportunity. In our prepared remarks, we spoke about the underinvestment in both infrastructure and in housing. When you think of the housing market being probably a 40-year-old average,
Speaker Change: Yes, Mike Good question and the answer is you have seen that we are continuing to look at broadening the overall portfolio in our hip segment. The acquisition of Boral in Alaska <unk> are really good examples of ways, we are adding to that portfolio.
Unknown Executive: <unk> broad total addressable market is one that we think has got good opportunity the.
Vincent Stephen Andrews: In our prepared remarks, we spoke about the underinvestment in both infrastructure and in housing.
Albert Yuan Chao: When you think of the housing market being probably a 40 year age average it has great opportunity to continue a need for both repair and remodeling and new construction activities and of course, the infrastructure Bill provides great opportunities for us to continue to invest in opportunities to grow in that.
Albert Yuan Chao: It has a great opportunity to continue a need for both repair and remodeling and new construction activities. And, of course, the infrastructure bill provides great opportunities for us to continue to invest and opportunities to grow in that area. So as you think about the ways we can grow and address this large market, the answer is we can address that with our current portfolio, but I would expect we'll want to add additional pieces to the portfolio to address the growing needs that we see in the overall marketplace. So this is why when we think about acquisition orientation, we're looking to add important pieces to the overall building products portfolio that we haven't hit yet.
Albert Yuan Chao: That area.
Albert Yuan Chao: So as you think about the way, where we can grow and address this large market. The answer is we can address that with our current portfolio, but I would expect will want to add additional pieces to the portfolio to address the growing needs that we see in the overall marketplace. So this is why when we think about acquisition orientation.
Albert Yuan Chao: Are you looking to add important pieces to the overall building products portfolio that we haven't yet.
Mike Harris: Okay.
Speaker Change: Okay. Thank you very much.
Speaker Change: Youre welcome Mike.
Speaker Change: One moment for the next question.
Albert Yuan Chao: Okay.
Operator: One moment for the next question. The next question comes from Kevin McCarthy at Vertical Research Partners. Your line is open.
Albert Yuan Chao: Our next question comes from Kevin Mccarthy of vertical Research partners. Your line is open.
Kevin William McCarthy: Thank you, and good morning, everyone. In your HIP segment, did your first quarter EBITDA margin of 25% come in better than you would have thought three months ago, or on par? If it was better, what were the most important drivers of the upside margin?
Kevin William McCarthy: Thank you and good morning, everyone in.
Kevin William McCarthy: In your hip segment volume did your first quarter EBITDA margin of 25% come in better than you would've thought three months ago or on par.
Kevin William McCarthy: If it was better what were the most important drivers of the upside margin variance.
Mark Steven Bender: Yeah, but it was stronger than I would have guessed that we had a very strong start to the year. And I would say in the first quarter, the strength that we saw in markets beginning to kind of restock levels, and the construction activity in the first quarter continued to be quite strong. As I mentioned, we've seen many of our partners that are these nationwide home builders, and while we service them through distribution channels, continue to have them grow market share, and we're participating in that market share growth with them.
Operator: Kevin It was stronger than I would've guessed that we had a very strong start to the to the year and I would say in the first quarter. The strength that we saw and markets beginning to kind of restock levels and the construction activity in the first quarter continued to be quite strong as I mentioned, we've seen.
Kevin William McCarthy: Many of our partners that are these nationwide homebuilders, while we service them through distribution channels continued to have them grow market share and we're participating in that market share growth with them.
Mark Steven Bender: And given the strength that we're seeing in their growth and our ability to participate in that growth with them, I think that speaks to the strength that we've seen in the overall business and the business strategy of penetrating these markets with our branded products. So I would say, yes, we had a very strong quarter, and stronger than I would have guessed if you'd asked me earlier in the fourth quarter.
Mark Steven Bender: And so given the strength that we're seeing and their growth and our ability to participate in that growth with them I think that speaks to the strength that we've seen in the overall business and the business strategy of penetrating these markets with our branded products.
Mark Steven Bender: I would say, yes, we had a very strong quarter and stronger than I would've guessed if you'd asked me earlier in the fourth quarter.
Kevin William McCarthy: Okay, and then if I may shift gears to your chloralkali and vinyls businesses, can you comment on your operating rates in the first quarter? And as you look ahead to the second quarter, how do you think those operating rates might trend, you know, relative to normal seasonal patterns in those businesses?
Speaker Change: Okay, and then if I may shift gears to your Chlor alkali and vinyls businesses can you comment on your operating rates in the first quarter.
Kevin William McCarthy: And as you look ahead to the second quarter, how do you think those operating rates might trend.
Kevin William McCarthy: Relative to normal seasonal patterns in those businesses.
Unknown Executive: Yeah, I think Clark lied in the first quarter.
Unknown Executive: Yeah, I think in the first quarter, probably in the high 70s, and there were also turnarounds going on. And partially, one of the questions earlier was that when the turnaround is over, the operating rates will be higher, and hence, there's more supply. So depending on the global demand for products, as you know, the US exports around 20% of its products.
Speaker Change: Yes, I think chlor alkali in the first quarter.
Unknown Executive: Probably in the high Seventy's and they will also turnarounds going on.
Unknown Executive: And partially.
Unknown Executive: The question earlier.
Speaker Change: When the turnarounds over the operating rates will be higher.
Unknown Executive: And hence that's more supply.
Unknown Executive: So depending on the global demand.
Speaker Change: <unk> product as you know U S exports around 20% of its products.
Unknown Executive: The operating rates we will expect to be higher in the second quarter than in the first quarter.
Unknown Executive: No.
Unknown Executive: The operating basically we would expect to be higher second quarter than the first quarter.
Speaker Change: Thank you very much.
Speaker Change: Youre welcome.
Operator: Please stand by for the next question. And the next question comes from Michael Sison at Wells Fargo. Your line is open.
Speaker Change: Please standby for the next question.
Operator: Yeah.
Operator: And the next question comes from Michael Sison at Wells Fargo. Your line is open.
Michael Joseph Sison: Hey guys, nice start to the year. For polyethylene, there are some price increase announcements out there for April and, I guess, for May, potentially as well. How do you feel about supply and demand for polyethylene these days? And do you think those price increases can be supported?
Michael Joseph Sison: Hey, guys nice back of the year for polyethylene price increase announcements out there for April.
Speaker Change: And I guess from a potentially as well how do you feel about.
Michael Joseph Sison: Supply demand for polyethylene in these days and do you think.
Michael Joseph Sison: The price increases can be supported.
Michael Joseph Sison: Okay.
Unknown Executive: Yeah, we had the price increased earlier this year, and I think the industry is looking for $0.03 a price increase in April, as well as $0.03 a price increase in May. The demand has been quite good domestically and for export in the U.S. No, April's not over yet, so... Well, in terms of negotiable pricing, so we'll tell you in a few days how that goes.
Michael Joseph Sison: Yes.
Albert Yuan Chao: Alright.
Unknown Executive: Price increase earlier, the year and I think the industry looking for <unk> increase in April as well as three three cents a price increase in may.
Unknown Executive: The demand has been quite good domestically and for export.
Unknown Executive: In the U S and.
Unknown Executive: So April is not over yet so.
Unknown Executive: In terms of negotiating the pricing so from a hotel in a few days how that goes.
Michael Joseph Sison: Got it. And then for PEM in total, on a sequential basis in 2Q, I just want to make sure I understand that you are seeing sort of that seasonal lift into the second quarter sort of overall. And then, I mean, do you think your volumes will still continue to grow year over year as they did in the first quarter? Yeah, so Mike is
Speaker Change: Got it and then for panel and call it all on a sequential basis.
Michael Joseph Sison: I just wanted to make satisfactory.
Speaker Change: Oh, sorry.
Michael Joseph Sison: Sort of a seasonal lift in the second quarter sort of in total.
Michael Joseph Sison: <unk>.
Michael Joseph Sison: Do you think your volume mix wholesale will continue to grow year over year as it did in the first quarter.
Mark Steven Bender: Yeah, so Mike, as we mentioned in our prepared remarks, yes, we're continuing to see the volume strength that we saw in the first quarter continue into the second quarter. And certainly, that is very supportive of our outlook as we go into the year, but it's hard to see what will transpire in the back half of the year. But I would say that as we enter the second quarter here and see volumes continue to be constructive, and pricing has certainly crossed, whether it be in polyethylene or caustic or in PVC, we've seen price traction in the first quarter, which continues to be positive in terms of overall results as we look into Q2. But it is hard to then look that far forward into the back half of 24, but we do see positive signs at this stage for the second quarter. Great, thank you.
Michael Joseph Sison: Yes, so Mike as we mentioned.
Mark Steven Bender: We mentioned in our prepared remarks, yes, we are continuing to see the volume strength that we saw in the first quarter continue on into the second quarter.
Mark Steven Bender: And certainly that is very supportive of our outlook as we go into the year, but it's hard to see what will transpire in the back half of the year, but I would say that as we enter the second quarter here and see the volumes continue to be constructive and pricing has certainly across whether it be in polyethylene or caustic or in.
Mark Steven Bender: PVC, we have seen price traction in the first quarter, which continues to be.
Mark Steven Bender: Positive in terms of overall results as we look into Q2, but it is hard to then look that far forward into the back half of 'twenty four but we do see positive signs at this stage for the.
Mark Steven Bender: The second quarter.
Speaker Change: Alright, thank you.
Speaker Change: Youre welcome.
Speaker Change: Please standby for the next question.
Mark Steven Bender: Yes.
Operator: Please stand by for the next question. The next question comes from Josh Spector at UBS. Your line is open.
Mark Steven Bender: The next question comes from Josh Spector at UBS. Your line is open.
Joshua David Spector: Hi, thanks for taking my question. I wanted to ask specifically about the HIP margins and looking at the second quarter, you know, typically, margins are up sequentially and understand the prudence of the year. I just wanted to check to make sure there wasn't anything or see if there's anything discrete that we should be thinking about, either PVC pricing adjustments or something else that would lead to an abnormal sequential movement in margins and HIP.
Joshua David Spector: Hi, Thanks for taking my question.
Joshua David Spector: I wanted to ask specifically on the hip margins and looking at second quarter typically margins are up sequentially and understand the prudence on the year.
Joshua David Spector: I wanted to check to make sure there wasn't anything or see if theres anything discrete that we should be thinking about either PVC pricing adjustments or something else that will lead to an abnormal sequential movement in margins in <unk>.
Mark Steven Bender: So, Josh, as we push forth into the second quarter, you're right, we do have some of those price increases that we achieved in the first quarter being pushed through in products downstream and to building products. But at the same time, the second quarter and the third quarter typically are the strongest volume quarters. And so to the extent that we can get traction and volume where, as I mentioned, we've got a very solid backlog, we hope to be able to push those cost increases through in our product offering. So as I say, we're very, very constructive as we look forward into the second quarter for the building product side of our business.
Speaker Change: So Josh as we push for at the end of the second quarter. You are right. We do have some of those price increases that we achieved in the first quarter being pushed through and products downstream into building products, but at the same time.
Mark Steven Bender: The second quarter in the third quarter typically the strongest volume quarters, and so to the extent that we can get traction and volume and we are as I mentioned, we've got a very solid backlog, we hope to be able to push those cost increases through in our product offering.
Mark Steven Bender: So as I say, we are very.
Mark Steven Bender: Very constructive as we look forward into the second quarter for them for the building product side of our business.
Joshua David Spector: And just on the infrastructure side of the business, you know, you've had pretty good growth sequentially, but that was down year over year, and I mean, some of the non-res indicators are still up, but softening. I guess, how do you see that part of that business trending relative to the more housing-exposed other part of the segment? Yeah, I would say the infrastructure side of
Josh: Okay. That's helpful and just on the infrastructure side of the business you've had pretty good growth sequentially that was down year over year and I mean, some of the non resin indicators are still up but softening I guess, how do you see that part of that business trending relative to the more housing exposure as other part of the segment.
Mark Steven Bender: Yeah, I would say the infrastructure side of our business still remains good. The backlog we're seeing in our piping fittings business still looks very good. And of course, as I mentioned, that's a good indicator for the exterior construction activities of our Westlake Royal business. So I would say that the infrastructure bill that was passed, $55 billion in infrastructure, a lot of that will go into water and other infrastructure needs that the U.S. has, and we're very well positioned to participate in that investment by the government. So I think with our backlog, we have a very positive outlook for the second quarter for our infrastructure business.
Speaker Change: Yes, I would say on the infrastructure side of our business still remains good the backlog, we're seeing in our pipe and fittings business still looks very good.
Mark Steven Bender: And of course, as I mentioned Thats, a good indicator for the exterior construction activities of our Westway Royal businesses. So.
Mark Steven Bender: So I would say that the infrastructure Bill that was passed $55 billion of infrastructure a lot of that will go into water and other infrastructure needs. The U S has.
Mark Steven Bender: We're very well positioned to participate in that investment spend by.
Mark Steven Bender: By the government. So I think with our backlog we are very have a very positive outlook into the second quarter for our infrastructure business.
Speaker Change: Alright, thank you.
Speaker Change: Youre welcome.
Operator: Please stand by. We have It looks like we do have time for the remaining questions. Please stand by for the next question. The next question comes from Salvatore Tiano with Bank of America Securities, Inc. Your line is now open.
Speaker Change: Please standby.
Salvatore Tiano: We have.
Salvatore Tiano: Yeah. It looks like we do have time for the remaining questions. Please standby for the next question.
Operator: Yes.
Salvatore Tiano: The next question comes from Salvator Tiano with Bank of America Securities Inc. Your line is now open.
Salvatore Tiano: Yes, thank you very much.
Salvatore Tiano: So firstly I wanted there'll be chow.
Salvatore Tiano: understand the dynamics for HIP in Q2. I mean, when you look at the past couple of years, it looks like, mainly because of seasonality, you get probably a 30 or 40 million EBITDA boost in Q2 versus Q1. As we think about this right now, and with your strong order backlogs, is this the same? Should we have the same expectation? Or perhaps if there was any pull forward in business in Q1.
Salvatore Tiano: To understand the dynamics for shipping.
Salvatore Tiano: Q2, I mean.
Salvatore Tiano: For the past couple of years, so it looks like mainly because of some LP could get probably a 30 or 40 million EBITDA boost in Q2 versus Q1.
Salvatore Tiano: How should we think about this right now with your strong order backlog. So is this the same should we have some expectation or are there or perhaps speak if there was any pull forward from Q1.
Mark Steven Bender: Now, I think we've seen kind of the continued strength that we saw at the tail end of the year. So obviously, there's a seasonality to the business that we normally see. I think the first quarter is not a pull forward but a continuation of the demand picture of underinvestment both in infrastructure and in housing. So, as I mentioned, The strength that we're seeing with our nationwide homebuilder partners, they're continuing to grow market share, and that isn't necessarily a front load. And that's just simply being able to grow with the market as those national homebuilders continue to grow their market share. We're participating in that, and that's not really a pull forward, per se.
Speaker Change: No I think we've seen kind of a continued strength that we saw at the tail end of the year. So obviously there is a seasonality to the business that we normally see I think the first quarter is not a pull forward, but a continuance of the demand picture there of the underinvestment both in infrastructure and in housing so as I am.
Mark Steven Bender: Mentioned the.
Mark Steven Bender:
Mark Steven Bender: The strength that we're seeing with our nationwide homebuilder partners theyre continuing to grow market share and that isn't necessarily a frontloaded and thats, just simply being able to grow with the market as those nationwide homebuilders continue to grow their market share we're participating in that and that's not really a pull forward per se.
Salvatore Tiano: Okay, perfect. And I guess that brings me to my second question, which is that if we continue to see positive trends here in Q2, and given what you've recorded, and that you kept the guidance on change for the segment, it looks to us that you should be, you're essentially expecting to do well below 200 million EBITDA in each of the last two quarters of the year. So that would be a meaningful step down, obviously, mostly on margin. So what in your expectation would drive that? Would it be a very big volume decline, or would price costs narrow significantly? Yeah, as I mentioned.
Speaker Change: Okay, perfect and I guess, my second question, which is that.
Salvatore Tiano: If we continue to see the positive trends here in Q2, and given what you recorded.
Salvatore Tiano: I'm glad you kept the guidance unchanged for the segment. It looks like you should be essentially expected to do well below 200 million at EBITDA in each of the last two quarters of the year.
Salvatore Tiano: So that won't be a meaningful step down obviously, mostly on margin. So what we wanted to your expectation will drive it would be a very big.
Salvatore Tiano: Net decline or price cost could narrow significantly.
Mark Steven Bender: Yeah, as I mentioned, as we look into the second half of the year, it's harder for us to see the entire third and fourth quarter. And as we see if we do continue to see the strength we've seen so far, we'll assess our guidance going forward. But at this stage, we haven't adjusted our guidance. But, as I say, if we continue to see strength in this business, we'll assess the second half of the year as we approach that, but I would say we continue to see good strength into the second quarter as we go through here.
Salvatore Tiano: Yes, as I mentioned as we look into the second half of the year, it's harder for us to see the entire third and fourth quarter and as we see that if we do continue to see the strength. We've seen so far will assess our guidance going forward, but at this stage, we haven't adjusted our guidance.
Mark Steven Bender: As I say, if we continue to see strength in this business, we will assess the second the second half of the year as we approach that but I would say we continue to see good strength into the second orders. We go through here the headwind really would be OEM being able to push through some of these PVC resin prices and our downstream building products businesses, but given the strength in our backlog we say we.
Mark Steven Bender: The headwind really would be only in being able to push through some of these PVC resin prices and our downstream building products business. But given the strength of the backlog we see, we think we'll have good success on that front. All right, thank you very much.
Mark Steven Bender: Think we'll have good success on that front.
Speaker Change: Alright, Thank you very much.
Salvatore Tiano: Please stand by for the next question. The next question is from Matthew Blair at TPH. Your line is open.
Speaker Change: Youre welcome.
Speaker Change: Please standby for the next question.
Salvatore Tiano: Yeah.
Salvatore Tiano: The next question is from Matthew Blair of Tpa. Your line is open.
Matthew Robert Lovseth Blair: Thank you, and good morning, Albert and Steve. Good morning. Good morning. Good morning. Good morning. I want to ask about slide five, especially the comment regarding the strong demand you're seeing for large diameter pipe. Are there any numbers you can share on that? And I guess the implication there is that some of these home builders are, you know, starting like brand new developments, putting in the initial infrastructure, but really haven't started on the actual housing construction yet.
Speaker Change: Alright, Thank you and good morning, Albert and Steve.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Good morning, I wanted to ask about slide five.
Matthew Robert Lovseth Blair: Especially the comment regarding the strong demand you're seeing for large diameter pipe are there any numbers you can share around that and I guess the implication there that some of the homebuilders are there.
Matthew Robert Lovseth Blair: They are starting like brand new developments, putting in the initial infrastructure, but really haven't started on the actual housing construction yet.
Unknown Executive: Well, of course, the infrastructure leads. And so as we think about the strength that we've seen in our infrastructure business, this is the pipe and fittings business, which continues to be, as I say, a good, strong backlog. And we continue to see that leading the construction going into our exteriors business. This is the Westlake Royal business.
Matthew Robert Lovseth Blair: Well of course, the infrastructure leads and so as we think about the the strength that we have seen in our infrastructure business. This is the pipe and fittings business.
Unknown Executive: That continues to be as I say, good strong backlog and we continue to see that leading the the construction going into our exteriors business. This is the Westlake Royall business.
Unknown Executive: And certainly given the good position that we have nationwide with our pipes and fittings business, we think it does perform, will continue to perform well as it did in the first quarter. And we expect that to continue into the second quarter with its backlog. So while we don't provide specific volumes for each one of these sub-segments of the HIP business, I would say we're continuing to see very good strength within this segment of the business.
Unknown Executive: And so certainly given the nice position that we have nationwide with our pipes and fittings business. We think it does perform well continue to perform well it has in the first quarter.
Unknown Executive: And we expect that to continue into the second quarter with its backlog.
Unknown Executive: So while we don't provide specific volumes for each one of these sub segments of the hip business I would say, we're continuing to see very good strength within this segment of the business.
Matthew Robert Lovseth Blair: Sounds good. And then you mentioned that the in hip areas like type and fitting, as well as the sidings, were especially strong. What areas are you still looking to catch up on? What areas are a little bit softer right now?
Speaker Change: Sounds good and then you mentioned that in hip areas like.
Matthew Robert Lovseth Blair: Like pipe and fitting sidings were especially strong.
Matthew Robert Lovseth Blair: What areas are you still looking to catch up on what areas are a little bit softer right now.
Unknown Executive: So certainly, as we think about the businesses that have higher margins, those that we just called out, and I'd say some of the businesses where there are a wider, a larger number of players, I'd certainly say the windows business is a bit more challenged than, I would say, the sucking and trim business, which we called out as having very good strength, and pipe and fittings also have very good strength.
Speaker Change: So certainly as we think about.
Unknown Executive: The businesses that have stronger margins those that we just called out and I'd say some of the businesses where there is.
Unknown Executive: A wider.
Unknown Executive: A large larger number of players I would certainly say the windows business certainly is a bit more challenged than I would say, the setting and trim business, which we called out as having very good strength in pipe and fittings, having very good strength.
Matthew Robert Lovseth Blair: Great, thank you very much. You're welcome.
Speaker Change: Great. Thank you very much.
Speaker Change: Youre welcome.
Operator: Please stand by for the next question. The next question is from Arun Viswanathan of RBC Capital Markets. Your line is now open.
Speaker Change: Please standby for the next question.
Operator: The next question is from Arun Viswanathan of RBC capital markets. Your line is now open.
Arun Shankar Viswanathan: Great, thanks for taking my question. I guess I just wanted to understand the sequential ramp that we should maybe be thinking about from Q1 to Q2. So, Looks like HIP was up about $100 million from Q4 to Q1, and PEM was up about $50 million. When you think about Q2, I'm under the impression that maybe HIP is up about 15% sequentially. Maybe PEM could be a similar amount, and maybe HIP could be a little bit more. How are you thinking about that? It seemed like volume really drove the quarter, and you still have a similar kind of volume uplift as you look into Q2. Thanks.
Arun Shankar Viswanathan: Alright, Thanks for taking my question.
Arun Shankar Viswanathan: I guess I just wanted to understand the sequential ramp here that we should maybe be thinking about Q1 to Q2. So.
Arun Shankar Viswanathan: It looks like.
Arun Shankar Viswanathan: <unk> was up about 100 million.
Arun Shankar Viswanathan: From Q4, and Q1 in time was up about $50 million.
Arun Shankar Viswanathan: When you think about Q2 I think we're.
Arun Shankar Viswanathan: I'm I'm under the impression that maybe.
Arun Shankar Viswanathan: That's up about 15% sequentially.
Speaker Change: Maybe a.
Arun Shankar Viswanathan: A similar amount.
Arun Shankar Viswanathan: Maybe it could be a little bit more how youre thinking about that.
Arun Shankar Viswanathan: It seemed like volume really drove the quarter and you still have a similar kind of volume uplift as you look into Q2.
Mark Steven Bender: Yeah, so Arun, as we think about the building products business, I would say volume continues to be good. As I mentioned several times, we've got a very good backlog. You know, we will be looking to try to push through these PBC price increases that we achieved in the first quarter through that chain. And so that remains really the headwind in terms of being able to expand margin as we go forward with this higher volume.
Speaker Change: Yeah. So arun as we think about the building products business I would say volume continues to be good as I mentioned several times.
Mark Steven Bender: Excuse me very good backlog.
Mark Steven Bender: We will be looking to try to push through these PVC price increases that we achieved in the first quarter through that chain and so that remains really the headwind in terms of being able to expand margin as we go forward with this higher volume.
Arun Shankar Viswanathan: And what about PEM, sorry, as you go into Q2?
Mark Steven Bender: And what about sorry go on.
Mark Steven Bender: Yeah, certainly you've seen the tailwind we've seen and pricing traction both in PVC and polyethylene, as well as in caustic. And certainly the strength that we've seen with those price, price improvements over the course of the first quarter, we hope to continue prices seem to have stabilized at these elevated levels. And as we look forward, there's really no reason to think that those prices will remain at these elevated levels now that we've achieved that improvement in pricing across those products.
Arun: In Q2.
Arun: Yes, certainly <unk> seen the tailwind we've seen in pricing traction both in PVC and polyethylene as well as in caustic and certainly the the strength that we've seen with those priced price improvements over the course of the first quarter. We hope to continue pricing seems to have stabilized at these elevated levels and.
Mark Steven Bender: As we look forward, there's really as we see a good reason to think that those prices will remain at these elevated levels now that we've achieved that improvement in pricing across those products.
Arun Shankar Viswanathan: And this is a follow-up then. So what is the kind of the backlog, you know, typical for HIP? Is it in weeks or months, or how much visibility do you have? And then, along those lines, if you do have a fair amount of visibility, would you consider that we should, you know, kind of be looking at, say, 20 to 25 percent as far as EBITDA margin for HIP on a more consistent basis? I think you've been above your 15 to 20 percent range for several quarters now. Thanks. So Arun, we can typically look at
Speaker Change: And just as a follow up on so.
Arun Shankar Viswanathan: What is kind of the backlog typical for AIP.
Arun Shankar Viswanathan: Is it in weeks or months or how much visibility you have and then along those lines. If you do have a fair amount of visibility.
Arun: Would that would you consider.
Arun Shankar Viswanathan: That we should kind of be looking at say, 20% to 25% as far as EBITA margin, perhaps on a more consistent basis I think you've been above your 15% to 20% range for several quarters now.
Mark Steven Bender: So, Arun, we can typically look at a couple months in terms of ordering the order books. Of course, at any point in time, they can cancel orders, of course.
Arun Shankar Viswanathan: So Arun we can typically look at a couple of months in terms of order order and the order books of course at any point in time. They can cancel orders of course, but the guidance that we provided of approximately 20% is really kind of where we are at this stage and we'll update that guidance as we progress through the course of the year.
Arun Shankar Viswanathan: But, you know, the guidance that we provided of approximately 20 percent is really kind of where we are at this stage, and we'll update that guidance as we progress through the course of the year. Great. Thanks a lot.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Youre welcome.
Operator: And we have time for one more question. Please stand by. Welcoming you back to the stage for a question, we have Salvatore Tiano with Bank of America Securities Incorporated. Your line is now open.
Speaker Change: And we have time for one more question. Please standby.
Salvatore Tiano: Well going back to the stage for a question we have salvator Tiano with Banc of America Securities incorporated your line is now open.
Salvatore Tiano: Yes, thank you very much. I just want to ask a little bit about epoxies and if you could refresh a little bit about your exposure to more commodity products versus downstream composites and systems and how that has changed in the past few years since you made the biggest, you know, major acquisition, I think it was three years ago.
Salvatore Tiano: Yes. Thank you very much I just wanted to also.
Speaker Change: Oscar will pick up all of the boxes.
Salvatore Tiano: If you kind of a threshold.
Salvatore Tiano: About your exposure to more commodity products.
Salvatore Tiano: Downstream compulsion from systems, and how those have changed over the past few years.
Speaker Change: Since you may begin.
Speaker Change: I'll bet.
Salvatore Tiano: The major acquisition I think it was three years ago.
Unknown Executive: Yeah, I think we're covering most of the proxy applications, including coatings, electronics, windmill blades, as well as aerospace. So, in all these areas, we are participating both in the more commodity grades as well as more specialty grades. And so I think it's just a past with the unfair price of Asian imports has impacted the margin of European and U.S. markets, but I think, as we said earlier, we're seeing signs of improving pricing and demand coming back slowly, so we're seeing some signs of improvement already. Great, thank you very much.
Salvatore Tiano: Yes, I think we're covering most of the proxy applications.
Unknown Executive: Including coatings.
Unknown Executive: Electronics <unk>.
Unknown Executive: <unk> plays as well as aerospace.
Unknown Executive: So all of these areas.
Unknown Executive: We are participating both in the more commodity grades as well as more specialty grades.
Unknown Executive: <unk>.
Unknown Executive: So I think it's just a.
Unknown Executive: Yeah.
Unknown Executive: In the past with the.
Unknown Executive: Unfair price to Asian imports has impacted the margin of European and U S markets, but I would think.
Unknown Executive: As we said earlier, we're seeing signs of improving pricing and demand is coming back slowly. So we are seeing somebody signs of improvement already.
Unknown Executive: Great. Thank you very much.
Speaker Change: Youre welcome.
Salvatore Tiano: And please stand by; we will take one more question. The final question from David Begleiter at Deutsche Bank. Your line is now open.
Speaker Change: And please standby we will take one more question.
Salvatore Tiano: Okay.
Salvatore Tiano: Final question from David Begleiter at Deutsche Bank. Your line is now open.
David L. Begleiter: Thank you for taking my question. I'll proceed just back on the hip margins. In the last three years, hit margins have increased from Q1 to Q2, and I believe you've also been at various times pushing through higher PVC prices. Why would this year be any different in terms of margins increasing from Q1 to Q2 in HIP given the seasonally stronger demand, even with pushing through some higher PPC prices?
Speaker Change: Thank you for taking my question al procedures back on the hip margins.
David L. Begleiter: The last three years margins have increased from Q1 to Q2 I believe you have also been a.
David L. Begleiter: Various highest pushing through higher PVC prices so.
David L. Begleiter: Why would this be any different in terms of margins increasing from Q1 to Q2 in <unk>, given the seasonally stronger demand, even with pushing through some higher PVC PVC prices.
Mark Steven Bender: So, David, as you think about the housing starts that we've seen, we continue to see homebuilders be constructive in their outlook for starts, and we continue to seek, you know, positive signals and permits. But we also recognize that affordability remains an issue, and so we're really trying to be thoughtful about making sure that we can get the value for the product we're pushing through. But we recognize there is only a certain speed at which we can push these products downstream into our fabricated products. So it's an issue of the timing of being able to push through these prices and not whether we are able to push through these prices. It's just a matter of timing.
Speaker Change: Hey, David.
Mark Steven Bender: Do you think about the the housing starts that we've seen we have continued to see the homebuilders be constructive in their outlook for starts and we continue to seek.
Mark Steven Bender: Positive signals and permits but we also recognize that affordability remains an issue and so we're really trying to be thoughtful about making sure that we can get the value for the product, we're pushing through but we recognize there is only a certain speed in which we can push through each products downstream into our fabric.
Mark Steven Bender: Fabricated products so it's.
Mark Steven Bender: It's an issue of the timing of being able to push through these prices are not are we able to push through these prices. It's just a matter of timing.
David L. Begleiter: Got it. And lastly, Albert, there is some new capacity for PVC coming on stream this year from other players. How do you foresee that impacting the market, if at all, as most of this is geared for the export market? Yeah, I think with the low
David: Got it and lastly, Albert there is some new capacity from PVC coming Onstream. This year from other other players how do you foresee that impacting in the market if at all as most of this is geared for the export market. Thank you.
Albert Yuan Chao: Yeah, I think with the low feedstock position, both for making ethylene. 50% of PPC is ethylene, and 50% is chloroquine, which is very heavy on power and natural gas feedstocks. So with a low feedstock and power position, I think our industry is well positioned to participate in the global PPC market around the world, and US exports around high 20 low 30 percent of our production, and I think the U.S. industry, with a great top position, will continue to participate in the global markets.
Albert: Yes, I think the with the low feedstock position.
Albert Yuan Chao: Both for making ethylene 50% of PVC is ethylene.
Albert Yuan Chao: Is it specific to ascend is chlor alkali, which is very.
Albert Yuan Chao: Very heavy on power and natural gas feedstock, so when I look Scott and power position I think our industry is well positioned.
Albert Yuan Chao: To participate in the global PVC market around the world and the U S exports around high.
Albert Yuan Chao: High <unk> low 30 percentage, our production and I think.
Albert Yuan Chao: U S industry with a great cost position will continue to participate in the global markets.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Operator: At this time, the Q&A session has now ended. We'll turn it over to John Zeller for any closing remarks.
Speaker Change: At this time the Q&A session has now ended.
Operator: I'll turn it over to John Zeller for any closing remarks.
John Patrick McNulty: Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our second quarter results.
Operator: Yeah.
John Patrick McNulty: Thank you again for participating in today's call. We hope you will join US again for our next conference call to discuss our second quarter results.
Operator: 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. The replay can be accessed via Westlake's website. Goodbye.
John Patrick McNulty: 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 the repaint clay can be accessed via Westlake website Goodbye.
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