Q3 2024 Westlake Chemical Partners LP Earnings Call
Ability to improve the reliability of our plants.
Okay.
Speaker Change: For the third quarter of 2024, we reported net sales of $3 1 billion.
EBITDA of $580 million and net income.
<unk> hundred $83 million or one.
<unk> 41 per share.
Compared to our second quarter results.
We benefited from higher caustic soda and polyethylene prices.
However, our hip sales volume was impacted by weather events.
EBITDA margin of 19% in the third quarter was below the 23% we reported in the second quarter of 2024.
Due primarily to the tube extended maintenance outages.
Our highly integrated manufacturing footprint in North America.
Combined with our large PVC offtake.
Into a hip segments building product.
Serving the residential housing and remodeling markets.
S continued to be a strategically advantaged benefit.
The significant under supply of residential housing.
Over the past 15 years.
And.
The growth in population over the same time period.
<unk> created the housing shortage, we have seen the north American market.
With U S housing starts in the third quarter.
Average $1 3 million.
Similar to the second quarter.
We believe.
The pent up demand for residential housing.
Driver future construction activity as expected interest rate reduction.
Unfold into 2025.
Despite the disruption to sales volume from two hurricanes that made landfall in the south eastern portion of the U S.
Our hip segment sales and margins.
<unk> to perform well.
As a result of our broad portfolio of product portfolio with strong brands that make us a supplier of choice for many of the fastest growing.
Large homebuilders.
Our concentrated footprint.
In North America.
Continues to provide globally advantaged energy and feedstock.
Letting us capture demand and growth we see in the Americas.
While we continue to experience a slow economic recovery and growth in demand across international end markets.
Our global scale with market leading positions.
Combined with our cost advantage footprint.
<unk> positioned our perm segment to serve diverse markets.
Such as needs for housing clean water food packaging electrification and other growing markets.
Our energy and feedstock advantage.
Combined with our integrated manufacturing footprint.
True to building products.
Speaker Change: Positions us well to drive growth in our hip segment.
We continue to partner with homebuilders to address the significant housing shortage in North America.
We have a very broad product offering in our <unk> segment.
That serves the residential housing market with innovative building products.
<unk> been fittings, and PVC compounds for building and construction products.
Meanwhile.
Our investment grade balance sheet.
With $2 9 billion of cash and cash equivalent.
Is a source of strength and a driver of earnings growth.
We continue to seek ways to redeploy it to create long term value for shareholders.
Speaker Change: I would like now to turn our call over to Steven to.
Speaker Change: To provide more detail on our financial results for the third quarter Steve.
Steven: Thank you John Marc and good morning, everyone.
Steven: Westlake reported net income of $183 million or $1 41 per share in the third quarter on sales of $3 1 billion compared.
Steven: Compared to net income of $285 million in the third quarter of 2023.
The year over year decrease in net income was primarily due to two extended maintenance outages in our <unk> segment, which impacted our feedstock and conversion cost.
We estimate the combined impact of these two outages on our third quarter 2024 pre tax earnings to be approximately $120 million.
Importantly, as we discussed we completed the necessary maintenance of each of these plants and return them to service last month. So the impact of these outages should not impact subsequent quarters.
Steven: My comments regarding income from operations EBITDA and net income and earnings per share all exclude the financial impact of the $75 million mothball expense accrual that occurred in the third quarter of 2024.
Steven: I would also like to remind you that the cash outflows associated with these mothball expenses are expected to occur over several years starting in 2025.
During the third quarter, we continued to make progress on our companywide cost savings initiative with approximately $35 million of savings delivered during the quarter. These savings combined with those achieved in the first half of 2024 total approximately $120 million of long term cost reductions.
From our first three quarters of 2024 toward our full year target of $125 million to $150 million.
For the third quarter of 2024, our utilization of the FIFO method of accounting had a negligible impact on pre tax earnings compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited.
Steven: Moving to the specifics of our segment performance.
Our housing and infrastructure products segment continued to deliver solid results, including EBITDA of $262 million on $1 $1 billion in sales.
Steven: Hips EBITA margin of 24% continued to benefit from our integration and cost savings actions.
As we discussed on our last quarter's earnings call unusually wet weather conditions in many parts of North America combined with the disruptions created by Hurricanes barrel and Helene impacted our third quarter sales by deferring some shipments into the fourth quarter, while slowing construction activities in the path of the storms.
Steven: <unk>.
Steven: As a result of these headwinds to our third quarter sales volume hip segment sales declined 8% compared to the second quarter of 2024, while keeping stable our average sales price, resulting in a reduction of $74 million of EBITDA compared to the record second quarter EBITDA of 300.
Steven: $36 million.
Housing product sales of $937 million in the quarter decreased 7% due to lower sales volumes in most product categories.
Steven: While infrastructure product sales of $161 million in the third quarter decreased 13% from the second quarter of 2024.
Driven largely attributable to lower large diameter pipe demand, primarily due to wetter winter weather wetter weather conditions in the United States and lower housing starts in the quarter compared to the second quarter.
Steven: Moving to the <unk> segment third quarter sales of $2 billion were in line with the second quarter of 2024.
Steven: Sales volumes declined 1% sequentially driven by lower core vinyl export shipments.
Steven: Average sales prices increased 1% compared to the second quarter of 2024 led by higher caustic soda and polyethylene prices, which were partially offset by lower <unk> and styrene prices.
Steven: Our polyethylene business had record specialty and differentiated product sales volumes in the third quarter driven in part by continued customer adoption of our innovative pivotal post consumer recycled polyethylene product.
Steven: Pivotal continued strong sales volume growth is a great example of how our focus on addressing customers' sustainability needs.
Steven: Helps the environment, but also helps website bottomline.
Steven: While domestic PVC volumes slowed sequentially due to weather and construction activity, our energy and feedstock advantage in North America continued to provide a competitive edge and other attractive export markets.
Steven: Tim's third quarter EBITDA of $297 million was lower than the second quarter of 2020 for EBITDA of $391 million, primarily due to the two extended maintenance outages, which resulted in increased operating cost and increased ethylene feedstock cost.
Steven: As I mentioned, we estimate the combined impact from the third quarter of pre tax earnings to.
To be approximately $120 million, which consist of three factors.
Steven: Increased third party ethylene feedstock purchases due to our <unk> joint venture ethylene cracker undergoing necessary maintenance for the entire quarter.
Steven: Loss chlorine and caustic soda production due to a disruption at our parks in the Louisiana <unk> plant.
Steven: And unabsorbed fixed cost and maintenance expenses to complete the necessary repairs.
Steven: <unk> third quarter EBITDA margin of 15% was lower than the second quarter of 2024 due to the impact of these outages.
Steven: Had it not been for the outages, we estimate the EBITDA margin would have improved sequentially due to the 1% increase in average sales prices.
Steven: Compared to the third quarter of 2023, <unk> EBITDA of $297 million declined by $42 million as.
Steven: As a 6% increase in sales volume led by core Aqua and our policy was more than offset by the impact of the outages and a 3% decrease in average sales price driven primarily by lower caustic soda and chlorine prices.
Steven: Profitability in our <unk> business, both in Europe, and North America continued to be impacted by imports of low priced products from Asia.
Steven: During the third quarter of the U S Department of Commerce announced preliminary countervailing duties at a rate of approximately 100% on epoxy exports from some Chinese and Indian producers and at a lesser rate on certain imports of a policy resins from Taiwan.
Steven: We are hopeful that the commerce department will rule in favor of preliminary anti dumping duties on a broader set of Asian producers.
Steven: Announces its preliminary findings later this month.
Steven: The Commerce Department and the International Trade Commission will make final determinations of dumping subsidies and material injury by mid 2025.
Steven: Meanwhile, our our policy resin trade case in Europe continues to progress through its administrative channels with an expectation that provisional duties will be set in early to mid 2025.
Steven: Separately. In addition to the expected cost benefits of mothballing, our AC and ECH units in Pernis.
Steven: That were already announced we are continuing to further reduce fixed cost in the business to improve our results and transform the business into a profitable component of Perm.
Steven: Shifting to our balance sheet as of September 32024, cash and cash equivalents were $2 9 billion and total debt was $4 6 billion after redeeming $300 million of senior notes during the quarter.
Steven: Our balance sheet continues to be well positioned with a staggered long term fixed rate debt maturity for.
Steven: For the third quarter of 2024 net cash provided by operating activities was $474 million.
Steven: Capital expenditures were 220, resulting in free cash flow of $254 million.
Steven: We continue to look for opportunities to strategically deploy our balance sheet in order to create long term value for our shareholders.
Steven: Now let me provide some guidance for your models.
Steven: Based on our current view of demand and prices, we continue to see upside potential for our full year 2020 for housing and infrastructure products EBITDA margin guidance of 22%.
Steven: The impacts of Hurricane barrel Helene Milton impacted sales in 2024, and we expect revenue to remain in the range of $4 three to $4 6 billion.
Steven: We continue to expect our total capital expenditures to be approximately $1 billion.
Steven: Which is unchanged from our earlier guidance and similar to our depreciation and amortization run rate.
Steven: We continue to target $125 million to $150 million of.
Steven: A company cost savings companywide cost savings in 2024 with approximately $120 million already achieved year to date.
Steven: Including the $35 million achieved in the third quarter.
Steven: For the full year of 2024, we now expect our effective tax rate to be approximately 25% up from our prior guidance of 23% due to the tax treatment of the $75 million of mothball expense in the third quarter.
Steven: And we continue to expect cash interest expense too.
Steven: To be approximately $160 million.
Steven: Finally, we now expect the turnaround of our Petro one ethylene cracker in Lake Charles Louisiana to begin at the end of January 2025, and for it to last approximately 55 days.
Steven: Which will have an impact on our ethylene production and cost during the quarter of 2025 now I'd like to turn the call back over to John Mark to provide a current outlook of our business John Marc Thank you Steven.
John Mark: So while we are seeing some improvement in activity levels in most of our major geographies the pace of the recovery from the recent trough.
John Mark: It remains slow.
Steven: However, recent actions by the U S Federal reserve and the ECB to loosen the monetary policies.
Steven: As a result of progress in bringing down the rate of inflation.
Steven: Has the potential to improve consumer demand for durable goods and housing.
Steven: Including key end markets.
Steven: For us in both hit.
Steven: <unk> segment.
Steven: Additionally.
Steven: The Chinese government recently took action to stimulate its economy.
Steven: Including significant liquidity injections.
Steven: These actions will take time to have impact.
Steven: Stimulus plans in China to boost economic activity.
Steven: Signal the Chinese authorities.
Steven: Recognize government efforts unnecessary for positive momentum for 2025 for 2025.
Steven: Okay.
Steven: While.
Steven: <unk> is in China today limited.
Steven: We view the policy actions in China.
Steven: <unk> for the global supply demand balance.
Steven: For all of the products in our <unk> segment.
Steven: Taken together.
Steven: We believe the recent trend towards more accommodative monetary policy.
Steven: And.
Steven: Cumulative policy actions.
Steven: Could accelerate the pace of the global economic recovery.
Steven: As a result.
Steven: We are optimistic about the macro economic backdrop, as we end the year and enter 2025.
Steven: For the fourth quarter of 2024.
Steven: We are expecting tipping.
Steven: Typical slower seasonal demand in our hip segment.
Steven: Due to colder weather.
Steven: Meanwhile.
Steven: We expect improvement in pumps operating cost.
Steven: As a result of reduced ethylene feedstock purchases.
Steven: And lower maintenance expenses.
Steven: Now that we have that now that the two extended outages that occurred in the third quarter.
Steven: Behind us.
Steven: Westlake continues to develop innovative products.
Steven: Across our business.
Steven: Such as PVC pipe and pipe.
Steven: Sustainably serve our customers in the hip segment.
Steven: Westlake innovative multi layer type technology utilizes a middle layer comprised of postindustrial recycled PVC to reduce waste and provided a sustainable alternative to conventional piping.
Steven: Meanwhile, in our pet segment, the success of our pivotal post consumer recycled polyethylene product.
Steven: Is simply one example of many innovation developed to meet our customer needs.
Steven: To drive growth.
Steven: During the third quarter, we also expanded our efforts to source recyclable PVC resin.
Steven: These materials are recycled by Westlake dimension.
Steven: Into new products and its portfolio offering.
Steven: Consumer and industrial matting.
Steven: Exercise equipment, matting, and let scape hedging products.
Steven: These are just some of the ways that Westlake is working to increase the circularity of the materials that we produce to regroup to reduce global carbon emissions and landfill waste.
Steven: Westlake continues to take cost reduction actions.
Steven: And take the opportunity to leverage our energy and feedstock advantage in North America.
Steven: We're approximately.
Steven: 85% of our production capacity is located.
Steven: And a high degree of vertical integration.
Steven: With innovative products such as the examples that I just provided.
Steven: These competitive advantages position.
Steven: These competitive advantages position to well position us well relative to non integrated global producers.
Steven: By allowing us to operate our 10 plants at higher operating rates.
Steven: To a higher degree of internal sales to our downstream businesses and export opportunities.
Steven: Finally, we continue to look for opportunities to put our nearly $3 billion cash balance to work in a disciplined manner.
Steven: That will create long term value for our shareholders.
Steven: This includes both identifying acquisition candidates that can exceed our risk adjusted cost of capital.
Steven: And returning cash to shareholders through both dividends and potential share repurchases.
Steven: Thank you very much for listening to our third quarter earnings call.
Speaker Change: I will now turn the call back over to John.
Steven: Thank you John Mark 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.
John: We will now take questions.
Steven: Thank you at this time, we will conduct a question 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 Citi. Your line is open.
Steven: Hi, Good morning. This is Eric Zhang on for Patrick on the AC market ECH units that have returned to service. These plants back to running at full capacity and do you have any additional planned maintenance for your other plants schedule. This year.
Steven: So just for clarification, the ECH plan on the AC plant that we're mothballing in <unk>.
Steven: Furnaces will is planned for March falling activity the items that I mentioned that we are.
Speaker Change: Out for maintenance for that extended maintenance, our <unk> ethylene unit as well as our black women Whore Vinyls site. Both of those are back in service.
Speaker Change: Got it thank you.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from Duffy Fischer at Ges.
Duffy Fischer: Good morning, guys.
Duffy Fischer: Just some questions around the one 120 million. So one I believe some of that was planned maintenance and then the maintenance lasted longer is that correct and if so is the 120 just lasted longer part of it or could you break it out between what was planned and what ended up kind of being unplanned or longer.
Speaker Change: No Duffy both of those were not planned and so both of those were kind of unexpected outages.
Speaker Change: Both the <unk> joint.
Speaker Change: <unk> ethylene unit as well as the Parkman outage.
Speaker Change: Okay.
Speaker Change: Then on the 120, if you bucket it between.
Duffy Fischer: How much was foregone production that you didn't have the so how much was kind of higher cost because of the increased ethylene price and then how much was just the actual cost for the repairs, what's the rough breakdown of that.
Speaker Change: Yes, I am not going to break out those component pieces, it's hard to get into.
Speaker Change: The ethylene price differentials.
So I'd, rather not I'd, rather not get into the details of that because it's really hard to put a fine point on that.
Speaker Change: Okay Fair enough and then just the last one for me <unk>.
Speaker Change: You talked about some Q3 sales getting pushed into Q4.
Speaker Change: Can you quantify roughly how large that is.
Speaker Change: It's hard to know Duffy, it's certainly with the the seasonality for hip seen some winter slowdown will achieve some of those and we are seeing a higher shipment volume in October.
Speaker Change: I do believe we will achieve all of those sales. It's just a matter of timing, whether we achieve those in fourth quarter or are they spill into first quarter. That's really a function of how the weather continues to play through and whether the.
Speaker Change: Whether our customers are able to actually get there.
Speaker Change: Those homes built during the winter Thats approaching.
Speaker Change: Perfect. Thank you guys.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from Bob <unk> at BMO capital markets.
Speaker Change: Hi, good morning, Thanks for taking my question.
Speaker Change: You mean, an overall comment that the third quarter earnings would have been in line with the second quarter, except for the onetime events.
Speaker Change: Is that true for the hip segment as well or was that 9%.
Speaker Change: Sequential drop in volumes was that some of it was.
Speaker Change: Like does the end market being weaker as well.
Speaker Change: No. It's it really is true for both segments. So when you factor in the $75 million mothballing expense that was accrued as well as the <unk> the.
Speaker Change: The impact of the outages of $120 million and think of the impact of the wetter weather that we had from both rains as well as the hurricanes and some of the deferral of that spending activity, both hip and Perm would have been similar to the second quarter of.
Speaker Change: 24.
Speaker Change: Got it and then a quick follow up you also mentioned about the typical seasonality expected in the fourth quarter would you say last year was the tipping.
Speaker Change: <unk> for you.
Speaker Change: I think the business the hip business, So I don't know 47% decline sequentially in EBITDA.
Speaker Change: Are you talking about the same level of seasonality this year.
Speaker Change: Yes, I am.
Speaker Change: A similar pattern last year as I expect given the seasonality we've seen so far this year.
Speaker Change: Don't know how strong the winter weather will have but as we sit here in early November October has been a good weather season, and as we look forward, we expect a similar season for the rest of the quarter.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from Alexi, Yeah frame models.
Speaker Change: Keybanc capital markets.
Ryan: Thanks. Good morning, everyone. This is ryan on for electricity.
Speaker Change: Wanted to try and piggyback off of a question asked earlier, so just on the $120 million worth of outages you guys had and three Q. If I were to think about just kind of the sequential add back for <unk> ex seasonality.
Speaker Change: Do you guys kind of have like an estimate of what that would be.
Speaker Change: Well again, when you think of the operating rates that we have that.
Speaker Change: The ethylene is going into whether it is in PVC and polyethylene, we would've run those plants at those elevated rates demand really in PVC and polyethylene are still what I would characterize as good very good.
Speaker Change: So those operating rates would have remained reasonably well elevated and so as we see it that $120 million impact from both the ethylene outage as well as the core vinyl outage.
Speaker Change: I think would've been.
Speaker Change: Would've given us results very similar to what we saw in the second quarter and as we think about the spill in spill effect into the fourth quarter I would continue to expect that we will see typical seasonality in the season for the Perm side of the business as well as for hip but you will see the advantage that we have in feedstock advantage continues to play through in <unk>.
Speaker Change: How us to continue to sell through PVC demand in the construction season, even though it's lower polyethylene continues to remain a very good market at this stage.
Speaker Change: Okay. That's very helpful. Thank you.
Speaker Change: And then just on EBITDA margins in this quarter it looks like margins fell a little bit over 400 basis points sequentially. So I understand theres volume declines, but I think there's also some higher PVC costs that are flowing through so maybe if you guys could just walk us through the dynamic thats going on.
Speaker Change: Kind of in margins, there and what you might expect your unfortunate. Thank you very much.
Speaker Change: Yes, so as it relates to the sequential hip margins Youre right volume was off about eight 5% and that was largely driven by weather and slower demand levels in our pipe segment of the hip business.
Speaker Change: When you think about the.
Speaker Change: The average sales price was relatively flat really just up a half a percent sequentially period over period and again it was really just product mix.
Speaker Change: Operator has another question.
Speaker Change: Yes.
Operator: Our next question comes from Frank Mitsch Fermium research.
Frank Mitsch: Hey, good morning, just a quick clarification, Steve you mentioned that the two units were back up and running last months.
Frank Mitsch: At the beginning of the month last month was October so I just wanted to make sure that the route that that.
Speaker Change: We're looking at a totally clean quarter in terms of operating rates of those two assets and Pam.
Speaker Change: Yes, Frank they are up and no impact in the fourth quarter from the outages, we had in the third quarter.
Speaker Change: Terrific.
Speaker Change: Obviously, a nice generation of free cash flow. Despite the difficulties here in the third quarter.
Speaker Change: How are you thinking about free cash flow for the fourth quarter, particularly as surrounds working capital as a source.
Speaker Change: Whereas a use of cash.
Speaker Change: Yeah, I can we've seen.
Speaker Change: We've seen typically the seasonal trends as I mentioned earlier in some of the questions and that usually is a source of working capital during the fourth quarter Frank.
Frank: Terrific. Thank you so much.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from John Roberts at Mizuho Group.
John Roberts: Thank you and welcome to a mark.
John Roberts: The earnings release indicated that you had some learnings from these outages that might help you mitigate them better in the future what were those learnings.
John Roberts: Yes.
Speaker Change: We had a.
John Roberts: As mentioned with an outage at the ACC.
John Roberts: So it's really coming from some design that was made during construction.
John Roberts: And we fixed I mean, most of the problems that we had there.
John Roberts: We learned when we fixed it and we think that the LSE plant is now.
John Roberts: Good to operate the way it is.
John Roberts: For several years, so really good learning every plant is designed differently. This one was design a little bit differently than other ethylene plant that we have.
Frank: And and so we learned a lot and it's back up running at 100%.
John Roberts: In terms of the other all the age that we add that back I mean again.
John Roberts: Problem occurred in a power unit and again every plan is designed differently.
John Roberts: We learned that.
John Roberts: We probably need to.
John Roberts: <unk> replace some of the equipment that we have there and check at other plants. If some of the failure that we've seen at that plant.
John Roberts: Theres not repeat so overall.
John Roberts: I mean, good learnings and again Blackman is is backup running them.
John Roberts: At good speed. So good learnings this is a chemical industry.
Frank: And you learn and you fixed and you improve and I think we on that trajectory.
Speaker Change: Thank you that's all I had.
Speaker Change: Our next question comes from Michael <unk> at Wells Fargo.
Speaker Change: Hi, This is Richard on for Michael.
Richard: Just wondering if you could provide some color in terms of where you are seeing on the pricing side.
Richard: The polyethylene margins.
Speaker Change: Great margin and pricing heading into the fourth quarter.
Richard: And then also on the chlorine.
Richard: Our alkali pricing.
Richard: Quite strong in the third quarter. So what are you seeing there.
Richard: Seasonality heading into the fourth quarter. Thank you.
Speaker Change: Yes, Richard its a good question and I would say that we have not seen settlements yet either in PVC or in polyethylene yet.
Speaker Change: But to your point during the day.
Speaker Change: As a result of seasonality it is not unusual to see some slower demand begin to materialize.
Speaker Change: In construction activities and so that does put.
Speaker Change: Some pressure on pricing and so the consultants are suggesting that we could see some reduction in price.
Speaker Change: In the fourth quarter.
Speaker Change: As I say October has not settled yet so we don't know how that will play out in PBC, but that consultants are suggesting we could see.
Speaker Change: Penny reduction in November.
Speaker Change: As it relates to polyethylene again, we've seen a market that remains I think I'd characterize it as a very good market right now, but certainly as we enter the fourth quarter and we get into the.
Speaker Change: The contract negotiation periods and the seasonal period when equipment is.
Speaker Change: <unk> maintenance there certainly is oftentimes some give back in pricing and the consultants are suggesting we could see some reductions later in the quarter again polyethylene does not settle for October so I can't comment as to where that will sort its way through the consultants are suggesting we could see some reduction in pricing over.
Speaker Change: The course of the quarter.
Speaker Change: Okay, Great and just a follow up on the hip segment I don't know if you guys have quantified the EBITDA impact from the hurricane in the third quarter, but if you could do that and then on.
Speaker Change: On the revenue cycle, maintaining the full year guide so I guess that is expanding.
Speaker Change: Volume or third quarter will be made up in the fourth quarter. I think you mentioned earlier that it was hard to.
Speaker Change: Our gauge timing.
Speaker Change: Back in the fourth quarter early next year.
Speaker Change: Hum.
Speaker Change: Some color on that thank you.
Speaker Change: Yes, it's hard to completely dissect how much is weather related and how much is related to the slower starts that we saw in the third quarter relative to the second quarter, but I'd say, it's in the mid $40 million range for the impact combined between those two for the hip segment.
Speaker Change: Our next question comes from Kevin Mccarthy at vertical research partners.
Matt: Hi, This is Matt how are on for Kevin Mccarthy, John Mark now that you have a few more months at the helm how have your thoughts evolved as it relates to strategy market opportunities for Westlake and perhaps capital allocation.
John Mark: Yeah, I mean, thank you Matt.
John Mark: It's been now for months and.
John Mark: I think I'm really starting to appreciate the <unk>.
John Mark: <unk> integrated model.
John Mark: And that we have a twist lake.
John Mark: Basically we sell at every point of the value chain.
John Mark: From being I mean, large producer upstream ethylene PVC and then selling PVC at multiple point multi multi channel.
John Mark: Whether we sell <unk> some compounds all true directly into pipe and fittings and sidings. So I think that is a key advantage.
John Mark: That that reduces.
John Mark: The volatility in our earnings and we can always place I mean, the PVC a different point of the value chain, depending on pricing and where we can make margin. So.
John Mark: That's a key advantage and I think that if we look into the future anything that can strengthen.
John Mark: That business model, that's being very good dividend to us.
John Mark: We will continue to do.
John Mark: And certainly we'll continue to do to look downstream into the hip segment as its really been very beneficial to the result in Westlake.
Speaker Change: Thank you.
Speaker Change: And then could you just discuss.
Speaker Change: Oxy pricing opportunity in <unk> and beyond in the wake of the duty implementation.
Speaker Change: And then what do you think the likelihood is that you get additional duties on the exports from some of the other Asian countries outside of China, and India in 2025.
Speaker Change: Alright, So I think you need to separate right now a little bit.
Speaker Change: The U S market in the European market, So I think it's.
Speaker Change: There was a pretty good certainty that we're going to get some import duties as we mentioned from China, and India coming into the U S.
Speaker Change: I think it's going to be extended to a.
John Mark: A few other countries.
Speaker Change: At lower import duties, so we feel pretty good in terms of the.
John Mark: <unk> of the U S market when it comes to European market, where we have a large part of our sales.
John Mark: So it's not a different story, but I think we're little bit behind what the U S has done I think it's still likely that they will be.
John Mark: Some tariffs put.
John Mark: Put in place.
John Mark: But there was an announcement, but so far no.
Speaker Change: Nothing is firm and so the pressure that we see on prices I think will continue in Europe as long as these tariffs are not in place.
Speaker Change: So it's it's a tale of two world I think ultimately we're going to see some some price increase.
Speaker Change: In.
Speaker Change: In epoxy on both sides of.
Speaker Change: The Atlantic where we have most of our assays.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from Joshua Spector at UBS.
Speaker Change: Hi, Good morning, it's Chris Perrella on for Josh.
John Mark: I wanted to follow up on.
Speaker Change: And the raw material impact of higher PVC and other inputs in the third quarter.
Speaker Change: How did that impact EBITDA sequentially, and then what's your expectation for that into the fourth quarter.
Speaker Change: So I think as you look at the results for the quarter for hip you can see that sales price actually remained.
Speaker Change: Pretty healthy we're able to maintain sales prices. There is some product mix of course, it shifts that around but of course as you think about those.
Speaker Change: Flows of higher cost PVC flowing through we were able to largely push that through and you can see that through our average sales prices and say some some product mix flowing through there of course, but actually.
Speaker Change: Quarter over quarter or excuse me quarter over quarter, you can see those prices remain relatively flat and stable.
Speaker Change: I appreciate that Steve.
Speaker Change: Reaching out to the PVC business in Europe.
Speaker Change: <unk> performing.
Speaker Change: And I guess, what our expectations are for margins and profitability in Europe in the quarter and the fourth quarter.
Speaker Change: Certainly as you.
Speaker Change: You might guess the construction activities in Europe are slower than we've seen here in the north American market and so the demand for their PBC remains somewhat somewhat constrained in terms of an ability to push all of this pricing action through so there are certainly some cost challenges as it relates to the businesses that we.
Speaker Change: We have in Europe, but I would say nevertheless, the specialty PVC nature of <unk> portfolio I think continues to deliver good results and so while we have seen years, where our results were stronger I would say the specialty component. This is the flexible PVC component of intimates business that.
Speaker Change: <unk> to deliver.
Speaker Change: Improving results relative to just being a commodity player in that European market.
Speaker Change: Okay. Thank you Steve I appreciate it.
Steve: Youre welcome.
Speaker Change: Our next question comes from Ireland, Vishwa, Nathan at RBC capital markets.
Speaker Change: Great. Thanks for taking my question have you guys are well.
Speaker Change: Maybe I could just try and.
Speaker Change: Hope you guys are frame Q4 for us a little bit. So if you look at Q3.
Speaker Change: Maybe we'll start with that $580 million or so of EBITDA and add back the maintenance charges at 120.
Speaker Change: As typical seasonality, maybe and I think it could be and then maybe the 15% to 20% range. If you look at Q4, and so maybe that brings you down into the middle five hundreds.
Speaker Change: What else would you include as we kind of try to frame up where you guys could.
Speaker Change: It could be maybe in Q4 thanks.
Speaker Change: Yeah, Arun there are really no other maintenance planned maintenance activities turnarounds in search that we have planned in Q4 and so it really is just really the framework around how we think about the.
Speaker Change: Dynamics as it relates to pricing over the course of the next several months so.
Speaker Change: So as you think about the seasonality I think you characterized it well volume and demand remains pretty healthy really I would say in the PVC and polyethylene market I would characterize our caustic markets as stable at this level, obviously lower than we've seen in prior years, but nevertheless stable so it really.
Speaker Change: It's just a function of how we see pricing play out over the rest of the fourth quarter at this stage.
Speaker Change: Great. Thanks for that Steve and as you're looking at 25.
Speaker Change: We do see some potential optimism around lower rates and you know.
Speaker Change: Maybe you could also see some some benefit on the epoxy side from anti dumping duties again, you know potentially some recovery in some of your other markets. So.
Speaker Change: As a as a is it fair to assume that you should be you should see some EBITDA growth and twenty-five as well and is that where would that be more back half weighted just given the lags that typically are present, when when rates come down and when that flows through your P&L or how are you thinking about some initial thoughts on 'twenty five.
Speaker Change: If you could share those thanks.
Speaker Change: Yeah, So certainly interest rates lower interest rates are going to be stimulus to the economy. As you pointed out if there is a bit of a lag and it's hard to know exactly what the length of that lag is but lower interest rates or stimulus to not only the building products business saw a hip segment should be benefiting from those low rates, but I would also say that.
Speaker Change: As we think about the stimulus effect not only in the building and construction trade, but also more broadly in the economy. The North American economy continues to really be I would characterize it as a good economy, and so lower rates will be stimulative as well to the broader economy, which would be constructive really too many of the products in our <unk> segment.
Speaker Change: So we continue to have an optimistic view as we look out into 'twenty five but its hard to front end or backend weight that I would have to admit because it's hard to know exactly when the fed will take action to what degree they will think action theres clearly going to be some lag, but I would say all of that is constructive.
Speaker Change: With lower rates expected in <unk> and 'twenty five.
Speaker Change: Great. Thanks.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from Michael <unk> at Barclays.
Speaker Change: Great. Thanks, Good morning, guys.
Michael <unk>: There appears to be a number of chemical assets in areas you compete in recently up for sale would you consider adding further Pam assets or is your inorganic strategy, primarily focused on hip right now.
Speaker Change: Yes, so as we think about it Mike the answer is we look across the spectrum of assets that we have both in both segments, both perm and in hip.
Speaker Change: And as you heard us speak about the integrated manner of our assets. We continue to want to think about running the business to give us a high degree of Optionality on where those products go in the markets that we serve so we'll look at all opportunities in spaces that are in our operating space and adjacent to that.
Speaker Change: It really is about the right opportunity and the right value proposition for us as we think about looking at assets and the opportunities. They provide so anything thats in our space, we will assess and anything thats adjacent to that will assess its just a matter of what's the right value proposition to us as we think about those opportunities.
Speaker Change: Great. That's helpful. And then any initial thoughts about 2025 and here appreciate it it's hard and early to forecast the market, but just given what you have in the pipeline with new customers or new PVC plant just how should we think about your ability to grow volumes above the market next year.
Speaker Change: So I think as those that attended our T. Chen earlier. This summer heard that we were continuing to work very closely with some of these nationwide builders and I would note that looking at research published by John Burns, a well known real estate construction consultant noted that these large <unk>.
Speaker Change: <unk> builders, such as Pulte on our D. R Horton and others now represent about 55% of starts nationwide.
Speaker Change: So as we think about our and I'll call. It a partnership our partnership through these distributors and are these homebuilders continues to be successful.
Speaker Change: And so we're continuing to win with the winners because theyre continuing to gain market share in their home starts and in those construction activities.
Speaker Change: As I read their commentary as we talk to them they continue to be opportunistic and their views about lower interest rates and the forecast that they are putting forth suggests that we should see a more constructive year in 25, because of lower interest rates and the expectation that they need to build out more homes for the under build that we have.
Speaker Change: Seen across North America that has persisted for over 15 years. So we do think that there'll be a continued growth in demand and those homebuilders are well positioned to meet that demand and we think we're incredibly well positioned to support those homebuilders meeting that demand.
Speaker Change: Alright, thank you.
Speaker Change: Youre welcome.
Speaker Change: Our last question comes from Vincent Andrews at Morgan Stanley.
Speaker Change: Hi, This is Turner on for Vincent I was just wondering what drove the lower chloro vinyl export shipments in the third quarter.
Speaker Change: Yes.
Speaker Change: I think it was mostly related to to pricing in export market.
Speaker Change: And there is a point, where we see more value I mean, pushing some of these volumes into.
Speaker Change: I mean selling in other point of the value chain. So.
Speaker Change: For us that tell us to key factor, it's the price for export is relatively low and so we decided not to go and sell it.
Speaker Change: At a price point, where we don't think it's advantageous to us.
Speaker Change: Great. Thanks that makes a lot of sense and if I can fit one more and have you all seen the antidumping duties effect the PVC market in Europe.
Speaker Change: Yes.
Speaker Change: We have it's having a limited impact right now demand in Europe, it's still pretty subdued overall so.
Speaker Change: And let the demand really picks us picks back up.
Speaker Change: It's not going to have a very favorable impact onto them onto.
Speaker Change: Overall business so.
Speaker Change: In Europe, it's a demand problem.
Speaker Change: And which is a problem we don't have in the U S.
Speaker Change: Alright, thanks for taking my questions.
Speaker Change: This concludes the question and answer session I would now like to turn it back to John Zelda for closing remarks.
John Zelda: Thank you again for participating in today's call. We hope you will join US again for our next conference call to discuss our fourth quarter results.
John Zelda: Thank you for participating in today's Westlake Corporation third 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 website Goodbye.
John Zelda: Yeah.
Speaker Change: Yeah.
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