Q3 2024 Westlake Corp Earnings Call
Thank you good morning, everyone and welcome to the Westlake Corporation Conference call to discuss our third quarter 2024 results.
Speaker Change: I'm joined today by Albert Chao, Our executive Chairman, John Marc Gilson, our President and CEO, Steve Bender, Our executive Vice President and Chief Financial Officer, and other members of our management team.
Speaker Change: 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.
Speaker Change: Today's conference call will begin with Sean Mark who will open with a few comments regarding Westlake performance.
Speaker Change: Steve will then discuss our financial and operating results after which John Mark will add a few concluding comments and we will open the call up to questions.
Sean Mark: During the third quarter of 2024, we accrued $75 million of after tax expenses and the performance of the essential materials segments related to the previously announced decision to mothball two units within our European Apocope business to reduce our costs and allow our manufacturing footprint to align with changing global conditions, we refer to this.
Speaker Change: Charge as the identified items in our earnings release and on this conference call.
Speaker Change: References to income from operations EBITDA net income and earnings per share on this call exclude the financial impact of the identified item.
Speaker Change: As such comments made on this call will be in regard to our underlying business results using non-GAAP financial measures.
Speaker Change: 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.
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. These.
Speaker Change: These forward looking statements suggest predictions or expectations and.
Das are subject to risks or uncertainties. These risks and uncertainties are discussed in west Lakes 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: This morning, Westlake issued a press release with details of our third quarter results.
Speaker Change: This document is available in the press release section of our website at Westlake Dot Com. We have also included an earnings presentation, which can be found in 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. This replay may be accessed via West Lakes website.
Speaker Change: Please note that information reported on this call speaks only as of today November 5th 'twenty 'twenty four and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.
Speaker Change: Finally, I would advise you that this conference call is being broadcast live through an internet webcast webcast system that can be accessed on our webpage at Westlake Dot Com now I would like to turn the call over to John Marc Gilson, Joe Mark.
Speaker Change: Thank you Donna and good morning, everyone. We appreciate you joining us to discuss our third quarter 2024 regions.
Speaker Change: Global macroeconomic conditions in the third quarter.
Speaker Change: We're similar to those we saw in the second quarter.
Speaker Change: The relative strength in North America.
Speaker Change: And a slow recovery in Asia, and Europe, where activity levels remain muted.
Speaker Change: Demand for our materials.
Speaker Change: Segment.
Speaker Change: Generally mirror these trends during the third quarter.
Speaker Change: With revenue comparable to the second quarter on relatively flat sales volume.
Speaker Change: Third quarter EBITDA in our Pep segment.
Speaker Change: Would have been similar to the second quarter, if not for the 75 million mothball expense.
Speaker Change: And extended maintenance outages at two facilities.
Speaker Change: The combined financial impact of these two other juice was $120 million.
Speaker Change: Which drove the sequential decline in our EBITDA from the second quarter.
Speaker Change: Importantly.
Speaker Change: The necessary repairs.
Speaker Change: It has now been completed and each plant we tend to service last month.
Speaker Change: And we are applying the lessons learned from these incidents to other facilities to improve the reliability of our plants.
Speaker Change: Okay.
Speaker Change: For the third quarter of 2024, we reported net sales of $3 1 billion.
Speaker Change: EBITDA of $580 million and net income.
Speaker Change: <unk> hundred $83 million or <unk>.
Speaker Change: <unk> 41 per share.
Speaker Change: Compared to our second quarter results.
Speaker Change: We benefited from higher caustic soda.
Speaker Change: And polyethylene prices.
Speaker Change: However, our hip sales volume was impacted by weather events.
Speaker Change: EBITDA margin of 19% in the third quarter was below the 23% we reported in the second quarter of 2024.
Speaker Change: Due primarily to the tube extended maintenance outages.
Speaker Change: Our highly integrated manufacturing footprint in North America.
Speaker Change: Combined with our large PVC offtake.
Speaker Change: Into a hip segments building product.
Speaker Change: Serving the residential housing and remodeling markets.
Speaker Change: S continued to be a strategically advantaged benefit.
Speaker Change: The significant and the supply of residential housing.
Speaker Change: Over the past 15 years.
Speaker Change: And.
Speaker Change: The growth in population over the same time period.
Speaker Change: <unk> created the housing shortage, we've seen the north American market.
Speaker Change: With U S housing starts in the third quarter.
Speaker Change: However, aging $1 3 million.
Speaker Change: Similar to the second quarter.
Speaker Change: We been either.
Speaker Change: The pent up demand for residential housing.
Speaker Change: Drive future construction activity as expected interest rate reduction.
Speaker Change: Unfolded into 2025.
Speaker Change: Despite the disruption to sales volume from two hurricanes that made landfall in the south eastern portion of the U S.
Speaker Change: Hip segment sales and margins.
Speaker Change: <unk> to perform well.
Speaker Change: As a result of our broad portfolio of product portfolio.
Speaker Change: With strong brands that make us a supplier of choice for many of the fastest growing.
Speaker Change: Large homebuilders.
Speaker Change: Our concentrated footprint.
Speaker Change: In North America.
Speaker Change: Can use to provide globally advantaged energy and feedstock.
Speaker Change: Letting us capture demand and growth we see in the Americas.
Speaker Change: While we continue to experience a slow economic recovery and growth in demand across international end markets.
Speaker Change: Our global scale with market leading positions.
Speaker Change: Combined with our cost advantage footprint.
Speaker Change: Positioned perm segment to serve diverse markets.
Speaker Change: Such as needs for housing clean water food packaging.
Speaker Change: Rectification and other growing markets.
Speaker Change: Okay.
Speaker Change: Energy and feedstock advantage.
Speaker Change: Combined with our integrated manufacturing footprint.
Speaker Change: True to building products.
Speaker Change: Positions us well to drive growth in our hip segment.
Speaker Change: We continue to partner with homebuilders to address the significant housing shortage in North America.
Speaker Change: Okay.
Speaker Change: We have a very broad product offering in our hip segment.
Speaker Change: That said the residential housing market with innovative building products.
Speaker Change: I've been fittings, and PVC compounds for building and construction products.
Speaker Change: Meanwhile.
Speaker Change: Investment grade balance sheet.
Speaker Change: With $2 9 billion of cash and cash equivalent.
Speaker Change: He is a source of strength.
Speaker Change: And a driver of earnings growth.
Speaker Change: We continue to seek ways to redeploy it to create long term value for shareholders.
Steven: I would like now to turn our call over to Steven.
Speaker Change: To provide more detail on our financial results for the third quarter Steve. Thank.
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 to net income of $285 million in the third quarter of 2023.
Steven: The year over year decrease in net income was primarily due to extended maintenance outages in our <unk> segment, which impacted our feedstock and conversion cost.
Steven: 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 kind of return them to service last month. So the impact of these outages should not impact subs.
Steven: Quarters.
Steven: My comments regarding income from operations EBITDA 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.
Steven: During the third quarter, we continued to make progress on our company wide 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 there.
Steven: First three quarters of 2024 toward our full year target of $125 million to $150 million.
Steven: 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.
Steven: Our housing and infrastructure product segment continued to deliver solid results, including EBITA of $262 million on $1 $1 billion in sales.
Steven: EBITDA margin of 24% continued to benefit from our integration and cost savings actions.
Steven: 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.
Steven: Deferring some shipments into the fourth quarter, while slowing construction activities in the path of the storms.
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 three.
Steven: <unk> hundred $36 million.
Steven: 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.
Steven: 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: It helps the environment, but also helps <unk> bottom line.
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 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 in the third quarter of pre.
Steven: Pre tax earnings to.
Steven: To be approximately $120 million, which consist of three factors.
Steven: Increased third party ethylene feedstock purchases due to our <unk> joint.
Steven: Venture ethylene cracker undergoing necessary maintenance for the entire quarter.
Steven: Lost chlorine and caustic soda production due to a disruption at our <unk>, Louisiana or alkali 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.
Steven: As a 6% increase in sales volume led by Chlor alkali and epoxy 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 proxy resin 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 and subsidies in material injury by mid 2025.
Steven: Meanwhile, our Potsy 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.
Steven: The third quarter of 2024 net cash provided by operating activities was $474 million cap.
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 pricing, 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 Hellene Milton impacted sales in 2024, and we expect <unk> 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 company cost save 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.
Sean Mark: 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 Sean Mark. Thank you Steven.
Sean 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.
Sean Mark: Remains slow.
Sean Mark: However, recent actions by the U S Federal reserve and the ECB.
Sean Mark: To loosen the monetary policies.
Sean Mark: As a result of progress in bringing down the rate of inflation.
Sean Mark: It has the potential to improve consumer demand for durable goods and housing.
Steven: Including key end markets for us in both hip and <unk> segments.
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: Direct sales in China today are limited.
Steven: We view the policy actions in China is positive 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: Stimulative policy actions.
Sean Mark: Could accelerate the pace of the global economic recovery.
Sean Mark: As a result.
Steven: We are optimistic about the macro economic backdrop, as we end the year and into 2025.
Steven: For the fourth quarter of 2024.
Steven: We are expecting tipping.
Sean Mark: Typical slower seasonal demand in our hip segment.
Sean Mark: Due to colder weather.
Sean Mark: Meanwhile.
Sean Mark: We expect improvement in pumps operating cost is.
Sean Mark: As a result of reduced ethylene feedstock purchases.
Sean Mark: And lower maintenance expenses.
Sean Mark: Now that we have that now that the two extended outages.
Sean Mark: Occurred in the third quarter behind.
Steven: And behind Us.
Steven: Westlake continues to develop innovative products.
Steven: Across our business.
Steven: Such as PVC pipe and E B a pipe.
Steven: Sustainably serve our customers in the hip segment.
Steven: Westlake innovative a be a 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 Perm 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: And drive growth.
Steven: During the third quarter, we also expanded our efforts to source recyclable PVC resin.
Steven: These materials are recycled by Westlake diamonds.
Steven: Into our new products and its portfolio offering.
Sean Mark: Chess consumer and industrial matting.
Sean Mark: Exercise equipment, matting, and let scape hedging products.
Sean Mark: 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.
Sean Mark: Westlake continues to take cost reduction actions.
Sean Mark: And take the opportunity to leverage our energy and feedstock advantage in North America.
Sean Mark: We're approximately.
Sean Mark: 85% of our production capacity is located.
Sean Mark: And a high degree of vertical integration.
Sean Mark: With innovative products such as the examples that I just provided.
Sean Mark: These competitive advantages position.
Sean Mark: These competitive advantages position to well position us well relative to non integrated global producers.
Sean Mark: By allowing us to operate our 10 plants at higher operating rates.
Sean Mark: Two a higher degree of internal sales to our downstream businesses and export opportunities.
Sean Mark: Finally, we continue to look for opportunities to put our nearly $3 billion cash.
Sean Mark: Our cash balance to work in a disciplined manner.
Sean Mark: That will create long term value for our shareholders.
Sean Mark: This includes both identifying acquisition candidates that can exceed our risk adjusted cost of capital.
Sean Mark: And returning cash to shareholders to both dividends and potential share repurchases.
Sean Mark: Thank you very much for listening to our third quarter earnings call.
Speaker Change: I will now turn the call back over to John.
Speaker Change: 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: Justin that we will now take questions.
Justin: Thank you at this time, we will conduct a question answer session.
Speaker Change: The market you 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.
Speaker Change: 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 scheduled this year.
Speaker Change: So just for clarification the ECH plan on the AC plant that we're mothballing in Pernis is well is plan for mothballing activity the items that I mentioned that were.
Justin: Out for maintenance for that extended maintenance, our LHC ethylene unit as well as our <unk> core vinyls site.
Speaker Change: 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.
Speaker Change: Good morning, guys.
Duffy Fischer: Just some question on demand.
Duffy Fischer: 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 $1 20, 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 definitely both of those were not planned and so both of those were kind of unexpected outages.
Justin: Both the <unk> joint.
Justin: <unk> ethylene unit as well as the Parkman outage.
Justin: Okay.
Speaker Change: And then on the 120, if you bucket it between her.
Speaker Change: How much was foregone production that you didn't have to sell 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, im not going to break out those component pieces, it's hard to get into.
Justin: The ethylene price differentials.
Justin: 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 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 we 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 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.
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 one time events.
Speaker Change: Is that true for the hip segment as well or was that 9%.
Speaker Change: Essential government volumes was that some of it was.
Justin: Like does the end market being weaker as well.
Speaker Change: No it is.
Speaker Change: It really is true for both segments. So when you factor in the $75 million mothballing expense that was accrued as well as 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 brands 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.
Justin: 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.
Justin: 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.
Justin: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from Alexi, Yeah frame models.
Justin: Keybanc capital markets.
Speaker Change: 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: 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.
Justin: And so those operating rates would have remained reasonably well elevated and so as we see it that.
Justin: $120 million impact from both the ethylene outage as well as the core vinyl outage.
Speaker Change: I think would've been.
Speaker Change: It would have 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 them.
Speaker Change: Wow 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 Europe <unk>. 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.
Justin: A man levels and our pipe segment of the hip business.
Justin: When you think about the.
Justin: The average sales price was relatively flat really just up a half a percent sequentially period over period.
Justin: And again it was really just product mix.
Speaker Change: Operator has another question.
Speaker Change: Yes.
Speaker Change: 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.
Speaker Change: Is that we're looking at a totally clean quarter in terms of operating rates of those two assets in perm.
Steve Bender: Yes, Frank they are up and no impact in the fourth quarter from the outages, we had in the third quarter.
Steve Bender: Terrific.
Steve Bender: 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 it surrounds working capital as a source or use of cash.
Speaker Change: Yes, we've seen we've.
Steve Bender: 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.
Speaker Change: Terrific. Thank you so much.
Speaker Change: Youre welcome.
Speaker Change: Our next question comes from John Roberts.
Steve Bender: Mizuho group.
John Roberts: Thank you and welcome Sean 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.
John Roberts: What were those learnings.
Steve Bender: Yes.
Steve Bender: We had a.
Steve Bender: As mentioned, we have an outage at <unk>.
Steve Bender: <unk>.
Steve Bender: So it's really coming from some design that was made during construction.
Steve Bender: And we fixed I mean, most of the problems that we had there.
Steve Bender: We learned when we fixed it and we think that the <unk> plant is now.
Steve Bender: Good to operate the way this.
Steve Bender: For several years, so really good learning every plant is designed differently. This one west designs, a little bit differently than other ethylene plant that we have.
Steve Bender: And.
Steve Bender: So we learned a lot and it's back running at 100%. So in terms of the other updates that we add that back I mean again.
Speaker Change: Problem occurred then a power unit and again every plan is designed differently.
Speaker Change: We learned that we.
Speaker Change: We probably need to.
Speaker Change: And 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.
Speaker Change: Theres not repeat so overall.
Speaker Change: I mean, good learnings and again Blackman is backup printing.
Speaker Change: At good speed. So good learning this is a chemical industry.
Speaker Change: 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 in terms of polyethylene margins.
Richard: Great margin and pricing heading into the fourth quarter.
Richard: And then also on the chlorine.
Speaker Change: Our alkali pricing.
Speaker Change: Quite strong third quarter. So what are you seeing there.
Speaker Change: 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.
Richard: In construction activities and so that does put.
Richard: Some pressure on pricing and so the consultants are suggesting that we could see some reduction in price.
Richard: In the fourth quarter.
Richard: 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.
Richard: Penny reduction in November.
Richard: 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.
Richard: The contract negotiation periods and the seasonal period when equipment is.
Richard: <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.
Richard: The course of the quarter.
Speaker Change: Okay, Great and just a follow up on the hip segment I don't know if you ask you quantified the EBITDA impact from the Hurricane.
Richard: Third quarter, but if you could do that and then.
Speaker Change: On the revenue cycle, maintaining the full year guide so I guess is it fair.
Richard: <unk>.
Richard: Volume third quarter will be made up in the fourth quarter. I think you mentioned earlier that it was hard to.
Richard: <unk> timing.
Richard: In the fourth quarter or early next year.
Richard: Okay.
Speaker Change: Some color on that thank you.
Richard: It's hard to completely.
Speaker Change: <unk>, how much is weather related and how much is related to the slower.
Speaker Change: 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.
Speaker Change: Hi, This is Matt 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.
Speaker Change: Yeah, I mean, thank you Matt.
Speaker Change: Yes, its been now for months and.
Speaker Change: I think I'm really starting to appreciate the.
Richard: The integrated model and that we have a twist lake.
Richard: And basically we sell at every point of the value chain.
Richard: From being I mean, large producer upstream ethylene PVC and then selling PVC at multiple point multi multi channel.
Richard: Whether we sell <unk> some compounds all true directly into pipe and fittings and sidings. So I think that is a key advantage.
Richard: And that also that produces.
Richard: 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 that's a key advantage and I think that if we look into the future anything that Ken.
Richard: Then.
Richard: That business model, that's being very good dividend to us.
Richard: We'll continue to do.
Richard: And certainly we'll continue to do to move downstream into the hip segment.
Richard: It's really been very beneficial to the results in Westlake.
Richard: Thank you.
Speaker Change: And then could you just discuss.
Speaker Change: Foxy pricing opportunity in <unk> and beyond in the wake of the duty implementation 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 is.
Speaker Change: There was a pretty good certainty that we're going to get some import duties.
Speaker Change: As we mentioned from China, and India coming into the U S.
Speaker Change: I think it's going to be extended to.
Speaker Change: Few other countries.
Speaker Change: At lower import duties.
Speaker Change: So we feel pretty good in terms of the.
Speaker Change: Of the U S market when it comes to European market, where we have a large part of our sales.
Speaker Change: 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.
Speaker Change: Some tariffs.
Speaker Change: Put in place.
Speaker Change: But there was an announcement, but so far no.
Speaker Change: <unk> is firm and so.
Speaker Change: 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.
Speaker Change: I wanted to follow up on them.
Speaker Change: 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 the 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 remain.
Speaker Change: Healthy we're able to maintain sales prices. There is some product mix of course that shifts that around but of course, if you think about those those 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.
Speaker Change: Through there of course, but actually.
Speaker Change: Quarter over.
Speaker Change: Quarter over quarter, you can see those prices remained relatively flat and stable.
Speaker Change: I appreciate that Steve and then.
Speaker Change: Reaching out to the PVC business in Europe.
Speaker Change: How is <unk> performing 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: 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 the results were stronger I would say the specialty component. This is the flexible PVC component of <unk> business that.
Speaker Change: To deliver.
Speaker Change: Improving results relative to just being a commodity player in that European market.
Duffy Fischer: Okay. Thank you Steve I appreciate it.
Steve Bender: Youre welcome.
Speaker Change: Our next question comes from Arun Viswanathan at RBC capital markets.
Arun Viswanathan: Great. Thanks for taking my question have you guys are well.
Arun Viswanathan: Maybe I could just try and help.
Arun Viswanathan: You guys 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.
Duffy Fischer: Yes.
Speaker Change: There are really no other maintenance planned maintenance activities turnarounds and such that we have planned in Q4 and so it really is just really the framework around how we think about the dynamics of it relates to pricing over the course of the next several months.
Speaker Change: So as you think about.
Speaker Change: The seasonality I think you characterized it well volume and demand remains pretty healthy really I would say and PVC and polyethylene market I would characterize our cost take markets as stable at this level, obviously lower than we've seen in prior years, but nevertheless stable. So it really is just a function of how we see price.
Speaker Change: You can 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: You know, we do see some potential optimism around lower rates and.
Speaker Change: Maybe you could also see some some benefit on the epoxy side from anti dumping duties again potentially some recovery in some of your other markets. So.
Speaker Change: Is it fair to assume that you should be you should see some EBITDA growth and 25 as well and is that where would that be more back half weighted just given the lags that.
Speaker Change: Typically our present when when rates come down and when that flows through your P&L or how are you thinking about some initial thoughts on 25, if you could share those thanks.
Speaker Change: Yes, so certainly interest rates lower interest rates are going to be stimulative to the economy. As you pointed out 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. So our 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 take action theres clearly going to be some lag, but I would say all of that is constructive.
Speaker Change: With lower rates expected in '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.
Speaker Change: 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 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've heard us speak about the integrated manner of our assets. We continue to want to think about running the business to give us 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 I 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 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: Great. 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 two.
Speaker Change: 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.
Speaker Change: 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 affect the PVC market in Europe.
Speaker Change: Yes.
Speaker Change: We have it's having a limited impact right now.
Speaker Change: Demand in Europe, it's still pretty subdued overall so.
Speaker Change: Unless 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 <unk> for closing remarks.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.