On Tuesday, Citi reiterated a Neutral rating on shares of Westlake Chemical (NYSE:WLK), with a price target of $154.00. The chemical company reported significant earnings per share (EPS) of $2.40, surpassing both Citi's estimate of $1.93 and the consensus forecast of $1.90. The firm's earnings before interest, taxes, depreciation, and amortization (EBITDA) reached $774 million, notably higher than the expected $644 million.
The Housing, Infrastructure & Pipe (HIP) segment of Westlake Chemical achieved a record quarter, with an EBITDA of $336 million, which exceeded Citi's estimate of $287 million. This performance was driven by a 16% year-over-year and 15% quarter-over-quarter increase in sales volumes. The company attributed this success to a better product mix, decreased raw material costs, and ongoing cost savings initiatives.
The Performance Materials & Engineering (PEM) division also surpassed expectations, reporting an EBITDA of $391 million, compared to the anticipated $325 million. This increase was largely due to a roughly 4% quarter-over-quarter rise in prices of polyvinyl chloride (PVC) and polyethylene (PE), with overall volumes experiencing a slight increase of 0.5% from the previous quarter.
However, Westlake Chemical indicated a potential drop in demand for PEM products, citing recent declines in the Institute for Supply Management (ISM) readings in the United States and Europe, as well as slowing growth rates in China.
Despite these concerns, the company has realized cost savings of $50 million in the second quarter of 2024, amounting to $85 million for the year to date. These savings have propelled the company more than halfway towards its full-year 2024 savings goal of $125-$150 million.
In other recent news, Westlake Corporation announced a temporary halt in operations at certain units in its Netherlands-based Pernis facility. The decision, leading to a workforce reduction of approximately 30 positions, was a strategic move and is expected to incur pre-tax costs of around EUR 80 million. Despite this, the company will continue operations at the liquid epoxy resin (LER) and bisphenol A (BPA) units at the same site.
Westlake Chemical Partners recently appointed Jean-Marc Gilson as its new President and CEO. Gilson, an industry veteran, brings a wealth of experience from his tenure at Mitsubishi Chemical Group Corporation, Roquette, NuSil Technology, and Dow Corning (NYSE:GLW). This is part of a strategic succession plan aimed at driving long-term value creation for the company.
Westlake Corporation has also joined an anti-dumping complaint against imports of epoxy resins from several Asian countries into the European Union, to protect the company's market position. In addition, Westlake Innovations, a subsidiary of Westlake Corporation, has invested in the Blackhorn Industrial Impact Fund II, aligning with the company's sustainability efforts.
On the financial front, Westlake Chemical reported a significant increase in net sales, EBITDA, and net income for the first quarter of 2024. The company's Housing and Infrastructure Products (HIP) segment saw a 14% year-over-year rise in sales volume. Analyst firms BMO Capital and RBC Capital maintained their Market Perform and Sector Perform ratings respectively, while Piper Sandler raised its price target for the company's shares.
InvestingPro Insights
Westlake Chemical's (NYSE:WLK) latest financial metrics reveal a mixed picture. With a current market capitalization of $17.16 billion, the company's adjusted P/E ratio stands at 29.85, reflecting investor expectations for future earnings growth despite a recent dip in revenue. The revenue for the last twelve months as of Q1 2024 reached $12.17 billion, yet it experienced a decline of 19.39% compared to the same period last year. This contraction aligns with the company's caution regarding potential drops in demand for its Performance Materials & Engineering products.
InvestingPro Tips highlight that Westlake Chemical's dividend yield is at 1.5%, with a notable dividend growth of 40.06% in the last twelve months as of Q1 2024, indicating the company's commitment to returning value to shareholders. Additionally, the company's recent cost-saving initiatives, which have already achieved significant savings this year, are reflected in an operating income margin of 7.56%. For investors seeking more in-depth analysis, InvestingPro offers 15 additional tips, providing a comprehensive understanding of Westlake Chemical's financial health and future prospects.
While the company's share price has faced downward pressure with a 1-week total return of -8.32%, the 1-year price total return remains positive at 3.34%. The fair value estimates from analysts stand at $157.5, which is higher than the current price, suggesting potential upside, while InvestingPro's own fair value assessment is slightly more conservative at $129.59. As investors weigh these factors, they will also be looking ahead to the next earnings date on August 6, 2024, for further indicators of the company's trajectory.
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