Westlake Corp Q3 FY2024 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Third Quarter 2024 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speaker’s remarks, you will be invited to participate in the question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, November 5, 2024. I would now like to turn the call over to today’s host, John Zoeller, Westlake’s Vice President and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone. And welcome to the Westlake Corporation conference call to discuss our third quarter 2024 results. I am joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During the call, we will refer to our two reporting segments, Performance and Essential Materials, which we refer to as PEM or Materials, and Housing and Infrastructure Products, which we refer to as HIP or Products. Today’s conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake’s performance. Steve will then discuss our financial and operating results. After which, Jean-Marc will add a few concluding comments and we will open the call up to questions. During the third quarter of 2024, we accrued $75 million of after-tax expenses in the Performance and Essential Materials segment related to the previously announced decision to mothball two units within our European epoxy business to reduce our costs and allow our manufacturing footprint to align with changing global conditions. We refer to this charge as the identified item in our earnings release and on this conference call. References to income from operations, EBITDA, net income and earnings per share on this call exclude the financial impact of the identified item. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the Investor Relations section of our website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management’s beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake’s Form 10-K for the year ended December 31, 2023, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our investor relations website. This morning, Westlake issued a press release with details of our third quarter results. This document is available in the Press Release section of our website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today’s call will be available beginning today, two hours following the conclusion of this call. This replay may be accessed via Westlake’s website. Please note that information reported on this call speaks only as of today, November 5, 2024, and therefore, you are advised that time sense of information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at westlake.com. Now I’d like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, John, and good morning, everyone. We appreciate you joining us to discuss our third quarter 2024 results. Global macroeconomic conditions in the third quarter were similar to those in the second quarter, with relative strength in North America and a slow recovery in Asia and Europe, where activity levels remain muted. Demand for materials in our PEM segment generally mirrored these trends during the third quarter, with revenue comparable to the second quarter on relatively flat sales volume. Third quarter EBITDA in our PEM segment would have been similar to the second quarter if not for the $75 million mothball expense and extended maintenance outages at two facilities. The combined financial impact of these outages was $120 million, which drove the sequential decline in our EBITDA from the second quarter. Importantly, the necessary repairs have now been completed, and each plant returned to service last month. We are applying the lessons learned from these incidents to other facilities to improve the reliability of our plants. For the third quarter of 2024, we reported net sales of $3.1 billion, EBITDA of $580 million, and net income of $183 million or $1.41 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. The EBITDA margin of 19% in the third quarter was below the 23% reported in the second quarter of 2024, primarily due to the two extended maintenance outages. Our highly integrated manufacturing footprint in North America, combined with our large PVC offtake into our HIP segment serving the residential housing and remodeling markets, continues to provide a strategic advantage. The significant undersupply of residential housing over the past 15 years and the growth in population during this time has created the housing shortage we see in the North American market, with U.S. housing stocks in the third quarter averaging $1.3 million, similar to the second quarter. We believe the pent-up demand for residential housing will drive future construction activity as expected interest rate reductions unfold into 2025. Despite the disruption to sales volume from two hurricanes that made landfall in the southeastern U.S., our HIP segment sales and margins continue to perform well due to our broad 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 provides globally advantaged energy and feedstock, allowing us to capture the demand and growth we see in the Americas while experiencing a slow economic recovery and growth in demand across international end markets. Our global scale with market-leading positions combined with a cost advantage has positioned our PEM segment to serve diverse markets such as housing, clean water, food packaging, electrification, and other growing sectors. Our energy and feedstock advantage, along with our integrated manufacturing footprint in building products, positions us well to drive growth in our HIP segment as we partner with homebuilders to address the significant housing shortage in North America. We have a very broad product offering in our HIP segment that serves the residential housing market with innovative building products, pipe and fittings, and PVC compounds for building and construction products. Meanwhile, our investment-grade balance sheet with $2.9 billion in cash and cash equivalents is a source of strength and a driver of growth as we seek ways to redeploy it to create long-term value for shareholders. I would now like to turn the call over to Steve to provide more detail on our financial results for the third quarter. Steve?

Thank you, Jean-Marc, and good morning, everyone. 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. The decrease in net income was mainly due to two extended maintenance outages in our PEM segment, which affected our feedstock and conversion costs. We estimate these outages impacted our third quarter 2024 pre-tax earnings by approximately $120 million. We have completed the necessary maintenance on these plants and returned them to service last month, so we do not anticipate further impacts in subsequent quarters. My comments regarding income from operations, EBITDA, net income, and earnings per share exclude the financial impact of the $75 million mothball expense accrual recorded in the third quarter of 2024. It is important to note that cash outflows related to these mothball expenses are expected to occur over several years starting in 2025. During the third quarter, we made progress on our company-wide cost savings initiative, achieving approximately $35 million in savings during the quarter. Combined with savings from the first half of 2024, we have totaled approximately $120 million in long-term cost reductions toward our full-year target of $125 million to $150 million. For the third quarter of 2024, our FIFO inventory accounting had a negligible impact on pre-tax earnings compared to what earnings would have been under the LIFO method. Moving to our segment performance, our Housing and Infrastructure Products segment delivered solid results with EBITDA of $262 million on $1.1 billion in sales. HIP’s EBITDA margin of 24% benefited from our integration and cost savings actions. As noted in the last quarter's earnings call, unusually wet weather in various parts of North America, coupled with disruptions from Hurricanes Beryl and Helene, affected our third quarter sales by delaying some shipments into the fourth quarter and slowing construction activities in the storm-affected areas. Consequently, HIP segment sales decreased 8% compared to the second quarter of 2024, while our average sales price remained stable, resulting in a $74 million reduction in EBITDA compared to the record second quarter EBITDA of $336 million. Housing product sales of $937 million in the quarter fell 7% due to decreased sales volumes across most product categories, while Infrastructure product sales of $161 million decreased 13% from the second quarter of 2024, largely due to reduced demand for large diameter pipes caused by wetter weather conditions in the U.S. and lower housing starts in the quarter compared to the second quarter. In the PEM segment, third quarter sales of $2 billion were consistent with the second quarter of 2024. Sales volumes declined 1% sequentially due to lower chlorovinyl export shipments. Average sales prices increased 1% compared to the second quarter of 2024, driven by higher costs for soda and polyethylene, which were partially offset by lower epoxy and styrene prices. Our polyethylene business achieved record sales volumes for specialty and differentiated products in the third quarter, aided by continued customer adoption of our innovative PIVOTAL post-consumer recycled polyethylene product. The growth in PIVOTAL’s sales volume illustrates how our commitment to customer sustainability enhances both the environment and Westlake’s profitability. 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 in appealing export markets. PEM’s third quarter EBITDA of $297 million was lower than the second quarter of 2024 EBITDA of $391 million, primarily because of the two extended maintenance outages that resulted in increased operating and ethylene feedstock costs. We estimate the combined impact on third quarter pre-tax earnings to be around $120 million, which stems from three factors: increased purchases of third-party ethylene feedstock during necessary maintenance of our LACC joint venture ethylene cracker, lost chlorine and caustic soda production due to a disruption at our Plaquemine, Louisiana chlor-alkali plant, and unabsorbed fixed costs and maintenance expenses to complete necessary repairs. PEM’s third quarter EBITDA margin of 15% was lower than in the second quarter of 2024 due to the effects of these outages. Just a note that 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. Compared to the third quarter of 2023, PEM’s EBITDA of $297 million decreased by $42 million, as a 6% rise in sales volume driven by chlor-alkali and epoxy was more than offset by the outages and a 3% decrease in average sales price, primarily because of lower caustic soda and chlorine prices. Our epoxy business's profitability, both in Europe and North America, continues to be affected by low-priced imports from Asia. During the third quarter, the U.S. Department of Commerce announced preliminary countervailing duties of approximately 100% on epoxy exports from certain Chinese and Indian producers, as well as lower rates on some imports of epoxy resins from Taiwan. We are optimistic that the Commerce Department will favorably rule on preliminary anti-dumping duties affecting a wider range of Asian producers when it releases its preliminary findings later this month. The Commerce Department and the International Trade Commission are set to make final determinations regarding dumping, subsidies, and material injury by mid-2025. Meanwhile, besides the anticipated cost benefits from mothballing our AC and ECH units in Pernis, we are also working to further reduce fixed costs to enhance our results and transform the business into a profitable part of PEM. Turning to our balance sheet, as of September 30, 2024, we had $2.9 billion in cash and cash equivalents, with total debt at $4.6 billion after redeeming $300 million of senior notes during the quarter. Our balance sheet remains strong, with a staggered long-term fixed-rate debt maturity. For the third quarter of 2024, net cash provided by operating activities was $474 million, while capital expenditures reached $220 million, leading to free cash flow of $254 million. We are committed to exploring opportunities to strategically utilize our balance sheet to generate long-term shareholder value. Let me now offer some guidance for your models. Based on our current outlook for demand and prices, we see potential for an upside in our full year 2024 Housing and Infrastructure Products EBITDA margin guidance of 22%. The impacts from Hurricanes Beryl, Helene, and Milton affected our 2024 sales, and we expect HIP revenue to remain between $4.3 billion and $4.6 billion. Our total capital expenditures are still projected to be around $1 billion, which aligns with our previous guidance and is comparable to our depreciation and amortization run rate. We are targeting $125 million to $150 million in company-wide cost savings for 2024, with about $120 million already achieved year-to-date, including the $35 million from the third quarter. For the entire year of 2024, we now anticipate our effective tax rate to be about 25%, up from our earlier guidance of 23% because of the tax treatment of the $75 million mothball expense in the third quarter. Additionally, we expect cash interest expense to be around $160 million. Lastly, we now expect the turnaround of our Petro 1 ethylene cracker in Lake Charles, Louisiana, to commence at the end of January 2025 and to last roughly 55 days, which will affect our ethylene production and costs during the quarter of 2025. I would now like to turn the call back over to Jean-Marc for an update on the current outlook of our business. Jean-Marc?

Thank you, Steve. We are observing some improvement in activity levels across most of our key regions, though the recovery from the recent low remains gradual. However, the recent measures taken by the U.S. Federal Reserve and the ECB to relax their monetary policies due to progress in reducing inflation could enhance consumer demand for durable goods and housing, which are vital markets for us in both our HIP and PEM segments. Additionally, the Chinese Government has enacted measures to stimulate its economy, including significant liquidity injections. These initiatives will require time to take effect. The stimulus plans in China indicate that the authorities recognize the necessity of government intervention for sustainable momentum heading into 2025. While our direct sales in China are currently limited, we consider these policy actions beneficial for the global supply-demand equilibrium for all products in our PEM segment. Overall, we are hopeful that the shift towards more accommodating monetary and stimulus policies could speed up the global economic recovery. Consequently, we are optimistic about the macroeconomic environment as we conclude the year and move into 2025. For the fourth quarter of 2024, we anticipate typical seasonal slowdowns in our HIP segment due to colder weather. In the meantime, we expect improvements in PEM’s operating costs due to reduced ethylene feedstock purchases and lower maintenance expenses following the two extended outages in the third quarter. Westlake continues to innovate with products across our business, such as PVCO pipe and A-B-A pipe, to serve our customers sustainably in the HIP segment. Our innovative A-B-A multi-layer pipe technology employs a middle layer made of post-industrial recycled PVC to minimize waste and provide a sustainable option compared to traditional piping. In our PEM segment, the success of our PIVOTAL post-consumer recycled polyethylene product illustrates just one of the many innovations developed to fulfill customer needs and drive growth. During this third quarter, we also extended our efforts to source recyclable PVC resin, which is being recycled by Westlake Dimex into new products like consumer and industrial matting, exercise equipment matting, and landscape edging. These initiatives are part of Westlake's commitment to increasing the circularity of our materials, thereby reducing global carbon emissions and landfill waste. We continue to implement cost-reduction strategies and leverage our energy and feedstock advantage in North America, where roughly 85% of our production capacity is located. Our high level of vertical integration alongside innovative products positions us advantageously compared to non-integrated global producers, enabling us to run our PEM plants at higher operational rates and increase internal sales to our downstream HIP businesses and export opportunities. Lastly, we are actively seeking disciplined opportunities to utilize our nearly $3 billion cash balance in ways that will foster long-term value for our shareholders. This includes identifying acquisition candidates that can surpass a risk-adjusted cost of capital and returning cash to shareholders via dividends and potential share repurchases. Thank you for participating in our third-quarter earnings call. I will now hand it back to John.

Thank you, Jean-Marc. 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. Jacinda, we will now take questions.

Thank you. Our first question comes from Patrick Cunningham at Citi. Your line is open.

Hi. Good morning. This is Eric Zhang on for Patrick. On the AC and ECH… units that have returned to service, are these plants back to running at full capacity? And do you have any additional planned maintenance for your other plants scheduled this year?

Good morning.

Got it. Thank you.

So, just for clarification, the ECH plant and the AC plant that we’re mothballing in Pernis is planned for mothballing activity. The items that I mentioned that were out for maintenance for that extent of maintenance are our LACC ethylene unit, as well as our Plaquemine chlorovinyls site. Both of those are back in service.

Got it. Thank you.

You’re welcome.

Our next question comes from Duffy Fisher at GS.

Yes. Good morning, guys. Just some questions around…

Hi, Duffy.

... the $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 the 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?

No, Duffy. Both of those were not planned and so both of those were kind of unexpected outages, both the LACC joint venture ethylene unit, as well as the Plaquemine outage.

Okay. And then on the $120, if you bucketed it between 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?

Yeah. I’m not going to break out those component pieces. It’s hard to get into the ethylene price differentials. So, I’d rather not get into the details of that because it’s really hard to put a fine point on that.

Okay. Fair enough. And then just the last one for me, you talked about some Q3 sales getting pushed into Q4. Can you quantify roughly how large that is?

It's difficult to predict, Duffy. With the seasonal slowdown for HIP during the winter, we anticipate achieving some of those sales, and we are seeing an increase in shipment volume in October. I believe we will reach all of those sales; it's just a matter of timing. Whether we realize those in the fourth quarter or they extend into the first quarter depends on how the weather unfolds and whether our customers can actually complete the homebuilding during the upcoming winter.

Perfect. Thank you, guys.

You’re welcome.

Our next question comes from Bhavesh Lodaya at BMO Capital Markets.

Hi. Good morning. Thanks for taking my question. You made an overall comment that the third quarter earnings would have been in line with the second quarter except for the one-time events. Is that true for the HIP segment as well or was that 9% sequential drop in volumes? Was that some of it was like just the end market being weaker as well?

No, it is true for both segments. When you consider the $75 million mothballing expense that was incurred, along with the $120 million impact from outages, and take into account the effects of the wetter weather from the rains and hurricanes, as well as some deferred spending activity, both HIP and PEM would have aligned more closely with the second quarter of 2024.

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 a typical year for you? I think the business or the HIP business saw around a 47% decline sequentially in EBITDA. Are you talking about the same level of seasonality this year?

Yeah. I am. We saw a similar pattern last year as I expect given the seasonality we’ve seen so far this year. We don’t know how strong 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.

Thank you.

You’re welcome.

Our next question comes from Aleksey Yefremov at KeyBanc Capital Markets.

Thanks. Good morning, everyone. This is Ryan on for Aleksey. I want to try and piggyback off of a question asked earlier. So just on the $120 million worth of outages you guys had in 3Q, if I were to think about just kind of the sequential add back for 4Q ex seasonality, do you guys kind of have like an estimate of what that would be?

When considering the operating rates for ethylene used in PVC and polyethylene, those plants would have been running at elevated rates. Demand in PVC and polyethylene remains strong. Therefore, the operating rates likely stayed high. The $120 million impact from the ethylene and chlorovinyl outages would have resulted in performance similar to what we experienced in the second quarter. Looking ahead to the fourth quarter, I expect typical seasonality effects for the PEM and HIP businesses, but our feedstock advantage will allow us to maintain sales through PVC demand during the construction season, even though it's lower. The polyethylene market continues to be robust at this time.

Okay. That’s very helpful. Thank you. And then just on EBITDA margins in HIP this quarter, it looks like margins fell a little bit over 400 basis points sequentially. So I understand there’s 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 that’s going on kind of in margins there and what you might expect here in 4Q? Thank you very much.

Yeah. And so as it relates to the sequential HIP margins, you’re right. Volume was off about 8.5%, and that was largely driven by weather and slower demand levels in our pipe segment of the HIP business. When you think about the average sales price, it was relatively flat, really just up a 0.5% sequentially period-over-period. And again, it was really just product mix. Operator, is another question?

Yes. Our next question comes from Frank Mitsch at Fermium Research.

Hey. Good morning. Just a quick clarification. Steve, you mentioned that the two units were back up and running last month. At the beginning of the month, last month was October. So I just wanted to make sure that we’re looking at a totally clean quarter in terms of operating rates of those two assets in PEM?

Yes. Frank, they are up and no impact in the fourth quarter from the outages we had in the third quarter.

Terrific. And obviously a nice generation of free cash flow, despite the difficulties here in the third quarter. How are you thinking about free cash flow for the fourth quarter, particularly as it surrounds working capital as a source or as a use of cash?

Yeah. 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.

Terrific. Thank you so much.

You’re welcome.

Our next question comes from John Roberts at Mizuho Group.

Thank you, and welcome, Jean-Marc. 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?

Yeah. I mean, we had, as mentioned, we had an outage at the LACC that was really coming from some design that was made during construction, and we fixed, I mean, most of the problems that we had there. We learned when we fixed it and we think that the LACC plant is now good to operate the way it is for several years. So really good learning. Every plant is designed differently. This one was designed a little bit differently than other ethylene plants that we have and so we learned a lot, and it’s back up running at 100%. So in terms of the other outage that we had at Plaquemines, again, problem occurred in a power unit, and again, every plant is designed differently. We learned that we probably need to 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 does not repeat. So, overall, I mean, good learnings, and again, Plaquemines is back up running at good speed, so good learnings. This is a chemical industry, I mean, and you learn, and you fix, and you improve, and I think we’re on that trajectory.

Thank you. That’s all I had.

Our next question comes from Michael Sison at Wells Fargo.

Hi. This is Richard on for Michael. I’m just wondering if you could provide some color in terms of what you’re seeing on the PEM pricing side in terms of polyethylene margins, integrated margins, and pricing heading into the fourth quarter and then also on the chlorine, chlor-alkali pricing was quite strong in the third quarter. So what were you seeing there and if you expect seasonality heading into the fourth quarter? Thank you.

Yeah, Richard, that's a good question. We haven't seen any settlements yet in PVC or polyethylene. However, as you mentioned, it's common to observe a slowdown in demand due to seasonality in construction activities, which puts some downward pressure on pricing. Consultants are indicating that we might see a small price reduction in the fourth quarter. October is not finalized yet, so we don't know how PVC will develop, but they suggest a potential penny decrease in November for polyethylene. The market remains strong, but as we approach the fourth quarter and enter contract negotiations and seasonal maintenance, there can often be some pricing adjustments. Again, October pricing for polyethylene isn't settled, so it's hard to predict, but consultants are suggesting that reductions could occur throughout the quarter.

Okay. Great. Just a follow-up on the HIP segment. I don’t know if you actually quantified the EBITDA impact from the hurricane in the third quarter, but if you could do that and then on the revenue side, maintaining the full year guide. So, I guess that is assuming some volume in the third quarter will be made up in the fourth quarter. I think you mentioned earlier that it was hard to gauge timing if it’s going to come back in the fourth quarter or early next year, but maybe just some color on that? Thank you.

Yeah. 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-$40s million range for the impact combined between those two for the HIP segment.

Our next question comes from Kevin McCarthy at Vertical Research Partners.

Hi. This is Matt Hettwer on for Kevin McCarthy. Jean-Marc, 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?

Yeah. I mean, thank you, Matt. Yeah. It’s been now four months and I think I’m really starting to appreciate the integrated model that we have at Westlake, where basically we sell at every point of the value chain, from being a large producer upstream, ethylene, PVC and then selling PVC at multiple points, multi-channel, whether we sell neat resin or through some compounds or through directly into pipe and fittings and siding. So I think that is a key advantage that reduces the volatility in our earnings. And we can always place, I mean, the PVC at different points of the value chain, depending on pricing and where we can make margins. So that’s a key advantage. And I think that if we look into the future, anything that can strengthen that business model that’s paying very good dividend to us, we will continue to do. And certainly, we’ll continue to look downstream into the HIP segment, as it’s really been very beneficial to the results in Westlake.

Thank you. And then could you just discuss epoxy pricing opportunity in 4Q 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?

All right. So I think you need to separate right now a little bit the U.S. market and the European market. So I think there is 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. I think it’s going to be extended to a few other countries, albeit at lower import duties. So we feel pretty good in terms of the U.S. market. When it comes to European market, where we have a large part of our sales, it’s not a different story. But I think we are a little bit behind what the U.S. has done. I think it’s still likely that there will be some tariffs put in place. But there was an announcement, but so far, 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. So it’s a tale of two worlds. I think ultimately, we’re going to see some price increase in epoxy on both sides of the Atlantic, where we have most of our sales.

Great. Thank you.

Our next question comes from Joshua Spector at UBS.

Hi. Good morning. It’s Chris Perrella on for Josh. I wanted to follow up on HIP and the raw material impact of higher PVC and other inputs in the third quarter. How did that impact sequentially? And then what’s the expectation for that into the fourth quarter?

As you review the quarterly results for HIP, you can observe that sales prices remained quite strong. We successfully maintained our sales prices despite some shifts in product mix. Additionally, we managed to absorb the increased costs of PVC, which is reflected in our average sales prices. While there were variations in product mix, prices remained relatively stable and flat when comparing quarter-over-quarter data.

I appreciate that, Steve. How is Vinnolit performing in the PVC business in Europe? What are the expectations for margins and profitability in Europe for the fourth quarter?

Certainly, as 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 PVC remains somewhat constrained in terms of an ability to push all this pricing action through. So there are certainly some cost challenges as it relates to the businesses that we have in Europe. But I would say, nevertheless, the specialty PVC nature of Vinnolit’s portfolio, I think, continues to deliver good results. And so while we have seen years where the results were stronger, I’d say the specialty component, this is the flexible PVC component of Vinnolit’s business that continues to deliver improving results relative to just being a commodity player in that European market.

Okay. Thank you, Steve. I appreciate it.

Our next question comes from Arun Viswanathan at RBC Capital Markets.

Great. Thanks for taking my question. Hope you guys are well. Maybe I could just try and help you guys frame Q4 for us a little bit. So if you look at Q3, maybe we’ll start with that $580 million or so EBITDA and add back the maintenance charges at $120 million. Is typical seasonality maybe, I think it could be in maybe the 15% to 20% range, if you look at Q4. And so maybe that brings you down into the middle $500s million. What else would you include as we kind of try to frame up where you guys could be maybe in Q4? Thanks.

There are no other planned maintenance activities or turnarounds scheduled for Q4. It really comes down to how we are approaching the pricing dynamics in the coming months. In terms of seasonality, you have described it well. Volume and demand in the PVC and polyethylene markets remain quite healthy. Our caustic markets are stable at this level, although lower than in previous years. So, the focus is on how we anticipate pricing will evolve for the remainder of the fourth quarter at this time.

Thank you for that, Steve. Looking ahead to 2025, there seems to be some optimism about lower rates, and the epoxy segment might also benefit from anti-dumping duties. There could be some recovery in other markets as well. Based on this, can we expect to see EBITDA growth in 2025? Would it likely be more weighted towards the latter half of the year, considering the delays that usually occur when rates decrease and how that impacts your financials? If you could share your initial thoughts on 2025, that would be great. Thank you.

Yeah. 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 are stimulative to not only the building products business, so our HIP segment should be benefiting from those lower rates. But I would also say that as we think about the stimulative effect not only in the building and construction trade, but also more broadly in the economy, the North American economy continues to really be characterized as a good economy. And so lower rates will be stimulative as well to the broader economy, which would be constructive really to many of the products in our PEM segment. So we continue to have an optimistic view as we look out into 2025, but it’s hard to front-end or back-end 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. There’s clearly going to be some lag, but I would say all of that is constructive with lower rates expected in 2025.

Great. Thanks.

You’re welcome.

Our next question comes from Michael Leithead at Barclays.

Great. Thanks. Good morning, guys. There appears to be a number of chemical assets in areas you compete in recently up for sale. Would you consider adding further PEM assets or is your inorganic strategy primarily focused on HIP right now?

Yeah. So as we think about it, Mike, the answer is, we look across the spectrum of assets that we have in both segments, both PEM and in HIP. 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 and 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. 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 that’s in our space we’ll assess, and anything that’s adjacent to that we’ll assess. It’s just a matter of what’s the right value proposition to us as we think about those opportunities.

Great. That’s helpful. And then any initial thoughts about 2025 in HIP? I appreciate it’s hard and early to forecast the market, but just given what you have in the pipeline with new customers or your new PVCO plant, just how should we think about your ability to grow volumes above the market next year?

Well, I think, if those that attended our teach-in 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 nationwide builders such as Pulte, Lennar, Dior, Horton, and others now represent about 55% of starts nationwide. So as we think about our, and I’ll call it a partnership, our partnership through these distributors into these homebuilders continues to be successful. And so we’re continuing to win with the winners because they’re continuing to gain market share in their home starts and in those construction activities. As I read their commentary, as we talk to them, they continue to be opportunistic in their views about lower interest rates and the forecast that they’re putting forth suggests that we should see a more constructive year in 2025 because of lower interest rates and the expectation that they need to build out more homes for the under bill that we’ve seen across North America that’s 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 home builders meeting that demand.

Great. Thank you.

You’re welcome.

Our last question comes from Vincent Andrews at Morgan Stanley.

Hi. This is Turner Hinrichs on for Vincent. I was just wondering what drove the lower chlorovinyl export shipments in the third quarter?

I believe it was mainly due to pricing and the export market. There comes a point where we perceive greater value in allocating some of these volumes to sell at different stages of the value chain. Therefore, that was our primary consideration. The export price is relatively low, so we chose not to sell at a price that we don't find beneficial.

Great. Thanks. That makes a lot of sense. And if I can fit one more in, have you all seen the anti-dumping duties affect the PVC market in Europe?

Yes. We have. It’s having a limited impact right now. Demand in Europe, it’s still pretty subdued overall. So unless the demand really picks back up, it’s not going to have a very favorable impact onto overall business. So in Europe, it’s a demand problem, and which is a problem we don’t have in the U.S.

All right. Thanks for taking my questions.

This concludes the question-and-answer session. I would now like to turn it back to John Zoeller for closing remarks.

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.

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’s website. Good-bye.