Westlake Corp Q1 FY2026 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Westlake Corporation First Quarter 2026 Earnings Conference Call. As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2026. I would like to turn over the call to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Thank you, Crystal. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2026 results. I'm 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 first quarter 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 first quarter of 2026, we agreed to pay $67 million to settle certain legal claims in our pipe and fittings business. We also incurred expenses of $18 million related to the shutdown of facilities undertaken last year. We refer to these expense items, which in aggregate were $85 million, as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income and earnings per share on this call all exclude the financial impact of the identified items. 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, 2025, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings, which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our first quarter results. This document is available in the Press Release section of our website at westlake.com. 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, approximately two hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, May 5, 2026, and therefore, you are advised that time-sensitive 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 web page at westlake.com. Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our first quarter 2026 results. During the first quarter, we delivered $2.7 billion in net sales and EBITDA of $235 million by supporting our customers' supply needs, managing our costs, executing our three-pillar profitability improvement plan and driving long-term value creation. While the first two months of the quarter saw PEM sales reflect lower sales prices and continued soft global industrial and manufacturing activity, sales improved significantly in March as the conflict in the Middle East brought about a significant disruption to global supplies of oil, chemical feedstocks and polymers from the Persian Gulf. Commercial conditions for Westlake and our industry changed dramatically with the outbreak of the Middle East conflict. Industry consultants estimate that this conflict has disrupted approximately 10% to 15% of global polyethylene supply and approximately 5% of global PVC resin supply. Furthermore, up to 20% of global oil supply is disrupted, which has reduced the availability of chemical feedstocks such as naphtha and ethane for much of the global chemical industry, creating further declines in the global supply of polyethylene and PVC. The associated sharp increase in global oil and chemical feedstock prices has significantly steepened the global cost curve for many of the materials that PEM produces, which is supporting higher selling prices and margins for cost-advantaged producers in North America, such as Westlake. In response to the reduction in global chemical and polymer production created by the Middle East conflict and significantly higher feedstock cost in much of Asia and Europe, customers around the world sought supply from producers unaffected by the production disruptions caused by the conflict, which drove increased demand for our polyethylene, PVC and epoxy resin and increased prices for our products. Our advantaged asset footprint in North America using gas-based feedstocks positions Westlake to benefit from the pricing momentum and expected associated margin expansion since the conflict began. The evolving situation in the Middle East drove a significant improvement in PEM sales volume and earnings towards the end of the first quarter. PEM delivered net sales of $1.7 billion and EBITDA of $36 million and 3% sequential volume growth, excluding the impact to volumes from our 2025 plant shutdowns. While the conflict in the Middle East remains fluid, and we hope for a peaceful resolution, we expect the supply disruptions could persist throughout 2026. Turning to our HIP segment. Sales volume and EBITDA were impacted by the unusually cold weather conditions in the first two months of the quarter. However, performance improved in March as the homebuilding season began along with the onset of milder weather. Excluding the impact of the ACI acquisition, HIP delivered 10% sequential sales volume growth, which drove net sales of $1 billion and EBITDA of $186 million. HIP sales and EBITDA in the first quarter were driven by continued solid infrastructure-related growth and seasonally stronger residential housing demand as compared to the fourth quarter of 2025. In addition to the intra-quarter earnings improvement from supply disruption in the Middle East and weather normalization, our first quarter results benefited from our three-pillar profitability improvement plan, including delivering approximately $150 million of EBITDA uplift from footprint optimization and cost savings actions. While we still have some work to do to get our plant reliability all the way to where I would like it, I'm pleased with the progress that we have made to date and the trajectory of our reliability initiatives. Overall, we remain confident that our three-pillar profitability improvement plan will deliver the targeted $600 million EBITDA uplift in 2026. Before I turn the call over to Steve, I want to provide some thoughts on our CFO transition. As you may have read on April 20, we announced that on June 15, John Baksht will join Westlake Corporation and Westlake Partners LP as Senior Vice President and Chief Financial Officer. John brings experience from the oil and gas, packaging and building products industries as well as investment banking to Westlake, and we look forward to him joining the company. On June 15, Steve Bender will transition to the role of special adviser and will continue to report to me as he supports the transition. We anticipate that Steve will participate in the second quarter earnings call in August. And with that, I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2026. Steve?

Thank you. Thank you very much, Jean-Marc, and good morning, everyone. In the first quarter of 2026, Westlake reported sales of $2.7 billion and a net loss of $100 million or $0.77 per share, which compares to a net loss of $33 million in the first quarter of 2025. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The decisive actions we took last year to improve our profitability began to meaningfully deliver results in the first quarter of 2026. Our footprint optimization actions significantly reduced PEM's fixed cost and returned our epoxy business to profitability for the first time since 2023. As a reminder, prior to these actions, the epoxy business was generating EBITDA losses of more than $100 million annually. In addition, we achieved substantial structural cost savings in the first quarter while also taking action to improve plant reliability. Taken together, our three-pillar profitability improvement plan benefited first quarter earnings by approximately $150 million. That said, we did face several headwinds during the first quarter, most of which we view as transitory. Despite a favorable mix shift away from export volumes, our average PVC resin sales price declined sequentially from the fourth quarter of 2025 due to price resets that occurred late in 2025. In addition, North American natural gas prices spiked in January and remained elevated through February as a result of unusually cold weather across much of the United States, creating an approximately $45 million EBITDA headwind for PEM compared to the first quarter of 2025. That same weather also delayed the start of the homebuilding season, contributing to a year-over-year sales volume decline in our HIP business. Moving to the specifics of our segment performance. HIP did see the effect of the start to a homebuilding season with net sales in our Housing and Infrastructure Products segment of $1 billion, which were in line with the first quarter of 2025 as the January acquisition of ACI offset a 2% decline in average sales price and a 2% decline in sales volume, excluding the acquisition. Pipe and fittings continue to see strong sales volume driven by the infrastructure sector that was more than offset by declines in our exterior building products businesses and global compounds. HIP EBITDA of $186 million decreased $17 million from the first quarter of 2025 due to a slight decline in EBITDA margin largely due to lower average sales prices. When compared to the fourth quarter of 2025, HIP segment sales of $1 billion rose 10% driven by a 15% sequential increase in sales volume, including the ACI acquisition, that more than offset a 5% decrease in average sales prices. The sequential sales volume growth was driven by seasonally higher demand for exterior building products and solid growth in global compounds. Housing product sales of $788 million in the first quarter increased $21 million due to seasonal sales volume growth, particularly for siding and trim and roofing. Infrastructure products sales of $205 million in the first quarter of 2026 increased $71 million from the fourth quarter of 2025, primarily due to solid growth in global compounds and the ACI acquisition. Moving to our PEM segment. First quarter EBITDA of $36 million decreased by $9 million from the fourth quarter of 2025, largely as a result of a 34% higher natural gas price due to the impact of cold weather early in the quarter. Compared to the fourth quarter of 2025, PEM average sales price increased 3%, reflecting improved price realization for olefins, polyethylene and caustic soda toward the end of the quarter, while sales volumes increased 3%, excluding volumes associated with the 2025 plant shutdowns. While higher North American natural gas costs impacted the early months of the first quarter, by the end of March, natural gas prices declined to their lowest levels since 2024, where they remained during April. As a result, we don't expect the transitory impact to PEM's first quarter margins from higher natural gas prices to impact second quarter earnings. For the first quarter of 2026, our utilization of the FIFO method of accounting resulted in a favorable pretax impact of $37 million compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited. Now turning to the balance sheet and cash flow statements. We continue to maintain financial flexibility with a strong balance sheet as well as our long-standing commitment to a solid investment-grade credit rating. As of March 31, 2026, cash and investments were $2.5 billion and total debt was $5.6 billion with a staggered long-term fixed-rate debt maturity schedule. In April, we provided a notice to call the remaining $500 million of debt in the second quarter of 2026 that otherwise was scheduled to mature later this year. For the first quarter of 2026, net cash used for operating activities of $94 million includes approximately $50 million of cash outlays associated with the footprint optimization actions that we announced in 2025. Our strong balance sheet provides us the financial flexibility to invest in growth initiatives such as ACI, and we have entered into a nonbinding letter of intent to acquire a PVC and VCM plant in Billman, Germany. This facility, which is located on the North Sea coast, benefits from its advantageous logistical infrastructure. We remain focused on pursuing additional opportunities to strategically deploy our balance sheet in order to create long-term value. Now let me provide guidance for your models. Given the slower-than-expected start to the homebuilding season and the significant increases in transportation and raw material costs, particularly for PVC resin, we now expect 2026 revenue and EBITDA margin for the HIP segment to be towards the lower end of our previously communicated range of $4.4 billion to $4.6 billion of revenue with EBITDA margin between 19% and 21%, excluding identified items. While we expect to pass these cost increases through, the timing of changes in cost and sales prices could create a headwind in the near term. Expected 2026 total capital expenditures for the company are still expected to be $900 million, which is approximately $100 million lower than last year and in line with our annual depreciation. We continue to expect cash interest expense to be approximately $215 million. Now with that, I'll turn the call over to Jean-Marc to provide a current outlook for the business. Jean-Marc?

Thank you, Steve. The impact of the conflict in the Middle East and global feedstock and energy cost serves as a powerful reminder of one of Westlake's foundational strengths: our globally advantaged feedstock and energy position in North America, where approximately 85% of our products are manufactured. The strategic value of our North American production capacity and globally advantaged cost position has arguably never been greater. In addition, the combination of investments, major turnarounds and restructuring actions that we made are now positioning us to benefit from more reliable production to capture the current upturn in PEM profitability and better serve our customers. While the commercial environment for PEM has improved significantly since our last earnings call in February, we remain laser-focused on achieving the full benefits from our profitability improvement plan. We are pleased with the progress that we have made to date improving our profitability, but we recognize that we must remain disciplined with respect to cost in an increasingly inflationary environment. Turning to our outlook for sales volume and pricing. We have a constructive view on near-term trends. As I discussed earlier, global supply chain disruptions and elevated global energy prices are driving meaningful price increases for polyethylene, PVC resin and other products in our PEM segment. Concurrently, supply concerns are prompting global customers to source more material from North America in response to the conflict, which is supporting higher PEM sales volume and improved plant operating rates. Shifting to HIP, mortgage rates and increased building costs could place additional pressure on housing affordability. While it is too early to fully assess how this dynamic will impact HIP's building product sales volume, forward-looking indicators such as single-family housing permits and starts add to the uncertainty. In this housing market, our Building Products business continues to benefit from a diversified product offering and broad national distribution, which provides builders with the products they need, when and where they need them. In global compounds, we are pleased with the performance of the recently acquired ACI business, which has strengthened our position in the fast-growing high-voltage wire and cable market. This market is seeing significant demand growth driven by electric vehicles and data centers. Meanwhile, HIP's pipe and fittings business continues to deliver double-digit sales volume growth, supported by sustained strength in infrastructure spending. Beyond traditional municipal infrastructure demand, we are seeing increasing contribution to sales volume growth driven by cooling water needs from the data center build-out underway across North America. We expect this trend to continue through the rest of the year as an offset to uncertainty in the North American new residential construction market. On the cost front, we are aggressively working to pass through the increases in costs being driven by Middle East supply disruption and elevated fuel prices. Longer term, continued infrastructure investment combined with over a decade of underbuilding continues to support a compelling growth outlook for HIP. Taken together, our outlook for the company's 2026 earnings has improved meaningfully since our last earnings call. While the conflict in the Middle East could result in global supply chain disruptions extending to the end of the year or beyond, we will remain focused on controlling what we can control, including delivering the full $600 million of EBITDA uplift from our three-pillar profitability improvement plan. And we will maintain our disciplined approach to capital allocation, while preserving our investment-grade rated balance sheet. Thank you very much for listening to our first quarter earnings call. I will now turn the call back over to Jeff.

Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website, and that a replay of this teleconference will be available approximately two hours after the call has ended. We will now take questions.

Our first question comes from the line of Patrick Cunningham from Citi.

Can you help us unpack a little bit more the PEM results down sequentially? You had material benefits from the profitability improvement plan, PE and caustic prices were up. I guess, first, can you help size the headwind from PVC price margin declines and whether or not there was anything else going on with operating reliability or any stranded costs from some of the closures?

Yes, Patrick. I would say that certainly, the price resets that we saw at the end of the year were impactful across the product stream. Particularly, the increases we've seen in PVC resin have not fully caught up with some of the increases in associated costs, especially the elevated natural gas cost that we saw in January and February. So while we've seen price increases in polyethylene, epoxy and PVC, we have not had the chance to fully recognize that throughout the entire quarter. But I would say that we've seen improved reliability and operability of the business. We're improved, we're not to where we'd like to be at this stage, but we're making good progress as we move forward.

Understood. And then just on the underlying outlook for the HIP business, what are your expectations for pure price this year given some of the higher-priced PVC you're going to be pulling through — have you gone out with additional pricing ahead of the construction season? And is any of that baked into your outlook?

Yes. We have announced price increases to not only offset the increase in PVC resin, but also transportation costs. Fuel costs have also risen. So our price increases that we have already announced in the HIP segment have already reflected the costs that we expect to incur for PVC resin as it works its way through the manufacturing process and also to reflect elevated transportation costs driven by higher fuel prices. Nevertheless, that will take a few months to work its way fully through each of the various product streams.

Our next question comes from the line of Bhavesh Lodaya from BMO.

Just back to the PEM segment, you called out transitory impacts that happened in the first quarter. If you look at, again, the fourth quarter and the first quarter difference, there was a $150 million benefit which you saw from your actions, which did not show up — would you say that transitory impacts are roughly equal to that $150 million? And in other words, is the base level of earnings for Q2, is the starting point closer to, call it, like a $200 million level from which you will see additional benefits from margin improvements?

I would say certainly recognizing the elevated natural gas cost in the first quarter — that $45 million headwind was significant, but transitory. The price increases that we've seen in polyethylene, PVC and epoxy should have significant benefits as those were announced in the first quarter, but the full effect of those really translates into real value in the second quarter. As I mentioned earlier, we've seen improved reliability as we've made progress on our three-pillar strategy. The $150 million benefit that we achieved in the first quarter was largely attributable to PEM, but not exclusively. We made cost reductions that affect both segments. The optimization of our footprint is directly attributable to PEM. Some of the improvements in operability also are attributable to PEM. We do see significant benefits accruing as a result of these price nominations and realizations that we expect in the second quarter.

Got it. And then particularly on your PVC outlook, you have leverage both from higher operating rates as well as pricing for PVC here. Could you share an outlook on these two metrics? How much could rates move higher in Q2 or Q3? And what are your expectations for PVC pricing from here?

As a result of some of the optimization actions we took last year, we certainly have elevated the operating rates of our plants. We had some planned maintenance at one of our units in the first quarter. Operating rates throughout the first quarter were in the mid-80s, and we expect that as the construction season begins and weather improves, we'll see elevated demand levels for PVC and construction activities. Recognizing that housing starts have been somewhat lower than earlier forecasts, we still expect that with the price initiatives we've taken in PVC and the increase in construction and repair and remodeling activities, we will see improvements across the core vinyls chain and across the entire PEM segment.

Our next question comes from the line of Vincent Andrews from Morgan Stanley.

Wondering if you could just give us a little bit of direction on HIP for Q2. It sounds like there's going to be a little bit of a lag between the higher PVC and other costs coming through versus your ability to price. So if you could just give us a sense on what that's going to do on the margin side. And then maybe also help us understand there was a mention about the season getting off to a slow start. So how did April go? And how does the order book look so far for the second quarter so that we can hopefully get our numbers in a good place for Q2?

The order book looks very good as we see the second quarter begin from a volumes perspective. But with elevated PVC pricing coming through the channel and while we've announced price increases in our HIP segment to address those higher PVC resin prices as well as transportation costs, there could be a month or two lag between the realization of those price nominations we've made in the market and the roll-forward of PVC resin prices. So there could be some headwind in the second quarter as the price increases we announced in the first quarter work their way through the HIP segment before they get full traction, but they should work through in the back half of the second quarter.

So is it fair to say then that we'll see the lowest margin in Q2? And then by Q4, you'll be high enough to get yourself back to the low end of the margin guidance for the full year. Is that the right way to think about it?

I would say the fourth quarter is typically a slower season, but the front half of Q2 will see the full impact of some of the lag and in the back half of Q2 we'll see the benefit of some of the price increases that the HIP segment announced. I think we get the full benefit of all that in Q3, but Q4 typically has a seasonal slowdown and is typically one of our lower margin and volume quarters.

Our next question comes from the line of David Begleiter from Deutsche Bank.

Jean-Marc and Steve, just on polyethylene, you got the $0.30 in April. What's your confidence level in getting some portion of all of the announced $0.20 per pound increase for me?

Well, David, we certainly were able to achieve that $0.30 in April, and it's still early days in May. If you think back, the market has been able to absorb very significant price increases going back to the beginning of this year. We're still below the price levels seen in 2021, and the market absorbed those prices then. We're watching demand levels, but we're still pushing forward with price increases that reflect market conditions.

Very good. And just on PVC, are you increasing your export activity levels to take advantage of some of the spot opportunities we've seen in the marketplace?

Yes, you are right. We are increasing PVC supply to take opportunities to sell our volume in export markets where there are attractive prices. Export prices peaked a few weeks ago and are now coming down a bit, but they're still much higher than last year. With increased operating rates, we are selling as much as we can to the export market at good prices.

Our next question comes from the line of Frank Mitsch from Premium Research Eros.

Thanks, Steve, let me offer you some early birthday wishes. And perhaps the second quarter starting out as a very nice birthday present for your last quarter as CFO. I was wondering if you could offer some qualitative commentary with respect to the operating rates that you were able to realize in the PEM business in the first quarter and how your facilities are operating so far here in the second quarter?

Thank you, Frank. In the polyethylene business, we're running full rates; demand levels seem to be very good. Even with significant price increases, operating rates are at full rates. In the PVC space, rates are beginning to rise because we've optimized operating rates, having shuttered a number of sites last year and moved that production to other existing sites. Operating rates in the PVC space were in the mid-80s and I expect them to elevate as we work into Q2 and Q3, which is peak construction season. Our caustic and chlorine operations are supporting PVC and should also see elevated utilization.

Terrific. And as you think about higher pricing levels having an impact on working capital, what's your working capital expectations and impacts on free cash flow in 2026?

I do expect some increase in receivables as a result of higher prices. But gas and ethane remain moderate and at relatively low levels. I expect the second quarter to generate free cash flow as a result.

Our next question comes from the line of Josh Spector from UBS.

Two things I want to clarify. First, on the cost savings point: the $150 million you're characterizing as year-over-year — can you talk about what that is sequentially? And does that build sequentially? Or are we at the full run rate today? And second, related to pricing on PVC, considering lags, do you have a pretty good idea of the PVC price you're going to realize in Q2 and can you give us some guidance?

The $150 million is a year-over-year result. We generated a significant amount of savings in Q4 as well, so the $150 million is well over $100 million above what we generated in Q4. We expect to achieve portions of the $600 million over the remaining three quarters of the year and fully achieve it by year-end. Regarding pricing, we've announced a series of price increases in PVC and polyethylene. In PVC specifically, we achieved $0.01 in January, $0.02 in February, $0.03 in March, $0.05 in April, and we have $0.04 nominated in May. We're working with customers to achieve the full $0.10 that we had earlier nominated for April and May.

Our next question comes from the line of John Roberts from Mizuho.

Are you seeing any shift in the destinations for U.S. export caustic and export vinyls? And do you think the pushback in pricing that you're seeing is some demand destruction going on?

What we've seen is reasonably good demand levels for caustic. We announced two price increases — one in December last year and one in January this year — totaling $140 per ton in nominations. To date, we've achieved the greater portion of the first announcement and expect a good portion of the second. Demand continues to be reasonably good. From a destination perspective, logistics have been shifting as a result of the conflict in the Gulf and customers are being well served, but I can't speak to each individual customer's decisions.

Our next question comes from the line of Kevin McCarthy from Vertical Research Partners.

Can you elaborate on your letter of intent to acquire Vyova's vinyls plant in Germany? Maybe you could talk a little bit about potential cost, timing and the fit with your existing assets, including the legacy Vinnolit assets?

We've entered into a nonbinding letter of intent with the insolvency administrator in Germany. We think it fits well potentially. It's still nonbinding and subject to contingencies, but it has access to a deep-sea dock which allows access to lower-cost feedstocks and could be an advantage servicing European markets. It's preliminary, so it's too early for detailed evaluation.

Was your PEM segment EBIT positive in the month of March? I imagine March was night and day versus the prior months. Can you give a sense for the exit velocity of earnings as you moved through the quarter?

Yes, March was very positive as you would expect given the pricing initiatives in epoxy, PVC and polyethylene. I expect the improvements to continue into Q2, as we recognize and realize those price announcements.

Our next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I wanted to have a rough idea on Q2. Will you get incremental extra cost reductions if you expect $600 million for the year? Would that be maybe $20 million or $30 million higher in Q2 versus Q1? And secondly, on PE capacity of 2.5 billion pounds, if you apply $0.30 that gives maybe $150 million to $200 million uplift. And for PVC on your 5.5 billion pounds, maybe $75 million uplift. HIP might be down on higher costs as you flow through those items and that maybe cancels out the PVC increase. Maybe we're up sequentially $200 million to $300 million. Am I in the ballpark?

Directionally, you're in the right area. The headwind for HIP in the early portion of Q2 reflects higher PVC pricing moving through, but we expect realization in the back half of Q2. With price announcements in PVC, polyethylene and epoxy, we should see significant traction in Q2. Directionally, your way of thinking is correct.

As you look into the second half, what is the durability of this pricing? Have you seen larger-scale closures — do you expect any — in the chlor alkali space, what's the outlook with regards to constraints? Was it less impacted because of carbide-based production in China?

We expect the impact of the conflict in the Gulf could persist through the end of the year. It's unclear exactly the path it will take, but we expect meaningful improvement in chains that have been directly impacted. The PVC core vinyls chain was less impacted than polyolefins.

One additional point on chlor-alkali and PVC: about 25% to 30% of Chinese PVC capacity uses naphtha and the rest is carbide based. Naphtha-based producers are now largely uncompetitive and have reduced production levels. The carbide side has increased operating rates and that has put another ceiling on supply dynamics. You saw a price ramp in China and then a slight decline in early April, but it has stabilized at a higher level than last year, around $850 to $900 per metric ton. We think PVC export prices will stay elevated and may come down gradually over the year but remain elevated for an extended period.

Our next question comes from the line of Peter Osterland from Truist Securities.

You highlighted data centers as a growth driver for pipe and fittings. Can you quantify the revenue contribution or the backlog growth tied to the data center market? And how does the margin profile for sales into this market compare to HIP overall?

In the first half, sales and orders tied to data centers represent mid-teens percent of our volume and it's a growing market. We expect it to continue as a nice contribution to the infrastructure side of pipe and fittings. It is a continued contribution to HIP's pipe and fittings business.

On the $67 million PVC pipe settlement, does this resolve the entirety of your exposure to litigation related to this? Or is there potential for any further one-time charges?

This settlement is tied to the direct purchasers component of the litigation. There are two other categories of claimants that we're in conversation with. We have a reserve of $10 million for that second category, and there are further discussions to be had.

Our next question comes from the line of Duffy Fisher from Goldman Sachs.

Can you help me triangulate your HIP numbers on revenue? If PVC prices are up and you're going to get priced by the back half to offset that, yet you're guiding to the low end of your revenue guide, that would mean volumes must be down significantly versus what you expected. Can you tie those together — inflation rolling through HIP, pricing you'll get, and how that changed your revenue outlook vis-a-vis volume?

We're seeing mixed signals. Latest housing starts showed an increase but permits are softer. We're being cautious about volumes with potential slowdown in housing starts. Half our business is housing starts and the other half is repair and remodeling. Housing starts have larger volumes, so we're cautious on what we'll see for the year.

Great. And one housekeeping: how much cash do you have left to spend on your expense cost-cutting program from last year?

There is about $50 million remaining in 2026 to spend on the initiatives tied to the three-pillar strategy.

Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors.

You talked about PVC export opportunities opening up. Where are you seeing those opportunities, particularly given a bunch of countries like India and the EU already having antidumping duties in place?

Demand from India and other regions has decreased a bit, but overall supply is also constrained. Since February and March we saw an uptick from China, and since then demand for export has been steady. We are selling to the export market at good prices.

We continue to support Latin American and South American markets as well.

I've read reports about China removing their VAT export drawback on PVC. Are you hearing similar things? If true, what does that do to the cost curve and Chinese exports going forward?

They moved changes in April. We saw some increase in exports in advance of that date. Removing the drawback creates a higher hurdle for exporters, especially naphtha-based producers. Acetylene-based producers are on the lower end of the curve and are less affected. The removal of the VAT drawback is an additional headwind for Chinese exporters.

That change in April created higher costs for exporters. We did see increased exports ahead of that change, but the removal increases the hurdle for exporting PVC from China.

Steve, is it fair to assume that headwind might be $75 to $100 per ton?

I would say that is in the ballpark as a rough estimate.

Our next question comes from the line of Matthew Blair from TPH.

Could we circle back to the higher natural gas costs in PEM in Q1? Henry Hub spiked over $7 at points in January, but overall Q1 looks lower quarter-over-quarter versus Q4. Were there derivative impacts like hedge rolloffs or onetime issues that explain the $45 million headwind?

You're right: gas in late January through much of February was north of $7 and we are a buyer on a large portion on a spot basis. That created the roughly $45 million headwind in Q1. With global dynamics related to the Persian Gulf situation, gas prices have come down significantly and are around the low $3 range currently, with a contango curve but low prices persisting.

For the FIFO impact, you said $37 million. Do you have a split between PEM and HIP for that impact in Q1?

That was all PEM related and it was $37 million.

Our next question comes from the line of Abigail Eberts from Wells Fargo.

I'm curious about your expectations for caustic soda later in the year. Consultants forecast pricing coming down around October due to demand destruction from ongoing inflation and elevated rates. What's your volume and pricing outlook for caustic soda in the back half of the year?

We've had two price announcements and realized the majority of the first. Demand right now is stable. Consultants suggest small price increases between May and July representing about $30 per ton. Demand looks pretty stable into the second and third quarters.

How would you size the weather impact on the start of the construction season this year — where would things be if the weather had been more cooperative?

It's hard to quantify, but the very cold weather in January and much of February slowed early order intake so we didn't get the full benefit in Q1. We'll see how Q2 translates now that weather is milder. Starts are elevated but permits are softer, so we remain cautious about the order book.

Our next question comes from the line of Jeff Zekauskas from JPMorgan.

Early in the call you were talking about domestic PVC price increases in the first quarter being $0.01, $0.02 and $0.03 — did net prices rise in the first quarter after discounts and resets?

The price resets at the end of the year impacted Q1. As we think about price increases in January and February, we're beginning to pick up traction from where we were at the end of December. The March increases are more reflected in Q2 than Q1 results.

A naive question: Chinese PVC exports year-to-date are up significantly. There's no PVC materially made in the Middle East. So why should PVC prices be up at all? Does it have to do with European ethylene inflation? It seems exports from Asia haven't been disrupted much. What's the source of the sharp move up in PVC?

In China, about 25% of capacity is naphtha-based and sensitive to naphtha prices; they've been hit hard and reduced operating rates. Carbide-based producers are less affected and have increased operating rates. Transport costs and the removal of export drawback support price increases. After a spike above $1,000 per ton earlier, prices stabilized in the $850 to $950 per metric ton range, which is well above last year's $500 to $550 per ton levels.

Our next question comes from the line of Matthew DeYoe from Bank of America.

If I square off the $45 million gas headwind in Q1 and back out $100 million of EBITDA from cost cuts sequentially, PEM may have been down $60 million quarter-over-quarter. Prices moved up over the quarter, but that doesn't fully explain the differential versus peers. Is there any idiosyncratic drag in polyethylene or epoxy we might be missing?

We did have a planned maintenance outage at one of our sites earlier in the first quarter, which could be part of what you don't have in your model. Aside from that, the price nominations and realizations are consistent with what others have communicated. The planned outage was impactful but planned.

And on European caustic — do you see an opportunity to export caustic to Europe opening up as prices move? Is transport cost offsetting that opportunity?

While price signals might suggest an export window, transport costs largely offset the spread between the U.S. and Europe today, so there are limited opportunities to export caustic to Europe at attractive margins.

Thank you. This ends our question-and-answer session. Let me turn it over to Jeff Holy for closing remarks.

Thank you. Thanks for participating in today's call. We hope you'll join us again for our next conference call to discuss our second quarter results.

Thank you for participating in today's Westlake Corporation First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed on Westlake's website. Goodbye.