8-K
WESTLAKE CORP (WLK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 3, 2022
Westlake Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 001-32260 | 76-0346924 |
|---|---|---|
| (State or other jurisdiction<br>of incorporation) | (Commission File Number) | (I.R.S. Employer<br>Identification No.) |
| 2801 Post Oak Boulevard, | Suite 600 | |
| --- | --- | --- |
| Houston, | Texas | 77056 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (713) 960-9111
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 par value | WLK | The New York Stock Exchange |
| 1.625% Senior Notes due 2029 | WLK29 | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Item 2.02. Results of Operations and Financial Condition.
On November 3, 2022, Westlake Corporation (the "Company"), issued a press release announcing its 2022 third quarter results. A copy of the press release is furnished with this Current Report as Exhibit 99.1.
The information furnished pursuant to this Current Report, including Exhibit 99.1, shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and will not be incorporated by reference into any registration statement filed by Westlake Corporation under the Securities Act of 1933, as amended, unless specifically identified as being incorporated therein.
Item 7.01. Regulation FD Disclosure.
The Company is holding a conference call on November 3, 2022 to discuss its 2022 third quarter results. Information about the call can be found in the press release furnished with this Current Report as Exhibit 99.1. In addition, the Company made available an investor presentation regarding its 2022 third quarter results, which is furnished with this Current Report as Exhibit 99.2.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are furnished herewith:
99.1 Press release issued on November 3, 2022.
99.2 Investor Presentation.
104 The cover page from this Current Report on Form 8-K, formatted in Inline XBRL.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| WESTLAKE CHEMICAL CORPORATION | |||
|---|---|---|---|
| Date: | November 3, 2022 | By: | /S/ ALBERT CHAO |
| Albert Chao<br>President and Chief Executive Officer |
Document
EXHIBIT 99.1
WESTLAKE CORPORATION
Contact—(713) 960-9111
Investors—Steve Bender
Media—L. Benjamin Ederington
Westlake Corporation Reports Third Quarter 2022 Results
HOUSTON--(BUSINESS WIRE)--Westlake Corporation (NYSE: WLK) (the "Company" or "Westlake") today announced third quarter 2022 results.
SUMMARY FINANCIAL HIGHLIGHTS ($ in millions except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Westlake Corporation | ||||||||
| Income from operations | $ | 516 | $ | 861 | $ | 2,723 | $ | 1,927 |
| Net income attributable to Westlake Corporation | $ | 401 | $ | 607 | $ | 2,015 | $ | 1,371 |
| Diluted earnings per common share | $ | 3.10 | $ | 4.69 | $ | 15.54 | $ | 10.60 |
| EBITDA | $ | 804 | $ | 1,077 | $ | 3,560 | $ | 2,562 |
| EBITDA margin | 20% | 35% | 28% | 31% | ||||
| Performance and Essential Materials ("PEM") Segment | ||||||||
| Net external sales | $ | 2,711 | $ | 2,322 | $ | 8,647 | $ | 6,210 |
| Income from operations | $ | 353 | $ | 769 | $ | 2,197 | $ | 1,728 |
| EBITDA | $ | 561 | $ | 946 | $ | 2,794 | $ | 2,250 |
| EBITDA margin | 21% | 41% | 32% | 36% | ||||
| Housing and Infrastructure Products ("HIP") Segment | ||||||||
| Net external sales | $ | 1,245 | $ | 733 | $ | 3,848 | $ | 2,061 |
| Income from operations | $ | 186 | $ | 103 | $ | 607 | $ | 270 |
| EBITDA | $ | 254 | $ | 137 | $ | 822 | $ | 372 |
| EBITDA margin | 20% | 19% | 21% | 18% |
BUSINESS HIGHLIGHTS
In the third quarter of 2022, Westlake achieved net sales of $4.0 billion, net income of $401 million and EBITDA (earnings before interest expense, income taxes, depreciation and amortization) of $804 million. During the quarter, the Company was impacted by eroding macro-economic conditions and decreased industrial activity; higher global energy prices, especially in Europe; and slowing U.S. residential construction in response to rapidly rising interest rates and ongoing inflation; while benefitting from strengthening market conditions for caustic soda. Third quarter 2022 earnings for the Company was also impacted by a $70 million charge recorded in cost of sales, or $0.42 per share, after-tax, related to pending litigation (the "Legal Charge").
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Earnings per share were $3.10, compared to $4.69 in the year-ago period and $6.60 in the prior quarter, reflecting margin compression due to higher energy costs, particularly in Europe, lower integrated product margins, and changes in product sales mix.
Performance and Essential Materials net pricing decreased 7% from the second quarter of 2022 while Housing and Infrastructure Products net pricing increased by 2%. Overall sales prices for the Company decreased 4% sequentially from the previous quarter.
Sales volumes for Performance and Essential Materials decreased 6% from second quarter 2022 while sales volumes for Housing and Infrastructure Products decreased 12%. Overall sales volumes for the Company decreased 8% sequentially from the previous quarter.
EXECUTIVE COMMENTARY
"The third quarter saw significant erosion in global macroeconomic indicators and sentiment. The rapid rise in global fuel and power prices continued, which, along with inflationary pressures, impacted global demand across our businesses, and particularly our European operations. Significant economic headwinds and slowing industrial activity in Europe were compounded by lagging growth in Asia and a meaningful drop in residential construction activity in North America. Combined, these effects led to diminished demand across our businesses and lower prices for many of our products," said Albert Chao, President and Chief Executive Officer.
"We believe we are well positioned to weather the near-term volatility in the global economy and are confident in the fundamentals of our businesses. With approximately 85% of our Performance and Essential Materials capacity concentrated in North America, we will continue to benefit from the North American producers' structural cost advantage in feedstocks, fuel and power, as well as a strengthening market for caustic soda. While we expect to continue to be impacted by high energy prices and softer global demand, we have the ability to scale our operations to meet market conditions. In Housing and Infrastructure Products, we have seen slowing residential construction as the market responds to rapidly rising interest rates. While we expect to see seasonally softer demand from new home construction in the fourth quarter, our business should be buoyed by continuing repair and remodeling activity and infrastructure spending in areas such as municipal water systems, agricultural irrigation and global transportation. Our advantaged cost position, asset mix, and derivative flexibility enable us to optimize our business," concluded Mr. Chao.
RESULTS
Consolidated Results
For the three months ended September 30, 2022, the Company reported quarterly net income of $401 million, or $3.10 per share, on net sales of $3,956 million. The year-over-year decrease in net income of $206 million from the third quarter of 2021 was primarily due to lower global sales prices and integrated margins for our Performance Materials, lower global production and sales volumes for chlorovinyls, higher global fuel and power costs, and the $70 million Legal Charge. These impacts were partially offset by higher sales prices for caustic soda, higher sales volumes for polyethylene, lower interest expense and a lower effective tax rate.
Third quarter 2022 net income of $401 million decreased by $457 million sequentially as compared to the second quarter of 2022. The sequential decrease in net income compared to the prior quarter was primarily due to lower global sales prices and integrated margins in our Performance Materials business, lower production and sales volumes for both segments, higher global fuel and power costs, and the Legal Charge. These impacts were partially offset by higher sales prices for caustic soda and many of our housing and infrastructure products and a lower effective tax rate.
EBITDA of $804 million for the third quarter of 2022 decreased by $273 million compared to third quarter 2021 EBITDA of $1.1 billion. Third quarter 2022 EBITDA decreased by $652 million compared to second quarter 2022 EBITDA of $1.5 billion.
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Cash and Debt
Net cash provided by operating activities was $947 million for the third quarter of 2022. For the nine months ending September 30, 2022, cash flow from operations was $2,560 million and free cash flow (net cash provided by operating activities less capital expenditures) was $1,749 million, an increase of $923 million and $526 million from the prior-year period, respectively. As of September 30, 2022, cash and cash equivalents were $1,778 million and total debt was $4,819 million. Capital expenditures for the third quarter and first nine months of 2022 were $318 million and $811 million, respectively.
A reconciliation of EBITDA to net income, income from operations and net cash provided by operating activities as well as a reconciliation of free cash flow to net cash flow provided by operating activities can be found in the financial schedules at the end of this press release.
Performance and Essential Materials Segment
Performance and Essential Materials income from operations of $353 million for the third quarter of 2022 decreased by $416 million compared to the third quarter of 2021. This year-over-year decrease was primarily driven by lower sales prices and integrated margins for our Performance Materials business (largely polyethylene and PVC resin), lower chlorovinyls production and sales volumes, higher global fuel and power prices, and the $70 million Legal Charge. These decreases were partially offset by higher global sales prices for caustic soda and higher polyethylene sales volumes.
Sequentially, Performance and Essential Materials income from operations decreased by $612 million as compared to the second quarter of 2022. The sequential decrease was largely due to lower sales prices and integrated margins for our Performance Materials business, lower production rates and sales volume in chlorovinyls and epoxy resin, as well as higher global fuel and power prices, and the Legal Charge. These decreases were partially offset by higher global sales prices for caustic soda and higher polyethylene sales volumes.
Housing and Infrastructure Products Segment
For the third quarter of 2022, Housing and Infrastructure Products income from operations of $186 million increased by $83 million as compared to the third quarter of 2021. The year-over-year increase was the result of higher sales prices across all product categories as well as contributions from businesses acquired in the second half of 2021.
Sequentially, Housing and Infrastructure Products income from operations decreased by $50 million as compared to the second quarter of 2022. This decrease in income from operations versus the prior quarter was the result of lower production and sales volumes partially offset by higher sales prices.
Forward-Looking Statements
The statements in this release and the related teleconference relating to matters that are not historical facts, including statements regarding our outlook for our business segments, our belief that we will benefit from having high integration and a structural cost-advantage in North America, our expectations regarding repair and remodeling activity and infrastructure spending, our ability to weather economic volatility, higher energy prices, our market position, our ability to scale operations, the contribution of recent acquisitions and global demand for our products, are forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to: the COVID-19 pandemic and the response thereto; general economic and business conditions; the cyclical nature of the industry; availability, cost and volatility of raw materials and utilities, including natural gas and natural gas liquids from shale production; the price of crude oil; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions, including environmental regulation and changes in trade policies; political unrest; industry production capacity and operating rates; the supply/demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; the effect and results of litigation and settlements of litigation; operating interruptions; the ability to integrate the recent acquisitions; the diversion of management time on transaction-related issues; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to Westlake's Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC in February 2022, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which was filed with the SEC in August 2022.
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Use of Non-GAAP Financial Measures
This release makes reference to certain "non-GAAP" financial measures, such as EBITDA and free cash flow, as defined in Regulation G of the U.S. Securities Exchange Act of 1934, as amended. For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission ("SEC") as a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the registrant; or (2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. We report our financial results in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), but believe that certain non-GAAP financial measures, such as EBITDA and free cash flow, provide useful supplemental information to investors regarding the underlying business trends and performance of the Company's ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with U.S. GAAP. A reconciliation of (i) EBITDA to net income, income from operations and net cash provided by operating activities and (ii) free cash flow to net cash provided by operating activities can be found in the financial schedules at the end of this press release.
About Westlake
Westlake is a global manufacturer and supplier of materials and innovative products that enhance life every day. Headquartered in Houston, with operations in Asia, Europe and North America, we provide the building blocks for vital solutions — from housing and construction, to packaging and healthcare, to automotive and consumer. For more information, visit the Company's web site at www.westlake.com.
Westlake Corporation Conference Call Information:
A conference call to discuss Westlake Corporation's third quarter 2022 results will be held Thursday, November 3, 2022 at 11:00 AM Eastern Time (10:00 AM Central Time). To access the conference call, it is necessary to pre-register at https://register.vevent.com/register/BId53ccc41b34744e19fa224843ba1fcb6. Once registered, you will receive a phone number and unique PIN number.
A replay of the conference call will be available beginning two hours after its conclusion. The conference call and replay will be available via webcast at https://edge.media-server.com/mmc/p/phzpfjoh.
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WESTLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| (In millions of dollars, except per share data and share amounts) | ||||||||
| Net sales | $ | 3,956 | $ | 3,055 | $ | 12,495 | $ | 8,271 |
| Cost of sales | 3,180 | 2,037 | 8,989 | 5,872 | ||||
| Gross profit | 776 | 1,018 | 3,506 | 2,399 | ||||
| Selling, general and administrative expenses | 215 | 122 | 635 | 383 | ||||
| Amortization of intangibles | 39 | 29 | 124 | 83 | ||||
| Restructuring, transaction and integration-related costs | 6 | 6 | 24 | 6 | ||||
| Income from operations | 516 | 861 | 2,723 | 1,927 | ||||
| Interest expense | (44) | (61) | (134) | (130) | ||||
| Other income, net | 24 | 13 | 52 | 35 | ||||
| Income before income taxes | 496 | 813 | 2,641 | 1,832 | ||||
| Provision for income taxes | 84 | 193 | 592 | 423 | ||||
| Net income | 412 | 620 | 2,049 | 1,409 | ||||
| Net income attributable to noncontrolling interests | 11 | 13 | 34 | 38 | ||||
| Net income attributable to Westlake Corporation | $ | 401 | $ | 607 | $ | 2,015 | $ | 1,371 |
| Earnings per common share attributable to Westlake Corporation: | ||||||||
| Basic | $ | 3.12 | $ | 4.71 | $ | 15.65 | $ | 10.65 |
| Diluted | $ | 3.10 | $ | 4.69 | $ | 15.54 | $ | 10.60 |
| Weighted average common shares outstanding: | ||||||||
| Basic | 127,943,400 | 128,060,193 | 128,118,160 | 128,053,337 | ||||
| Diluted | 128,747,012 | 128,765,814 | 129,003,750 | 128,710,097 |
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WESTLAKE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30,<br>2022 | December 31,<br>2021 | |||
|---|---|---|---|---|
| (In millions of dollars) | ||||
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | $ | 1,778 | $ | 1,908 |
| Accounts receivable, net | 2,181 | 1,868 | ||
| Inventories | 2,024 | 1,407 | ||
| Prepaid expenses and other current assets | 118 | 80 | ||
| Total current assets | 6,101 | 5,263 | ||
| Property, plant and equipment, net | 8,301 | 7,606 | ||
| Other assets, net | 6,023 | 5,590 | ||
| Total assets | $ | 20,425 | $ | 18,459 |
| LIABILITIES AND EQUITY | ||||
| Current liabilities (accounts payable and accrued and other liabilities) | $ | 2,455 | $ | 2,075 |
| Current portion of long-term debt, net | 6 | 269 | ||
| Long-term debt, net | 4,813 | 4,911 | ||
| Other liabilities | 2,963 | 2,676 | ||
| Total liabilities | 10,237 | 9,931 | ||
| Total Westlake Corporation stockholders' equity | 9,621 | 7,955 | ||
| Noncontrolling interests | 567 | 573 | ||
| Total equity | 10,188 | 8,528 | ||
| Total liabilities and equity | $ | 20,425 | $ | 18,459 |
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WESTLAKE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| (In millions of dollars) | ||||
| Cash flows from operating activities | ||||
| Net income | $ | 2,049 | $ | 1,409 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 785 | 600 | ||
| Deferred income taxes | 44 | 50 | ||
| Net loss on disposition and others | 86 | 58 | ||
| Other balance sheet changes | (404) | (480) | ||
| Net cash provided by operating activities | 2,560 | 1,637 | ||
| Cash flows from investing activities | ||||
| Acquisition of business, net of cash acquired | (1,171) | (428) | ||
| Additions to investments in unconsolidated subsidiaries | (177) | (19) | ||
| Additions to property, plant and equipment | (811) | (414) | ||
| Other, net | 11 | 19 | ||
| Net cash used for investing activities | (2,148) | (842) | ||
| Cash flows from financing activities | ||||
| Debt issuance costs | — | (18) | ||
| Distributions to noncontrolling interests | (34) | (32) | ||
| Dividends paid | (123) | (107) | ||
| Proceeds from debt issuance | — | 1,668 | ||
| Repayment of senior notes | (250) | — | ||
| Repurchase of common stock for treasury | (68) | (30) | ||
| Other, net | (5) | 6 | ||
| Net cash provided by (used for) financing activities | (480) | 1,487 | ||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (67) | (9) | ||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (135) | 2,273 | ||
| Cash, cash equivalents and restricted cash at beginning of period | 1,941 | 1,337 | ||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,806 | $ | 3,610 |
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WESTLAKE CORPORATION
SEGMENT INFORMATION
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| (In millions of dollars) | ||||||||
| Net external sales | ||||||||
| Performance and Essential Materials | ||||||||
| Performance Materials | $ | 1,689 | $ | 1,588 | $ | 5,678 | $ | 4,333 |
| Essential Materials | 1,022 | 734 | 2,969 | 1,877 | ||||
| Total Performance and Essential Materials | 2,711 | 2,322 | 8,647 | 6,210 | ||||
| Housing and Infrastructure Products | ||||||||
| Housing Products | 1,018 | 536 | 3,106 | 1,491 | ||||
| Infrastructure Products | 227 | 197 | 742 | 570 | ||||
| Total Housing and Infrastructure Products | 1,245 | 733 | 3,848 | 2,061 | ||||
| $ | 3,956 | $ | 3,055 | $ | 12,495 | $ | 8,271 | |
| Income (loss) from operations | ||||||||
| Performance and Essential Materials | $ | 353 | $ | 769 | $ | 2,197 | $ | 1,728 |
| Housing and Infrastructure Products | 186 | 103 | 607 | 270 | ||||
| Corporate and other | (23) | (11) | (81) | (71) | ||||
| $ | 516 | $ | 861 | $ | 2,723 | $ | 1,927 | |
| Depreciation and amortization | ||||||||
| Performance and Essential Materials | $ | 196 | $ | 168 | $ | 572 | $ | 497 |
| Housing and Infrastructure Products | 65 | 34 | 206 | 98 | ||||
| Corporate and other | 3 | 1 | 7 | 5 | ||||
| $ | 264 | $ | 203 | $ | 785 | $ | 600 | |
| Other income, net | ||||||||
| Performance and Essential Materials | $ | 12 | $ | 9 | $ | 25 | $ | 25 |
| Housing and Infrastructure Products | 3 | — | 9 | 4 | ||||
| Corporate and other | 9 | 4 | 18 | 6 | ||||
| $ | 24 | $ | 13 | $ | 52 | $ | 35 |
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WESTLAKE CORPORATION
RECONCILIATION OF EBITDA TO NET INCOME, INCOME FROM OPERATIONS AND
NET CASH PROVIDED BY OPERATING ACTIVITIES
(Unaudited)
| Three Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2022 | 2021 | 2022 | 2021 | ||||||
| (In millions of dollars, except percentages) | ||||||||||
| Net cash provided by operating activities | $ | 913 | $ | 947 | $ | 755 | $ | 2,560 | $ | 1,637 |
| Changes in operating assets and liabilities and other | (1) | (572) | (109) | (467) | (178) | |||||
| Deferred income taxes | (39) | 37 | (26) | (44) | (50) | |||||
| Net income | 873 | 412 | 620 | 2,049 | 1,409 | |||||
| Less: | ||||||||||
| Other income, net | 17 | 24 | 13 | 52 | 35 | |||||
| Interest expense | (44) | (44) | (61) | (134) | (130) | |||||
| Provision for income taxes | (275) | (84) | (193) | (592) | (423) | |||||
| Income from operations | 1,175 | 516 | 861 | 2,723 | 1,927 | |||||
| Add: | ||||||||||
| Depreciation and amortization | 264 | 264 | 203 | 785 | 600 | |||||
| Other income, net | 17 | 24 | 13 | 52 | 35 | |||||
| EBITDA | $ | 1,456 | $ | 804 | $ | 1,077 | $ | 3,560 | $ | 2,562 |
| Net external sales | $ | 4,483 | $ | 3,956 | $ | 3,055 | $ | 12,495 | $ | 8,271 |
| EBITDA Margin | 32% | 20% | 35% | 28% | 31% |
RECONCILIATION OF FREE CASH FLOW TO NET CASH PROVIDED BY OPERATING ACTIVITIES
(Unaudited)
| Three Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2022 | 2021 | 2022 | 2021 | ||||||
| (In millions of dollars) | ||||||||||
| Net cash provided by operating activities | $ | 913 | $ | 947 | $ | 755 | $ | 2,560 | $ | 1,637 |
| Less: | ||||||||||
| Additions to property, plant and equipment | (230) | (318) | $ | (144) | (811) | (414) | ||||
| Free Cash Flow | $ | 683 | $ | 629 | $ | 611 | $ | 1,749 | $ | 1,223 |
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WESTLAKE CORPORATION
RECONCILIATION OF SEGMENT EBITDA TO INCOME FROM OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2022 | 2021 | 2022 | 2021 | ||||||
| (In millions of dollars, except percentages) | ||||||||||
| Performance and Essential Materials Segment | ||||||||||
| Income from operations | $ | 965 | $ | 353 | $ | 769 | $ | 2,197 | $ | 1,728 |
| Add: | ||||||||||
| Depreciation and amortization | 192 | 196 | 168 | 572 | 497 | |||||
| Other income, net | 5 | 12 | 9 | 25 | 25 | |||||
| EBITDA | $ | 1,162 | $ | 561 | $ | 946 | $ | 2,794 | $ | 2,250 |
| Net external sales | $ | 3,104 | $ | 2,711 | $ | 2,322 | $ | 8,647 | $ | 6,210 |
| EBITDA Margin | 37% | 21% | 41% | 32% | 36% | |||||
| Three Months Ended June 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2022 | 2022 | 2021 | 2022 | 2021 | ||||||
| (In millions of dollars, except percentages) | ||||||||||
| Housing and Infrastructure Products Segment | ||||||||||
| Income from operations | $ | 236 | $ | 186 | $ | 103 | $ | 607 | $ | 270 |
| Add: | ||||||||||
| Depreciation and amortization | 70 | 65 | 34 | 206 | 98 | |||||
| Other income, net | 4 | 3 | — | 9 | 4 | |||||
| EBITDA | $ | 310 | $ | 254 | $ | 137 | $ | 822 | $ | 372 |
| Net external sales | $ | 1,379 | $ | 1,245 | $ | 733 | $ | 3,848 | $ | 2,061 |
| EBITDA Margin | 22% | 20% | 19% | 21% | 18% |
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WESTLAKE CORPORATION
SUPPLEMENTAL INFORMATION
Product Sales Price and Volume Variance by Operating Segments
| Third Quarter 2022 vs. Third Quarter 2021 | Third Quarter 2022 vs. Second Quarter 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Average<br>Sales Price | Volume | Average<br>Sales Price | Volume | |||||
| Performance and Essential Materials | +7.3 | % | +9.5 | % | -6.7 | % | -6.0 | % |
| Housing and Infrastructure Products | +31.1 | % | +38.6 | % | +1.9 | % | -11.6 | % |
| Company | +13.0 | % | +16.5 | % | -4.1 | % | -7.7 | % |
We are no longer providing average quarterly industry prices and housing starts data.
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ex992_20220930wlkearning
Q3 2022 Earnings Presentation
2 Westlake Third Quarter 2022 Highlights Solid financial results given the challenging macroeconomic backdrop and industry conditions: Net sales of $4.0 billion, an increase of 29% vs. third quarter 2021 net sales Net income of $401 million, after a legal charge, decreased 34% vs. third quarter 2021 net income EBITDA of $804 million, a decrease of 25% vs. third quarter 2021 EBITDA A legal charge negatively impacted EBITDA1 ($70 million), net income ($54 million), and net income per share ($0.42) Capturing the benefits from recent acquisitions With approximately 85% of its production based in North America, Westlake is well positioned to benefit from advantaged power and energy costs relative to global competitors Free cash flow of $629 million increased $18 million vs. third quarter 2021 free cash flow Strong balance sheet with $1.8 billion of cash and cash equivalents and $4.8 billion of gross debt locked in at rates averaging 3.2% with a weighted average maturity of 17 years Westlake delivers differentiated, specialty and branded products and solutions 1) The $70 million legal charge was recorded in cost of goods sold
3 Westlake Corporation Performance Third Quarter 2022 1) Reconciliations of EBITDA, Performance and Essential Materials EBITDA, Housing and Infrastructure Products EBITDA and Corporate EBITDA to the applicable GAAP measures can be found on pages 13 and 14 – Weaker global demand drove sequentially lower sales prices for PE and PVC resin, particularly in export markets – Tighter global energy markets caused higher feedstock, fuel and power costs, particularly in Europe – Lower construction demand drove reduced PVC sales volume, on both a sequential and YoY basis + Supply constraints drove higher caustic soda sales prices, on both a sequential and YoY basis + Westlake’s leading market positions, globally advantaged energy cost with vertical integration captures margins across the value chain through the cycle ($ in millions) 3Q 2022 2Q 2022 3Q 2022 vs. 2Q 2022 3Q 2021 3Q 2022 vs. 3Q 2021 YTD 2022 YTD 2021 YTD 2022 vs. YTD 2021 Sales $3,956 $4,483 (12%) $3,055 29% $12,495 $8,271 51% Operating Income $516 $1,175 (56%) $861 (40%) $2,723 $1,927 41% Performance and Essential Materials EBITDA $561 $1,162 (52%) $946 (41%) $2,794 $2,250 24% Housing and Infrastructure Products EBITDA $254 $310 (18%) $137 85% $822 $372 121% Corporate EBITDA ($11) ($16) - ($6) - ($56) ($60) - EBITDA 1 $804 $1,456 (45%) $1,077 (25%) $3,560 $2,562 39%
4 We are expanding our portfolio of sustainable products and prioritizing implementation of additional environmentally friendly innovation by incorporating recycled and bio-derived materials while maintaining product quality: • One Pellet Solution (Polyethylene) – an efficient polyethylene solution incorporating post consumer resin (PCR) while maintaining the strength of plastic materials • GreenVin® Lower-Carbon PVC and Caustic Soda (Vinnolit) – meets market demand for lower-carbon plastics and materials (see “Spotlight” on the right) • Dimex – one of the largest processors of recycled plastic materials in the US and the leading supplier of recycled flexible PVC and TPE compounds; includes products such as the MotionTex® exercise equipment mat • Epoxy – given its lightweight properties, epoxy is used in coatings and composites to fabricate wind turbine blades and light-weight aerospace and automotive components • ABA Pipe – co-extruded PVC sewer pipe containing approximately 70% post industrial resin (PIR) • Molecul r-Oriented PVC (PVC-O) Pipe – engineering solution for lighter-weight, more durable PVC pipe that is manufactured with a lower-carbon footprint than commonly used water main pipe materials1 • DaVinci Roof Composite – recycles more than 1.1 MM pounds annually of in-house generated scrap; hard to recycle waste sent to Dimex to incorporate • Westlake Royal Roofing Solutions™ – elevated batten system allows air to flow under the roof deck resulting in less energy usage compared to standard asphalt shingle roof A-B-A Pipe Sustainability Update: Product Innovation PVC-O Roof Composite Roofing Solutions Polyethylene – One Pellet Solution Dimex – MotionTex® Epoxy – Renewable Energy Spotlight on GreenVin® Product line encompasses PVC and Caustic Soda • Market demand for lower-carbon plastics and materials is rising rapidly as more customers seek ways to reduce their carbon footprints and meet their sustainability goals. • GreenVin® uses renewable power in the manufacturing process, thus meeting this increasingly important market demand. • GreenVin® PVC performs as well as traditional PVC while offering a more climate-friendly product with 25% less carbon footprint2 1) www.westlake.com/news/westlakes-napco-pipe-fittings-introduces-high-performance- molecular-oriented-pvc-c909-pipe 2) www.westlakevinnolit.com/en/westlakes-vinnolit-introduces-new-lower-carbon-greenvin-pvc
5 A Proven Strategy of Creating Value Through the Cycle Vertically Integrated, Globally Advantaged Robust Shareholder Value North America Focused Branded Products Aimed at Enhancing Returns Through Value Creation and Customer Solutions Superior Stewards of Capital Source: FactSet: Chemical peers includes: EMN, HUN, OLN, LYB, DOW Building products peer includes: JHX, FBHS, MAS, PGTI, DOOR, CNR, JELD Integrated chain supported by a well invested production footprint with a globally advantaged low-cost position in North America and downstream focus Strong brand recognition in building materials across the portfolio with resilient businesses and sustainably oriented products Maintaining our strong capital discipline aimed at operational improvements, capacity additions and M&A backed by an economic value-add approach Maximizing long-term shareholder value through focused execution, capital allocation, partnering with customers, and delivering essential materials with a focus on sustainability Leveraging strengths across incremental opportunities 0% 5% 10% 15% 20% 25% Return on Capital Employed Westlake Chemical Peers Building Peers Ten Year Average
6 Segment Update
7 Performance and Essential Materials (“PEM”) Segment Performance – Softening global demand along with higher raw material and energy costs drove lower sales prices and integrated margins for the Performance Materials portion of PEM, on both a sequential and YoY basis – Slowing construction demand in North America, along with lower industrial activity and consumer spending in Europe, led to lower operating rates and sales volumes for caustic and PVC, on both a sequential and YoY basis – A $70 million legal charge3 related to pending litigation reduced margin, on both a sequential and YoY basis + Cost-competitive export increases drove higher PE sales volume, on both a sequential and YoY basis + Lower industry operating rates drove higher sales prices for caustic soda, on both a sequential and YoY basis PEM Segment 3Q 2022 vs. 2Q 2022 Average Sales Price Volume -6.7% -6.0% PEM Segment 3Q 2022 vs. 3Q 2021 Average Sales Price Volume +7.3% +9.5% ($ in millions) 3Q 2022 2Q 2022 3Q 2022 vs. 2Q 2022 3Q 2021 3Q 2022 vs. 3Q 2021 YTD 2022 YTD 2021 YTD 2022 vs. YTD 2021 Performance Materials Sales $1,689 $2,060 (18%) $1,588 6% $5,678 $4,333 31% Essential Materials Sales $1,022 $1,044 (2%) $734 39% $2,969 $1,877 58% Total PEM Sales $2,711 $3,104 (13%) $2,322 17% $8,647 $6,210 39% Operating Income $353 $965 (63%) $769 (54%) $2,197 $1,728 27% EBITDA1 $561 $1,162 (52%) $946 (41%) $2,794 $2,250 24% EBITDA Margin2 21% 37% - 41% - 32% 36% - 1) Reconciliations of PEM EBITDA to the applicable GAAP measure can be found on page 14 2) EBITDA margin is calculated by dividing EBITDA by Total PEM Sales 3) The $70 million legal charge was recorded in cost of goods sold
8 Epoxy extends Westlake’s end-market exposure to higher growth sustainability- oriented markets such as windmill blades for renewable energy as well as automotive and aerospace light weighting Cost-advantaged North America position (~85% of production capacity) at a time of high global raw material and energy costs provides increased export opportunities to counter slowing demand in some domestic end markets Well positioned to benefit from secular demand driven by increasing product specifications for formulated, differentiated and specialty products in housing, packaging, wind energy, aerospace and automotive Strong caustic soda prices driven by lower chlor-alkali operating rates due to globally slowing PVC construction demand 1 2 3 4 Performance and Essential Materials Update
9 Housing and Infrastructure Products (“HIP”) Segment Performance 1) Reconciliations of HIP EBITDA to the applicable GAAP measure can be found on page 14 2) EBITDA margin is calculated by dividing EBITDA by Total HIP Sales – Weaker new residential construction markets, as a result of rising mortgage rates, and customer destocking early in the quarter drove sequentially lower sales volume – Lower fixed cost absorption, as a result of the lower sales volume, drove sequentially lower segment margins + Benefited from recent acquisitions and associated integration activities HIP Segment 3Q 2022 vs. 2Q 2022 Average Sales Price Volume +1.9% -11.6% HIP Segment 3Q 2022 vs. 3Q 2021 Average Sales Price Volume +31.1% +38.6% ($ in millions) 3Q 2022 2Q 2022 3Q 2022 vs. 2Q 2022 3Q 2021 3Q 2022 vs. 3Q 2021 YTD 2022 YTD 2021 YTD 2022 vs. YTD 2021 Housing Products Sales $1,018 $1,116 (9%) $536 90% $3,106 $1,491 108% Infrastructure Products Sales $227 $263 (14%) $197 15% $742 $570 30% Total HIP Sales $1,245 $1,379 (10%) $733 70% $3,848 $2,061 87% Operating Income $186 $236 (21%) $103 81% $607 $270 125% EBITDA1 $254 $310 (18%) $137 85% $822 $372 121% EBITDA Margin2 20% 22% - 19% - 21% 18% -
10 Repair & remodel (R&R) activity relatively stable, consistent with its lower historical volatility compared to new home construction Slowing new home construction demand driven by affordability concerns as mortgage rates reach a 20-year high Longer-term fundamentals for housing strength remain intact related to recent decade-plus of under-building, increasingly favorable demographics, and prevalence of remote work Infrastructure Investment and Jobs Act beginning to drive demand as states and municipalities develop and start construction of projects to address our nation’s long neglected infrastructure needs 1 2 3 4 Housing and Infrastructure Products Update
11 Financial Reconciliations
12 Consolidated Statements of Operations Performance and Essential Materials Sales $ 2,711 $ 2,322 $ 3,104 $ 8,647 $ 6,210 Housing and Infrastructure Products Sales 1,245 733 1,379 3,848 2,061 Net sales 3,956 3,055 4,483 12,495 8,271 Cost of sales1 Gross profit Selling, general and administrative expenses Amortization of intangibles Restructuring, transaction and integration-related costs Income from operations Interest expense Other income, net Income before income taxes Provision for income taxes Net income Net income attributable to noncontrolling interests Net income attributable to Westlake Corporation2 $ 401 $ 607 $ 858 $ 2,015 $ 1,371 Earnings per common share attributable to Westlake Corporation: Basic $ 3.12 $ 4.71 $ 6.65 $ 15.65 $ 10.65 Diluted $ 3.10 $ 4.69 $ 6.60 $ 15.54 $ 10.60 Three months ended June 30, 776 1,018 3,506 2,399 2022 3,038 1,445 3,180 2,037 8,989 5,872 Three months ended September 30, Nine months ended September 30, 2022 215 122 635 383 39 29 124 83 6 6 24 6 516 861 2,723 1,927 (44) (61) (134) (130) 620 2,049 1,409 496 813 2,641 1,832 24 13 52 35 43 873 193 592 423 7 1,175 (44) 17 2021 2022 2021 (In millions of dollars, except per share data) 13 34 38 15 1,148 275 11 84 412 220 1) Cost of sales was negatively impacted by a $70 million legal charge for the three months ended September 30, 2022 2) Net income was negatively impacted by a $54 million legal charge (net of a $16 million income tax impact) for the three months ended September 30, 2022
13 Reconciliation of EBITDA to Net Income, Income from Operations and Net Cash Provided by Operating Activities Net cash provided by operating activities $ 947 $ 755 $ 913 $ 2,560 $ 1,637 Changes in operating assets and liabilities and other Deferred income taxes Net income Less: Other income, net Interest expense Provision for income taxes Income from operations Add: Depreciation and amortization Other income, net EBITDA $ 804 $ 1,077 $ 1,456 $ 3,560 $ 2,562 17 24 13 52 35 264 264 203 785 600 (275)(84) (193) (592) (423) 1,175 516 861 2,723 1,927 17 24 13 52 35 (44)(44) (61) (134) (130) 873412 620 2,049 1,409 (In millions of dollars) (50) (1)(572) (109) (467) (178) (39)37 (26) (44) Three months ended June 30, Three months ended September 30, Nine months ended September 30, 20222022 2021 2022 2021
14 Three months ended September 30, Three months ended June 30, Nine months ended September 30, 2022 2021 2022 2022 2021 Performance and Essential Materials EBITDA1 $ 561 $ 946 $ 1,162 $ 2,794 $ 2,250 Less: Depreciation and Amortization 196 168 192 572 497 Other Income (Expenses) 12 9 5 25 25 Performance and Essential Materials Operating Income (Loss) 353 769 965 2,197 1,728 Housing and Infrastructure Products EBITDA 254 137 310 822 372 Less: Depreciation and Amortization 65 34 70 206 98 Other Income (Expenses) 3 - 4 9 4 Housing and Infrastructure Products Operating Income (Loss) 186 103 236 607 270 Corporate EBITDA (11) (6) (16) (56) (60) Less: Depreciation and Amortization 3 1 2 7 5 Other Income (Expenses) 9 4 8 18 6 Corporate Operating Income (Loss) (23) (11) (26) (81) (71) Performance and Essential Materials Operating Income (Loss) 353 769 965 2,197 1,728 Housing and Infrastructure Products Operating Income (Loss) 186 103 236 607 270 Corporate Operating Income (Loss) (23) (11) (26) (81) (71) Total Operating Income (Loss) 516$ 861$ 1,175$ 2,723$ 1,927$ (In millions of dollars) Reconciliation of PEM, HIP and Corporate EBITDA to Applicable Operating Income (Loss) 1) PEM EBITDA was negatively impacted by a $70 million legal charge for the three months ended September 30, 2022 Note: EBITDA margin is calculated by dividing EBITDA by Sales; see slides 7 and 9 for details
15 Safe Harbor Language This presentation contains certain forward-looking statements including statements regarding creating value for our shareholders, pricing and demand for our products, industry outlook for both of our segments, our cost control and efficiency efforts, our ability to deliver end-use building products to consumers, our ability to capture integrated chain margin, our development of additional green products in the future, our sustainability goals and commitments and our reduction in carbon impact and increased export opportunities in our Performance and Essential Materials segment. Actual results may differ materially depending on factors, including, but not limited to, the following: the effects of our recently completed acquisitions, including our future financial condition, results of operations, strategy and plans; and expected synergies and other benefits from the acquisitions and our ability to realize such synergies and other benefits; general economic and business conditions; the cyclical nature of the chemical and building products industries; the availability, cost and volatility of raw materials and energy; uncertainties associated with the United States, European and worldwide economies, including those due to political tensions and unrest in the Middle East and elsewhere including the conflict between Russia and Ukraine; uncertainties associated with pandemic infectious diseases, particularly COVID-19; current and potential governmental regulatory actions in the United States and other countries; industry production capacity and operating rates; the supply/demand balance for our products; competitive products and pricing pressures; instability in the credit and financial markets; access to capital markets; terrorist acts; operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks); changes in laws or regulations, including trade policies; technological developments; information systems failures and cyber attacks; foreign currency exchange risks; our ability to implement our business strategies; creditworthiness of our customers; and other factors described in our reports filed with the Securities and Exchange Commission. Many of these factors are beyond our ability to control or predict. Any of these factors, or a combination of these factors, could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. These forward-looking statements are not guarantees of our future performance, and our actual results and future developments may differ materially from those projected in the forward-looking statements. Management cautions against putting undue reliance on forward-looking statements. Every forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. Investor Relations Contacts Westlake Corporation 2801 Post Oak Boulevard, Suite 600 Houston, Texas 77056 713-960-9111 Steve Bender Executive Vice President & Chief Financial Officer Jeff Holy Vice President & Treasurer
