Westlake Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Westlake is an integrated global manufacturer of performance and essential materials and housing and infrastructure products. Amounts below are in millions of dollars, except per-share data.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net sales | $2,975 | $3,356; down 11% |
| Gross profit / gross margin | $466 / 16% | $792 / 24% |
| Income from operations | $223 | $536 |
| Net income attributable to Westlake | $174 | $394 |
| Diluted EPS | $1.34 | $3.05 |
| EBITDA (non-GAAP) | $546 | $825 |
| Operating cash flow | $169 | $512 |
| Capital expenditures | $272 | $267 |
| Free cash flow (non-GAAP) | $(103) | $245 |
Sales prices declined 19% on average year over year, partly offset by an 8% increase in sales volumes. Lower prices across most products drove the decline in profit; lower natural gas and feedstock costs, lower SG&A, and higher interest income provided partial offsets. The effective tax rate was 20.6%, versus 21.1%.
Segments: Performance and Essential Materials sales fell 18% to $1,931 and operating income fell to $22 from $403, primarily due to lower prices, especially for caustic soda and epoxy resin. Housing and Infrastructure Products sales rose 4% to $1,044 and operating income increased to $210 from $143, supported by stronger volumes in housing end markets and lower raw-material costs.
Cash, debt and liquidity: Cash and cash equivalents were $3,108 at March 31, versus $3,304 at year-end. Long-term debt carrying value was $4,890, including $300 of notes due August 2024 classified as current. The company had no borrowings under its $1.5 billion revolving credit facility and reported full availability; it was in compliance with debt covenants. Management believes available cash, operating cash flow and credit availability are adequate for normal operating needs and ongoing capital spending. Dividends paid were $65; the quarterly dividend declared was $0.50 per share, compared with $0.357 in Q1 2023.
Changes, outlook and risks
Operating cash flow decreased $343 year over year. Management cited lower product prices and demand and less favorable working capital, which used $177 of cash compared with $64 in the prior-year quarter. Receivables rose with higher late-quarter sales, and housing-segment inventory was higher. Capital spending slightly exceeded operating cash flow, producing negative free cash flow.
Management gave no specific financial guidance in the supplied filing text. It expects near-term volatility in energy prices, high interest rates, inflation and other macroeconomic conditions to continue affecting margins and demand. It described continued weak global industrial and manufacturing activity, while housing demand showed strength and signs of improvement. Risks include cyclical chemical and building-products markets, raw-material and energy-price volatility, interest rates, inflation, geopolitical conflicts, competition and new capacity, environmental regulation, and potential changes in customer demand and trade policy. The company joined petitions seeking U.S. antidumping and countervailing-duty investigations into certain imported epoxy resins, filed April 3, 2024.
Contingencies and unusual items: Environmental reserves were approximately $57; the company also disclosed reasonably possible additional environmental losses of $125–$200. At March 31, it recorded a $151 legal accrual and a $13 insurance receivable relating to settlements for prior facility incidents. A $19 direct-purchaser caustic-soda antitrust settlement remains subject to court approval. A $70 Triad Hunter judgment is under appeal. A Dutch ethylene lawsuit seeks approximately €1.026 billion plus interest; the company says it cannot estimate the impact of that case or a related claim. These matters have uncertain outcomes. Separately, Q4 2023 included a $128 goodwill impairment and a $347 long-lived-asset impairment related to the epoxy business; these were not Q1 2024 charges.
Other risks noted include ongoing Sulphur Brine Dome monitoring and response work, for which a reserve of approximately $14 was recorded, and possible further expenditures that the company cannot currently estimate. Management said known legal and regulatory matters are not expected in aggregate to materially adversely affect the consolidated financial statements, while noting that particular-period effects could be material.
Important facts for investors to verify
- Whether pricing and margins recover in Performance and Essential Materials, especially caustic soda, PVC, polyethylene and epoxy.
- Whether housing-related volume strength persists and whether it offsets lower selling prices.
- Whether working capital improves and operating cash flow can support capital spending, dividends and debt service.
- The timing and outcome of the 2024 notes maturity and any refinancing or repayment plans.
- Developments in the environmental loss range, Sulphur Brine Dome matter, antitrust proceedings, Triad Hunter appeal and insurance coverage for prior incidents.
- Whether the epoxy import investigations or continuing overseas competition affect the epoxy business and its prior impairment outlook.