Westlake Corporation's Q3 2025: Contradictions Emerge on HIP Guidance, Cost Savings, PEM Volumes, and PVC Dynamics

Date of Call: October 30, 2025

Financials Results

• Revenue: $2.8B net sales in Q3 2025 (company-wide); sales and EBITDA decreased vs Q2 2025; PEM sales $1.7B, HIP sales $1.1B
• EPS: -$0.29 per share (loss of $38M) in Q3 2025; loss was $26M higher than Q2 2025
• Operating Margin: HIP EBITDA margin 20% in Q3 2025 (22% adjusted for $20M period-related costs and $5M FIFO impact) vs 24% in Q2 2025 and Q3 2024; PEM EBITDA $90M in Q3 2025 (down from $297M in Q3 2024)

Guidance:

• HIP revenue for 2025 expected $4.2B–$4.4B, EBITDA margin 20%–22%, with results expected toward the lower end due to lower NA residential activity and $20M period costs
• Total 2025 CapEx ~ $900M
• Cash interest expense for 2025 ~ $160M
• Targeting $150M–$175M structural savings in 2025 (already $115M achieved) and an additional $200M of structural cost reductions in 2026
• Pernis closure expected to generate >$100M/year of savings starting in 2026
• ACI acquisition expected to close in Q1 2026

Business Commentary:

* Earnings Impact from Segment Challenges: - Westlake reported a loss of $38 million or $0.29 per share in Q3 2025, due to lower average sales prices in the PEM segment, particularly in PVC resin. - This loss was primarily due to the ongoing trough in the chlorovinyl chain and challenging macroeconomic conditions.

• Chlorovinyl Segment Performance:
• The PEM segment faced a significant noncash impairment charge of $727 million for all of the goodwill associated with North American chlorovinyls business.

• This was attributed to an extended global supply-demand imbalance in the chlorovinyl chain and challenging macroeconomic conditions in the sector.

• Housing Infrastructure Products Performance:

• The HIP segment delivered EBITDA of $215 million on $1.1 billion of sales, with sales volume declines particularly in pipe and fittings, impacting margins.

• Despite these declines, HIP sales volume for pipe and fittings grew nearly 10% year-to-date, supported by municipal water infrastructure investments and government funding.

• Cost Reduction and Strategic Initiatives:

• Westlake is on track to achieve $150 million to $175 million of company-wide structural cost reductions in 2025, with a further $200 million planned for 2026.
• These efforts are aimed at optimizing manufacturing footprints and improving global competitiveness in response to global macroeconomic conditions.

Sentiment Analysis:

Overall Tone: Neutral

• Management disclosed a $727M goodwill impairment and ongoing PEM margin pressure (extended trough) but emphasized HIP resiliency, active cost reductions ($150M–$175M in 2025, $200M in 2026), improved plant reliability and asset optimization (Pernis closure => >$100M savings) as reasons for cautious optimism.

Q&A:

• Question from David Begleiter (Deutsche Bank AG): Jean-Marc, we've seen polyethylene an increasingly weakening spot market. How will that affect your earnings in the fourth quarter? And what does that mean for -- if anything, for the October price increase you have out there for polyethylene?
  Response: Expect stable-to-slightly-lower polyethylene prices and pressure on ethylene margins in Q4; company will rely on operating efficiency to preserve value.

• Question from David Begleiter (Deutsche Bank AG): And just for Albert, given the pressures you're seeing in the commodity chemical space, are you and the Board still committed to this current portfolio construct with a building products business with a petrochemical business? Or is there a thinking that perhaps these businesses at somewhere down the road are being separated?
  Response: Board believes the two businesses create synergies (PVC supplies HIP) and remains committed to the combined portfolio while evaluating options and market valuation.

• Question from Frank Mitsch (Fermium Research, LLC): You discussed some of the weakness in the polyethylene markets. PVC hasn't exactly been covering itself in glory. What is your near and midterm outlook on the PVC side of things? And what will it take to get it back on track?
  Response: Chlorovinyl chain is in an extended trough; management's path to recovery is focused on cost reductions, improved plant reliability and footprint optimization to restore acceptable returns.

• Question from Frank Mitsch (Fermium Research, LLC): And Steve, if I could follow up on the ACI acquisition. You noted in the release what the sales were in 2024. I was wondering if you might be able to give us an idea of what transpired in 2025. And are we looking at HIP margin type of business? Anything on D&A as we look to model 2026 with the ACI acquisition built into the company?
  Response: ACI is a strong global compounding business and should deliver margins in line with HIP after integration; expect synergies with existing compounds business.

• Question from Aleksey Yefremov (KeyBanc Capital Markets Inc.): I was hoping you could just discuss further in detail the sources of this revision to your HIP guidance and how it affects your maybe initial views of 2026 for the HIP segment?
  Response: Guidance trimmed due to a Q3 product-mix shift toward lower-price products and the $20M period-related costs; management expects 2026 construction activity similar to 2025 (~1.3–1.4M starts) and continued strength in repair/remodeling supporting HIP.

• Question from Aleksey Yefremov (KeyBanc Capital Markets Inc.): And I was hoping to get some color on caustic soda market, domestic and export. What is your view for the rest of the year?
  Response: Caustic and chlorine markets are well supplied; management expects pricing to remain relatively stable though consultants forecast modest (~$25/ton) upside.

• Question from Patrick Cunningham (Citigroup Inc.): Maybe just a follow-up on ACI, more of a general question. Are you seeing more opportunities on the PVC compounding or other sort of materials side relative to the building products space, just given where the difference in valuations is? And then maybe if you could just comment on what the pipeline in general looks like.
  Response: Management sees attractive bolt-on opportunities across HIP (compounding, pipe & fittings, exterior products) and is actively evaluating synergistic fits to leverage distribution and generate value.

• Question from Patrick Cunningham (Citigroup Inc.): Understood. And then maybe just on the quarter-on-quarter sequential weakness on PVC. You mentioned a shift to export markets. Is this sort of a reversion back to your normal level of exports given the better operating rates? Or is there something abnormal here in terms of higher split towards the export markets?
  Response: The shift to exports reflects improved reliability and a reversion toward historical export levels (company typically mid-30s% vs industry ~40%).

• Question from John Ezekiel Roberts (Mizuho Securities USA LLC): Did you get an opportunity to bid for the OxyChem business? Or was the antitrust there just even too far for this administration and something Oxy maybe didn't want to deal with?
  Response: Cannot comment on specific bids; management notes regulatory considerations for large transactions and says Westlake continually evaluates strategic opportunities.

• Question from Hassan Ahmed (Alembic Global Advisors): Just trying to -- I know in your prepared remarks; you talked a fair bit about sort of cost savings and asset optimization and the like. But just trying to get a better sense of a bridge to 2026 EBITDA-wise. It seems you guys will get $200 million in cost savings in '26, an incremental $100 million from the footprint optimization. And if I heard correctly, you had operational issues in PEM, accounting for around $200 million in 2025, which won't be there in '26. So -- and then obviously, some accretion from the acquisition. So I mean, is it fair to assume that via self-help and these things that I just laid out, I mean, on a year-over-year basis, all else equal, EBITDA next year would be $500 million higher than this year?
  Response: Management reiterates the three pillars (cost reductions, reliability, asset optimization) drive material EBITDA improvement and agrees the direction is toward meaningful uplift but did not put a single quantified bridge figure on an exact $500M increase.

• Question from Hassan Ahmed (Alembic Global Advisors): And as a follow-up, kind of linking a couple of the past questions together, I mean, this $727 million impairment associated with the PEM segment, how should we think about that in light of some of the valuation data points provided by the OxyChem deal? I mean, obviously, that says something about the fundamentals there, Berkshire coming in and maybe scooping these assets up at the bottom of the cycle. How does that fit into this impairment you guys took? And again, going back to one of the earlier questions, just potentially thinking about the overall portfolio, is there some sort of valuation leakage with the way the business is set up today?
  Response: Impairment was a mechanical goodwill write-down driven by the extended trough; assets themselves were not written down and management believes medium-to-long-term fundamentals and returns remain intact.

• Question from Joshua Spector (UBS Investment Bank): I just wanted to ask around the $20 million of period-related expenses and HIP. Can you tell us what exactly that was? And is that really a 1 quarter cost? Or is that something that maybe lingers for a few more quarters?
  Response: The $20M were administrative, transition and integration costs labeled period-related and are nonrecurring; management does not expect them to repeat in Q4.

• Question from Matthew DeYoe (BofA Securities): How are you thinking about operating rates in polyethylene? Because it feels like the industry is running a bit -- I guess, how you say, if the industry does run hot, it feels like product starts to back up domestically. And I think we saw that in July and August. But I don't know if I'm extrapolating too much off of shorter duration or shorter -- fewer data points. What's your perception there? And how do you think about your own utilization rates?
  Response: Company will operate assets to create value; expects its utilization slightly below industry mid-80s due to planned maintenance and selective runs to preserve margins.

• Question from Turner Hinrichs (Morgan Stanley): This is Turner Hinrichs on for Vincent. So I wanted to level set a little bit for your comments on outages. You all mentioned earlier, of course, the issues constituting around a $200 million impact this year. And you also had the Petro 1 turnaround, I believe, in addition to that, $80 million. So in the absence of unplanned outages, how are you all thinking about maintenance costs next year relative to this year? And is that the right way of framing it?
  Response: 2025 had heavier planned and unplanned outages; 2026 should have much lower turnaround-related maintenance expense as fewer major planned outages are scheduled.

• Question from Turner Hinrichs (Morgan Stanley): How are you thinking about, if you can provide any color on this, go-forward CapEx, specifically, if the market environment remains relatively similar next year to this year, is it safe to assume that CapEx might still be in the $900 million range or perhaps $1 billion range?
  Response: 2026 CapEx budgeting is in progress but management expects it to be similar in size to 2025 (around $900M).

• Question from Peter Osterland (Truist Securities): Within PEM, you had a $36 million tailwind from improved plant reliability in the third quarter. Do you expect this to be a sequential tailwind in fourth quarter as well? And what is a reasonable amount to expect there? Could it be another $35 million or so?
  Response: Improved reliability continued into Q4 and should provide a tailwind, but the dollar magnitude depends on pricing assumptions and was not quantified by management.

• Question from Peter Osterland (Truist Securities): And then I also just wanted to follow up on your plans for the $200 million of cost saves in '26. Could you share the cadence you expect throughout the year for actioning those cost savings? And I guess how much of that $200 million do you expect will actually be realized in '26 EBITDA relative to 2025?
  Response: Actions are underway now and management expects to realize the $200M of structural savings in 2026, with some 2025 actions already contributing and further cadence detail to be provided next year.

• Question from Kevin McCarthy (Vertical Research Partners): With epoxy resins having been removed from Annex II, would you provide an update on how you see that market unfolding over the next several quarters?
  Response: With Pernis shuttered and lower-cost feedstock sourcing, downstream epoxy/formulated businesses are performing better; management expects continued improvement in epoxy markets.

• Question from Kevin McCarthy (Vertical Research Partners): And then as a follow-up or clarification, when exactly will the $100 million of goodness related to the Pernis closure begin to flow through? Does that happen in the first quarter? Or how would you characterize that?
  Response: Benefits from Pernis closure begin accruing in Q4 2025 and flow into 2026; some severance/closure costs will still appear, but >$100M/year savings expected starting next year.

• Question from Michael Sison (Wells Fargo Securities): Just curious, I think I understand some of the pluses for 2026. But if demand stays in the trough, which a lot of companies have said they haven't seen evidence that we're going to pick back up anytime soon. You noted polyethylene, PVC, caustic, chlorine are both oversupplied, and it feels like feedstock costs could go higher. So do you think margins -- industry margins for PEM could go lower in '26 given that scenario?
  Response: Management says consultants forecast relatively flat prices for 2026 vs 2025; while higher feedstock could compress margins, outcome depends on downstream price absorption and continued reliability/cost actions.

Contradiction Point 1

HIP Guidance and Market Conditions

It involves differing views on the guidance and expected market conditions for the HIP segment, which impacts revenue projections and investor expectations.

Why is the new HIP guidance lower? What is your outlook for HIP in 2026? - Aleksey Yefremov (KeyBanc Capital Markets Inc., Research Division)

2025Q3: The new HIP guidance is lower due to product mix shifts addressing affordability and period-related expenses. - M. Bender(CFO)

With prior price/mix headwinds and lower sales guidance with intact margin guidance, should margins still be at the low end? - Patrick David Cunningham (Citi)

2025Q2: The guidance reflects realities in residential building and construction markets. We deliver strong results, and our guidance remains 20% to 22%. - M. Bender(CFO)

Contradiction Point 2

Cost Reduction Initiatives and Savings

It involves discrepancies in the reported cost reduction initiatives and expected savings, which are crucial for assessing the company's financial health and operational efficiency.

What is the outlook for HIP numbers in the back half? - Patrick Fischer (Goldman Sachs Group, Inc., Research Division)

2025Q3: We are on track to realize $200 million in cost savings in 2026, including $100 million from our asset optimization program and $100 million from our efficiency and procurement program. - M. Bender(CFO)

Is the $200 million in cost improvements for next year all from Pernis? What accounts for the remainder? - Adam Paul Hamilton (RBC Capital Markets)

2025Q2: We're committed to delivering $200 million in cost savings in 2026, of which $100 million will be structural and $100 million is from operational improvements. - Mark Steven Bender(CFO)

Contradiction Point 3

PEM Volume Growth and Market Outlook

It involves differing perspectives on the growth and performance of the PEM segment, crucial for understanding the company's strategic focus and financial outlook.

What caused the lower HIP guidance? What are your thoughts on HIP in 2026? - Aleksey Yefremov (KeyBanc Capital Markets Inc., Research Division)

2025Q3: In the PEM segment, volumes were down 8% compared to the prior year. - M. Bender(CFO)

What were the volume and price changes for the year in each of your two segments? - Jeffrey Zekauskas (JPMorgan)

2024Q4: We saw a 6% improvement in volumes this year versus last year. - M. Bender(CFO)

Contradiction Point 4

PVC Exports and Market Dynamics

This contradiction involves differing perspectives on the impact of PVC exports on operations and market conditions.

Is the sequential decline in PVC due to a reversion or higher export share? - Patrick Cunningham(Citigroup Inc., Research Division)

2025Q3: The shift in exports reflects improved reliability, aligning with historical export levels, slightly below industry averages. - M. Bender(CFO)

Are you profitable on PVC exports and should U.S. operations be adjusted? - Josh Spector(UBS Investment Bank, Research Division)

2025Q1: Export pricing has trended higher with a positive margin. No need to flex the front end of the manufacturing chain. - Steve Bender(CFO)

Contradiction Point 5

PVC Margin Compression and Pricing

This contradiction highlights differing views on the impact of PVC pricing on margins and market conditions.

How will a weaker polyethylene market impact Q4 earnings and the October polyethylene price increase? - David Begleiter(Deutsche Bank AG, Research Division)

2025Q3: Price momentum has been positive, with stabilization expected in Q4 following seasonal adjustments. - Jean-Marc Gilson(CEO)

What are the pricing trends in HIP categories and how do PVC exports affect operations? - Aleksey Yefremov(KeyBanc Capital Markets Inc., Research Division)

2025Q1: There's margin compression due to lag effects. Export pricing is up, and domestic PVC prices reflect export prices. - Steve Bender(CFO)