Westlake Corporation

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

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

Thank you, John, and good morning, everyone. We appreciate you joining us to discuss our third quarter 2024 results. Global macroeconomic conditions in the third quarter were similar to those we saw in the second quarter, with relative strength in North America and a slow recovery in Asia and Europe, where activity levels remain muted. Demand for materials in our PEM segment generally mirror these trends during the third quarter, with revenue comparable to the second quarter on relatively flat sales volume. Third quarter EBITDA in our PEM segment would have been similar to the second quarter, if not for the 75 million mothball expense and extended maintenance outages at two facilities. The combined financial impact of these two outages was $120 million, which drove the sequential decline in our EBITDA from the second quarter. Importantly, the necessary repairs have now been completed and each plant returned to service last month. And we are applying the lessons learned from these incidents to other facilities to improve the reliability of our plants. For the third quarter of 2024, we reported net sales of 3.1 billion, EBITDA of $580 million, and net income of $183 million, or $1.41 per share. Compared to our second quarter results, we benefited from higher caustic soda and polyethylene prices, However, our hip sales volume was impacted by weather events. EBITDA margin of 19% in the third quarter was below the 23% we report in the second quarter of 2024, due primarily to the two extended maintenance outages. Our highly integrated manufacturing footprint in North America combined with our large pvc offtake into our hip segments building products serving the residential housing and remodeling markets has continued to be a strategically advantaged benefit the significant under supply of residential housing over the past 15 years and The growth in population over the same time period has created the housing shortage we see in the North American market, with US housing starts in the third quarter averaging 1.3 million, similar to the second quarter. We believe the pent-up demand for residential housing will drive future construction activity as expected interest rate reduction unfold into 2025. Despite the disruption to sales volume from two hurricanes that made landfall in the southeastern portion of the U.S., our HIP segment sales and margins continue to perform well as a result of our broad product portfolio with strong brands that make us a supplier of choice for many of the fastest growing large home builders. Our concentrated footprint in North America continues to provide globally advantaged energy and feedstock, letting us capture demand and growth we see in the Americas while we continue to experience a slow economic recovery and growth in demand across international and markets. A global scale with market leading positions combined with our cost advantage footprint has positioned our PEM segment to serve our diverse markets, such as needs for housing, clean water, food packaging, electrification, and other growing markets. Our energy and feedstock advantage, combined with our integrated manufacturing footprint, true to building products, positions us well to drive growth in our HIP segment as we continue to partner with home builders to address the significant housing shortage in North America. We have a very broad product offering in our HIP segment, that serves the residential housing market with innovative building products, pipe and fittings, and PVC compounds for building and construction products. Meanwhile, our investment-grade balance sheet with $2.9 billion of cash and cash equivalent is a source of strength and a driver of earning growth as we continue to seek ways to redeploy it to create long-term value for shareholders i would like now to turn our call over to steve to provide more detail on our financial results for the third quarter steve thank you john mark and good morning everyone westlake reported

Net income of $183 million, or $1.41 per share in the third quarter, on sales of $3.1 billion, compared to net income of $285 million in the third quarter of 2023. The year-over-year decrease in net income was primarily due to two extended maintenance outages in our PIMS segment, which impacted our feedstock and conversion costs. We estimate the combined impact of these two outages on our third quarter 2024 pre-tax earnings to be approximately $120 million. Importantly, as we discussed, we completed the necessary maintenance of each of these plants and have returned them to service last month, so the impact of these outages should not impact subsequent quarters. My comments regarding income from operations, EBITDA, net income, and earning per share all exclude the financial impact of the $75 million mothball expense accrual that occurred in the third quarter of 2024. I would also like to remind you that the cash outflows associated with these mothball expenses are expected to occur over several years starting in 2025. During the third quarter, we continue to make progress on our company-wide cost savings initiative with approximately $35 million of savings delivered during the quarter. These savings, combined with those achieved in the first half of 2024, total approximately $120 million of long-term cost reductions from the first three quarters of 2024 toward our full-year target of $125 to $150 million. For the third quarter of 2024, our utilization of the FIFO method of counting had a negligible impact on pre-tax earnings compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. Moving to the specifics of our segment performance, our housing and infrastructure product segment continued to deliver solid results, including EBITDA of $262 million on $1.1 billion in sales. HIP's EBITDA margin of 24% continued to benefit from our integration and cost savings actions. As we discussed on the last quarter's earnings call, unusually wet weather conditions in many parts of North America combined with the disruptions created by Hurricanes Beryl and Helene impacted our third quarter sales by deferring some shipments into the fourth quarter while slowing construction activities in the path of the storms. As a result of these headwinds to our third quarter sales volume, HIP segment sales declined 8% compared to the second quarter of 2024, while keeping stable our average sales price, resulting in a reduction of $74 million of EBITDA compared to the record second quarter EBITDA of $336 million. Housing product sales of $937 million in the quarter decreased 7% due to lower sales volumes in most product categories, while infrastructure product sales of 161 million in the third quarter decreased 13% from the second quarter of 2024, driven largely attributable to lower large diameter pipe demand, primarily due to wetter weather conditions in the United States and lower housing starts in the quarter compared to the second quarter. Moving to the PIMS segment, Third quarter sales of $2 billion were in line with the second quarter of 2024. Sales volumes declined 1% sequentially, driven by lower chlorovinyl export shipments. Average sales prices increased 1% compared to the second quarter of 2024, led by higher costing soda and polyethylene prices, which were partially offset by lower epoxy and styrene prices. Our polyethylene business had record specialty in differentiated product sales volumes in the third quarter, driven in part by continued customer adoption of our innovative Pivotal post-consumer recycled polyethylene product. Pivotal's continued strong sales volume growth is a great example of how our focus on addressing customer sustainability needs not only helps the environment, but also helps Westlake's bottom line. While domestic PBC volumes slowed sequentially due to weather and construction activity, our energy and feedstock advantage in North America continued to provide a competitive edge in other attractive export markets. PIM's third quarter EBITDA of 297 million was lower than second quarter of 2024 EBITDA of 391 million, primarily due to the two extended maintenance outages, which resulted in increased operating costs and increased ethylene feedstock cost. As I mentioned, we estimate the combined impact in the third quarter of pretax earnings to be approximately $120 million, which consists of three factors. Increased third-party ethylene feedstock purchases due to our LACC joint venture ethylene cracker undergoing necessary maintenance for the entire quarter. lost chlorine and caustic soda production due to a disruption at our Plaquemine, Louisiana, or Alkali plant, and unabsorbed fixed cost and maintenance expenses to complete the necessary repairs. PIM's third quarter EBITDA margin of 15% was lower than the second quarter of 2024 due to the impact of these outages. Had it not been for the outages, we estimate the EBITDA margin would have improved sequentially due to the 1% increase in average sales prices. Compared to the third quarter of 2023, PIMS EBITDA of $297 million declined by $42 million as a 6% increase in sales volume led by chlorocolyte and epoxy was more than offset by the impact of the outages and the 3% decrease in average sales price. driven primarily by lower costing soda and chlorine prices. Profitability in our epoxy business, both in Europe and North America, continue to be impacted by imports of low-priced products from Asia. During the third quarter, the U.S. Department of Commerce announced preliminary countervailing duties at a rate of approximately 100% on epoxy exports from some Chinese and Indian producers and at a lesser rate on certain imports of epoxy resins from Taiwan. We are hopeful that the Commerce Department will rule in favor of preliminary anti-dumping duties on a broader set of Asian producers when it announces its preliminary findings later this month. The Commerce Department and the International Trade Commission will make final determinations of dumping, subsidies, and material injury by mid-2025. Meanwhile, our epoxy resin trade case in Europe continues to progress through its administrative channels with an expectation that provisional duties will be set in early to mid-2025. Separately, in addition to the expected cost benefits of mothballing our AC and ECH units in Pernus that were already announced, we are continuing to further reduce fixed costs in the business to improve our results and transform the business into a profitable component of PEM. Shifting to our balance sheet, as of September 30, 2024, cash and cash equivalents were $2.9 billion, and total debt was $4.6 billion after redeeming $300 million of senior notes during the quarter. Our balance sheet continues to be well-positioned with a staggered long-term fixed-rate debt maturity. For the third quarter of 2024, net cash provided by operating activities was $474 million. while capital expenditures were 220, resulting in free cash flow of $254 million. We continue to look for opportunities to strategically deploy our balance sheet in order to create long-term value for our shareholders. Now let me provide some guidance for your models. Based on our current view of demand and prices, we continue to see upside potential for our full year 2024 housing and infrastructure products EBITDA margin guidance of 22%. The impacts of Hurricane Burl, Helene, and Milton impacted sales in 2024, and we expect HIP revenue to remain in the range of $4.3 to $4.6 billion. We continue to expect our total capital expenditures to be approximately $1 billion. which is unchanged from our earlier guidance and similar to our depreciation and amortization run rate. We continue to target $125 to $150 million of company-wide cost savings in 2024 with approximately $120 million already achieved year to date, including the $35 million achieved in the third quarter. For the full year of 2024, we now expect our effective tax rate to be approximately 25% up from our prior guidance at 23% due to the tax treatment of the $75 million of mothball expense in the third quarter. And we continue to expect cash interest expense to be approximately $160 million. Finally, we now expect the turnaround of our Petro-1 ethylene cracker in Lake Charles, Louisiana to begin at the end of January 2025 and for it to last approximately 55 days, which will have an impact on our ethylene production and cost during the quarter of 2025. Now, I'd like to turn the call back over to Jean-Marc to provide a current outlook of our business. Jean-Marc? Thank you, Steve.

So while we are seeing some improvement in activity levels in most of our major geographies, the pace of the recovery from the recent trough remains slow. However, recent actions by the US Federal Reserve and the ECB to loosen their monetary policies as a result of progress in bringing down the rate of inflation have the potential to improve consumer demand for durable goods and housing, including key end markets for us in both our HIP and PEN segments. Additionally, the Chinese government recently took action to stimulate its economy, including significant liquidity injections. These actions will take time to have impact. Stimulus plants in China to boost economic activity signal the Chinese authorities recognize government efforts are necessary for positive momentum for 2025. While our direct sales in China today are limited, we view the policy actions in China as positive for the global supply-demand balance for all of the products in our PEM segment. Taken together, we believe the recent trend towards more accommodative monetary policy and stimulative policy actions could accelerate the pace of the global economic recovery. As a result, we are optimistic about the macroeconomic backdrop as we end the year and enter 2025. For the fourth quarter of 2024, we are expecting typical slower seasonal demand in our HIP segment due to colder weather. Meanwhile, we expect improvement in PEMS operating costs as a result of reduced ethylene feedstock purchases and lower maintenance expenses now that we have that now that the two extended outages that occurred in the third quarter are behind us wesley continues to develop innovative products across our business such as pvco pipe and aba pipe to sustainably serve our customers in the hip segment Westlake's innovative ABA multi-layer pipe technology utilizes a middle layer comprised of post-industrial recycled PVC to reduce waste and provide a sustainable alternative to conventional piping. Meanwhile, in our PEM segment, the success of our pivotal post-consumer recycled polyethylene product is simply one example of many innovations developed to meet our customer needs and drive growth. During this third quarter, we also expanded our efforts to source recyclable PVC resin. These materials are recycled by Westlake Dymex into new products in its portfolio offering, such as consumer and industrial matting, exercise equipment matting, and landscape edging products. These are just some of the ways that Westlake is working to increase the circularity of the materials that we produce to reduce global carbon emissions and landfill waste. Westlake continues to take cost reduction actions and take the opportunity to leverage our energy and feedstock advantage in North America, where approximately 85% of our production capacity is located. And a high degree of vertical integration with innovative products, such as the examples that I just provided. These competitive advantages position us well relative to non-integrated global producers by allowing us to operate our PEM plants at higher operating rates to a higher degree of internal sales to our downstream HIP businesses and export opportunities. Finally, we continue to look for opportunities to put our nearly $3 billion cash balance to work in a disciplined manner that will create long-term value for our shareholders. This includes both identifying acquisition candidates that can exceed a risk-adjusted cost of capital and returning cash to shareholders to both dividends and potential share repurchases. Thank you very much for listening to our third quarter earnings call. I will now turn the call back over to John.

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

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Patrick Cunningham at Citi. Your line is open.

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

So just for clarification, the ECH plant and the AC plant that we're mothballing in Pernas is planned for mothballing activity. The items that I mentioned that were out for maintenance for that extended maintenance are LACC ethylene unit, as well as our Plaquemine chlorobinols site.

Both of those are back in service. Got it, thank you. You're welcome.

Our next question comes from Duffy Fisher at GS.

Yes, good morning guys. Just some questions around the 120 million. So one, I believe some of that was planned maintenance and then the maintenance lasted longer. Is that correct? And if so, is the 120 just the lasted longer part of it, or could you break it out between what was planned and what ended up kind of being unplanned or longer?

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

Okay. And then on the 120, if you bucketed it between How much was foregone production that you didn't have to sell? How much was kind of higher cost because of the increased ethylene price? And how much was just the actual cost for the repairs? What's the rough breakdown of that?

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

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

You know, it's hard to know, Duffy. Certainly with the seasonality for HIP seeing some winter slowdown, we'll achieve some of those, and we are seeing a higher shipment volume in October. I do believe we'll achieve all of those sales. It's just a matter of timing. whether we achieve those in fourth quarter or they spill into first quarter, that's really a function of how the weather continues to play through and whether our customers are able to actually get those homes built during the winter that's approaching.

Perfect. Thank you, guys. You're welcome.

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

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

Now, it really is true for both segments. So when you factor in the $75 million mothballing expense that was accrued, as well as the impact of the outages of $120 million, and think of the impact of the wetter weather that we had from both rains as well as the hurricanes, and some of the deferral of that spending activity, both HIP and PIM would have been similar to the second quarter of 2024.

Got it. And then a quick follow-up. You also mentioned about the typical seasonality expected in the fourth quarter. Would you say last year was a typical year for you? I think the business, the hit business saw around a 47% decline sequentially in EBITDA. Are you talking about the same level of seasonality this year?

Yeah, I am. You know, we saw a similar pattern last year as I expect given the seasonality we've seen so far this year. You know, we don't know how strong winter weather we'll have, but as we sit here in early November, October has been a good weather season. And as we look forward, we expect a similar season for the rest of the quarter.

Thank you. You're welcome.

Our next question comes from Alexi Yefremov at KeyBank Capital Markets.

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

Well, again, you know, when you think of the operating rates that we have that the ethylene is going into, whether it is in PVC or into polyethylene, we would have run those plants at those elevated rates. Demand really in PVC and polyethylene are still what I would characterize as good, very good. And so those operating rates would have remained reasonably well elevated. And so as we see it, that $120 million impact from both the ethylene outage as well as the chlorovinyl outage, I think would have given us results very similar to what we saw in the second quarter. And as we think about the spill effect into the fourth quarter, I would continue to expect that we'll see typical seasonality in the season for the PEM side of the business as well as for HIP. But you will see the advantage that we have in feedstock advantage continues to play through and allow us to continue to sell through PVC demand in the construction season, even though it's lower. Polyethylene continues to remain a very good market at this stage.

Okay, that's very helpful. Thank you. And then just on EBITDA margins and HIP this quarter, it looks like margins fell a little bit over 400 basis points sequentially. So I understand there's volume declines, but I think there's also some higher PVC costs that are flowing through. So maybe if you guys could just walk us through the dynamic that's going on. kind of in margins there and what you might expect here in 4Q. Thank you very much.

Yeah, and so as it relates to the sequential HIP margins, you're right. Volume was off about 8.5%, and that was largely driven by weather and slower demand levels in our pipe segment of the HIP business. When you think about the average sales price, it was relatively flat, really just up 0.5%. sequentially period over period.

And again, it was really just product mix. Operator, is there another question?

Yes. Our next question comes from Frank Mitch at Freemium Research.

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

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

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

Yeah, we've seen typically the seasonal trends, as I mentioned earlier in some of the questions, and that usually is a source of working capital during the fourth quarter, Frank.

Terrific. Thank you so much. You're welcome.

Our next question comes from John Roberts at Mizoho Group.

Thank you and welcome, Jean-Marc. The earnings release indicated that you had some learnings from these outages that might help you mitigate them better in the future. What were those learnings?

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

Thank you. That's all I had.

Our next question comes from Michael Sison at Wells Fargo.

Hi. This is Richard for Michael. Just wondering if you could provide some color In terms of what you're seeing on the PEM pricing side, in terms of polyethylene margins, integrated margins in pricing heading into the fourth quarter, and then also on the chlorine, chloralkali pricing was quite strong in the third quarter. So what you're seeing there, and if you expect seasonality heading into the fourth quarter, thank you.

Yeah, Richard, it's a good question. And I would say that, you know, we have not seen settlements yet either in PVC or in polyethylene yet. But to your point, as a result of seasonality, it is not unusual to see some slower demand begin to materialize in construction activities. And so that does put some pressure on pricing. And so the consultants are suggesting that we could see some reduction in price in the fourth quarter. As I say, October is not settled yet, so we don't know how that will play out in PPC. But the consultants are suggesting we could see a penny reduction in November. You know, as it relates to polyethylene, again, we've seen a market that remains, I think I'd characterize it as a very good market right now. But certainly as we enter the fourth quarter and we get into the contract negotiation periods and the seasonal period when equipment is undergoing maintenance, there certainly is oftentimes some give back in pricing. And the consultants are suggesting we could see some reductions later in the quarter. Again, polyethylene has not settled for October, so I can't comment as to where that will sort its way through. The consultants are suggesting we could see some reduction in pricing over the course of the quarter.

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

Yeah, it's hard to completely dissect how much is weather-related and how much is related to the slower starts that we saw in the third quarter relative to the second quarter, but I'd say it's in the mid-40s million-dollar range for the impact combined between those two for the hip segment.

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

Hi, this is Matt Hetler on for Kevin McCarthy. John Mark, now that you have a few more months at the helm, How have your thoughts evolved as it relates to strategy, market opportunities for Westlake, and perhaps capital allocation?

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

Thank you. And then could you just discuss epoxy pricing opportunity in 4Q and beyond in the wake of the duty implementation? And then what do you think the likelihood is that you get additional duties on the exports from some of the other Asian countries outside of China and India in 2025?

All right. So I think you need to separate right now a little bit the U.S. market and the European market. So I think it's... there is a pretty good certainty that we're going to get some import duties, as we mentioned, from China and India coming into the US. I think it's going to be extended to a few other countries, albeit at lower import duties. So we feel pretty good in terms of the US market. When it comes to European market, where we have a large part of our sales, It's not a different story, but I think we are a little bit behind what the U.S. has done. I think it's still likely that there will be some tariffs put in place. But there was an announcement, but so far nothing is firm. And so the pressure that we see on prices, I think will continue in Europe as long as these tariffs are not in place. So it's a tale of two worlds. I think ultimately we're going to see some price increase in epoxy on both sides of the Atlantic where we have most of our sales.

Great. Thank you.

Our next question comes from Joshua Spector at UBS.

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

I think as you look at the results for the quarter for HIP, you can see that sales price actually remained pretty healthy. We were able to maintain sales prices. There was some product mix, of course, that shifts that around. But of course, if you think about those flows of higher cost PVC flowing through, we were able to largely push that through, and you can see that through our average sales prices. Some product mix flowing through there, of course, but actually quarter over quarter, you can see those prices remain relatively flat and stable.

I appreciate that, Steve. And then, reaching out to the PVC business in Europe, how's Ventolit performing? And I guess, what are expectations for margins and profitability in Europe in the quarter, in the fourth quarter?

You know, certainly, as you might guess, the construction activities in Europe are slower than we've seen here in the North American market. And so the demand for their PBC remains somewhat constrained in terms of an ability to push all this pricing action through. So there are certainly some cost challenges as it relates to the businesses that we have in Europe. But I would say, nevertheless, the specialty PBC nature of Venelet's portfolio, I think, continues to deliver good results. And so while we have seen years where the results were stronger, I'd say the specialty component, this is the flexible PBC component of Venelet's business that continues to deliver improving results relative to just being a commodity player in that European market.

Okay. Thank you, Steve. I appreciate it. You're welcome.

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

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

Yeah. There are really no other planned maintenance activities, turnarounds, and such that we have planned in Q4. And so it really is just really the framework around how we think about the dynamics as it relates to pricing over the course of the next several months. So as you think about the seasonality, I think you characterized it well. Volume and demand remains pretty healthy, really, I would say, in the PVC and polyethylene market. I'd characterize our caustic markets as stable at this level, obviously lower than we've seen in prior years, but nevertheless stable. So it really is just a function of how we see pricing play out over the rest of the fourth quarter at this stage.

Great. Thanks for that, Steve. And as you look into 25, we do see some potential optimism around lower rates. And maybe you could also see some benefit on the epoxy side from anti-dumping duties. Again, potentially some recovery in some of your other markets. So Is it fair to assume that you should see some EBITDA growth in 25 as well? And would that be more back half-weighted, just given the lags that typically are present when rates come down and when that flows through your P&L? Or how are you thinking about some initial thoughts on 25, if you could share those? Thanks.

Yeah, and so certainly interest rates, lower interest rates are going to be stimulative to the economy. As you pointed out, there is a bit of a lag, and it's hard to know exactly what the length of that lag is. But lower interest rates are stimulative to not only the building products business, so our HIP segment should be benefiting from those lower rates. But I would also say that as we think about the stimulative effect not only in the building and construction trade, but also more broadly in the economy, the North American economy continues to really be characterized as a good economy. And so lower rates will be stimulative as well to the broader economy, which would be constructive really to many of the products in our PIM segment. So we continue to have an optimistic view as we look out into 2025, but it's hard to front-end or back-end weight that I would have to admit because it's hard to know exactly when the Fed will take action, to what degree they will take action. There's clearly going to be some lag, but I would say all of that is constructive with lower rates expected in 25. Great. Thanks.

You're welcome.

Our next question comes from Michael Leathead at Barclays.

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

Yeah, so as we think about it, Mike, the answer is we look across the spectrum of assets that we have in both segments, both PEM and in HIP. And as you heard us speak about the integrated manner of our assets, we continue to want to think about running the business to give us a high degree of optionality in where those products go in the markets that we serve. So we'll look at all opportunities in spaces that are in our operating space and adjacent to that. It really is about the right opportunity and the right value proposition for us as we think about looking at assets and the opportunities they provide. Anything that's in our space we'll assess, and anything that's adjacent to that we'll assess. It's just a matter of what's the right value proposition to us as we think about those opportunities.

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

Well, I think if those that attended our teach-in earlier this summer heard that we were continuing to work very closely with some of these nationwide builders, and I would note that looking at research published by John Burns, a well-known real estate construction consultant, noted that these large nationwide builders, such as Pulte, Lenard, D.R. Horton, and others, now represent about 55% of starts nationwide. So as we think about our, and I'll call it a partnership, our partnership through these distributors into these home builders continues to be successful. And so we're continuing to win with the winners because they're continuing to gain market share in their home starts and in those construction activities. As I read their commentary and as we talk to them, they continue to be opportunistic in their views about lower interest rates and the forecast that they're putting forth suggests that we should see a more constructive year in 25 because of lower interest rates and the expectation that they need to build out more homes for the under bill that we've seen across North America that's persisted for over 15 years. So we do think that there'll be a continued growth in demand and those home builders are well positioned to meet that demand. And we think we're incredibly well positioned to support those home builders meeting that demand.

Great. Thank you. You're welcome.

Our last question comes from Vincent Andrews at Morgan Stanley.

Hi, this is Turner Henrikson for Vincent. I was just wondering what drove the lower chlorovinyl export shipments in the third quarter?

I think it was mostly related to pricing and export market. And there is a point where we see more value, I mean, pushing some of these volumes into I mean, selling in other point of the value chain. So for us, that was the key factor. The price for export is relatively low. And so we decide not to go and sell it at a price point where we don't think it's advantageous to us.

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

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

All right. Thanks for taking my questions.

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

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

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