Westlake Corporation

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. Please be advised that today's conference is being recorded today, August 5, 2025. I would now like to turn the call over to your first speaker today, John Zollier, 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 second quarter 2025 results. I am joined today by Albert Chow, our Executive Chairman, Jean-Marc Gilson, our President and CEO, Steve Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During the call, we will refer to our two reporting segments, Performance and Essential Materials, which we refer to as PEM or Materials, and housing and infrastructure products, which we refer to as HIP or products. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's 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 second quarter of 2025, we accrued expenses of $123 million and $7 million, respectively, to shut down the company's epoxy facility in Pernis, the Netherlands, and temporarily cease operations at a PVC resin production unit in China at the company's 95% owned Wosu joint venture. We refer to these expense items, which in aggregate were $130 million, as the identified items in our earnings release and on this conference call. References to income from operations, HIPAA, net income, and earnings per share on this call exclude the financial impact of the identified items. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the investor relations section of our website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10-K for the year ended December 31, 2024, 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 second 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, August 5, 2025, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our 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 second quarter 2025 results. For the second quarter of 2025, we reported EBITDA of $350 million on net sales of $3 billion. Compared to the first quarter of 2025, sales and EBITDA increased due to a seasonal increase in sales volume for most of the businesses in our HIP segment. HIP performed very well in the second quarter. delivering solid EBITDA of $275 million on sales of $1.2 billion, representing a strong 24% EBITDA margin. Our results demonstrate that in an operating environment that has grown more challenging, with interest rates remaining elevated, a diversified and balanced operating model in HIP offers strategic benefits to help deliver performance in this market. Pipe and fittings sales volume growth benefited from increasing demand for municipal water applications, driven in part by spending from the 2021 Infrastructure Act. The significant underspend in water infrastructure in the United States and the funds from the Infrastructure Act should continue to provide a solid foundation for our pipe and filling sales for many years hips building product sales volume was lower than the second quarter of 2024 reflecting the slowdown in north american residential construction activity pent-up demand nevertheless is high as people want and need homes hips building products business benefits from a balanced portfolio of approximately 50% new construction-oriented sales and 50% repair and remodel-oriented sales. And this portfolio provides stability in the current housing market. Turning to PEM, earnings and margins were pressured by two primary factors. First, PEM sales volumes were impacted by lower production levels, due to a high level of planned turnarounds and unplanned outages, which impacted second quarter of 2025 EBITDA by approximately $110 million. As we discussed on our first quarter earnings call, we began the tie-in of our new VCM capacity at our Geismar site during its planned turnaround. Following the completion of the turnaround in the second quarter, Geismar slowly ramped up its operating rate, with production expected to improve during the third quarter. Second, the cumulative impact of several quarters of soft global manufacturing activity caused growth in global demand for many chemical products to fall short of industry supply additions. primarily in Asia and over that period of time. The resulting global oversupply in some chemical chains has created pressure on PEMS average sales price and EBITDA margin. In response to these factors, we are taking aggressive actions to improve PEMS financial results. Our PEM profitability improvement strategy is three-pronged. One, improving plant reliability. We have challenged the teams at the plants to address reliability and operations and we are already seeing production improvement during the third quarter. Two, reducing our cost to improve our global competitiveness. During the first half of 2025, we achieved over $75 million of company-wide cost reductions towards a full-year target of $150 to $175 million. While we are pleased with this progress, given the protracted nature of the current downturn, we are expanding the scope and nature of our cost reduction efforts to target an additional $200 million of cost reductions by 2026. And third, optimizing our footprint, our manufacturing footprint. During the second quarter of 2025, we announced the planned closure of our Pernis epoxy site in the Netherlands, which will put our epoxy business on a path to profitability. So to summarize the quarter, we were very pleased with the continued solid performance of our HIP businesses, our experienced teams, our leading product positions, our broad geographical footprint, and a diverse position serving both new construction and repair and remodel to provide valuable earnings stability and cash flow to the company. We also expect a three-pronged PEM profitability improvement strategy to enhance our globally competitive position and improve PEM's financial results. I would like to turn our call over to Steve now to provide more detail on our financial results for the second quarter of 2025. Steve?

Thank you, Jean-Marc, and good morning, everyone. As a reminder, my comments regarding income from operations, EBITDA, net income, and earnings per share all exclude the financial impact of these identified items. Westlake reported a net loss of $12 million, or 9 cents per share, in the second quarter on sales of $3 billion. Net income for the second quarter of 2025 improved by $28 million compared to the first quarter of 2025, primarily due to a seasonal increase in HIP sales volumes and margins, partially offset by an approximately $30 million higher impact from planned turnarounds and unplanned outages in PIM. When compared to the second quarter of 2024, Net income decreased by $325 million due to higher North American feedstock and energy cost and lower average sales price in each segment. For the second quarter of 2025, our utilization of the FIFO method of accounting resulted in an unfavorable pre-tax impact of $13 million in our PEMS segment compared to what earnings would have been reported on the FIFO method. This is only an estimate and has not been audited. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. Our HIP segment performed very well, and we are very pleased with the stability and resiliency of the portfolio of the business that we have assembled. At the same time, our PIM segment was impacted by production disruptions and the continued global oversupply in some chemical chains, but the profitability improvement strategy that we are implementing should result in better performance with an improved cost position. Moving to the specifics of our segment performance, our housing and infrastructure product segment produced EBITDA of $275 million on $1.1 billion of sales. When compared to the first quarter of 2025, HIP segment sales rose 16% driven by a 14% increase in sales volumes as a result of growth for pipe and fittings and a seasonal increase in building products demand. Average sales price increased 2% sequentially, driven by price increase initiatives in building products and global compounds to pass through rising input cost. The strong sales growth volume drove HIP segment EBITDA margin to a solid 24% from 20% in the first quarter of 2025. When compared to the second quarter of 2024, HIP EBITDA decreased $61 million due to 2% decline in sales volume and a 1% decline in average sales prices. The sales volume decline was driven by lower customer demand in our global compounds and building products business units as a result of slower residential construction activity. That more than offset volume for our pipe and fittings business as a result of solid demand for growth in the municipal water applications. Our HIPPS strategy is and has remained clear. We're providing our customers with products to address affordability and adapting our product offering and manufacturing footprint as the market evolves. Turning to our PEMS segment, second quarter sales of $1.8 billion fell by 57 million from the first quarter of 2025, driven by a 6% decline in sales volume as a result of a more significant impact from planned turnarounds and outages, as well as export sales volume disruptions created by tariff uncertainty during the second quarter. Average sales price increased 2% driven by higher chlorine, cost of soda, and PVC resin prices. PEMS segment EBITDA of $52 million in the second quarter decreased by 21 million from the first quarter of 2025, as a result of the 6% decline in sales volume. On a year-over-year basis, PEM EBITDA of $52 million was below second quarter of 2024 EBITDA of 391 million due to $83 million of higher ethane and natural gas cost, a $67 million higher year-over-year impact from planned turnarounds and unplanned outages, and a 2% decline in average sales prices driven by lower polyethylene and PVC resin prices. As Jean-Marc mentioned, during the second quarter, we announced a plan to close our epoxy site in Pernus in the Netherlands. Since this acquisition in February of 2022, profitability at this site deteriorated significantly as a result of higher European feedstock and energy costs due to the war in Ukraine and low-priced Asian exports entering the global market. As a result, Pernas experienced losses in excess of $100 million a year, which drove the June site closure announcement. Following the Pernas closure announcement, we believe that our epoxy business is now on a path to return to profitability in 2026. Shifting to our balance sheet, as of June 30, 2025, cash and investments were $2.3 billion, and total debt was $4.7 billion, with a staggered long-term fixed maturity debt schedule. For the second quarter of 2025, net cash provided by operating activities was $135 million, while cap expenditures were $267 million. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value. Now, let me provide some guidance for your models. We've completed our turnarounds and VCM tie-in at Geismar. However, our integrated four-vinyl system is continuing to slowly ramp up production during the third quarter. We expect four-vinyls production sales volumes to be better in the third quarter, and thus we anticipate the impact of earnings from production disruptions in the third quarter will be less than we experienced in the second quarter. With the slowdown in North American residential construction activity since the beginning of the year, we now expect 2025 housing and infrastructure products revenue to be in the range of $4.2 to $4.4 billion, with an EBITDA margin between 20 and 22%. We continue to expect total cap expenditures for the company to be approximately $900 million. In the first half of 2025, we achieved over $75 million toward our 2025 company-wide savings target of $150 to $170 million. and we're taking actions to drive an additional $200 million of cost reductions by 2026 as part of our PIM profitability improvement plan. For the 2025 year, we expect cash interest expense to be approximately $160 million. Now let me turn the call over to Jean-Marc to provide a current outlook for our business. Jean-Marc.

Thank you, Steve. Against the backdrop of soft macroeconomic conditions, and slower North American construction activity, our HIP team is delivering sales similar to prior levels by being a supplier of choice with faster growing building product customers. Sales volume growth for our pipe and filling is driven by mega trends in water and supported by municipal infrastructure investment, as well as the growing use of PVC pipe in municipal infrastructure as compared to competing materials such as concrete and ductile iron. HIP total margins also remain solid and are indicative of the strong value of our brands and the significant value that our service-oriented business model delivers to our customers. While the long-term outlook for the housing market remains favorable, driven by demographics and an undersupply of homes, We recognize the current volatility and uncertainty, and we will continue to execute our winning HIP strategy in a disciplined manner to enhance the value of our business. Longer term, we remain very positive on the outlook for our HIP business to organically grow at a 5% to 7% compound annual growth rate. We expect this growth to come both from market growth such as the need for home building to recover from a 10 plus years of underbuilding, and our position as a leading supplier to the faster growing customers in the market. We also continue to evaluate opportunities to grow our HIP businesses through acquisitions to broaden our product portfolio and deepen our relationship with our key customers. Overall, we continue to see a very bright future for HIP. Turning to our PEM segment, near-term macroeconomic conditions show signs of demand stabilizing, albeit at lower levels than we would like. ISM manufacturing index readings in the US, Europe, and China have fluctuated in a relatively narrow range at or slightly below 50 nearly every month this year. As we look ahead to the second half of 2025, we are seeing stable demand for our PEM materials, which combined with improved production rates should lead to an increase in our PEM sales volumes compared to the first half of 2025. We are responding to the business environment in our PEM segment and are implementing our three-pronged PEM profitability improvement strategy to improve plant reliability, accelerate cost reduction plans to improve our global competitiveness, and optimize our manufacturing footprint. These actions will meaningfully improve our PEM segment profitability and cash flows. Before I open the call to your questions, I want to close by reminding you of Westlake's foundational strengths, which serve us really well. These strengths include a diversified and complementary portfolio of businesses, a vertically integrated business model, a globally advantaged feedstock and energy position in the U.S., and our investment-grade balance sheet with $2.3 billion of cash and securities. As we progress through 2025, we will continue to lean on and improve these attributes to continue to create value for our shareholders. Thank you very much for listening to our second quarter earnings call, and 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. Gerald, 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 1-1 on your telephone and wait for your name to be announced. To draw your question, please press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from Patrick Cunningham of Citi.

The floor is yours. Hi, good morning. Thanks for taking my question.

A question on the HIP guidance. I think previously you had some price mixed headwinds that had you pointing to the lower end of the margin range, and now the sales guide is lower, but the margin guidance is intact. Should we still expect margins on the low end, or have some of those mixed headwinds normalized versus your prior expectations?

Yeah, it's a good question, Patrick. And as we think about the guidance we're providing, we're simply reflecting the the realities we see in the residential building and construction markets. And so I'd still guide you to the range that we provided of 20% to 22%. Obviously, we delivered a strong quarter this year, and I would expect we'll continue to see results as we go through the stronger periods of 2Q and 3Q in the construction year. But our guidance still remains really in that 20% to 22% range.

Great. And for my follow-up, you know, the biggest change in the tariff regime has been fresh tariffs on Brazil, the threat of retaliatory tariffs. Now, how should we think about the risk to both chloro vinyls and caustic soda, given this has been such an attractive export market for the industry and for Westlake?

Yeah. So, Patrick, a good question on exports. Let's say caustic into Brazil, as you raised, you know, are Our sales are direct to customers in the alumina and paper markets. And those markets really export markets. So there's an opportunity for them to access duty drawback. And so we haven't seen really an impact really in those tariffs at this point in time. We'll continue to monitor the situation, but we believe that we're well positioned with those customers.

Great. Thank you. I'll pass it on. Thank you for your question. Our next question comes from Duffy Fisher from Goldman Sachs.

The floor is yours.

Yeah, good morning, guys. I wanted to go back to HIP if we could. So you talked about earlier some areas of HIP that we're seeing pricing pressure, a la the low-gauge pipe. Could you go through, I guess, two questions there? What percent of the portfolio do you think is actually seeing kind of excessive competitive pricing versus what part is holding stable? And then just the second part, At the midpoint, your revenue is now down 5%, but again, the margins are stable. So why isn't there decremental margin degrading? Is there a mixed shift improvement in there, just kind of versus first quarter to today? Why don't margins change?

And so, Duffy, as you think about the commentary we provided, you've seen really the broad portfolio offering that we have. and addressing and adapting to the market conditions within the building products business. You know, continue to call out the strength in our water business, going into our pipes and fittings business, but continue to recognize that as large diameter for water. And that business is really being supported by the Infrastructure Act, as well as states, cities, and counties. But certainly, I would say that we've certainly had to position the business and adapt with our compounds business, our building products, exterior building products business, and our pipe business to the conditions that we see. So the range of the product we think and the depth of the product we think continue to be able to be addressing this changing and evolving market.

Great. Thank you. And then if we just go back from the less downtime in Q3 versus Q2 from, you know, the ramp-up of the plant. Roughly, how much less hit do you have from that? And what were operating rates, chloro-vinyls, Q2 to Q3? How much do we actually get to improve operating rates?

You know, as you can see in our prepared remarks, that we continue to see improvements quarter over quarter into third quarter. But you could also see that we're continuing to ramp up our chloro-vinyl business as in the third quarter. So while I see some improvement, we won't be fully clear of this in the third quarter.

Thank you, guys. You're welcome. Thank you for your question.

Our next question comes from Aron Vishwanathan from RBC Capital Markets. The floor is yours.

Hi, this is Adam on for a room. Thanks for taking my question. You know, if we were to dig a little bit more into bridging into the second half of the year, you know, assuming by the end of the year, some of the planned and unplanned turnarounds are backed out. Do you have any other major turnarounds planned at this time? And of that 110 million impact, approximately how much of that was planned versus unplanned?

Yeah, as you can see, we've taken a huge effort in the first half of the year with planned outages, but obviously we've had some of these unplanned outages. And so, you know, the great majority of this was the planned turnarounds. As you recall, we had an ethylene turnaround as well as the VCM tie-ins in Geismar. The majority of this was obviously in the planned arena. As we look into the back half of 2025, we really have gotten beyond the major turnaround activity in 2025. And so I don't expect a continuance of these planned events for the back half of this year.

Okay, thanks. And, you know, looking at your additional $200 million cost improvement for next year, how much of that is that all Pernas included in that, the $100 million improvement from that? And, you know, what would the balance be made up of? Is that primarily going to be additional? footprint rationalization, or is there some other headcount reduction included in that as well?

Yeah, thank you for the question. These are really cost reduction initiatives that are across the entire PEM footprint. And so as we think about that, it allows us to address cost in all areas, whether they're in contract labor, whether it's in maintenance and a wide variety of other areas. But this is across the entire PEM footprint and not really targeted solely in the actions that we've taken in our Pernas location.

This is really on top of the actions that we've already taken. Thank you. Thank you for your question. Our next question comes from John Roberts of MISDUO.

The floor is yours. Great. Thank you very much. On M&A, could valuations become cheap enough in PEM opportunities that you would acquire something significant there, or is your M&A focused exclusively over on the HIP side?

John, it's a good question. We continue to look across the broad spectrum of opportunities, whether they're in the HIP segment or in the PEM segment. The opportunity is really driven by the valuation opportunity we see in one or the other segment. So there isn't necessarily a strong bias one or the other. It's really where the most opportunities present themselves. The strongest side of our business clearly is on the hip side of the business. But clearly, should there be value opportunities that we see in chemicals, we'll certainly act on those opportunities as well.

Okay. Thank you. You're welcome. Thank you for that question.

Our next question comes from Vincent Andrews of Morgan Stanley. The floor is yours.

Thank you, and good morning. In PEM, as part of the initiative to improve plant reliability, will there be a CapEx component of that either one time in nature, or is there any risk that your maintenance CapEx needs to be revised higher?

No, Vincent, we fully expect that the capital programs we have in place address this, and this is not an issue that requires a large capital outlay, so nothing incrementally beyond the capital programs that we've been discussing all year.

Okay. And then if I could just ask you in terms of HIP, is it a fair assessment from the answers already that we'll see a similar margin In 3Q, as we saw in 2Q, and then sort of the swing factor of where you wind up for the full year is going to be how soft 4Q is?

Yes. The fourth quarter is always uncertain because of seasonal matters. And so we've seen periods of time where we continue to build through October and November. So it really is a function of the weather and the demand picture, of course, on top of that. But typically, the strongest quarters are the second and third quarters. And we continue to see continued construction activity carrying us through July into August now. And so I have still an expectation that third quarter will continue to be that seasonal pattern that we've discussed historically.

Perfect. Thank you very much.

You're welcome. Thank you for your question.

Our next question comes from Frank Mitch from Freemium Research, LLC. The floor is yours.

Thank you. Good morning. As someone who probably ought to go back and take a class on Tariff Impacts 101, I'm wondering if you could elaborate on the comment about your caustic exports to Brazil and the fact that some of that is being processed there and then you'll have a duty drawback. So just conceptually, of the amount that you're exporting of caustic to Brazil, you know, how much is subject to this duty drawback? And if you could just elaborate on what exactly that all means. Thank you.

Yeah, Frank, you know, it isn't really our ability to see in detail how much the paper and aluminum business is exported out of Brazil, but I would say the great majority of it is, as we understand from our customers. So these are direct sales into those individual customers. As we understand the regulations and opportunities in Brazil. If those products are re-exported out of Brazil, they have the ability to have duty drawback. And so as long as they're exporting some portion or majority of the portion, as we understand, they're able to then have that duty drawn back and be insulated from that portion they export. That's our understanding from our customers.

So that would go, it would go to zero. So if Brazil throws out a 50%, tariff on caustic, as long as the customer buys your caustic and re-exports out the product, that 50 go to zero. Is that how we should think about it?

That is how the duty drawback process works in Brazil, correct, as long as those products are exported.

Terrific. Very helpful. And Jean-Marc, just curious, you made the comment that you're already seeing plant reliability improvement here in the third quarter. Any color, any examples that you could provide on that?

Yeah, thank you for the question. As Steve said, we had quite a lot of planned and unplanned outages in the first part of the year. And a lot of them, I mean, the big, big ones were primarily over the first three, four months of the year. And since then, we had additional unplanned outages that have slowed down, actually, the ramp-up of the plants. But we have started to see, I would say, sequential increase on a month-by-month basis, starting probably around late April, early May. And that's really what we're expecting to continue in the third quarter. And by the end of the year, we will have pretty much everything behind us.

Terrific. Thank you so much.

Thank you for your question.

Our next question comes from Alexey Yurimov from KeyBank Capital Markets. The floor is yours.

Good morning, everyone. I wanted to go back to HIP margins. You revised your sales guidance down by 7% but maintained the margin. So could you discuss what is going better than expected such that you know, there's no negative operating leverage in this segment.

Yeah, so Lexi, the broad and deep portfolio offering we have allows us to address the affordability issues that we see in our customers and our end customers. And so as we've addressed that with our exterior building products, the portfolio has allowed us to improve that positioning and The strength that we're also seeing in the infrastructure side of our pipes and fittings business. This is the larger diameter business that is really addressing state, county, and city needs for infrastructure. So continuing to see strength in demand and that infrastructure water requirements. And so that's really where we're seeing the continued ability to deliver good results this quarter.

Thanks, Steve. And I was hoping you could give us some sense of monthly trends in HIP orders. Have you seen a negative inflection or things steady as you went through the summer?

Well, clearly we've seen some reduction in overall construction activity over the course of the year. So going back to first and second quarter, we've seen housing starts trend lower relative to 2024. And so I would say the level we're at today, which is roughly 1.3 million starts, continues to be that level that we're seeing through the second quarter. And we do expect the seasonal effect to play through in the end of the year in fourth quarter. But I would expect that demand level to continue to persist in the third quarter.

Thanks a lot. Thank you for your question. Our next question comes from Kevin McCarthy of Vertical Research Partners.

The floor is yours. Thank you and good morning. If we rewind the clock three months, it seems to me that Wall Street analysts generally underestimated the industry operating rates in the ethylene chain, for example, and perhaps also for Westlake. In listening to you today, it sounds like those operating rates and the trade flows are in the process of normalizing. So I was wondering if you could comment on how much harder you might be able to run your crackers and your polymer assets in the third quarter relative to the second quarter. Is it a low single digit uplift or a high single digit percentage uplift or somewhere in between. Any guidance on that operating leverage dynamic would be very helpful.

I will take that question. If you look at our cracker, since we went to the major turnaround beginning of the year, all of our crackers have been running at full capacity. As you know, we're a little bit short in ethylene, but they're running at full capacity. you look downstream on our polyethylene we running at pretty high rates too since um we finished some of the the turnarounds the um the issue has been for us more on the chloro vinyl side and epoxy i mean epoxy we said we addressed the problem and by shutting down the site and basically buying liquid epoxy resins now from the market and also applying from ourselves from the us but If you look at the chloro vinyl chain, the problem is, I mean, the demand is certainly not as high as we would like it to be, but there is demand in the market and it's pretty stable. and it's for us to capture that demand by increasing our throughput. So how and where it's going to stabilize, I don't know, but we certainly have some leverage by bringing most of our chlorovinyl operating units back to what we consider is normal reliability.

Okay, thank you for that, Jean-Marc. And then as a follow-up, Can you provide an update on your polyethylene resin pricing outlook? For example, have you settled any July contracts in the U.S., and how much pricing are you seeking for August?

So, Kevin, when you think of polyethylene, pricing for July has not yet settled, but You know, there are a number of price initiatives out for July and for August. So we have in the industry between six to seven cents announced for July and for August. Their announcements range in between five and eight cents for August. You know, we've seen demand begin to recover really starting earlier this year. But for the month of July, prices have not yet settled. And there remains certainly an elevation in ethylene, as Jean-Marc just earlier noted. And so certainly we're looking to recognize that with those elevated ethylene prices, we need to see some of these increases work your way through the system.

Okay. Thanks so much.

You're welcome. Thank you for your question. Our next question comes from Michael Cezanne from Wells Fargo.

The floor is yours.

Hey, guys. Good morning. So for them, you noted that volumes would be better in the third quarter. Can you talk about where you think industry margins, you know, sort of ended 2Q? Should they be better sequentially in the various chains, you know, chloralkali, polyethylene and such in the third quarter versus the second quarter?

Yeah, so Mike, could you think about the... comment I just added in polyethylene. We certainly have price announcements out in polyethylene. We have not settled July. We'll see if we get some of those nominations settled in July and into August. And I would say in PBC, July did settle flat for the month, but there are nominations out for later this quarter. In August, there's a nomination of three cents in the industry. So as we think across the PE and PBC chains, we certainly have seen some announcement action, but obviously we're still waiting to see if those prices take action and take traction.

Okay. And then what do you think about seasonality? Typically the fourth quarter for y'all is the weakest quarter. It's been an unusual year. So how do you think about the normal seasonal trends as we head into the fourth quarter, given You've had some tough turnarounds in the second. Maybe those all go away by the fourth. And just directly how you see that unfolding for the second half.

So as we think about, and I'll start maybe with the PVC side, the reason we have price nominations out for August is to address construction needs. As I mentioned earlier, July settled flat. We'll see if we are able to get any traction on pricing. Again, ethylene pricing is up, so we're trying to push some of that higher feedstock cost through in our PBC chain. We need to see some of those price nominations get traction to gain margin growth. As I mentioned earlier, July for polyethylene has not yet settled, and we have price nominations out for polyethylene as well. When we think about the cost side of the equation, we're reaching the peak of demand for chlorine here in midsummer. And so as we think about the fourth quarter, to your question, we'll begin to ramp down chlorine requirements as we reach the end of the fourth quarter, and that will tighten up production of both chlorine and caustic soda. So really to summarize the pricing environment, we've got a number of nominations out there, but we've obviously got some pressures on feedstocks.

Got it. Thanks. You're welcome. Thank you for your question. Our next question comes from Josh Spector of UBS. The floor is yours.

Hi, good morning. First, I wanted to follow up on HIP, and you've talked about this in various ways, but if I looked at your updated guidance, you know, in the first half in HIP sales, you were down around 3% year-on-year. Your second half HIP outlook is about up 3% year-on-year. So curious if you could talk to two things there. I mean, one, the visibility by the markets, and then two, how you think we should think about your performance relative to housing, considering the outlook's gotten worse, but maybe your second half outlook has gotten a little bit better or maybe even unchanged.

When you think about the outlook we have, as you clearly can see, adjusted our revenue guidance down But I would say the product mix that we have allows us, and I'd say the product mix we have is a little bit different product mix than the others with our pipe and fittings and compounds businesses. You know, the demand that we're seeing really in the infrastructure water business, this is coming from the Infrastructure Act passed several years ago, allows us to be able to address those needs in cities and counties. And I think that is, as you can see, a nice contributor in the second quarter, and we'd expect that to provide a tailwind over time. Certainly in our exterior building products business, we've continued to adjust our portfolio and adapt to the affordability issues you hear much discussed. So again, recognizing that the back half of the year should begin to trail off, depending on weather, as we end the third quarter and end of the fourth quarter, it's very weather dependent in terms of how volumes and margins unfold. So this is why we've really adjusted our revenue guidance, but continue to stick to the margin guidance of 20 to 22%. that we provided already.

Okay, thanks. And then just one other clarification just around the Pernas shutdown. So 100 million drag on a trailing basis. Do you get a benefit in second half versus first half from the shutdown or is that more of a 2026 effect?

Thanks. It's largely a 26 impact. There'll be some benefit as we uh begin to wind down and uh bring the plant fully down later this year but the biggest benefit really is a 26 benefit okay thank you you're welcome thank you for your question our next question comes from bhavadesh lodia from bmo the floor is yours hi good morning

Within the HIP segment, can you size up the municipal water applications market for us? Maybe what's the total size? How fast is it growing? And if possible, who are the key competitors that you compete with over there?

Yeah, the large players in this market really are largely private players. This is the larger diamond or PVC business. So you see that players such as Diamond Plastics is one of the larger players. And JM Eagle is also one of the other larger players in this business. These are the key players, really, in the larger diameter PVC space. We do compete with others who are non-PVC producers, but these are the large PVC pipe producers. The market continues to organically grow very nicely, I'd say in the neighborhood of 5% to 7% over time. And so as we think about the overall business of our pipe and fittings business, we're the only – producer that is producing not only pipes, but also fittings to provide the entire integrated kit to meet needs that we see in the water business addressing municipal's requirements to solve water issues.

Got it. And as a follow-up, within this pipes and fittings, I would say subsegment, I believe you mentioned pricing was down year over year, but obviously your overall pricing is up 2% sequentially for the HIP segment. Would you say the pricing pressures we have seen in pipes and fittings are behind us, or are you still seeing sequential pricing headwinds there?

No, I'd say we're continuing to deal with market issues day to day. This is something that we deal with and always deal with day to day in each discrete market in which we operate, whether it is in our pipe and fittings business or in our building products business, which we're also nice contributors. But you have to be competitive. And in that competitive market, you have to meet competition. And so there is certainly, as you've seen, resin prices have drifted over. We've seen prices drift in pipe as well.

Thank you. Thank you for your question. Our next question comes from Hassan Ahmed from Albaic Global Advisors.

The floor is yours.

Morning, gents. You know, a question around chloralkali supply, particularly within North America. I mean, you know, over the last couple of quarters, you know, there's been some fear in the marketplace that there's been some new projects announced. But, you know, I mean, as I look at it, it seems that, you know, there is one expansion on the table and call it two greenfield projects. And, you know, one of those two greenfield projects doesn't even have an FID. and the expansion project, you know, the number out there seems to be higher than eventually where it will end up. So, you know, just, you know, would love to hear your views on what the supply picture looks like through the end of the decade, you know, and should it be worrisome or not?

No, I mean, I will take the question. If you look into the market, I think that we see some stability going forward. And I think probably at the end of the decade, we're going to start seeing some uplift probably in market demand. Yeah, that's the way we look into it right now.

Understood. And just, you know, in terms of the products that you produce, be it, you know, on the ethylene, polyethylene side, be it on the chlorovinyl side of it, what rumblings are you hearing in terms of rationalization of those capacities in China in particular?

You know, it's an interesting question. I think that when you look at the prices currently that you see in China, you would expect that there would be some restructuring. We haven't seen them. We haven't seen too much restructuring. I cannot predict what's going to happen in the future. And And for us, as far as Westlake is concerned, I mean, we need to adapt and make sure that we can operate in an environment like that and make money in all of our segments in that kind of environment. So I think some of them are running really close to the edge. You would expect that there would be some restructuring. We haven't seen many yet.

Yeah, and I would just add that the NDRC has made some announcements here, but as Jean-Marc said, we haven't seen any actions yet. But that will take time. That will take time. Very helpful, Jean-Marc and Steve. Thank you.

Thank you for your question. Our next question comes from Peter Osterland from Truist Securities. The floor is yours.

Hey, good morning. Thanks for taking the questions. So first, I just wanted to ask what percentage of your volumes in PEM were sold into export markets during the second quarter? And how does that compare to what you see as normal? And how would you expect that mix between domestic and export sales to change in the third quarter?

You know, so Pete, when we think about our normalized exports, it varies a little bit by product. But if you look at All those products combined, it's in the 30s, mid-30s, but it does vary by product. But obviously, when you think about a normalized number, we were not selling as many pounds in the export market because of our planned and unplanned outage issues in the second quarter.

Great. Go ahead.

Please go ahead. A follow-up question I had. On the $200 billion of incremental cost savings that you announced today, do you have an estimate you can share for the incremental cash outlays that you expect in order to realize these new cost savings?

These actions, we believe, are reasonable actions that we don't think require a lot of cash outlay. These actions are really going to deliver really largely in 2026. As you can see, we have initiatives already underway.

but it's not a large cash outlay. Thanks very much. You're welcome. Thank you for your question.

Our next question comes from David Begletter from Deutsche Bank. The floor is yours.

Thank you. Jean-Marc and Steve, of the $110 million of adage impacts in Q2, how much can we add back for Q3?

As you heard us earlier speak, David, I expect that as we slowly ramp up, we're still going to have some carryover from that. As you can see, we had $30 million sequentially from Q1 into Q2. So I do expect that you cannot add all of that $110 million back fully in Q3. But I don't have a number to give you today.

Understood. And of the new cost savings of $2 million today, How much would you view as permanent or structural? How much would be temporary relative to when volumes do come back?

No, I expect these to all be structural, David, and so I expect that $200 million to be structural and really sticky, therefore. We obviously have to recognize there's inflation in the market, but frankly, we think these are structural changes that we're implementing.

Thank you.

You're welcome.

Thank you for your questions. Our next question comes from Matthew Deyo from Bank of America. The floor is yours.

Yeah, thanks. I apologize if you cover this a little bit because I know it's been a bit of a talking point in the discussion today, but you're net short ethylene and have been for a while now. And I know you've been comfortable there, but as your peers tie up some of this excess position, prices are moving higher and I know Lionel is maybe delayed here, but I think they remain committed to flex too. So like, does this, does this change your view on, on how you want to position the business over the next five years? Is there any desire to, to kind of tie this up?

Yeah, I'll take that one. So yeah, no, you're right. We are short in Italy and I think for us it's a matter of how much do we want to be short? and and i think if we um we always have the opportunity to uh to invest or make some acquisition or do things like that right now i think we uh we like where we are um but it's not to say that it couldn't change in the future if some opportunities present themselves to reduce that short uh depending on and on market conditions and if we see the downstream business uh grow over the next several years. I think we're okay for now, but we will look at everything that comes our way if we want to redo that chart.

Okay. HIPAA had a good quarter. It was definitely better than we were expecting, so I don't want to dig too much on it. I mean, the flip side to the stable margins looks like was an 80% decremental margin. And so is this kind of just a mix issue or tough comps? Obviously, it might be part of that, but I just want to get a little bit better sense of what's going on under the surface.

Yeah, so the mix you could see was really, and again, year over year, was really driven by the exterior building products not surprisingly giving lower lower construction activities. So in our compounds and exterior building products businesses, volumes were certainly lower given the reality of the construction activity level. So I mentioned the water demand that we're seeing in the infrastructure business was some of the offset to that, but not fully offsetting some of the weakness we saw in our compounds and building products businesses year over year.

Thanks, Dave. I appreciate it.

You're welcome. Thank you for your question. Again, as a reminder, if you'd like to ask a question, please press star 1-1 on your telephone.

Our next question comes from Matthew Blair from TPH.

The floor is yours.

Hey, Lee. Good morning, and thanks for taking the question. Just looking at spot PVC prices that are almost approaching all-time lows, could you talk a little bit about the global supply-demand outlook for PVC, and clearly the demand side is affected by weak construction trends. But what about the supply side? How much global capacity do you expect to be added in PVC this year and next year? And what are you seeing in terms of operating rates for China PVC plants?

Thank you. Yeah. Matthew, when you think about the situation in PBC, certainly a great majority of that does go into construction markets, and certainly the weakness that you've seen in the Asian markets and the European markets continue to really impact operating rates. The issues that we've seen here in construction, we recognize that the underbuild in North America is just that. It's been a long-term underbuild for over a decade, and we think the demand picture here is is ripe for change given the demographic demand for housing. But when you think of the global supply-demand balance, we don't see a significant amount of new capacity coming into the market incrementally from where we sit in 2025. You saw some of the comments or heard some of the comments we made earlier in terms of some of these markets, some of these producers, especially those in Asia, are currently underwater. And I think this is why you're hearing commentary about... the Asians and specifically the NDRC talking about some potential rationalization, which could take many, many years. But nevertheless, I think the market really needs some demand to rebound here in the North American European markets. The Asian markets will take longer to recover.

Great. Thanks, Steve. And just looking at the pressures on free cash flow in the quarter, it looked like one pressure was was due to another use of working capital. I'm showing a use of working capital year to date of almost $400 million. Would you expect that to completely reverse in the back half of the year? And I guess if not, what are the factors that would determine whether you can recover that big use of working capital year to date? Thank you.

Yeah, there were a large amount of dollars really in the payable side related to the turnaround activity and the unplanned outage activity. And of course, on the receivable side, specifically in building products, we saw a buildup in sales and therefore a buildup in receivables. And I do expect that to turn in the second half of this year.

Great. Thank you. Thank you for your question. That's the time.

Allotted for a Q&A session soon as now come to end. Are there any 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 third quarter results.

Thank you for participating in today's Westlake Corporation second 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.