Westlake Corporation

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the Westlake Corporation first quarter 2026 earnings conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remark, you'll be invited to participate in a question and answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2026. I would like to turn over the call to today's host, Jeff Holey, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Thank you, Crystal. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2026 results. I'm joined today by Albert Chao, 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 John Mark, who will open with a few comments regarding Westlake's first quarter performance. Steve will then discuss our financial and operating results, after which John Mark will add a few concluding comments, and we'll open the call up to questions. During the first quarter of 2026, we agreed to pay $67 million to settle certain legal claims in our pipe and fittings business. We also incurred expenses of $18 million related to the shutdown of facilities undertaken last year. We refer to these expense items, which in aggregate were $85 million, as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income, and earnings per share on this call all 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, 2025 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 first 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, approximately 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, May 5th, 2026, 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 would like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, Jeff. And good morning, everyone. We appreciate you joining us to discuss our first quarter, 2026 results. During the first quarter, we delivered 2.7 billion in net sales and EBITDA of 235 million by supporting our customer supply needs, managing our costs, executing our three pillar profitability improvement plan, and driving long-term value creation. While the first two months of the quarter saw PEM sales reflect lower sales prices and continued soft global industrial and manufacturing activity, sales improved significantly in March as the conflict in the Middle East brought about a significant disruption to global supplies of oil, chemical feedstocks, and polymers from the Persian Gulf. Commercial conditions for Westlake and our industry changed dramatically with the outbreak of the Middle East conflict. Industry consultants estimate that this conflict has disrupted approximately 10 to 15% of global polyethylene supply and approximately 5% of global PVC resin supply. Furthermore, up to 20% of global oil supply is disrupted, which has reduced the availability of chemical feedstocks such as NAFTA for much of the global chemical industry, creating further declines in the global supply of polyethylene and PVC. The associated sharp increase in global oil and chemical feedstock prices has significantly steepened the global cost curve for many of the materials that PEM sells. which is supporting higher selling prices and margins for cost advantage producers in North America, such as Westlake. In response to the reduction in global chemical and polymer production created by the Middle East conflict and significantly higher feedstock cost in much of Asia and Europe, customers around the world thought supply from producers unaffected by the production disruptions caused by the conflict, which drove increased demand for our polyethylene, PVC, and epoxy resin, and increased prices for our products. Our advantage asset footprint in North America using gas-based feedstocks positions Westlake to benefit from the pricing momentum and expected associated margin expansion since the conflict began. The evolving situation in the Middle East drove a significant improvement in PEMS sales volume and earnings towards the end of the first quarter. PEMS delivered net sales of $1.7 billion and EBITDA of $36 million on 3% sequential volume growth, excluding the impact to volumes from our 2025 planned shutdowns. While the conflict in the Middle East remains fluid and we hope for a peaceful resolution, we expect the supply disruptions could persist throughout 2026. Turning to our HIP segment, CES volume and EBITDA were impacted by the unusually cold weather conditions in the first two months of the quarter. However, Performance improved in March as the home building season began, along with the onset of milder weather. Excluding the impact of the ACI acquisition, HIP delivered 10% sequential sales volume growth, which drove net sales of $1 billion and EBITDA of $186 million. HIP sales and EBITDA in the first quarter were driven by continued solid infrastructure-related growth, and seasonally stronger residential housing demand, as compared to the fourth quarter of 2025. In addition to the intra-quarter earnings improvement from supply disruption in the Middle East and weather normalization, our first quarter results benefited from our three-pillar profitability improvement plan, including delivering approximately $150 million of EBITDA uplift from footprint optimization and cost savings actions. While we still have some work to do to get our plant reliability all the way to where I would like it, I'm pleased with the progress that we have made to date and the trajectory of our reliability initiatives. Overall, we remain confident that our three pillar profitability improvement plant will deliver the targeted 600 million EBITDA uplift in 2026. Before I turn the call over to Steve, I want to provide some thoughts on our CFO transition. As you may have read on April 20th, we announced that on June 15, John Bakcht will join Westlake Corporation and Westlake Partners LP as Senior Vice President and Chief Financial Officer. John brings experience from the oil and gas packaging, and building products industries, as well as investment banking, to Westlake, and we look forward to him joining the company. On June 15, Steve Bender will transition to the role of special advisor and will continue to report to me as he supports the transition. We anticipate that Steve will participate in the second quarter earnings call in August. And with that, I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2026. Steve?

Thank you. Thank you very much, Jean-Marc, and good morning, everyone. In the first quarter of 2026, Westlake reported sales of $2.7 billion and a net loss of $100 million, or 77 cents per share. which compares to a net loss of $33 million in the first quarter of 2025. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The decisive actions we took last year to improve our profitability began to meaningfully deliver results in the first quarter of 2026. Our footprint optimization actions significantly reduced PEMS fixed costs and returned our epoxy business to profitability for the first time since 2023. As a reminder, prior to these actions, the epoxy business was generating EBITDA losses of more than $100 million annually. In addition, we achieved substantial structural cost savings in the first quarter while also taking action to improve plant reliability. Taken together, our three-pillared profitability improvement plan benefited first quarter earnings by approximately $150 million. That said, we did face several headwinds during the first quarter, most of which we view as transitory. Despite a favorable mixed shift away from export volumes, our average PVC resin sales price declined sequentially from the fourth quarter of 2025 due to price resets that occurred late in 2025. In addition, North American natural gas prices spiked in January and remained elevated through February as a result of unusually cold weather across much of the United States, creating an approximately $45 million EBITDA headwind for PIM compared to the first quarter of 2025. That same weather also delayed the start of the home building season, contributing to a year-over-year sales volume decline in our hit business. Moving to the specifics of our segment performance, HIP did see the effect of slower start to a home building season with net sales in our housing and infrastructure product segment of $1 billion, which were in line with the first quarter of 2025 as the January acquisition of ACI offset a 2% decline in average sales price and a 2% decline in sales volume, excluding the acquisition. Pipe and fittings, continue to see strong sales volume driven by the infrastructure sector that was more than offset by declines in our exterior building products businesses and global compounds. HIP EBITDA of $186 million decreased 17 million from the first quarter of 2025 due to a slight decline in EBITDA margin, largely due to lower average sales prices. When compared to the fourth quarter of 2025, HIP segment sales of $1 billion rose 10% by a 15% sequential increase in sales volume, including the ACI acquisition, that more than offset a 5% decrease in average sales prices. The sequential sales volume growth was driven by seasonal higher demand for exterior building products and solid growth in global compounds. Housing product sales of $788 million in the first quarter increased by $21 million due to seasonal sales volume growth, particularly for siding and trim and roofing. Infrastructure products sales of $205 million in the first quarter of 2026 increased $71 million from the fourth quarter of 2025, primarily due to solid growth in global compounds and the ACI acquisition. Moving to our PIMS segment, First quarter EBITDA of $36 million decreased by $9 million from the fourth quarter of 2025, largely as a result of a 34% higher natural gas price due to the impact of cold weather early in the quarter. Compared to the fourth quarter of 2025, PEM average sales price increased 3%, reflecting improved price realization for olefins, polyethylene, and caustic soda toward the end of the quarter, while sales volumes increased 3%, excluding volumes associated with the 2025 plant shutdowns. While higher North American natural gas costs impacted the early months of the first quarter, by the end of March, natural gas prices declined to their lowest levels since 2024, where they remained during April. As a result, we don't expect the transitory impact to PIMS first quarter of sale and first quarter margins from higher natural gas prices to impact second quarter earnings. For the first quarter of 2026, our utilization of the FIFO method of accounting resulted in a favorable pre-tax impact of $37 million compared to what earnings would have been reported on the FIFO method. This is only an estimate and has not been audited. Now turning to the balance sheet and cash flow statements, we continue to maintain financial flexibility with a strong balance sheet as well as their longstanding commitment to a solid investment-grade credit rating. As of March 31, 2026, cash and investments were $2.5 billion, and total debt was $5.6 billion with a staggered long-term fixed-rate debt maturity schedule. In April, we provided notice to call the remaining $500 million of debt in the second quarter of 2026 that otherwise was scheduled to mature later this year. For the first quarter of 2026, Net cash used for operating activities of $94 million includes approximately $50 million of cash outweighs associated with the footprint optimization actions that we announced in 2025. Our strong balance sheet provides us the financial flexibility to invest in growth initiatives such as ACI, and we have entered into a non-binding letter of intent to acquire a PVC and VCM plant in Wilhelmshaven, Germany. This facility, which is located on the North Sea coast, benefits from its advantageous logistical infrastructure. We remain focused on pursuing additional opportunities to strategically deploy a balance sheet in order to create long-term value. Now, let me provide guidance for your models. Given the slower than expected start to the home building season and the significant increases in transportation and raw material costs, particularly for PVC resins, We now expect 2026 revenue and EBITDA margin, our HIP segment, to be towards the lower end of our previously communicated ranges of $4.4 to $4.6 billion of revenue, with EBITDA margin between 19 and 21%, excluding identified items. While we expect to pass these costs increases through, the timing of changes in cost and sales prices could create a headwind in the near term. Expected 2026 total capital expenditures for the company are still expected to be $900 million, which is approximately $100 million lower than last year and in line with our annual depreciation. We continue to expect cash entrance expense to be approximately $215 million. Now with that, I'll turn the call over to Jean-Marc to provide a current outlook for the business. Jean-Marc.

Thank you, Steve. The impact of the conflict in the Middle East on global feedstock and energy costs serves as a powerful reminder of one of Westlake's foundational strengths, a globally advantaged feedstock and energy position in North America, where approximately 85% of our products are manufactured. The strategic value of our North American production capacity and globally advantaged cost position has arguably never been greater in addition the combination of investments major turnarounds and restructuring actions that we made are now positioning us to benefit from more reliable production to capture the current upturn in pem profitability and better serve our customers while the commercial environment for pem has improved significantly since our last earning call in february we remain laser focused on achieving the full benefit from our profitability improvement plan. We are pleased with the progress that we have made to date, improving our profitability, but we recognize that we must remain disciplined with respect to cost in an increasingly inflationary environment. Turning to our outlook for sales volume and pricing, we have a constructive view on near-term trends. As I discussed earlier, global supply chain disruptions and elevated global energy prices are driving meaningful price increases for polyethylene, PVC resin, and other products in our PEM segment. Concurrently, supply concerns are prompting global customers to source more material from North America in response to the conflict, which is supporting higher PEM sales volume and improve plant operating rates. Shifting to HIP, mortgage rates and increased building costs could place additional pressure on housing affordability. While it is too early to fully assess how this dynamic will impact HIP's building product sales, volume, forward-looking indicators such as single-family housing permits and start add to the uncertainty. In this housing market, our building products business continues to benefit from a diversified product offering and broad national distribution, which provides builders with the products they need, when and where they need them. In global compounds, we are pleased with the performance of the recently acquired ACI business, which has strengthened our position in the fast growing high-voltage wire and cable market. This market is seeing significant demand growth driven by electric vehicles and data centers. Meanwhile, HIP's pipe and fittings business continues to deliver double-digit sales volume growth supported by sustained strength in infrastructure spending. Beyond traditional municipal infrastructure demand, we are seeing increasing contribution to sales volume growth driven by cooling water needs from the data center build-out underway across North America. We expect this trend to continue through the rest of the year as an offset to uncertainty in the North American new residential construction market. On the cost front, we are aggressively working to pass through the increases in cost being driven by Middle East supply disruption and elevated fuel prices. Longer term, continued infrastructure investment combined with over a decade of housing under building continues to support a compelling growth outlook for HIP. Taken together, our outlook for the company's 2026 earnings has improved meaningfully since our last earnings call. While the conflict in the Middle East could result in global supply chains disruptions extending to the end of the year or beyond, we will remain focused on controlling what we can control, including delivering the full $600 million of EBITDA uplift from our three-pillar profitability improvement plan. And we will maintain a disciplined approach to capital allocation while preserving our investment-grade traded balance sheet. Thank you very much for listening to our first quarter earnings call. I will now turn the call back over to Jeff.

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

Thank you. At this time, you will conduct the question and answer session. As a reminder to everyone, 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 the line of Patrick Cunningham from Citi. Your line is now open.

Hi, good morning. Thank you for taking my questions. Can you help us unpack a little bit more, you know, the PEM results down sequentially? You know, you had material benefits from the profitability improvement plan. You know, PE and caustic prices were up. I guess, first, can you help size the headwind from PVC price margin declines? and whether or not there was anything else going on with operating reliability or any stranded costs from some of the closures.

Yeah, so good morning, Patrick. And I would say that certainly the price resets that we saw at the end of the year were certainly impactful across the product stream. And so I would say in particular the increase that we've seen in PVC resin have not been fully capturing up, catching up with some of the increases that we've seen in associated costs, especially I would note the elevated natural gas cost that we saw in January and February. So while we've seen price increases in polyethylene epoxy and PVC, I would say certainly looking to continue to capture the value that we think that PVC represents. And we certainly have not had the chance to fully recognize that throughout the entire quarter. But I would say that we've seen improved reliability in operability of the business, and so I'm improved. We're not to where we'd like to be at this stage, but we're making good progress as we move forward.

Understood. And then just on the underlying, you know, outlook for the HIP business, you know, what are your expectations for, you know, pure price this year, you know, given some of the higher price PBC you're going to be pulling through? Have you gone out with additional pricing ahead of the construction season? And is any of that baked into your outlook?

Yeah, so good question. We have announced price increases to not only offset the increase in PVC resin, but also transportation costs. Certainly fuel costs have also risen. So our price increases that we have already announced in the HIP segment have already reflected the cost that we expect to incur for PVC resin as it works its way through the manufacturing process and also to reflect elevated transportation costs driven by higher fuel prices. But nevertheless, that will take a little while, a few months, let's say, to work its way fully through each of the various material product streams.

Thank you so much. Welcome.

Our next question comes from the line of Bhavesh Lodaya from BMO. Your line is now open.

Hi, good morning. Thanks for taking my question. Just back to the PEMS segment, you called out transitory impacts that happened in the first quarter. If you look at, again, the fourth quarter and the first quarter difference, there was a $150 million benefit which you saw from your actions which did not show up. Would you say the transitory impacts are roughly equal to that $150 million? And in other words, is the base level of earnings for 2Q, is the starting point closer to, call it like a $200 million level difference? from which you will see additional benefits from margin improvements.

Yeah, so I guess what I would say is certainly recognizing with the elevated cost that we had in natural gas in the first quarter of a $45 million headwind was significant but transitory. And I would say the price increase that we've seen in all of our products from be it polyethylene, PVC, and epoxy should have significant benefits as those have been announced in the first quarter. but the full effect of those really translate into real value in the second quarter. As I mentioned earlier, we've seen improved reliability as we've made progress on our three-pillared strategy. The $150 million benefit that we achieved in the first quarter certainly is largely attributable to PIM, but not exclusively so. So we've made cost reductions, of course, that affect both segments of the business. Certainly the optimization of our footprint certainly is directly attributable to the PIM segment. And certainly some of the improvements we've seen in operability also are attributable to the PIM segment. But I would say we do see significant benefits accruing as a result of these price nominations and realizations that we expect in the second quarter.

Got it.

And then particularly on your PVC outlook, you have leverage both from higher operating rates as well as pricing from PVC here. Could you share your outlook on these two metrics? How much could rates move higher in 2Q or 3Q, and what are your expectations for PVC pricing from here?

Yeah, as a result of some of the optimization actions that we took last year, we certainly have elevated the operating rates of our plants. Certainly, we had some planned maintenance at one of our units in the first quarter, but I would say operating rates throughout the first quarter were in the mid-80s, and we expect that as the construction season begins to start now with better weather, I do expect that we'll see elevated demand levels for PVC and construction activities. That in the context of recognizing that housing starts have been somewhat lower than had been earlier forecast by the consultants. But we do expect that with the price initiatives that we've taken in PVC and the increase in construction and repair and remodeling activities that we do expect to see improvements across not only the core vinyls chain, but across the entire PIMS segment. Thank you.

Thank you.

Our next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is now open.

Thank you and good morning everyone. I'm wondering if you could just give us a little bit of direction on HIP for 2Q. It just sounds like there's going to be a little bit of a lag between the higher PVC and so forth costs coming through versus your ability to price. So if you could just give us a sense on what that's going to do on the margin side and then maybe also help us understand. There was a mention about the season getting off to a slow start. So How did April go and how does the order book look so far for the second quarter so that we can hopefully get our numbers in a good place for 2Q? Thank you.

Yeah, so good question, Vincent. And I would say that the order book looks very good as we see the second quarter begin to start from a volumes perspective. But to your point with the elevated PVC pricing we see coming through the channel and while we've announced price increases in our HIP segment to address those higher PVC resin prices, as well as transportation costs, there could be a month or two lag between the realization of those price nominations that we've made in the market and the roll forward of PVC resin prices. So there could be some headwind in that second quarter as we see the price that we've announced in PVC in the first quarter work their way through into the PIMS segment before they get full traction of their price announcements made in the first quarter but get them fully worked in in the second quarter.

So is it fair to say then that we'll see the lowest margin in 2Q and then by 4Q you'll be high enough to get yourself back to the low end of the margin guidance for the full year? Is that the right way to think about it?

I would say the fourth quarter seasonally is typically a slower season, but I would say that the front half of the second quarter will see the full impact of Some of the lag in the back half of the second quarter, we'll see the benefit of some of the benefits of the price increase that the hip segment have announced. I think we get the full benefit of all that in the third quarter. But the fourth quarter typically has a seasonal slowdown just because of weather dynamics. And it's typically one of our lower margin and volume quarters.

Okay. Thank you very much.

Thank you. Thank you. Our next question comes from the line of David Sedlider from Deutsche Bank. Your line is now open.

Thank you. Jean-Marc and Steve, just on polyethylene, you got the 30 cents in April. What's your confidence level in getting some portion or all of the announced 20 cent per pound increase for May?

Well, I'd say that, David, that we certainly have been able to achieve that 30 cents, as you noted, in April, and it's still early days in May. If you think back, the market has been able to absorb very, very significant price increases going back to the beginning of this year. And I would say it's still a little bit early days in May to call the May increase. But if you think back about where the price levels are today relative to recent history going back to 21 or so, we're still below those price increases we had in 2021. And the market was able to absorb those prices in 21. So what we're looking for is to see where demand levels are, but I would say we're watching the market, but we're still pushing forward with price increases that we see that are reflective in the marketplace.

Very good. And just on PVC, are you increasing your export activity levels to take advantage of some of the spot opportunities we've seen in the marketplace?

Yes, good question. You are right. Price increase in PVC, I mean, we've seen a steady increase in PVC export prices. They kind of went to a peak a few weeks ago. They're now coming down a little bit, but still much higher than what they were last year. So you are correct. I mean, we are with increased operational demand. operating rates and we are now increasing as much as we can PVC supply to take opportunities and to sell a volume in export markets where there is some good deal to be made. Thank you.

Thank you. Our next question comes from the line of Frank Mitch from Premium Research LLC. Your line is now open.

Thank you so much. Steve, let me offer you some early birthday wishes. Perhaps the second quarter is starting out as a very nice birthday present for your last quarter as CFO. Again, thanks for all your help in that regard. I was wondering if you could offer some qualitative commentary with respect to the operating rates that you were able to realize in the PEM business in the first quarter. and how your facilities are operating so far here in the second quarter.

Yeah, so Frank, thank you very much for those comments. I would say that in the polyethylene business, we're running full rates, as you would guess. Demand levels seem to be very good, and even though we've seen significant price increases, operating rates are operating at full rates. In the PBC space, PBC rates are beginning to raise simply because we've optimized the operating rates, having shuttered a number of sites last year and moved that production opportunity over to other existing sites. So operating rates in the PBC space were in the mid-80s, and I expect that to begin to kind of elevate as we work our way through into second quarter and third quarter, which is more peak-like construction seasons. and similar operating rates in our caustic and chlorine operations to support PBC.

Terrific. Thank you. And as you think about higher pricing levels having an impact on working capital, what are your working capital expectations and impacts on free cash flow in 2026?

Yeah, well, certainly I do expect that some of these higher prices will see an increase in the receivable side. But when you recognize that gas and ethane remain very moderate and, frankly, at pretty low levels, I do expect that second-order generate free cash flow as a result.

Thank you. You're welcome.

Thank you. Our next question comes from the line of Josh Spector from UBS. Your line is now open.

Yeah, hi, good morning. Two things I want to just clarify here is first, just on the cost savings points, I think the $150 million, you're characterizing that as year over year. Can you talk about what that is sequentially, and does that build sequentially, or are we at the full run rate today?

Yeah, that $150 million is a year-over-year result, and certainly when we think about the contributions that we've seen, they're coming from all three of those respective pillars. So if you recall, we generated a significant amount of savings in the fourth quarter, so the $150 million full-year result is well over $100 million above and beyond what we generated in the fourth quarter.

Okay, but does that sequentially improve then into 2Q, or are we just saying 150 million times four, that's the 600 million that you're at? And I did want to ask a follow-up just related with the pricing side on PVC. I mean, considering we're talking about pretty decent lags in pricing, I assume now in early May you have a pretty good idea of the PVC price you're going to realize in 2Q, right? Can you give us some guidance about what that increase would be, since there seems to be a pretty stark disconnect with some of the indexes that we're watching?

Yeah, back to your earlier portion of your question on the cost savings initiatives in our three-powered strategy, we do expect that we'll be able to achieve a relative apportionment over the course of the remaining three-quarters of the year and fully achieve that $600 million savings. As it relates to the pricing initiatives, you're right, we've announced a series of price increases, both in PVC as well as in polyethylene. And as I say, we expect that those will be very impactful in the second quarter. So in the first quarter, we achieved in PVC a total of, let's see, a penny in January, two cents in February, three in March. We've announced and achieved five cents in April, and we have four cents nominated out for May, still looking to achieve the full 10 cents that we had earlier nominated, five achieved in April, and four right now, but looking with customers to achieve that full 10 cents that we announced earlier in the month of March for April and May.

Okay, thank you.

Thank you. Our next question comes from the line of John Roberts from Mizoho. Your line is now open.

Thank you. Are you seeing any shift in the destinations for U.S. export caustic and export vinyls? And do you think the pushback in pricing that you're seeing is some demand destruction going on?

You know, I'd say that what we've seen, John, is actually reasonably good demand levels for caustic. Just to remind you, we announced two price increases, one in December of last year, one in January of this year, totaling $140 million. And so I'd say that, you know, to date, I'd say we've achieved the greater portion of that first announcement that we announced in December. and the indices that we track seem to indicate we'll get a pretty good portion of that second price increase. So I'd say that demand continues to be reasonably good at this stage of the quarter, and as I say, demand fundamentally is stable, and I would say ramping up. From a destination perspective, as you would imagine, logistics have been jockeying around as a result of the conflict in the Gulf, And many of our customers are being well served, but I can't speak specifically to all those individual customers.

Thank you.

Thank you. Our next question comes from the line of Kevin McCarthy from Vertical Research Partners. Your line is now open.

Thank you, and good morning. Can you elaborate on your letter of intent to acquire Vinova's vinyls plant in Germany? Maybe you could just talk a little bit about potential cost, timing, and the fit with your existing assets, including the legacy Vinolet assets.

Good question, Kevin. We've entered into this non-binding letter of intent with the insolvency administrator in Germany, and we think it fits very well potentially. As I say, it's still non-binding and still subject to a lot of contingencies, of course, but it does have access to a deep-sea dock, which allows us access to low-cost potential feedstocks, which could be a significant advantage in servicing the European markets. In terms of talking about value, it's still preliminary at this stage, and so it's too early to get into evaluation at this stage.

Understood. Then the second question, was your PEM segment EBIT positive in the month of March? I wouldn't normally ask you about monthly trends, but I imagine March was night and day. versus the prior month. So perhaps you can give us some sense for the exit velocity of earnings, so to speak, as you move through the quarter.

Yes, it was, as you would guess, very positive. And given the pricing initiatives that we've brought out in epoxy, PVC, and polyethylene, I expect the improvements to continue to be quite strong as we enter into the second quarter with, again, the ability to recognize and realize those price announcements that we announced during the first quarter.

Thanks very much.

You're welcome.

Thank you. Our next question comes from the line of Arun Biswanathan from RBC Capital Markets. Your line is now open.

Great. Thanks for taking my question. I hope you guys are well. I guess I wanted to try and maybe have a rough idea on if you could help us frame out Q2. So it looks like you'll get maybe some incremental extra cost reductions. If you're expecting maybe 600 million for the year, I'm not sure if that actually does go up in Q2. Would it be kind of 20 or 30 million higher in Q2 versus Q1? And then secondly, the PE, I think you have two and a half billion pounds of of capacity. So we just applied that on the 30 cents for maybe a 150 to $200 million uplift there. And then PVC also on your five and a half billion pounds, I'm getting maybe like a 75 million uplift. So HIP, I think would be down maybe on higher costs as you flow through those items and that maybe cancel out the PVC increase. So maybe we're up sequentially on the order of two to 300 million. Is that, am I somewhere in the ballpark or how should we think about framing out the, uh, the difference between Q1 and Q2? Thanks.

Yeah, I think, I think directionally, as you think, think about the price nominations and the volumes of production that we have and the demand levels that we're seeing that directionally you're in the, you're moving directionally in the right direction. I would say that the headwind we do expect with hip to be reflective of some of the higher PVC pricing moving through in the first portion of the second quarter, uh, But I do think we'll get price realization in the back half of that second quarter as we've already made those announcements to deal with resin costs and transportation costs. But recognizing that we've got a number of price announcements, including PVC, polyethylene, and epoxy, we should see significant traction in the second quarter. And so I think directionally, the way you're thinking about it is correct.

Okay, thanks for that. And then if I could just ask... You know, as you look into the second half, what is the durability of this pricing? Have you seen any larger scale closures? You know, do you expect any, you know, maybe the chlorine chain was not necessarily impacted as much because of, you know, coal based production in China. So do you expect conditions to kind of revert back to normal shortly after the straight reopens or? What's kind of the outlook in the chloralkali space with regards to some of these constraints? Was it just not affected as much? Thanks.

Yeah, you can see from our comments that we expect the impact of this conflict in the Gulf that could persist all the way through the end of the year. And so it's unclear of exactly what kind of price direction we may see as the conflict takes whatever path it chooses to take. But I would say that the PVC core vinyls chain was lesser impacted by this conflict than the polyolefins chain has been. And so we do expect to see some meaningful improvement in those chains that have been more directly impacted.

Yeah, I mean, one additional thing is if you look into the chloralkali and specifically on the PVC side, And as you remember, the price was pretty much set by China last year. And it continues to be so, but in a different way. About 25 to 30 percent of the Chinese capacity, as far as PBC is concerned, is coming from using NAFTA. And the rest is a carbide base. So all the NAFTA are uncompetitive now and have really reduced production level. The carbide side, on the other hand, has increased operating rates. And that has put another now ceiling in terms of price increase. So that's why you saw a price ramp up very fast. in China, and then a little bit of a decline since probably early April. But it's stabilizing at a higher level than where it was last year. And we've seen stabilization around $850, $900 per metric ton. So overall, we think that the price for PVC export will stay elevated. It could come down gradually over the year, but it's going to stay elevated for an extended period of time.

Thanks. Thank you.

Our next question comes from the line of Peter Osterland from Truist Securities. Your line is now open.

Hey, good morning. Thanks for taking the questions. First, just wanted to ask on HIP, you highlighted data centers as a growth driver for pipe and fittings. Can you quantify the revenue contribution or the backlog growth that's tied to the data center market? And how does the margin profile for sales into this market compare to HIP overall?

Yeah, it's a good question. I would say in the first half, sales and orders in the first half represent mid-teens percent of our volumes. And it's a growing market, as you know well. So we expect it to continue to be a nice contribution to the infrastructure side of our pipe and fittings businesses. But I'd say, as I say, the first half, both orders and the order book and sales for the first half of the year, it's mid-teens and growing. So we expect it to be a continued contribution to the pipe and fittings piece of HIPP.

Great, thank you. And then just as a follow-up, on the $67 million PVC pipe settlement, does this settlement resolve the entirety of your exposure to litigation related to this, or is there a potential for any further one-time charges?

Yeah, this is tied really to the direct purchasers component of the litigation, and so there are two other categories of claimants that we're in conversation with. So we've got a reserve of $10 million for that second category, but there are further, obviously, discussions to be had.

Thank you very much. You're welcome. Thank you.

Our next question comes from the line of Duffy Fisher from Goldman and Sachs. Your line is now open.

Yeah, good morning, guys. I was wondering, can you help me? I'm having a hard time triangulating your HIP numbers on revenue. So, you know, if you assume that PVC prices are up, you know, you would talk to at least 10 cents, you know, so that's like a third. And you said that you're going to get priced by the back half to offset that, you know, so, you know, that would be pretty significant price increases rolling through HIP. But yet you're guiding us to the low end of your revenue guide, which would mean that volume must be down, you significantly in the double digits versus what you expected. So can you just kind of tie those together, the inflation rolling through into HIP, the price that you're going to get, and then how that changed your revenue outlook vis-a-vis volume?

Yeah, and Duffy, good question. We're seeing kind of mixed signals right now in the markets. You've seen housing starts. The latest report showed housing starts at 1.5 million housing starts, which is meaningfully higher than But I would say permits were only 1.3, which is trending lower. So you see mixed signals right now in the marketplace. And as we start in robustness now, the construction season now that we're in May going forward, we're just being cautious in terms of what housing starts are likely to be. Remember, half our business's housing starts, the other half is repair and remodeling. But those are smaller volumes. And so housing starts tend to be higher volumes. So we're just really being cautious about kind of volume we could see with the potential slowdown in housing starts in this year.

Great. And then just one housekeeping. How much cash do you have left to spend on your expense cost-cutting program from last year?

You're talking about the three-pillared strategy that when you say your cost-cutting initiative? Yeah, yeah.

Yeah, exactly. You spent cash this quarter that was already expensed, I believe, as I read through it. Is that fair? And is there more cash yet to be spent on that?

There is. And so I would say in the neighborhood of $50 million remaining in 26. Okay. Thank you, guys.

Thank you. Our next question is, comes from the line of Hassan Ahmed from Alembic Global Advisors. Your line is now open.

Morning, John-Marc and Steve. You know, you earlier in the call talked a little bit about PVC export opportunities opening up. So just curious to sort of find out where you're seeing those opportunities, particularly in light of a bunch of countries, be it India, the EU and the like already having anti-dumping duties in place.

Yeah, I mean, we are continuing to see the, you're correct, I mean, the demand from India and the rest has decreased a little bit. But overall, the supply is also, even though over, I would say, probably February, March, you saw an uptick in supply from China, Since then, we've seen still a steady demand for export, and we are pretty much selling everything we can to the export market at pretty good prices right now.

And I would say we continue to support the Latin America, South American markets as well.

Understood. And just carrying on with that, you know, I've read some recent reports about the Chinese removing their – VAT export drawback on PVC. Are you hearing similar things? And if that is true, what does that do to the cost curves? What does that do to Chinese exports going forward?

You're talking about the fact that they removed and that it was after a question whether they were removing it?

Yeah, we're moving it really in April, and I would say that we did see some increase in exports just in advance of that April date, but certainly that creates even a higher hurdle for those who are exporting because those that do have a higher cost, especially those that are ethylene-based, certainly have now had an additional higher hurdle. As John Mark noted earlier in his comments, those that are acetylene-based certainly are on a lower end of the curve and not seeing the challenges of higher cost from the NAPTA that are coming through. But I would say that revision or that rescission, I should say, of that VAT is certainly an additional headwind that all exporters out of China are now facing.

And Steve, just for me to get the numbers right, I mean, is it fair to assume that that headwind would be maybe like $75 a ton to maybe like $100 a ton somewhere in that ballpark?

That's about right.

I was just trying to do the middle math. That's about right.

Very helpful. Thank you, guys.

Yeah. Thank you. Our next question comes from the line of Matthew Blair from TPH. Your line is now open.

Thanks, and good morning. Could we circle back to these higher natural gas costs in the first quarter? It looks like if I just look at a Gulf Coast indicator like Henry Hub, it did spike over $7 at certain points in January. But overall, it looks lower quarter-by-quarter in Q1 versus Q4, as do most other Gulf Coast indicators. I do see higher natural gas indicators in Europe quarter-by-quarter. So maybe could you just help us understand your headwinds in natural gas? Were there any derivative impacts, like maybe rolling off hedges from last year or any other sort of one-time issues there?

Thank you. Yeah, Matthew, no. I'm just looking at some of the indices here, and you're right. Gas in late January and through much of February was north of $7. We're a buyer largely on a spot basis from a pricing perspective. And so it was really that $45 million headwind that I mentioned that was a headwind that drove an impact on the results in the first quarter. But with the pull on natural gas globally, given what's happening in the Persian Gulf, you really have seen gas prices come down significantly. And we're probably just in the $2.80, $2.90 range today. There is somewhat of a contangled curve on gas. But what we continue to see is that gas curve continues to get pushed out. And month on month, we've seen low prices persist in this just under $3 range.

Sounds good. And then for the FIFO impact, I think you said it was $37 million. Do you have a split between PEM and HIP for that impact in Q1? Thanks.

That was all PEM related, but it was $37 million. Great. Thank you. You're welcome. Thank you.

Our next question comes from the line of Abigail Eberts from Wells Fargo. Please go ahead.

Hi there. Thanks for taking my question. I'm curious about your expectations for caustic soda later in the year. Obviously, you're expecting prices to increase near term in line with consultants, but I'm seeing in their forecast pricing coming down around October, which they're saying is due to demand destruction from ongoing inflation and elevated interest rates. I'm just curious about your volume and pricing outlook for cost of soda in the back half of the year.

Yeah, good question. As I mentioned earlier, we've had two price announcements and we've realized the great majority of that first price announcement already. I'd say demand right now is stable. And as we look forward into kind of the second and third quarters, I actually see because of that stability, a pretty stable price and The consultants do have some small price increases between May and July that represent about $30 a ton. But I'd say demand really looks pretty stable at this stage.

Okay, got it. Thanks. And then just a question on HIP and PVC. How would you size the weather impact on the construction, beginning of the construction season this year? Where would things be if the weather had been more cooperative, do you think?

It's a little bit hard to say, but I would say given the very cold weather we had in January and persisted at least through much of February, it certainly slowed down a lot of the early order intake. And as a consequence, we did not get the full benefit of that in the first quarter. And so certainly we'll wait and see kind of how the second quarter really translates as we get further into construction season now that the weather is much more milder throughout most of the country. Second quarter is usually when we see a real pickup. But I would say, as I mentioned earlier, housing start numbers that we've seen published are certainly elevated, but permits are looking more softer. And so that's really the cautiousness that we're looking as we look at our order books.

Got it. Thanks for the color.

You're welcome.

Thank you. Our next question comes from the line of Jeff Zacost. Kiss from JP Morgan. Your line is now open.

Thanks very much. I think early in the call, you were talking about domestic PVC price increases as being six cents a pound for the first quarter, a penny, then two cents, then three cents. But you also talked about discounts that were given. In general, did PVC prices net of discounts rise in the first quarter?

So I think your discount, you're referring to the price resets that took place at the end of the year, Jeff, I believe.

Yes, that's exactly right.

Because certainly those, you know, as we think about the price domination that we had in January and February, you know, I would say that we're getting to kind of pick up traction from where we were at the end of December. And so when you think about the March increase, most of that is going to be reflective in second quarter and not really in first quarter results.

And then if I can ask a naive question, you know, Chinese PVC exports year to date, maybe they're up 45% off being up 45% for all of 2025. And there's really no PVC materially that's made in the Mideast. And so for me, you know, why is it that PVC prices should be up at all? Does it have to do with European ethylene inflation? Because there doesn't seem really to be any disruption to Asian production and there's no disruption to U.S. production. And what we're seeing, of course, is we're seeing, you know, PVC prices begin to, you know, move down pretty sharply in Asia. But what's the source of the sharp move up in PVC? It's very clear what it is in polyethylene. But can you give us an idea of what pushed PVC up?

Yeah, there is a, if you look into the situation in China, as I said, about 25% of their capacity is not carbide-based, and so is really sensitive to NAFTA prices. So they've been hit pretty hard with the increase in NAFTA prices, and they are, economically, it's really impossible for them to export, and they're barely at break-even point when you look at current prices. So And quite a few of them have actually dramatically reduced their operating rate. If you look at the carbide, they are mostly in inner China. They're not really on the coast. So all the effect of transport cost increase and everything has put an increase onto the PVC prices. You add on top of that the duty drawback removal of about 15%. and you get support for PVC price increase. And that's why right now, after a spike, it went over $1,000 per ton in China early on. It's stabilizing in the $850, $900 metric ton, when if you look back last year, they were down to the $500, $550 range. So that's still a significant increase.

Great. Thank you very much.

Thank you. Our next question comes from the line of Matthew Dale from Bank of America. Your line is now open.

Yeah, good morning. So if I square off the $45 million headwind from gas quarter over quarter for PEM, and then I back out $100 million of EBITDA from the cost cut sequentially, I don't know, maybe if PEM was down $60 million, quarter over quarter, all else equal from like an operational perspective. You know, prices moved up over the quarter, but we just kind of talked through some of the PVC roll discounting that was maybe unique to Westlake versus peers. But that doesn't feel like that fully explains the whole differential to me versus what your peers explained or put up in the quarter. And so is there any reason why the calendar roll would have been more punitive to you in polyethylene or with some epoxy additional headwind that maybe we're not catching? Because it still feels like there is some idiosyncratic drag that maybe wasn't so amply felt on your peers.

I can't, Matt, I can't, I guess I'm struggling with your math here because we certainly have recognized the same price nominations that I think we've seen announced by Westlake throughout the quarter, both in epoxy and in PVC and in polyethylene. Maybe part of the equation is we also did planned maintenance in one of our sites earlier this year in the first quarter at Plaquemine. And so that may be part of the equation that you did not have in your individual model. And so that was impactful in terms of opportunities, but it was a planned outage that we had taken. But I think when you walk through the walk through the model, our price nominations and price realizations, I think, are the same that we've nominated that I think many of the others I've spoken to that I've read.

Okay. And then if I look at, I don't know, maybe this is during 2022, right? European electricity costs are not up nearly as much, but European caustic profitability is pretty bad right now, maybe down $20 million. Sorry, $200. My head's all over the place. Down $200 a ton. Seems like caustic's rallying in Europe. Do you see an opportunity for export window on caustic to Europe to open up? Maybe not the way it did in 2022, but is that an area for kind of upside as we look through the course of the next quarter or so if this continues? And then can you quantify how much the Plaquemine outage was now that we just mentioned that?

Yeah, I would say it's in the $20 million range. Okay, thank you.

In terms of caustic, you are correct. I mean, caustic price might indicate that there is an opportunity to ship there. But when you look at the price for transport and everything, it completely offsets the spread that there is between the U.S. and Europe. So right now, there is really no good opportunities to export caustic to Europe.

Okay, understood. Thank you.

This ends our question and answer session. Let me turn it over to Jeff Holey for closing remarks.

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

Thank you for participating in today's Westlake Corporation first 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 website. Goodbye.