Westlake Chemical (WLK) Q4 Earnings: What's in the Cards?

Westlake Chemical Corporation WLK is slated to release fourth-quarter 2017 results before the market opens on Feb 20.

Last quarter, the company’s profits surged more than three-folds to $210.8 million or $1.61 per share, mainly driven by earnings contribution of Axiall, lower transaction and integration-related costs related to the buyout and higher sales price of major products. Barring one-time items, adjusted earnings came in at $1.65 per share, which topped the Zacks Consensus Estimate of $1.39.

Net sales also went up around 65% year over year to $2,108.9 million. The figure however, missed the Zacks Consensus Estimate of $2,123 million.

The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average positive surprise of 23.5%.

Let’s take a look at how things are shaping up for the forthcoming announcement.

Westlake Chemical Corporation Price and EPS Surprise

Westlake Chemical Corporation Price and EPS Surprise | Westlake Chemical Corporation Quote

Factors at Play

Westlake Chemical is gaining from contributions of the Axiall acquisition, improved demand and higher selling prices for major products. The company, in its third-quarter call, said that it benefited from increased demand for all major products in both Vinyls and Olefins segments along with higher prices in the Vinyls segment. The company believes that the Axiall buyout, continued investments to improve the reliability and operational efficiency of its assets will enable it to fully leverage the improving Vinyls market.

Westlake Chemical’s revenues for the fourth quarter are projected to decline roughly 1.7% from the third, as the Zacks Consensus Estimate is currently pegged at $2,073 million.

In the third quarter, the company’s Olefins segment sales witnessed a modest increase of roughly 0.1% year over year and 2.7% on a sequential basis. Although, higher sales prices and higher overall operating rates drove the segment’s operating income, these increases were partly offset by higher energy and feedstock costs.

On the other hand, the company’s Vinyls segment sales went up roughly 105.5% year over year and 7.8% sequentially. Operating income surged roughly ten-fold year-over-year, mainly driven by the Axiall buyout and higher selling prices for major products, which were partly offset by higher energy prices.

Westlake Chemical, in its third-quarter call, said that it expects its fourth-quarter earnings to be impacted by roughly $25 million due to its current maintenance plan that includes several planned outages during the quarter. The forecast reflects increased maintenance expenses associated with these outages and related lost sales margins.

For full-year 2017, Westlake Chemical anticipates to realize around $120 million in synergies and cost savings related to the Axiall acquisition.

Shares of Westlake Chemical have moved up 21.5% in the last three months, outperforming the 11.2% growth recorded by its industry.

 

Earnings Whispers

Our proven model does not conclusively show that Westlake Chemical is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Westlake Chemical for the fourth quarter is -1.38%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.67 and $1.69, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Westlake Chemical  carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

Newmont Mining Corporation NEM has an Earnings ESP of +1.49% and carries a Zacks Rank #3.

Huntsman Corporation HUN has an Earnings ESP of +0.84% and carries a Zacks Rank #2.

Verso Corporation VRS has an Earnings ESP of +44% and carries a Zacks Rank #3.

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