Westlake (WLK) Up 11% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have added about 11% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Westlake due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Westlake's Earnings and Sales Miss Estimates in Q4
Westlake posted a fourth-quarter 2023 loss of $497 million or $3.86 per share against a profit of $232 million or $1.79 per share in the prior-year quarter.
The decline in earnings was primarily caused by a non-cash impairment charge of $475 million concerning the company's base epoxy resin assets in The Netherlands and the goodwill linked with its epoxy business.
Barring one-time items, earnings came in at 72 cents per share for the reported quarter. It lagged the Zacks Consensus Estimate of 81 cents.
Sales fell around 14.3% year over year to $2,826 million in the quarter. It lagged the Zacks Consensus Estimate of $2,854.2 million.
Segment Highlights
In the reported quarter, sales in the Performance and Essential Materials segment declined approximately 20% year over year to $1,880 million, falling short of our estimate of $1,916.5 million. Loss from operations amounted to $39 million against an income from operations of $219 million in the same quarter last year. The $258 million year-over-year decline was caused by reduced average selling prices across major products, notably caustic soda, PVC resin and epoxy resin, partially mitigated by increased sales volume.
In the Housing and Infrastructure Products segment, sales reached $946 million, inching up 1% from the year-ago quarter’s levels and surpassing our estimate of $917.3 million. Income from operations rose $53 million from fourth-quarter 2022 figures, totaling $121 million. The year-over-year upside can be attributed to heightened sales volume, notably for pipe and fittings, coupled with lower material costs.
Financial Position
In the fourth quarter of 2023, net cash produced by operating activities was $573 million. Cash and cash equivalents totaled $3,304 million as of Dec 31, 2023, with a total debt of $4,906 million. Capital expenditures totaled $282 million in the quarter. Free cash flow was $291 million in the fourth quarter.
FY23 Results
In 2023, Westlake reported net sales of $12,548 billion, with net income at $479 million and EBITDA totaling $1,962 million. Compared with the previous year, Westlake's 2023 financial performance suffered from reduced product pricing and margins, notably in PEM, as well as lowered sales volume, particularly in HIP.
In 2023, net cash provided by operating activities totaled $2,336 million, while capital expenditures for the same period amounted to $1,034 million. Free cash flow for the full year of 2023 was $1,302 million.
Outlook
For 2024, Westlake anticipates healthy consumer spending in the United States, buoyed by a resilient labor market and declining interest rates, to drive moderate growth in HIP segment sales volume. Within the PEM segment, Westlake does not anticipate additional decline, as recent indications suggest stabilization in sales prices and volumes across domestic and export markets for most products.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -14.88% due to these changes.
VGM Scores
Currently, Westlake has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Westlake has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Westlake Corp. (WLK) : Free Stock Analysis Report
