It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have added about 19.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
Westlake Chemical's Q1 Earnings Beat Estimates, Sales Lag
Westlake Chemical posted a profit of $145 million or $1.13 per share for the first quarter of 2020, up 101.4% from $72 million or 55 cents per share earned in the year-ago quarter.
The increase was mainly attributed to the income tax benefit of $62 million, arising from the carryback of federal net operating losses.
Barring one-time items, adjusted earnings per share were 65 cents in the quarter. The metric surpassed the Zacks Consensus Estimate of 57 cents.
Sales fell 4.6% year over year to $1,932 million. The figure also missed the Zacks Consensus Estimate of $1,937.5 million.
Sales in the Olefins segment fell 7% year over year to $427 million in the reported quarter. Operating income in the segment rose 67.6% to $62 million. The increase was mainly due to higher polyethylene sales volumes, and lower feedstock and fuel costs, which were in part, offset by reduced polyethylene sales prices.
The Vinyls segment generated sales of $1,505 million, down 3.9% year over year. Operating income in the segment was $73 million, down 27.7% year over year. The decline was caused by reduced sales prices for caustic soda and PVC (polyvinyl chloride) resin.
Westlake Chemical ended the quarter with cash and cash equivalents of $1,537 million, up 245.4% year over year. Long-term debt was $4,432 million, up 66% year over year.
Cash flow from operations was $61 million in the quarter, down 58.5% year over year.
Westlake Chemical said that it remains focused on lowering its cost position and generating economic value over the business cycle. The company believes that its competitive position coupled with a strong balance sheet has positioned it to weather the current environment.
It now expects capital expenditure of $500-$550 million for 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -111.17% due to these changes.
At this time, Westlake has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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