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Westlake (WLK) Down 13.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
American Airlines (AAL) closed the most recent trading day at $34.37, moving -0.04% from the previous trading session.

It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have lost about 13.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Westlake due for a breakout? 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 Earnings & Sales Lag Estimates in Q4

Westlake Chemical recorded a profit of $123 million or 95 cents per share for fourth-quarter 2018, down around 85% from $802 million or $6.15 earned a year ago. The bottom line in the year-ago quarter includes tax benefits of $591 million from reduced U.S. corporate tax rate under the U.S. Tax Cuts and Jobs Act.

The results in the reported quarter were also unfavorably impacted by reduced sales prices for polyethylene and PVC resin, increased ethane feedstock costs and higher fuel costs resulting from an increase in natural gas prices.

Barring one-time items, earnings came in at $1.02 per share for the reported quarter, falling well short of the Zacks Consensus Estimate of $1.72.  

Revenues edged down 0.8% year over year to $1,995 million, also missing the Zacks Consensus Estimate of $2,154.1 million.

FY18 Results

For 2018, profits were $996 million or $7.62 per share, down roughly 24% from $1,304 million or $10.00 recorded in 2017. Results in 2017 were boosted by tax benefits.

Net sales for the year went up 7% year over year to $8,635 million as higher sales prices and volumes for caustic soda and increased sales volumes for PVC resin and polyethylene more than offset reduced polyethylene sales prices and lower styrene sales volumes.

Segment Highlights

Sales at the Olefins segment fell 5% year over year to $493 million in the quarter. Operating income at the segment fell roughly 46% year over year to $90 million, hurt by reduced polyethylene sales prices resulting from lower oil prices and higher ethane feedstock and energy costs, partly masked by higher polyethylene sales volumes.
 
The Vinyls segment recorded sales of $1,502 million, up 0.6% year over year. Operating income at the segment was $125 million, down around 42% year over year. The decline is primarily attributable to reduced PVC resin margins as a result of lower sales prices and increased feedstock and power costs.
 
Financial Position

Westlake Chemical ended 2018 with cash and cash equivalents of $753 million, down around 51% year over year. Long-term debt was $2,668 million at the end of the year, down around 15% year over year.

Cash flow from operations was $254 million in the quarter and $1,409 million for 2018.

Outlook

The company noted that it witnessed strong demand for all of its key products across domestic and export markets in 2018 and is benefiting from its investment initiatives. Westlake Chemical expects its investments to contribute to its EBITDA in 2019.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.


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