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Westlake (WLK) Down 8.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have lost about 8.7% 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 catalysts.

Westlake Chemical’s Q3 Earnings Top Estimates, Sales Lag

Westlake Chemical saw lower profits in the third quarter of 2019, hurt by reduced sales prices for its major products. The company posted a profit of $158 million or $1.22 per share for the quarter, down around 49% from $308 million or $2.35 it earned in the year-ago quarter. However, earnings topped the Zacks Consensus Estimate of $1.02.

Sales fell roughly 8% year over year to $2,066 million. The figure also missed the Zacks Consensus Estimate of $2,131.4 million.

Lower global sales prices for key products due to trade uncertainties and a slower global economic growth were, in part, masked by reduced ethane feedstock and fuel costs.

Segment Highlights

Sales in the Olefins segment fell 17% year over year to $448 million in the quarter. Operating income in the segment tumbled roughly 43% to $92 million. The decline was mainly due to reduced sales prices for major products resulting from higher olefins production.

The Vinyls segment generated sales of $1,618 million, down around 6% year over year. Operating income in the segment was $153 million, down around 39% year over year. The decline was caused by reduced sales prices for caustic soda and PVC resin.

Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of $1,437 million, up around 82% year over year. Long-term debt was $3,424 million, up 28% year over year.

Cash flow from operations was $968 million for the first nine months of 2019, down around 16% year over year. Cash flow from operations was $501 million for the reported quarter.

Outlook

Westlake Chemical noted that it is facing challenges from a difficult pricing environment due to slower global growth as a result of trade tensions. Amid this backdrop, the company remains focused on controlling costs and investing in a number of initiatives globally which it expects to boost long-term value for shareholders.
 

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Westlake has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Westlake has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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