Westlake's (WLK) Q3 Earnings Beat Estimates, Sales Miss
Westlake Corporation WLK reported a third-quarter 2023 profit of $285 million or $2.20 per share, down from $401 million or $3.10 per share in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of $1.92.
In the quarter, the company gained from resilient North American housing and infrastructure construction activities and increased operating rates notwithstanding lower average sales prices. Lower average sales prices and integrated margins for caustic soda and PVC weighed on its bottom line.
Sales fell around 21.3% year over year to $3,115 million in the quarter. It lagged the Zacks Consensus Estimate of $3,329.6 million.
Westlake Corp. Price, Consensus and EPS Surprise
Westlake Corp. price-consensus-eps-surprise-chart | Westlake Corp. Quote
Segment Highlights
Sales in the Performance and Essential Materials segment went down around 27.3% year over year to $1,971 million in the reported quarter. It was below our estimate of $2,026.9 million. Operating income in the segment was $105 million, a roughly 70.3% year-over-year decline. The downside resulted from lower integrated margins and average sales prices for the majority of company's main products, namely epoxy resins, PVC and caustic soda.
The Housing and Infrastructure Products segment generated sales of $1,144 million, down around 8.1% from the year-ago quarter. The figure was below our estimate of $1,234.5 million. Operating income in the segment was $256 million, up roughly 37.6% from a year ago. Lower material costs contributed to this improvement.
Financial Position
In the third quarter of 2023, net cash produced by operating activities was $696 million. Cash and cash equivalents totaled $3,057 million as of Sep 30, 2023, with total debt being $4,873 million. Capital expenditures totaled $245 million.
Free cash flow was $451 million in the third quarter, a $178 million decrease from the year-ago quarter, primarily due to lower net income.
Outlook
The company anticipates that in the fourth quarter of 2023, the macroeconomic environment will remain weak, with high interest rates and higher inflation driving lower demand for all of its products and low sales prices in the PEM category. The company believes that its products are well-placed in each of its segments, notwithstanding this short-term forecast.
The North American structural feedstock and energy cost advantage, a high degree of vertical integration and product diversification are expected to drive PEM volumes and profitability. The company's record performance in the HIP segment demonstrates the strength of its portfolio and its aptitude for navigating these difficult market circumstances. Apart from the regular seasonal drop in sales during the fourth quarter, the company anticipates a certain effect on sales volume due to the high level of borrowing rates.
Price Performance
Westlake’s shares have gained 21% in a year compared with the industry’s 9.2% rise.
Image Source: Zacks Investment Research
Zacks Rank & Key Picks
Westlake currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials space include Equinox Gold Corp. EQX, Koppers Holdings Inc. KOP and The Andersons Inc. ANDE.
Equinox has a projected earnings growth rate of 90% for the current year. It currently carries a Zacks Rank #2 (Buy). Equinox delivered a trailing four-quarter earnings surprise of roughly 18.1%, on average. The stock is up around 79.8% in a year. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Koppers has a projected earnings growth rate of 7.5% for the current year. It currently carries a Zacks Rank #2. Koppers delivered a trailing four-quarter earnings surprise of roughly 21.7%, on average. The stock is up around 54.9% in a year.
Andersons currently carries a Zacks Rank #1. The stock has gained roughly 41.6% in the past year. ANDE beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Westlake Corp. (WLK) : Free Stock Analysis Report
The Andersons, Inc. (ANDE) : Free Stock Analysis Report
Koppers Holdings Inc. (KOP) : Free Stock Analysis Report
Equinox Gold Corp. (EQX) : Free Stock Analysis Report
