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Why Is Westlake (WLK) Up 4.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Westlake Chemical (WLK). Shares have added about 4.4% 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 catalysts.

Westlake's Earnings & Revenues Surpass Estimates in Q2

Westlake logged a profit of $858 million or $6.60 per share in the second quarter of 2022, rising from $522 million or $4.04 cents per share in the year-ago quarter. The bottom line topped the Zacks Consensus Estimate of $6.33 per share.

Sales climbed 57% year over year to record $4,483 million in the quarter. It also outpaced the Zacks Consensus Estimate of $4,294.8 million. The top line was supported by strong demand and pricing dynamics. The company also realized the full quarter impact of all acquisitions completed since June last year.

Westlake also benefited from continued strength in residential construction and remodeling activities. The strength in U.S. housing market drove strong residential construction and repair and remodeling activities, leading to solid demand and higher pricing for polyvinyl chloride resin and its offerings in the Housing and Infrastructure Products segment.

Prices rose 32% year over year with significant gains across the segments. Volumes also went up 25% year over year, largely driven by acquisitions completed over the previous 12 months.

Segment Highlights

Sales in the Performance and Essential Materials segment went up around 45% year over year to $3,104 million in the reported quarter. Operating income in the segment was $965 million, a roughly 44% year-over-year increase.  The upside was led by higher prices in chlorovinyls business, increased margins for polyethylene and the addition of the recently acquired epoxy business.

The Housing and Infrastructure Products segment generated sales of $1,379 million, up around 93% from the year-ago quarter. Operating income in the segment was $236 million, up around 146% from a year ago. The upside was mainly due to continued strength in construction and remodeling activity leading to strong demand and higher prices as well as the contributions of the acquisitions completed last year.

Financial Position

Westlake ended the quarter with cash and cash equivalents of $1,317 million, down around 29% year over year. Long-term debt was $4,858 million, up around 37% year over year.

Net cash provided by operating activities was $913 million in the reported quarter, up roughly 48% year over year.

Outlook

The company said that the strength of the housing, repair and remodeling markets and the market position for its Performance and Essential Materials remain on a solid footing. Its Housing and Infrastructure Products business has a strong presence in the repair and remodeling market, which it expects to remain strong even if new housing starts retreat from their recent highs amid the hike in global interest rates. The company expects to continue to gain from the high integration within its operations as North American producer's structural cost advantage has broadened with increased energy costs globally compared with its competitors in Europe and Asia.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

The consensus estimate has shifted -6.46% due to these changes.

VGM Scores

Currently, Westlake has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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