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Why Is Westlake (WLK) Down 7.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have lost about 7.2% 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 the most recent earnings report in order to get a better handle on the important drivers.

Westlake Chemical’s Q2 Earnings, Sales Beat Estimates

Westlake Chemical saw lower profits in the second quarter of 2019, hurt by reduced sales prices for its major products. The company posted a profit of $119 million or 92 cents per share for the quarter, down around 57% from $278 million or $2.12 it earned in the year-ago quarter.

Barring one-time items, adjusted earnings per share were 92 cents, topping the Zacks Consensus Estimate of 84 cents.

Sales fell roughly 4% year over year to $2,144 million. However, the figure surpassed the Zacks Consensus Estimate of $2,098.9 million.

Lower sales prices for key products due to trade uncertainties and a slower global economic growth were, in part, offset by reduced feedstock and purchased ethylene costs, lower fuel costs and increased polyethylene sales volumes.

Segment Highlights

Sales in the Olefins segment fell 1% year over year to $477 million in the quarter. Operating income in the segment tumbled roughly 48% to $82 million. The decline was mainly due to reduced sales prices and margins for major products.

The Vinyls segment generated sales of $1,667 million, down around 5% year over year. Operating income in the segment was $129 million, down around 52% year over year. The decline was caused by reduced sales prices for caustic soda and lower margins for PVC resin.

Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of $409 million, down around 15% year over year. Long-term debt was $2,669 million, essentially flat year over year.

Cash flow from operations was $320 million for the reported quarter.

Outlook

Westlake Chemical noted that it faced challenges, in the second quarter, from lower commodity pricing due to slowing global growth and industrial activity, and logistics constraints and delay in shipments of its major products due to flood in the continental United States. Moreover, prolonged winter weather in much of North America led to a sluggish start of the construction season.

The company is seeing some improvements in industry fundamentals which it expects to continue into second-half 2019.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -16.26% due to these changes.

VGM Scores

At this time, Westlake has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 downward 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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