Westlake Chemical Corporation Announces Third Quarter 2015 Earnings

- Third quarter net income increased 9.4% as compared to the third quarter of 2014

- Generated cash flow from operations of $405.9 million in the third quarter of 2015, and $841.3 million year to date

- Strong liquidity with cash and marketable securities of $1,247.7 million as of September 30, 2015

Nov 03, 2015, 06:45 ET from Westlake Chemical Corporation

HOUSTON, Nov. 3, 2015 /PRNewswire/ -- Westlake Chemical Corporation (NYSE: WLK) today reported net income for the third quarter of 2015 of $183.6 million, or $1.39 per diluted share, on net sales of $1,188.0 million. This represents an increase in net income of $15.8 million, or $0.14 per diluted share, compared to the quarter ended September 30, 2014 net income of $167.8 million, or $1.25 per diluted share, on net sales of $1,253.2 million. Net income for the third quarter of 2015 was impacted by a lower effective tax rate and several plant outages as a result of maintenance turnaround activity. The lower effective tax rate was primarily due to several discrete tax items and other adjustments, which collectively lowered the third quarter 2015 effective tax rate to 24.2%. We estimate the 2015 annual effective tax rate on ordinary income will be approximately 33.5%. Net sales for the third quarter of 2015 decreased by $65.2 million compared to net sales for the third quarter of 2014, mainly due to lower sales prices for all our major products, partially offset by higher sales volumes for most of our major products and sales contributed by our specialty PVC resin business, Vinnolit, which we acquired on July 31, 2014. Income from operations was $254.0 million for the third quarter of 2015 as compared to $306.8 million for the third quarter of 2014. The decrease in income from operations for the third quarter of 2015 was mainly attributable to lower integrated product margins, primarily as a result of lower sales prices in the third quarter of 2015, as compared to the prior-year period, and the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to several maintenance turnarounds completed during the third quarter of 2015, partially offset by lower feedstock and energy costs, higher production rates at our Geismar, Louisiana chlor-alkali plant and the contribution from Vinnolit as compared to the third quarter of 2014.

Third quarter 2015 net income of $183.6 million, or $1.39 per diluted share, decreased by $21.5 million from the $205.1 million, or $1.54 per diluted share, reported in the second quarter of 2015. Net income for the third quarter of 2015 was impacted by a lower effective tax rate and several plant outages as a result of maintenance turnaround activity. Net income for the second quarter of 2015 included a net pre-tax gain of $15.5 million, or $0.13 per diluted share, resulting from the acquisition of additional interests in our Huasu joint venture, and an equity investment impairment. Net sales in the third quarter of 2015 were $1,188.0 million compared to net sales of $1,185.0 million in the second quarter of 2015, an increase of $3.0 million. The increase in sales was due to higher sales volumes for PVC and styrene, partially offset by lower sales prices for most of our major products and lower sales volumes for polyethylene. Third quarter 2015 income from operations of $254.0 million decreased $41.4 million from the second quarter 2015 income from operations of $295.4 million. The decrease was due to lower integrated olefins margins, primarily as a result of lower sales prices in the third quarter, and the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to several maintenance turnarounds completed during the third quarter.

For the nine months ended September 30, 2015, net income was $535.0 million, or $4.02 per diluted share, on net sales of $3,476.6 million. This represents an increase in net income of $39.8 million, or $0.33 per diluted share, from the nine months ended September 30, 2014 net income of $495.2 million, or $3.69 per diluted share, on net sales of $3,279.5 million. Net income for the nine months ended September 30, 2015 included: (1) a lower effective tax rate, primarily due to several discrete tax items and other adjustments; (2) plant outages as a result of maintenance turnaround activity; and (3) a net pre-tax gain of $16.0 million, or $0.13 per diluted share, related to the acquisition of a controlling interest in our Huasu joint venture, net of related expenses, and the impairment of an equity method investment. The gain on the Huasu acquisition was non-taxable and, in combination with the benefit from the discrete tax items and other adjustments during the period, lowered our effective tax rate for the nine months ended September 30, 2015 to 30.1%. Net sales for the nine months ended September 30, 2015 increased by $197.1 million compared to the prior-year period, primarily due to sales contributed by Vinnolit, as compared to the prior-year period, and higher sales volumes for most of our major products, partially offset by lower sales prices for all our major products. Income from operations was $778.7 million for the nine months ended September 30, 2015 as compared to $821.6 million for the nine months ended September 30, 2014. This decrease was mainly attributable to lower olefins integrated product margins, primarily caused by lower sales prices, as compared to the prior-year period, and costs related to several maintenance turnarounds, partially offset by increased production at our Calvert City, Kentucky facilities following the completion of the feedstock conversion and ethylene expansion project, higher production rates at our Geismar chlor-alkali plant, lower feedstock and energy costs and the contribution from Vinnolit, as compared to the prior-year period. Sales prices in the first nine months of 2015 were negatively impacted by the significant decline in crude oil prices.

"The third quarter saw continued volatility in crude oil prices, which were more than 50% lower than their 2014 peak levels, as well as uncertainty regarding the pace and strength of global economic recovery. In spite of these conditions, we delivered strong results for the quarter as we continued to benefit from solid demand for our products and from low-cost natural gas-based feedstocks, which position both our Olefins and Vinyls segments to remain advantaged relative to global producers," said Albert Chao, President and Chief Executive Officer.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) of $317.9 million for the third quarter of 2015 decreased $40.1 million compared to $358.0 million in the third quarter of 2014. EBITDA for the third quarter of 2015 decreased $59.9 million compared to EBITDA of $377.8 million in the second quarter of 2015. A reconciliation of EBITDA to reported net income and to net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Net cash provided by operating activities was $841.3 million in the first nine months of 2015. Capital expenditures for the first nine months of 2015 were $329.2 million. As of September 30, 2015 we had cash and marketable securities of $1,247.7 million and our long-term debt was $764.1 million.

OLEFINS SEGMENT

The Olefins segment reported income from operations of $196.7 million in the third quarter of 2015, a decrease of $62.6 million compared to $259.3 million reported in the third quarter of 2014. This decrease was mainly attributable to lower olefins integrated product margins, primarily as a result of lower sales prices, partially offset by higher sales volumes for most of our major products and lower feedstock and energy costs as compared to the prior-year period.

The Olefins segment reported income from operations of $196.7 million for the third quarter of 2015, a decrease of $24.2 million from the $220.9 million reported in the second quarter of 2015. The decrease in operating income was primarily due to lower olefins integrated product margins as a result of lower polyethylene sales prices and sales volumes.

The Olefins segment reported income from operations of $608.7 million for the nine months ended September 30, 2015 as compared to income from operations of $770.3 million for the nine months ended September 30, 2014, a decrease of $161.6 million. This decrease was mainly attributable to lower olefins integrated product margins, primarily as a result of lower sales prices, partially offset by higher sales volumes and lower feedstock and energy costs for the nine months ended September 30, 2015 as compared to the prior-year period.

VINYLS SEGMENT

The Vinyls segment reported income from operations of $67.8 million in the third quarter of 2015 compared to income from operations of $59.4 million in the third quarter of 2014, an increase of $8.4 million. This increase was mainly attributable to higher caustic soda sales volume, primarily as a result of higher production rates at our Geismar chlor-alkali plant, and the contribution from Vinnolit, as compared to the prior-year period. The increase in third quarter 2015 income from operations was partially offset by the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the maintenance turnaround at our Calvert City, Gendorf, Germany and Burghausen, Germany facilities and lower sales prices for our major products, as compared to the third quarter of 2014. Third quarter 2014 income from operations was negatively impacted by the lost sales, lower production rates and other costs associated with the unplanned outages at our Calvert City and Geismar facilities and the effect of selling higher cost Vinnolit inventory recorded at fair value as a result of the Vinnolit acquisition.

The Vinyls segment reported income from operations of $67.8 million in the third quarter of 2015, a decrease of $20.2 million compared to an operating income of $88.0 million in the second quarter of 2015. The decrease in operating income in the third quarter was mainly the result of the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to several maintenance turnarounds completed during the third quarter of 2015 and lower North American PVC and caustic sales prices, partially offset by higher sales volumes for PVC resin.

The Vinyls segment reported income from operations of $202.8 million for the nine months ended September 30, 2015 as compared to income from operations of $76.5 million for the nine months ended September 30, 2014, an increase of $126.3 million. This increase was primarily driven by higher vinyls integrated product margins for the nine months ended September 30, 2015, mainly attributable to lower feedstock costs and increased production at our Calvert City facilities following the completion of the feedstock conversion and ethylene expansion project, higher caustic soda sales volume primarily attributable to higher production rates at our Geismar chlor-alkali plant and the contribution from Vinnolit, as compared to the prior-year period. The increase in income from operations for the nine months ended September 30, 2015 was partially offset by lost sales, lower production rates and other costs associated with the maintenance turnarounds at our various North American and European facilities, lower sales prices for our major products and reduced sales volume in Europe related to an ethylene shortage. Income from operations for the nine months ended September 30, 2014 was negatively impacted by the effect of selling higher cost Vinnolit inventory recorded at fair value as a result of the Vinnolit acquisition, the lost sales, lower production rates and other costs associated with the maintenance turnaround at our Calvert City facilities and the ethylene plant's feedstock conversion and expansion project and, prior to the completion of Calvert City ethylene plant's feedstock conversion project, lower vinyls integrated product margins attributable to significantly higher propane costs.

 

The statements in this release and the related teleconference relating to matters that are not historical facts, such as statements regarding Westlake's annual effective tax rate for the year ending December 31, 2015 and cost advantages related to North American natural gas based feedstocks are forward-looking statements. These forward-looking statements are subject to significant risks and uncertainties. Actual results could differ materially, based on factors including, but not limited to: general economic and business conditions; the cyclical nature of the chemical industry; availability, cost and volatility of raw materials and utilities, including natural gas from shale production; uncertainties associated with the United States and worldwide economies, including those due to global economic and financial conditions; governmental regulatory actions, including environmental regulation; political unrest; industry production capacity and operating rates; the supply/demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; the effect and results of litigation and settlements of litigation; operating interruptions; and other risk factors. For more detailed information about the factors that could cause actual results to differ materially, please refer to Westlake's Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC in February 2015.

 

Use of Non-GAAP Financial Measures

This release makes reference to certain non-GAAP financial measures, such as EBITDA, as defined in Regulation G of the U.S. Securities Exchange Act of 1934, as amended. We report our financial results in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), but believe that certain non-GAAP financial measures, such as EBITDA, provide useful supplemental information to investors regarding the underlying business trends and performance of the company's ongoing operations and are useful for period-over-period comparisons of such operations. These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the financial measures prepared in accordance with U.S. GAAP. A reconciliation of EBITDA to reported net income and to net cash provided by operating activities can be found in the financial schedules at the end of this press release.

 

Westlake Chemical Corporation Conference Call Information:

A conference call to discuss Westlake Chemical Corporation's third quarter 2015 results will be held Tuesday, November 3, 2015 at 11:00 a.m. Eastern Time (10:00 a.m. Central Time). To access the conference call, dial (855) 760-8160, or (704) 288-0624 for international callers, approximately 10 minutes prior to the scheduled start time and reference passcode 58784977.

A replay of the conference call will be available beginning two hours after its conclusion until 11:59 p.m. Eastern Time on Tuesday, November 10, 2015. To hear a replay, dial (855) 859-2056, or (404) 537-3406 for international callers. The replay passcode is 58784977.

The conference call will also be available via webcast at: http://edge.media-server.com/m/p/mdnzbgv2/lan/en and the earnings release can be obtained via the company's web page at: http://www.westlake.com/fw/main/IR_Home_Page-123.html

 

WESTLAKE CHEMICAL CORPORATION


CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)




Three Months Ended September 30,


Nine Months Ended September 30,



2015


2014


2015


2014



(In thousands of dollars, except per share data)

Net sales


$

1,188,037



$

1,253,227



$

3,476,570



$

3,279,479


Cost of sales


876,761



891,707



2,527,567



2,324,978


Gross profit


311,276



361,520



949,003



954,501


Selling, general and administrative expenses


57,248



54,759



170,321



132,897


Income from operations


254,028



306,761



778,682



821,604


Interest expense


(8,211)



(9,486)



(26,760)



(28,182)


Other income (expense), net


2,636



(2,670)



33,790



4,440


Income before income taxes


248,453



294,605



785,712



797,862


Provision for income taxes


60,033



124,449



236,824



300,231


Net income


188,420



170,156



548,888



497,631


Net income attributable to noncontrolling interests


4,816



2,399



13,847



2,399


Net income attributable to

   Westlake Chemical Corporation


$

183,604



$

167,757



$

535,041



$

495,232


Earnings per common share attributable to

   Westlake Chemical Corporation:









Basic


$

1.39



$

1.26



$

4.04



$

3.71


Diluted


$

1.39



$

1.25



$

4.02



$

3.69


 

WESTLAKE CHEMICAL CORPORATION


CONSOLIDATED BALANCE SHEETS

(Unaudited)




September 30,
 2015


December 31,
 2014



(In thousands of dollars)

ASSETS





Current assets





Cash and cash equivalents


$

961,925



$

880,601


Marketable securities


285,726




Accounts receivable, net


520,960



560,666


Inventories


430,006



525,776


Other current assets


49,813



44,244


Total current assets


2,248,430



2,011,287


Property, plant and equipment, net


2,916,630



2,757,557


Other assets, net


359,345



445,146


Total assets


$

5,524,405



$

5,213,990







LIABILITIES AND EQUITY





Current liabilities (accounts payable and accrued liabilities)


$

534,887



$

537,180


Long-term debt


764,086



763,997


Other liabilities


705,594



710,925


Total liabilities


2,004,567



2,012,102


Total Westlake Chemical Corporation stockholders' equity


3,224,999



2,911,511


Noncontrolling interests


294,839



290,377


Total equity


3,519,838



3,201,888


Total liabilities and equity


$

5,524,405



$

5,213,990


 

WESTLAKE CHEMICAL CORPORATION


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)




Nine Months Ended September 30,



2015


2014



(In thousands of dollars)

Cash flows from operating activities





Net income


$

548,888



$

497,631


Adjustments to reconcile net income to net cash provided by operating activities:





Depreciation and amortization


180,229



148,394


Deferred income taxes


7,585



34,459


Other balance sheet changes


104,598



95,640


Net cash provided by operating activities


841,300



776,124


Cash flows from investing activities





Acquisition of business, net of cash acquired


15,782



(611,087)


Additions to property, plant and equipment


(329,236)



(311,183)


Proceeds from disposition of assets


17



145


Proceeds from disposition of equity method investment


27,865




Proceeds from repayment of loan acquired




45,923


Proceeds from sales and maturities of securities


16,056



342,045


Purchase of securities


(282,542)



(117,332)


Other, net


(1,535)



(689)


Net cash used for investing activities


(553,593)



(652,178)


Cash flows from financing activities





Capitalized debt issuance costs




(1,167)


Dividends paid


(67,852)



(55,690)


Distributions to noncontrolling interests


(10,982)




Net proceeds from issuance of Westlake Chemical Partners LP common units




286,088


Proceeds from exercise of stock options


984



5,502


Proceeds from issuance of notes payable


19,483




Repayment of notes payable


(32,954)




Repurchase of common stock for treasury


(114,254)



(9,495)


Other, net


2,452



6,670


Net cash (used for) provided by financing activities


(203,123)



231,908


Effect of exchange rate changes on cash and cash equivalents


(3,260)



(3,687)


Net increase in cash and cash equivalents


81,324



352,167


Cash and cash equivalents at beginning of period


880,601



461,301


Cash and cash equivalents at end of period


$

961,925



$

813,468


 

WESTLAKE CHEMICAL CORPORATION


SEGMENT INFORMATION

(Unaudited)




Three Months Ended September 30,


Nine Months Ended September 30,



2015


2014


2015


2014



(In thousands of dollars)

Net external sales









Olefins


$

588,097



$

703,097



$

1,792,052



$

2,124,948


Vinyls


599,940



550,130



1,684,518



1,154,531




$

1,188,037



$

1,253,227



$

3,476,570



$

3,279,479


Income (loss) from operations









Olefins


$

196,703



$

259,277



$

608,744



$

770,267


Vinyls


67,779



59,445



202,831



76,460


Corporate and other


(10,454)



(11,961)



(32,893)



(25,123)




$

254,028



$

306,761



$

778,682



$

821,604


Depreciation and amortization









Olefins


$

27,678



$

26,443



$

82,240



$

79,811


Vinyls


33,432



27,336



97,615



68,127


Corporate and other


138



141



374



456




$

61,248



$

53,920



$

180,229



$

148,394


Other income (expense), net









Olefins


$

1,323



$

1,609



$

3,770



$

4,262


Vinyls


10



1,189



6,927



942


Corporate and other


1,303



(5,468)



23,093



(764)




$

2,636



$

(2,670)



$

33,790



$

4,440


 

WESTLAKE CHEMICAL CORPORATION


RECONCILIATION OF EBITDA TO NET INCOME AND TO NET CASH

PROVIDED BY OPERATING ACTIVITIES

(Unaudited)




Three Months
Ended
June 30,


Three Months Ended
September 30,


Nine Months Ended
September 30,



2015


2015


2014


2015


2014



(In thousands of dollars)

EBITDA


$

377,772



$

317,912



$

358,011



$

992,701



$

974,438


Less:











Provision for income taxes


98,413



60,033



124,449



236,824



300,231


Interest expense


8,958



8,211



9,486



26,760



28,182


Depreciation and amortization


60,340



61,248



53,920



180,229



148,394


Net income


210,061



188,420



170,156



548,888



497,631


Changes in operating assets and liabilities


36,981



213,028



158,626



284,827



244,034


Deferred income taxes


(2,243)



4,497



15,100



7,585



34,459


Net cash provided by operating activities


$

244,799



$

405,945



$

343,882



$

841,300



$

776,124


 

WESTLAKE CHEMICAL CORPORATION


SUPPLEMENTAL INFORMATION


Product Sales Price and Volume Variance by Operating Segments
















Third Quarter 2015 vs.
Third Quarter 2014


Third Quarter 2015 vs.
Second Quarter 2015



Average

Sales Price


Volume


Average

Sales Price


Volume

Olefins


-31.3%


+14.9%


-3.5%


-1.8%

Vinyls


-19.8%


+28.9%


-2.9%


+9.3%

Company


-26.3%


+21.0%


-3.2%


+3.5%

 

Average Quarterly Industry Prices (1)




Quarter Ended



September 30,
 2014


December 31,
 2014


March 31,
 2015


June 30,
 2015


September 30,
 2015

Ethane (cents/lb)


7.9


7.0


6.3


6.2


6.4

Propane (cents/lb)


24.6


18.1


12.6


10.8


9.6

Ethylene (cents/lb) (2)


66.6


56.2


36.6


36.1


28.2

Polyethylene (cents/lb) (3)


89.0


87.7


76.7


78.3


75.3

Styrene (cents/lb) (4)


85.8


73.5


54.3


65.8


64.2

Caustic soda ($/short ton) (5)


588.3


595.0


588.3


576.7


563.3

Chlorine ($/short ton) (6)


232.5


232.5


239.2


268.3


275.0

PVC (cents/lb) (7)


70.2


69.2


65.5


67.5


66.5

________________

(1)

Industry pricing data was obtained from IHS Chemical. We have not independently verified the data.

(2)

Represents average North American spot prices of ethylene over the period as reported by IHS Chemical.

(3)

Represents average North American contract prices of polyethylene low density GP-Film grade over the period as reported by IHS Chemical. Effective January 1, 2015, IHS Chemical made a non-market downward adjustment of 21 cents per pound to polyethylene low density GP-Film grade prices. For comparability, we adjusted each prior-year period's polyethylene low density GP-Film grade price downward by 21 cents per pound consistent with the IHS Chemical non-market adjustment.

(4)

Represents average North American contract prices of styrene over the period as reported by IHS Chemical.

(5)

Represents average North American undiscounted contract prices of caustic soda over the period as reported by IHS Chemical.

(6)

Represents average North American contract prices of chlorine (into chemicals) over the period as reported by IHS Chemical.

(7)

Represents average North American contract prices of PVC over the period as reported by IHS Chemical.

 

SOURCE Westlake Chemical Corporation



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