Westlake (WLK) Q3 2026 Earnings Call Transcript

DATE

Nov. 4, 2026

CALL PARTICIPANTS

• Vice President of Finance and Investor Relations - Jeffrey A. Holy
• President and Chief Executive Officer - Jean-Marc Gilson
• Senior Vice President and Chief Financial Officer - Jonathan H. Baksht
• Executive Chairman - Albert Yuan Chao

TAKEAWAYS

• Net Sales -- $3.0 billion for the third quarter, representing a 5% increase from $2.8 billion in the prior-year period.
• Non-GAAP EBITDA -- $408 million, excluding $58 million in identified items, increasing 30% from $313 million in the third quarter of 2025.
• Non-GAAP Diluted EPS -- $0.45, compared to a loss of $0.29 in the third quarter of 2025.
• Free Cash Flow -- $220 million for the quarter, reflecting $408 million in net operating cash flow and $188 million in capital expenditures.
• Performance and Essential Materials (PEM) Net Sales -- $1.9 billion, an 8% increase driven by higher average selling prices for polyethylene and PVC resin.
• PEM Non-GAAP EBITDA -- $215 million, with margins expanding to 11% from 5% due to higher pricing and cost-saving initiatives.
• Housing and Infrastructure Products (HIP) Net Sales -- $1.1 billion, remaining essentially unchanged as a 6% decline in comparable volume was offset by price increases and the ACI acquisition.
• HIP Non-GAAP EBITDA -- $195 million, a $20 million decline year over year reflecting cost inflation and a timing shift in pipe and fittings orders.
• Profitability Improvement Plan -- $500 million in EBITDA uplift delivered through the first nine months of 2026, remaining on track for a full-year target of $600 million.
• Polyethylene Pricing -- contract prices rose 5 cents per pound in September, with additional 5-cent per pound nominations announced for both October and November.
• Caustic Soda Pricing -- contract prices increased 5 cents per pound in October, with industry forecasts indicating a further 10-cent per pound increase in November.
• European Energy Costs -- power prices in Germany reached over €200 per megawatt hour recently, up from an average of €126 per megawatt hour in the third quarter.
• Housing Activity -- single-family housing starts decelerated to a seasonally adjusted annual rate under 900,000 in the third quarter, compared to 943,000 in 2025.
• Global Feedstock Prices -- Brent oil was priced at $108 per barrel at the time of the call, compared to an average of $87 per barrel in the third quarter.
• Balance Sheet -- $2.0 billion in cash and investments and $5.1 billion in total debt as of Sept. 30, 2026.
• Capital Expenditures Guidance -- $850 million for the full year 2026, which is $50 million lower than previous guidance due to cost reduction efforts.
• HIP Segment Guidance -- fourth-quarter revenue is expected between $900 million and $1 billion with an EBITDA margin of approximately 13%.
• European PVC Operating Rates -- industry-wide commodity PVC operating rates are approximately 60% in Europe due to weak demand and high costs.
• Ethane Prices -- increased 35% since the end of the third quarter, driven by high cracker utilization and record export demand.
• Identified Items -- $58 million in pre-tax charges related to the closure of the Cologne PVC facility and other restructuring costs.

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RISKS

• Gilson stated, "European PVC resin profitability has been and is likely to continue to be under significant pressure from the combination of weak domestic demand increasing imports and high regional feedstock and energy cost," regarding structural challenges in Europe.
• Baksht stated, "Our EBITDA increased... these benefits were partially offset by significant cost inflation particularly distribution expenses and European energy costs," noting headwinds to quarterly earnings.
• Gilson warned that over the summer, average 30-year mortgage rates increased from approximately 6.5% to above 7%, which "added to already high affordability concerns from potential home buyers."

SUMMARY

Westlake Corporation (NYSE:WLK) reported third-quarter results driven by margin expansion in its materials segment and continued progress on its global cost-reduction program, which helped mitigate cooling housing demand. Management reported that Performance and Essential Materials earnings increased significantly due to higher average selling prices and aGlobally advantaged feedstock position in North America. The company stated that the Housing and Infrastructure Products segment faced challenges from rising mortgage rates and a slowdown in residential construction, though these were partially offset by growth in infrastructure-related demand. Management is addressing structural profitability issues in Europe by closing a higher-cost PVC plant in Cologne and consolidating volume at a regionally advantaged site in Wilhelmshaven.

• CEO Gilson stated, "The combination of Wilhelmshaven's access to low cost North American feedstocks and sales volume from the Cologne consolidation, should enable us to run a highly competitive European commodity PVC business."
• The company reported that its three-pillar profitability improvement plan contributed approximately $200 million to the year-over-year EBITDA increase.
• Baksht noted that pipe and fittings sales volume through the first three quarters of 2026 was 8% higher than the prior-year period, driven by infrastructure investment and data center construction.
• Management reported that a new PVCO plant in Wichita Falls began operations last week, with the first commercial sales volumes expected in 2027.
• Management indicated that industry inventory levels for polyethylene are currently low, which supports a more bullish sentiment for pricing negotiations.
• The company closed the acquisition of a steel roofing company early in the fourth quarter to expand its product platform and improve its product offering.

INDUSTRY GLOSSARY

• PEM: Performance and Essential Materials, a Westlake operating segment focusing on chemicals and polymers.
• HIP: Housing and Infrastructure Products, a Westlake operating segment focusing on building materials.
• PVC: Polyvinyl Chloride, a common synthetic plastic polymer used in construction and packaging.
• Chlor-alkali: An industrial process for the electrolysis of sodium chloride to produce chlorine and caustic soda.
• VCM: Vinyl Chloride Monomer, a chemical intermediate used primarily to produce PVC.
• EDC: Ethylene Dichloride, a chemical precursor used in the production of VCM.
• PVCO: Molecularly Oriented Polyvinyl Chloride, a specialized high-strength material for pipe applications.
• SAAR: Seasonally Adjusted Annual Rate, a rate of measurement used to report economic data such as housing starts.
• TTF: Title Transfer Facility, a virtual trading point for natural gas in the Netherlands used as a pricing benchmark for European energy.

Full Conference Call Transcript

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Third Quarter 26 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in the question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, 11/04/2026. I would now like to turn the call over to your host, Jeffrey A. Holy, Westlake's vice president of finance and investor relations. Sir, you may begin.

Jeffrey A. Holy: Good morning, everyone. And welcome to the Westlake Corporation conference call to discuss our third quarter 26 results. I am joined today by Albert Yuan Chao, our Executive Chairman Jean-Marc Gilson, our President and CEO Jonathan H. Baksht, our Senior Vice President and Chief Financial Officer and other members of our management team. During the call, will refer to our 2 reporting segments, Performance and Essential Materials, which we refer to as PEM or Materials, and housing and infrastructure products, which we refer to as HIP, or Products. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's third quarter performance.

John will discuss our financial and operating results, after which Jean-Marc will add a few concluding comments and we will open the call up to questions. During the third quarter of 2026, we recorded $51 million of charges related to the shutdown of our Cologne PVC facility, $5 million of charges related to other previously announced facility closures and $2 million of other restructuring costs. We refer to these expense items which in aggregate were $58 million as the identified items in our earnings release and on this conference call. References to income from operations EBITDA, net income, and earnings per share on this call exclude the financial impact of the identified items.

As such, comments made on this call will be in regard to our underlying business results using non GAAP financial measures. A reconciliation of these non GAAP financial measures to GAAP financial measures is provided in our earnings release which is available in the Investor Relations section of our website. Today, management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10 ks for the year ended December 31, 2025, and other SEC filings.

We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our third quarter results. This document is available in the press release section of our at westlake.com. We have also included an earnings presentation which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today 2 hours following the conclusion of this call. This replay may be accessed via Westlake's website.

Please note that information reported on this call speaks only as of today, November 4, 2026, and thus, you are advised that time sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at westlake.com. Now would like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Jean-Marc Gilson: Thank you, Jeff and good morning, everyone. We appreciate you joining us to discuss our third quarter of 26 results. During the first quarter, we delivered $408 million of EBITDA and $220 million of free cash flow. Which were both significant improvement from the third quarter of 2025. The year over year earnings and cash flow growth was driven by a significant improvement in margins in our PEM segment as a result of the benefits from our 3 pillar profitability improvement plan and higher average sales price.

Which were largely driven by the impact of the Middle East conflict on global oil and feedstock cost whereas 85% of our ethylene operations are globally advantaged in North America utilizing feedstock from low cost natural gas. And solid growth more than offset a $20 million year over year decline in HIP EBITDA that was primarily driven by a shift in the timing of pipe and fittings customers' orders from the third quarter to the second quarter of 26. And the industry wide slowdown in housing activity driven by the increase in mortgage rates during the quarter.

Turning to cash flow, we converted more of our EBITDA to free cash flow in the third quarter of 2026, as our capital expenditures of $188 million were $51 million below the first quarter of 25 driven by our footprint optimization and cost-saving acts. During the first quarter, our 3 pillar profitability improvement plan once again provides a significant year over year margin and earnings tailwind. Through the first 3 quarters of 26, it has delivered $500 million of EBITDA uplift and it remains on track. To deliver $600 million of combined full year earnings improvement. Our footprint optimization work continued in the third quarter of 2026, with the announced closure of our PVC resin facility in Cologne, Germany.

Which should provide a benefit to EBITDA in 2027 and beyond. As we have discussed on previous calls, European PVC resin profitability has been and is likely to continue to be under significant pressure from the combination of weak domestic demand increasing imports and high regional feedstock and energy cost. Industry wide, commodity PVC resin operating rates are roughly 60% in Europe today. Which is indicative of the high end escalating cost environment and regional supply demand imbalance. In response, we have taken the strategic action to reposition our European commodity PVC resin business by consolidating a Cologne-based operation and sales volume, to our recently acquired regionally advantaged site in Wilhelmshaven, Germany.

The combination of Wilhelmshaven's access to low cost North American feedstocks and sales volume from the Cologne consolidation, should enable us to run a highly competitive European commodity PVC business. We believe that this is another example of the proactive approach that we are taking to improve the operations and profitability of our global network. As we manage through the current column downturn in the global chemical industry. This downturn has been unprecedented. And our growth with the advantaged feedstock and energy positioning North America as being a key strategic advantage as we navigate.

This was publicly apparent during the second quarter of 26 when global oil supply disruptions caused by the Middle East conflict caused a spike in the global price of many chemical products. Without impacting our North American ethane and natural gas cost. Leading to solid margins and earnings last fall. However, towards the end of the second quarter and early in the first quarter, many of these global chemical prices moderated as oil supply somewhat rebalanced and hopes rose for an end to the conflict. As a result, PEM experienced sequentially lower average sales price particularly for PVC resin and polyethylene in the first quarter of 26 that drove sequentially lower sales and margin.

Our European chlorovinyl business, experienced significantly lower margins, as a result of rapid escalation in elevated European energy cost during the third quarter. In addition to planned turnaround actions, at our newly acquired Wilhelmshaven facility, to bring the site up to Westlake standards and to position it for success in 2027 and beyond. The combination of these factors led to sequentially lower EBITDA in our PEM segment in the third quarter. Turning to HIP's sequential results, we experienced a larger than usual seasonal decline in sales volume of 17% from the second to the third quarter this year. Largely due to the pipe and fitting customer order timing shift that I mentioned earlier.

Additionally, housing product demand was lower due to the continued slowdown in North American residential construction activity. Over the course of the summer, interest rates on the average 30 year mortgage increased from approximately 6.5% to above 7%, which added to already high affordability concerns from potential home buyers. As a result, single family housing starts decelerated to a seasonally adjusted annual rate under 900 thousand starts in the first quarter of 26 as compared to 943 thousand starts in 2025.

Which had an impact on orders from our home builder and distributor customers as they adjusted their sales and inventory level to these lower construction levels and contributed to sequentially lower HIP sales volume and earnings in the third quarter. I will provide additional detail on our current outlook for HIP and PEM, at the end of the call. For now, I would now like to turn our call over to John to provide more detail on our financial results and performance for the third quarter of 26. John?

Jonathan H. Baksht: Thank you, Jean-Marc. Good morning, everyone. In the third quarter of 2026, Westlake reported sales of $3 billion and EBITDA of $408 million which compares to EBITDA of $313 million in the third quarter of 2025 and $679 million in the second quarter of 26. Before I discuss the details of our segment results, I want to provide some high level thoughts on the earnings bridges. Overall, our EBITDA increased by approximately $100 million from the third quarter of 25, Our 3 pillar profitability improvement plan contributed approximately $200 million to the year over year EBITDA increase. With another approximately $100 million contribution from higher PEM selling price.

These benefits were partially offset by significant cost inflation particularly distribution expenses and European energy costs. The Wilhelmshaven integration and lower HIP sales volume on a sequential basis, our third quarter EBITDA of $408 million was approximately $275 million lower than the second quarter of 26. There were 3 key drivers of the lower earnings. First, lower PEM selling prices. Primarily for polyethylene and PVC resin, which came off their initial highs at the onset of the Middle East conflict. Drove approximately $150 million of the sequential EBITDA decline. Second, sequentially lower HIP sales volumes contributed approximately $50 million to the quarterly EBITDA decline, with the biggest impacts coming from pipe and fittings and roofing.

And the third key driver in the sequential earnings bridge was around $50 million of higher input costs across European energy and North American diesel freight, and ethane. At the segment level, HIP sales of $1.1 billion in the third quarter of 26 were essentially unchanged from the prior year period. Excluding the ACI acquisition, which added 5% to third quarter sales, HIP sales volume declined 6% year over year, driven by lower housing product demand particularly for roofing and stone, as a result of the slowdown in North American residential construction.

HIP average sales price increased 1% year over year, driven by higher housing product prices HIP EBITDA of $195 million decreased by $20 million from the third quarter of 25 as a higher average sales price was not enough to offset cost inflation, which along with unfavorable mix shifts, drove a slight decline in HIP EBITDA margin to 18% from 20% in the prior year period. Looking ahead, we see an opportunity for HIP margins to recover in 2027 through cost reductions, efficiency efforts, and some pricing initiatives to offset the cost inflation that we realized in 2026.

Sequentially, Sequentially, HIP sales of $1.1 billion decreased by $165 million, driven by a 17% decrease in sales volume and a 4% increase in average sales price. The sales volume decline was most significant at pipe and fittings, which was impacted by a portion of pipe orders shifting from the third quarter of 26 into the second quarter of 26. As customers sought to secure supply in the wake of the onset of the conflict in the Middle East.

Putting the timing shift aside, by considering sales volume through the first 3 quarters of 2026 was 8% higher than the first 3 quarters of 25 which we believe is more indicative of the overall trend of pipe and fitting sales volume growth driven by infrastructure spending including increased demand from the construction of data centers. HIP's third quarter EBITDA decreased sequentially by $81 million due to the lower sales volume and cost inflation particularly higher diesel fuel and freight prices. Where contracts and market conditions allow, we are passing along the higher freight costs with fuel surcharges.

And in other cases, we will be going out to the market with selling price increases to offset the inflationary pressure we have been facing. Moving to our PEM segment. Sales of $1.9 billion increased 8% year over year driven by a 9% increase in average sales price led by polyethylene and PVC resin. And a 4% increase in comparable sales volume. The combined impact to PEM sales from plant closures and the Wilhelmshaven acquisition was a year over year reduction in sales of 5%.

PEM's third quarter of 2026, EBITDA margin expanded to 11% from 5% in the third quarter of 25 as a result of the higher average sales price and benefit from our 3 pillar profitability improvement plan. The higher sales, favorable geographic sales mix, and improved margin drove a $125 million year over year increase in PEM's third quarter EBITDA to $215 million While we are pleased with the year over year improvement in PEM's third quarter earnings and margins, they are still well below our view of mid cycle reinvestment level economics.

We believe that certain assets in the industry are operating at cash margins that are unsustainable over the medium to long term, which we believe could improve the global supply demand balance supporting an eventual recovery in PEM selling prices and margins. Compared to the second quarter, PEM's third quarter of 26 sales decreased by 6% driven by an 8% decline in average sales price. Particularly for PVC resin and polyethylene. That was partially offset by a 2% contribution to sales from the Wilhelmshaven acquisition. Since peaking in May, US contract prices for polyethylene fell 15¢ per pound in June, and 10¢ in July, before recovery of 5¢ in September.

Which brought polyethylene's year to date price gains to 25¢ at the end of the third quarter, Meanwhile, contract prices for U. S. PVC fell 3¢ per pound in July with export prices down approximately 9¢ per pound on average from the second to third quarter. As of the end of the third quarter, both contract and export PVC prices were up 10¢ per pound since the start of the year. Prices for commodity PVC in Europe ran up even more in the second quarter and came down even more sharply in the third quarter. With average prices down approximately 20¢ per pound sequentially.

The lower average selling prices were the primary driver of PEM's sequential EBITDA decline with additional earnings headwinds from higher European energy costs and planned turnaround. Including actions taken to integrate the recently acquired Wilhelmshaven site into Westlake's global manufacturing footprint. Now turning to the balance sheet and cash flow statements. We continue to maintain financial flexibility with a strong balance sheet, as well as our long standing commitment to a solid investment grade credit rating. As of September 30, 2026, cash and investments totaled $2 billion and total debt was $5.1 billion with a staggered long term fixed rate debt maturity schedule.

For the third quarter of 2026, net cash provided by operating activities was $408 million while capital expenditures were $188 million resulting in free cash flow of $220 million. As is typically the case due to the seasonality of many of our businesses, we expect our cash flow in the fourth quarter of 26 to benefit from a significant release of working capital. Now let me provide guidance for the remainder of the year. Based on our current view of demand and prices, we expect fourth quarter of 26 revenue in our housing and infrastructure product segment to be between $900 million and $1 billion with an EBITDA margin of approximately 13%.

Which reflects the typical 4 to 5 percentage point quarterly seasonal margin decline in the business. In PEM, U. S. Contract PVC prices were flat in September while US contract polyethylene prices for October have yet to settle. We are working to implement our 5¢ per pound increase announcement In addition to the 5¢ per pound price increase realized in September, which will help to offset sequentially lower expected PEM sales volumes due to turnaround and seasonality. Total capital expenditures for the company for 2026 are now expected to be $850 million, which is $50 million lower than our prior guidance and is approximately $150 million lower than last year due to cost reduction efforts.

We will also continue to invest inorganically to drive growth. Early in the fourth quarter, we closed on the acquisition of a steel roofing company that we expect to broaden our offerings and strengthen our platform. We continue to expect full year 2026 cash interest expense to be approximately $215 million We are delivering on our 2026 cost reduction initiative but are not stopping there. As we look forward into 2027, we recognize the need to do more against the challenging macroeconomic backdrop with the slowdown we are seeing across the building product space in both new construction and repair and remodel.

In PEM, the market continues to be oversupplied globally, in a number of key products, with a 6% addition to global polyethylene capacity expected in 2027 For vinyl, supply dynamics are relatively more favorable with a 2% capacity increase expected for each of PVC resin and caustic soda next year. We will continue to be proactive in responding to changes in the market by matching our supply to profitable demand opportunities. Now I will turn the call over to Jean-Marc to provide further color on the current outlook for our business. Jean-Marc?

Jean-Marc Gilson: Thank you, John. As we look ahead to the end of the year, and into 2027, conditions remain dynamic and there are 3 macroeconomic areas in particular that we expect will have an impact on our financial results. First, global oil and energy prices have once again been on the rise. Creating some potential tailwinds in pricing for many of our PEM products and partially offsetting seasonal and comp headwinds for our earnings. Brent oil, currently trades at $108 per barrel as compared to an average of $87 in the third quarter of 26. European natural gas prices are currently the equivalent of $33 per million Btu.

As compared to an average of $21 in the first quarter of 2026, and $10 in the fourth quarter of last year. And diesel prices in the U.S. are currently at $6.35 per gallon. Which is nearly $1 more than the third quarter of 26 and almost double the fourth quarter of last year. So while higher global oil prices should support higher selling prices in our advantaged segment, there will likely be some partial offsets in the near term from cost inflation in other parts of the company. Second, global interest rates have been increasing in recent months. Partially as a result of higher inflation expectations.

The average 30 year mortgage rate in The US is currently 7.3%, which is 50 basis points higher than the first quarter average and over 100 basis points higher than the fourth quarter of last year. This higher borrowing cost has driven the affordability of US homes to 1 of its lowest levels in decades. Which has led to a significant decrease in home builder foot traffic, single-family housing starts, and building permits. HIP's third quarter sales volumes and earnings, reflected this trend of slowing residential construction activity. Which we currently expect to continue in 2027 with some offsetting benefits to HIP sales volume growth from continued demand growth from infrastructure investment and the underlying strength.

Of our product portfolio innovation, and customer relationships in our HIP operations. Finally, global industrial and manufacturing activity continues to show steady improvement. As demonstrated by the October PMI reading of 55.5 reported 2 days ago. Which was the tenth consecutive month in expansionary territory. PMI readings in The EU and China have also been at or above 50 each month. This year. Showing the resilience of the global economy to higher oil and interest rates. Our own take volumes for products generally exposed to industrial and manufacturing markets and generally follow this trend of modest growth throughout 2026. And we would expect demand for these products to continue to follow PMI reading as we move into 2027.

While macroeconomic conditions will impact our results, they are largely outside our control. Hence, our efforts and focus for the rest of the year and into 2027 will be on improving our cash flow by controlling what we can control including 1, continuing to build upon our 3 pillar profitability improvement plan. We recognize the need to identify and deliver even more cost savings and plant reliability improvement in 2027, to compensate for macroeconomic headwinds. As a result, we will continue to be proactive and diligent in our assessment of prospects for long term profitability at each of our sites. And we will take action when and where necessary. 2, identifying and executing on organic and inorganic growth opportunities.

Last week, a new PVCO plant in Wichita Falls began operations. With its first commercial sales volume expected in 2027. This plan represents a meaningful investment in an innovative fast growing product that delivers significant value to our customers while also providing attractive margins and returns for our stake. M&A also remains a focus area for Westlake. And we believe that our solid investment grade balance sheet with $2 billion of cash and cash equivalents positions us well to acquire attractive assets at reasonable valuations in a rising interest rate environment, such as the 2026 acquisition of ACI, Wilhelmshaven, and a steel roofing business. And 3, improving our product offering through innovation and intense focus on customer service and satisfaction.

We expect 2027 to be a challenging year for the home building industry. And in such an environment, our ability to continue to outperform the broader building products market will rest largely on our ability to increase engagement with and provide value to our large national homebuilder and distribution system. It will be important for our team to address the need to improve the affordability of new homes through the right product offerings while keeping up with the latest design and trends. So in summary, as has been the case in recent years, macroeconomic conditions, remain fluid. And our near-term focus will continue to be on creating our own tailwinds.

My confidence in our ability to adapt to and succeed in these dynamic conditions rests largely on Westlake's foundational strengths. Which include a diversified and complementary portfolio of businesses, our vertically integrated business model, a globally advantaged feedstock and energy position in the US, an experienced management team with the right capabilities for transformation, a strong supportive customer base, and finally, our investment-grade-rated balance sheet with $2 billion of cash and security. Thank you very much for listening to our third quarter earnings call. I will now turn the call back over to Jeffrey.

Jeffrey A. Holy: Thank you, Jean-Marc. Before we begin taking questions, I would like to remind listeners that our earnings presentation which provides additional clarity into our results, is available on our website and a replay of this teleconference will be available 2 hours after the call has ended. We will now take questions.

Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 1-1 on your telephone wait for your name to be announced. To withdraw your question, please press 1-1 again. Please stand by as we compile the roster. Our first call comes from the line of Patrick Cunningham with Citi. Go ahead. Your line is open.

Patrick Cunningham: Hi. Good morning. I think I wanted to start on the higher diesel and freight within the HIP business. You noted some price increases here. I guess, 1, what is the price cost headwind that you are anticipating into Q4? And are customers accepting these pass through increases? And given the broader market weakness. Is there any risk of volume destruction or more aggressive inventory management?

Jonathan H. Baksht: Yeah. Good morning, Patrick. In terms of the cost headwinds in specifically in the HIP business where we guide to, there is not necessarily seeing an abatement right now. What happens in the Middle East is certainly going to be a big driver, but we expect there to be a lag effect even once that resolves, just given low inventory levels across both crude and diesel. And what we are planning for and what is reflected in our guidance is a continued market environment that we are. we saw in Q3 that is carrying over into Q4. We are going to address that by working on efficiencies across the business.

Find ways to lower our costs holistically to overcome that, and then some selective price increases where we can get them. it is from a Q4 standpoint, it is going to be hard to recognize a lot of pricing. There is a lag effect to that as well. And so that is. Those are really the factors that are baked into our guidance for Q4 that you see.

Patrick Cunningham: Understood. Very helpful. And then the higher European energy costs, there is a pretty significant impact, I guess, 1, can you help quantify what the headwind was both sequentially and year on year? And then what do you anticipate Q4 and exiting into the first quarter? And how are you planning your operations for that environment?

Jonathan H. Baksht: Sure. I am happy to take that 1. Well, to give you a sense of what is going on in European energy prices, just year over year, we saw, for Q3, a 50% increase in power costs. And so this is in euro terms. But on average, in Q3, we were around €84 per megawatt hour. Q3 averaged closer to 126 per megawatt hour. And if you look at where things were in October, it went up to 170 on average. And today, we are seeing prices in excess of 200 per megawatt hour. So clearly, it is a big impact that is going on in Europe right now in terms of what we are seeing in that market.

As it relates to quantifying it for Q2, within the PEM business, it was roughly a $20 million headwind on cost just from the European energy complex. I am sorry, for Q3 I mean Q2. For Q3, the last quarter. Thank you.

Operator: Stand by for our next question. The next question comes from the line of Frank Mitsch with Fermium Research. Go ahead. Your line is open.

Frank Mitsch: Yes, good morning. I was wondering if you could talk a little bit more about polyethylene expectations. Here in the fourth quarter. Obviously, you got the 5¢ in September, not a lot of it was realized. In the third quarter, so you will get the whole benefits of that here in the fourth quarter. As you indicated, you are going for price increases, in October. And then also, I mean, we are seeing we are seeing ethane prices really spike up here, which 1 would think would help in your negotiations. But any kind of sense, in terms of what your expectations are on polyethylene pricing or probably more importantly on the margin side given where ethane prices are currently?

Thank you.

Jean-Marc Gilson: Yeah, thank you. So the demand first for polyethylene in the US has been strong. and it is been strong both for domestic and export markets. Industry inventories are down. And so it is supporting a more bullish sentiment for pricing. Globally, the spot prices have been trending higher, at 10¢ per pound since the start of the third quarter, and it is continuing to move higher into November. As we look into the fourth quarter, I think we expect that there would be some seasonality in terms of the sales volume. But so far, we have seen. What we have seen the other pattern is that it is been holding pretty strong.

So, we have not seen a big decline in. So far this. So far in the third quarter. Regarding the pricing, as you said, I mean, polyethylene went up 5¢ per pound in September. Think there is a 5¢ nomination for October. it is not settled yet. And I think there is also from the market a 5¢ nomination in November. So, we see what it does, but overall, we expect a pretty good quarter for our olefin business in the company. Thank you.

Frank Mitsch: And then, and then also you have been doing some things. Obviously, you have European PVC markets with the Wilhelmshaven acquisition. And then I also saw that there is some. the European Commission is looking at some anti-dumping that is taking place, in that part of the world. You indicated that, you know, there were going to be some costs associated with the write down of Cologne and the Wilhelmshaven acquisition. How do you think about European PVC profitability with the shutdown of Cologne, the, moving of the volumes over to Wilhelmshaven, and any potential benefits from this European Union PVC anti-dumping investigation.

Jean-Marc Gilson: Yeah. So, yeah, thanks for the question. I think they are going in the right direction. So The European Commission started the investigation, and so now anyone who is importing to the EU has to register the sales and volume and price with the European information. So we think this is a good step, from the European Union. As John has explained, I mean, the price for electricity, not only for gas, but for electricity, which is a key factor for us in producing chlorovinyl, has been really shooting up and I think putting tremendous pressure on the industry.

That is why a few. a few quarters ago, we decided to go ahead and buy the Wilhelmshaven And Wilhelmshaven is insulated for a very large part from energy, from electricity prices in Europe as we import and we will import and we are importing most of our intermediates and EDC from the Gulf Coast. So we think that we have Wilhelmshaven in the long term And long-term, I mean, starting in 2027, it is going to be a winner for us. In the meantime, we are also restructuring the rest of our assets eliminating cost. And we expect 2027 to, unless something really changes, we expect that the profitability in Europe will turn back positive again.

And our goal is to get back to a cash flow neutrality next year. Thank you. Thank you.

Operator: 1 moment. Our next question comes from the line of David Begleiter with Deutsche Bank. Go ahead. Your line is open.

David Begleiter: Good morning. Jean-Marc, ethane is up 35% since the end of the quarter. While oil is dropping. So why do you think that is? what is your. What are your expectations for ethane in Q4? And are your expectations for ethane in 2027? Thank you.

Jean-Marc Gilson: Yeah. So, yeah, it is correct that ethane went up, and I think it is mostly driven by demand for LPG and gas overall. it is up in the. It was starting to go up. We expect it to stay up in the fourth quarter. We are expecting it to probably go down a little bit, but we cannot predict for next year. But overall, the price increase that we are seeing on ethylene are more than offsetting. What we are in polyethylene, the rise in ethane. So. And at the same time, what you are seeing is that gas prices continue to be very low at about $2.50 per million BTU.

So overall, we still expect to have a positive contribution to our business in the quarter. The combination of even a little bit higher ethane price lower gas price, and higher polyethylene prices. If John wants to add anything, John?

Jonathan H. Baksht: Yeah. And, you know, the other dynamics here that are putting some upward pressure on ethane. Right now, if you look at the cracker fleet for the industry, we are running around mid-90% utilization, which is very high. You have seen Golden Triangle starting up early. that is also increasing some demand. And then you are also seeing exports are near records. there is limited dock capacity right now, but it is there is a strong pull on the ethane right now. Very good.

David Begleiter: And just a little bit long term, when the conflict does end and the Strait reopens, long do you think it will take to normalize supply chains and inventories and production? To get back to preconflict levels and activity. Thank you.

Jean-Marc Gilson: Look, that is-- it is a great question, and I wish I knew the answer But we think that it is going to take several months. To get back to normal. it is not going to be overnight. I think it would take probably upwards to 6 months to a little bit more to normalize. And, again, think we have been getting a few questions about the. What happens when the conflict ends I think people need to remember that the conflict, not certainly-- there. There were some positives side of it, which is most important. It has pushed prices up. On the other side, it has had some significant negative impact on the company too.

European energy is 1 factor that we just covered The other 1 is that transportation cost have really increased dramatically. And we are seeing that every month in the company. Inflation also has been pretty high. And then last but not least, I mean, it has pushed up interest rates too. So while it has been-- it has some benefit on 1 side of benefits certainly had the other side. So overall, we will see that there was still a little bit of a net positive. But. And that is why we will continue to control what we can control.

And focusing on our cost so that when and if we go back to normal, we continue to some progress on our earnings and profitability. And the other factor, just do not forget what we are seeing is inventory levels for polyethylene right now are very low. And we will also take some time to rebuild those. Thank you.

Operator: 1 moment, please. The next call comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Your line is now open.

Salvator Tano: Hi, this is Salvator Tano on behalf of Aleksey. I am just trying to understand your HIP inflation and year on year results a little bit better. Assuming organic and M&A volumes did not have a material impact, to your bottom line, You faced a $20 million year over year price cost headwind. And with just 1% price, that implies a 3% inflation. So why was inflation so muted? Is given PVC prices alone, it should have been materially higher? Thanks.

Jonathan H. Baksht: Yes. What you are seeing is that, you know, it is. The bridge there is really just a mix effect. And, from a margin perspective, if you look at where our sales were, they were disproportionately on higher margin mix in Q2. And we talked about some of the pull forward effect in some of our pipe and fittings and infrastructure business. And, that mix impact was really what drove that delta you are talking about. Thank you. Thank you.

Operator: 1 moment. Our next question comes from the line of Peter Osterland with Truist Securities. Go ahead. Your line is open.

Peter Osterland: Hey. Good morning. Thanks for taking the questions. First, just on the volume declines you saw in hip in the third quarter, could you bifurcate between what you are seeing and new construction demand versus repair and remodel? And are you anticipating any further destocking activity in the fourth quarter and then into early 2027?

Jonathan H. Baksht: Sure. So the mix right now is certainly low. there is more compression in the new construction market than there is in repair and remodel. They are both down year over year. The new construction is probably more mid to high single digits, where repair and remodel is closer to low single digits. But compression on both And as it relates to destocking in Q4, part of what we are estimating is that there will be some effective destocking in Q4 as there is just pressures on our customers and through that supply chain due to the market softness. So we would expect to see that going into year end.

Which is also seasonal factors as well, as you know, in Q4.

Peter Osterland: Great. And then also wanted to ask just your footprint optimization activities have been largely focused on PAM more recently. But just given the continued slowdown for building products demand, how are you assessing your current footprint in HIP? Are you seeing any need for rationalization in that business? Any areas of the business that are particularly disadvantaged right now from a cost or demand perspective?

Jean-Marc Gilson: Yeah, no, it is a good question. I think you are right. We have been mostly talking about PEM because anytime we do some rationalization there, it is big dollar and it is big size and it is lots of people at 1 time. But we have been at the same time really continuing also to focus on productivity on the HIP side, and we have closed numerous smaller sites in HIP this year and last year. We have seen the benefit of it. We have seen also a significant reduction in employees. So we have focused in HIP as well as in PEM on productivity improvement, and we will continue to see the benefit getting into next year.

You are right that with the condition that we are facing, we are probably. We are right now redoubling our efforts in making sure that we contain the cost also on the HIP side as well as on the PEM side. Thanks a lot.

Operator: 1 moment. Our next question comes from the line of Aleksey Yefremov with Barclays. Go ahead. Your line is open.

Aleksey Yefremov: Thank you, and good morning, everyone. Could you discuss your energy exposure in Europe To what degree are you paying sort of spot TTF or spot energy prices Or do you have sort of extensive hedging programs or maybe long term power agreements that allow you to smooth the volatility in the region?

Jean-Marc Gilson: Yes. No, it is a good question. I think as John said, we are starting to see prices, and we are mostly exposed in Germany because all of our chlorovinyl facilities in Germany, which unfortunately is 1 of the highest energy price in Europe. We are seeing some competitors to have-- prices are not exactly the same across Europe. So, we have seen certainly some spikes in Germany. That have influenced the price of our derivatives. So we do have some programs, but we are not hedged completely. In terms of energy prices. And we have seen really wider fluctuation So we have program in place to deal with the with the issue.

Right now that we have-- we have-- we are doing the final stages of doing a large turnaround at Wilhelmshaven, once that facility starts, we will start seeing the full impact of importing raw material, advantaged-price raw material from the Gulf Coast into the European market. Thank you.

Aleksey Yefremov: And you have already provided some commentary on pricing and margins in HIP, but just wanted to understand it a little bit better. So is your price cost spread getting better, worse, or staying the same in the fourth quarter compared to the third quarter, And then do you expect those price-cost situation to start improving in first half? Or not?

Jonathan H. Baksht: Yeah. We are not going to provide anything in guidance for next year. But in terms of Q4, there is a little bit of pricing. But as I mentioned on a previous answer, there is really not much changing. We are doing some fuel surcharges where we can pass those along. I would not expect a large price increase delta between Q3 and Q4 And that is why you are seeing the margin from our guide is fairly with Q3 margins. The other piece that I would note is from a mix shift standpoint, we should benefit some from a more positive mix. Going into fourth quarter, which will offset some of the cost pressures that we are currently seeing.

Operator: 1 moment. The next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is now open.

Kevin McCarthy: Yes. Thank you very much, and good morning. Was wondering if you could comment on your caustic soda price experience in the third quarter as well as your outlook for the fourth quarter and beyond?

Jean-Marc Gilson: Yeah. Yeah. Cost soda. So if you look at the caustic soda this year, it is an interesting story because it is overall. The market is been stable, a little bit on the weak side, the global caustic market has been a little bit on the weaker side. Now it is very interesting that this year, and I think it is a result of the war in the Middle East, the markets have really regionalized. In a sense that, in the US, prices have been stable. They are a little bit on the up right now.

And looking in the fourth quarter, but it is not-- it is been really mostly driven by outages and a few things like that and a little bit of a supply constraint in Europe, Sorry. Prices are also going up. And the surprising thing, which is a little bit unusual, is that price are going down in Asia because of oversupply mostly in China. But it does not have an impact across the world. And hence going back to the regionalization. The reason being that it is really hard to put your hand on the availability of transport and ships is very complicated right now. Not only the availability, but the cost also.

So it has really been putting a floor to the caustic market that we have not seen in previous years. So overall, that is what is really sustaining the caustic prices that we are seeing in the market right now. And we are pretty much looking into the same thing with a little bit of an uptick in the fourth quarter. Yeah.

Jonathan H. Baksht: And I will let you know, Kevin. Yeah. Kevin, I was just gonna add just the specifics around your question if you want some pricing. October was up 5¢. And right now, with CMA forecast, another 10¢ in November. Thank you for that.

Kevin McCarthy: And then secondly, just had a broad question about the planned maintenance activity that you would foresee in the fourth quarter across the company and whether or not there are any unplanned outages at the moment that we should be taking into account for modeling purposes.

Jean-Marc Gilson: We have a few unplanned activity and nothing really big. Right now, we have some planned outages mostly on the VCM side at Lake Charles South, but it was all planned. So apart from that, normal and regular maintenance across the fleet. Thank you so much.

Operator: 1 moment. Our next question comes from the line of Abigail Eberts with Wells Fargo. Your line is now open.

Abigail Eberts: Hi. Thanks for taking my question. Another 1 on ethane. Just looking at your overall feed slate. I know you are primarily ethane, but just wondering about your distribution between that and other NGLs at the moment given what we have been seeing with, like, butane prices, for example.

Jean-Marc Gilson: We have no exposure except in our fleet. So it is 100% ethane. As far as our crackers are concerned. Okay. Thank you.

Operator: 1 moment. Our last question comes from the line of Joshua Spector with UBS.

Joshua Spector: I just want to kind of wrap up on HIP, I guess, at a high level. I mean, it seems like the commentary is targeted pricing and cost savings where you can in fourth quarter But what is the approach to 2027 here? Do you expect to be able to get January 1 pricing through distribution at all Or are you already kind of digging deeper around cost savings to improve or preserve margin next year? So how do you weigh those 2? And frankly, where you compete in high versus low end, which has been a factor this year as well? Thank you.

Jonathan H. Baksht: Yeah, Joshua. it is all of the above. You know, we are going to do everything we can get margins back to the levels that, they were at this year. And the 1 that we can control the most is efficiencies, cost savings, Jean-Marc touched on looking at the footprint and other pieces. it is clearly not as big as some of the PEM items. But it is we are going to drive efficiencies wherever we can. that is first and foremost. it is really surprising. You know, we are still early November And, you know, we.

We are gonna work with our customers and be very strategic around where pricing is appropriate, where not, where we can get some fuel surcharges in there. There will be some price increases, but it is it is still premature at this point of the year to be telling you what 2027 price will be. But there will certainly be some pricing flowing through next year. Okay. Thank you.

Jean-Marc Gilson: And if I may add also 1 thing-- sorry. If I may add 1 thing around hip. We have a few different I mean, segments also in HIP. Some have been doing pretty well, actually. And so siding and trim and even supplying to the housing market, we have been pretty good, pretty resilient. We have seen some weakness in some stone and roofing. But if you look at our pipe and fittings, yeah, we had a third quarter down, and we are expecting it. But in this quarter, we are back to normal volume. So it is not as if the flow is. I mean, we are going through the floor and also in a.

I mean, electrification and more infrastructure business, we are doing pretty well. So we have a-- we are still I mean, pretty okay with our HIP segment. Yes. We are seeing anything that is driven by housing and starts, we are cautious. But we also have some strength in other places. Thank you.

Operator: The question-and-answer session has now ended.

Jeffrey A. Holy: Are there any closing remarks? Yes. Thank you, Jeff, and thank you, everyone, for participating in today's call. We hope you will join us again for our next conference call to discuss our fourth quarter results.

Operator: Thank you for participating in today's Westlake Corporation Third Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.

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