Earnings call transcript: Westlake Chemical Q4 2024 earnings beat forecast

Westlake Chemical Partners LP (NYSE:WLKP) reported its fourth-quarter 2024 earnings, surpassing analysts’ expectations with an EPS of $0.43 against a forecast of $0.37. The company also exceeded revenue forecasts, posting $290 million compared to the expected $262 million. Following the announcement, Westlake’s stock saw a 1.69% increase in pre-market trading, reflecting positive investor sentiment. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, with the company maintaining a "GREAT" overall financial health score of 3.23 out of 5.

Key Takeaways

• Westlake Chemical (NYSE:WLK)’s Q4 2024 earnings per share exceeded expectations by $0.06.
• Revenue for the quarter was $290 million, surpassing forecasts by $28 million.
• The company’s stock price rose by 1.69% in pre-market trading post-announcement.
• Full-year 2024 net income increased by $8 million due to higher ethylene sales prices.
• Planned operational turnaround in 2025 may temporarily impact earnings.

Company Performance

Westlake Chemical Partners LP demonstrated robust performance in Q4 2024, with net income reaching $15 million. The full-year net income was $62 million, marking an $8 million increase from the previous year. This growth was largely driven by improved third-party ethylene sales prices and margins. The company maintained its strong leverage metrics, with a consolidated leverage ratio below 1x, and capital expenditures totaling $49 million for the year.

Financial Highlights

• Revenue: $290 million for Q4 2024, up from the forecasted $262 million.
• Earnings per share: $0.43, beating the expected $0.37.
• Full-year net income: $62 million, an increase of $8 million year-over-year.
• Distributable cash flow for Q4: $15 million ($0.42 per unit).

Earnings vs. Forecast

Westlake Chemical’s Q4 2024 earnings per share of $0.43 surpassed the forecast of $0.37, representing a surprise of approximately 16.2%. Revenue also exceeded expectations by $28 million. This performance marks a continuation of the company’s trend of surpassing market predictions, aligning with its historical earnings performance.

Market Reaction

Following the earnings announcement, Westlake Chemical’s stock price increased by 1.69%, closing at $24.63 from the previous close of $24.22. This movement places the stock closer to its 52-week high of $24.98, indicating positive market sentiment and investor confidence in the company’s performance and outlook.

Outlook & Guidance

Looking ahead, Westlake Chemical has identified four growth levers, including increasing ownership interest in OpCo and exploring organic growth opportunities. The company aims for a 1.1x distribution coverage ratio and anticipates a temporary earnings impact from a planned turnaround in 2025. Future EPS forecasts suggest stable growth, with projections of $0.39 for Q1 2025 and $0.45 for Q2 2025. InvestingPro data shows the company maintains strong cash flows that sufficiently cover interest payments, with a P/E ratio of 14.07 and historically low price volatility, making it an interesting consideration for income-focused investors.

Executive Commentary

Jean Marc Gilson, President and CEO, emphasized the stability of Westlake’s business model, stating, "The stability of our business model and associated cash flows demonstrate the benefit that our ethylene sales agreement and its protective provisions provide." CFO Steve Bender highlighted the value proposition of the partnership, despite incremental administrative costs.

Risks and Challenges

• Potential supply chain disruptions could affect production timelines and costs.
• Market volatility in ethylene prices may impact profitability despite fixed-margin agreements.
• The planned operational turnaround in 2025 is expected to temporarily impact earnings.
• Macroeconomic pressures, such as inflation, could influence operational costs and margins.

Q&A

During the earnings call, analysts inquired about the potential termination of the MLP arrangement. Steve Bender confirmed that the MLP provides value that offsets administrative costs. The discussion also covered the expected temporary impact of the planned turnaround on earnings and cash flow.

Full transcript - Westlake Chemical Partners LP (WLKP) Q4 2024:

Conference Operator: Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speakers’ remarks, you’ll be invited to participate in the question and answer session.

As a reminder, this conference is being recorded today, 02/24/2025. I would now like to turn the call over to your host, John Zeller, Westlake Chemical Partners’ Vice President and Treasurer. Sir, you may begin.

John Zeller, Vice President and Treasurer, Westlake Chemical Partners: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners’ fourth quarter and full year twenty twenty four conference call. I’m joined today by Albert Chao, our Executive Chairman Jean Marc Gilson, our President and CEO Steve Bender, our Executive Vice President and Chief Financial Officer and other members of our management team. During this call, we refer to ourselves as Westlake Partners for the Partnership. References to Westlake refer to our parent company, Westlake Corporation and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the Partnership, which owns certain olefins assets.

Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners’ MLP distributable cash flow. Definitions of these terms are available on the Partnership’s 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. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website.

This morning, Westlake Partners issued a press release with details of our fourth quarter and full year 2024 financial and operating results. This document is available in the Press Release section of our webpage at wlkpartners.com. A replay of today’s call will be available beginning two hours after the conclusion of this call. This replay can be accessed via the Partnership website. Please note that information reported on this call speaks only as of today, 02/24/2025, and therefore, you are advised that time sensitive information may no longer be accurate as of the time of any replay.

I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage at wlkpartners.com. Now I’d like to turn the call over to Jean Marc Gilson. Jean Marc?

Jean Marc Gilson, President and CEO, Westlake Chemical Partners: Thank you, John. Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year twenty twenty four results. In this morning’s press release, we reported Westlake’s partner full year 2024 net income of $62,000,000 or $1.77 per unit. Consolidated net income including OpCo was $369,000,000 for the full year 2024. Westlake Partners’ financial results continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual plant production each year, insulating us from market volatility and other production risk.

This structure, combined with our investment grade sponsor, Westlake, produces predictable earnings and stable cash flows. This was evident in 2024 as we delivered another year of solid results and sustained distributions to our unitholders. The stable fee based cash flow generated by our fixed margin ethanol sales contract with Westlake forms the foundation for us to deliver long term value to our unitholders. This quarter’s distribution is the forty second consecutive quarterly distribution since our IPO in July of twenty fourteen without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter and full year.

Steve?

Steve Bender, Executive Vice President and Chief Financial Officer, Westlake Chemical Partners: Thank you, Jean Marc, and good afternoon, everyone. In this morning’s press release, we reported Westlake Partners’ fourth quarter twenty twenty four net income of $15,000,000 or $0.43 per unit. Consolidated net income including OpCo’s earnings was $87,000,000 on consolidated net sales of $290,000,000 The Partnership had distributable cash flow for the quarter of $15,000,000 or $0.42 per unit. Fourth quarter twenty twenty four net income for Westlake Partners of $15,000,000 increased by $1,000,000 compared to the fourth quarter twenty twenty three Partnership net income of $14,000,000 The higher net income was primarily driven by lower SG and A expense in the fourth quarter of twenty twenty four. Distributable cash flow of $15,000,000 for the fourth quarter twenty twenty four decreased by $1,000,000 compared to the fourth quarter of twenty twenty three distributable cash flow of $16,000,000 due primarily to higher turnaround reserve and maintenance capital contributions to support the planned Petro one turnaround.

For the full year of 2024, net income was $62,000,000 or $1.77 per unit, which increased by $8,000,000 compared to full year 2023 net income of $54,000,000 The increase in net income attributable to the Partnership was due to higher third party ethylene sales prices and margins. Our full year 2024 MLP distributable cash flow of $67,000,000 increased by $4,000,000 compared to MLP distributable cash flow of $63,000,000 for the full year of 2023 due to higher net income. Our distribution coverage for the full year of 2024 was 1.01x. Turning our attention to the balance sheet and cash flows. At the end of the fourth quarter, we had consolidated cash and cash investments with Westlake through our investment management agreement totaling $193,000,000 Long term debt at the end of the quarter was $400,000,000 of which $377,000,000 was at the Partnership and the remaining $23,000,000 was at OpCo.

In 2024, OpCo spent $49,000,000 on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio below one times. On 01/27/2025, we announced a quarterly distribution of $0.4714 per unit with respect to the fourth quarter of twenty twenty four. Since our IPO in 2014, the Partnership has made 42 consecutive quarterly distributions to our unitholders and we have grown distributions 71% since the Partnership’s original minimum quarterly distribution of $0.275 per unit. The Partnership’s fourth quarter distribution will be paid on February 25 to unitholders of record 02/07/2025.

The Partnership’s predictable fee based cash flow continues to prove beneficial in today’s economic environment as differentiated by the consistency of our earnings and cash flows. Looking back, since our IPO in July of twenty fourteen, we have maintained a cumulative distribution coverage ratio of approximately 1.1 times and the Partnership stability and cash flows, we were able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have one planned turnaround in 2025 at our Petro one ethylene unit in Lake Charles, Louisiana. This turnaround began at the January and is projected to last approximately sixty days. In prior years where we had a planned turnaround such as this one, the distribution coverage ratio is impacted for the period before recovering and for this turnaround we would expect a similar result.

The cost of this turnaround has been included in the amount we charge to Westlake and has been fully reserved for and funded as we commence the turnaround. Now I’d like to turn the call back over to Jean Marc to make some closing comments. Jean Marc?

Jean Marc Gilson, President and CEO, Westlake Chemical Partners: Thank you, Steve. We are pleased with the partnership financial and operational performance through the fourth quarter and the year as a whole. The stability of our business model and associated cash flows demonstrate the benefit that our ethylene sales agreement and its protective provisions provide the Partnership through predictable long term earnings and cash flows. During 2024, North American spot ethylene prices and margins improved due to a tightening of industry supply demand conditions. Through OpCo, the Partnership was able to benefit from these improving conditions through higher third party ethylene sales prices and margin.

Thus far, in 2025, third party Italian sales prices and margins are again at relatively favorable levels, which would benefit our financial performance once again. Turning to our capital structure, we maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our four levers of growth in the future, including increases of our ownership interest of OpCo, acquisitions of other qualifying income streams organic growth opportunities such as expansions of our current ethylene facilities and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long term value and distributions to our unitholders. As always, we will continue to focus on safe operations along with being good stewards of the environment where we work and live as part of our broader sustainability efforts.

Thank you very much for listening to our fourth quarter and full year twenty twenty four earnings call. Now I will turn the call back over to John.

John Zeller, Vice President and Treasurer, Westlake Chemical Partners: Thank you, Jean Marc. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available two hours after the call has ended. We will provide instructions to access the replay at the end of the call. Kevin, we will now take questions.

Conference Operator: Thank you. First question comes from Matthew Blair with TPH. Your line is open.

Matthew Blair, Analyst, TPH: Thank you and good afternoon everyone. On the parent call, the WLK call, there was some talk about incremental cost cuts targets in 2025. Would Westlake be interested in ending the MLP arrangement as a way to cut costs further?

Steve Bender, Executive Vice President and Chief Financial Officer, Westlake Chemical Partners: So Matthew, it’s Steve. I would say that as we look at opportunities for the Partnership, we look at really the value proposition the Partnership has brought forward. And while there are incremental administrative costs to administer the operations of the partnership, as you look at the value proposition the partnership has provided to Westlake, it continues to provide a value from a multiple perspective when you look at the EV to EBITDA multiple. So therefore, while it is an administrative cost, the value proposition offsets that administrative costs. So for cost control reasons, that would not be a consideration.

Matthew Blair, Analyst, TPH: Okay. Thank you. And then could you talk a little bit more about the expected financial impact from this sixty day planned turnaround? I think you mentioned that the coverage ratio would come down. So is the way to think about this as a temporary headwind on things like earnings per unit and cash flow?

Steve Bender, Executive Vice President and Chief Financial Officer, Westlake Chemical Partners: Yes. And so as you think about this historically, Matthew, the coverage does take an impact from the loss of production during that period. Of course, from a capital perspective, we’ve already fully reserved and have funded this upcoming turnaround. And as we speak today, we’re in the midst of that turnaround right now. So I would expect the earnings impact, but as the unit comes back on stream after the end of this turnaround, coverage ought to fully recover.

And so as we look forward into 2025 and beyond, I expect the coverage target that we have set being 1.1 times, we should resume. If you go back over the many years, the ten years since this entity was formed back in 2014, we’ve had a number of turnarounds and this is the exact type of performance we have exhibited and I expect to continue this same kind of performance. This is not an unusual turnaround and we expect it to have the same kind of performance with it recovering full production after the turnaround and earnings associated with that.

Matthew Blair, Analyst, TPH: Great. Thank you very much.

Jean Marc Gilson, President and CEO, Westlake Chemical Partners: You’re welcome.

Matthew Blair, Analyst, TPH: At this time, the Q

Conference Operator: and A session has now ended. I will now turn the call back over to John Zeller.

John Zeller, Vice President and Treasurer, Westlake Chemical Partners: Thank you again for participating in today’s call. We hope you will join us for our next conference call to discuss our first quarter twenty twenty five results.

Conference Operator: Thank you for participating in today’s Westlake Chemical Partners fourth quarter and full year twenty twenty four earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59PM Eastern Time on Monday, 03/03/2025. The replay can be accessed via the Partnership website. Goodbye and have a wonderful day.

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