Westlake Corporation (WLK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Fourth Quarter and Full Year 2024 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, February 24, 2025. I would now like to turn the call over to today's host, John Zoeller, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone, and to the Westlake Corporation conference call to discuss our fourth quarter and full year results for 2024. I am 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 the call, we will refer to our 2 reporting segments, Housing and Infrastructure Products, which we refer to as HIP or products and Performance and Essential Materials, which we refer to as PEM or materials. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we will open up the call to questions. During the third quarter of 2024, we accrued $75 million of expenses related to the decision to mothball 2 units within our European Epoxy business. Additionally, during the fourth quarter of 2023, we recorded a noncash impairment charge of $475 million related to the company's epoxy business as well as a $150 million charge to fully resolve certain liability claims. We refer to these 3 charges 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 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 fourth quarter and full year results. This document is available in the Press Release section of our website 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 reporting on this call speaks only as of today, February 24, 2025, and therefore, 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 I'd like to turn the call over to Jean-Marc Gilson, Jean-Marc?

Thank you, John, and good morning, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2024 results. During the fourth quarter, each of our segments delivered year-over-year sales volume and EBITDA growth while advancing several key initiatives to improve Westlake's future earnings potential, including continuing construction on our new PVCO pipe to satisfy strong customer demand in our HIP segment. We have taken decisive action in reducing structural costs in our business, such as the mothballing of our ACH and ECH units in Pernis and other company-wide cost-saving initiatives, approximating $50 million in the fourth quarter. This brings total cost savings for the year to $170 million, exceeding our target. Overall, I'm pleased with the progress the team is making to position Westlake for continued earnings growth well into the future. For the fourth quarter of 2024, we reported sales of $2.8 billion and EBITDA of $416 million, an increase of 7% compared to the fourth quarter of 2023 EBITDA of $390 million. Sales volume increased year-over-year at each of our segments. Highlighted by a strong 7% growth in HIP driven by continued solid demand for Pipe & Fittings and side and trim. Meanwhile, PEM sales volume growth of 1% was driven by export market demand and higher polyethylene production levels. With some polythene lines setting new production records during the quarter. While PEM grew sales volume year-over-year, average sales price was impacted by capacity increases across the industry. We also delivered on our proactive cost control measures across all of our business, with EBITDA margin improving in each segment in the fourth quarter of 2024, compared to the same period in 2023. Regionally, North America was a bright spot for us during the fourth quarter. as demand remained relatively strong in both segments. Our performance in North America was aided by our broad product portfolio in HIP, our strong and differentiated portfolio in PEM and our globally advantaged feedstock and energy position and high degree of vertical integration. Before turning the call over to Steve to review our financial results in more detail, I want to take a few minutes to review some of our key accomplishments in 2024. First, our HIP segment achieved record income from operations of $807 million and a record EBITDA margin of 24% driven by strong 8% sales volume growth. HIP has now set annual records for income from operations in each of the last 5 years. demonstrating the consistent solid growth characteristics of its underlying housing products and infrastructure product business. HIP's EBITDA of $1.1 billion in 2024 and operating income of $807 million contributed 85% of our total segment's operating income in 2024. These record results provided stability to our overall earnings in 2024 with an asset-light, cash-generative business model with leading market positions in North America. Second, we began construction on a new PVCO manufacturing plant in Wichita Falls in Texas, to support the continued strong customer adoption of this innovative product that improves the municipal pipe installation process with a reduced environmental footprint. Third, we returned approximately $325 million to shareholders through dividends and share repurchases, which demonstrates our commitment to rewarding shareholders and a value-based approach to share repurchases, while we grow the company. Finally, we finished the year with a solid investment-grade rated balance sheet, highlighted by $2.9 billion of cash and cash equivalents providing flexibility to pursue growth opportunities. Taken together, I'm very proud of our 2024 accomplishments, and I would like to thank our nearly 16,000 team members for their hard work and dedication that enabled these achievements and the record HIP results. I would now like to turn our call over to Steve to provide more detail on our financial results for the fourth quarter and full year of 2024. Steve?

Thank you, Jean-Marc, and good morning, everyone. As a reminder, for comparison purposes, my comments regarding income from operations, EBITDA, net income and earnings per share all exclude the financial impact of the $75 million mothball expense accrual that occurred in the third quarter of 2024 as well as a noncash impairment charge of $475 million related to the company's epoxy business and the $150 million charge to fully resolve certain liability claims that occurred in the fourth quarter of 2023. Westlake reported net income of $7 million or $0.06 per share in the fourth quarter on sales of $2.8 billion. Net income for the fourth quarter of 2024 included a onetime noncash charge of approximately $45 million or $0.35 per share for the revaluation of state deferred tax assets and deferred tax liabilities caused by recent legislative changes in Louisiana. We are in dialogue with the state to address solutions to mitigate the impact of this recent legislation. Fourth quarter EBITDA of $416 million increased $26 million from the fourth quarter of 2023 as a result of higher sales volumes, particularly in HIP and our targeted cost savings actions. For the fourth quarter of 2024, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $64 million or $0.36 per share compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. We delivered $50 million of cost reductions in the fourth quarter, achieving a $170 million of total cost reductions in 2024, exceeding our target of $125 million to $150 million. For the full year of 2024, we reported net income of $677 million and EBITDA of $2.3 billion, compared to our 2023 results, 2024 sales of $12.1 billion declined 3%. The lower full year of 2024 sales were the result of solid 7% growth in sales volumes, particularly in Pipe & Fittings and for vinyls that was offset by a 10% decline in average sales price particularly for chlorovinyls and epoxy resin. Turning to our segment results. HIP sales in the fourth quarter rose year-over-year, driven by a 7% increase in sales volume. Volume growth was strongest in our Pipe & Fittings business, in part due to orders from the third quarter being shipped in the fourth quarter as a result of the wet weather and hurricane impacts that we called out in our last earnings call. HIP's EBITDA margin of 19% in the fourth quarter of 2024, improved from the prior year period as cost reduction efforts more than offset the impact of lower average sales price. HIP's income from operations of $807 million was a new annual record in 2024. HIP's earnings growth in 2024 was driven by a strong 8% sales volume growth with particular strength in Pipe & Fittings. The record EBITDA margin in 2024 of 24% was driven by higher sales volumes, better product sales mix and our cost reduction actions. HIP's record earnings demonstrate the earnings capability of our business and also illustrate the benefits of our vertical integration strategy. As we begin 2025, HIP sales volumes growth continues to look solid ahead of the start of the spring building season. Moving to our PEM segment. Fourth quarter EBITDA of $220 million increased by $19 million from the fourth quarter of 2023. The year-over-year increase in EBITDA was the result of higher sales volumes, particularly for polyethylene, driven by increased customer adoption of recent product innovations such as our pivotal one-pellet solution. Sales volumes grew 1% year-over-year driven by growth in export demand and increased production as a result of improved plant reliability. PEM's fourth quarter EBITDA margin of 12% improved from 11% in the fourth quarter of 2023, driven by our cost reduction efforts. EBITDA of $1.2 billion for full year 2024 was lower than 2023 result primarily due to lower global sales prices and margins as a result of softer demand created by weaker global economic conditions and our 2 extended maintenance outages that occurred during the third quarter of 2024. Turning to the balance sheet and cash flows. As of December 31, 2024, cash and cash equivalents were $2.9 billion and total debt was $4.6 billion. Our balance sheet continues to be well positioned with a 15-year average debt maturity life. For the fourth quarter 2024, net cash provided by operating activities was $434 million, while capital expenditures were $285 million, resulting in free cash flow of $149 million. During 2024, we returned approximately $325 million to shareholders and in the fourth quarter, we returned approximately $125 million to shareholders in the form of dividends and share repurchases. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value for our shareholders. Turning our attention to 2025, let me address some of your modeling questions and provide some guidance for the year ahead. Housing industry consultants forecast that housing starts for 2025 will be similar to 2024 at 1.3 million. The depth and breadth of our portfolio of building products and broad geographical reach across North America provides a platform for continued growth in our HIP segment in these market conditions. Thus, based on our current view of demand and prices, we expect revenue in our Housing and Infrastructure Products segment to be between $4.4 billion and $4.6 billion, with an EBITDA margin of 20% to 22%. We expect our total cap expenditures for the company to be approximately $1 billion, similar to our depreciation run rate. This includes cost for a planned turnaround at our Petro 1 ethylene unit which began at the end of January and is projected to last approximately 60 days. For the full year of 2025, we expect our effective tax rate to be approximately 23%, we also expect cash interest expense to be approximately $160 million. Now let me turn the call back over to Jean-Marc to provide a current outlook for our business. Jean-Marc?

Thank you, Steve. Sustainability and environmental stewardship remain critical to our mission at Westlake. I want to take a moment to recognize some of our key accomplishments in 2024 to advance our sustainability efforts. Examples include Westlake being recognized by the polymers for Europe Alliance as the winner of the decarbonization category of the 2024 polymer producer award for its efforts to reduce CO2 emissions. Also beginning a pilot program with a leading U.S. hospital chain to source post-consumer recycled PVC material and also investing in universal matter, which has pioneered and patented the technology that transformed carbon waste streams into high-quality Graphene for use in industrial products. These are just a few examples of ways that Westlake is working to increase the sustainability of our products and improve the environment. Before we open the call for questions, I want to provide some closing thoughts on 2024 and our current outlook for 2025. 2024 was another record year for our HIP segment, which did an amazing job growing sales and earnings. Our demonstrated strength in our brand offerings of building products and broad geographical position across North America, serving our customers with an innovative product pipeline are reasons that support our constructive outlook for this segment in 2025. This provides overall stability to Westlake earnings and cash flows while exemplifying our disciplined capital deployment track record. Turning to PEM segment. We see continued demand growth in our end markets such as packaging, coatings, light weighing materials and construction. Our differentiated product portfolio combined with our globally advantaged feedstock and energy position and a high level of vertical integration provides us a strategic advantage to deliver value to our end market customers and remain globally competitive. While we recognize the global macroeconomic backdrop has some uncertainties overhanging demand growth in 2025. We are focusing on actions that are within our control and which improve our businesses. We have taken proactive steps to reduce our cost structure and right size our European epoxy asset footprint and reinforce our long-term competitiveness throughout the cycle. We expect to deliver $125 million to $150 million in cost reductions in 2025 and will maintain a disciplined and balanced approach to the allocation of capital. We will continue to optimize our business to drive operational performance and reduce our costs. Finally, as 2025 unfolds, we will look for new opportunities to redeploy our solid investment-grade balance sheet, where net debt is less than 1x our trailing EBITDA. We continue to view our solid balance sheet with its ample borrowing capacity as a strategic advantage with industry-leading financial flexibility to opportunistically pursue growth options. Our focus in 2025 will be upon being disciplined stewards of shareholder capital as you have come to expect of us. Thank you very much for listening to our fourth quarter earnings call. I will now turn the call back over to John.

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 provide that information again at the end of the call. Towanda, we will now take questions.

[Operator Instructions]. Our first question comes from the line of John McNulty with BMO Capital Markets.

So I guess the first 1 would just be on the HIP margins. It looks like you're looking for a little bit of margin degradation as we look to 2025, I guess, can you help us to think about the dynamics behind that, especially in what looks to be a growth environment for you, at least for your platform?

John, it's Steve. And so as you think about the guidance we provided from revenue, you can see that we do expect to see growth in our products, but I'd say the guidance that we're providing in our margin, in the EBITDA margin is really more of a product mix shift that we are expecting to see. As you can see, we have a broad array of products, and we do expect there'll be a change in -- a slight change in that mix, which might have some impact. That's the guidance and our margin.

Got it. Okay. And then on the $125 million to $150 million of cost cuts that you're looking for this year, sounds like a lot of it is going to be in the PEM segment, but can you just confirm kind of roughly how you see that mix playing out by division?

Yes. I'd say there will be continued efforts in both sides of our business, but I would say that areas -- in areas such as in logistics and procurement are going to be areas that are going to be big contributors. Those do impact not only the PEM side but also the HIP side of the business. So there is efforts to really look to optimize the footprint of the business. And in doing so, there'll be opportunities to get benefits both in logistics procurement and then overall SG&A, just managing our budgets much tighter and tightening that belt.

Our next question comes from the line of Patrick Cunningham with Citi.

We've heard over the last few weeks, a bit of a tougher outlook for some of the homebuilders, maybe some suggestions of a more hawkish Fed. Any concerns this leads to further volume pressure on your end? Or is this sort of what you're kind of seeing in your mix declines? And maybe if you could comment on the areas of strength, whether it's R&R, public infrastructure, benefits from PVCO that kind of gives you confidence in that 5% to 7% target for the year?

Yes. We do continue to see some growth. And you can see that we're looking at consultants. We see 1.3, which was similar to starts and in 2024 being similar to what we expect in 2025. Certainly that I think that is the commentary you're hearing from many of the builders. But I would say that we have confidence in the team, and you can see that we're guiding to really have a growth in market penetration in this space. And so as we think about having the opportunity to grow our overall platform geographically and from a product perspective, we continue to think that we'll see good growth in overall revenues. As I mentioned earlier in my comments, I do think there'll be some product mix that could cause some compression in the delivery margin that we had in '24, but certainly be working very diligently to see what we can do to keep that margin as strong as possible given the market dynamics.

Understood. And then just a question on tariffs, specifically on PVC. Have you seen any impact on trade flows from some of the existing ADDs and tariffs against the U.S. And do you expect potential for these tariffs and maybe even retaliatory tariffs down the road to have a negative impact on U.S. exports?

Yes. So we're certainly watchful of the potential impact of incremental tariffs that could arise and any retaliatory tariffs that may come from other trading partners. But to your question, we have seen products shift in terms of trade patterns all throughout the course of this past year or so. And I do expect that should there be additional tariffs or countervailing tariffs that there could be other changes in product flows as well. It's something that we'll just have to continue to monitor and react to as circumstances develop.

Our next question comes from the line of Salvator Tiano with Bank of America Securities.

Firstly, I want to go back to your HIP guidance. And you mentioned that the margin issue is mostly a shift to -- in the mix. So firstly, can you elaborate a little bit on what are these products that you expect to gain share versus what -- may lose share or you may not grow as much? And secondly, last year, I think, you started with a similar guidance, perhaps actually even lower on the margin front and you delivered 24% EBITDA margin. So how conservative, I guess, would be the same way to ask, is this guidance? And what's the opportunity for upside here as we saw last year?

Yes. Well, clearly, as we think about the guidance we provided historically, we've tried to give you some clarity in terms of how we see the year progressing. And at this early stage in February, we do expect that the business will continue to see, as I say, that 1.3 million starts as we've seen from consultants. But I think the guidance we're providing is, I think, in line with a rather conservative approach that we've taken historically. And so certainly, there are a mix of products that are in our portfolio that have stronger or less strong portfolio margins in those. And so as we think about the approach that we're taking in the marketplace, we're going to remain competitive, and there is a degree naturally of conservatism in our outlook as we look forward into '25, given the relatively flat housing start numbers, we have for this year, relative to last.

Okay. Perfect. And I also wanted to ask specifically about Pipe & Fittings. There was a note in your presentation that there were competitive pressures there. And I believe that has been the main source of margin upside for you in the past couple of years. So can you elaborate a little bit more on what's going on there, whether it's lower demand on increase -- or increased supply and what's kind of the outlook for '24 versus -- for '25 versus '24 specifically for this product?

Well, you can see from our prepared remarks, we called out both Pipe & Fittings as well as siding and trim as strong contributors in the fourth quarter. Of course, there has been some additional capacity in the marketplace. But we continue to see that our portfolio being broad and deep and having a broad geographical fit allows us to address market demand as market situations in these various geographical markets play through this year. So we remain, I think, very constructive in our outlook in the HIP side of the business and think that, that broad portfolio as well as that broad geographical footprint provides us the opportunity to meet demand wherever it might be, be it on the west or the Southeast, the far west of the Northeast.

Our next question comes from the line of David Begleiter with Deutsche Bank.

Just on PEM, can you help us with the bridge from Q4 to Q1 given the FIFO impacts, the Petro 1 outage, higher ethane prices and other drivers?

Yes, David, as you think about that, certainly, as we saw some significant headwinds, both in feedstocks as well as an overall pricing at the end of this past year, and certainly, with some of the pricing dynamics we've seen in the first few months of the new year. So clearly, you understand in a falling price environment, we certainly faced a headwind given our FIFO approach. And so as we think about the outlook, we continue to see strength really in some of the feedstocks, and we'll continue to see price nominations to address that. You've seen price nominations in many of our product portfolio offerings, polyethylene, PVC, caustic and others. And these are all designed to address both the demand picture we're seeing as well as some of the input cost pressures we're also seeing.

Very good. And just on epoxy, Steve, can you address your performance in Q4 and your expectations for at least maybe the first half of the year?

Yes. So I would say, David, that business continues to see some improvement. I think you're well aware of the actions that we've seen both in Europe and the United States with antidumping provisions. And I would say that we've also seen a result of some of those actions improvement in overall demand, and I would expect to see that continue into '25. I don't see certainly the recovery we would like to see until we get beyond 25%, but I do expect the trends will improve.

Our next question comes from the line of [ Christina Lowe ] with JPMorgan.

This is Jeff Zekauskas. Can you tell us what the volume and price change was for the year in each of your 2 segments?

Yes. So Jeff, and so when you think of the volume changes that we saw really in the PEM side, we saw for the year -- year-over-year, about a 6% improvement in volumes in PEM and about an 8% improvement in HIP. Again, this is '24 versus '23.

And price?

Price was down in PEM. It was down about 12% and down about 6% for HIP.

Okay. And the thing about your PEM business is your EBIT was negative. Where does that come from? Is that PVC that is what businesses inside of PEM had negative EBIT?

And so Jeff, while we don't break down the discrete strategic business units within PEM, I would say that we certainly saw pressures in that chlorovinyls chain. And so I would say that the biggest pressure was really on the vinyl side of that or vinyls chain really in the vinyls chain, less so in the caustic chlor-alkali ECU side of that chain.

Our next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Free cash flow in '24 was relatively modest compared to EBITDA or net income. Could you provide any outlook for '25, again as a percent of EBITDA, net income or any other way?

Yes. So Aleksey, I do expect that with the continued strength that we're seeing really in the HIP business and some of the pricing action that we've seen on the PEM side, certainly, that will pull some on working capital, and we certainly gave some guidance for CapEx this year. But I do expect a stronger performance really in the free cash flow generation in 2025. We've seen strength continued, as Jean-Marc had in his comments. We have a number of years, 5 years growth of performance on the HIP side of the business. And as I mentioned earlier, we've seen price initiatives across the product spectrum in our PEM business. And we've certainly seen volume pick up, which is the driver behind the price initiatives. And so certainly, I do expect that we'll see stronger growth in our free cash flow generation in '25.

And maybe as a follow-up to that, Steve, as you are growing your HIP business. Is that the business that requires more working capital in that -- will it be more capital intensive and perhaps your free cash flow conversion would be lower as that business grows going forward?

No, it actually is an asset-light business relative to the PEM side of the house. So it does not require that large on a percentage basis of inventory or working capital relative to the PEM side of the business.

Our next question comes from the line of John Roberts with Mizuho.

On the PEM 1% volume growth, you mentioned that export polyethylene was up. So presumably, the rest of the business had flat to down volume. Epoxy was down. Could you maybe give us some volume commentary on the other parts of the PEM portfolio?

Yes, John, we don't usually break out by strategic business unit, those components, but it's clear when you think about the contributions that some of the headwinds we saw were in the chlorovinyls chain. So as I mentioned earlier to one of the questions really in the chlorovinyls chain, and that's really where we saw some pressures not only in price but also in volumes.

And will the Louisiana tax law change affect the go-forward taxes at all?

No, the guidance I provided of 23% really reflects the changes that were made. And as I mentioned earlier in my prepared remarks, certainly, we're in discussions with the state about their allocation, their apportionment allocation to see what we can do to mitigate the economic impact of those recent legislative changes.

Our next question comes from the line of Michael Leithead with Barclays.

Great. I want to go back to the HIP revenue guidance. At the midpoint, I believe it's about 4% growth year-on-year. How should we think about the relative price and volume contributors to that? Should we expect price to continue to be a drag and volume to be up above that 4% number? Or just how should we think about that?

It's -- this business is very much a regional business in terms of how we think about the discrete markets. And so as you can see, we're guiding up on revenues. And the conservatism that you see in our guidance for margin -- EBITDA margin is really reflective of the fact that we see a relatively flat number of starts in '25 relative to '24 and likely a change in some product mix given the earlier dialogue that we're having with our distributors, who are servicing these builders. So as we think about the outlook, we continue to see really a strong performing business in HIP and expected to continue to perform quite well in the coming year.

Okay. But I guess my question was, do you expect price to be negative in '25 or no?

No. I think what you're seeing really is certainly some cost creep coming through on the vinyl's side of the business, and we fully expect to be able to handle that through price nominations in our vinyl related building products. And certainly, some of the other inflationary costs coming through in our other components, I do expect that we'll be able to deal with that in discussions with our distributors for products.

Okay. Fair enough. And then just bigger picture. You have a very nice building products business that's growing within Westlake Corporation. You highlight the success in a new slide in the deck, but your stock price and your equity valuation today is currently trading cheaper than many of your commodity chemical peers. I guess how do you think about addressing or closing that valuation discrepancy such as through buybacks, separating the company or just other means?

So when you think about the value contribution that our HIP side of the business is delivering, when you think about the overall enterprise value that is there, actually, an investor today is actually getting the PEM side of the business, frankly, for free. And I think, therefore, it reflects the fact that we're really being significantly undervalued as an enterprise. So as you've seen the very strong performance in our business not only this year in HIP, but over the last 5 years, and you've seen the guidance that we're providing for the current year of 2025. And I think the market is just, frankly, undervaluing the entire enterprise of the business.

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Steve, just to follow up on the comment that you just made. How would you describe the amount of patience that management would have in enduring a highly undervalued enterprise. In the past, I think you've extolled the virtues of integration, right, upstream and HIP and downstream for that matter. But if this sort of valuation disconnect or were to persist, might you take action in terms of separating the businesses at some point in the years to come.

Kevin, I understand the question. And when you think about the integration, we see wide number of benefits of that product integration between the PEM side and the HIP side of the business. And so certainly, we all recognize that the PEM side of the business has been in an extended trough, but you're actually seeing some price initiatives here to address some of the prices that were given up in earlier this year and last year. So I think as those demand volumes begin to pick up on the PEM side and our prices begin to reflect that increased demand and frankly, increased input cost in the form of ethylene and ethane I believe the market will begin to recognize the real strength and the leverage -- the earnings leverage that we have embedded in the PEM side of the business. I think the HIP side of the business, we expect to continue to perform very well in 2025, but I think the market is underestimating the earnings leverage that we have in the PEM side of the business as we see volumes and pricing actions begin to unfold as we would expect in 2025.

Fair enough. I wanted to ask about the recent months. So I appreciate your reporting the fourth quarter results. But here on the 24th of February, I was wondering if you could comment on your recent demand experience in major product lines like polyethylene and PVC in January and February relative to normal seasonality. Is that on par or any better or worse than you might have previously anticipated?

No, I think it's a good question, Kevin. And so as you think about -- and I'll start first with polyethylene. As you think about our polyethylene business, we continue to see good strength in demand on that front. And I think you're aware that we've had price initiatives out in January and February and now March for polyethylene and while not all of those have yet settled, February has not settled nor, of course, March, that is reflective of good demand. Of course, there is some cost creep we're seeing in our inputs, but I think it's also reflective of the export market that we're seeing, and that's really the strength behind these price nominations in polyethylene. Likewise, when you think about our caustic businesses, we've also seen a series of announcements by others as well as our own that will go into effect in April of this year. You may be aware that we've made some nominations of price. And again, that's based really on the strength we're seeing across the space in the business, but certainly also coming from the aluminum side, which is a significant absorption market for caustic soda. So when I think about PVC, you heard my comments around building products and of course, that's going into pipe and siding and trim, which is pulling on PVC volumes. So we've also made nominations in February and March for price increases in our vinyl resin. And we do think the strength we're seeing downstream should help us with some of those price nominations in vinyl.

Our next question comes from the line of Josh Spector with UBS.

Steve, I wanted to ask about the price decline sequentially in PEM. In terms of what you posted, it seems to be a decent amount lower than some of the headline prices that have been out there. I assume a decent chunk of that as you serve more to the spot market than the contract market as you normally do seasonally. But I'm curious if you could answer, did you sell more into the spot or export markets than you typically do. And how do you expect that to trend over the next couple of quarters? Is that mix in PEM potentially a tailwind over the next couple of quarters?

No, it's not really a mix between export and domestic sales. It may be more of a product mix than it is necessarily an export versus domestic mix because many of our peers don't have the degree of product mix that we have in our caustic and our chlorovinyl polyethylene portfolio.

Okay. Understood. That's helpful. And I could just ask one other on pricing. One of the main consultants did a pretty big adjustment to contract posted prices and sometimes when this is done, there's some other discounting behind the scenes or some other moving parts. Just curious if you can comment on your realized price on domestic markets in PVC and if that had any impact either in the quarter or as you look at the next couple of quarters?

And so as we think about -- and you've seen the results in the fourth quarter across the space, but I would say prospective, we look forward into the current quarter, we certainly have seen some of these industry consultants really up their expectations of settlements in February this month. And certainly, their expectation in March, so while we and several of our industry peers have got nominations that are higher than what some of these industry consultants are speaking to, I think, the fact that they're recently upping their expectations and their forecast signals the strength that we're seeing in these markets as well. So as we look forward, we're looking forward to settling here at the end of the month in February in all products. but also, I would say, specifically, some of the consultants, especially those that are looking at the demand picture, we're certainly seeing that demand picture, which is why we're moving prices in vinyls, epoxy, caustic and polyethylene, all higher.

Next question comes from the line of Michael Sison with Wells Fargo.

In terms of the 20% to 22% EBITDA margin outlook for '25, I mean do you see that as sort of your trough margin, meaning if existing -- if housing starts to finally improve and if the home sales finally improve. Does that margin go up from here?

Well, you certainly have seen what we delivered in 2024, and that was a very strong EBITDA margin. And certainly, as we think about growing this portfolio and it's growing the recognition of this portfolio, I should say, and recognizing the ability to deliver on time, all the time is really giving us an opportunity to have a dialogue with our customers and our customers' customers. So while the guidance this year for '25 is more conservative guidance as we look forward and somewhat a product mix, it's also an expectation we'll continue to grow the business from a revenue perspective and look to work with our partners, our customers to make sure that we can provide products on time all the time.

Got it. And then as a follow-up for PEM, yes, '24 looks like a trough year, obviously, and it feels like most folks have said in these areas that '25 could be another tough year. So do you think anything gets better in terms of the fundamentals for chlor-alkali or polyethylene? And directionally, should EBITDA just be similar in '25 versus '24? Or is there a potential for improvement? I mean could it get worse? Given how the markets are looking?

So Mike, as you know, we don't provide direct EBITDA guidance for the PEM side of the business. But I do think you've seen from our price nominations here that we're seeing some improvement in overall demand and that price action that we've spoken to earlier in the call, have also been reflective of that increased demand. But as you know, well, we don't provide direct EBITDA guidance for the current '25 year in PEM.

Our next question comes from the line of Hassan Ahmed with Alembic Global Advisors.

I just wanted to go back to the question about -- so I just wanted to go back to the question about value recognition, particularly with what you guys are guiding to and have reported within the HIP segment. I mean one of the interesting lines that I sort of came across in your prepared remarks was how such a large offtake of PVC resin from the PEM segment, goes into the HIP segment. So obviously, you have lesser exposure to weaker economies. So obviously, you're benefiting from this dynamic on the PEM side. You're benefiting from the integration on the HIP side of it. I mean -- so clearly, separation is out of the question. So again, going back to sort of getting a bit more granular around what will take for value recognition to happen? Is it just as simple as quarter after quarter, you guys reporting results, which are better than both your PEM and HIP peers and the market eventually waking up to that concept.

Yes. Let me take this one. So it's Jean-Marc here. So I think 1 of the really good news, I mean, that you heard today is the fact that the HIP business has been growing for 5 years year-on-year continuously. So over the last 5 years, you've seen the share of that business, both in terms of sales and earnings to grow in the company, and we expect that to continue in the future. As you can see in the numbers, we now generate about 50% of the EBITDA in the HIP side and probably around 85% on the operating income side. So these 2 businesses, you need to look at them as 2 siblings in the same family. They share the PVC certainly in our company. And it allows us to really sell some of our products at different point in the value chain. And we expect that in the future, you're going to continue to see HIP growing, providing a very stable foundation for the company with a significant growth potential and really good EBITDA margin and in general. So having said that, I think, it was mentioned many times today, the PEM can be seen a little bit in a trough situation right now. We're very strong also in PEM. We have a real cost advantage being where we are situated. We are very careful about our costs, very low SG&A. And so as the business bounce back, you will see that business, which is cyclical, a little bit more in nature to bounce back and provide really strong cash flow generation and EBITDA generation in the future. So from where we are, I think, we are in a really good position to continue to create value, certainly on the HIP side, and then a bounce back on the PEM side. So we really like where we are. We're going to continue to invest in both segments. But certainly, with a little bit of a push on the HIP side to continue that 5-year growth that we enjoyed over the last 5 years.

Very helpful. And as a follow-up, on the PEM side of things, so I could get a bit more specific around chlor-alkali in particular. And I understand, I mean, your exposure, obviously, is far more on the merchant side to the caustic soda market. But a couple of consultants have come out with fairly negative sort of views on the near to medium-term prospects of chlor-alkali, particularly taking a look at some of the capacity increments that are happening and also where sort of -- where current pricing for the ECU sits relative to the marginal producers. And it seems the ECU price is still significantly higher than marginal producer economic suggesting maybe downside in pricing. And that, to me, seems a bit divergent relative to the comments you guys are making on caustic soda pricing. So what am I missing over here?

Hassan, it's Steve. I'd say one of the items I tend to pay attention to is really their price outlook. And if you look at their average price for 2025 from one of the larger consultants, they're actually higher than they are for the year of 2024. So while, of course, there is some incremental capacity in the marketplace coming with 2 domestic producers adding some capacity in the current -- over the last 2 years. I'd say that the demand picture that we're seeing is reflective of the price nominations that I spoke to earlier. And if you look at with a close eye on the ending price for the end of this year and the average price for this year they're actually higher than the average price that we experienced in 2024. And so as we think about the market that we see every day in the commercial markets, talk to the consultants as well. We actually come away with a view that we think the markets are more constructive than what I heard you ask in your question.

Our next question comes from the line of Frank Mitsch with Fermium Research.

It's Aziza on for Frank. I had a question on the PVCO pipe plant project. Could you remind us on the timing and associated costs for that construction project?

Yes. So the plant really is expected to come on next year. And so we have 4 lines that will come on as we hope to bring on more volume. This is -- Aziza -- this is -- facility is in North Texas in Wichita Falls and allows us to really serve a growing market that we see in that marketplace. And so we're really excited about that. As you may recall, we're already producing PVCO pipe. And so it's a market that we're seeing really embrace this, I think, unique and sustainable product. And as you have heard it puts through -- the throughput is a higher incremental volume given the diameter of the pipe and it uses less resin, so it has sustainability. And from a market adoption perspective, it's been well adopted and well appreciated, which is why we're adding the capacity. So we're looking forward to that start-up in '26.

Okay. And Steve, any comments on the -- how costs are trending on that?

Yes. Aziza, we've not announced the capital cost for that project.

Okay. And then within the corporate EBITDA line, we saw 2024 kind of increase roughly $30 million year-over-year. Any comments you can make on 2025 corporate EBITDA?

On the corporate side, I would say, and you noticed that certainly, we do have a significant cash balance. And given the upward sloping yield curve we see in interest rates that cash is earning interest until we find a better way to deploy it. And so certainly, I would say that we're looking for ways to add even greater value than just generating interest income on cash balances.

Our next question comes from the line of Matthew Blair with TPH.

Could you discuss the M&A landscape? I know there are a few comments looking to kind of how you're looking to deploy capital going forward. And you have the nearly $3 billion in cash sitting on the balance sheet. Has deal flow picked up? Or is it declining? And are you interested in any plan assets? Or would this be mostly in HIP?

Yes, Matthew. It's a good question. And I would say that we look at both sides of the business. We look at PEM assets as well as HIP assets. But when you think about those that are going to be able to provide the nearest term upswing that we see, I would say that looking at opportunities to grow the HIP business is probably where we would lean in somewhat, but it's all about the right value proposition that any asset brings to the table. So if we're presented with good opportunities on the PEM side, we would certainly look very positively towards that. So we look at both sides of the house. And I would say just the bias in terms of where we see the best upside for the deployment of any asset that's going to generate that free cash flow. And given the stage of the PEM side of the business, it's more likely to see a more stronger earlier contribution on the HIP side, but we do look at both sides of the house on a regular basis. I'd say the tone continues to be good. I'd say that the dialogue is constructive with owners of assets that are looking to divest or redeploy their portfolio. And I'd say, as we talk to those asset owners. Their expectations still probably need to be triangulated in terms of where the market expectations are. But I would say there's a very good dialogue between ourselves and those asset owners.

Sounds good. And then the past 2 years, HIP has had a pretty big quarter-over-quarter improvement in EBITDA margins. If you compare Q4 going to Q1, the starting point this year is 19%. So how likely is it that HIP EBITDA margins in Q1 '25 would actually be higher than your full year 20% to 22% guidance.

And so Matthew, part of this is also a function of how the season weather-wise plays through. When you think of the weather, typically the construction season starts in February, late February through March, but it's very weather dependent. And so I would say that the dialogue that we're having with many of our customers, distributors, but we do talk to the builders directly. I would say they have a positive look to start the year, and so we look forward to that. But it's very somewhat weather dependent. And as you know, this business is somewhat regional. The northern parts of the country will remain cooler and so there may be areas in the Northeast that remain cooler, where areas down in the Gulf Coast or the West or the Southeast may have an earlier construction season. So we have an outlook that -- and you saw my commentary earlier in our prepared remarks, where we see a good start to the construction season at this stage of the spring season.

Our next question comes from the line of Pete Osterland with Truist Securities.

Within HIP growth into your infrastructure revenue stream turned positive in the fourth quarter for the first time in several quarters. What is your outlook for growth into infrastructure during 2025 relative to your overall guidance for HIP?

Yes. So when we think about the infrastructure business, certainly, our Pipe & Fittings business and compounds remains a very good contributor. And so you saw that we saw a good contribution in our Pipe & Fittings business in the fourth quarter. And as we think about this being a leading indicator in the construction business because you're going to put that infrastructure in before you do any other surface work and so we see this as a strong indicator that we expect that the Pipe & Fittings business shall continue to move forward in a positive manner. On the compounds business, which is embedded in that infrastructure component of HIP, we continue to see that as a nice contributor. It's performed well. Remember, the markets that we're servicing are wiring, cabling, automotive and health. And certainly, we're seeing good indicators from a demand picture in all 3 of those categories.

Our next question comes from the line of from Arun Viswanathan with RBC Capital Markets.

So I guess maybe I'll just ask about the pricing side again and the demand side. So it sounds like from your comments, you are seeing some potential green shoots slightly better demand. Maybe you can just elaborate that -- on that in PEM. What you're seeing there? And similarly, I think you noted that price was down 12% in '24. And I think you noted that you do expect the price to finish the year higher in '25 versus '24. So would you expect to make up all of that 12% ground, and that will be led mainly by the chlor-alkali side? I know epoxy and vinyls maybe -- still seem a little bit challenged, but maybe you can just kind of provide a little bit more detail on both demand and price in PEM.

Yes, Arun, good question. And my comment really was higher pricing at the end of this year. It was more focused on the caustic side. But I would say, certainly, we've seen price nominations really in caustic and PVC as well as in polyethylene. And so as we look forward, the demand picture that we're seeing is supportive of that as well as seeing higher costs come through in the form of ethane and ethylene. So as we look forward with those higher cost inputs, I want to make sure that we try to get these price increases, those are important to be able to maintain the kind of the value proposition these products deliver. But I would say we're also seeing reasonably good demand, which is why we're looking at also raising prices. It's not all cost push. That's a big piece of it, but it's also a demand picture. So as we think about the conversation we're having with our customer base, that's what's really driving these nominations across that product front.

Great. And then I just wanted to ask about the potential pending PVC litigation. Any comments there? I know that some of the other players have received a U.S. DOJ subpoena. Is that something that you guys have any updated comments on.

Yes, it's a good question. And because it's an active litigation matter, I really can't speak to that. And so I just have to leave it there.

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

This is Turner Hinrichs on for Vincent. So I was wondering, how do you think about the relative priority of reducing your net short position in ethylene versus potential M&A on the HIP side of the business? And do you have any color on the cost that it would take to debottleneck your cracker JV to free up capacity if that's the route you would choose to take?

Yes, it's a good question. As we think about that, we do look at acquiring additional ethylene in the same context as we look at acquiring any other business. So it really is about what kind of value proposition that might bring. Given the expansions that we have in Geismar that bring additional VCM in the market, our buying of ethylene in the market will continue to grow. And so it is important that we find a way cost effectively to be able to try to shorten that merchant position in ethylene. But we want to do this in a cost-effective, value-added way. So as we think about that, there could be a variety of ways to do that. As you mentioned, we could also debottleneck the JV cracker we have in Louisiana. We certainly would want to look at that and see if our partner would want to participate. And so we'd have to then finish our work in terms of getting a fresh look at the cost on a dollar per pound investment basis. As we all know, there's been labor inflation and materials cost inflation. So I wouldn't want to rely on anything that we've done in the past couple of years as an indicator of capital cost for that. We'd want to refresh that estimate to get a better read in terms of what the capital cost to debottleneck that cracker could be. But it typically can be debottlenecked, call it, roughly in the 40% range of that installed capacity today. It's a 2.2 billion pound cracker and we own 50% of that. And so if our partner takes their share, we'd only get 40% of our 1.1, if they choose not to, we can get all of that, but we'd have to really refresh our capital estimates to really get a fresher look in terms of whether that makes economic compelling sense to do.

Great. That makes sense. I appreciate all the color. And on the cost savings plan. So you all mentioned $125 million to $150 million of targeted cost savings this year. What do you expect the cash costs of these savings to be?

These are straightforward. This is largely a lot of negotiations. So there isn't really a lot of cash outlay in this process. So I mentioned a lot of this is procurement activity, logistics activity. Obviously, belt tightening and simply just not spending in some cases. And so really the cash outlay is pretty minimal. A lot of this is just being much more prudent in this kind of cycle where we are and tighter negotiation with all parties.

Thank you. Ladies and gentlemen, at this time, the Q&A session has now ended. Are there any closing remarks?

Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our first quarter results.

Thank you for participating in today's Westlake Corporation Fourth Quarter and Full Year 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. Everyone, have a wonderful evening. Thank you for joining the call. Good night.