Mixed Bag from Westlake - Analyst Blog

Specialty chemicals company Westlake Chemical Corp's (WLK) second-quarter 2012 results were a mixed bag. The company's adjusted earnings (excluding pre-tax gains) of $1.59 per share beat the Zacks Consensus Estimate of $1.41.

Reported profit was a record $115.5 million (or $1.72 per share), up from $81 million or $1.21 per share in the year-ago period.


Revenues nudged down 1.2% year over year to $914 million, missing the Zacks Consensus Estimate of $933 million. The decline was due to a drop in selling prices for a number of Westlake's key products along with lower sales volume for PVC resin and building products. However, higher olefins and feedstock sales volumes kept revenues from sliding further.

Cost Advantage

Westlake's Olefins and Vinyls segments were aided by lower cost feedstocks in the quarter. The lower costs were on the back of favorable ethane and propane prices, arising from the strong North American shale gas production. The company's Olefins business registered a sterling performance, posting record quarterly income from operations.

Driven by the cost benefits, the Olefins segment posted income from operations of $155.9 million in the quarter versus $132.8 million in the year-ago period. Similarly, income from operations in the Vinyls segment grew to $22.6 million in the quarter from $10.3 million last year.

Shale gas production primarily resulted in the decline in costs. Westlake is focused on making the most out of this cost advantage through expansion of its ethylene units and adding chlor-alkali capacity. These moves will help the company to curtail cost further in the future.

Financial Position

The company had cash and cash equivalents of $1.11 billion as of June 30, 2012, up from $712 million as of June 30, 2011. Long-term debt stood at $764.6 million as of June 30, 2012, flat on a year-over-year basis. Westlake refinanced $250 million of its 6 5/8% senior notes due in 2016 with newly issued 3.6% senior notes due in 2022.

Westlake, which competes with The Dow Chemical Company (DOW), currently holds a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.

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