管理層發言
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Second Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded today, August 4, 2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may now begin.
Thank you, Dana. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our second quarter 2026 results. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Jon Baksht, our Senior Vice President and Chief Financial Officer; Steve Bender, our Special Adviser to the President; and other members of our management team. During the call, we will refer to our two 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 second quarter performance. Jon will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we'll open the call up to questions. 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-K 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 second quarter 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, two 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, August 4, 2026, 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 would like to turn the call over to Jean-Marc Gilson. Jean-Marc?
Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our second quarter of 2026 results. During the second quarter, we delivered $3.3 billion in net sales and EBITDA of $679 million which was a substantial improvement from both the first quarter of 2026 and the second quarter of 2025. At a high level, there were really three key earnings drivers in the second quarter. First, PEM's globally advantaged feedstock and energy position in North America enabled it to expand its integrated margins as its average sales prices benefited from higher oil prices due to the conflict in the Middle East. Second, our three-pillar profitability improvement plan contributed approximately $150 million to the year-over-year EBITDA improvement. Third, HIP's 6% year-over-year organic sales volume growth against the backdrop of South and North American residential construction activity drove stable segment EBITDA and demonstrates why we continue to view HIP as a key growth driver for Westlake. I'd like to expand on each of these three drivers in more detail to provide more context on how the quarter played out. PEM's feedstock and energy cost advantage in North America, where over 85% of our production capacity resides, was an important factor in PEM's second quarter earnings improvement. During the second quarter, a spike in global oil price drove significantly higher cost for competitors in higher cost regions like Asia and Europe, which along with tighter global supply-demand conditions contributed to a 21% sequential increase in PEM's average sales price. At the same time, PEM's own production costs, which are mostly based on more affordable North American natural gas and NGLs, were largely immune to the spike in oil prices. This allowed PEM to convert higher global selling prices directly into higher margins and EBITDA. In fact, our natural gas and ethane costs in North America actually declined significantly from the first quarter due to warmer weather and an increase in associated gas from higher U.S. oil drilling activity. PEM also benefited from a 2% sequential increase in sales volume, driven by improved North American demand. Taken together, we believe that PEM's second quarter performance demonstrates the value of PEM's globally advantaged feedstock and energy position and the substantial earnings leverage that PEM has to a better global supply-demand balance for its products, particularly polyethylene, caustic soda and PVC resin. Turning now to our three-pillar profitability improvement plan. The actions that we took last year are generating significant cost savings that are contributing to our EBITDA improvement. Our first pillar is footprint optimization, which primarily consists of the shutdown of our epoxy plant in Pernis, a styrene plant in Lake Charles and three of our chlorvinyl plants in the U.S. These shutdowns took place last year and the associated cost savings from these actions are tracking ahead of plan so far in 2026. For example, our Epoxy business has done a complete turnaround from annual losses in excess of $100 million to a return to profitability in the second quarter of 2026. And our North American chlorvinyl business is benefiting from more streamlined operations with significant logistical cost savings from a more optimized footprint. Our second pillar, cost savings, is also tracking ahead of plan, thanks to help from our suppliers and a company-wide effort to economize. Our third pillar is plant reliability. While the reliability of our plant in the first half of 2026 was much improved from the prior year, it was not yet where we wanted to be due to residual unplanned outages this quarter. We continue to make progress improving our operations and most of the production issues were corrected by the end of the second quarter with the plants running well into July. We continue to target $600 million of combined EBITDA benefit in 2026 from our profitability improvement plan. And I would like to thank and recognize the efforts of all our employees as they safely execute our three-pillar improvement plan. Turning to HIP's contribution to the second quarter earnings. The segment produced its second highest quarterly revenue in its history, which we view as a significant achievement considering the soft level of homebuilding activity during the quarter and a testament to the value of the diversity of our HIP portfolio. As a reminder, infrastructure makes up a significant portion of HIP sales and earnings, and this part of the segment has shown solid growth in recent quarters. HIP second quarter revenue grew 8% year-over-year, driven by solid 6% organic sales volume growth, which translated into stable EBITDA despite cost inflation and a lower average sales price. As has been the case in recent quarters, pipe and fittings drove the volume growth. In fact, pipe and fittings sales volume grew roughly 20% year-over-year as a result of continued North American infrastructure investments, including the growth in data center projects. The performance of our Housing Products business was another bright spot as it outgrew the market during the second quarter due to the strength of our brands, our broad geographic footprint and our position as a supplier of choice to large national homebuilders and distributors. So in summary, we were very pleased with our overall second quarter results that reflect Westlake's foundational strength, our globally advantaged North American production, our highly integrated business model, our innovative and differentiated HIP product offering and our strong investment-grade rated balance sheet. While our plant reliability improved, we are making further progress to generate better results in coming quarters. The issues that we experienced in recent quarters are fixable and our corrective actions are already generating solid return thus far in the third quarter. Now before Jon provides more detail on our financial results for the second quarter of 2026, I want to take this opportunity to thank Steve Bender for all of his many contributions to Westlake over the past 21 years as our CFO and wish him the best of luck with his upcoming retirement. And I'd now like to turn the call over to our Executive Chairman, Albert Chao, to say a few words. Albert?
Thank you, Jean-Marc, and thank you, Steve, for all you have done to grow Westlake into a Fortune 500 company with diversified, vertically integrated chemical and building products businesses operating around the world. On behalf of James and the entire Chao family, I want to thank you for your many years of service and your contributions to Westlake's growth and financial strength. We would like to wish you and Denise the best in your retirement.
Thank you, Albert and Jean-Marc. It's been a pleasure working with both of you and James Chao and the entire Westlake team over the past 21 years. I am proud that during my tenure as CFO, together, we navigated the demands of the high-yield markets, were recognized for the discipline we demonstrate in running Westlake and built the financial foundation that would carry Westlake to investment-grade standing, which supported a significant growth in our business, delivering compound annual growth in total shareholder return of 13% over that time period. I leave for retirement next month knowing that Westlake's foundation is solid and the future holds promise. I look forward to Westlake's continued growth while delivering meaningful value to shareholders. I want to also thank all the analysts and investors on the call for their continued support of Westlake over the years and the relationships that we have built over that time. With that, I'd like to turn the call over to Westlake's new Chief Financial Officer, Jon Baksht. Jon?
Thank you, Steve. Your contributions to Westlake will be missed, and we all wish you the best of luck in your retirement. I'm excited to be a part of the Westlake team with its rich history and culture. What really stood out to me when joining the organization is not only the strong track record of shareholder returns and growth, but also the focus on all stakeholders, including employees and communities. I look forward to partnering with all of you as the company builds on its positive momentum. Now turning to our financial results. In the second quarter of 2026, Westlake reported sales of $3.3 billion and net income of $260 million or $2.01 per share, which compares to a net loss of $12 million in the second quarter of 2025. At the segment level, HIP posted solid results against the backdrop of weaker North American residential construction. Net sales of $1.3 billion increased nearly $100 million or 8% from the second quarter of 2025, driven by the January acquisition of ACI and solid double-digit sales volume growth in Pipe and Fittings. Excluding ACI, HIP sales volume grew 6%, while average sales prices declined 3% with Pipe and Fittings driving both trends. HIP sales volume also benefited from solid growth in siding and trim through our strong position with large national homebuilders and distributors. HIP EBITDA of $276 million increased by $1 million from the second quarter of 2025 as HIP sales growth more than offset a slight decline in EBITDA margin to 22% from 24% in the prior year period, driven by a lower average sales price and inflation in transportation and raw material costs. Sequentially, HIP sales volume of $1.3 billion increased 26%, driven by a 24% increase in sales volume and a 2% increase in average sales price. The sales volume growth was led by Pipe and Fittings, where growth was the result of solid end market demand for pipe, driven by higher U.S. infrastructure spending, including the construction of data centers. We also believe that some pipe orders and demand may have shifted from the third quarter into the second quarter of 2026 as customers sought to secure supply in the wake of the onset of the conflict in the Middle East. As a result, there could be a modest impact to our third quarter pipe sales volumes from this shift in the timing of orders. Aside from pipe, HIP's second quarter sales volumes benefited from seasonally higher demand for exterior building products. Housing product sales of $1 billion increased $223 million sequentially, reflecting seasonal strength in siding and trim and stone. Meanwhile, Infrastructure Products sales of $241 million rose $36 million from the first quarter, primarily due to higher Pipe and Fitting sales volume and pricing actions in global compounds aimed at offsetting rising costs. Moving to our PEM segment. PEM second quarter EBITDA of $416 million increased by $364 million versus the second quarter of 2025, driven by the benefits of our three-pillar profitability improvement plan and a 14% increase in average sales price led by polyethylene and PVC resin. Excluding the impact of plant closures, sales volume increased 7%, driven by caustic soda and PVC resin. Compared to the first quarter, PEM EBITDA increased by $380 million due to a 21% increase in average sales price and lower natural gas and ethane costs. Sales volume rose 2% sequentially as higher caustic soda, chlorine and epoxy resin sales volume more than offset lower polyethylene and PVC resin sales volume. 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 June 30, 2026, cash and investments totaled $1.9 billion and total debt was $5.1 billion with a staggered long-term fixed rate debt maturity schedule. I'd like to thank Steve for establishing the company's enviable debt profile with a weighted average maturity of over 17 years with an average coupon rate of 4%. During the second quarter, we retired the remaining $500 million of debt outstanding on our 2026 notes, and we repurchased $30 million of Westlake common stock. For the second quarter of 2026, net cash provided by operating activities of $318 million more than doubled from the prior year period and includes a seasonal build in working capital as well as cash payments for the $67 million PVC pipe legal settlement that were recorded in the first quarter of 2026. As is typically the case, we expect our cash flow in the second half of the year to benefit from a significant release of working capital, particularly in the fourth quarter. In June, we closed the acquisition of a PVC and VCM plant in Wilhelmshaven, Germany. This facility benefits from its advantageous logistical infrastructure, including a deepwater port capable of receiving globally advantaged feedstock supplied by our North American operations. We see significant integration benefits from this acquisition as we optimize our European supply chain and manufacturing operations. This transaction underscores our disciplined approach to deploying capital in ways that create long-term shareholder value. Now let me provide guidance. We expect 2026 revenue and EBITDA margin in our Housing and Infrastructure Products segments to be towards the lower end of our previously communicated ranges of $4.4 billion to $4.6 billion of revenue, with EBITDA margin between 19% and 21%, excluding identified items. As we discussed last quarter, the decrease in expectations is driven by a more muted outlook for North American residential construction activity and increases in transportation and raw material costs. Total capital expenditures for the company for 2026 are still expected to be $900 million, which is approximately $100 million lower than last year and in line with our annual depreciation. We continue to expect cash interest expense to be approximately $215 million. Now I will turn the call over to Jean-Marc to provide current outlook of our business. Jean-Marc?
Thank you, Jon. Global industrial and manufacturing activity has shown steady improvement thus far in 2026, led by North America, where ISM readings in the U.S. have been above 50 each month this year. PEM sales volume has tracked these trends with modest demand growth in the U.S., balanced by softer end market conditions in other regions. As we look to the second half of 2026, we expect PEM sales volume to continue to reflect the same steady global demand environment that we experienced in the first half of the year. With regards to PEM pricing, polyethylene prices exited the second quarter of 2026 slightly below the quarterly average, though they remained higher than pre-conflict levels. Meanwhile, PVC resin prices exited the quarter at or very near the highest levels for the year. Looking ahead to the second half of the year, we expect future price trends to be heavily influenced by global oil price movements. During the second half of 2026, PEM's margins and earnings will continue to be supported by our three-pillar profitability improvement program, which we continue to expect to generate $600 million of EBITDA benefit in 2026. As I discussed, we are improving the reliability of our plants and operations have performed well thus far in the third quarter. Our focus for PEM for the remainder of 2026 is to sustain this improved reliability on a consistent month-to-month and quarter-to-quarter basis. Additionally, in the second half of 2026, PEM will integrate the newly acquired PVC business in Wilhelmshaven into the broader Westlake system. These actions establish a structural regional cost advantage at the site, enabled by its unique logistical assets, positioning it to contribute more meaningfully to PEM sales and earnings beginning next year. Turning to HIP. We do not expect the macro environment to provide a meaningful tailwind for HIP's Housing Products business in 2026. Even so, our strong competitive position, supported by the value of our brands and the breadth of our offerings should enable HIP's Housing Products business to continue to outperform the market. Turning to HIP's Pipe and Fitting business. End market conditions remain favorable, driven by robust demand for municipal pipe as a result of the Infrastructure Act as well as strong growth in overall U.S. infrastructure spending, including the construction of new data centers. The short and long-term outlook for Pipe and Fittings demand remains favorable, and we continue to expect its sales volume to grow at healthy rates, supported by solid underlying demand trends and the start-up of our new PVCO plant in Wichita Falls at the end of this year. Finally, in global compounds, we have been pleased by the performance of ACI since its acquisition in January. ACI brings differentiated technology and expanded market access to Westlake, which we intend to leverage across our legacy compound business. Before opening the call to questions, I want to highlight the actions taken during the quarter to improve our balance sheet and reward our shareholders. As Jon noted, we reduced debt by $500 million while returning approximately $100 million to shareholders through dividends and share repurchases. Our investment-grade rated balance sheet and cash flow generation allow us to continue to invest to profitably grow the company, including our new PVCO pipe plant and the acquisitions of ACI and Wilhelmshaven. Thank you very much for listening to our second quarter earnings call. I will now turn the call back over to Jeff.
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 a few hours after the call has ended. Dana, we will now take questions.
分析師問答
Obviously, pleased to see the strong results in the PEM segment. And I know you addressed this on the call as well. Just trying to figure out the sustainability of these higher results. I know pricing was obviously very strong. But you guys also talked about a year-over-year benefit of around $150 million from the three-pillar program. So just trying to understand how much of that $150 million actually was on the PEM side of things rather than the HIP side of things. And again, any commentary around the sustainability of these higher profitability levels in PEM would be helpful.
Thank you. Good question. As we explained in previous quarters, we've been working really hard on the three-pillar strategy, and they are delivering up to our expectation. As you mentioned, most of the benefit, not all of the benefit of the three-pillar strategy, is going to the PEM segment. Some of it is going to the HIP segment, but the vast majority of it is going into the PEM segment. None of these are one-offs. These are sustainable cost savings going into the future. We've added about $300 million to EBITDA, thanks to these savings so far this year and about $150 million in this quarter. And we are expecting to deliver the full value of the program over the course of the year and get into a better operating mode into 2027 and beyond.
This is Jon. I would just add you can see this on our financial statements as well, and it is coming through. This isn't one of these programs where you have to take an offline spreadsheet to calculate the savings. I would just point to our first half: if you look at our cost of sales line, first half year-over-year, our volume is up 3% in an inflationary environment, and you see $150 million of reduction in our cost of sales just in the first half of the year. When you consider that the 3% volume increase would translate into additional cost of sales as well, you can translate that at the same run rate of our other volume right to the $300 million. So you're seeing it in our P&L today in the first half of the year.
Very helpful, guys. And just as a follow-up, it seems that at least the North American chlorovinyls landscape is changing a little bit with a recently announced merger. So with that in mind, how are you thinking about that? Would there be potentially more opportunities on the chlorine side of things? I know you consume a lot of it internally. And could there be some risks on the caustic side of things as potentially a large chloralkali starts raising their operating rates through the course of 2027?
Good question. Yes, there is some announcement, and there will be an increase in supply later on this year by one of our competitors. But if you look at what we've done since the beginning of the year and really starting in the last quarter of 2025, we have shrunk our capacity. Our goal is regardless of what happens in the market, we will aim to run at 100% of all of our assets. We are aiming to run at 100% like we do on the polyethylene side, where regardless of market conditions, we are trying to run at 100%. That is exactly the goal that we're trying to achieve on the chlorovinyl side of our business in North America, and then if you extend that to Europe now with the new acquisition, that is the goal of Westlake: be the lowest cost producer and running at 100% regardless of market conditions. I think we've taken some really good steps to achieve that. And when the price is up, you see the absolute advantage of that strategy.
Jean-Marc, would appreciate your latest thoughts on the low density and linear low-density polyethylene markets. I think some of the consultants had set forth a projected price decline of $0.10 a pound. I'm not sure if you've engaged in any settlements yet for the month of July, but would welcome an update on that trajectory as you see it as well as any market color around inventories and demand and so forth.
Kevin, I'll take that one. What we've seen on polyethylene is it's up 25% through the second quarter of the year, so year-to-date. July has not settled yet, and so I really don't have a comment on that one. The August announcements are out and are up $0.05. By year-end, we expect the pricing to be higher than the prior year.
Okay. Very helpful. And then I wanted to follow up on the HIP segment, maybe a two-parter there. I think you were able to grow your housing product sales by 3%, outperforming the market. Just curious on where you think you're punching above your weight or gaining share on that side. And then on the infrastructure side, I think there was a comment in the prepared remarks that we may have pulled forward some demand from 3Q. Curious if you're seeing or suspecting anything to that effect in July or just something that you're watching for?
I'll take the first part of the question, and then Jon will take the second part. On our better-than-market performance in HIP, I think what you see is the competitive advantage of our housing products: reliability of supply across the U.S., strong warranty, affordable price, PVC being one of the preferred products for siding across the U.S., and supporting affordability in the U.S. We have done very well in the U.S. housing market even when the market is flat like it is this year, and we're doing everything to continue that trend.
Picking up on the second part of your question: as you look into the back half of the year for HIP, we are expecting the housing market for new construction to be relatively flat. R&R is likely up low single digits, but there's still a lot of uncertainty in the interest rate environment; mortgage rates continue to go up. That expectation is overall a bit softer than it would have been one quarter ago or before some of the conflicts in the Middle East and the corresponding impacts in the financial markets. But that being said, we see second half demand being very solid. We did mention that we are expecting some pull forward into Q2. What we did see was some customers secured supply at the onset of the war just to secure some additional inventory. We also passed through some increases in pricing in Q2 that you'll see through the back part of the year, much of which was to offset costs such as inflation, predominantly on freight costs that we're seeing.
Jean-Marc, just on polyethylene exports, how much of your production did you export in Q2 and the first half of the year?
As you know, we are mostly a domestic producer and selling into the domestic market. I would say between 10% and 20% is being exported, much lower than our competitors. Hence, we are less exposed to export pricing than our competitors.
Very good. And just on caustic, what are your expectations for caustic in the back half of the year?
For caustic, we are looking to see solid demand and pretty flat price. With the reduction and the closure last year of a very large diaphragm plant at our Lake Charles South facility, we are much less exposed to export markets, which currently, and I think will stay, at a lower price than the domestic market.
Yes. And caustic is up 75% to the second quarter, and we expect the second half to average higher than the first half.
I think you mentioned PVC price exiting the quarter at or near the highest levels. I think you noted steady improvement in domestic demand. But how would you characterize overall export demand throughout the quarter and what you're expecting to see from the export market in the second half?
Export markets were subdued in the first part of the year, especially after March. At the very beginning of the year, there was a flooding in the market from China right before there was a reduction in the VAT drawback. We saw a real flooding of the market with a peak in exports from China around March. That fell back into more normal levels, about 300,000 tons per month from a peak of 700,000 tons. We are starting to see a little pickup right now in export demand because price is getting back up. Lower price earlier is starting to pique the interest of traders again.
If you look at the pricing, we're up 9% through Q2. Inventory is high, but demand is solid with the pickup in export pricing. By year-end, we expect pricing to be higher than the prior year.
Great. And then just on the overall strong performance in PEM, I want to dial into reliability and operating rates. How much did your operating rates improve in Q2? I know you mentioned there was some offset from unplanned outages. And as we think about the back half, is there any planned maintenance to be mindful of? Or should we expect some modest tailwinds there?
Good question. I'll give you a rundown of how we look at operations now. Starting with HIP: no problem, running to supply demand with plenty of capacity to capture opportunities. For PEM: epoxy has been running at 100%, upstream olefins likewise running full out, and polyethylene likewise running full out. ECU production has been above 90%. PVC is in the mid-80s and climbing back up; PVC is related to VCM production and VCM was low last year but is improving. Based on what we've done and the relatively small number of planned shutdowns in the second half, we expect to run our assets at a higher rate than what we've seen in the first half.
I wanted to ask about your cost improvement plans for the year. What is the remaining work that needs to be done through year-end to meet the $600 million target? And on the cadence for earnings improvement, could you size how much of an impact you expect cost improvements will have in the third quarter relative to what you realized in the second quarter? Is that meaningful? Or are you just expecting to see the same continuation of year-over-year improvement rolling through in the back half?
Pete, good question. Broadly speaking, we're maintaining the $600 million target, and we've talked about the $300 million we've already achieved. We're already at a run rate that will help us get to that level. Within the three pillars, it's going to be a pretty consistent clip between now and the end of the year. We've already taken a lot of those actions, and we're seeing those continue forward in the P&L. Same with footprint optimization. The reliability pillar is one that, if we continue to run our operations as well as Jean-Marc described, we should be in very good shape in terms of meeting those objectives.
Great. And then as a follow-up, I wanted to ask about your expectations for free cash flow generation in the second half. Do you have a net leverage target for year-end you could share? And how are you viewing debt reduction as a priority relative to continued share repurchases in the second half?
From a high level, we don't provide free cash flow guidance for the back part of the year. In terms of balancing share repurchases and the credit profile, we want to balance those. We're proud of our strong investment-grade balance sheet and will continue to delever as we've done with the free cash flow generation this quarter. We will continue to be opportunistic with share repurchases, as evidenced by the $30 million purchases in Q2; we believe the shares are a good value. We evaluate returns on share repurchases, organic growth opportunities and inorganic opportunities and stack those choices before deploying capital. We are committed to maintaining an investment-grade capital structure.
If you're looking at HIP and comparing the first half to the second half on margins, the last couple of years you've come down first half to second half, 2% and 4%. At the low end of both pegs on your guidance for EBITDA and for sales, you would come down about 3%. Can you talk through what that structural decline in margin is driven by? Is it just a little bit lower sales in the second half? Or is there a mix impact in there? What drives that 200 to 400 basis point decline in margins in the second half?
It's a combination of things. There is a mix component. Some of the pull forward we talked about between Q2 and Q3 will impact that. In addition to inflation factors related to the conflict in the Middle East, freight and logistics costs started to come into the system in Q2, and we'll see a full half year of that in the back part of the year. We have taken pricing actions to offset those costs on a dollar basis, but those actions can tighten margins to some extent.
And on the first half to second half revenue trend, the last couple of years revenue has been down high single digits as you go from the first half to the second half in HIP. This year, with the pull forward, at the low end of your range it's only coming down 4%. Is there something driving that?
It's a function of mix and seasonality. Mix refers to the pull forward and seasonality of various product lines.
Could you comment on pricing for the second half across your outlook for polyethylene as well as caustic and chlorine?
We won't provide specific pricing guidance for polyethylene. To reiterate earlier comments: polyethylene is up 25% through the first half; July came off a little; August announcements are up $0.05. By year-end we expect polyethylene pricing to be higher than the prior year. For caustic, we saw an increase through the first half (up 75%), demand is solid, and we expect the second half to average higher than the first half. Chlorine has been down through the first half, and we expect it to be roughly flat in the back half.
Just wondering if you could provide a little bit more color on some of your specific HIP businesses that are more traditionally exposed to new construction, such as your stone veneer business, for example?
This year we've had good performance in our siding business and strong performance in roofing. We have a new strategy on roofing targeting reroofing as well as new construction. Our stone business has been restructured and operations improved, and that's paying off this year. We expect that to continue for the second half and into next year.
On the infrastructure side, we're seeing continued municipal spending and growth in data center construction. Data centers are not our direct customers, but they drive demand for our products. We are seeing increased spend going into data center build-out.
A follow-up on the data center point: I assume most of that exposure is large diameter pipe. Is there anything you can give to help quantify that opportunity?
We don't have specific numbers. We hear anecdotal data from distributors that suggest data centers could represent up to 30% of that spend, but we can't substantiate that with our own data.
I wanted to follow up on HIP and ask about pricing. You talked about pricing in place but not fully realized in Q2. So as you look sequentially, how much more price is coming through? Does that drive HIP pricing up year-over-year in Q3?
We don't quantify specifically how much of that pricing is part of our projections. Pricing letters have gone out, and we're not expecting a decrease in pricing in the back part of the year.
I'm not asking about future pricing. It's more about the May pricing roll forward. If you got 5% pricing in May and realized 2% in the quarter, does that mean an extra 3% flows through based on what you've already realized?
Sequentially, pricing is up 2% from Q1 to Q2. There will also be a mix component we don't necessarily forecast. It would be safe to say there will be some pricing increase from Q2 to Q3 visible in the results.
Prices were pushed up in HIP immediately after March. In HIP it takes some time to realize price changes. By the end of the second quarter and flowing into the third quarter, most prices were pretty much realized. Expect only slight improvement going forward; don't expect a lot more.
Steve, congrats again on the retirement. I wanted to talk about the Q1 to Q2 bridge. How much were cost cuts adding incrementally from Q1 to Q2? I would have thought it would have put you on more than $150 million of year-over-year benefit based on where we were in Q1. Similarly, epoxies are hard to track. How should we gauge the tailwind from Q1 to Q2 in epoxies?
I can start with the cost point. When I say first half year-over-year, the $300 million is flowing through. For just the sequential Q1 to Q2, you do see cost reductions as well. We saw 10% volume growth in the quarter, particularly strong in HIP, so cost of sales is higher from that perspective. Even with the 10% volume growth, our cost of sales decreased by about $75 million year-over-year, which is consistent with the message around the first half.
On epoxy: most of the epoxy restructuring completed at the end of third quarter last year, and we started to see benefits in Q4. Sequentially, epoxy did better in Q2 than in Q1, but that improvement was not related to further restructuring. It was driven by our strategy to pursue higher-margin segments, and we've seen significant growth in aerospace and electrical segments in epoxy and very good production rates upstream. We expect that to continue.
Export PVC is running much lower than CMA contract levels. Are you seeing discounting, and what do you attribute the divergence to because historically that would be hard to sustain?
People have inventory and, with prices declining, traders that were less present for several months have started to pick up again. Westlake is much less exposed to export now compared to competitors; we export roughly 10% to 20% of product. We will pick up export business if it makes sense, but we have the choice to do so or not. We do not expect exports to be as variable for Westlake as in the past.
On the newly acquired German assets, could you give a sense of the revenue-generating capability of that site or the two sites over the past several years?
We acquired the Wilhelmshaven asset in the second quarter. We don't disclose detailed numbers, but it's several hundred million in sales. Based on capacity multiplied by PVC price, it's a nice acquisition. It's very well situated by the ocean and allows us to integrate European operations with low-cost feedstock from the U.S. Think of Wilhelmshaven as part of an overall strategy to maximize earnings for the chlorovinyl business, not in isolation.
Will you bring EDC into the site or bring ethylene in as well?
We will look at everything to maximize our earnings.
It would be great to get a mark-to-market on Chinese PVC market trends, specifically if you've seen any impact from the elimination of the VAT export rebate. What are your latest thoughts on how anti-involution will affect PVC?
Regarding China: the economy is not performing well with low GDP growth. On the PVC side, production is influenced by carbide and naphtha feedstocks. Because of the slow economy, PVC in China has been export-driven. Before they stopped the duty drawback, there was a surge in exports in March; since then, exports have normalized. Carbi de-based PVC plants are running around mid-70% capacity and naphtha-based plants below 60% because it's uneconomic to run and sell PVC with elevated naphtha prices. Prices in China have gone up from the low and are now around $690 per ton for carbide-based and $720 per ton for naphtha-based. China will continue to be an export base for PVC, and as naphtha prices decline, exports into Southeast Asia—Vietnam, India and others—will likely increase.
Let me echo my best wishes for your retirement, Steve. I wanted to confirm: you anticipate the second half to be a benefit versus the first half in plant operations? Also, any color on unplanned outages and the force majeure in Europe on PVC in Q2?
Our goal is to run our assets as hard as we can. In the quarter we've done pretty well. It's always difficult to predict, so I won't make firm predictions, but the strategy is to run assets as hard as we can. Regarding the unplanned shutdown or force majeure in Europe, we had a very short impact due to a turnaround that lasted a bit longer, but the impact was minimal. We're not planning any major turnaround activity in the second half, which supports running assets harder in the back half.
Thank you. Thanks again, everyone, for participating in today's call. We hope you'll join us again for our next conference call to discuss our third quarter 2026 results.
Thank you for participating in today's Westlake Corporation Second Quarter Earnings Call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed via Westlake's website. You may now disconnect.