Title

Presentation

Westlake Corporation misses on earnings expectations. Reported EPS is $-0.77 EPS, expectations were $-0.09525.

Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Westlake Corporation First Quarter 2026 Earnings Conference Call. As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2026. I would like to turn over the call to today’s host, Jeff Holy, Westlake’s Vice President and Chief Accounting Officer. Sir, you may begin.

Jeff Holy: Thank you, Crystal. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2026 results. I’m joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During the call, we will refer to our 2 reporting segments: Performance and Essential Materials, which we refer to as PEM or Materials; and Housing and Infrastructure Products, which we refer to as HIP or Products. Today’s conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake’s first quarter performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we will open the call up to questions.

During the first quarter of 2026, we agreed to pay $67 million to settle certain legal claims in our pipe and fittings business. We also incurred expenses of $18 million related to the shutdown of facilities undertaken last year. We refer to these expense items, which in aggregate were $85 million as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income and earnings per share on this call all 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 first 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, approximately 2 hours following the conclusion of this call. This replay may be accessed via Westlake’s website. Please note that information reported on this call speaks only as of today, May 5, 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 Hilson. Jean-Marc?

Jean-Marc Gilson: Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our first quarter 2026 results. During the first quarter, we delivered $2.7 billion in net sales and EBITDA of $235 million by supporting our customers’ supply needs, managing our costs, executing our 3-pillar profitability improvement plan and driving long-term value creation. While the first 2 months of the quarter saw PEM sales reflect lower sales prices and continued soft global industrial and manufacturing activity, Sales improved significantly in March as the conflict in the Middle East brought about a significant disruption to global supplies of oil, chemical feedstocks and polymers from the Persian gas. Commercial conditions for Westlake and our industry changed dramatically with the outbreak of the Middle East conflict.

Industry consultants estimate that this conflict has disrupted approximately 10% to 15% of global polyethylene supply and approximately 5% of global PVC resin supply. Furthermore, up to 20% of global oil supply is disrupted, which has reduced the availability of chemical feedstocks such as NAFTA for much of the global chemical industry. creating further declines in the global supply of polyethylene and PVC. The associated sharp increase in global oil and chemical fixed stock prices has significantly steepened the global cost curve for many of the material that PAM cells, which is supporting higher selling prices and margins for cost-advantaged producers in North America, such as Westlake. In response to the reduction in global chemical and polymer production created by the Middle East conflict and significantly higher feedstock cost in much of Asia and Europe, customers around the world thought supply from producers and affected by the production disruptions caused by the conflict, which drove increased demand for our polyethylene, PVC and epoxy resin and increased prices for our products.

Our advantaged asset footprint in North America using gas-based feedstocks positions Westlake to benefit from the pricing momentum and expected associated margin expansion since the contract began. The evolving situation in the Middle East drove a significant improvement in PEM sales volume and earnings towards the end of the first quarter. PEM delivered net sales of $1.7 billion and EBITDA of $36 million and 3% sequential volume growth, excluding the impact to volumes from our 2025 plant shutdowns. While the conflict in the Middle East remains fluid, and we hope for a peaceful resolution, we expect the supply disruptions could persist throughout 2026. Turning to our hip segment. Sales volume and EBITDA were impacted by the unusually cold weather conditions in the first 2 months of the quarter.

However, performance improved in March as the homebuilding season began along with the onset of milder weather. Excluding the impact of the SCI acquisition, HIP delivered 10% sequential sales volume growth, which drove net sales of $1 billion and EBITDA of $186 million. Hip sales and EBITDA in the first quarter were driven by continued solid infrastructure-related growth and seasonally stronger residential housing demand. as compared to the fourth quarter of 2025. In addition to the intra quarter earnings improvement from supply disruption in the Middle East and weather normalization, our first quarter results benefited from our 3-pillar profitability improvement plan, including delivering approximately $150 million of EBITDA uplift from footprint optimization and cost savings actions.

While we still have some work to do to get our plant reliability, all the way to where I would like it, I’m pleased with the progress that we have made to date and the trajectory of our reliability initiatives. Overall, we remain confident that our 3-pillar profitability improvement plan will deliver. the targeted $600 million EBITDA uplift in 2026. Before I turn the call over to Steve, I want to provide some thoughts on our CFO transition. As you may have read on April 20, we announced that on June 15, John Baksht will join Westlake Corporation and Westlake Partners LP as Senior Vice President and Chief Financial Officer. John brings experience from the oil and gas, packaging and building products industries as well as investment banking to Westlake, and we look forward to him joining the company.

On June 15, Steve Bender will transition to the role of special adviser and will continue to report to me as it supports the transition. We anticipate that Steve will participate in the second quarter earnings call in August. And with that, I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2026. Steve?

M. Bender: Thank you. Thank you very much, Jean-Marc, and good morning, everyone. In the first quarter of 2026, Westlake reported sales of $2.7 billion and a net loss of $100 million or $0.77 per share. which compares to a net loss of $33 million in the first quarter of 2025. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The decisive actions we took last year to improve our profitability begin to meaningfully deliver results in the first quarter of 2026. Our footprint optimization actions significantly reduced PEMs fixed cost and returned our Epoxy business to profitability for the first time since 2023. As a reminder, prior to these actions, the Epoxy business was generating EBITDA losses of more than $100 million annually.

In addition, we achieved substantial structural cost savings in the first quarter while also taking action to improve plant reliability. Taken together, our 3-pillared profitability improvement plan benefited first quarter earnings by approximately $150 million. That said, we did face several headwinds during the first quarter, most of which we view as transitory. Despite a favorable mix shift away from export volumes, our average PVC resin sales price declined sequentially from the fourth quarter of 2025 due to price resets that occurred late in 2025. In addition, North American natural gas prices spiked in January and remained elevated through February as a result of unusually cold weather across much of the United States, creating an approximately $45 million EBITDA headwind for PIM compared to the first quarter of 2025.

That same weather also delayed the start of the homebuilding season contributing to a year-over-year sales volume decline in our hip business. Moving to the specifics of our segment performance. HIP did see the effect of solar start to a homebuilding season with net sales in our housing and Infrastructure Products segment of $1 billion, which were in line with the first quarter of 2025 as the January acquisition of ACI offset a 2% decline in average sales price and a 2% decline in sales volume, excluding the acquisition. Pipe and fittings continue to see strong sales volume driven by the infrastructure sector that was more than offset by declines in our exterior building products businesses and global compounds. HIP EBITDA of $186 million decreased $17 million from the first quarter of 2025 due to a slight decline in EBITDA margin largely due to lower average sales prices.

When compared to the fourth quarter of 2025, HIP segment sales of $1 billion rose 10% by a 15% sequential increase in sales volume, including the ACI acquisition. that more than offset a 5% decrease in average sales prices. The sequential sales volume growth was driven by seasonal higher demand for exterior building products and solid growth in global compounds. Housing product sales of $788 million in the first quarter increased $21 million due to seasonal sales volume growth, particularly for Siding and Trim and roofing. Infrastructure products sales of $205 million in the first quarter of 2026, increased $71 million from the fourth quarter of 2025, primarily due to solid growth in global compounds, and the ACI acquisition. Moving to our PIMS segment.

First quarter EBITDA of $36 million decreased by $9 million from the fourth quarter of 2025, largely as a result of a 34% higher natural gas price due to the impact of cold weather early in the quarter. Compared to the fourth quarter of 2025, PIM average sales price increased 3%, reflecting improved price realization for olefins, polyethylene, caustic soda toward the end of the quarter, while sales volumes increased 3%, excluding volumes associated with the 2025 plant shutdowns, while higher North American natural gas costs impacted the early months of the first quarter, by the end of March, natural gas prices declined to their lowest levels since 2024, where they remained during April. As a result, we don’t expect the transitory impact to PIMS first quarter sales — first quarter margins from higher natural gas prices to impact second quarter earnings.

For the first quarter of 2026, our utilization of the FIFO method of accounting resulted in a favorable pretax impact of $37 million compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited. 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 March 31, 2026, cash and investments were $2.5 billion and total debt was $5.6 billion with a staggered long-term fixed rate debt maturity schedule. In April, we provided a notice to call the remaining $500 million of debt in the second quarter of 2026 that otherwise was scheduled to mature later this year.

For the first quarter of 2026, net cash used for operating activities of $94 million includes approximately $50 million of cash outlays associated with the footprint optimization actions that we announced in 2025. Our strong balance sheet provides us the financial flexibility to invest in growth initiatives such as ACI, and we have entered into a nonbinding letter of intent to acquire a PVC and VCM plant in Billman Germany. This facility, which is located on the North Sea Coast benefits from its advantageous logistical infrastructure. We remain focused on pursuing additional opportunities to strategically deploy our balance sheet in order to create long-term value. Now let me provide guidance for your models. Given the slower-than-expected start to the homebuilding season and the significant increases in transportation and raw material costs, particularly for PVC resin.

We now expect 2026 revenue and EBITDA margin are HIP segment to be towards the lower end of our previously communicated range of $4.4 billion to $4.6 billion of revenue with EBITDA margin between 19% and 21%, excluding identified items. While we expect to pass these cost increases through the timing of changes in cost and sales prices could create a headwind in the near term. Expected 2026 total capital expenditures for the company 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 with that, I’ll turn the call over to Jean-Marc to provide a current outlook for the business.

Jean-Marc?

Jean-Marc Gilson: Thank you, Steve. The impact of the conflict in the Middle East and global feedstock and energy cost serves as a powerful reminder of 1 of Westlake’s foundational strength. Our globally advantaged feedstock and energy position in North America, where approximately 85% of our products are manufactured. The strategic value of our North American production capacity and globally advantaged cost position has arguably never been greater. In addition, the combination of investments, major turnarounds and restructuring actions that we made are now positioning us to benefit from more reliable production to capture the current upturn in PAM profitability and better serve our customers. While the commercial environment for PEM has improved significantly since our last earnings call in February, we remain laser-focused on achieving the full benefits from our profitability improvement plan.

We are pleased with the progress that we have made to date, improving our profitability, but we recognize that we must remain disciplined with respect to cost in an increasingly inflationary environment. Turning to our outlook for sales volume and pricing. We have a constructive view on near-term trends. As I discussed earlier, global supply chain disruptions and elevated global energy prices are driving meaningful price increases for polyethylene, PVC resin and other products in our PEM segment. Concurrently, supply concerns are prompting global customers to source more material from North America in response to the conflict, which is supporting higher PAM sales volume and improved plant operating rates. Shifting to HIP, mortgage rates and increased building costs could place additional pressure on housing affordability.

While it is too early to fully assess how this dynamic will impact HIPs building product sales volume, forward-looking indicators such as single-family housing permits and start add to the uncertainty. In this housing market, our Building Products business continues to benefit from a diversified product offering and broad national distribution. which provides builders with the products they need, when and where they need them. In Global compounds, we are pleased with the performance of the recently acquired ACI business. which has strengthened our position in the fast-growing high-voltage wire and cable market. This market is seeing significant demand growth driven by electric vehicles and data centers. Meanwhile, HIPs pipe and fittings business continues to deliver double-digit sales volume growth, supported by sustained strength in infrastructure spending.

Beyond traditional municipal infrastructure demand, we are seeing increasing contribution to sales volume growth, driven by cooling what a need from the data center build-out underway across North America. We expect this trend to continue through the rest of the year as an offset to uncertainty in the North American new residential construction market. On the cost front, we are aggressively working to pass through the increases in costs being driven by Middle East supply disruption and elevated fuel prices. Longer term, continued infrastructure investment combined with over a decade of housing and the building continues to support a compelling growth outlook for HIP. Taken together, our outlook for the company’s 2026 earnings has improved meaningfully since our last earnings call.

While the conflict in the Middle East could result in global supply change disruptions extending to the end of the year or beyond, we will remain focused on controlling what we can control. including delivering the full $600 million of EBITDA uplift from our 3 pillar profitability improvement plan. And we will maintain our disciplined approach to capital allocation, while preserving our investment-grade rated balance sheet. Thank you very much for listening to our first quarter earnings call. I will now turn the call back over to Jeff. Jeff?

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

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Operator: [Operator Instructions] Our first question comes from the line of Patrick Cunningham from Citi.

Patrick Cunningham: Can you help us unpack a little bit more the PEM results down sequentially? You had material benefits from the profitability improvement plan, PE and caustic prices were up. I guess, first, can you help size the headwind from PVC price margin declines and whether or not there was anything else going on with operating reliability or any stranded costs from some of the closures?

M. Bender: Yes. Patrick. And I would say that certainly, the price resets that we saw at the end of the year were certainly impactful across the product stream. And so I would say, and particularly, the increase that we’ve seen in PVC resin have not been fully catching up with some of the increases that we’ve seen in associated costs, especially, I would note the elevated natural gas cost that we saw in January and February. So while we’ve seen price increases in polyethylene epoxy and PVC, I would say certainly looking to continue to capture the value that we think that PVC represents and we certainly have not had the chance to fully recognize that throughout the entire quarter. But I would say that we’ve seen improved reliability and operability of the business. And so I’m improved. We’re not to where we’d like to be at this stage, but we’re making good progress as we move forward.

Patrick Cunningham: Understood. And then just on the underlying outlook for the hip business, what are your expectations for pure price this year given some of the higher-priced PVC you’re going to be pulling through — have you gone out with additional pricing ahead of the construction season? And is any of that baked into your outlook?

M. Bender: Yes. So good question. We have announced price increases to not only offset the increase in PVC resin, but also transportation costs. Certainly, fuel costs have also risen. So our price increases that we have already announced in the HIP segment have already reflected the cost that we expect to incur for PVC resin as it works its way through the manufacturing process and also to reflect elevated transportation costs driven by higher fuel prices. But nevertheless, that will take a little while, a few months, let’s say, to work its way fully through each of the various material product streams.

Operator: Our next question comes from the line of Bhavesh Lodaya from BMO.

Bhavesh Lodaya: Just back to the PEM segment, you called out transitory impacts that happened in the first quarter. If you look at, again, the fourth quarter and the first quarter difference, there was a $150 million benefit which you saw from your actions, which did not show up — would you say that transitory impacts are roughly equal to that $150 million. And in other words, is the base level of earnings for 2Q, is the starting point closer to, call it, like a $200 million level from which you will see additional benefits from margin improvements?

M. Bender: Yes. So I guess what I would say is certainly recognizing with the elevated cost that we had in natural gas in the first quarter of a $45 million headwind was significant, but transitory. And I would say the price increase that we’ve seen in all of our products from be it polyethylene, PVC and Epoxy should have significant benefits as those have been announced in the first quarter, but the full effect of those really translate into real value in the second quarter. As I mentioned earlier, we’ve seen improved reliability as we’ve made progress on our 3-pillar strategy. the $150 million benefit that we achieved in the first quarter. Certainly, it was largely attributable to PEM, but not exclusively so. So we’ve made cost reductions, of course, that affect both segments of the business.

Certainly, the optimization of our footprint certainly is directly attributable to the PEM segment. And certainly, some of the improvements we’ve seen in operability also are attributable to the PIM segment. But I would say we do see significant benefits accruing as a result of these price nominations and realizations that we expect in the second quarter.

Bhavesh Lodaya: Got it. And then particularly on your PVC outlook, you have leveraged both from higher operating rates as well as pricing from PVC here. Could you share an outlook on these 2 metrics? How much could weights move higher in 2Q or 3Q? And what are your expectations for PVC pricing from here?

M. Bender: Yes. As a result of some of the optimization actions that we took last year, we certainly have elevated the operating rates of our plants. Certainly, we had some planned maintenance at 1 of our units in the first quarter. But I would say operating rates throughout the first quarter were in the mid-80s, and we expect that as the construction season begins to start now with better weather, and I do expect that we’ll see elevated demand levels for PVC and construction activities. that in the context of recognizing that housing starts have been somewhat lower than had been earlier forecast by the consultants. But we do expect that with the price initiatives that we’ve taken in PVC and the increase in construction and repair and modeling activities that we do expect to see improvements across only the core Vinyls chain but across the entire FM segment.

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

Vincent Andrews: Wondering if you could just give us a little bit of direction on HIP for 2Q, just sounds like there’s going to be a little bit of a lag between the higher PVC and so forth costs coming through versus your ability to price. So if you could just give us a sense on what that’s going to do on the margin side. And then maybe also help us understand there was a mention about the season getting off to a slow start. So how did April go? And how does the order book look so far for the second quarter so that we can hopefully get our numbers in a good place for 2Q.

M. Bender: Yes. So good question, Vincent. And I would say that the order book looks very good as we see the second quarter begin to start from a volumes perspective. But to your point, with the elevated PVC pricing we see coming through the channel and while we’ve announced price increases in our HIP segment to address those higher PVC resin prices as well as transportation costs, there could be a month or 2 lag between the realization of those price nominations that we’ve made in the market and the roll forward of PVC resin prices. So there could be some headwind in that second quarter as we see the price that we’ve announced in PVC in the first quarter worked their way through into the PIMS segment before they get full traction of their price announcements made in the first quarter, but them fully worked in, in the second quarter.

Vincent Andrews: So is it fair to say then that we’ll see the lowest margin in 2Q? And then by 4Q, you’ll be high enough to get yourself back to the low end of the margin guidance for the full year. Is that the right way to think about it?

M. Bender: I would say the fourth quarter seasonally is typically a slower season, but I would say that the front half of the second quarter will see the full impact of some of the lag in the back half of the second quarter, we’ll see the benefit of some of the benefits of the price increase that the HIP segment have announced. I think we get the full benefit of all that in the third quarter, but the fourth quarter typically has a seasonal slowdown just because of the weather dynamics and is typically 1 of our lower margin and volume quarters.

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

David Begleiter: Jean-Marc and Steve. Just on polyethylene, you got the $0.30 in April. What’s your confidence level in getting some portion of all of the announced $0.20 per pound increase for me?

Jean-Marc Gilson: Well, I’d say that, David, that we certainly have been able to achieve that $0.30, as you noted in April, and it’s still early days in May. If you think back, the market has been able to absorb very, very significant price increases going back to the beginning of this year. And I would say it’s still a little bit early days in May to call the May increase. But if you think about where the price levels are today relative to recent history going back to ’21 or so, we’re still below those price increases we had in 2021. And the market was able to absorb those prices in ’21. So what we’re looking for is to see where demand levels are. But I would say we’re watching the market, but we’re still pushing forward with price increases that we see that are reflective in the marketplace.

David Begleiter: Very good. And just on PVC, are you increasing your export activity levels to take advantage of some of the spot opportunities we’ve seen in the marketplace?

Jean-Marc Gilson: Yes, good question. The — you are right. Price increase in PVC, I mean, we’ve seen a steady increase in PVC export prices. they kind of went to a peak a few weeks ago. They’re now coming down a little bit, but still much higher than what they were last year. So you are correct. I mean we are with increased operational — operating rates. And we are now increasing as much as we can PVC supply to take opportunities and to sell our volume in export markets where there is some good deal to be made.

Operator: Our next question comes from the line of Frank Mitsch from Premium Research Eros.

Frank Mitsch: Thanks Steve, let me offer you some early birthday wishes. And perhaps the second quarter starting out as a very nice birthday present for your last quarter as CFO. And again, thanks for all your help in that regard. I was wondering if you could offer some qualitative commentary with respect to the operating rates that you were able to realize in the PEM business in the first quarter and how your facilities are operating so far here in the second quarter?

M. Bender: Yes. So Frank, thank you very much for those comments. I would say that in the polyethylene business, we’re running full rates, as you would guess, demand levels seem to be very good. And even though we’ve seen significant price increases, operating rates are operating at full rates. In the PVC space, PVC rates are beginning to raise simply because we’ve optimize the operating rates having shuttered a number of sites last year and moved that production opportunity over to other existing sites. So operating rates in the PVC space were in the mid-80s. And I expect that to begin to kind of elevate as we work our way through into second quarter and third quarter, which is more peak wide construction season and some of our operating rates in our caustic and chlorine operations to support PVC.

Frank Mitsch: Terrific. And as you think about higher pricing levels having an impact on working capital, what’s your — what are you working at capital expectations and impacts on free cash flow in 2026?

M. Bender: Yes. Well, certainly, I do expect some of these higher prices, we’ll see an increase in the receivables side. But when you recognize that gas and ethane remain very moderate and frankly, at pretty low levels. I do expect the second quarter to generate free cash flow as a result.

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

Joshua Spector: Two things I want to just clarify here is first, just on the cost savings points. I think the $150 million you’re characterizing that as year-over-year — can you talk about what that is sequentially? And does that build sequentially? Or are we at the full run rate today?

M. Bender: Yes. That $150 million is a year-over-year result. And certainly, when we think about the contribution that we’ve seen, they’re coming from all 3 of those respective pillars. So if you recall, we generated a significant amount of savings in the fourth quarter. So the $150 million full year result is well over $100 million above and beyond what we generated in the fourth quarter.

Joshua Spector: Okay. But does that sequentially improve then into 2Q? Or are we just saying $150 million times 4, that’s the $600 million that you’re at — and I did want to ask a follow-up just related with the pricing side on PVC. I mean, considering we’re talking about pretty decent lags in pricing, I assume now in early May, you have a pretty good idea of the PVC price you’re going to realize in 2Q. Can you give us some guidance about what that increase would be since there seems to be a pretty stark disconnect with some of the indexes that we’re watching.

M. Bender: Yes. Back to your earlier portion of your question on the cost savings initiatives in our 3 forward strategy, we do expect that we’ll be able to achieve a relative portion over the course of the remaining 3 quarters of the year and fully achieve that $600 million savings. As it relates to the pricing initiatives, you’re right, we announced a series of price increases, both in PVC as well as in polyethylene. And as I say, we expect that those will be very impactful in the second quarter. So in the first quarter, we achieved in PVC, a total of $0.01 in January, $0.02 in February, $0.03 in March. We’ve announced and achieved $0.05 in April, and we have $0.04 nominated out from May, still looking to achieve the full $0.10 that we had earlier nominated, $0.05 achieved in April and $0.04 right now, but looking with customers to achieve that full $0.10 that we announced earlier in the month of March for April and May.

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

John Ezekiel Roberts: Are you seeing any shift in the destinations for U.S. export caustic and export vinyls? And do you think the pushback in pricing that you’re seeing is some demand destruction going on?

M. Bender: I’d say that what we’ve seen, John, is actually reasonably good demand levels for caustic just to remind you, we announced 2 price increases, 1 in December last year. 1 in January of this year, totaling $140 million — $140. And so I’d say that to date, I’d say we’ve achieved the greater portion of that first announcement that we announced in December. And the indices that we track seem to indicate we’ll get a greater — a pretty good portion of that second price increase. So I’d say that demand continues to be reasonably good at this stage of the quarter. And as I say, demand fundamentally is stable. And I would say, ramping up. From a destination perspective, as you would imagine, logistics have been jocking around as a result of the conflict in the Gulf and many of our customers are being well served, but I can’t speak specifically to all those individual customers.

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

Kevin McCarthy: Can you elaborate on your letter of intent to acquire Vyova’s vinyls plant in Germany? Maybe you could just talk a little bit about potential cost timing and the fit with your existing assets, including the legacy Vinnolit assets?

M. Bender: Yes. Well, good question, Kevin. And we’ve entered into this nonbinding letter intent with the insolvency administrator in Germany, and we think it fits very well potentially. As I say, it’s still nonbinding and so subject to a lot of contingencies, of course. But it does have access to a deep sea dock, which allows us access to low-cost potential feedstocks, which could be a significant advantage in servicing the European markets. In terms of talking about value, it’s still preliminary at this stage, and so it’s too early to get into evaluation at this stage.

Kevin McCarthy: Understood. Then as a second question, was your PEM segment EBIT positive in the month of March. I wouldn’t normally ask you about monthly trends, but I imagine March was night and day versus the prior month. So perhaps you can give us some sense for the exit velocity of earnings, so to speak, as you move through the quarter?

M. Bender: Yes. It was, as you would guess, very positive. And given the pricing initiatives that we’ve got out in Epoxy, PVC and polyethylene, I expect the improvements to continue to be quite strong as we enter into the second quarter. with, again, the ability to recognize and realize those price announcements that we announced during the first quarter.

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

Arun Viswanathan: I guess I wanted to try and maybe have a rough idea on if you could help us frame out Q2. So it looks like you’ll get maybe some incremental extra cost reductions if you’re expecting maybe $600 million for the year. I’m not sure if that actually does go up in Q2. Would it be kind of $20 million or $30 million higher in Q2 versus Q1? And then secondly, the PE, I think you have 2.5 billion pounds of capacity. So can we just apply that on the $0.30 for maybe $150 million to $200 million uplift there. And then PVC also on your [ 5.5 ] billion pounds, I’m getting maybe like a $75 million uplift. So HIP, I think, would be down maybe on higher costs as you flow through those items and that maybe cancel out the PVC increase. So maybe we’re up sequentially on the order of $200 million to $300 million. Is that — am I somewhere in the ballpark? Or how should we think about framing out the difference between Q1 and Q2?

M. Bender: Yes. I think directionally, as you think about the price combinations and the volumes of production that we have and the demand levels that we’re seeing that directionally, you’re in the — you’re moving directionally in the right direction. I would say that the headwind we do expect with hip to be reflective of some of the higher PVC pricing moving through in the first portion of the second quarter. But I do think we’ll get price realization in the back half of that second quarter as we’ve already made those announcements to deal with resin costs and transportation costs. But recognizing that we’ve got a number of price announcements, including PVC, polyethylene and epoxy, we should see significant traction in the second quarter. And so I think directionally, the way you’re thinking about it is correct.

Arun Viswanathan: Okay. And then if I could just ask, as you look into the second half, what is the durability of this pricing? Have you seen any larger-scale closures — do you expect any — maybe — the chlorine chain was not necessarily impacted as much because of coal-based production in China. So — do you expect conditions to kind of revert back to normal shortly after the straight reopens? Or what’s kind of the outlook in the chlor alkali space with regards to some of these constraints? Was it just not affected as much.

M. Bender: Yes, you can see from our comments that we expect the impact of this conflict in the Gulf that could persist all the way through the end of the year. And so it’s unclear exactly what kind of price direction we may see as the conflict takes whatever path it chooses to take, but I would say that the PVC core vinyls chain was lesser impacted by this conflict than the polyolefins chain has been. And so we do expect to see some meaningful improvement in those chains that have been more directly impacted.

Jean-Marc Gilson: Yes. I mean 1 additional thing is if you look into the chloralkali and specifically on the PVC side, and as you remember, the price was pretty much set by China last year. And it continues to be so, but in a different way, about 25% to 30% of the Chinese capacity as far as PVC is concerned, it’s coming from using naphtha and the rest is a carbide base. So all the naphtha are uncompetitive now and have really reduced production level. The carbide side, on the other hand, has increased operating rates and that has put another now ceiling in terms of price increase. So that’s why you saw a price ramp up very fast in China and then a little bit of a decline since probably early April, but it’s stabilizing at a higher level than where it was last year, and we’ve seen stabilization around $900 — $850, $900 per metric ton.

So overall, we think that the price for PVC export will stay elevated. It could come down gradually over the year, but it’s going to stay elevated for an extended period of time.

Operator: Our next question comes from the line of Peter Osterland from Truist Securities.

Peter Osterland: First, just wanted to ask on HIP. You highlighted data centers as a growth driver for pipe and fittings. Can you quantify the revenue contribution or the backlog growth that’s tied to the data center market? And how does the margin profile for sales into this market compared to HIP overall?

M. Bender: Yes, it’s a good question. I would say in the first half, sales and orders in the first half represent mid-teens percent of our volume. and it’s a growing market, as you know well. So we expect it to continue to be a nice contribution to the infrastructure side of our pipe infinians businesses. But I’d say — as I say, the first half, both orders and the order book and sales for the first half of the year, it’s mid-teens and growing. So we expect it to be a continued contribution to the pipe and fittings piece of HIP.

Peter Osterland: Great. And then just as a follow-up, on the $67 million PVC pipe settlement, does this settlement resolve the entirety of your exposure to litigation related to this? Or is there a potential for any further onetime charges?

M. Bender: Yes. This is tied really to the direct purchasers component of the litigation. And so there are 2 other categories of claimants that we’re in conversation with. So we’ve got a reserve of $10 million for that second category, but there are further obviously, discussions to be had.

Operator: Our next question comes from the line of Duffy Fisher from Goldman Sachs.

Patrick Fischer: I was wondering, can you help me — I’m having a hard time triangulating your hip numbers on revenue? So if you assume that PVC prices are up, you talked at least $0.10, so that’s like a third and you said that you’re going to get priced by the back half to offset that. So that would be pretty significant price increases rolling through HIP, but yet you’re guiding us to the low end of your revenue guide, which would mean that volume must be down significantly in the double digits versus what you expected. So can you just kind of tie those together, the inflation rolling through into hip, the price that you’re going to get and then how that changed your revenue outlook vis-a-vis volume?

M. Bender: Yes. And Duffy, good question. We’re seeing kind of mixed signals right now in the markets. You’ve seen housing starts, the latest report show that housing starts at 1.5 million housing starts, which is meaningfully higher, but I would say permits were only 1.3%, which is trending lower. So you see mixed signals right now in the marketplace. And as we start in robustness now, the construction season now that we’re in May going forward. We’re just being cautious in terms of what housing starts are likely to be. Remember, half our businesses, housing starts, the other half is repair and remodeling, but those are smaller volumes. And so housing starts tend to be higher volumes. So we’re just really being cautious about kind of volume we could see with the potential slowdown in housing starts in this year.

Patrick Fischer: Great. And then just 1 housekeeping. How much cash do you have left to spend on your expense cost-cutting program from last year?

M. Bender: You’re talking about the 3-pillar strategy that when you say your cost-cutting initiatives.

Patrick Fischer: Yes, exactly. How you spent cash this quarter that was already expensed, I believe, as I read through it. Is that fair? And is there more cash yet to be spent on that?

M. Bender: There is. And so — I would say in the neighborhood of $50 million remaining in ’26.

Operator: Our next question comes from the line of Hassan Amed from Alembic Global Advisors.

Hassan Ahmed: Earlier in the call, you talked a little bit about PVC export opportunities opening up. So just curious to sort of find out where you’re seeing those opportunities, particularly in light of a bunch of countries, be it India, the EU and the like already having antidumping duties in place.

Jean-Marc Gilson: Yes. I mean we are continuing to see the — you are correct. I mean the demand from India and the rest has decreased a little bit. But overall, the supply is also — even though over — I would say, probably February, March, you saw an uptick in supply from China. Since then, we’ve seen still a steady demand for export, and we are pretty much selling everything we can to the export market at pretty good prices right now.

M. Bender: I would say we continue to support the Latin America, South American markets as well.

Hassan Ahmed: Understood. And just carrying on with that. I’ve read some recent reports about the Chinese removing their VAT export drawback on PVC. Are you hearing similar things? And if that is true, what does that do to the cost curve? What does that do to Chinese exports going forward?

Jean-Marc Gilson: You’re talking about the fact that they removed and that it was sometime after a question whether they were removing it.

M. Bender: Yes, they were — we’re moving it really in April. And I would say that we did see some increase in exports just in advance of the April date. But certainly, that creates even a higher hurdle for those who are exporting because those that do have a higher cost, especially those that are ethylene-based certainly have now had an additional higher hurdle. As Jon Mark noted earlier in his comments, those that are acetylene-based certainly are on a lower end of the curve and not seeing the challenges of higher cost from the naphtha they’re coming through. But I would say that revision or that recision, I should say, of that VAT is certainly an additional headwind that all exporters out of China are now facing.

Hassan Ahmed: And Steve, just for me to get the numbers right, I mean, is it fair to assume that, that headwind would be maybe like $75 a ton to maybe like $100 a ton somewhere in that ballpark?

Jean-Marc Gilson: [indiscernible]

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

Matthew Blair: Could we circle back to these higher natural gas costs in PEM in the first quarter? It looks like — if I just look at a Gulf Coast indicator like Henry Hub, it did spec over $7 at certain points in January. But overall, it looks lower quarter-over-quarter in Q1 versus Q4 as do most other Gulf Coast indicators. I do see higher natural gas indicators in Europe quarter-over-quarter. So maybe could you just help us understand your headwinds in natural gas? Were there any derivative impacts like maybe rolling out hedges from last year or any other sort of onetime issues there?

M. Bender: Yes, Matthew. No, we had — I’m just looking at some of the indices here and you’re right, gas in late January and through much of February was north of $7 we’re a buyer on large well on a spot basis from a pricing perspective. And so it was really that $45 million headwind that I mentioned that drove — was a headwind that drove an impact on results in the first quarter. But with the poll on natural gas globally given what’s happening in the Persian Gulf, you really have seen gas prices come down significantly. And we’re probably just in the $280 to $290 range today. there is somewhat of a contango curve on gas, but what we continue to see is that gas curve continues to get pushed out. And month-on-month, we’ve seen low prices persist in this just under $3 range.

Matthew Blair: Sounds good. And then for the FIFO impact, I think you said it was $37 million. Do you have a split between PAM and HIP for that impact in Q1?

M. Bender: Yes. That was all PIM related, but it was $37 million.

Operator: Our next question comes from the line of Abigail Ebers from Wells Fargo.

Abigail Eberts: I’m curious about your expectations for caustic soda later in the year. Obviously, you’re expecting prices to increase near term in line with consultants. But I’m seeing in their forecast pricing coming down around October, which they’re saying is due to demand destruction from ongoing inflation and elevated interest rates. I’m just curious about your volume and pricing outlook for caustic soda in the back half of the year?

M. Bender: Yes. Good question. As I mentioned earlier, we’ve had 2 price announcements, and we’ve realized the great majority of that first price announcement already. I’d say demand right now is stable. And as we look forward into kind of the second and third quarters, I actually see because of that stability, a pretty stable price and the consultants do have some small price increases between May and July — that represent about $30 a ton. But I’d say demand really looks pretty stable at this stage.

Abigail Eberts: Okay. Got it. And then just a question on hip and PVC — how do you size the weather impact on the construction — beginning of the construction season this year, where would things be if the weather had been more cooperative, do you think?

M. Bender: It’s a little bit hard to say, but I would say, given the very cold weather we had in January and persisted at least through much of February, it certainly slowed down a lot of the early order intake. And as a consequence, we did not get the full benefit of that in the first quarter. And so certainly, we’ll wait and see kind of how the second quarter really translates as we get further into construction season now that the weather is much more milder throughout most of the country. Second quarter is usually when we see a real pickup. But I would say, as I mentioned earlier, housing start numbers that we’ve seen published are certainly elevated, but permits are looking more softer. And so that’s really the cautiousness that we’re looking as we look at our order books.

Operator: Our next question comes from the line of Jeff Zekauskas from JPMorgan.

Jeffrey Zekauskas: I think early in the call, you were talking about domestic PVC price increases as being $0.06 a pound for the first quarter, $0.01 than $0.02 and $0.03, but you also talked about discounts that were given — in general, did PVC prices net of discounts rise in the first quarter?

M. Bender: So I think your discount, you’re referring to the price resets that took place at the end of the year, Jeff, I believe.

Jeffrey Zekauskas: Yes, that’s exciting.

M. Bender: Yes, because certainly those — as we think about the price domination that we had in January and February, I would say that beginning to kind of pick up traction from where we were at the end of December. And so when you think about the March increase, most of that is going to be reflected in the second quarter and not really in first quarter results.

Jeffrey Zekauskas: Okay. And then if I can ask a naive question. Chinese PVC exports year-to-date, maybe they’re up 45% of being up 45% for all of 2025. And there’s really no PVC materially that’s made in the Mid East. And so for me, why is it that PVC prices should be up at all? Does it have to do with European ethylene inflation because there doesn’t seem really to be any disruption to Asian production and there’s no disruption to U.S. production. And what we’re seeing, of course, is we’re seeing PVC prices begin to move down pretty sharply in Asia. But what’s the source of the sharp move up in PVC. It’s very clear what it is in polyethylene. But can you give us an idea of what pushed previously up?

M. Bender: Yes. There is — if you look into the situation in China, as I said, about 25% of the capacity is not carbide based. And so it’s really sensitive to naphtha prices. So they’ve been hit pretty hard with the increase in naphtha prices, and they are economically, it’s really impossible for them to export. And they barely at breakeven point when you look at current prices. So — and quite a few of them have actually dramatically reduce their operating rate. If you look at the carbide, they are mostly in China, they’re not really on the coast. So all the effect of transport cost increase and everything has put an increase on to the PVC prices — you add on top of that, the duty go back removal of about 15%, and you get support for PVC price increase.

And that’s why right now after a spike I went over $1,000 per ton in China early on. It’s stabilizing in the 850, 950 metric ton — per metric ton when if you look back last year, PAUSE they were down to the 500, 550 million range. So that’s still a significant increase.

Operator: Our next question comes from the line of Matthew Deo from Bank of America.

Matthew DeYoe: So if I square off the $45 million headwind from gas quarter-over-quarter for PEM and then I back out $100 million of EBITDA from the cost cuts sequentially. I don’t know, maybe the PEM was down $60 million quarter-over-quarter, all else equal from like an operational perspective. Prices moved up over the quarter, but we just kind of talked through some of the PVC role discounting that was maybe unique to Westlake versus peers. But that doesn’t feel like that fully explains the whole differential to me versus what your peers explained or put up in the quarter. And so is there any reason why the calendar role would have been more punitive to you in polyethylene or with some epoxy additional headwinds that maybe we’re not catching — because it still feels like there is some idiosyncratic drag that maybe wasn’t so amply felt on your peers?

M. Bender: I can’t — Matt, I can’t — I guess I’m struggling with your math here because we certainly have recognized the same price nominations that I think we’ve seen announced by Westlake throughout the quarter, both in Epoxy and in PVC and polyethylene — maybe part of the equation is we also did planned maintenance in 1 of our sites earlier this year in the first quarter at Placement. And so that may be part of the equation that you did not have in your individual model. And so that was impactful in terms of opportunities, but it was a planned outage that we had taken. But I think when you walk through the and walk through the model or price nominations and price realizations, I think, are the same that we that we’ve nominated that I think many of the others have spoken to that I’ve read.

Matthew DeYoe: Okay. And then if I look at I don’t know, maybe this during 2022, right. European electricity costs are not up nearly as much, but European caustic profitability is pretty bad right now, maybe down $20 million, sorry, $200 sorry. But it’s down $200 a ton. It seems like caustic rolling in Europe. Do you see an opportunity for export window on caustic to Europe to open up, maybe not a way it in 2022, but — is that an area for kind of upside as we look through the course of the next quarter or so when this continues? And then can you modify how much of the plaque outage was now that we just mentioned that.

M. Bender: Yes, I would say it’s in the $20 million range.

Jean-Marc Gilson: And in terms of caustic, you are correct. I mean caustic price might indicate that there is an opportunity to ship there. But when you look at the price for transport and everything, it completely offsets the spread that there is between the U.S. and Europe. So right now, there is really no good opportunities to export caustic to Europe.

Operator: Thank you. This ends our question-and-answer session. Let me turn it over to Jeff Holy for closing remarks.

Jeff Holy: Thank you. Thanks for participating in today’s call. We hope you’ll join us again for our next conference call to discuss our second quarter results.

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

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