Westlake (WLK -2.29%), a global manufacturer serving the chemicals and building products industries, reported quarterly earnings on August 5, 2025. The most significant news from the release is that both revenue (GAAP) and profit (non-GAAP EPS) missed market expectations. Earnings per share (Non-GAAP) were $(0.09), or $0.17 below analyst expectations for non-GAAP EPS, and Revenue (GAAP) came in at $2,953 million, missing the consensus GAAP revenue estimate by $54.8 million. Sales, margins, and profits all decreased compared to the prior year, with the company's key Performance and Essential Materials (PEM) segment facing particular headwinds. Overall, the period reflected continued demand weakness, operational disruptions, and a more cautious outlook from management.
Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
---|---|---|---|---|
EPS (Non-GAAP) | $(0.09) | $0.08 | $2.40 | (103.8%) |
Revenue (GAAP) | N/A | N/A | $3.2 billion | N/A |
EBITDA excl. Identified Items | $340 million | $744 million | (54.3%) | |
EBITDA margin excl. Identified Items | 12% | 23% | (11 pp) | |
Net Income (Non-GAAP) | $(12) million | $313 million | (103.8%) |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.
Company Overview and Recent Focus Areas
Westlake is a vertically integrated company that produces a mix of chemical and building products. It supplies essential materials like ethylene, polyvinyl chloride (PVC) resin, and caustic soda for use across various industries. The company’s operations cover two main segments: Performance and Essential Materials (PEM) and Housing and Infrastructure Products (HIP).
Recently, Westlake has focused on managing costs, optimizing operational efficiency, and streamlining its asset portfolio. Vertical integration—controlling production from raw materials to finished products—remains core to its strategy. Key factors for success now include cost control, operational reliability, market diversification, and adapting to global shifts in demand and regulation.
What Happened This Quarter?
Westlake missed both profit (non-GAAP EPS) and revenue (GAAP) expectations, driven largely by ongoing weakness in demand and operational hardships, especially in its PEM segment. The consolidated EBITDA margin (excluding identified items) was 12%. This compares to 23% a year earlier, showing significant pressure on profitability. Free cash flow (non-GAAP) was negative, highlighting the challenge of balancing investments with lower cash generation.
Performance and Essential Materials, which produces industrial chemicals like chlorine, caustic soda, and PVC resin, saw net sales drop 10.9% year-over-year. Operating results suffered, with the segment reporting a $188 million operating loss (excluding identified items) versus a $157 million profit a year earlier. Volume in PEM was down 9% year-over-year, and prices dipped 2% compared to the prior year, a reflection of weaker global demand, trade disruptions, and both planned and unexpected plant outages. “Higher planned turnarounds and some unplanned outages within our PEM segment impacted our EBITDA and cash flow below their potential in the first half of 2025.” management reported.
Housing and Infrastructure Products, which includes items like PVC pipe, fittings, and related building products, delivered net sales 2.9% lower year-over-year. Sequentially, however, the segment showed improvement: sales rose 16%, supported by seasonal demand for construction products. EBITDA (non-GAAP) for HIP was $275 million, down 18.2% compared to the prior year but up 35% compared to Q1 2025. Management cited a 14% sequential increase in HIP sales volume, even as year-ago comparisons were negative due to softer prices and volumes, particularly in pipe and fittings. Average sales price for HIP slipped 1% compared to the prior year, and volume dropped 2% year-over-year in Q1 2025.
Westlake incurred $130 million in restructuring charges. These were largely related to the permanent closure of its Pernis epoxy plant in the Netherlands, which accounted for $108 million in accruals and a $15 million inventory write-off. An additional $7 million was tied to the temporary suspension of a PVC resin production line in China. These one-time expenses were non-cash but are expected to affect cash flows in future years.
Despite a drop in operating cash flow (GAAP) to $135 million and a negative free cash flow figure, Westlake ended the period with $2.3 billion in cash and equivalents. Total debt stood at $4.7 billion as of June 30, 2025. Management pointed to a “manageable” leverage position and an investment-grade balance sheet, though it also expanded its cost reduction program, now seeking an additional $200 million in cost savings by 2026.
Deepening the Product and Market Picture
Within Performance and Essential Materials, Westlake’s largest product groups are basic industrial chemicals—primarily chlorine, caustic soda, and PVC resin. Demand for these is heavily tied to global construction and industrial activity. The company noted that the segment experienced weaker global demand and production curtailments due to plant upgrades (known as “turnarounds”) and unexpected outages. Trade concerns, including tariff threats and changes in global shipping patterns, also hurt export sales and caused volumes to fall.
In the Housing and Infrastructure Products segment, Westlake manufactures building products such as pipes, fittings, and exterior building materials. This segment benefits from residential construction activity, which is usually strongest in the spring and summer. The period brought a seasonal recovery, with sales volumes increasing sequentially by 14%. Still, HIP revenue and profitability were both down from the same period last year—average sales prices were down slightly, and margin for the segment shrank to 24% from 28% compared to the prior year. The pricing environment for construction materials remains more stable than for chemicals, but margin pressure persists due to softness in end markets and input cost volatility.
One-off events played a major role this quarter. The Pernis epoxy plant closure, for example, reflects ongoing efforts to rationalize the company’s least competitive or lowest-margin operations, consistent with its longer-term focus on cost structure and sustainability. The closure was announced and related expenses were accrued during the period. These moves are expected to reduce future cash drain but resulted in significant one-time expenses during the period.
The cash and liquidity position, with $2.3 billion in cash, cash equivalents and fixed-income investments on hand, gives the company some flexibility even as free cash flow was negative due to capital expenditures and lower operating earnings.
Looking Ahead
However, it shared expectations for normalizing production rates in the chemical operations during the third quarter and highlighted expanded cost-reduction goals, aiming to achieve a total of $350 million in savings through 2026, as disclosed by management.
Looking forward, investors may want to watch for improvement or stabilization in the Performance and Essential Materials segment, particularly any rebound in basic chemical demand or further margin recovery. Execution on announced cost savings, trend lines in cash flow, and any further rationalization of underperforming assets will shape how Westlake weathers the ongoing market downturn. The company also faces continued uncertainty from global trade and energy price shifts, which may impact both pricing and production in its major businesses.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.