WLKP Earnings Miss by 13%

Westlake Chemical Partners (WLKP -0.52%), a master limited partnership specializing in ethylene production, reported its second quarter results on August 5, 2025, covering the period ended June 30, 2025. The most significant news from this earnings release was a strong sequential rebound in key operating and cash metrics after a challenging prior quarter, driven by completion of a major maintenance event known as the Petro 1 turnaround. However, the company fell short of market expectations: earnings per limited partner unit (GAAP) were $0.41 compared to the $0.47 analyst estimate for Q2 2025, and revenue (GAAP) was $297.1 million, falling short of the $301.0 million consensus. While results improved compared to Q1 2025, overall quarterly performance remained pressured, especially on distributable cash flow and operating cash generation, with only flat GAAP net income year over year and thin coverage of distributions.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Success Factors

Westlake Chemical Partners is structured as a master limited partnership (MLP) whose primary business is owning and operating ethylene production facilities. Ethylene is a basic chemical building block used in manufacturers' supply chains for plastics, packaging, and industrial uses. The bulk of its output is sold to its parent company Westlake Corporation under a set, long-term Ethylene Sales Agreement.

The partnership depends heavily on this arrangement, as roughly 95% of ethylene produced is covered by a fixed-margin, take-or-pay contract under the Ethylene Sales Agreement with Westlake. This means Westlake commits to buying nearly all of the ethylene output at a predetermined price, insulating Westlake Chemical Partners from swings in broader commodity markets. Success hinges on the operational reliability of the ethylene plants, the maintenance of supportive long-term agreements with Westlake, and steady cash generation to support distributions to unitholders.

Quarterly Highlights and Financial Details

The second quarter marked a rebound from the prior period’s low production, which was caused by the extended Petro 1 facility turnaround. Net income attributable to the partnership (GAAP) increased sharply compared to Q1 2025, rising from $4.9 million to $14.6 million as production and sales volumes recovered following the completion of major repairs and maintenance at the Lake Charles, Louisiana plant. MLP distributable cash flow (non-GAAP) rose more than threefold from $4.7 million in the first quarter of 2025 to $15.0 million in the second quarter, but at $15.0 million, MLP distributable cash flow was still 12.4% lower than the same quarter a year earlier, a shortfall management attributed primarily to higher maintenance capital expenses from the turnaround event.

Revenue (GAAP) grew by 4.6% compared to Q2 2024 as normal plant operations resumed, increasing total sales (GAAP) to $297.1 million. However, this still undershot the analyst consensus by $3.9 million (GAAP). Ethylene produced and sold to Westlake under the sales agreement forms nearly all this revenue, with just under 5% of annual output directed to third-party buyers. Notably, sales to these outside parties dropped to $28.0 million from $44.6 million in the prior-year period, based on GAAP results for Q2 2025 and Q2 2024 continuing a trend of declining third-party exposure as most production remains locked under the core agreement, with 95% of OpCo's ethylene production sold to Westlake.

Cash flows from operating activities (GAAP) dropped heavily, from $121.9 million in Q2 2024 to just $9.1 million. The company cited the timing and cost of payments related to the Petro 1 turnaround as the primary reason for this drop. Maintenance capital expenditures were $20.5 million, compared to $9.3 million in Q2 2024.

The company’s ability to make its regular unitholder distribution remained under the spotlight. The distribution, unchanged at $0.4714 per unit for the forty-fourth consecutive quarter since its 2014 IPO, was not fully covered by non-GAAP MLP distributable cash flow. The trailing twelve-month coverage ratio (non-GAAP) fell to 0.79 times, well below the long-term average of about 1.05 times. Management acknowledged this thin coverage, but reiterated that the Petro 1 event was planned and no such large turnarounds are scheduled for the remainder of 2025 or 2026.

Ethylene Production and Market Context

Ethylene, the product at the heart of Westlake Chemical Partners’ business, is a widely used hydrocarbon processed from natural gas liquids like ethane. The partnership’s facilities, operated under agreements with Westlake, have a nameplate capacity of approximately 3.7 billion pounds per year as of December 31, 2024. The fixed-margin Ethylene Sales Agreement, which sets Westlake as a near-exclusive buyer with a defined cash margin of $0.10 per pound, gives the partnership a stable and largely predictable revenue stream, but also exposes it to volume risk linked to any operational disruptions.

During the quarter, management pointed out that coverage ratios were pressured by the unusually high maintenance expenditures and cash conversion delays tied to the turnaround. The high level of maintenance capital spending in the first half of 2025—over $41 million—combined with lower production output observed in Q1 2025, produced these near-term cash coverage pressures. Third-party ethylene sales were $28.0 million, down from $44.6 million in Q2 2024, reflecting the partnership’s dependence on Westlake for the bulk of its earnings and cash flow.

Looking Ahead: Outlook and Investor Considerations

Management indicated it expects a “solid” improvement in distributable cash flow (non-GAAP) and the distribution coverage ratio in the second half of 2025 as plant operations normalize after the Petro 1 turnaround. No changes to the quarterly distribution or to planned capital spending were announced, and no further scheduled maintenance shutdowns are set for the next eighteen months, with management stating there are no additional planned turnarounds in 2025 or 2026.

No specific forward financial guidance for the second half or the full fiscal year was provided in the earnings release. The quarterly dividend was maintained at $0.4714 per unit.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.