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Why Shares of Westlake Chemical Dropped on Thursday

By Lou Whiteman - Updated May 2, 2019 at 4:58PM

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High feedstock costs and geopolitical tensions conspired to sink the company's quarterly results.

What happened

Shares of Westlake Chemical (WLK 2.76%) fell 9% on Thursday after the company's first-quarter results were battered by trade tensions, poor demand, and higher raw material costs.

So what

Westlake reported first-quarter earnings of $0.55 per share, well shy of the consensus $1.25 estimate. Revenue, at $2.03 billion, also missed consensus by about $30 million.

Sunset over a petrochemicals facility.

Image source: Getty Images.

The company blamed weak demand from China, as well as higher ethane feedstock costs and pricing pressure tied to what CEO Albert Chao called "the sharp decline in global crude oil prices in late 2018." 

The company also recorded $22 million in restructuring and integration costs in the quarter stemming from its $265 million purchase of French PVC manufacturer Nakan.

Now what

Crude prices rebounded throughout the first quarter, which should help Westlake pricing. Chao is also optimistic that ongoing trade talks between the United States and China will result in demand improvements as the year goes on.

"We are cautiously optimistic that higher crude oil prices and a resolution to trade tensions between the U.S. and China will lead to improved industry fundamentals in the second half of 2019," Chao said.

Hopefully he's right, but there are a lot of things out of Westlake's control that must break the company's way in order for it to get back on track. You can see why investors were heading for the exit on Thursday.

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