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Westlake Chemical Corporation 2Q16 results

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Hydrocarbon Engineering,


Westlake Chemical Corporation has reported net income for the three months ended 30 June 2016 of US$111.1 million, or US$0.85 per diluted share, on net sales of US$1086.1 million. This represents a decrease in net income of US$94 million, or US$0.69 per diluted share, compared to the quarter ended 30 June 2015 net income of US$205.1 million, or US$1.54 per diluted share, on net sales of US$1185.0 million.

Net income for 2Q16 was impacted by (1) pre-tax unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit, an unplanned outage at the Calvert City, Kentucky facility and unplanned outages at other chemical facilities totalling approximately US$65.7 million, or US$0.33 per diluted share, (2) lost sales associated with such turnarounds and outages, and (3) pre-tax acquisition-related costs of approximately US$7.7 million, or US$0.04 per diluted share, related to the pending Axiall acquisition. Net income for the second quarter of 2015 included a net pre-tax gain of US$15.5 million, or US$0.13 per diluted share, related to the bargain purchase gain from the acquisition of a controlling interest in Suzhou Huasu Plastics Co., Ltd. (Huasu) and the partial impairment of an equity method investment. Net sales for 2Q16 decreased by US$98.9 million compared to net sales for 2Q15, mainly due to lower sales prices for all of our major products and lower sales volumes for polyethylene, ethylene and ethylene co-products, partially offset by higher sales volumes for PVC resin and styrene and sales contributed by Huasu. Westlake acquired a controlling interest in Huasu in June 2015.

Sales prices in 2Q16 were negatively impacted by lower crude oil prices as compared to the prior-year period. Income from operations was US$179.9 million for 2Q16 as compared to US$295.4 million for the 2Q15. The decrease in income from operations for 2Q16 was mainly a result of the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit, the unplanned outage at the Calvert City facility and other unplanned outages. In addition, income from operations for the 2Q16 was impacted by lower sales prices for all of our major products and costs related to the pending Axiall acquisition. This decrease was partially offset by lower average feedstock and energy costs and higher product margins at our European operations, as compared to the second quarter of 2015.

2Q16 net income of US$111.1 million, or US$0.85 per diluted share, decreased US$12 million, or US$0.09 per diluted share, from the US$123.1 million reported in the 1Q16. Net sales in the 2Q16 were US$1086.1 million compared to net sales of US$975.2 million in 1Q16, an increase of US$110.9 million. The increase in net sales was largely due to higher sales prices for most of our major products, higher sales volumes for polyethylene, specialty PVC resin, building products and styrene, and sales contributed by Huasu. 2Q16 income from operations of US$179.9 million decreased US$22.4 million from the 1Q16 income from operations of US$202.3 million. The decrease was primarily due to lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit, the unplanned outage at our Calvert City facility and other unplanned outages. The decrease in operating income was partially offset by higher integrated product margins.

For the six months ended 30 June 2016, net income for Westlake Chemical Corporation was US$234.3 million, or US$1.79 per diluted share, on net sales of US$2061.2 million. This represents a decrease in net income of US$117.1 million, or US$0.85 per diluted share, from the six months ended 30 June 2015 net income of US$351.4 million, or US$2.64 per diluted share, on net sales of US$2288.5 million. Net income for the six months ended 30 June 2016 was impacted by (1) pre-tax unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit, the unplanned outage at the Calvert City facility and the unplanned outages at other chemical facilities totaling approximately US$67.5 million, or US$0.34 per diluted share, (2) lost sales related to the outages, and (3) pre-tax acquisition-related costs of approximately US$9.4 million, or US$0.05 per diluted share, related to the pending Axiall acquisition. Net income for the six months ended 30 June 2015 included a net pre-tax gain of US$15.5 million, or US$0.13 per diluted share, related to the bargain purchase gain from the acquisition of a controlling interest in Huasu and the partial impairment of an equity method investment. Net sales for the six months ended 30 June 2016 decreased by US$227.3 million compared to the prior-year period, primarily due to lower sales prices for all our major products and lower sales volumes for ethylene and ethylene co-products, partially offset by higher sales volumes for PVC resin and styrene and sales contributed by Huasu. Income from operations was US$382.2 million for the six months ended 30 June 2016 as compared to US$524.7 million for the six months ended 30 June 2015, a decrease mainly attributable to the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs associated with the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit, the unplanned outage at the Calvert City facility and other unplanned outages. In addition, income from operations for the six months ended 30 June 2016 was impacted by lower sales prices and costs related to the pending Axiall acquisition, partially offset by lower average feedstock and energy costs and higher product margins at our European operations, as compared to the prior-year period.

"We are excited about our recently announced pending acquisition of Axiall Corporation, which we believe should add meaningfully to the earnings potential of our company, and we look forward to welcoming the Axiall employees into the Westlake family. We achieved solid earnings for the second quarter, despite the impact of the planned and unplanned outages at our Lake Charles and Calvert City sites, however we benefited from improving product margins and increased sales volumes for our end-products. We are pleased to have recently completed the expansion of our Petro 1 ethylene unit, which we are currently in the process of restarting. This expansion adds 250 million lbs of ethylene capacity, and further strengthens our olefins integration," said Albert Chao, President and Chief Executive Officer.

Net cash provided by operating activities was US$241.0 million for the 2Q16 and US$369.9 million for the first six months of 2016. Capital expenditures for the six months of 2016 were US$287.2 million. As of 30 June 2016, the company had cash, cash equivalents and current marketable securities of US$1.1 billion and long-term debt was US$758.5 million.

EBITDA (earnings before interest expense, income taxes, depreciation and amortization) of US$255.4 million for the f 2Q16 decreased US$122.4 million compared to EBITDA of US$377.8 million in the 2Q15. EBITDA for the 2Q16 decreased US$15.2 million compared to EBITDA of US$270.6 million in the 1Q16. A reconciliation of EBITDA to reported net income and to net cash provided by operating activities can be found in the financial schedules at the end of this press release.

Olefins segment

The olefins segment reported income from operations of US$140.6 million in the 2Q16, a decrease of US$80.3 million, from the US$220.9 million operating income reported in the 2Q15. This decrease was mainly attributable to the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit and several unplanned outages in the 2Q16. In addition, lower sales prices, partially offset by lower feedstock and energy costs, resulted in lower olefins integrated product margins for the 2Q16 as compared to the prior-year period.

The olefins segment income from operations of US$140.6 million for the 2Q16 decreased by US$8.6 million from the US$149.2 million reported in the 1Q16. The lower operating income was primarily attributable to lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit and other unplanned outages in the 2Q16. This decrease was partially offset by higher integrated margins and higher sales volumes for polyethylene and styrene in the second quarter of 2016 as compared to the first quarter of 2016.

The olefins segment reported income from operations of US$289.8 million for the six months ended 30 June 2016 as compared to income from operations of US$412.0 million for the six months ended 30 June 2015, a decrease of US$122.2 million. This decrease was mainly attributable to the lost sales, lower production rates, unabsorbed fixed manufacturing costs and other costs related to the planned turnaround and expansion of the Lake Charles Petro 1 ethylene unit and other unplanned outages in the first six months of 2016. In addition, olefins integrated product margins decreased primarily as a result of lower sales prices, partially offset by lower feedstock and energy costs, for the six months ended 30 June 2016 as compared to the prior-year period.


Adapted from press release by Francesca Brindle

Read the article online at: https://www.hydrocarbonengineering.com/petrochemicals/29072016/westlake-chemical-company-announce-results-for-2q16-3813/


 

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