Westlake reports $38 million loss in Q3 2025, citing impairment and soft demand; strategic cost reductions underway for recovery.

OPERATOR - (00:00:20)

Good morning ladies and gentlemen. Thank you for standing by. Welcome to The Westlake Corporation third quarter 2025 earnings conference call. During the presentation, all participants will be in a listen only mode. After the speaker's remarks, you will be invited to participate in a question and answer session. And as a reminder, ladies and gentlemen, this conference is being recorded today, October 30, 2025. I would now like to turn the call over to today's host, Jeff Hawley, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Jeff Hawley - Vice President and Chief Accounting Officer - (00:00:55)

Thank you, Stefan. Good morning everyone and welcome to the Westlake Corporation conference call to discuss our third quarter 2025 results. I'm joined today by Albert Chow, our Executive Chairman, John Mark 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 two 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 John Mark who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results after which John Mark will add a few concluding comments and we'll open the call up to questions. During the third quarter of 2025, we recorded a non cash impairment charge of 727 million representing all of the goodwill associated with our North American Chlorobinyls business unit. We also accrued expenses of 17 million related to previously announced facilities closures. We refer to these expense items, which in aggregate were 744 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 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 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 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 10K for the year ended December 31, 2024 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 third quarter results. This document is available in the press release section of our website@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, two 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, October 30, 2025 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 webpage@westlake.com Now I would like to turn the call over to Jean Marc Gilson Jean Marcus thank you.

Jean Marc Gilson - President and CEO - (00:04:37)

Jeff and good morning everyone. We appreciate you joining us to discuss our third quarter 2025 results. For the third quarter of 2025 we reported EBITDA of $313 million on net sales of $2.8 billion. Compared to the second quarter of 2025. Sales and EBITDA decreased as improved production and sales volume in our PEM segment was more than offset by lower sales volume in our hip segment and PEM's lower average selling price. While North American residential construction demand has softened in 2025, hip sales volume and total sales were comparable to those in 2024. This sales resiliency illustrates the strength of our relationships with key customers and a broad and deep portfolio as we continue to grow in this important market. As Compared to the third quarter of 2024, HIPS margin and EBITDA were negatively impacted by a sales mix shift to lower price and lower margin products as our key customers work to address the home price affordability impact felt by home buyers. In addition, HIP's EBITDA includes some period related administrative restructuring and integration expenses in the third quarter of 2025 that are expected to be of a non recurring nature. Overall, our HIP business is performing well in light of the affordability headwinds facing the new home construction market. We remain very positive on HIP's long term growth outlook supported by the need to rebuild the North American housing stock following over a decade of underbuilding of homes and we have continued to invest in the HIP business to accelerate our growth. The construction of a new PVCO pipe facility in North Texas to be completed in 2026 and the recently announced acquisition of ACI are some visible examples of our commitment to HIP segment through these exciting growth oriented investments. The ACI acquisition significantly expands our global compound business by introducing silicone and crosslink polyethylene compounds into our portfolio and it also importantly widens our access to new automotive, electrical and power markets. We expect to close the ACI acquisition in the first quarter of 2026. Turning to PEM Compared to both the prior quarter and prior year periods, our third quarter earnings and margins reflect the soft global demand for many of our PEM products, particularly PVC resins. Our improved operational performance and resulting increase in sales volume in the third quarter helped offset some of the reduction in prices resulting from the global supply demand imbalance. This global imbalance in supply demand in the chlorovinyl chain coupled with the challenging macroeconomic environment has resulted in an extended trough. As a result, during the third quarter of 2025 we took a non cash impairment charge of $727 million for all of the goodwill associated with SPEM's North American chlorovinyl business. While significant, the charge represents only a small portion of our net investment in the business and we remain positive in the outlook for chlorovinyls. We remain committed to this business as the global need for its products, which are critical to industries ranging from building materials to water to manufacturing, remains intact while the current trough continues to persist. We advanced several strategic actions to improve PEM's performance centered around three key pillars. Number one improve plant reliability to lower production production cost Unit production cost this pillar is beginning to show results in the third quarter. Reduce Cost we are on track to achieve our 150 to $175 million of company wide structural cost reduction in 2025 and we are taking further actions to achieve another 200 million of structural cost reduction in 2026. Approximately 75% of these cost reductions are attributable to the PEM's segment and these cost reductions will lower PEM's cost and improve our global competitiveness. 3. Optimize our manufacturing footprint we have taken strategic actions to close facilities such as PERNIS in the Netherlands and our Wuxi PVC resin facility in China. We will take other appropriate asset optimization actions to improve our financial performance as needed. Our relentless focus on these three pillars demonstrates Westlake's continued efforts to adjust our cost structure in response to changing global macroeconomic conditions. Advancing these strategic actions in the coming months is is a critical driver to improve our cost and return our PEM segment to levels of profitability that provide an appropriate return on investment. So to summarize the third quarter, our HIP businesses continue to perform well and provide a very valuable platform of earning stability. While profitability in our PEM segment is challenged by the ongoing trust, we believe our determined drive to deliver on the elements of this three pillar strategy will return PEM to profitability, improve the competitiveness of our assets and deliver the financial performance we expect. I would now like to turn our call over to Steve to provide more detail on our financial results for the third quarter of 2025.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:11:19)

Steve thank you Jean Marc and good morning everyone. As a reminder, my comments regarding the income from operations, EBITDA net income and earnings per share all exclude the financial impact of the identified items. Westlake reported a loss of $38 million or $0.29 per share in the third quarter on sales of $2.8 billion. The loss in the third quarter of 2025 was $26 million higher than the second quarter of 2025 primarily due to lower average sales price, primarily in PVC resin. In our PEM segment, the challenging global macroeconomic environment and imbalance in supply demand for many of PEM's products has resulted in an extended trough. As a result, during the third quarter of 2025 we took a non cash impairment charge of $727 million for all of the goodwill associated with PEMS North American Core Vinyls business. While this impairment reflects the near term challenges the North American Core Vinyl business faces, we believe the cost reduction actions we are taking combined with the improved plant reliability will turn this business to levels of profitability that it is capable of generating. For the third quarter of 2025, our utilization of the FIFO method of accounting resulted in an unfavorable pre tax impact of $37 million compared to what earnings would have been if we had reported on the LIFO method. This is only an estimate and has not been audited at a segment level. Approximately $32 million of the unfavorable impact was at PEM and the remaining 5 million unfavorable FIFO impact was at HIP. Before I discuss the details of our segment results, I want to provide some high level thoughts on in the quarter our HIP segment performed well, holding sales in line year over year despite the slowdown in North American residential construction activity which highlights our important market position with our key customers supported by our coast to coast market coverage and a wide range of product offerings. While sales were in line with prior year levels, HIPs, margins and earnings during the quarter were impacted by unfavorable changes in sales mix and several period related expenses. Meanwhile, our PEMS segment sales volumes benefited from improved plant reliability compared to the second quarter of 2025. However, average sales prices decreased 4% quarter over quarter which more than offset the impact of the improved sales volumes on segments earnings. Moving to the specifics of our segment performance, our HIP segment delivered EBITDA of $215 million on $1.1 billion of sales. When compared to the second quarter of 2025, HIP segment sales volumes were 6% lower, particularly for pipe and fittings which had exceptionally strong sales volumes in the second quarter of 2025 that may have reflected some pull forward of demand. Sales volumes for global compounds also declined sequentially driven by slower industrial and manufacturing activity. Meanwhile, demand for siding and trim and roof remained firm. Average sales price for HIP was unchanged sequentially. Lower sales volume combined with the $20 million period related expense items and the $5 million FIFO impact that I previously mentioned drove a decline in Hipp's EBITDA margin to 20%. Adjusting for the period weighted expenses and the FIFO impact, Hipp's EBITDA margin in the third quarter of 2025 would have been 22% compared to the 24% in each of the second quarter of 2025 and the third quarter of 2024. Looking at Hipps results on a year over year basis, when Compared to the third quarter of 2024, HIP sales fell less than 1% as a half percent increase in sales volumes was offset by a 1% decline in average sales price. The year over year increase in sales volume, despite the challenging backdrop for North American residential construction was driven by a solid double digit sales volume growth in pipe and fittings and on a year to date basis through the end of the third quarter pipe and fittings sales volumes have grown nearly 10% as compared to the first three quarters of 2024. Thus, our pipe and fittings business continues to perform very well with a solid outlook for growth supported by municipal water infrastructure investments and US government funding coming from the infrastructure bill. To summarize HIP's results, the business continued to perform well in the face of the affordability issues surrounding residential construction and we continue to be pleased with the stability and profitability of this business delivers. We continue to view HIP as a vehicle for inorganic growth as demonstrated by the recent announcement to acquire ACI's global compound solutions business. ACI brings important technologies and market access, particularly with global automotive manufacturers. We believe that this acquisition will greatly expand the breadth of our product offering and the market reach for global compounds business, expanding our sales and earnings growth. Turning to Our PEM segment, third quarter sales of $1.7 billion fell by $46 million in the second quarter 2025 driven by a 4% decline in average sales price that more than offset a 1% increase in sales volume. The decline in average sales price was the result of broadly lower chlorovinyl prices, primarily for PVC resin, and a shift in our sales mix toward export markets where selling prices tend to be lower. Improved reliability and our global competitive feedstock and energy position in North America drove a 1% sequential increase in sales volume resulting in a $38 million increase in EBITDA compared to the second quarter of 2025. On a year over year basis, PEM's third quarter sales of $1.7 billion were 13% lower, driven by a 7% decline in average sales price and a 6% decline in sales volumes. As Jean Marc discussed, the continued softness in global manufacturing and industrial demand combined with low priced Asian sales in the global marketplace have pressured pricing for many of PEM's products, particularly PVC resin. The lower year over year average sales price combined with lower sales volume drove a decline in PEM's EBITDA to $90 million in the third quarter of 2025 compared to $297 million in the third quarter of 2024. As Jean Marc mentioned, we remain confident in our ability to improve PEM results and deliver meaningful profitability improvement in our PEM segment Shifting to our Balance sheet As of September 30, 2025, cash and investments were $2.1 billion and total debt $4.7 billion with a staggered fixed rate maturity schedule for the third quarter of 2025. Net income provided by operating activities was $182 million while capital expenditures were 239 million. We continue to look for opportunities to strategically deploy our balance sheet in order to create long term value. Now let me provide some guidance for your models. We continue to expect housing and infrastructure products revenue to be in the range of 4.2 to $4.4 billion with an EBITDA margin between 20 and 22% for 2025. However, given lower North American residential construction activity and the $20 million of period related cost incurred in the third quarter, we now expect to be towards the lower end of each of these ranges. We continue to expect total capital expenditures for Westlake in 2025 to be approximately $900 million. Through the end of the third quarter we achieved approximately $115 million toward our 2025 company wide struct target of 150 to 175 million and we are driving actions now to take an additional $200 million of structural cost reductions by 2026 as part of our PEM Profitability Improvement Strategy. For the full year of 2020 25, we expect cash interest expense to be approximately $160 million. Now I'd like to turn the call back over to Jean Marc to provide some thoughts on actions the business is now taking to grow earnings in 2026 and beyond.

Jean Marc Gilson - President and CEO - (00:20:40)

Jean Marc thank you Steve. Looking forward, we are taking proactive steps to improve our financial performance. Our HIP segment will continue to execute its successful strategy utilizing three key levers. First, winning with the winners as we demonstrated this year, even in a slower market, the value of our brands and our broad national footprint delivers significant value for HIP's customers. As a supplier of choice to building product distributors and large national home builders, we expect to generate long term organic sales growth of 5 to 7% per annum. Second, new product innovation Our HIP business continues to commercialize breakthrough new technologies that create value for our customers such as our PVCO pipe products. This advanced molecular oriented PVC pipe was introduced in 2021 and has experienced solid customer adoption by delivering water solutions with 40% less PVC. Construction on our new PVCO plant in North Texas continues with an expected startup in the latter part of 2026 to meet growing customer demand. Third, acquisitions hip has demonstrated a proven track record of accretive acquisitions. Our HIP businesses compete in relatively fragmented industries with significant opportunities for both bolt on and strategic acquisitions. We see significant opportunities to leverage our sales and distribution platforms that are currently in place to create synergies and drive earnings growth. Shifting to pem Our drive to return this segment to profitability revolves around our three pillar profitability improvement strategy which I have already detailed and which is well underway. While we are optimistic that global demand growth for pam's product will improve, we are squarely focused to on actions within accontrol while the global supply and demand picture improves. This includes improving the reliability of our plants so that we can predictably serve our customers. As a reminder, in 2025 PAMS EBITDA was negatively impacted by approximately 200 million from operating issues. We also have identified significant operational cost savings as part of our company wide $200 million cost savings target for 2026. Finally, strategic asset optimization actions that we have already taken such as the PERNIS shutdown are expected to generate over $100 million a year in additional savings starting next year as we progress into 2026. We will continue to optimize our network and take action when and and where necessary to drive improved profitability at our PEM segment. Before I open the call to your questions, I want to close by highlighting Westlake's foundational strengths which continue to serve us well. These strengths include a diversified and complementary portfolio of businesses, a vertically integrated business model, a globally advantaged feedstock and energy position in the U.S. and our investment grade rated balance sheet with $2.1 billion of cash and securities. As we end 2025 and transition into 2026, we will continue to capitalize on these strengths to create value for our shareholders. Thank you very much for listening to our third quarter earnings call. I will now turn the call back over to Jeff.

Jeff Hawley - Vice President and Chief Accounting Officer - (00:24:43)

Jeff thank you, John. Mark before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity into our results, is available on our website and a replay of this teleconference will be available two hours after the call has ended. Steven we will now take questions.

OPERATOR - (00:25:05)

Thank you. At this time, we will conduct the question and answer session. And as a reminder to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 101. Again, please stand by for our first question. Our first question comes from the line of David Bigleiter of Deutsche Bank. Your line is now open.

David Bigleiter - Equity Analyst - (00:25:32)

Thank you. Good morning, Jean Marc, we've seen in polyethylene an increasingly weakening spot market. How will that affect your earnings in the fourth quarter? And what does that mean, if anything, for the October price increase you have. Out there for polyethylene? Thank you.

Jean Marc Gilson - President and CEO - (00:25:53)

Yeah, thank you for the question. No, you're right. We are seeing, I would say, a little bit of a weakening in polyethylene prices. At the same time, ethane is still staying in the mid-20s in terms of price, and this is certainly putting pressure on our ethylene margins. There is plenty of supply in the polyethylene segment. We have a very good position, very good operating efficiency in the quarter. We're expecting the same over the next quarter. And we will do our best to gather and create as much value as we can in that segment. So overall it's been tough, but I would say relatively stable in the ethylene segments. We are, as you expect, the last quarter is always subject also to some seasonality, and that's probably what we're going to see in conjunction with a stable to a little bit lower prices in the last quarter. So that's what we expect getting into the last quarter.

David Bigleiter - Equity Analyst - (00:27:03)

And just for Albert, given the pressures.

Albert Chow - Executive Chairman - (00:27:06)

You're seeing in the commodity chemicals space, are you and the board still committed to this current portfolio construct with a building products business, with a petrochemical business, or is there thinking that perhaps these businesses somewhere down the road are best served being separated?

David Bigleiter - Equity Analyst - (00:27:25)

Thank you.

Albert Chow - Executive Chairman - (00:27:28)

Yeah, certainly we are looking at various combinations of business. We believe in the strength of the two business being together as we know that our PBC business is a major supplier to our hip business in North America. And we believe that with the balance of supply demand globally improving over the next few years, that with our cost restructuring our PVC vinyl business in the. US we'll be much better positioned to. Serve our customer both domestically and overseas. And as we see interest rate coming down, it will certainly help the housing construction business in the US that will also improve our hip business as well as our PPC business. So we believe that synergies being together, but we understand from the valuation of the chemical and construction building material business, they are different. So we are hoping that the market can see some of the parts, but we'll evaluate options as we go. Thank you. You're welcome.

OPERATOR - (00:28:43)

Thank you. Our next question comes from the line of Frank Mitch of Fermium Research. Your line is now open.

Frank Mitch - Equity Analyst - (00:28:52)

Hey, good morning and thank you. You know, you discussed some of the. Weakness in the polyethylene markets. PBC hasn't exactly been covering itself in glory. What is your, you know, what is your near and midterm outlook on the PVC side of things? And what, what will it take? It, you know, what will it take. It take to get it back on track.

Jean Marc Gilson - President and CEO - (00:29:15)

Yeah. So, yeah, thank you for the question. I'll start and then we'll hand it over to Steve. The forecast for. You're right, I mean, the chlorovinyl chain has been challenged this year with prices going down. And hence we are taking efforts on the cost side to make sure that we are in a position to compete even at these low prices. So that's why we have started additional cost savings on top of previous ones. And we are hopeful that we will get back into a position where we will deliver acceptable financial returns in that segment in a not too distant future.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:30:02)

And just to add on, Frank, as Jean Marc was noting, big focus and actions being taken now for cost reductions, improving reliability. We're already seeing those results in the third quarter. And here we are well into the fourth quarter already seeing improved operating reliability which allows us to reduce that unit cost so big efforts on that front, but admittedly it may take some further supply reductions in the marketplace. And frankly, as you think about what is happening already and been announced in the European market, you've already seen reductions in caustic soda announcements, both in caustic soda as well as in pvc. So I think some of those higher cost players have already begun to take actions to address the oversupply in high cost positions. Thank you so much.

Frank Mitch - Equity Analyst - (00:30:48)

And Steve, if I could follow up. On the ACI acquisition. You noted in the release what the sales were in 2024. I was wondering if you might be able to give us an idea what transpired in 2025. And are we looking at hip margin type of business? Anything on DNA. As we look at. Model 2026 with the ACI acquisition built into the company?

Steve Bender - Executive Vice President and Chief Financial Officer - (00:31:14)

Yeah, so Frank, good question. And the ACI business is a very strong and it's a global compounding business in that crosslink, polyethylene and silicone business. And it does have good margins in that business. Of course, compounding businesses don't tend to have very high end ranges of margins. But I would say the range that you're seeing in our HIP segment are reflective of what I would expect to be delivered as we integrate ACI into our business. We think we have compelling synergies with our existing compounds business that is already a global business. And so I do expect the margins that you see in our HIP segment should be reflective of what we achieve once we get these synergies achieved in the ACI acquisition.

Frank Mitch - Equity Analyst - (00:31:58)

Thank you.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:32:00)

You're welcome.

OPERATOR - (00:32:02)

Thank you. Our next question comes from the line of Alexei Yefremov of Keybanc Capital Markets. Your line is now open.

Alexei Yefremov - Equity Analyst - (00:32:13)

Thanks. Good morning everyone. I was hoping you could just discuss further in detail the sources of this revision to your HIP guidance, how it affects your maybe initial views of 2026 for the Hip segment. I'm sorry, Alexei, could I get you to say that again? You were a little faint as you were asking that question. Apologies, I was just asking why the new HIP guidance is lower. What product lines or what was the reason behind it? And then any initial thoughts on hip in 26? Yeah, thank you.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:32:55)

I'm sorry, your question initially was a little faint. Thank you for that question. So again, I'd say that with the shifting in product mix that we saw occurred in the third quarter, addressing affordability by many of our customers, we saw a shift from the mix of products in that space. And as we think about the period related cost we had in the third quarter, it also had an impact in the overall 2025 guidance that we have provided. I think a lot of those costs that we had that were period related are largely non recurring in nature. And so as we think about the outlook for 2026, our guidance for construction activities is similar to what we've seen in 2025. If you listen to some of the conversations that are occurring publicly with some of our larger home builders nationwide, they're guiding to similar levels of construction activity. And we are believing to work very closely with those home building construction companies. So I think our expectation is while we see rates likely to continue to drift further down on the short end of the curve, I do expect that the longer end of the curve will drift lower. And we do expect there will be more activity in the construction level in 26. But I would still say we expect the range of construction activity to be 1.3 to 1.4 million housing starts, frankly very similar to 2025. But remember, only half of our HIP business is new construction. I want to remind you that the other half is repair and remodeling. And the repair and remodeling business has continued to perform very well. So this is why we think that we'll continue to see good continuing performance in 2026. Thanks, Steve. And was hoping to get some color on Caustic soda market, domestic and export. What is your view for the rest of the year? So I'd say the market in caustic is well supplied. We expect that as we look forward into the market. While the consultants have some indication of price momentum, I would expect that pricing in the market remain relatively stable at this stage. But I think the market is well supplied. I would say the same is true on the chlorine side as well.

OPERATOR - (00:35:28)

Thank you. Our next question comes from the line of Patrick Cunningham of Citi. The line is now open.

Patrick Cunningham - Equity Analyst - (00:35:38)

Hi, good morning. Maybe just a follow up on aci, more of a general question. Are you seeing more opportunities on the PVC compounding or other sort of material side relative to the building product space, just given where the difference in valuations is. And then maybe if you could just comment on what the pipeline in general looks like.

Jean Marc Gilson - President and CEO - (00:36:01)

Yeah, I'd say, Patrick, that there are opportunities that we see in expanding the footprint of HIP both in product offering in ranges, whether they're in the compounding sector or our pipe and fittings businesses or our exterior building products business through oil business. I'd say there's ongoing good dialogue that we have with parties who may choose to monetize some of those assets. And it's always a function of how does that fit into our business and the associated synergies. So I'd say there's really good opportunity as we look forward, but we're always looking for those synergistic fits into our overall portfolio. Understood.

Patrick Cunningham - Equity Analyst - (00:36:39)

And then maybe just on the quarter, on quarter sequential weakness on pvc. You mentioned a shift to export markets. Is this sort of a reversion back to your normal level of exports given the better operating rates, or is there something abnormal here in terms of higher split towards export markets?

Jean Marc Gilson - President and CEO - (00:37:02)

No, I think the industry has historically exported PVC resin in the 40s percent of production. And our shift back to some exports was simply improving reliability over the course of the third quarter. And I think going back, as you may recall, our historic levels of exports are below that industry average of 40 or so percent. We're in the mid-30s to low-30s on an average basis. So simply just improving reliability, improving production and putting some of that extra production back into historic market levels as we have in the past. Great.

Patrick Cunningham - Equity Analyst - (00:37:41)

Thank you so much.

Jean Marc Gilson - President and CEO - (00:37:43)

You're welcome.

OPERATOR - (00:37:46)

Thank you. Our next question comes from the line of John Roberts of Mizuho. Your line is now open.

John Roberts - Equity Analyst - (00:37:54)

Thank you. Did you get an opportunity to bid for the oxychem business or was the antitrust there just even too far for this administration and something oxy maybe didn't want to deal with? Well, I cannot obviously speak to transactions that we consider. It's a large transaction and we are a very large player in this space. So we do have to be mindful that there could be regulatory issues around such a transaction. But I would say that we're constantly looking for good opportunities and certainly whether it be in the hip side of our business or on the PIM side of the business, but there's always opportunities that we look to to see if there's real synergy, value and real opportunities to grow the business in a value added way. Thank you.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:38:42)

You're welcome.

OPERATOR - (00:38:44)

Thank you. Our next question comes from the line of Hassan Ahmad of Olympic Global Advisors. Your line is now open.

Hassan Ahmad - Equity Analyst - (00:38:53)

Morning, John. Mark and Steve. You know, just trying to. I know in your prepared remarks you talked a fair bit about sort of cost savings and asset optimization and the like. But you know, just trying to get a better sense of a bridge to 2026, EBITDA wise. It seems you guys will get 200 million in cost savings in 26, an incremental 100 million from the footprint optimization. And if I heard correctly, you had operational issues in PEM accounting for around 200 million in 2025, which won't be there in 26. So, you know, and then obviously some accretion from the acquisition. So, I mean, is it fair to assume that, you know, via self help and these things that I just laid out, I mean, on a year over year basis, all else equal, you know, EBITDA next year would be 500 million higher than this year.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:40:00)

Yeah, no, as I think, as you think about the pillars that Jean Marc spoke to and the efforts that we have underway for cost reduction, improved reliability and asset optimization, I think you've outlined well the guidance that we're trying to speak to in terms of the actions in pernis, the cost reduction initiatives and the opportunity to improve reliability. And when you think of the reliability challenges, the unplanned outage we had this year, a higher level of planned turnarounds in 2025, but also a number of unplanned outages as well as we think about 2026, of course there are going to be some planned turnarounds and of course there could be some unplanned outages. But I think you've outlined the direction that we're moving to improve reliability, reduce our cost and really act on opportunities to rationalize assets that are not performing well, to really improve the bottom line. So I think you kind of framed the thinking that we have. Well, fair enough.

Hassan Ahmad - Equity Analyst - (00:40:59)

And as a follow up, kind of linking a couple of the past questions together, I mean, this $727 million impairment, you know, associated with the Penn segment, you know, how should we think about that in light of, you know, some of the valuation data points provided by the Oxychem deal? You know, I mean, obviously, you know, that says something about the fundamentals there. You know, Berkshire coming in and maybe, you know, scooping these assets up at the bottom of the cycle. You know, how does that fit into this impairment you guys took? And again, going back to one of the earlier questions, just potentially thinking about the overall portfolio, is there some sort of valuation leakage with the way the business is set up today?

Steve Bender - Executive Vice President and Chief Financial Officer - (00:41:50)

So the impairment is a mechanical process that one has to undertake on an ongoing basis. And when you think about the extended trough that we've seen in the core vinyls business, it was clear to us that that impairment was necessary to be taken. But I think you saw from our prepared remarks that we see the business really in a condition to continue to see good demand over the medium to long term. So we think it really positions the business continue to return a very solid return on assets as we go forward. And the positioning that we have, we think is well positioned to capture that value medium to long term. But clearly we're in this trough conditions today and those trough conditions really are the drivers behind that impairment. That is really just a mechanical process that one has to undertake on a regular basis. But nevertheless, we think the investment that we've made is well positioned and we'll continue to really reap the benefits of this investment over time. But that's not to say that we won't make sure all assets are performing well as they should, and if they don't, we'll assess where the right value proposition sits.

Hassan Ahmad - Equity Analyst - (00:43:01)

Very helpful. Steve. Thank you so much.

OPERATOR - (00:43:04)

Welcome. Thank you. Our next question comes from the line of Josh Spector of ubs. Your line is now open.

Josh Spector - (00:43:15)

Hi, good morning. I just wanted to ask around the 20 million a period related expenses in HIP, can you tell us what exactly that was and is that really a one quarter cost or is that something that maybe lingers for a few more quarters? No, I called these out as period related because they really are really are administrative and transition and integration related. And so they really are non recurring in the nature of those items, which is why I call them out as period related. But would you expect more integration costs in fourth quarter? And are these numbers included in that 200 million reliability bucket you've called out or is this entirely separate? I see those, I do not see those at this stage in the fourth quarter and I don't see those as likely to be near term repeating. Okay. Thank you.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:44:10)

You're welcome.

OPERATOR - (00:44:12)

Thank you. Our next question comes from the line of Matthew Deyo of Bank of America. Your line is now open.

Matthew Deyo - Equity Analyst - (00:44:23)

Thanks. How are you thinking about operating rates in polyethylene? Because it feels like the industry is running a bit, I guess, how should I say this? If the industry does run hot, it feels like product starts to back up domestically. And I think we saw that in July and August. But I don't know if I'm extrapolating too much off of shorter duration or shorter, fewer data points. What's your perception there and how do you think about your own utilization rates, you know, as you think about operating rates? You know, we recognize that operating these plants to service our customers is important, but at the same time we're going to be operating these facilities in a manner that creates real value. And so if those operating rates are hovering today for the industry and the mid-80s to low-80s, we certainly had some plant planned, plant maintenance we undertook in the third quarter and So I would expect that our operating rates for the year will be slightly lower than industry average. But as we think about our polyethylene assets, we'll continue to make sure the operating rates reflect the value add that we see in the marketplace. And if we need to adjust those operating rates accordingly, we will. Thanks.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:45:48)

You're welcome.

OPERATOR - (00:45:51)

Thank you. Our next question comes from the line of Duffy Fisher of Goldman Sachs. Your line is now open.

Duffy Fisher - Equity Analyst - (00:45:59)

Yeah. Good morning guys. If you back into the number for. Hip, you know, just with what you've given us because we've got the year at the low end at the 4, 2 and the 20, 20%, you get a little under 150 million, which is down 20% year on year, roughly equal to Q3, which was down about 20%. But you don't have the period cost you just said. So how should we think about that back half number basically being a base to grow into 2026? It seems like hip numbers should be down next year, just given how low we are in the back half relative to the year. But any guidance on that would be helpful.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:46:42)

Yeah. So, Duffy, we see the seasonal construction period begin to slow in Q4. And so if you think about the new construction activity that typically occurs in the fourth quarter, it tends to be slower. But as we look forward, and again, I just want to remind you that half of our HIP business is repair and remodeling. So it's not entirely tied to the new construction markets that we see the nationwide builders dealing with at this stage. And so we still remain very constructive in our outlook for 2026 in terms of how we see the HIP business continuing to perform. There, of course, is seasonality in the first quarter and in the fourth quarter. So as we look at the fourth quarter that we're in today, going into the early stages of first quarter, there is naturally seasonality. And this is why we're guiding not only to the lower end of this range for the period related expenses we had in third quarter, but also some the slowing that we typically see in the fourth quarter. But as we look forward into 2026, recognizing that half our business is new construction, the other half is repair and remodeling, we still remain relatively constructive in our outlook. Those that constructive outlook is really tied to the dialogue that we're having really with these nationwide builders who while they are working down there, completed in unsold inventory, still seem to be moving forward with their construction plans.

Duffy Fisher - Equity Analyst - (00:48:10)

Fair enough. And then if I could just go back to the write down in the PEM Section Chlorovinos. Obviously everything has to be forward looking, right? The fact we've been in a long trough, it's not a backward looking write down, it's your expectations going forward. So what's changed, I guess kind of in your 10 year outlook, you know, for chlorovinyls and how much of the hit is downstream and how much of the hit would be kind of at the chloralkali level.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:48:39)

Thank you. Yeah, this was of course, just really on a chlor alkali base. And so as we think about the discounted cash flows that one has to run for the assessment of goodwill impairment, you can recognize that the extended trough we have triggered that impairment. But when we think about the fact there was no impairment of the assets themselves, it signals really the fact that we believe that this business continues to perform and will perform well in the medium to long term. It's just the extended nature of this trough really in the core vinyls business. Great.

Duffy Fisher - Equity Analyst - (00:49:19)

Thank you guys.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:49:21)

Welcome.

OPERATOR - (00:49:24)

Thank you. Our next question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open.

Turner Hendricks - Equity Analyst - (00:49:31)

Hey, good morning, this is Turner Hendricks on for Vincent. So I wanted to level set a little bit for your comments on outages. You all mentioned earlier, of course, the issues constituting around $200 million impact this year. And you also had the Petro One turnaround, I believe, in addition to that, 80 million. So in the absence of unplanned outages, how are you all thinking about maintenance costs next year relative to this year? And is that the right way of framing it? Yeah. And so As I say, 2025 was a much heavier year for planned outages, planned turnarounds. And so as I think about 2026, we don't have an ethylene cracker planned outage for, for turnaround. We only have some of the smaller units and those occur on a pretty regular basis every two to three years, whether they are PVC or chlor alkali or polyethylene assets, which typically turn every two to three years. And so the relative maintenance expense for turnarounds in 2026 should be much lower than they were in 2025. Okay, thanks. I think that answers the question, how are you thinking about if you can provide any color on this go forward? Capex specifically, if the market environment remains relatively similar next year to this year, is it safe to assume that Capex might still be in the $900 million range or perhaps a billion dollar range? Yeah, we're continuing to finalize our budget plans for 2026, but I would say that I would expect it to be somewhere in relative size. Great. Thanks so much. You're welcome.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:51:20)

Thank you. Our next question comes from the line of Pete Osterlin of Truist Securities. Your line is now open.

OPERATOR - (00:51:29)

Hey, good morning.

Pete Osterlin - Equity Analyst - (00:51:30)

Thanks for taking the questions. Within PEMM, you had a $36 million. Tailwind from improved plant reliability in the third quarter. Do you expect this to be a sequential tailwind in fourth quarter as well? And what is a reasonable amount to expect to? Could it be another 35 million or so?

Steve Bender - Executive Vice President and Chief Financial Officer - (00:51:48)

And so while we have seen some improved reliability, I would expect that we'll continue to see improved reliability in the fourth quarter. The amount of that reliability dollar wise is really attributable to the assumptions that you might have on pricing. And so I have to refer back to you in terms of what your assumptions are for pricing in the model. But we are seeing improved reliability in Q3 and in Q4. So I do expect a tailwind, but the quantification of that is really a function of what pricing assumption you might have in your models. Got it.

Pete Osterlin - Equity Analyst - (00:52:21)

Thanks. And then also just wanted to follow. Up on your plans for the 200 million of cost saves in 26. Could you share the cadence you expect throughout the year for actioning those cost savings? And I guess how much of that 200 million do you expect will actually be realized in 26 EBITDA relative to 2025? Yeah.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:52:42)

And so I do expect actions, I do expect those all to be pocketed in 2026. Actions actually are underway now. And so whether these are actions that relate to supply chain, to feedstock, to wide range of what I would say structural costs that are coming out of the business. So we'll begin to provide a little bit more color in 26 as we get into the actions in terms of the cadence. But I do fully expect to pocket that $200 million in 2026 because actions clearly are underway, well defined and well actioned at this stage and beginning to materialize in 26. Of course, we have actions underway for 2025 as well. And as I mentioned, we've had $115 million achieved toward our 150, $175 million target in 25. So we expect that we're moving forward and many of these leverage the actions in 25 that will continue to be additive in 2026.

Pete Osterlin - Equity Analyst - (00:53:45)

Thanks a lot.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:53:48)

You're welcome.

OPERATOR - (00:53:50)

Thank you. Our next question comes from the line of Matthew Blair of tph. Your line is now open.

Matthew Blair - Equity Analyst - (00:53:57)

Great. Thank you. And good morning. You mentioned A few times the affordability issues in the US housing market. How are you responding here? Are you introducing more low cost products? Are you changing the raw materials on any of your existing products? Or maybe this doesn't warrant a change in strategy from you, but could you discuss that?

Steve Bender - Executive Vice President and Chief Financial Officer - (00:54:18)

Yeah. And so when you think about our hip businesses, we do have the range of good, better, best range of products and that allows us to be able to address the affordability issues that some of the builders may have as they think about trying to address the affordability issues of homes. And so I spoke earlier about some of the product mix shift that we saw in Q3 and that's part of the reasoning behind some of that product mix shift is moving products from maybe good, better, best to be able to address the affordability issues that we see builders approaching us and discussing. Sounds good. And then could you also discuss why.

Matthew Blair - Equity Analyst - (00:54:57)

You re upped the ethylene supply agreement with does this raise costs at a time when margin when the industry is in a tough spot or is it the general idea to just preserve your optionality in case the MLP equity markets ever come back?

Steve Bender - Executive Vice President and Chief Financial Officer - (00:55:15)

Thank you. Yeah, good question. But we continue to see, I think good value in the partnership in its position today. And the extension of this agreement is actually very much as was originally envisioned back in 2014 when we constructed the partnership and launched that into the marketplace. It was designed to have an ability to extend that contract yearly year after year at the end of that 12 year contract expires, which is the end of 26. So renewing that contract or moving forward with that is reflective of the original construct of that ethylene sales agreement that was originally put to place in 2014. If you look at the way the contract for the ethylene sales agreement is constructed today, actually we're very close to that 10 cent margin already. So there's really no give up on either side of the equation. The C Corp as well as the partnership are getting in effect market pricing in today's market. And so if you look at cash margin, that's really not how the agreement is structured. It's really on a fully loaded basis. And so that's really where the market is today. And that's why both the C Corp and the partnership agreement partnership have agreed to extend this contract. Great. Thank you. You're welcome.

OPERATOR - (00:56:37)

Thank you. Our next question comes from the line of Arun Viswanathan of RBC Capital Markets. Your line is now open.

Arun Viswanathan - Equity Analyst - (00:56:55)

Aruni, thanks for the time. There you are. Yeah, sorry about that guys. Thanks for the Question. So I guess just going back to caustic, you noted that caustic is well supplied and you don't expect a price increase or. I don't know if that's what you. Said, but I guess I was under the impression that maybe there was a $50 increase announced and you could get maybe 20 of that in the, in the coming months. Maybe you can just elaborate on what. You'Re seeing there in Kazakh soda.

Steve Bender - Executive Vice President and Chief Financial Officer - (00:57:24)

Thanks. Yeah. And so Arun, there, you know, as I said, the market is well supplied. If you look at where the consultants are with their forecast for prices, they do have nominated in their forecast price increases. And this is the time of year where you see a curtailment of chlorine production as we reach a slowing season in construction, which impacts PBC slowing just because of the seasonality. So there is normally a slowdown in the production of chlorine and therefore caustic soda production, which is the basis behind their driver for the price increase. And whether it be one consultant or another, they have roughly $25 a ton in their forecast. And so certainly my comment really was that the market simply is well supplied. And to the extent there are opportunities to improve pricing, we'll certainly act on those.

OPERATOR - (00:58:24)

All right, thank you. Our next question comes from the line of Kevin McCarthy, Vertical Research Partners. Your line is now open.

Kevin McCarthy - Equity Analyst - (00:58:33)

Yes, thank you. And good morning. With epoxy resins having been removed from Annex 2, would you provide an update on how you see that market unfolding over the next several quarters? Yeah, Kevin, you know, it's, you know, with our shuttering of the PERNIS facility in Europe, you know, and our ability to source feedstocks, both LER and bpa, in a very cost effective manner, our downstream businesses are beginning to perform much better with that lower cost input feedstock. And so our European and North American and Asian businesses in epoxy are expected continue to perform well. The challenge we had in our epoxy business simply was the fact that we had higher, higher cost of production in Europe. So as we see the market today, I see some improvement in overall epoxy pricing. But I'd say our focus these days is very much in the downstream formulated aspects of the epoxy business that we have in Europe, in the Americas as well as in Asia. And then as a follow up or clarification, when exactly will the $100 million of goodness related to the PERNIS closure begin to flow through? Does that happen in the first quarter or how would you characterize that? Yeah, so the losses that we were incurring there. The plant has been shuttered and we're in the process of bringing the unit down or brought the unit down safely in the third quarter. So the benefits that we're beginning to see are beginning to accrue in Q4 and forward into 2026. So, of course there'll be some severance cost and such that you'll see flow through, but the benefit that we're seeing to the bottom line will begin to come through in Q4 and into 26. Very good. Thanks very much. You're welcome.

Steve Bender - Executive Vice President and Chief Financial Officer - (01:00:33)

Thank you. Our next question comes from the line of Michael Sison of Wells Fargo. Your line is now open.

Kevin McCarthy - Equity Analyst - (01:00:42)

Hey, guys, just curious. I think I understand some of the pluses for 2026, but if demand stays in the trough, which a lot of companies have said they haven't seen evidence that we're going to pick back up anytime soon. You noted polyethylene, pvc, caustic chlorine are both oversupplied. And it feels like feedstock costs could go higher. So do you think margins, industry margins for PEM could go lower in 26 given that scenario? You know, it's really hard to make that call, Mike. You know, when you think about the market that we see today, the outlook we see, and I'm looking at outlooks for, from the consultants on pricing, pricing remains fairly, fairly stable. If you look at the average price as one of the better known consultants for 25 and compare that to their forecast for 2026, it's basically flat for the course of 26 versus the year 2025. Certainly we have, and Jean Marc made comment about this, our feedstock cost have certainly risen. And so you're seeing some higher costs for ethane, and so there could be some further compression. But of course, that ethane is going into derivatives downstream. So if those derivatives downstream can't support that higher feedstock, then higher prices may not fully materialize in ethane. But I would say as we look forward, we're certainly looking at our customer demand picture and also looking at what our customers are saying and how we operate the business. But I would say the consultants suggest that prices should be relatively flat from 25 to 26 in the core vinyls business.

Steve Bender - Executive Vice President and Chief Financial Officer - (01:02:35)

Great.

Kevin McCarthy - Equity Analyst - (01:02:35)

Thank you. You're welcome.

OPERATOR - (01:02:40)

Thank you. At this time, the Q and A session has now ended. Are there any closing remarks? Yes. Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our fourth quarter 2025 results. Thank you for participating in today's Westlake Corporation third quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye,