Westlake's Profits Grow with Olefins Expansions in First-Quarter 2014, Maintains Capex Outlook for Full Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Chemical and plastic products manufacturer Westlake Chemical Corporation (NYSE:WLK) (Houston, Texas) reported solid overall gains in the first quarter of 2014, based largely on improved sales and production in the Olefins segment, while the PVC pipe business continued to make significant contributions. Net income was reported to be $158.03 million, a 28.12% increase from first-quarter 2013.

Total sales stood at $1.03 billion, an 18.85% increase from the same period last year. The Olefins segment benefited from improved margins and volumes, with stronger sales prices more than offsetting higher feedstock and energy costs. In particular, ethylene and polyethylene sales showed significant gains. The May 2013 acquisition of the PVC pipe business from CertainTeed Corporation (Valley Forge, Pennsylvania) continued to pay off, despite lower industry prices for styrene and PVC. However, the Vinyls segment reported an operating loss following a drop in sales and weaker production, as well as a 50% increase in average industry propane prices. Unexpectedly harsh winter weather also proved detrimental.

The Vinyls segment also incurred $16.9 million in costs from a planned turnaround at a production facility in Calvert City, Kentucky. Westlake converted the ethylene plant's feedstock to ethane and expanded capacity by 180 million pounds per year. Executives say that the conversion allows the Vinyls segment to take advantage of the ethylene cost position that has proven beneficial to the Olefins segment.

Capital expenditures for the quarter were reported to be $110.7 million, compared with $150.8 million in first-quarter 2013.

Industrial Info is tracking $659 million in active projects involving Westlake, including $200 million in upgrades and expansions at a petrochemicals facility in Sulphur, Louisiana. The project involves increasing production at the Petro 1 Ethylene unit from 1.25 billion to about 1.5 billion pounds per year by upgrading and adding equipment. Among the tasks are installations of nine heat exchangers, and replacements of 19 others, modification to nine others; replacement of a quench system; and modifications to a propylene refrigeration compressor. The project is expected to be completed at the end of 2015.

"Our first-quarter results were lifted by record income from operations reported in our Olefins segment, which benefited from the ethylene expansion work that was completed last year at our Lake Charles facility, and strong integrated margins in our Olefins segment, in spite of higher ethane feedstock prices," said Albert Chao, the president and chief executive officer of Westlake, in a conference call.

Westlake executives continue to expect capital expenditures to be between $475 million and $525 million for full-year 2014. Chao said the company will complete its expansion project at Calvert City, which will expand PVC capacity by about 200 million pounds.

"We see that demand [for PVC resin] is recovering from the cold winter we had," Chao said in response to a question in the conference call. "As you know, PVC prices increased in the first quarter substantially, and there was some inventory building by fabricators, so it will adjust through the second quarter. We believe the upcoming warm weather, the demand for PVC will increase in the second quarter."

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