Westlake Chemical Corporation Aktie

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Westlake Corporation First Quarter 2026 Earnings Conference Call. As a reminder, ladies and gentlemen, this conference is being recorded today, May 5, 2026. I would like to turn over the call to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Thank you, Crystal. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our first quarter 2026 results. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc 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 2 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 Jean-Marc, who will open with a few comments regarding Westlake's first quarter performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we will open the call up to questions. During the first quarter of 2026, we agreed to pay $67 million to settle certain legal claims in our pipe and fittings business. We also incurred expenses of $18 million related to the shutdown of facilities undertaken last year. We refer to these expense items, which in aggregate were $85 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 all 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 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 that is 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 10-K for the year ended December 31, 2025, 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 first quarter results. This document is available in the Press Release section of our website at 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, approximately 2 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, May 5, 2026, 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 web page at westlake.com. Now I would like to turn the call over to Jean-Marc Hilson. Jean-Marc?

Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our first quarter 2026 results. During the first quarter, we delivered $2.7 billion in net sales and EBITDA of $235 million by supporting our customers' supply needs, managing our costs, executing our 3-pillar profitability improvement plan and driving long-term value creation. While the first 2 months of the quarter saw PEM sales reflect lower sales prices and continued soft global industrial and manufacturing activity, Sales improved significantly in March as the conflict in the Middle East brought about a significant disruption to global supplies of oil, chemical feedstocks and polymers from the Persian gas. Commercial conditions for Westlake and our industry changed dramatically with the outbreak of the Middle East conflict. Industry consultants estimate that this conflict has disrupted approximately 10% to 15% of global polyethylene supply and approximately 5% of global PVC resin supply.

Furthermore, up to 20% of global oil supply is disrupted, which has reduced the availability of chemical feedstocks such as NAFTA for much of the global chemical industry. creating further declines in the global supply of polyethylene and PVC. The associated sharp increase in global oil and chemical fixed stock prices has significantly steepened the global cost curve for many of the material that PAM cells, which is supporting higher selling prices and margins for cost-advantaged producers in North America, such as Westlake.

In response to the reduction in global chemical and polymer production created by the Middle East conflict and significantly higher feedstock cost in much of Asia and Europe, customers around the world thought supply from producers and affected by the production disruptions caused by the conflict, which drove increased demand for our polyethylene, PVC and epoxy resin and increased prices for our products. Our advantaged asset footprint in North America using gas-based feedstocks positions Westlake to benefit from the pricing momentum and expected associated margin expansion since the contract began.

The evolving situation in the Middle East drove a significant improvement in PEM sales volume and earnings towards the end of the first quarter. PEM delivered net sales of $1.7 billion and EBITDA of $36 million and 3% sequential volume growth, excluding the impact to volumes from our 2025 plant shutdowns. While the conflict in the Middle East remains fluid, and we hope for a peaceful resolution, we expect the supply disruptions could persist throughout 2026.

Turning to our hip segment. Sales volume and EBITDA were impacted by the unusually cold weather conditions in the first 2 months of the quarter. However, performance improved in March as the homebuilding season began along with the onset of milder weather. Excluding the impact of the SCI acquisition, HIP delivered 10% sequential sales volume growth, which drove net sales of $1 billion and EBITDA of $186 million. Hip sales and EBITDA in the first quarter were driven by continued solid infrastructure-related growth and seasonally stronger residential housing demand. as compared to the fourth quarter of 2025.

In addition to the intra quarter earnings improvement from supply disruption in the Middle East and weather normalization, our first quarter results benefited from our 3-pillar profitability improvement plan, including delivering approximately $150 million of EBITDA uplift from footprint optimization and cost savings actions. While we still have some work to do to get our plant reliability, all the way to where I would like it, I'm pleased with the progress that we have made to date and the trajectory of our reliability initiatives.

Overall, we remain confident that our 3-pillar profitability improvement plan will deliver. the targeted $600 million EBITDA uplift in 2026. Before I turn the call over to Steve, I want to provide some thoughts on our CFO transition. As you may have read on April 20, we announced that on June 15, John Baksht will join Westlake Corporation and Westlake Partners LP as Senior Vice President and Chief Financial Officer. John brings experience from the oil and gas, packaging and building products industries as well as investment banking to Westlake, and we look forward to him joining the company.

On June 15, Steve Bender will transition to the role of special adviser and will continue to report to me as it supports the transition. We anticipate that Steve will participate in the second quarter earnings call in August. And with that, I would now like to turn our call over to Steve to provide more detail on our financial results for the first quarter of 2026. Steve?

Thank you. Thank you very much, Jean-Marc, and good morning, everyone. In the first quarter of 2026, Westlake reported sales of $2.7 billion and a net loss of $100 million or $0.77 per share. which compares to a net loss of $33 million in the first quarter of 2025. Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. The decisive actions we took last year to improve our profitability begin to meaningfully deliver results in the first quarter of 2026. Our footprint optimization actions significantly reduced PEMs fixed cost and returned our Epoxy business to profitability for the first time since 2023.

As a reminder, prior to these actions, the Epoxy business was generating EBITDA losses of more than $100 million annually. In addition, we achieved substantial structural cost savings in the first quarter while also taking action to improve plant reliability. Taken together, our 3-pillared profitability improvement plan benefited first quarter earnings by approximately $150 million. That said, we did face several headwinds during the first quarter, most of which we view as transitory. Despite a favorable mix shift away from export volumes, our average PVC resin sales price declined sequentially from the fourth quarter of 2025 due to price resets that occurred late in 2025.

In addition, North American natural gas prices spiked in January and remained elevated through February as a result of unusually cold weather across much of the United States, creating an approximately $45 million EBITDA headwind for PIM compared to the first quarter of 2025. That same weather also delayed the start of the homebuilding season contributing to a year-over-year sales volume decline in our hip business.

Moving to the specifics of our segment performance. HIP did see the effect of solar start to a homebuilding season with net sales in our housing and Infrastructure Products segment of $1 billion, which were in line with the first quarter of 2025 as the January acquisition of ACI offset a 2% decline in average sales price and a 2% decline in sales volume, excluding the acquisition. Pipe and fittings continue to see strong sales volume driven by the infrastructure sector that was more than offset by declines in our exterior building products businesses and global compounds.

HIP EBITDA of $186 million decreased $17 million from the first quarter of 2025 due to a slight decline in EBITDA margin largely due to lower average sales prices. When compared to the fourth quarter of 2025, HIP segment sales of $1 billion rose 10% by a 15% sequential increase in sales volume, including the ACI acquisition. that more than offset a 5% decrease in average sales prices. The sequential sales volume growth was driven by seasonal higher demand for exterior building products and solid growth in global compounds.

Housing product sales of $788 million in the first quarter increased $21 million due to seasonal sales volume growth, particularly for Siding and Trim and roofing. Infrastructure products sales of $205 million in the first quarter of 2026, increased $71 million from the fourth quarter of 2025, primarily due to solid growth in global compounds, and the ACI acquisition.

Moving to our PIMS segment. First quarter EBITDA of $36 million decreased by $9 million from the fourth quarter of 2025, largely as a result of a 34% higher natural gas price due to the impact of cold weather early in the quarter. Compared to the fourth quarter of 2025, PIM average sales price increased 3%, reflecting improved price realization for olefins, polyethylene, caustic soda toward the end of the quarter, while sales volumes increased 3%, excluding volumes associated with the 2025 plant shutdowns, while higher North American natural gas costs impacted the early months of the first quarter, by the end of March, natural gas prices declined to their lowest levels since 2024, where they remained during April.

As a result, we don't expect the transitory impact to PIMS first quarter sales -- first quarter margins from higher natural gas prices to impact second quarter earnings. For the first quarter of 2026, our utilization of the FIFO method of accounting resulted in a favorable pretax impact of $37 million compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited.

Now turning to the balance sheet and cash flow statements. We continue to maintain financial flexibility with a strong balance sheet as well as our long-standing commitment to a solid investment-grade credit rating. As of March 31, 2026, cash and investments were $2.5 billion and total debt was $5.6 billion with a staggered long-term fixed rate debt maturity schedule. In April, we provided a notice to call the remaining $500 million of debt in the second quarter of 2026 that otherwise was scheduled to mature later this year. For the first quarter of 2026, net cash used for operating activities of $94 million includes approximately $50 million of cash outlays associated with the footprint optimization actions that we announced in 2025.

Our strong balance sheet provides us the financial flexibility to invest in growth initiatives such as ACI, and we have entered into a nonbinding letter of intent to acquire a PVC and VCM plant in Billman Germany. This facility, which is located on the North Sea Coast benefits from its advantageous logistical infrastructure. We remain focused on pursuing additional opportunities to strategically deploy our balance sheet in order to create long-term value.

Now let me provide guidance for your models. Given the slower-than-expected start to the homebuilding season and the significant increases in transportation and raw material costs, particularly for PVC resin. We now expect 2026 revenue and EBITDA margin are HIP segment to be towards the lower end of our previously communicated range of $4.4 billion to $4.6 billion of revenue with EBITDA margin between 19% and 21%, excluding identified items. While we expect to pass these cost increases through the timing of changes in cost and sales prices could create a headwind in the near term. Expected 2026 total capital expenditures for the company are still expected to be $900 million, which is approximately $100 million lower than last year and in line with our annual depreciation.

We continue to expect cash interest expense to be approximately $215 million.

Now with that, I'll turn the call over to Jean-Marc to provide a current outlook for the business. Jean-Marc?

Thank you, Steve. The impact of the conflict in the Middle East and global feedstock and energy cost serves as a powerful reminder of 1 of Westlake's foundational strength. Our globally advantaged feedstock and energy position in North America, where approximately 85% of our products are manufactured. The strategic value of our North American production capacity and globally advantaged cost position has arguably never been greater. In addition, the combination of investments, major turnarounds and restructuring actions that we made are now positioning us to benefit from more reliable production to capture the current upturn in PAM profitability and better serve our customers.

While the commercial environment for PEM has improved significantly since our last earnings call in February, we remain laser-focused on achieving the full benefits from our profitability improvement plan. We are pleased with the progress that we have made to date, improving our profitability, but we recognize that we must remain disciplined with respect to cost in an increasingly inflationary environment.

Turning to our outlook for sales volume and pricing. We have a constructive view on near-term trends. As I discussed earlier, global supply chain disruptions and elevated global energy prices are driving meaningful price increases for polyethylene, PVC resin and other products in our PEM segment. Concurrently, supply concerns are prompting global customers to source more material from North America in response to the conflict, which is supporting higher PAM sales volume and improved plant operating rates.

Shifting to HIP, mortgage rates and increased building costs could place additional pressure on housing affordability. While it is too early to fully assess how this dynamic will impact HIPs building product sales volume, forward-looking indicators such as single-family housing permits and start add to the uncertainty. In this housing market, our Building Products business continues to benefit from a diversified product offering and broad national distribution. which provides builders with the products they need, when and where they need them.

In Global compounds, we are pleased with the performance of the recently acquired ACI business. which has strengthened our position in the fast-growing high-voltage wire and cable market. This market is seeing significant demand growth driven by electric vehicles and data centers. Meanwhile, HIPs pipe and fittings business continues to deliver double-digit sales volume growth, supported by sustained strength in infrastructure spending. Beyond traditional municipal infrastructure demand, we are seeing increasing contribution to sales volume growth, driven by cooling what a need from the data center build-out underway across North America.

We expect this trend to continue through the rest of the year as an offset to uncertainty in the North American new residential construction market. On the cost front, we are aggressively working to pass through the increases in costs being driven by Middle East supply disruption and elevated fuel prices. Longer term, continued infrastructure investment combined with over a decade of housing and the building continues to support a compelling growth outlook for HIP. Taken together, our outlook for the company's 2026 earnings has improved meaningfully since our last earnings call. While the conflict in the Middle East could result in global supply change disruptions extending to the end of the year or beyond, we will remain focused on controlling what we can control. including delivering the full $600 million of EBITDA uplift from our 3 pillar profitability improvement plan.

And we will maintain our disciplined approach to capital allocation, while preserving our investment-grade rated balance sheet. Thank you very much for listening to our first quarter earnings call.

I will now turn the call back over to Jeff. Jeff?

Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website. and that a replay of this teleconference will be available approximately 2 hours after the call has ended. We will now take questions.

[Operator Instructions] Our first question comes from the line of Patrick Cunningham from Citi.

Can you help us unpack a little bit more the PEM results down sequentially? You had material benefits from the profitability improvement plan, PE and caustic prices were up. I guess, first, can you help size the headwind from PVC price margin declines and whether or not there was anything else going on with operating reliability or any stranded costs from some of the closures?

Yes. Patrick. And I would say that certainly, the price resets that we saw at the end of the year were certainly impactful across the product stream. And so I would say, and particularly, the increase that we've seen in PVC resin have not been fully catching up with some of the increases that we've seen in associated costs, especially, I would note the elevated natural gas cost that we saw in January and February.

So while we've seen price increases in polyethylene epoxy and PVC, I would say certainly looking to continue to capture the value that we think that PVC represents and we certainly have not had the chance to fully recognize that throughout the entire quarter. But I would say that we've seen improved reliability and operability of the business. And so I'm improved. We're not to where we'd like to be at this stage, but we're making good progress as we move forward.

Understood. And then just on the underlying outlook for the hip business, what are your expectations for pure price this year given some of the higher-priced PVC you're going to be pulling through -- have you gone out with additional pricing ahead of the construction season? And is any of that baked into your outlook?

Yes. So good question. We have announced price increases to not only offset the increase in PVC resin, but also transportation costs. Certainly, fuel costs have also risen. So our price increases that we have already announced in the HIP segment have already reflected the cost that we expect to incur for PVC resin as it works its way through the manufacturing process and also to reflect elevated transportation costs driven by higher fuel prices. But nevertheless, that will take a little while, a few months, let's say, to work its way fully through each of the various material product streams.

Our next question comes from the line of Bhavesh Lodaya from BMO.

Just back to the PEM segment, you called out transitory impacts that happened in the first quarter. If you look at, again, the fourth quarter and the first quarter difference, there was a $150 million benefit which you saw from your actions, which did not show up -- would you say that transitory impacts are roughly equal to that $150 million. And in other words, is the base level of earnings for 2Q, is the starting point closer to, call it, like a $200 million level from which you will see additional benefits from margin improvements?

Yes. So I guess what I would say is certainly recognizing with the elevated cost that we had in natural gas in the first quarter of a $45 million headwind was significant, but transitory. And I would say the price increase that we've seen in all of our products from be it polyethylene, PVC and Epoxy should have significant benefits as those have been announced in the first quarter, but the full effect of those really translate into real value in the second quarter. As I mentioned earlier, we've seen improved reliability as we've made progress on our 3-pillar strategy. the $150 million benefit that we achieved in the first quarter. Certainly, it was largely attributable to PEM, but not exclusively so.

So we've made cost reductions, of course, that affect both segments of the business. Certainly, the optimization of our footprint certainly is directly attributable to the PEM segment. And certainly, some of the improvements we've seen in operability also are attributable to the PIM segment. But I would say we do see significant benefits accruing as a result of these price nominations and realizations that we expect in the second quarter.

Got it. And then particularly on your PVC outlook, you have leveraged both from higher operating rates as well as pricing from PVC here. Could you share an outlook on these 2 metrics? How much could weights move higher in 2Q or 3Q? And what are your expectations for PVC pricing from here?

Yes. As a result of some of the optimization actions that we took last year, we certainly have elevated the operating rates of our plants. Certainly, we had some planned maintenance at 1 of our units in the first quarter. But I would say operating rates throughout the first quarter were in the mid-80s, and we expect that as the construction season begins to start now with better weather, and I do expect that we'll see elevated demand levels for PVC and construction activities. that in the context of recognizing that housing starts have been somewhat lower than had been earlier forecast by the consultants.

But we do expect that with the price initiatives that we've taken in PVC and the increase in construction and repair and modeling activities that we do expect to see improvements across only the core Vinyls chain but across the entire FM segment.

Our next question comes from the line of Vincent Andrews from Morgan Stanley.

Wondering if you could just give us a little bit of direction on HIP for 2Q, just sounds like there's going to be a little bit of a lag between the higher PVC and so forth costs coming through versus your ability to price. So if you could just give us a sense on what that's going to do on the margin side. And then maybe also help us understand there was a mention about the season getting off to a slow start. So how did April go? And how does the order book look so far for the second quarter so that we can hopefully get our numbers in a good place for 2Q.

Yes. So good question, Vincent. And I would say that the order book looks very good as we see the second quarter begin to start from a volumes perspective. But to your point, with the elevated PVC pricing we see coming through the channel and while we've announced price increases in our HIP segment to address those higher PVC resin prices as well as transportation costs, there could be a month or 2 lag between the realization of those price nominations that we've made in the market and the roll forward of PVC resin prices. So there could be some headwind in that second quarter as we see the price that we've announced in PVC in the first quarter worked their way through into the PIMS segment before they get full traction of their price announcements made in the first quarter, but them fully worked in, in the second quarter.

So is it fair to say then that we'll see the lowest margin in 2Q? And then by 4Q, you'll be high enough to get yourself back to the low end of the margin guidance for the full year. Is that the right way to think about it?

I would say the fourth quarter seasonally is typically a slower season, but I would say that the front half of the second quarter will see the full impact of some of the lag in the back half of the second quarter, we'll see the benefit of some of the benefits of the price increase that the HIP segment have announced. I think we get the full benefit of all that in the third quarter, but the fourth quarter typically has a seasonal slowdown just because of the weather dynamics and is typically 1 of our lower margin and volume quarters.

Our next question comes from the line of David Begleiter from Deutsche Bank.

Jean-Marc and Steve. Just on polyethylene, you got the $0.30 in April. What's your confidence level in getting some portion of all of the announced $0.20 per pound increase for me?

Well, I'd say that, David, that we certainly have been able to achieve that $0.30, as you noted in April, and it's still early days in May. If you think back, the market has been able to absorb very, very significant price increases going back to the beginning of this year. And I would say it's still a little bit early days in May to call the May increase. But if you think about where the price levels are today relative to recent history going back to '21 or so, we're still below those price increases we had in 2021. And the market was able to absorb those prices in '21. So what we're looking for is to see where demand levels are. But I would say we're watching the market, but we're still pushing forward with price increases that we see that are reflective in the marketplace.

Very good. And just on PVC, are you increasing your export activity levels to take advantage of some of the spot opportunities we've seen in the marketplace?

Yes, good question. The -- you are right. Price increase in PVC, I mean, we've seen a steady increase in PVC export prices. they kind of went to a peak a few weeks ago. They're now coming down a little bit, but still much higher than what they were last year. So you are correct. I mean we are with increased operational -- operating rates. And we are now increasing as much as we can PVC supply to take opportunities and to sell our volume in export markets where there is some good deal to be made.

Our next question comes from the line of Frank Mitsch from Premium Research Eros.

Thanks Steve, let me offer you some early birthday wishes. And perhaps the second quarter starting out as a very nice birthday present for your last quarter as CFO. And again, thanks for all your help in that regard. I was wondering if you could offer some qualitative commentary with respect to the operating rates that you were able to realize in the PEM business in the first quarter and how your facilities are operating so far here in the second quarter?

Yes. So Frank, thank you very much for those comments. I would say that in the polyethylene business, we're running full rates, as you would guess, demand levels seem to be very good. And even though we've seen significant price increases, operating rates are operating at full rates. In the PVC space, PVC rates are beginning to raise simply because we've optimize the operating rates having shuttered a number of sites last year and moved that production opportunity over to other existing sites. So operating rates in the PVC space were in the mid-80s. And I expect that to begin to kind of elevate as we work our way through into second quarter and third quarter, which is more peak wide construction season and some of our operating rates in our caustic and chlorine operations to support PVC.

Terrific. And as you think about higher pricing levels having an impact on working capital, what's your -- what are you working at capital expectations and impacts on free cash flow in 2026?

Yes. Well, certainly, I do expect some of these higher prices, we'll see an increase in the receivables side. But when you recognize that gas and ethane remain very moderate and frankly, at pretty low levels. I do expect the second quarter to generate free cash flow as a result.

Our next question comes from the line of Josh Spector from UBS.

Two things I want to just clarify here is first, just on the cost savings points. I think the $150 million you're characterizing that as year-over-year -- can you talk about what that is sequentially? And does that build sequentially? Or are we at the full run rate today?

Yes. That $150 million is a year-over-year result. And certainly, when we think about the contribution that we've seen, they're coming from all 3 of those respective pillars. So if you recall, we generated a significant amount of savings in the fourth quarter. So the $150 million full year result is well over $100 million above and beyond what we generated in the fourth quarter.

Okay. But does that sequentially improve then into 2Q? Or are we just saying $150 million times 4, that's the $600 million that you're at -- and I did want to ask a follow-up just related with the pricing side on PVC. I mean, considering we're talking about pretty decent lags in pricing, I assume now in early May, you have a pretty good idea of the PVC price you're going to realize in 2Q. Can you give us some guidance about what that increase would be since there seems to be a pretty stark disconnect with some of the indexes that we're watching.

Yes. Back to your earlier portion of your question on the cost savings initiatives in our 3 forward strategy, we do expect that we'll be able to achieve a relative portion over the course of the remaining 3 quarters of the year and fully achieve that $600 million savings. As it relates to the pricing initiatives, you're right, we announced a series of price increases, both in PVC as well as in polyethylene. And as I say, we expect that those will be very impactful in the second quarter.

So in the first quarter, we achieved in PVC, a total of $0.01 in January, $0.02 in February, $0.03 in March. We've announced and achieved $0.05 in April, and we have $0.04 nominated out from May, still looking to achieve the full $0.10 that we had earlier nominated, $0.05 achieved in April and $0.04 right now, but looking with customers to achieve that full $0.10 that we announced earlier in the month of March for April and May.

Our next question comes from the line of John Roberts from Mizuho.

Are you seeing any shift in the destinations for U.S. export caustic and export vinyls? And do you think the pushback in pricing that you're seeing is some demand destruction going on?

I'd say that what we've seen, John, is actually reasonably good demand levels for caustic just to remind you, we announced 2 price increases, 1 in December last year. 1 in January of this year, totaling $140 million -- $140. And so I'd say that to date, I'd say we've achieved the greater portion of that first announcement that we announced in December. And the indices that we track seem to indicate we'll get a greater -- a pretty good portion of that second price increase. So I'd say that demand continues to be reasonably good at this stage of the quarter.

And as I say, demand fundamentally is stable. And I would say, ramping up. From a destination perspective, as you would imagine, logistics have been jocking around as a result of the conflict in the Gulf and many of our customers are being well served, but I can't speak specifically to all those individual customers.

Our next question comes from the line of Kevin McCarthy from Vertical Research Partners.

Can you elaborate on your letter of intent to acquire Vyova's vinyls plant in Germany? Maybe you could just talk a little bit about potential cost timing and the fit with your existing assets, including the legacy Vinnolit assets?

Yes. Well, good question, Kevin. And we've entered into this nonbinding letter intent with the insolvency administrator in Germany, and we think it fits very well potentially. As I say, it's still nonbinding and so subject to a lot of contingencies, of course. But it does have access to a deep sea dock, which allows us access to low-cost potential feedstocks, which could be a significant advantage in servicing the European markets.

In terms of talking about value, it's still preliminary at this stage, and so it's too early to get into evaluation at this stage.

Understood. Then as a second question, was your PEM segment EBIT positive in the month of March. I wouldn't normally ask you about monthly trends, but I imagine March was night and day versus the prior month. So perhaps you can give us some sense for the exit velocity of earnings, so to speak, as you move through the quarter?

Yes. It was, as you would guess, very positive. And given the pricing initiatives that we've got out in Epoxy, PVC and polyethylene, I expect the improvements to continue to be quite strong as we enter into the second quarter. with, again, the ability to recognize and realize those price announcements that we announced during the first quarter.

Our next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I guess I wanted to try and maybe have a rough idea on if you could help us frame out Q2. So it looks like you'll get maybe some incremental extra cost reductions if you're expecting maybe $600 million for the year. I'm not sure if that actually does go up in Q2. Would it be kind of $20 million or $30 million higher in Q2 versus Q1?

And then secondly, the PE, I think you have 2.5 billion pounds of capacity. So can we just apply that on the $0.30 for maybe $150 million to $200 million uplift there. And then PVC also on your [ 5.5 ] billion pounds, I'm getting maybe like a $75 million uplift. So HIP, I think, would be down maybe on higher costs as you flow through those items and that maybe cancel out the PVC increase. So maybe we're up sequentially on the order of $200 million to $300 million. Is that -- am I somewhere in the ballpark? Or how should we think about framing out the difference between Q1 and Q2?

Yes. I think directionally, as you think about the price combinations and the volumes of production that we have and the demand levels that we're seeing that directionally, you're in the -- you're moving directionally in the right direction. I would say that the headwind we do expect with hip to be reflective of some of the higher PVC pricing moving through in the first portion of the second quarter. But I do think we'll get price realization in the back half of that second quarter as we've already made those announcements to deal with resin costs and transportation costs. But recognizing that we've got a number of price announcements, including PVC, polyethylene and epoxy, we should see significant traction in the second quarter. And so I think directionally, the way you're thinking about it is correct.

Okay. And then if I could just ask, as you look into the second half, what is the durability of this pricing? Have you seen any larger-scale closures -- do you expect any -- maybe -- the chlorine chain was not necessarily impacted as much because of coal-based production in China. So -- do you expect conditions to kind of revert back to normal shortly after the straight reopens? Or what's kind of the outlook in the chlor alkali space with regards to some of these constraints? Was it just not affected as much.

Yes, you can see from our comments that we expect the impact of this conflict in the Gulf that could persist all the way through the end of the year. And so it's unclear exactly what kind of price direction we may see as the conflict takes whatever path it chooses to take, but I would say that the PVC core vinyls chain was lesser impacted by this conflict than the polyolefins chain has been. And so we do expect to see some meaningful improvement in those chains that have been more directly impacted.

Yes. I mean 1 additional thing is if you look into the chloralkali and specifically on the PVC side, and as you remember, the price was pretty much set by China last year. And it continues to be so, but in a different way, about 25% to 30% of the Chinese capacity as far as PVC is concerned, it's coming from using naphtha and the rest is a carbide base. So all the naphtha are uncompetitive now and have really reduced production level. The carbide side, on the other hand, has increased operating rates and that has put another now ceiling in terms of price increase. So that's why you saw a price ramp up very fast in China and then a little bit of a decline since probably early April, but it's stabilizing at a higher level than where it was last year, and we've seen stabilization around $900 -- $850, $900 per metric ton.

So overall, we think that the price for PVC export will stay elevated. It could come down gradually over the year, but it's going to stay elevated for an extended period of time.

Our next question comes from the line of Peter Osterland from Truist Securities.

First, just wanted to ask on HIP. You highlighted data centers as a growth driver for pipe and fittings. Can you quantify the revenue contribution or the backlog growth that's tied to the data center market? And how does the margin profile for sales into this market compared to HIP overall?

Yes, it's a good question. I would say in the first half, sales and orders in the first half represent mid-teens percent of our volume. and it's a growing market, as you know well. So we expect it to continue to be a nice contribution to the infrastructure side of our pipe infinians businesses. But I'd say -- as I say, the first half, both orders and the order book and sales for the first half of the year, it's mid-teens and growing. So we expect it to be a continued contribution to the pipe and fittings piece of HIP.

Great. And then just as a follow-up, on the $67 million PVC pipe settlement, does this settlement resolve the entirety of your exposure to litigation related to this? Or is there a potential for any further onetime charges?

Yes. This is tied really to the direct purchasers component of the litigation. And so there are 2 other categories of claimants that we're in conversation with. So we've got a reserve of $10 million for that second category, but there are further obviously, discussions to be had.

Our next question comes from the line of Duffy Fisher from Goldman Sachs.

I was wondering, can you help me -- I'm having a hard time triangulating your hip numbers on revenue? So if you assume that PVC prices are up, you talked at least $0.10, so that's like a third and you said that you're going to get priced by the back half to offset that. So that would be pretty significant price increases rolling through HIP, but yet you're guiding us to the low end of your revenue guide, which would mean that volume must be down significantly in the double digits versus what you expected. So can you just kind of tie those together, the inflation rolling through into hip, the price that you're going to get and then how that changed your revenue outlook vis-a-vis volume?

Yes. And Duffy, good question. We're seeing kind of mixed signals right now in the markets. You've seen housing starts, the latest report show that housing starts at 1.5 million housing starts, which is meaningfully higher, but I would say permits were only 1.3%, which is trending lower. So you see mixed signals right now in the marketplace. And as we start in robustness now, the construction season now that we're in May going forward. We're just being cautious in terms of what housing starts are likely to be. Remember, half our businesses, housing starts, the other half is repair and remodeling, but those are smaller volumes. And so housing starts tend to be higher volumes. So we're just really being cautious about kind of volume we could see with the potential slowdown in housing starts in this year.

Great. And then just 1 housekeeping. How much cash do you have left to spend on your expense cost-cutting program from last year?

You're talking about the 3-pillar strategy that when you say your cost-cutting initiatives.

Yes, exactly. How you spent cash this quarter that was already expensed, I believe, as I read through it. Is that fair? And is there more cash yet to be spent on that?

There is. And so -- I would say in the neighborhood of $50 million remaining in '26.

Our next question comes from the line of Hassan Amed from Alembic Global Advisors.

Earlier in the call, you talked a little bit about PVC export opportunities opening up. So just curious to sort of find out where you're seeing those opportunities, particularly in light of a bunch of countries, be it India, the EU and the like already having antidumping duties in place.

Yes. I mean we are continuing to see the -- you are correct. I mean the demand from India and the rest has decreased a little bit. But overall, the supply is also -- even though over -- I would say, probably February, March, you saw an uptick in supply from China. Since then, we've seen still a steady demand for export, and we are pretty much selling everything we can to the export market at pretty good prices right now.

I would say we continue to support the Latin America, South American markets as well.

Understood. And just carrying on with that. I've read some recent reports about the Chinese removing their VAT export drawback on PVC. Are you hearing similar things? And if that is true, what does that do to the cost curve? What does that do to Chinese exports going forward?

You're talking about the fact that they removed and that it was sometime after a question whether they were removing it.

Yes, they were -- we're moving it really in April. And I would say that we did see some increase in exports just in advance of the April date. But certainly, that creates even a higher hurdle for those who are exporting because those that do have a higher cost, especially those that are ethylene-based certainly have now had an additional higher hurdle. As Jon Mark noted earlier in his comments, those that are acetylene-based certainly are on a lower end of the curve and not seeing the challenges of higher cost from the naphtha they're coming through. But I would say that revision or that recision, I should say, of that VAT is certainly an additional headwind that all exporters out of China are now facing.

And Steve, just for me to get the numbers right, I mean, is it fair to assume that, that headwind would be maybe like $75 a ton to maybe like $100 a ton somewhere in that ballpark?

[indiscernible]

Our next question comes from the line of Matthew Blair from TPH.

Could we circle back to these higher natural gas costs in PEM in the first quarter? It looks like -- if I just look at a Gulf Coast indicator like Henry Hub, it did spec over $7 at certain points in January. But overall, it looks lower quarter-over-quarter in Q1 versus Q4 as do most other Gulf Coast indicators. I do see higher natural gas indicators in Europe quarter-over-quarter. So maybe could you just help us understand your headwinds in natural gas? Were there any derivative impacts like maybe rolling out hedges from last year or any other sort of onetime issues there?

Yes, Matthew. No, we had -- I'm just looking at some of the indices here and you're right, gas in late January and through much of February was north of $7 we're a buyer on large well on a spot basis from a pricing perspective. And so it was really that $45 million headwind that I mentioned that drove -- was a headwind that drove an impact on results in the first quarter. But with the poll on natural gas globally given what's happening in the Persian Gulf, you really have seen gas prices come down significantly. And we're probably just in the $280 to $290 range today. there is somewhat of a contango curve on gas, but what we continue to see is that gas curve continues to get pushed out. And month-on-month, we've seen low prices persist in this just under $3 range.

Sounds good. And then for the FIFO impact, I think you said it was $37 million. Do you have a split between PAM and HIP for that impact in Q1?

Yes. That was all PIM related, but it was $37 million.

Our next question comes from the line of Abigail Ebers from Wells Fargo.

I'm curious about your expectations for caustic soda later in the year. Obviously, you're expecting prices to increase near term in line with consultants. But I'm seeing in their forecast pricing coming down around October, which they're saying is due to demand destruction from ongoing inflation and elevated interest rates. I'm just curious about your volume and pricing outlook for caustic soda in the back half of the year?

Yes. Good question. As I mentioned earlier, we've had 2 price announcements, and we've realized the great majority of that first price announcement already. I'd say demand right now is stable. And as we look forward into kind of the second and third quarters, I actually see because of that stability, a pretty stable price and the consultants do have some small price increases between May and July -- that represent about $30 a ton. But I'd say demand really looks pretty stable at this stage.

Okay. Got it. And then just a question on hip and PVC -- how do you size the weather impact on the construction -- beginning of the construction season this year, where would things be if the weather had been more cooperative, do you think?

It's a little bit hard to say, but I would say, given the very cold weather we had in January and persisted at least through much of February, it certainly slowed down a lot of the early order intake. And as a consequence, we did not get the full benefit of that in the first quarter. And so certainly, we'll wait and see kind of how the second quarter really translates as we get further into construction season now that the weather is much more milder throughout most of the country. Second quarter is usually when we see a real pickup. But I would say, as I mentioned earlier, housing start numbers that we've seen published are certainly elevated, but permits are looking more softer. And so that's really the cautiousness that we're looking as we look at our order books.

Our next question comes from the line of Jeff Zekauskas from JPMorgan.

I think early in the call, you were talking about domestic PVC price increases as being $0.06 a pound for the first quarter, $0.01 than $0.02 and $0.03, but you also talked about discounts that were given -- in general, did PVC prices net of discounts rise in the first quarter?

So I think your discount, you're referring to the price resets that took place at the end of the year, Jeff, I believe.

Yes, that's exciting.

Yes, because certainly those -- as we think about the price domination that we had in January and February, I would say that beginning to kind of pick up traction from where we were at the end of December. And so when you think about the March increase, most of that is going to be reflected in the second quarter and not really in first quarter results.

Okay. And then if I can ask a naive question. Chinese PVC exports year-to-date, maybe they're up 45% of being up 45% for all of 2025. And there's really no PVC materially that's made in the Mid East. And so for me, why is it that PVC prices should be up at all? Does it have to do with European ethylene inflation because there doesn't seem really to be any disruption to Asian production and there's no disruption to U.S. production. And what we're seeing, of course, is we're seeing PVC prices begin to move down pretty sharply in Asia. But what's the source of the sharp move up in PVC. It's very clear what it is in polyethylene. But can you give us an idea of what pushed previously up?

Yes. There is -- if you look into the situation in China, as I said, about 25% of the capacity is not carbide based. And so it's really sensitive to naphtha prices. So they've been hit pretty hard with the increase in naphtha prices, and they are economically, it's really impossible for them to export. And they barely at breakeven point when you look at current prices. So -- and quite a few of them have actually dramatically reduce their operating rate. If you look at the carbide, they are mostly in China, they're not really on the coast. So all the effect of transport cost increase and everything has put an increase on to the PVC prices -- you add on top of that, the duty go back removal of about 15%, and you get support for PVC price increase. And that's why right now after a spike I went over $1,000 per ton in China early on. It's stabilizing in the 850, 950 metric ton -- per metric ton when if you look back last year, PAUSE they were down to the 500, 550 million range. So that's still a significant increase.

Our next question comes from the line of Matthew Deo from Bank of America.

So if I square off the $45 million headwind from gas quarter-over-quarter for PEM and then I back out $100 million of EBITDA from the cost cuts sequentially. I don't know, maybe the PEM was down $60 million quarter-over-quarter, all else equal from like an operational perspective. Prices moved up over the quarter, but we just kind of talked through some of the PVC role discounting that was maybe unique to Westlake versus peers. But that doesn't feel like that fully explains the whole differential to me versus what your peers explained or put up in the quarter. And so is there any reason why the calendar role would have been more punitive to you in polyethylene or with some epoxy additional headwinds that maybe we're not catching -- because it still feels like there is some idiosyncratic drag that maybe wasn't so amply felt on your peers?

I can't -- Matt, I can't -- I guess I'm struggling with your math here because we certainly have recognized the same price nominations that I think we've seen announced by Westlake throughout the quarter, both in Epoxy and in PVC and polyethylene -- maybe part of the equation is we also did planned maintenance in 1 of our sites earlier this year in the first quarter at Placement. And so that may be part of the equation that you did not have in your individual model. And so that was impactful in terms of opportunities, but it was a planned outage that we had taken. But I think when you walk through the and walk through the model or price nominations and price realizations, I think, are the same that we that we've nominated that I think many of the others have spoken to that I've read.

Okay. And then if I look at I don't know, maybe this during 2022, right. European electricity costs are not up nearly as much, but European caustic profitability is pretty bad right now, maybe down $20 million, sorry, $200 sorry. But it's down $200 a ton. It seems like caustic rolling in Europe. Do you see an opportunity for export window on caustic to Europe to open up, maybe not a way it in 2022, but -- is that an area for kind of upside as we look through the course of the next quarter or so when this continues? And then can you modify how much of the plaque outage was now that we just mentioned that.

Yes, I would say it's in the $20 million range.

And in terms of caustic, you are correct. I mean caustic price might indicate that there is an opportunity to ship there. But when you look at the price for transport and everything, it completely offsets the spread that there is between the U.S. and Europe. So right now, there is really no good opportunities to export caustic to Europe.

Thank you. This ends our question-and-answer session. Let me turn it over to Jeff Holy for closing remarks.

Thank you. Thanks for participating in today's call. We hope you'll join us again for our next conference call to discuss our second quarter results.

Thank you for participating in today's Westlake Corporation First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed by Westlake website. Goodbye.

Hi. Good afternoon. I'm Jeff Zekauskas. It's my pleasure to introduce the management of Westlake. And representing Westlake is Steve Bender, who's the Chief Financial Officer. And I must say it's my honor to introduce Steve. He's been the CFO of Westlake since 2008. So he's done it for 17 years. And he and Albert Chao really built a remarkable business. Steve is retiring. And what they did is they built a polyethylene business from the ground up by building assets and they built an integrated, PVC business that's low cost.

And periodically, what they would do is make large accretive acquisitions. They bought Axiall, which was a PVC company in the old days, and they bought Boral in order to build a building products company. And it really was a remarkable value-creating run that these 2 men have had. Albert is now the Chairman and no longer the CEO. So it's my pleasure to welcome Steve, and we'll have a fireside chat format. Steve, would you like to make opening remarks?

No. Jeff, thank you very much for those kind words. But I would say that we've grown the business in a variety of different ways, as Jeff outlined, and really have extended what we call an integrated production chain, obviously, starting on the chemical side of the business, but moving downstream over the course of time. And our starting point when downstream was making pipe and fittings and have grown that, as you noted, in 2011 -- excuse me, 2021 to include non-chemical-related building products, all kinds of roofing materials, all kind of windows, all kinds of exterior cladding.

And the strategy really is to recognize that margin moves back and forth across the production chain over time. Obviously, the building products, what we call HIP Housing and Infrastructure Products business is less capital-intensive. And frankly, pricing and margins tend to be stickier than the chemical side of the business. But they both support each other during the course of any business cycle. So we found it to be a very nice integrated business model.

Jeff, I'll turn it over to you.

Sure. So, Steve, there have been all kinds of global events that have touched the polyethylene business and have touched the PVC business. Maybe it's simpler first to talk about the polyethylene market, what do you see going on in polyethylene right now? And when the conflict broke out, what did Westlake do? Were there certain steps you took to preserve your competitive advantages or strengthen your business model? Or how did you proceed?

And so it's -- unfortunately, all too often we see events like this arise, whether it is a freeze, whether it is a conflict such as this. But there are times when you see a constrain of supply. And so in this case, you've got bottled up because the Strait of Hormuz closed, you bottled up a fairly significant amount of global capacity, probably north of 20% of the capacity globally of polyethylene. And so with that constrained of polyethylene in that market, you've seen certainly an ongoing demand, at least at this stage. And so therefore, prices had already started to rise pre-conflict.

And so to kind of level set a question you asked recently was really at the end of December last year, as is always typical, contract renegotiations start, and there's always a price negotiation as part of that. So the price that we saw in January for polyethylene was really just a recovery of some of the margin we gave up at the end of last year. So no change in pricing in February until we saw the conflict. We've raised prices twice, once for March and once for April, $0.10 for March and $0.15 for April.

Those are your nominations?

Those are nominations for the month. And we'll see if we achieve those prices. So a lot of this is recognizing that the great majority of our assets for Westlake on a consolidated basis are in North America. So we're cracking ethane and using natural gas as a source of fuel for the furnaces. And I would say when you think about our global competitors, largely naphtha-based outside of North America. So the cost structure for them has risen as a result of what's happened in the Gulf. And so as we think about this, it further strengthens our position now in the case of polyethylene, we're already a specialty producer in polyethylene.

When you think of the 3 primary grades of polyethylene, we're on the specialty end of low-density, high-clarity, and high-pressure, over 125 grades.

When you think of the -- most of our other competitors, yes, they compete in this space, but we're the largest in the Americas in this space, mostly commodity grades, high-density and linear, so 5 or 6 grades each. So when you think of the ability for us to capture this, it's really any movement in price is on margin. So it's allowing us really to capture the value that we see with these price combinations. And if we're able to capture and hold on to some of this, it's just really going to be lining our pockets, to be honest. And so while it's an incredible difficult time for many because of the conflicts, we are seeing the benefits accordingly.

In polyethylene, if you know, what were your operating grades? Or when you think about how you're conducting your business today versus how you were conducting your business pre-war, are your operating grades different?

I think our operating grades are the same. And the reason is because we were already operating at top operating rates pre-conflict. I would say that it's not necessarily the case with some of our more commoditized peers. Some of our more commoditized peers were operating at lower operating rates because of the commodity nature of their business. Again, I think about the high-clarity, high-pressure polyethylene that we produce the low-density, we are operating at full rates. In the case of the commodity end, the linear and the high-density, frankly, probably in the high-80s, low-90s, but we are operating -- our operating rate was well in excess of that. And so for them, they may pick up some volume and price. For us, it's really all margin.

How do you do price discovery? What you said was we're going to do $0.10 for March and $0.15 for April. Where do you get that number from?

So as you would imagine, we're in regular dialogue and touching all of our customers on a very regular basis. And so it's the constant dialogue that we have in terms of where we think that is. And of course, our prices are not established really in this market. They're established in the export market. So we're looking really at what is happening in the export market. When you think about today in the polyethylene space, the export market for North American producers is about 50% of the capacity here in North America.

And so those producers who built capacity destined for the export market are really pushing that product into the export market. So we're looking at product being shipped around the world in the export market and saying, where is that export price? And what are the economics behind each one of those products out there in the marketplace. So we're looking at what makes sense in terms of the export price and how do you translate that into the domestic market. So our prices of $0.10 in March and our price nomination of April for $0.15 is simply reflecting the price that we're seeing in the export market.

Of course, dialoguing with our customers to say, does that -- of course, the answer is always no. But the question is, does that make sense? No one might see prices. But I would say early in the year, we saw a lot of our converter customers raise prices on a percentage basis. So we feel like they understand that prices were in the process of rising anyway. And if these prices become stickier, they will no doubt have to raise prices yet again.

So $0.25 a pound is a lot in that maybe in the offshore markets, polyethylene is up $300 a ton. So maybe that's $0.15. So -- but the markets can change?

Well, and when you think about it, Jeff, good question. But when you think about where we are today, we have been in a price decline in polyethylene going back to the back-half of 2022. And so when you think about the price that we've talked about between the $0.05 in January, the $0.10 in March, and $0.15 in April, it's $0.30. But when you think about that increase of $0.30 so far this year and compare it to what -- where we were in '24, we're actually getting back to where we were in '24.

And so yes, you're right? There is an effect clear price shock really when you put that volume of price into the market in that shorter time period. But really, when you think about what has happened to the industry over the course of the last 4 years, it's been nothing, but everyday lower prices. And so therefore, what we're really trying to do is get back to a price level where we experienced back in the '23, '24 time period.

Now maybe I'd put things a little bit too negatively because naphtha values are much higher than polyethylene prices have moved up. So there's room. Maybe you could talk about the PVC markets now because those are more subtle and what happened in PVC in the United States in January and February? And what might happen in March and why?

Well, and I think part of the dynamic here, and it's important to draw a comparison between what's happening in the PVC market and what's happening in the polyethylene market. Before we fully switch over to PVC, I would just note that there's still ample capacity yet announced to come in polyethylene over the course of the next several years. When you think about just capacity between the end of last year and the end of '27, just in China, there is supposed to be in the neighborhood of 20 billion to 25 billion pounds of additional capacity added. Think about that, that 6 to 7 world-scale plants in the next 3 years.

Do we really need 6 to 7 world-scale plants in the next 3 years in polyethylene? So the market in polyethylene is likely to be long for the next number of years. When you think about the vinyls market in PVC, the vinyls market is in a completely different shape. On a global basis, there's very little capacity being added anywhere in the world. You think about the European market and the North American market, consolidation and rationalization happening. In the European market, you've got over 10% of the PVC market being shuttered already. You have about 6% of the chlorine-caustic market in Europe shuttered. And we, Westlake last year shuttered 1 billion pounds.

So when you think about the consolidation and rationalization that's happening in the vinyls market and the fact there is little-to-no capacity being announced in vinyls at this stage, the 2 markets between PVC and polyethylene could not be more different. So what you see is a closing of the supply-demand dynamic that you see in vinyls where you don't yet see that in polyethylene.

So that's why I think the 2 industries here, both the polyethylene industry and the PVC industry are in fundamentally different shape. So structurally, I think the vinyls market and its drivers are really more constructive medium to long term in the vinyl space. They are in the polyethylene space.

So I find that a surprising commentary. And what I mean by that is shorter-term polyethylene prices, whether they're going to go up $0.10 or $0.25 or $0.30, they're going up a lot because the Mid East is a large shipper of polyethylene and it ships naphtha. In PVC, the Mid East doesn't really make very much. And in China, they use the carbide process. So they don't have the same inflationary effects.

And you're right to say that the supply-demand dynamics are different, the amount of capacity that's being added. But I was wondering today, what are the upward -- what's the upward movement in the PVC market since it's not really stressed by Mid East shipments and it's not really pushed up by naphtha prices.

Well, I would say that when you think about the price dynamics in polyethylene, you've got $0.30 that's been announced or implemented since the beginning of the year in polyethylene. Remembering that PVC uses just half as much ethylene as polyethylene. So no surprise, the PVC prices that we've announced are $0.15, not the $0.30 that's been announced in polyethylene. So the correlation in price movement in PVC is half of what's been announced in PE, which makes sense when you think about the ethylene dynamic. So it's not just China really in the production. And you're right, about 70%, 75% of the China PVC production is carbide-based.

And yes, increasingly, they're using more ethylene rather than acetylene in their process. And so as they increasingly move into the ethylene-based versus acetylene-based process, the dynamic in naphtha is becoming increasingly more important. And as I talk to our Asian leaders this morning about what was happening in the markets in China as it relates to PVC, we are seeing a bit of a price difference between carbide-based PVC and ethylene-based PVC.

I'd say there's still about $50 to $75 price differential between the 2. Per ton -- metric ton. But I would say that nevertheless, there is a huge movement in price, nevertheless. And so I wouldn't correlate necessarily just the fact that it is carbide-based, acetylene-based as really just being the cap really on the ability to move prices higher given the fact that they're moving increasing more toward an ethylene-based product.

And so as we see that price dynamic move, the export price today that we're reflecting in our PVC prices are reflective of the export prices because not all that product coming out of the -- into the market and the export market is really coming out of China. If you think about what is happening in the European market, as I mentioned, we have a number of plants being shuttered in Europe, and we have 3 big players in Europe who are in strong financial distress today in vinyl. And so I think when you think about the constraints we're seeing in production capacity in a profitable manner, that is really what is supporting the increased price that we've talked about.

What's the PVC nomination for March in the United States?

We've announced $0.10.

And is there a nomination for...

In April, it's $0.15 -- in April, it's $0.07. I'm sorry, for PVC, I'm going to correct myself. For PVC, it's $0.05 -- and for April, it's $0.07. The $0.10 was polyethylene -- so it's $0.05 and $0.07...

$0.07...

And then $0.03 achieved in between January and February. Okay. So that's the $0.15.

So there is some PVC where pre-war, there was PVC capacity addition planned for India. And China has continued to export at very high levels. But India is constrained because it's not getting its liquefied natural gas shipments. And it may be that its industrial sector can't produce as much material as it's produced pre-conflict. And so do you think that what's driving the PVC market is the difficulties that India is having?

It's part of that, but not entirely that. I would say, certainly, when you think of the -- what's driving this really is a combination of demands we're seeing kind of around the globe and not just only silo really and what's happening in India. I would say, certainly, the demands we're seeing in Latin America, North American market, the Eastern Med, and I would say also in India and China are all driving this. So I wouldn't necessarily focus on just one particular marketplace. India has had protections around it in terms of imports. And so to support its domestic construction of PVC capacity.

And so I would say that -- and this gets back to Westlake's strategy of really looking and reassessing our export desires. And this is why we shuttered these 6 plants that I mentioned this past year, shuttering 4 domestic plants that were core vinyls -- excuse me, 3 domestic plants that were core vinyls and a fourth plant that was styrene as well as an epoxy plant and a PVC plant in China. So all of those plants were export-oriented.

And so we were really asking ourselves, do we really think that long term, an export-oriented market is a market that you want to be targeting. We believe that regional supply is going to be a much more sustainable strategy over the medium to long term than being positioned on the low end of the cost curve and exporting to markets and while you may on paper be supported economically. We're seeing some producers work against that same equation. You've seen China and others sell below even variable cost.

If I can ask you the same operating rate question in PVC. Now that we're in a somewhat different environment, will your operating rates change? Or will you be running the business differently than you were running it before?

It's -- in the Northern Hemisphere, we get into the construction season right about now. And I would say that when you recognize that vinyl is substantially used in the construction business, when you think of the where the demand is for that vinyl, 60 or so percent of that vinyl is all going into construction applications one the other. So as we get into March and late February, we begin to see the order book build. And I would say that the order book is reflective of this seasonal growth in construction activities. We know it's been quite cold here in the Northeast and of course, in the upper Midwest, it's actually been warm and dry in much of the Sunbelt.

And so I would say the order book that we're seeing really in the Sunbelt portions of the country are supportive of that construction activity and recognizing that in our Housing and Infrastructure Products business, about half of that is repair and remodeling. So even though we have an outlook for 2026 of housing starts to be similar to '25. So we're not looking for net growth in starts relative to '25. We did see growth last year and in '24 in our repair and remodeling business. so that R&R business continues to grow year after year. And so the book that we're seeing built continues to reflect what we think that will play out in '26, at least at this stage in that construction number similar -- housing number similar to '25 and growth in the repair and remodeling business.

What about exporting PVC? Is that a new opportunity? Or that's not been a focus of Westlake, and so it's more difficult to pivot to ship to the export market?

Well, we did -- just to remind all, we did shutter 1 billion pounds of export in December of last year with a clear signaling to the marketplace. We don't see that as a long-term value-added proposition in North America. We feel like that having shuttered those assets, we're now selling products in the export market, but a much lower percentage. We're probably in the low 20s percent of our production going into the export market, whereas before we were closer to mid- to high-20s, low-30s percent of our sales going into the export market. But again, our focus really is to really sell into more value-added markets. And so we recognize the export market was not bad. And so recognizing that we really needed to be focused on where we could really add value, which is why we withdrew from that much of the export market.

So if I understand what you've said to me, you're going to have your normal seasonal rise in volumes. But because you've taken a step away from the export markets, it's not something where your volumes are going to quickly rise because it's now going into the export markets.

What we've done is we've taken that product that was being sold in the export market and moved that production to our domestic plants. So we've raised the operating rates of those remaining assets. So those remaining assets are now running at higher rates and because they're running at higher rates, selling that volume, we've been able to reduce our cost per pound for those plants that are running here in North America. That allowed us really to be even more cost competitive, driving better value at the bottom line.

So rather than selling products in the export market where we had really no value at the end of the day, negative margin, which is why we shut those plants. We've now taken that volume and said we'll run through our domestic plants, selling it largely more domestically into our HIP side of our business. And that allows us to run those plants at higher operating rates, spreading our fixed cost over more pounds of production, which makes us more competitive.

Do you think that the industry -- the PVC industry in North America in 2026 will significantly increase its exports? Or do you think that, that's not the case?

I think that's not the case. And that is because we're the second largest producer in North America, and then we just shuttered 1 billion pounds. So I don't think that we're going to see the first largest producer, which be Shin-Etsu or Shintech really offset that with incremental volume above and beyond those volumes that we shuttered. They are a large exporter. There is no question, but I would expect that they'd find better value selling products domestically if they can.

So from your point of view, there's no extra pressure on the caustic market from increased PVC production in the United States. That is you think that PVC margins should go in a positive direction but caustic would not get weighed down.

That's what we're seeing at this moment. There is a seasonality to caustic soda, as you know. As you think about the price nominations we have for caustic soda, we have price nominations out there totaling $140 a ton, nomination at $65 and $70 a ton. We're probably seeing $25 to $40 a ton being realized currently in the first quarter. We won't get the full effect of that because it's being layered in, in February and March. But I would say that given the slower construction season, so less PVC produced, less chlorine produced, less caustic produced that you typically have a tighter market in the first quarter and the fourth quarter every year, whereas when construction season ramps up in second quarter and third quarter, you have more chlorine produced, more caustic soda produced and frankly, therefore, weaker pricing typically in second and third quarter. So that's the dynamic that we're seeing currently play through.

When we've looked at the housing statistics, single-family housing is not growing, but multifamily housing is growing. From Westlake's point of view, do you prefer the one or the other in your pipe business?

In our pipe business? Yes. I mean indifferent as it relates to our pipe business because our pipe business really goes into multifamily as well as single-family. When you think of the single-family to the extent that we're providing a larger diameter pipe, this is not the smaller diameter plumbing that you think of. This is the storm water, freshwater and wastewater that you see in neighborhoods. And so the volume here for multifamily versus single-family tends to be the same.

If you were in as we are not in, plumbing, it would be a very different story. But the plumbing market is a market that has a much larger number of producers. Typically has much more competitive pressure. Think of the larger diameter market. There are only 3 producers here, ourselves, JM Eagle and Diamond Plastics. So it's a much more rationally behaving market and a market that is not oversupplied in itself, whereas the smaller diameter business is oversupplied.

Now, this may be an accounting wrinkle, but you take PVC from your PEM business and you send it to your HIP business. And I think last year, you were losing money in PVC or maybe you weren't making money.

We were losing money in PVC...

And sending that margin or sending that cost into your other segment. But now it may be the opposite because PVC prices are rising. So it may be that there's money that you'll make in the PEM segment that you won't make in the HIP segment unless HIP raises its prices to offset the inflation in PVC. Is that fair?

It is fair. But when you think of the leverage that we have in PEM, it's a significant greater multiple. Yes. So when you think about a $0.01 increase on an annualized basis in PVC in PEM, it's $60 million a year of EBITDA. The $0.01 impact in our HIP side of the business is a much smaller component of that. So any pricing that I have an increase in PVC, it's going to have a much bigger multiplier effect in the consolidated results. And if you think about the price increases that we're likely to achieve in '26 with PVC, irrespective of whether we get that $0.15 in total or some portion of that, we will eventually push those costs through.

So it's just a matter of what the lag-effect is because as we're selling product to ourselves, we're also selling product to other pipe producers, other fitting producers, other siding producers, and they will want to push those prices through as well. So it's more of a question of what's the lag-effect rather than whether we get it or not. It's just a matter of when do we get it. So I do expect that we'll be able to achieve some of these prices in HIP as we push these prices to finished product, just a matter whether it's 1 or 2, 3 months before we get that price pushed through.

And -- so you'll capture it in HIP over time. And of course, the net benefit will be positive even in the beginning because if PVC prices move up as you expect.

It's a net benefit. It's just a greater net benefit if we get all this pushed through HIP. Admittedly, if we don't get it pushed through immediately, it's a lesser positive benefit. It's still a positive benefit. It's just I have that headwind or I can push it all the way through the building products side of the business.

One of the -- you have a large cost reduction program, restructuring, you have various businesses that are that had turnaround expenses last year and outage that you won't have this year. And I think one of the benefits that Westlake thought it would get is maybe it would earn $100 million more in epoxies. But epoxies is a buyer of propylene. And so when you think of that $100 million -- I mean now there are many ways that Westlake will benefit in the current environment. But is that $100 million target in epoxies harder to reach now?

I don't think so. And the reason I don't think so is that having shuttered our facilities in Rotterdam last year, those losses in Rotterdam were completely clouding the profitable picture that we had in our downstream specialty epoxy businesses. Over the course of the last several months, those downstream epoxy businesses have, in fact, been profitable. And to the extent having shuttered that asset in Rotterdam, we're buying feedstocks and admittedly potentially now higher prices. But given the specialty formulation we have in our downstream businesses, I do believe be able to push those costs through into our specialty businesses further downstream.

Wow, because propylene is meaningful and European propylene values are...

Fortunately, our business is more heavily concentrated in the United States.

Okay. At Westlake, do you play a role in the selection of the next Chief Financial Officer? And what kind of person are you looking for in that from my point of view, Westlake really was more determined by your business approach and Albert's business approach rather than a generic strategy. That is I think the men made more of a difference than the strategy did. Do you think that might be true for the next generation? Or what do you look for, Steve?

So I think as we look at the DNA of Westlake, it's -- and despite the plan that I hope to retire later this year, and I've been trying for years, I would say that the DNA of Westlake won't change, whether it's myself in this role or someone else. I think the DNA has been very well and deeply embedded because of the large shareholder base that we have through the Chao family. So I'm very comforted by the fact that as we go through our search process and find that successor that individual will bring the same kind of background and experience base that we've always had in the organization.

I think our focus really is having a focus on really long-term value creation. This has been a foundational element that we think about at Westlake. It's -- as you know and you've heard me say many times before, it's incredibly easy to write the check to make an investment, whether it's an organic investment or an inorganic investment, but it is infinitely harder to get the return. So our focus is the return because as I say, I can always find the money, but it's much harder to find the value. And so our focus really is just exactly that, understanding the business, understanding the business drivers and being focused very much on ROI, ROCE and EVA.

So how do you find a human that has that focus?

Oh, they're out there. They're out there. They're out there. And we're looking for people that bring in new thoughts, new ideas that I haven't thought of, new ideas and fresh blood and someone with strong enthusiasm for the job. And I'm sure we'll find that individual. I have no doubt of that. Okay. Thank you very much. Thank you, Jeff.

Thank you for your attendance today.

Thank you.

Welcome back. I'm sure people will keep filing in and out, but we -- keep the ball rolling here. And I'm very pleased to be joined by Steve Bender, the EVP and CFO of Westlake, Obviously, Steve recently announced his retirement pending the replacement and hiring process. So congratulations. I know you've been a Westlake CFO as long as I've been in the industry, which is an exceptionally long time, but longer in and itself the most CFO stint. So congratulations on the career.

Thank you very much.

I was remarking between like yourself and Vince and Allen Mistysyn. It's like a lot of -- the CFOs who I kind of came up to the industry are now departing. So it's a little bittersweet, but it's been good. You've always been like an incredibly helpful resource for us over time. And -- so thank you for that.

I appreciate those kind words.

Of course. So there's a few different things we can talk through, Steve, but I want to talk PVC, maybe to start. It's a business that, like historically has had a pretty small margin right, as it relates to the overall chlor-alkali component of it. How do we change that? And what we've seen from a global trade flow perspective is maybe a little bit more difficulty with China becoming a little bit more of an export presence, but what are you seeing on the ground there that might cause or change any shifts because anti-involution is taking different terms and different VAT systems are changing. So can we give a little bit of sense on the market for PVC and where you would think it goes?

Yes. The market really is fundamentally changing, I think, with the -- and when you have kind of pulled back a little bit and say, China was really self-sufficient in PVC, they imported some, they exported some. But on balance, they were actually self-sufficient. With the slowdown in construction activities in China and actually, as everybody is aware, they started exporting, but China sits very high on the cost curve. So their exports were generating actually cash losses. They were actually exporting below their own variable cost. Not a very good business model.

And so when you think about what they've started to do here with our anti-involution efforts and also the repeal of their duties, they're allowing therefore people to become more rationally oriented, which -- and again, just kind of level set everybody here on the revocation of their duties, what they were saying is you got that 13% duty drawback if you exported. Effective April 1, they're no longer going to provide that duty drawback to those exporters producing in China and exporting overseas. So what you've already seen well in advance of April 1 is export prices rising. And as a consequence, many of those producers -- in fact, all those producers were losing money because they said they're producing below their own variable cost.

For many of those, that 13% duty drawback was the only profit they expected to see and now that they're losing that, still producing below variable cost, their losses are going to continue to grow.

So when you think about who's financing those losses, it's provincial in regional banks within China. If you think back -- going back to history here, going back to 2005, we saw similar behavior by the Chinese vinyl producers. At some point in time, those loans are going to have to be recapitalized for the banks because these loans are not going to get prepaid. So what happened in 2005 and '06, the Central Bank of China, Bank of China stepped in and had to recapitalize those provincial banks. So therefore, they cut off lending to those nonprofitable operations.

I fully expect to see that begin to materialize here because none of those loans being funding those unprofitable operations by those regional players in China are never going to get repaid. And so it's going to create not only a problem for the producers, but also for those regional and provincial banks in China. So I think the first step of this effort is that revocation of that duty. You've also seen anti-involution, which is shuttering some of those nonintegrated PVC sites.

China has a proliferation of inland-based nonintegrated PVC operations and when you think about what's happened over the course of time, you've seen those operations be surrounded by residential construction. We have a plant that we just shut down last year. It was a nonintegrated PVC site that had completely been surrounded by residential construction over the nearly 30 years that plant have been operating. So when we shut that plant down, we are permitted by statute to run that plant in an idle mode for up to 2 years.

Within 2 months, they walked in and revoked our air and water permits. Sure, we can reapply, but trying to get that air and water permit might be a real challenge. So what you see them doing is pulling back where they can on nonintegrated operations and trying to then pull those operations to the coast and tie in those production into refining and other chemical operations at the coast. So I do expect to see a slow sunset of nonintegrated PVC producers that are not on the coast and tying those back to operations that are integrated with refining and chemical operations. That will take many years, but I think that effort is underway.

So as we look at your expectations or what we could expect to see as a result of the VAT removal, right. You have this April deadline is the view that we're actually seeing a lot more exports right now ahead of that? Or has that kind of become a guidepost and people are starting to raise price now? And then by April, the price goes up more, how is the market responding itself to the development.

Yes, the market are responding very quickly when the authority has announced the removal of that drawback. So export prices have already started to rise. And it's not going to be a surprise to, I think, many certainly not in the industry, that we're going to see an inversion where export prices will maybe exceed domestic prices for resident, which is why you're seeing costs begin to rise and you saw natural gas prices rise, ethane prices rise and ethylene rise over the last several months. As we all know, it's been very cold in the Midwest and the Northeast. Gas prices shot up and they have come back down, but you still see an elevated cost. So you've seen domestic producers raise prices and nominate prices, not only in January, February and some in March. But the export prices continue to rise, and as we see that continue to rise in advance of the April 1 date, I think you're going to see more rational production come into play because you already see in Europe, a number of vinyl producers who have shuttered operations.

You've got a handful of producers in Europe who are also in bankruptcy right now. So I think you see a number of actions, whether it is China becoming a little bit more financially rational operations in Europe who are being shuttered. We ourselves shuttered a number of -- we shuttered 3 core vinyl assets in December that were all export-oriented. So I think you see now the supply side beginning to react to the loss of profitability, which is beginning to balance that market. The vinyls market is much more balanced than we see from a supply/demand balance than the polyethylene markets. You've only got a small handful of players relatively in the vinyl space versus in the polyethylene space. So I think that market has a much likely chance to be balanced much sooner than the polyethylene space.

Well that gets back to my point a little bit, right? Because if we don't see much global capacity adds for chlor-alkali chain, PVC, caustic chlorine in and of itself. And I know people like to think of Westlake as a U.S. housing play, and that's certainly relevant for the building products. But you sell PVC domestically. But in reality, PVC is kind of an international business. We can't raise U.S. PVC prices unilaterally for an extended period of time outside of what we might see is global price. So how far are we away from you think seeing a backdrop where operating rates could warrant a better backdrop for margins for the vinyl chain.

I think we're beginning to see some of those, what I would say, and we're cautiously optimistic in our outlook. But I'd say, beginning to see some signs of improvement in that space. Rationalization of excess capacity, as I mentioned, is already happening, both in the Americas. We're part of that. It's happening in Europe, and you're seeing some actions in Asia.

So I think you're beginning to see some actions on the supply side. Demand has always been very predictable in the vinyl space. It's, as you mentioned, large fleet construction related. And historically, for as long as I've been in this business, nearly 50 years. I would say that we've seen it grow very predictably at about 1x global GDP. So it's really a supply problem, not so much a demand problem. I wouldn't say that's the case in polyethylene quite now because you still have a lot of excess capacity being added.

But I would say on the vinyls side, it's really an oversupply issue. As you see players begin to rationalize that excess capacity, you're going to see the market begin to recover sooner. So you're right, there's very little capacity being added in chlor-alkali and in PVC. So I expect to see that market begin to kind of return to profitability much sooner than I would see it in some of the other chains.

In that other chains, including polyethylene, too. polyethylene is profitable...

Polyethylene is profitable, but you still have very significant capacity being added in Asia, capacity being added in the Middle East and capacity being added in even in North America. So if you just look at some of the consultants that talk about capacity being added in Asia, you probably have 6 to 7 world scale plants being built between now and 2028 in Asia. You have several being built in the Middle East and at least 1 being added here in North America. So you can ask yourself in the course of the next 4 years, 3.5 years, do you have a need for 7 to 9 world-scale polyethylene plants? Probably not. So this is why the market and the consultants are saying the market is going to be oversupplied for a while.

Now to plan in the polyethylene space as we are, we play in the more specialty end, not the commodity grades. So as you look at Westlake's position in polyethylene, our space is really more in the specialty end, it's the low density, high pressure, high clarity form of polyethylene, which has over 125 grades. In the more commoditized forms of high density and linear, you have roughly half a dozen grades or so each. And most of that production both in North America and the Middle East is destined for export. And if your export market is building its own capacity, where does that production go.

So I find myself often in the world where like CMA is increasingly the only like source for some of the stuff missing the days of Brian and Charlie. And Charlie probably shouldn't have said this when he did, but we got to ask Charlie where PVC would settle? He's like, I don't know, I haven't settled it yet, right? Like he took PVC was his baby. But when we see -- we track a lot of this data and like it feels like the PVC market is going unsettled for like very long periods of time, and maybe that's not the case in CMA is just off like what's happening there?

Well, I think that as we think about it as producers, when you think about just the North American market, there are only 4 producers really in the North American market. And frankly, to make sure that we're staying certainly within the boundaries, we don't necessarily publicize our prices. When you only got 4 producers, you're not going to get into publicizing prices.

So you may have consultants who may say it hasn't been settled, but trust me, I'm billing and collecting on a [ group ] basis. And so when we talk about prices maybe not having been settled. In fact, they have been settled. It may not be transparent to necessarily all the parties that are not in that space, but prices have been settled. And so as we think about making sure that we stay within the boundaries of what is legally allowable that we're not signaling to other producers where there may only be 3 others and ourselves. We want to be very careful about what we're doing to stay within the legal bounds.

In the polyethylene space since you have multiples of those 4 players globally operating in an environment that is not within the bounds of the United States, there's probably more transparency. And I would say in the domestic market, we have only 4 domestic producers. The answer is we are still operating and operating and settling on a regular basis. It just may not be as transparent to an outside reporter.

No, that's helpful because it's not, but it's fine. I want to talk about polyethylene.

And by the way, we settled up $0.01 in January and we've announced price increases in PVC for February and for March.

Just how far ahead of the domestic market is the international market right now?

It's evolving. I'd say export prices are moving up and because it is a largely spot-oriented market, I would expect that over the course of the first quarter, if, in fact, we continue to see the behavior to continue to develop, we could see what I would call an inverted market where export prices are higher than domestic prices. It's not there yet, but certainly possible because we continue to see a retraction of exports coming out of the Chinese market. It's possible with that, we could see further elevation of the export price.

Yes. So that's always been the indicator that I've looked for, for like the most durable price factor for PVC. On the polyethylene side, we just had August and Lyondell here, we're talking about polyethylene inventories. And we track the ACC data, pretty large reversion or cut basically made to the U.S. balance and I think it helps. Certainly, the argument for pricing in February and January, which we saw as being up. Westlake has made comments about wanting to run your assets hard as I believe, right, like that's the view on the polyethylene side of the equation. Dow has made similar comments.

What's the puts and takes of running hard versus trying to balance things out? Because operating rates are high 80s for the U.S. right now. and were balanced -- like inventories are tight, but we can put inventories into oversupply domestically if we turn operating rates up as an industry. So is this Westlake taking your position maybe smaller than other peers and run full out and letting other people worry about balancing things? Or do you think this is a market that should -- everybody should be running for?

Well, this is a market that I think where product differentiation will really shine because when you think of the larger producers, be it CPChem, Exxon Chemical, Lyondell, Dow and many others, the answer is the great majority of their production is the commodity-based polyethylene, high density and linear low density, and they're big exporters in the markets. If you look at Westlake, the great, great majority of our production is in the specialty and it's low density, high-pressure polyethylene. So we're comparing apples to oranges when we talk about polyethylene more generally across those producers and across Westlake.

So while we talk about operating rates in polyethylene generically, the reality is we're comparing 2 very different sets of properties of those products. So our properties are really going into largely consumer packaging and applications with high clarity. So think of the coating packaging applications, these are cardboard, potato chip bags, bread bags and such. So the applications you see many of our peers in and high density and linear through the trashcan liner. It's the rigid blown milk jug. It's that application.

So we're competing in very different markets. So our product sets are quite different. So when we talk about operating rates in polyethylene generically, we're missing the big distinctions between these product categories. So in our case, we're not competing with them in that product set. We make a very small portion of our product sets that compete with them, but the great majority of our products don't. So when we think about our operating rates relative to theirs, we're really not comparing apples-to-apples in that context.

Okay. Fair enough. I don't typically think of Westlake making missteps on the acquisition front, but Hexion feels like one that probably felt great at the time considering the multiple. And even in that, I think you knew it was past peak. But one, can you walk me through the decision to close Pernis. And then two, what do you learn from that West -- or for the Hexion deal?

I probably need to talk to the intelligence agencies a little bit closer than we do. We didn't see the innovation by Russia and Ukraine. And so we didn't see the termination of gas supply coming out of Russia into the European markets nor did we see the fact that when China would come out of COVID lockdown that most of their GDP would be tied to nondurables versus durables. And so as we thought about this acquisition, we closed just about a month before the invasion occurred. And so from a timing perspective, our timing was frankly very poor.

And so what happened in our operations in Pernis Rotterdam was the fact that we saw a real spike and even the prices have come down, they stay very elevated in terms of feedstocks, power cost. So what has happened here with our operations in the Netherlands is a much higher cost of operations than we would have expected, plus with China coming at a lockdown out of COVID that production of epoxy that they -- we saw being built was largely designed to be consumed domestically.

But because of the nondurable demand that they have largely in their economies, they're exporting that product because they don't have the domestic demand for that product today. So I feel sure they will. And so that product has been flooded into markets again into Europe. It's not really coming much into this market, but we are seeing product coming out of Korea into this market. So I would say that what we missed was really the spike in cost of energy and feedstocks. We also did not see that the economies in China would be from a durable markets perspective as weak as they have been and remain so. The growth in China's GDP is largely nondurable. And that's really where most of this epoxy would have been consumed.

And until that migration of product goes from nondurable to durable, it won't pull back the epoxy out of the Western markets into -- back into Asia. So you're right, it was a call on both a business that we thought is long-term viable, but unfortunately, that asset, specifically in the Netherlands isn't.

So we shuttered that asset in 2025. And we'd say, having now shuttered that asset, our epoxy business is profitable. It was just the lack of profitability of that operation in the Netherlands that was shielding the profitability of the rest of our epoxy business. So today, as I look forward with our epoxy business, it has been profitable since the shuttering of that Pernis asset and remains profitable to this day, and I expect it to continue to be profitable is just that the lack of profitability of that Pernis operation in Rotterdam overwhelm the profitability in the rest of the business.

And Europe is an interesting case study because it's like a half measure, right? We saw these antidumping duties on epoxy from China, but not South Korea, right? And so China maybe exited the European market and South Korea just moved directionally there. And so as you think about how Europe is taking steps to defend domestic industry like in your efforts, are you lobbying for this? Like has the conversation moved to a broader import, antidumping stance.

Is there frustration around how ineffective some of these decisions can be? I don't know. It's a hard question, it's not really a great question to ask you, but I do wonder because it's as a region facing deindustrialization is more or less a dumping ground for a lot of commodities. So as Europe tries to come to some form of policy on industrial defense, like how are you seeing the steps form there?

I'd say Europe differs in terms of which state you may be discussing. And I'd say that the operations that we have in Germany, the operations we have in the Netherlands, the operations we have in France is different in terms of the dialogue, they don't all speak with the same common voice and so when you think about the conversations we had with the Dutch authorities as we approach thinking about shuttering that plant in Rotterdam, the Pernis, in the Netherlands, when you approach them and said between your environmental policies, which required us to invest truly hundreds of millions of dollars in the next few years in a business that was losing money and said, could we not think about some grace in terms of deferring those investments, at least until this business can afford making those capital investments and thinking about your trade policies that at least allow us to be playing on an even level playing field with those imports coming out of Asia that are being sold in the market below their own cost of production.

And I would say the authorities in some countries, such as the Netherlands basically said we don't care. But I would say, in Germany, you get a very different answer. So I would say, in Germany, where we have operations as well, I would say there's probably a more favorable year. So as a recent example, some of the carbon credits that we see coming out of the EU for operations. The Germans have heavily influenced decisions by the EU and Germany is providing to industrial players free carbon credits, whereas I'd say, some countries lobbied against that.

And so I would say that you get different voices depending on the footprint that you may have across Europe that varies much state by state by state. And so I would say that as an industrial player in some of these markets, you just have to be cognizant of how might you be competitive? And there is no doubt that we continue to be very engaged in dialogue to these countries and with the provincial and local authorities as well, of course.

But you just have to be thoughtful about capital investments that you're going to be making now and in the future. And the policies can change on the fly. So you just have to be very thoughtful about that.

Okay. I appreciate that. So to move from Pernis to the Aberdeen, Lake Charles closures? Ultimately what's driving the decision there? Because if we think simplistically about America and lower end of the cost curve with cheaper U.S. gas, it is interesting to see the rationalization happening domestically here as well.

Yes. And so all the operations, and I should roll the clock back a little bit. In 2025, we shuttered 6 chemical plants in 2025. We showed in Pernis this operation in Rotterdam, we shuttered a nonintegrated facility in China, a PVC operation and shuttered 4 operations in the United States, 3 core alkali, core vinyls plants and a styrene plant.

All 6 of those facilities were destined for export markets. And so therefore, it was clear to us that we needed to take those actions because all 6 of those plants were not generating positive value. So as we thought about those operations in Aberdeen or in Lake Charles, where we shuttered those core vinyl plants, it was clear to us that while we have a low-cost production, they're not physically integrated. We're having a lot of rail cost and shipment cost of products between sites and site all destined for a low-priced market.

And so while we have a low cost of inputs, we're also selling those low cost of inputs into an even lower priced market. And as I mentioned earlier, we have many of the Chinese producers that are selling below their own variable cost. And if they're selling below their own variable cost, you're competing with a party that seemingly has no end in terms of how long they'll fund that. So we recognize that while these are low cost on a global basis, they were our higher-cost sites, so we felt we could go ahead and shutter these assets permanently remove that production out of the market, pull that out of the export markets still remain low-cost for the remaining footprint we have, run those existing assets we have at even higher operating rates, which spreads that fixed cost of production over more production.

So from our perspective, it allowed us to extract ourselves from a low-priced negative margin business allow our domestic operations to actually raise their operating rates and become even more profitable.

So from like a net exit basis, right, because those assets probably weren't running at 100%, but maybe they were closer to 70%, 75% if they were in an unprofitable situation. And your domestic base was already running pretty well, but you could take it up. What's like the net loss through your network, if you were to look at like tons, pre and post those 6?

So we are then elevating operating rates because we are able to then service some of that market domestically with the higher operating rates of our domestic plants. So we're still in the export market, we didn't fully exit the export market in vinyl, but we exported -- we exited a significant portion of our business in the export market. The industry is exporting just under 40% of its PVC out of North America -- out of North America because we have our HIP building products business that takes a very significant portion of our PVC resin. We were substantially below that 40% number of the industry was exporting. And by pulling back on our PVC exports, now we're very significantly less than half of that export percentage today. So it allows us, therefore, to run those domestic assets at higher operating rates to meet market demands.

I wanted to talk about the balance sheet a little bit. So one of the effects of the cycle that we've seen pressure is cash flow. And cash flow, candidly, is not particularly robust right now. So what do you have as levers here? I mean the balance sheet is not in a bad position by any means. You've always been very conservative with how you run the business. But what are the priorities for cash over the next 2 years? Are there any real capital calls? What what should we expect from company-specific actions to improve the cash flow dynamics?

And so there are 3 specific discrete actions that we've been very clear in terms of what we're taking. We call it our 3-pillar strategy. The great majority of this is really on the PIM or the chemical side of the house. And so the first piece of that pillar is a cost reduction initiative, which is a $200 million structural change to our cost structure. Remembering, we achieved $170 million of cost reductions in 2025. So this $200 million sits on top of the $170 million we achieved in 2025. It's a very significant piece of self-help.

The second piece of that pillar really is this footprint optimization we just talked about, where we've shuttered not only 6 chemical plants, but we've actually repositioned 3 other HIP plants over the course of 2025. That itself would also generate a $200 million savings itself.

And then the third pillar really is running the plants on a more reliable basis. In '25 and in late '24, we had a very unusual level of planned turnarounds. We have moved a lot of these planned turnarounds out to '24 and '25 because during COVID, we didn't want to have all that kind of maintenance performed in '21 and '22. So we pushed these out several years in '24 and '25. As we undertook those planned outages, as we brought the plants up, we found putting some of that equipment under stress, temperature and heat caused some of these plants to stumble and go down again in an unplanned manner before they came back up.

So '26 ought to be a more normalized turnaround year. So while everybody will have an unplanned outages, we expect that our unplanned outage number should be greatly, greatly reduced because the number of planned outages is greatly, greatly reduced.

So we think that third pillar is also about a $200 million savings. So when we think about the savings that we have that are just pure self-help, putting markets aside. That $600 million of value we see being delivered to EBITDA in 2026. So just with setting the market aside, just the actions that we're taking, we think we'll achieve that. So 2 of those pillars, I would say, are deeply underway. So the first pillar of cost reductions, we actually negotiated all those last year, talking about logistics, procurement activities and manufacturing.

So we've already negotiated rates. It's just a matter of run rate over the course of the year. So I fully expect that to be in pocket. In terms of those plants that were losing money last year, but we were all shuttered. So I don't expect those losses to reoccur. So that's really in pockets. So the third pillar is plant reliability. We have to earn that every day. So we'll watch as we go forward over the course of '26 to see is our reliability significantly a step-up from 2025 reliability. As I say, you have to earn that every year, every day, but we'll see how that plays through. But I'd say of those 3 pillars, 2 of those are really well in hand at this stage.

So I like to play a game sometimes called talk to me like I'm a fourth greater. I was looking at 4Q earnings, right? And we got walked down a bit because you had these assets that were idled and there was the unabsorbed fixed cost. And then earnings comes in much stronger. And you saw the GAAP costs on this. And I asked on the earnings call a little bit about -- sorry, I apologize for asking again, but...

I'll give you the same answer.

Yes. I'm ready for that. I just don't know how you found $80 million in like 3 weeks, right? And so for me, it feels like -- and this is fine if this is what it is, like creative accounting around adjustments or things like that. And it's not -- you said it's not. So the game of explain it to me like a 4-year-old. So I think that's -- the question we got and the pushback we got as well around that. And so I -- and as it relates then to next year, because you have these pillars, right? And you've talked about them, and they're all very tangible, we understand. And a lot of it is just the absence of cost, which is -- lends a lot of credibility to that. But if we've got this earnings now in 4Q, is that theoretically less growth for next year, and you seem to say no, but...

So the gap, and it depends on whether I'm trying to bridge to your estimate of The Street estimates, but what I would say is that in the last few weeks of the year, we monetized, annuitized a number of pension obligations that we had, and I had, frankly, a very pleasant surprise. It was about a $27 million pleasant surprise by further annuitizing some pension obligations that came that we didn't know where that was going to land until we got literally till the end of the year. But on top of that, I had a number of -- a large number of kind of one-timers. So when you add those small bits and pieces to that $27 million annuitization, that's $30 million, $35 million of onetime items that were in the fourth quarter, late in the fourth quarter.

And then I would say that some of that additional bridge was, frankly, the fact that we weren't selling product in the last 2 weeks of the year, that we're losing money. These plants that we had shuttered that we announced on the 15th of December, I obviously couldn't tell the employees we were going to permanently shut these plants. We brought the plants down. We weren't selling product. We told the employees we're going to undertake an action on these plants, and they assumed it was a maintenance action back. In fact, it's the shutdown actions. So we had fixed cost but no sales. And those sales, as I mentioned, were being sold at or in some cases, below variable margin. So the additional loss that you incur by selling additional products is not incurred as well. So part of the bridge is really the annuitization, some pension obligations, some smaller items as well as the lack of losses related to those facilities that we shutted in December.

And I apologize for taking me this long to get to building products. It's comfortably consistent. And so I've been trying to spend time on the things that aren't, but it's been a very good stable anchor for the business, right? You're seeing some trends as it relates to trading down that's impacting your mix. But overall, the business remains pretty healthy. So what's the future of Westlake Building Products as we move through this down cycle and your cash flow gets better. Westlake's always been an acquiring company. So is -- should we expect more to be done in building products over time?

Of course. The answer is we closed on an acquisition just last month in our compounds business and I expect that we'll do more of that over time and fill out the portfolio. You think of our HIP business, the Housing and Infrastructure Products business. That HIP business really is a very nice business that is not capital-intensive like the Chemical business is. It is more stable and has a predictable organic growth rate that we've signaled as 5% to 6% to 7% a year, just organically.

The acquisitions that we undertook in '21 and '22 have continued to add to that portfolio and give us a coast-to-coast footprint to be able to service the big nationwide homebuilders, the D.R. Hurton, Pulte, Lennar Homebuilders, KB Homes and many others. And we have a geographical footprint that services both Canadian and the U.S. market coast to coast.

But nevertheless, there are some gaps in our portfolio that we'd like to fill out and product innovation at the same time to meet those customers' needs. So I do think that we'll look for opportunities to fill those gaps. You just have to recognize that sometimes those values on a multiple basis are higher than chemical trading multiple, we see oftentimes attributed to Westlake, which means I have to find compelling synergies to be able to buy down those -- that elevated multiple. And that will sometimes cause us to lose some of these opportunities because they won't pay that elevated price. Westlake is incredibly focused on value-add and EVA, economic value add.

So I'm not going to stretch to pay an outsized multiple if I can't see a path to making that truly productive and profitable business. It doesn't mean we're ignoring the chemical side of the house. So we'll look at opportunities that are value added on both sides of the house and say, how can I improve the profitability, both on the HIP side on the PEM side and are there opportunities to fill out the portfolio geographically or by product set within HIP, Likewise on the PEM side, are there opportunities -- excuse me, opportunities to improve the overall portfolio to further integrate that business because profit does move back and forth across the chain. You mentioned earlier in your comments that PVC tends to have a low margin. I agree with you, historically, it has. But to be a producer of PVC, you have to produce ethylene, chlorine, caustic, VCM, EDC and [ vin PVC ].

So profit moves back and forth those chains on a regular basis. So if you don't occupy that entire space, you'll miss that. So we don't look at just the PVC space to be able to say where is the profitability you look across the integrated chain. So as we think about being able to fully integrate that chain, we'll continue to look for ways in which to do that, be it in this market or some of our overseas markets.

Look, we only have a few minutes left, right, but that kind of brings me to this nagging question that I've had. It's not your problem anymore. So that's fine because you're going to be gone, but...

I'm still a shareholder.

Look, for the next 5 years, if I see what's in the pipe, we're going to see net tightening to the ethylene market. To this point of integration, Westlake remains net short on its ethylene position. clearly, we have favorable dynamics in the U.S. as it relates to ethane. But also it's expensive to build a plant and not everybody wants to just sell an ethylene plant. So projects come back, right, like Lyondell Flex 2, right, which is the metathesis unit they were looking at that could drive further spot ethylene reductions. How -- where is this on the list of concerns for Westlake as well as like opportunity sets.

So with the shuttering of these plants in North America that we shuttered in December, I've cut my ethylene -- my short position by 50%. Today, I'm -- before those actions were taken, we were buying 1.2 billion to 1.3 billion pounds of ethylene. Today I'm between 600 million and 700 million. When you think about the joint venture cracker we have with our partner in Lake Charles, Louisiana, the Lotte JV, that cracker is a 2 billion-pound cracker. We own 50% of that, and we actually operate the cracker.

That has potential debottlenecking of 40% to 50%. So our share debottleneck 40% to 50% would be 400 million to 500 million pounds. So when you think about the ability to debottleneck and quickly fill 400 million to 500 million pounds, it pretty much balances this. It's just a matter of how do you decide and when do you decide to do that.

The issue is we know what the shortfall position is. The question is, what's the capital cost to debottleneck. And what's the margin? And the answer is, when you think about the margin today, the cash margin for ethylene is $0.05, $0.04, not a wild margin. You want to spend how much capital do you want to spend to get $0.04 to $0.05 margin, probably not a lot today. So the reality is you want to take a look at the forward margin and say, what is that margin likely to be? What's the capital cost to spend to get that margin? So it really is asking ourselves, what's the dollar you want to spend to get the margin you could achieve. So it really is just doing that math and making that investment decision at some point in time. So we'll wait until we see the margins likely to widen out having done some of the engineering work, we know where the bottlenecks are, it's just a matter of choosing to then pull the trigger to make the investment to be able to balance ourselves.

That's helpful context. I'll end it there. We're out of time. So I appreciate the opportunity speaking with you.

Thank you very much for your interest.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, February 24, 2026.

I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Thank you, Amber. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our fourth quarter and full year results for 2025. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc 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 2 reporting segments: Housing and Infrastructure Products, which we refer to as HIP or Products; and Performance and Essential Materials, which we refer to as PEM or Materials. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we'll open the call up to questions.

During the fourth quarter of 2025, we wrote off inventory and accrued expenses totaling $495 million related to the decision to shut 1 styrene and 3 chlorovinyl facilities in North America and our epoxy facility in Pernis, Netherlands and PEM. We also recognized $16 million of accrued expenses within our HIP footprint optimization actions and the sale of a compounding business. We refer to these expense items, which in aggregate were $511 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 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 that is 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 SEC filings. We encourage you to learn more about these factors 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 fourth quarter and full year results. This document is available in the Press Release section of our website at 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, 2 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, February 24, 2026, 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 web page at westlake.com.

Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Our fourth quarter EBITDA of $196 million is net of $511 million of identified items that reflect our announced plan to restructure the businesses and reset our cost position to address the persistent macroeconomic challenges and volatility in trade policies we are experiencing.

Despite continued industry pressures, we have taken decisive action to strengthen our global manufacturing footprint, and we'll continue to deliver on our commercial commitments while executing our 3-pillar strategy, which we expect to contribute $600 million of growth earnings improvement in 2026 while maintaining our focus on our long-term strategy of value creation. Westlake's cost-saving measures gained significant traction across every business in 2025, and we delivered over $170 million of structural cost reductions.

Looking at our fourth quarter results, HIP performed well while experiencing the typical seasonal decline in sales volume and earnings and the added impact of lower construction activity in the fourth quarter. The year-over-year decline in sales reflected lower new housing construction activity in North America, but that decline was partially offset by solid municipal pipe sales volumes as we benefited from the growth in infrastructure spending in cities across North America.

Turning to PEM. The fourth quarter was a continuation of the trends that we witnessed throughout 2025, with results reflecting a decline in volume and price with margin compressions across our product portfolio as we serve the stable global industrial and manufacturing base. As we discussed in December, global overcapacity in certain products created downward pressure on the sales price for many of PEM's products, leading to a sharp decline in PEM's profitability compared to historical levels. These pricing pressures continued in the fourth quarter with a further 5% decline in PEM's average sales prices compared to the third quarter of 2025.

Our 3-pillar strategy, which I outlined in December, is expected to contribute a $600 million improvement in earnings in 2026. Let me summarize each of these pillars, as significant steps have already been taken to drive this earnings performance strategy forward. First, we have taken decisive actions to close higher-cost PEM assets that largely sold products into low-priced export markets. We closed an epoxy manufacturing site in Pernis, the Netherlands; a nonintegrated PVC plant in China; 3 North American chlorovinyl assets, a styrene asset and 3 HIP fabrication sites. These actions contributed to a 6% reduction in our headcount and an even more significant reduction in our contractor workforce in 2025. Having now shuttered all of these assets, we expect to see an improvement in earnings of $200 million in 2026 from footprint optimization.

Second, we have redoubled our efforts to address reliability in plant operations. Thus, we expect to deliver a $200 million year-over-year EBITDA improvement from better plant reliability in 2026. Third, building on the successful structural cost reduction efforts achieved in 2025, we have implemented an additional structural company-wide cost reduction program that we expect will deliver $200 million in 2026. These decisive steps and the commitment to deliver improved financial performance through these self-help actions will deliver better utilized assets and an improved cost structure to compete in a global marketplace.

I would like now to turn our call over to Steve to provide more detail on our financial results for the fourth quarter and full year of 2025. But before I do that, I would like to make an additional comment. As you may have seen in the 8-K we issued yesterday, our colleague and long serving Chief Financial Officer, Steve Bender, has informed us that he plans to retire later this year once his replacement has been appointed and appropriate transition has occurred.

We are tremendously grateful for the countless contribution that Steve has made to the company over the years. He joined Westlake in 2005, not long after the company's 2004 initial public offering, and he has been instrumental to the significant growth in the company that the company enjoyed since then. Steve will be with me on several more earnings calls in 2026, so this is not yet a goodbye. Nonetheless, we wanted to take this moment to express our gratitude to Steve.

Now let's turn to the fourth quarter and full year 2025 financial results. Steve?

Thank you, Jean-Marc, for those comments. Thank you very much, and good morning, everyone. As a reminder, my comments regarding income from operations, EBITDA, net income and earnings per share all exclude the financial impact of the identified items.

Westlake reported a net loss of $33 million or a loss of $0.25 per share in the fourth quarter on sales of $2.5 billion. The net loss in the fourth quarter of 2025 was $5 million lower than the third quarter of 2025, primarily due to lower average sales prices and lower sales volumes. For the fourth quarter of 2025, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $2 million compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. We delivered an additional $60 million of cost reductions in the fourth quarter, thereby achieving the $170 million of total cost reductions in 2025 and accomplishing our 2025 target of structural cost reductions.

For the full year of 2025, we reported a net loss of $116 million and EBITDA of $1.1 billion. Compared to our 2024 results, 2025 sales of $11.2 billion declined 8%. The lower full year of 2025 sales were the result of a 5% decline in sales volume, driven primarily by PVC resin and epoxy resin, and a 3% decline in average sales price driven primarily by pipe and fittings and PVC resin.

Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter and the year as a whole. Our HIP segment performed very well, and we were very pleased with the stability and resiliency of the portfolio businesses that we've assembled. At the same time, as we discussed in December, our PEM segment was impacted by global overcapacity, particularly in polyethylene and the chlorovinyls chain that drove lower average sales prices and margins. As Jean-Marc discussed throughout 2025, we took the necessary actions to adjust to the changing global balance of supply and demand and to position our PEM segment for improved profitability in 2026 and beyond.

Moving to the specifics of our segment performance. HIP sales in the fourth quarter declined 8% year-over-year, driven by a decrease in sales volumes. The sales volume decline was mostly driven by PVC compounds and exterior building products, which were most exposed to lower residential construction activity and was only partially offset by the continued solid sales volume in pipe and fittings. HIP's EBITDA margin of 16% in the fourth quarter of 2025 was below the prior year period due to unfavorable changes in sales mix and some higher costs.

Shifting focus to PEM's -- excuse me, to HIP's full year 2025 results. EBITDA of $839 million and EBITDA margin of 20% were in line with our guidance and expectations. While HIP's 2025 sales and EBITDA were below the prior year, we are pleased with its ability to manage the slower new residential construction environment better than the overall industry due to its broad geographical footprint and deep product offering that make it a supplier of choice for many large national homebuilders. HIP's resilient sales and EBITDA in 2025 also supported by strong customer adoption of our innovative PVCO pipe as well as continued solid demand growth for municipal pipe in general.

Moving to PEM segment. Fourth quarter EBITDA of $45 million decreased by $45 million from the third quarter of 2025. The sequential decrease in EBITDA was the result of 5% lower average sales price, driven primarily by polyethylene and PVC resin, and a 2% lower sales volume due to seasonal customer inventory destocking, which was partially offset by a $27 million benefit from annuitizing certain pension obligations, among other small onetime items. PEM's fourth quarter EBITDA margin of 3% decline from 5% in the third quarter of 2025, driven by lower average sales price, which was partially offset by a $26 million benefit from sequential lower planned turnarounds and unplanned outages.

Shifting focus to PEM's full year 2025 results. EBITDA of $267 million was lower than 2024 due to higher feedstock and energy cost, an elevated level of line and unplanned outages and lower level sales price. Weak mobile industrial manufacturing activity, combined with overseas capacity additions, created global overcapacity in certain materials in 2025. This global overcapacity drove lower average sales prices and margins in PEM, particularly for polyethylene and chlor-alkali and chlorovinyls. In response, we made the necessary decision in December to close 3 of our nonintegrated and higher cost North American chlorovinyl assets that sold into low-priced export markets. As we discussed in December, we expect these actions to provide an annual EBITDA benefit for PEM of approximately [ $100 million ] starting in 2026 by reducing our exposure to the low-priced export market.

Turning to the balance sheet and cash flows. As of December 31, 2025, cash and securities were $2.9 billion, and total debt was $5.6 billion. Our balance sheet continues to be well positioned for the 16-year average debt maturity life. For the fourth quarter of 2025, net cash provided by operating activities was $225 million, while capital expenditures were $241 million. For the full year of 2025, we returned $335 million to shareholders in the form of dividends and share repurchases. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value for our shareholders.

Turning our attention to 2026. Let me address some of your modeling questions and provide some guidance for the year ahead. Our 3-pillar strategy, which was outlined in December, is expected to contribute $600 million of improvement in earnings in 2026. Through these self-help structural actions, we are better positioned to serve our value customers and navigate the current macro environment. We have revamped our operating model and now have better utilized benefits and a lower cost structure to compete in the global marketplace with improved financial performance.

Now turning to our guidance for HIP. Housing and industry consultants and a consensus of economists forecast that housing starts to range between 1.3 million and 1.4 million in 2026 and for home affordability based on lower interest rates to improve. Furthermore, we expect HIP to benefit in 2026 from the recent acquisition of ACI with a now expanded compound product offering and strong customer relationships, the strong 2026 structural savings that we've initiated and the benefits from plant optimization actions taken in 2025. Thus, based on our current view of demand and prices, we expect 2026 revenue in our HIP segment to be between $4.4 billion and $4.6 billion with an EBITDA margin of 19% to 21%.

For 2026, we expect a $100 million year-over-year reduction in our capital expenditures to approximately $900 million, similar to our depreciation run rate. For the full year of 2026, we expect our effective tax rate to be approximately 17%. We also expect cash interest expense to be approximately $215 million.

Now I'd like to turn the call over to Jean-Marc to provide the current outlook of our business. Jean-Marc?

Thank you, Steve. 2026 represents an inflection point, following the actions we have taken to optimize our manufacturing footprint, streamline our cost position and operate our assets to serve our customers. We have positioned Westlake for a stronger, more resilient and profitable future as we navigate the challenging macro environment with our 3-pillar action plan, together with our long-term strategy and our investment discipline.

Turning to our outlook for demand. We expect a rebound from the seasonal lows of the fourth quarter. We are also seeing signs of improvement in global industrial and manufacturing activity to start the year. The January U.S. ISM reading of 53 was the first month in expansionary territory in a year, and the average 30-year mortgage rate sits at 6.2% today, down from 7% a year ago, which improves the affordability of new houses. So overall, some signs of improvement in the market, which has us cautiously optimistic that we will see sales volume growth in each of our segments in 2026.

Sustainability and environmental stewardship remains critical to our mission at Westlake, having established a target to reduce our carbon emissions intensity by 20% by the year 2030. I'm happy to report that in November, we released our 2024 sustainability report, which showed that we achieved our emissions reduction goal 6 years early.

Before I open the call to your questions, I want to close by highlighting Westlake's foundational strength, which continued to serve us well. These strengths include a diversified and complementary portfolio of businesses, our vertically integrated business model, our globally advantaged feedstock and energy position in the U.S. and our investment-grade rated balance sheet with $2.9 billion of cash and securities.

We have streamlined our operating model and have reset our cost structure. As we navigate the cycle in PEM, we have a more competitive business that is positioned to grow more efficiently with our customers. The expected steady improvement in housing construction will provide HIP the ability to continue to capitalize on its very broad and deep product offering to grow our business and to create value for our shareholders. We remain focused on execution, cost discipline and value-driven growth.

Thank you very much for listening to our earnings call. I will now turn the call over to Jeff.

Thank you, Jean-Marc. Before we begin taking questions, I'd 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 2 hours after the call has ended. We'll provide that information again at the end of the call. Amber, we will now take questions.

[Operator Instructions] Our first question comes from David Begleiter of Deutsche Bank.

Jean-Marc and Steve, can you go back to the HIP business in Q4 and break down the beat versus what you announced back in mid-December of roughly $90 million?

Yes. So David, thank you very much for the question. And as you could see, when we compare the result in PEM quarter-over-quarter, we did identify specifically, some annuitization of some pension benefits. You can see that we also shuttered some of these assets in the fourth quarter. And so the 3 chlorovinyl plants had actually been down during the entire fourth quarter. So the losses that we saw accruing during that period no longer were accruing.

So when I think about this, we had a volume reduction of only about 2% and a price reduction really in PVC and in polyethylene. So the beat was really attributable to beginning to take the proactive steps in our 3-pillar initiatives by removing the losses that we saw accruing from those sales in that low price market and begin to take some of those cost reduction initiatives at the tail end of 2025.

Very clear. And just on polyethylene in February. What are your expectations around your announced price increases and potential realization?

Well, as we think about 2026, we have seen some improvement in demand and some improvement in price action. But remember, we also had some adjustments at the end of the year of 2025. And so the announced increase in polyethylene price that we saw in January of about $0.05 really begins to offset some of the nonmarket adjustment, which is a market adjustment at the end of last year. And we've made further announcements in price actions for February. We'll see how February plays through, but we have another price announcement also on the table for February.

Our next question comes from Patrick Cunningham of Citi.

I'm curious on your outlook for chlorovinyl and PVC chain in 2026. It seems maybe cautiously optimistic with some demand pull through into the HIP business, but still dealing with some structural supply issues. So how would you frame the supply and demand outlook and sort of direction from price and margin in 2026?

Well, I think, Patrick, as you look at the price action that we've seen so far is indicative of some restocking that's going on. I would say that we remain cautiously optimistic. We've seen some, as I mentioned, some price action in PVC risk, and we've seen some improvement in price, but we're still not fully recovered from the end of the year price adjustments that we saw in PVC. So we've seen an announcement also in February. And we've also noticed that inventory, as I say, a restocking by some of our customers.

But I'd say we're still very cautious in terms of how we look out through the year because I don't have that long-term availability and visibility. I can only see out several months. But I think the early signs that we see in pricing initiatives in PVC and in caustic signal that we see some improvement in restocking, but it's hard to know whether this will play through the entire quarter, and for that matter, the entire year.

We've also seen -- I'd also note that with the actions that we've seen in terms of an export market, export market prices have started to trend higher. And I think attributable to some of the reduction of duty drawback that certain markets like China are providing, it's going to effect in April, but the actions taken already suggest that prices have moved up in export market pricing.

Understood. Very helpful. And then maybe just some clarification on the HIP guidance. I'm assuming that includes 3 quarters of ACI. You have a slightly lower margin guide. Is the bulk of that coming from the dilutive margin impact there? Or are there any other mix impacts we should be monitoring?

No, it's really not an impact of ACI, and we closed that in January. And so I do expect that it will be a contributor all year long. But I would say, Patrick, it's really looking at the numbers that we've guided to 1.3 million to 1.4 million starts in '26, similar to '25. And just recognizing that as we work through the starts numbers this year, that product mix can have an impact in the overall margin that we see in the HIP business, but we still remain to say cautiously optimistic about the contributions that HIP will make this year in '26.

One moment for our next question. Our next question comes from Duffy Fischer of Goldman Sachs.

First question, just on the $600 million of cost help this year. How does that play through the year? If you could kind of walk quarter-by-quarter, how do we add up to that $600 million for the year?

Yes. Good question, Duffy. And I would say that as we've taken the actions in '25, some of the savings that we achieved in '25 were attributable to the actions that we took in '25. And those will continue to play through for the year through 2026. And so those actions that we've taken cover things such as logistics, procurement and a variety of other initiatives to really drive reductions in costs, which we think will be structural in nature.

So we think that as we think about the ratable benefit that we expect to see, we do expect to see that ratable benefit of cost reductions to play through the year. Of course, we've shuttered those assets at the end of the year for that second pillar. And so certainly, those operations are down, no longer exposed as heavily we were to that low-priced export market. So I do expect those also to be coming through the course of 2026.

The third pillar is reliability. And of course, we have to earn that each and every day. But we're very confident we've made significant investments in our plants, significant training of our people. '24 and '25 were years of very elevated levels of planned turnarounds. And therefore, associated with some of those planned turnarounds were the unplanned outages as we brought those plants up or attempted to. 2026 will be a year with far fewer planned turnarounds. So we do have a high expectation that we'll be able to deliver on that third pillar of reliability.

Fair enough. And then at the midpoint of your HIP guidance, you're basically $60 million better on EBITDA than you were last year. Again, how does that portend for kind of each quarter? Are there still some quarters where you may be down year-over-year, even if you hit the midpoint? Or maybe first half, second half, just to kind of help us get the shape for the HIP earnings this year?

Yes. And Duffy, good question. The fourth quarter and the first quarter of each year tend to be weaker quarters just seasonally. I mean, those who are in the Midwest or Northeast have seen the heavy snowfall in the winter season play through. And so as we think about it, it slows down demand and the construction activities. So the fourth quarter and the first quarter of each year tend to be a slower period of activity.

But nevertheless, quarter 2 and quarter 3 tend to be much stronger. So that same cycle that we see play through in '25 should be similar in terms of the shape of the curve if you think about it in 2026. So we do expect, again, a cautiously optimistic outlook for HIP, and the guidance we have for starts is similar to those in 2025.

Our next question comes from Josh Spector of UBS.

I wanted to just ask on HIP, where you guys continue to talk about, I think relatively strong growth in the infrastructure segment around pipe and fittings. But the infrastructure subsegment sales are actually down more than the Housing Products segment, both year-on-year and sequentially. So does that mean that the composites business is down much more? Or what am I missing between that more positive commentary in the segment results?

Yes. Good question. And the answer is that a lot of that municipal pipe actually goes into neighborhoods and subdivisions, which actually are not in that subsegment. And so there are sales, not only the cities and counties and states, but also into major developers who may be developing those neighborhoods and those subdivisions with infrastructure pipe and fittings. And so it's really a mix between those 2 subsegments within the HIP segment. We are seeing really continued strong growth in the volume in that side of the business. And so when I think and speak to municipal pipe, it isn't always necessarily in the infrastructure subsegment because some of that is in the housing subsegment related to nationwide builders who are building out infrastructure in their neighborhoods and subdivisions.

Okay. No, that's helpful. And maybe actually, a similar point to what Duffy was asking. If I look at the cost savings, is any of that being attributed to HIP? So if EBITDA is up $60 million at the midpoint, you're doing an acquisition, is the organic up? Is there cost savings? Is there something else we're missing in the moving parts there?

Yes. As we think about the pillar that we talked about of cost reduction, yes, the HIP side of the business does have a meaningful contribution in that cost savings initiative. And so as we look forward, they and all the other functions are also contributing. So there's a meaningful contribution in that pillar that HIP is making. So I do expect them to continue to make those contributions in '26.

Our next question comes from Frank Mitsch of Fermium Research LLC.

And let me echo Jean-Marc's appreciation for your job, Steve. It's been a pleasure working with you. Of course, we'll work with you, I guess, in another 1 or 2 calls. Steve, in 2025, Westlake registered negative free cash flow. I was wondering what your expectations are in terms of free cash flow for 2026?

Good question, Frank. And our objective really is to generate strong results to drive strong cash flows. But as you can see, a lot of the self-help that we have with these 3 pillars is really focused, and the predominance really is on the PEM side of the business. And you can see that our capital expenditure plan for 2026 is also $100 million lower than we had in 2025. So our real focus is really to drive free cash flow for the entire business as we go forward. And so while we have no real visibility beyond the next several months, from our order book, I would say our real objective really is to drive real cost savings, improvement in reliability and really make this business really a cash flow positive generating business. But as you know, we don't give necessarily direct guidance on a lot of those metrics, but that is clearly our objective.

Okay. Terrific. And I was wondering if you guys could opine on the news the other day. Following the Supreme Court decision on tariffs, the administration came out and said it was looking at putting emergency tariffs on several items, including plastic pipes. So I'm curious if you could offer some comments there as to the necessity there and what expectations you might have in terms of tariff benefits, et cetera?

Yes, Frank, good question again. And I would say that our materials are all subject to the USMCA rules, guidelines. And so therefore, the impact to tariffs has really been de minimis, but really immaterial.

Okay. Great. But the fact that they called out plastic pipes among, I think, 6 or 7 items, is there something going on there where the domestic plastic pipe industry needs tariff protection?

Frank, I would say that what we've seen is all throughout the course of 2025 and frankly, in the previous administration, that the current administration has really used the USMCA treaty as a way to make sure that those items that were embodied in that treaty are not hit with additional tariffs. So that is our expectation.

Our next question is from John Roberts of Mizuho.

And thanks as well, Steve. And also welcome Bob Patel to the Board. OxyChem is a large competitor. Do you see any changes in how they compete after the change in ownership a couple of months ago?

We have not at this stage.

Okay. And then your competitor cited weakness in domestic merchant chlorine. Did you see that weakness as well? And what's the near-term outlook for domestic merchant chlorine?

Yes. As you know, we're a much smaller producer of domestic chlorine now with some of the actions that we've taken in December. But as we think about it, our view is that the weakness in chlorine is driven -- excuse me. The weakness in chlorine we've seen is really attributable to some of the weakness that we've seen really in some of the vinyl side of the business.

And of course, in the first quarter and the fourth quarter of the year, we also have a reduction in demand for water treatment and some of the precursors going in refrigerants. And so all of those speak to kind of the lesser pull on chlorine, whether it is construction materials, water treatment or precursors to refrigerants. And so it doesn't surprise that there is a slowdown in demand in fourth quarter and first quarter for those kind of materials.

Our next question comes from Jeff Zekauskas of JPMorgan.

You talked about $600 million in benefits from plant reliability, cost reduction and footprint changes. But I was wondering, what's the EBITDA base that these benefits should come from? So last year, your EBITDA was [ 11.40 ]. Should a rational agent add $600 million to the [ 11.40 ] and get, I don't know, [ 17.40 ]? Or because business deteriorated through the course of 2025, the EBITDA base is lower than the $600 million in cost should be added to? Could you give us an idea of how to put the 2 numbers together?

Yes. And so Jeff, as you think about it, the actions that we've taken in December impacted 4 of the North American plants. And frankly, the full shuttering of the Pernis facility wasn't completed until really very tail end of 2025. And so when you think about the contributions of that first pillar of site optimization, we really get that full benefit starting in 2026.

In terms of the cost initiatives, yes, we achieved $170 million of cost reductions that were structural in nature, but the guidance we've continued to provide for 2026 is an additional $200 million on top of those achieved in 2025. And of course, the reliability issues, as I mentioned earlier, again, '25 was an incredibly busy year of planned outages and a number of unplanned outages around those outages as well. And given that our plan for 2026 is far fewer planned turnaround activity and maintenance activities, I do expect that we'll see those benefits accrue in this year as well. So back to your question, I think that you could think of a starting point when we took those actions at the plants as a way to build that math.

Okay. And when you think about your opportunities in PVC volume in 2026, do you think you'll grow more in the export market or more in the domestic market? Do you think the growth rates will be comparable? How do you assess the volume opportunities in PVC for 2026?

And so Jeff, when you think about the vinyl demand that we see, it's really going into largely building products of one sort or the other, whether it is in pipe, fitting, siding, trim and other applications. That's more than 50 -- closer to 65% of the overall vinyl resin demand. And so as you can see, our outlook for HIP is reflective really of a year of construction activities similar to 2025.

We've seen a really thin level of inventories being carried by our customers all throughout '25 because prices continue to trend lower. And the restocking that we've seen in the first part of this year is reflective of some of the demand pull that we've seen and the rebuilding of those inventories. We've been able to nominate prices in vinyl. So as we look forward, we are, again, cautiously optimistic as we see the demand pull on PVC resin going into construction materials and some of the other compounded materials that we sell through our compounds businesses.

Can you comment on the opportunities in PEM in PVC?

Yes. In PEM, again, we're selling a significant portion of our resin into our own HIP segment. And certainly, I think given our lower cost structure that we've achieved through these rationalization actions that we've taken in the plants through our cost reductions, we think we have a much better cost structure and certainly be looking to initiate sales initiatives with many of those customers going forward domestically. Given the fact that we've pulled back from exports through those actions that we took in December, I do expect our exposure to export volumes will be greatly diminished.

Our next question comes from Hassan Ahmed of Alembic Global Advisors.

Steve, I know a bit premature, but great working with you over the years and wishing you all the best for your retirement. Quick question around -- I know a lot was discussed around HIP segment's EBITDA guidance, but just wanted to switch over to the sales guidance. I know you guys are talking about a return to sort of more normalized longer-term sort of sales growth in '26 of 5% to 7% even though, if I heard you correctly, you're assuming similar housing starts in '26 to '25. But sort of flipping through the presentation, it seems a chunk of that growth you're expecting coming from the ACI acquisition as well as product innovations. So I'm just trying to understand the significance of both those innovations as well as the ACI contribution to that growth?

Yes. I do expect that ACI will be a very nice contributor. It brings a broader portfolio offering, rather than just adding to our existing PVC portfolio that we had. It brings an expanded portfolio in silicon and cross-linked polyethylene. It will be a nice contributor.

But I would also say the innovations that we've seen in products such as our PVCO plant, which we'll be starting up at the end of this year, such as other product innovations in our Westlake Royal exterior businesses, we think will continue to be a nice driver in not only the revenue growth, but also margin growth. So this product innovation is certainly a huge element within the HIP side of the business, and it continues to have us be selected as supplier of choice by many of the nationwide builders. So that innovation remains very much key and central to the growth as we see in HIP. So that the long-term guidance that you highlighted is very much as we see it still on track.

Understood. Very helpful. And as a follow-up, I know you guys have been busy sort of optimizing the footprint and the like. And obviously, $200 million of incremental EBITDA coming from that. But if we step back a second and you guys take a look at the broader portfolio, I mean, obviously, you're getting deeper and deeper into building products. And as you take a look at the ethylene, polyethylene side, it seems fairly oversupplied. If rationalization doesn't happen, it will remain that way for a while. So I'm just trying to understand, from a portfolio perspective, do you guys still see a role for that part of the portfolio? Or would you potentially consider divesting that at some stage?

Well, again, our focus, as you know as well, is to really be focused on value creation. And so as I think about opportunity sets in both the PEM side and the HIP side, the answer is where we see really the strength really continuing to play through and the fact that we've continued to underbuild in North America, we think that the opportunities to deploy capital on the HIP side of the business probably have the nearest term return potential.

But that does not mean that we would not invest in a valued opportunity on the PEM side of the business. It really is just where is the best investment opportunity for that dollar, be it in HIP or in PEM. So our focus remains very much value-oriented and driving really long-term value creation. And if that takes us into PEM or into HIP and we see that opportunity, that's where the funds will be deployed. But given where we are in the various business cycles, I would say the predominance of the opportunities near term would probably be in HIP. That doesn't mean there couldn't be some opportunities on the PEM side. In other words, we continue to watch both.

Our next question comes from Aleksey Yefremov of KeyBanc Capital Markets.

This is Ryan on for Aleksey. I just wanted to ask the first question. In the deck, you mentioned competitive market pressures in pipe and fittings. So I was just curious if maybe you could provide some more color there? And how much was pricing down for pipe and fittings versus the broader HIP segment with flat pricing year-on-year?

Yes. And so as we think about the pipes and fittings business, it remains really a very good business. But certainly, with some of the slowdown in construction activity, we continue to make inroads from a volume perspective. But naturally with some of the pressures on affordability and some of the slowdown in construction activity, there is going to have to be some pressure on pricing. But we do believe that we're at a point where we are -- our product innovation -- and I've mentioned PVCO earlier. Our product innovation, we think, allows us to really continue to penetrate that market with innovative products, which bring really solid margins to the business. And so while there's always the ebb and flow in each region across the country in terms of volume and pricing, so it's hard to give you a direct pricing number because it varies by region across the country.

I would say that the innovative products that we're bringing forth specifically in our pipes and fittings business continue to drive really long-term good value there. And I just want to remind you that we're really the only player in the U.S. markets that provides both the integrated solution of fittings and pipe, and I would add, engineering. So we're able to sit down with a customer and say we can engineer the project for you, we can deliver the pipe and deliver the fitting. So there is a integrated value of providing the service as well as the products to provide an integrated solution to a customer. And I would say that we continue to see real good innovation in that business, and I expect to see future PVCO plans continuing to be built and grow that market space.

Okay. I appreciate the comprehensive answer there, Steve. And just the last one for me. Maybe can you just give us your thoughts on caustic soda? How do you kind of feel about market balance and pricing over the next couple of months?

Caustic is a market that we've seen -- begin to see some price traction. We've announced pricing initiatives of $75 a ton back in December and have had a second price announcement of $65 a ton that was announced just last month. And so we are seeing some ability to get traction on those price announcements. And so when you think of our 2 announcements, it totaled $140 a ton. We do expect that we'll achieve some of that. And that is really coming from some of the industrial and manufacturing demand that we see at the very tail end of the year and early this year so far.

Our next question comes from Matthew DeYoe of Bank of America.

Steve, I guess just a follow-up on that. And you mentioned earlier, you were seeing some signs of industrial recovery. Like, is Westlake seeing something specifically in its order books? Or is this kind of just like the read on PMIs?

Well, it's both. When you think about the PMI, it certainly is a positive signal. We'd like to see more of those positive signals play through. But I would also say that the volumes that we're seeing in some of the infrastructure business that we mentioned earlier continue to be constructive as we go forward.

It's still early in the first quarter. As I mentioned, the first quarter is typically a slower demand period. So we're wanting to take a look and see how does the rest of the year play through. So it's -- as I say, we're cautiously optimistic, but there is a constructive view here as we look forward into 2026.

Okay. And just to kind of follow up on Dave's question a bit. And I don't know, maybe it's [ on ], but we were locked down -- or the Street was locked down in the 4Q on account of the unabsorbed [ fit ] costs from the assets that were eventually closed. Clearly, we saw a lot of those charges hit GAAP income. So is the outperformance on an adjusted basis just like saving money faster once the assets were closed? Or is it just some creative adjusting on the unabsorbed fixed costs? And...

No, actually -- I was just going to answer the first part of your question. And I would say what you're really seeing is the impact of being able to be really taking the actions that we announced in December and really taking steps to really reduce our cost and shut our assets that were not creating real value. So that's really what you begin to see play through in fourth quarter. And we -- as we think about our 3-pillar strategy, this is why we have the confidence that we can deliver on that 3-pillared strategy. Sorry, did you have a -- rest of your question?

Yes, I was just going to say, is it fair to say now that if you're seeing this faster in 4Q when we have a big beat here, does that mean like the tailwind for 2026 is less than $600 million, all else equal, because now you're going to be comping some good savings in 4Q?

Well, no, I think the guidance that we provided was achieved that $600 million in those 3 pillars throughout 2026. And so as you see that we took actions in '25 related to cost related to optimizing our footprint. And I think we're still very comfortable that, that $600 million is going to get fully contributed over the course of the year.

Our next question comes from Arun Viswanathan of RBC Capital Markets.

I'll echo all the other comments, Steve. Great working with you over the last several years. I think good luck in your retirement, and we'll be speaking again soon, obviously. But just wanted to follow up on that same line of questioning here. So if we take your HIP guidance, that implies around $900 million of EBITDA at the midpoint, if you say, 20% margins on $4.5 billion of sales. And then your PEM guidance can be interpreted to be the $267 million that you did in '25, plus maybe $600 million of increase. So that would be $1.75 billion, maybe at the midpoint. What would you call out as decrements to that or maybe other positive drivers? Are we missing anything else? Or are those the most important components?

As Jean-Marc noted, the $600 million is a gross number. So there will be some cost to achieve some of those initiatives that we've outlined here. But as we think -- and again, setting the market conditions aside, because now this is factoring in the market conditions. So all of this is just really focused on the self-help initiatives of these 3 pillars.

And so as we look forward into 2026, certainly, we'll take the market conditions as they come. But certainly, we'll be very focused on delivering these actions that we've outlined here on this 3-pillared strategy. There will be some cost to achieve that $600 million savings initiatives in each 1 of those 3 pillars. But we think that we've got a good effort underway in those 3 pillars. We recognize for reliability. We have to earn that each and every day. But the actions to rationalize the footprint that we've already taken and initiatives to negotiate reduced cost, and we'll be focused on that all throughout the rest of the year. As you would imagine, we're not just going to rest on those actions that we've taken in 2025. We'll continue to look for other opportunities to reduce our cost throughout the rest of this year, above and beyond those that we've outlined already.

Okay. And understanding you just completed an acquisition here. What else needs to be done, I guess, from your portfolio standpoint, would you be looking to integrate further downstream in building products, continue to grow out that business? Or do you feel like your position now is quite set? What else are you guys kind of looking at from an M&A standpoint?

Well -- and thank you for the question. I would say that starting with the HIP side of the business, certainly improving the portfolio depth and breadth is certainly a focus that we always have. ACI is a good example of adding both a geographical position as well as product breadth. As we think about the other components of our HIP business to add further depth and breadth is certainly something that we've talked about. And I mentioned innovation is a huge piece of our focus. That can come from both organic or inorganic growth opportunities.

On the PEM side, we certainly continue to look for ways where we can improve our positioning. So as we think about on the PEM side, there's still opportunities to further integrate the business and improve the logistics are related to those businesses that improve the overall profitability by cost reductions. So there are all kinds of efforts, both on the HIP side as well as on the PEM side to improve the integrated model that we have integrated not only from a product set, but also from a managing cost set perspective. So it's really focused on both sides of the business to be able to integrate and run the business smoothly and effectively and cost effectively.

Our next question comes from Peter Osterland of Truist Securities.

I just wanted to start by following up on the profitability improvement plan. Just from the actions you've already announced and that are embedded in that $600 million of improvement this year, is there some amount that you would expect to be realized on a year-over-year basis in '27? And could you size that?

Yes. And so as you think about the initiatives that we've taken in '25 of $170 million, those were structural in nature, those in 2026 of an additional $200 million. So we do expect, since these are structural benefits, to continue to have that carry through into '27.

As I mentioned earlier in my comments, we're continuing to look for areas where we can continue to find ways to reduce our cost. These can be in the manufacturing areas, support area, logistics and procurement. So as we think about those, we'll continue to then enunciate those as we go forward over the course of 2026. But those changes that we've already announced, '25 and '26, are structural in nature, and I expect them to carry forward into future years.

Okay. Great. And then just on cash flow. Do you expect free cash flow to be positive in 2026? And I guess what are some of the major drivers aside from earnings growth to be aware of? Could you highlight your working capital expectations or any nonrecurring cash costs associated with asset closures this year?

Yes. And so as -- if we -- as we think about 2026, working capital is always an issue that we need to kind of keep our eye on. As we think about some of the price initiatives, that can certainly have an impact on working capital. So as we think about the overall cash generation of the business, as I say, as we think about that, looking at our CapEx program, our guidance for 2026 is $900 million. And so as we think about working capital and CapEx, we'll want to keep those a close eye on. Because, as I mentioned to one of the other callers earlier, we clearly recognize that generating free cash flow is critically important to our stakeholders, and that is always a strong objective as we go through any year, including this year. That will be our objective. That will be our big focus.

Our next question comes from Matthew Blair of TPH.

Steve, congrats on your retirement. It's been great working with you over the years here. I want to circle back on -- I want to circle back to your comments on the removal of the VAT rebate in China, which I think is scheduled for April 1. I think China's PVC exports are nearly 10% of the global PVC market. And do you think that PVC is roughly breakeven in China, the rebate is 13%. It seems like this could be a pretty meaningful impact on the market, meaningfully reduced volumes, export volumes coming out of China. Does that all make sense to you, do you agree with that? And is there anything else that you would add there?

Yes, it's a good question. And I was just looking at some statistics this morning. China represents about 15 or so percent of global PVC capacity. And similar in caustic capacity, but they're not exporting that much. Not the 15% that I just mentioned, they're exporting much less than that as a percentage of their total domestic production.

But the focus that they've initiated on removing effective April 1, that VAT drawback or that duty drawback is about a 13% impact in overall pricing. We've actually seen the benefits of that announcement play through in export pricing already. It's targeted in PVC. And so we've already seen export prices in PVC begin to rise because of the expectation that, that duty drawback will not be available to them going forward. And so I think it's an indication by the authorities there in China that they really need to find actions to rationalize some of those exports that are being disruptive to the market, both internationally but also domestically.

Great. And then the incremental $200 million of cost reductions in 2026, I just want to clarify here, does that all stem from the asset closures that you already did in the fourth quarter of 2025? Or will there be incremental cost reduction efforts as you progress through 2026?

Yes. These are incremental above and beyond the actions taken in December or earlier in the year in '25. So I think about these, these include initiatives in the manufacturing arena, initiatives in logistics, procurement, domestically as well as internationally, that add up to well over 50% of the $200 million that we've talked about in cost reduction initiatives. So these are not solely only tied to those initiatives and footprint optimization.

Our next question comes from Vincent Andrews of Morgan Stanley.

Congrats, Steve. This is Turner on for Vincent. So since last year, consultants have been calling for a pretty significant chlorine price declines this year, which I understand is driven largely by vinyl's weakness. Has the situation evolved this year, perhaps due to, I don't know, the VAT export rebate elimination or perhaps something else on demand or orders? And could you provide color on how you see chlor-alkali and vinyls earnings trending this year?

Yes, it's a good question. And I would say that, as I mentioned earlier, given the demand pull that we're seeing in PVC going into construction activity, we see a similar year in '26 to 2025. So the construction activity we see as being similar. So the demand pull, I think there -- I would say though that given the indications we've seen in industrial and manufacturing demand for caustic, we've actually seen those numbers tick up. And that tick up in demand has driven them to reinventory, and that reinventory position has caused us to recognize that pricing has just gotten too low in caustic soda.

So as you could see, and I mentioned earlier, we've initiated 2 price initiatives at $75 a ton that we initiated in late December, and then another in January of $65 a ton, so a total of $140 a ton. And so while I can see the consultants are speaking to caustic price increases, we do think we'll get some traction on that.

On the chlorine front, I would say that, again, we'll have to see how the year plays through from a vinyl demand. As we sit through fourth quarter and first quarter, as I mentioned earlier in my commentary that fourth quarter and first quarter tend to be weaker demand periods for chlorine, simply because of the slower construction season pulling less on chlorine, lesser demand in the precursors for refrigerants, and frankly, lesser water treatment demand. So no surprise that we'd see some slowdown in pricing slowdown in demand in chlorine.

But a lot is uncertain. As we look forward into the year, it's -- I just don't have the visibility -- I wish I had -- for the midyear or the tail end of 2026, our visibility really is more limited than that. So I would say that as we look forward, we actually are fairly -- we see again, some bright spots in pricing in caustic, bright spots, pricing in PVC. But I don't want to then extrapolate that until we see more of how 2026 will play through.

That makes a lot of sense. So skipping over to the HIP segment. Can you talk about some of the swing factors that could take us to the low end versus the high end of the 19% to 21% EBITDA margin guide? And any color on related drivers such as price, mix or synergies?

Yes, I'd say it's really going to be a function primarily in mix. We certainly have seen a lot of discussion on affordability over the course of the last several years. And so to address affordability and be the producer of choice by many of the nationwide homebuilders, we have a good, better, best range of products, and each one of those range of products have a different margin associated with them. But it's important that, nevertheless, we're picked because of the quality and the ability to deliver those products. And we have that range of products. And so being able to have that volume is very important, but a big swing could be simply product mix over the course of the year.

Our next question comes from [ Abigail Ebert ] of Wells Fargo.

So looking at PEM, I'm curious about your expectations for the cost side. If you look at what the consultants have, obviously, polyethylene pricing is looking to be higher on a more or less apples-to-apples basis in 2026. But on the flip side, integrated margins are looking like they might be down up to double digits. Is that around in line what you're looking for? And also for your February price increase, are you around $0.05 in line with your peers?

So certainly, as you know, well, we're also a buyer of ethylene, and that ethylene goes into our production of PVC. And so we have seen elevated pricing in ethylene. Ethane has been pretty volatile over the last several months. Run up in natural gas, and ethane has followed the run up. And also some pullback in pricing, but ethylene has remained pretty elevated.

From a pricing perspective in polyethylene, we did see a recognition of $0.05 in January. But remember, in December, we also saw some price adjustments in the non-price -- in the adjusted December...

Reset.

Reset. Thank you. We do have an announced increase in February of $0.05. We'll see how the market plays through over the course of February and into March. But we have announced an additional increase in February.

Our last question comes from Kevin McCarthy of Vertical Research Partners.

Steve, it's been a real pleasure over the last 21 years. I wish you all the best. Most of my questions have been asked and answered, but maybe a couple to probe here. First, I wanted to ask you about asset utilization. If I look at Slide 4, your $200 million of savings from footprint optimization, I think, was crafted before we saw the PMI and the incremental goodness in your order book.

So I guess my question would be, if I look at it on an apples-to-apples basis, do you think what you're seeing now would support a contention that you would see an uplift in utilization, let's say, in chlorovinyls and polyolefins, irrespective of your rationalizations that could help earnings more than the $200 million would suggest?

Yes. Yes. I will take the asset utilization has been a little bit uneven across the business last year. After the big turnaround in ethylene, polyethylene chain, we saw really good performance in the second half of the year. So -- and with no turnaround in 2026 and maybe one in 2027 for LACC, we are expecting that our olefin business will continue to run at very high utilization rate. Last year, most of the issues were on the chlorovinyl side. Now the combination of better operating performance. And the shutdown of assets, I think, will lead to a significant improvement into operating rates. And operating rates were -- that we think will be conducive together with all the cost savings to much better results in 2026.

Okay. And then, Steve, maybe a small question for you on the tax line. I think you guided to a 17% rate for 2026, which was a little bit lower than we might have guessed. Has your tax rate come down on a structural basis? And if so, what is driving that?

Yes, Kevin, question -- good question. And the answer is because of our operating performance in 2025, I have some net operating losses that I'm able to utilize in 2026. So what you see in my effective tax rate of 17% is really overseas -- taxes overseas, international tax rates. And I'm actually trying to utilize those NOLs generated in '25 and '26.

Thank you. At this time, the Q&A session has ended. I would like to turn it over to Jeff Holy for closing remarks.

Thank you. Thanks, everyone, for participating in today's call. We hope you'll join us again for our next conference call to discuss our first quarter 2026 results.

Thank you for your participation in today's Westlake Corporation Fourth Quarter and Full Year Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation PEM Profitability Improvement Plan Update Conference Call. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference is being recorded today, December 15, 2025. I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

Thank you, Daniel. Good morning, everyone, and welcome to the Westlake Corporation conference call to provide an update on our PEM Profitability Improvement Plan.

I'm joined today by Jean-Marc Gilson, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During this call, we will refer to our 2 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 Jean-Marc, who will open with a few comments regarding today's announcement. Steve will then provide a summary of some of the key financial and operating impacts of today's announcement, in addition to an update on our financial performance during the fourth quarter, after which Jean-Marc will add a few concluding comments, and we will open this call up to questions.

Today, management is going to discuss certain topics that will contain forward-looking information that is 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 10-K 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 discussing additional footprint optimization actions that we are undertaking as part of our broader PEM Profitability Improvement Plan. This document is available in the Press Release section of our website at westlake.com. We have also included a slide presentation that we will refer to on this call in the Investor Relations section on our website.

Now I'd like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss some significant actions that we are taking today, to further Westlake's Profitability Improvement Plan with additional steps we are taking in PEM. Turning to Slide 2 of the presentation.

Before I discuss the specifics of today's announcement, let me provide some context for the evolution of profitability in our PEM segment. PEMs earnings and margins have declined to unacceptable levels as a result of global overcapacity in certain materials, primarily the chlorovinyls chain and styrene. The overcapacity in the global markets created downward pressure on the sales price for our exports, leading to unprofitable conditions at some of our higher cost manufacturing sites.

As a result of these challenging macroeconomic conditions, we are taking actions to close higher cost North American Chlorovinyls and Styrene assets that sold into low-priced export markets. We expect these actions to provide an annual EBITDA benefit for PEM of approximately $100 million starting in 2026, by reducing our exposure to the low-priced export market. Avoidance of capital spending and turnaround costs are expected to generate an additional $75 million of cash savings in 2026, resulting in free cash flow savings of approximately $175 million in 2026. Following these optimization actions, we will be better positioned to serve our valued customers as a leading global chlorovinyl producer.

Now let me turn the call over to Steve to provide more detail on today's announcement, including the key financial and operating impacts in addition to an update on our financial performance during the fourth quarter. Steve?

Thank you, Jean-Marc, and good morning, everyone. Turning to Slide 3. As we outlined in our press release this morning, following an extensive analysis of each of our PEM sites, we have determined that the following plants are no longer globally competitive.

Our VCM plant in Lake Charles North site, one of our chlor-alkali plants in our Lake Charles South site, our Aberdeen, Mississippi PVC facility and our Styrene plant in Lake Charles, all of which serve the export markets. The combined impact of capital costs, logistics costs, packaging, shipping and other costs serve the challenged export markets, did not support the continued operation of these plants. As a result, we have made the necessary decision to cease operations by the end of 2025 at these 3 Chlorovinyls plants as well as our Styrene plant as part of our Profitability Improvement Plan. The plant closures that we are announcing today will reduce our global chlorovinyls capacity by between 11% and 15%, depending on the specific product.

Turning to Slide 4. We expect to incur total pretax charges of approximately $415 million related to the closure of these facilities. This consists of a noncash accelerated depreciation, amortization and asset write-off charges of approximately $357 million, employee severance and separation costs of approximately $25 million and other plant shutdown charges of approximately $33 million. We expect to recognize the noncash accelerated depreciation, amortization and asset write-off charges and other plant shutdown charges and a substantial portion of the employee severance and separation cost in the fourth quarter of 2025, and the majority of the remaining severance and separation costs in the first half of 2026.

As a result of the significant fixed cost reduction and reduced export market exposure, we expect that these manufacturing footprint optimization efforts to result in an annual EBITDA improvement of approximately $100 million beginning in 2026 with a further benefit of $75 million from lower capital spending and turnaround cost, thereby generating free cash flow savings of approximately $175 million in 2026, resulting in less than a 1-year payback on the $58 million of cash cost related to execute this plan. When combined with the previous announced $100 million of EBITDA improvement from closing Pernis, we now expect the manufacturing footprint optimization pillar to contribute a total of $200 million of EBITDA uplift in 2026. As a result, each of the three pillars in our Profitability Improvement Plan is now expected to contribute approximately $200 million of EBITDA, totaling $600 million benefit starting in 2026.

Now let me provide you with an update of our outlook for the fourth quarter. Global macroeconomic conditions have remained challenging in the fourth quarter of 2025. In PEM, continued weak global industrial and manufacturing demand has created further downward pressure on our sales prices and margins in the quarter, while at the same time, sales volumes have been negatively impacted by seasonal customer inventory de-stocking. As a result, we expect PEM's fourth quarter EBITDA to be between $125 million and $150 million lower than the third quarter of 2025, excluding any identified items, including charges related to today's announced actions.

Shifting to HIP. Solid demand for water infrastructure, supported by the Infrastructure Act and our broad residential construction, repair and remodeling product offering, combined with our coast-to-coast reach is supporting our business in these market conditions. As a result, we continue to expect HIP's 2025 revenue and EBITDA margin to be at the low end of our previously provided range of $4.2 billion to $4.4 billion and 20% to 22%.

Finally, after completing our $1.2 billion debt offering and partial tender of our 2026 notes last month, we now expect our 2025 cash interest expense to be $175 million. Now I'll turn the call over to Jean-Marc to provide some concluding remarks. Jean-Marc?

Thank you, Steve. Decisions to shut plants are never taken lightly. However, after an extensive analysis, we concluded that these actions were necessary for PEM to be placed on a path to meaningfully improve EBITDA and produce an appropriate return on investment. I want to thank our employees who will be impacted by this decision for their dedication and service to the company as we work to assist them during this transition.

Looking ahead, we believe that our North American Chlorovinyl business will emerge leaner with better utilized assets and an improved cost structure to compete in the global marketplace. Following these optimization actions, we will be better positioned to serve our valued customers as a leading global chlorovinyl producer. We are focused on delivering on each of these three pillars, which combined have the potential to improve Westlake's EBITDA by $600 million. Thank you very much for listening to our update call. I will now turn the call back over to Jeff.

Thank you, Jean-Marc. Before we begin taking questions, I would like to remind listeners that the slide presentation that management referenced, is available on our website, and a replay of this teleconference will be available 2 hours, after the call has ended. We would like to ask that you limit your questions to the actions we have announced today on today's call and our PEM Profitability Improvement Plan. Daniel, we will now take questions.

[Operator Instructions] Our first question comes from Patrick Cunningham with Citi.

I guess, first on the chlorine and caustic capacity. Why take out capacity here when ECU margins are positive, caustic values holding up relatively well?

So Patrick, as we think about the integrated chain that is serving the export market, we see that market as being quite margin-wise challenged. And so we felt like it was important because these are higher cost sites that we're removing from operations, and they are serving that export market. We felt this makes sense because the export market margin is quite challenged, and these are higher cost assets.

Understood. And then maybe just on Aberdeen, where did that sit in terms of the cost curve? And how should we think about closure impacts on operating rates next year, domestic balances and potentially providing a backstop to margins?

So Patrick, from -- when you think of our cost curve, it sat high on the cost curve because this asset was challenged with logistics costs as we move material to that site to manufacture PVC, and that was all focused on the export market.

And so as we think about the ability to shutter these assets, we think that will position Westlake in a much better position with much lower cost for our integrated chains across the chlorovinyl space. And we think that, frankly, it will have -- it will give us the ability to operate at much better cost position as a result going forward.

Our next question comes from Arun Viswanathan with RBC Capital Markets.

So I guess just on the -- your last comment about the cost difference. Maybe you can just kind of frame how these plants compare to Geismar and Plaquemines and Lake Charles. Maybe what kind of improvement should we expect? I know that you've called out the $100 million EBITDA, but is that margin?

And then if you do kind of do see some kind of volume improvement in the next year or 2, do you plan on servicing that volume increase from your now-future footprint? Or would you have to kind of do some de-bottlenecking? Or how do you kind of address that as well?

Yes. Thank you, Arun, for the question. And the answer is we think our assets that are not impacted by the site have a much better cost position. They're much more highly integrated and don't have the burden, the transportation, logistics and other cost burdens that these sites that are impacted today do have. And we think that as we look forward into '26 and beyond, we think we'll be able to serve our customers very well with a much lower cost position, as we march forward and improve the overall operating rates at a much lower cost because these sites that are not impacted by this optimization footprint, do have much lower cost both not only operating costs, but shipping and logistics costs as well.

And just as a follow-up, could you potentially frame -- I know it's 11% to 15% of your capacity. It looks like it's maybe a couple of percentage points of North America total. And so do you think that would be sufficient to potentially tighten up the market within PVC, caustic and chlorine to continue some price momentum in caustic and maybe drive some price momentum and margin improvement in the other 2 in PVC and Chlorine? I mean what's your kind of outlook on the potential positive impact on pricing and profitability from these actions?

Yes. Our focus here was addressing really our cost position that we have in the marketplace and our ability to service the export market in a cost-effective fashion. So our focus really was not so much on the supply side, so much as it was being able to run our businesses at a cost-effective manner to service the customers that we have. That export market was quite challenged and especially with these assets, which were higher on the cost curve.

Certainly, we'll see how the market performs in the coming years, '26 and beyond. It will have an impact, of course, as you noted, in the supply side between 11% and 15%, depending on the product we're speaking to, as we shutter our global capacity for these three chlorovinyls sites. But our real focus was focusing on lowering our cost structure and servicing our customers with the lowest cost possible.

Our next question comes from Duffy Fisher with Goldman Sachs.

First question is just what were the operating rates of these assets this last year? And how much revenue did they produce?

Yes. So Duffy, as you know, we don't get into the operating -- excuse me, into the revenue numbers for each individual plant. But I would say that these sites were operating at rates that are not generating the kind of value from a margin perspective we expected. They were servicing the export market, and so they were operating at low operating rates, and they were high-cost assets, which those two combined tells you that these assets need to be optimized, and that's the action we're taking today.

So as we think about our business going forward, we think we'll be in a much better cost position to service the markets that we serve. And with the removal of these assets servicing those markets and lowering our cost position, we think we'll be much better served. And that's what's driving that $100 million improvement. By removing not only the capital cost, but also the fixed and variable costs associated with these assets, that's what's driving this $100 million of improvement in EBITDA prospectively in 2026.

Fair enough. And then just one question on, that $100 million EBITDA, is that included in the $175 million of free cash flow savings or those are two separate numbers?

No, that's the $100 million of improvement in EBITDA and the $75 million of capital and turnaround costs associated with those assets that we will not be incurring. So it's the $100 million plus the $75 million to total the $175 million.

Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets.

It looked to me like this chlor-alkali plant was probably serving markets, not just your PVC needs, but other chlor-alkali markets. Could you describe what were those end markets? Was it merchant chlorine or something else? And what was the degree of your participation there?

No. The materials from the production of these three chlorovinyls sites were all servicing the export PVC market. The chlorine was going into PVC which was servicing that export PVC market and the Caustic was also destined for export markets as well. So all the production from these three chlorovinyls sites were destined for the export market.

Understood. And just a follow-up on the cash flow side. It sounds like you may have had some -- just more extensive maintenance coming up for these assets. If we think about long-term CapEx for you, how would that change sort of on a 3-year or 5-year basis? How much lower would your ongoing CapEx be?

Yes. Well, certainly, for the assets here, they all have their own turnaround planned activity and maintenance activity, which is the $75 million that I called out.

In February, as we complete our full year, we'll give you a guidance for 2026 CapEx. But clearly, very clearly, the capital numbers as we go forward will be reduced to reflect the reduced footprint that we have as we march forward.

Our next question comes from Michael Sison with Wells Fargo.

First question, in terms of the global capacity you have left, a little over $7 billion in caustic and I guess, $5 billion PVC, how much of that is going to the export market now? And then why are the export market margins so weak? And what do you think needs to happen for that part of the business to improve over time?

Yes. So Mike, what we have seen is significant volumes coming out of the Asia market going into markets around the world that have compressed the margins in the export market. And so as you think about the margins in the export market, they've been driven significantly lower. As you look at the price that we've seen in caustic soda, the price that we've seen in PVC, they have come down dramatically so, not only domestically, but in the export market. And the margins to serve the export market are lower because of the added shipping cost and duties and bagging cost.

So what we've seen is an absolute compression of that export margin. And with that market being served by these three chlorovinyls sites, which were on the higher end of our Westwake cost curve, it made sense to really shutter these sites because we were seeing no incremental value as a result of these operations. I don't have at my fingertips the amount of global capacity, but I can get back to you at a later date. But the consultants that publish that information certainly will be able to give that to you.

Got it. And then did you -- and I apologize if I missed it, but did you give an update for the fourth quarter for PEM? And if you have any color on the trends there, that would be helpful. And I apologize if I missed that.

Yes. And so my update was that fourth quarter EBITDA for PEM would be between $125 million to $150 million lower than the third quarter of 2025, excluding any identified items, including the charges related to today's announcements.

Our next question comes from Salvator Tiano with Bank of America.

So first thing I want to ask is also if you can refresh us how much was your short ethylene exposure previously? And how much will it be now given the lower needs from the VCM and PVC markets?

And then if you can also elaborate a little bit on the notion of these being higher cost assets, obviously, was it, for example, the higher energy needs, lower conversion ratios, older equipment and automation? Or for example, in the regions that they were operating was energy costs or ethylene costs higher? What essentially made these assets higher cost?

Yes. So Sal, we were previously buying in the neighborhood of about 1.5 billion in the merchant market. And obviously, that's coming down proportionately. So we'll still be buying over 1 billion pounds of ethylene to service the market.

These higher cost assets were assets that were serving that export market. And because of the transportation logistics associated with these assets, the lower margin in that export market. And of course, these are older assets, so higher cost to operate as well as all the transportation and shipping logistics to service a low-margin export market, all contributed to the high-cost position to service that low-priced export market, which is why these assets had to be shuttered with today's announcements.

Our next question comes from Josh Spector with UBS.

I was wondering with the PVC assets, did you explore a sale at all? I mean there's been some competitors talking about building an export position. Obviously, a high-cost asset within the U.S. maybe isn't that attractive, but did you guys look at that?

No. As we looked at these assets, we recognize that these assets were on the high-cost curve for Westlake, and we did not run a formal sale process.

Is that an option? Or is it too far gone?

We've announced the shuttering of these assets with today's announcements, and so I don't anticipate a sale process to be undertaken.

Enough. And just quickly on the cost savings side, the $600 million you called out, is that a number we can add to second half '25? Or is some of that more of a run rate and accrues more in 2027?

No. This is -- these three pillars are items that we believe we'll be able to accomplish in the year of 2026. And as we march forward, we think we'll be able to, of course, recognize benefits of this footprint optimization, the cost savings and, of course, plant reliability, each representing $200 million. And we think they'll be all additive to 2026's EBITDA.

Additive on top of '26 or realized in '26?

Realized in 2026.

Our next question comes from David Begleiter with Deutsche Bank.

Steve, should these actions return PEM to be EBITDA profitable in Q1?

So David, a lot of that is a function of how we see market pricing evolve. And so I would say there is a strong push to really turn this business around to return profitability for this business. So depending on what your outlook is from a supply-demand perspective and the associated pricing, we haven't given guidance for the first quarter of 2026. But I would say this puts us on a path to improving overall profitability for the PEM segment and Westlake as a combined result.

Got it. And just on the Styrene asset, can you address that closure and why now? Because that asset has been challenged for a number of years?

Yes. The closure of the Styrene asset is also servicing largely the export market. And so with the compression of the margins that we've seen in styrene, we're not fully integrated into benzene. And so as we looked at the capital cost and the operating cost and the tight margins that we're seeing in that largely export market, it became clear that this was the time to take this action.

Our next question comes from Jeff Zekauskas with JPMorgan.

You talked about a $100 million EBITDA improvement. Is that the elimination of $100 million in current EBITDA losses? Is that the way you calculate that?

Yes. As you think about the -- yes, Jeff, as you think about the overall impact that we're seeing in cost and you think about the -- not only the operating cost, but shipping, bagging and other associated costs, it will allow us to really improve the overall business accordingly.

Okay. And in general, you talked -- over and over, you've talked about transportation costs and logistics costs. So when you think about the high-cost character of these assets, are they $100 a ton, more costly than your average assets?

So Jeff, the challenge that these assets represent is they are not integrated in being situated on the same site. So there were transportation logistics associated with moving product from Lake Charles to Mississippi, Aberdeen, Mississippi and then therefore, into the export market. And so while we haven't given direct guidance on the manufacturing cost of these or other specific assets, the reason I'm calling out the overall cost structure for these three chlorovinyls assets is they were integrated in the sense that they all fed an export market, but there were substantial costs associated with running these older assets and then the transportation inland to then export them offshore.

So that's -- so the combination of tighter margin, the operating cost as well as the transportation costs or logistics cost to serve an export market is what drove profitability that caused the lack of profitability to cause the shuttering of these assets.

When will they close?

They will all close at the end of this month.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

Steve, as a clarification, do you intend to dismantle these plants? Or is there a scenario under which you could restart the capacity if, for example, the export market dynamics were to improve over the next several years? In other words, are some or all of the plants going to be idled rather than dismantled?

So Kevin, these assets all sit on properties that we have other operations. And so there is no current announced plan to dismantle these assets at this stage.

Okay. And so could you restart the capacity if market conditions were to turn up in cyclical fashion a couple of years from now? Or is that precluded perhaps for other reasons?

No, there's nothing that precludes any future action. But obviously, with the shuttering of these assets and the impact to the operating team that we have running these assets, there would be quite an effort to really reestablish operations in these assets.

Understood. And then lastly, if I may, you've pointed out a couple of times on the call that these particular assets serve export markets. Has your view of the prospects of U.S. PVC exports changed perhaps in a negative way over the last quarter or 2? Just thinking about markets like China, India and some of the trade flow dynamics in those countries and elsewhere. Maybe you could just provide a little bit more color on if there was a particular tipping point that catalyzed today's actions?

So Kevin, our business will continue to serve some of the export markets, but with better positioned assets from a cost perspective. And so it was the combination of logistics cost and operating cost serving this export market from these particular assets that created a challenge from a margin perspective. But we still will be servicing the export market in vinyl, but with better positioned assets from a cost perspective.

Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets.

I apologize if I missed this, but to what degree are you planning to offset the loss of this capacity by running other assets harder? In other words, how would you expect your PVC exports to change next year? Is it down by sort of some healthy proportion of the capacity that you're shutting down or down by a much smaller percentage?

So as we think about the shuttering these assets to the extent that we have a market demand that can be better served with other assets that are better positioned in the cost curve for Westlake. And to the extent that market makes economic sense, we'll continue to serve that market. But that market has to have economic sense behind it to be better served by these better positioned assets that we have on the Gulf Coast.

At this time, the Q&A session has now ended. Are there any closing remarks?

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 and full year results.

Thank you for participating in today's Westlake Corporation PEM Profitability Improvement Plan Update Conference Call. As a reminder, this call will be available for replay, beginning 2 hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. 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 Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin.

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 Chao, our Executive Chairman; Jean-Marc 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 2 reporting segments performance in 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 Jean Marc, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments, and we'll open the call up to questions.

During the third quarter of 2025, we recorded a noncash impairment charge of $727 million representing all of the goodwill associated with our North American chlorovinyls 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 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 10-K 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 at 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, 2 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 web page at westlake.com.

Now I would like to turn the call over to Jean-Marc Gilson, Jean-Marc?

Thank you, 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 and 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 lower average selling price. While North American residential construction demand has softened in 2025, a 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, HIPS EBITDA includes some period related administrative restructuring and integration expenses in the third quarter of 2025 that are expected to be of a nonrecurring 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 to these exciting growth-oriented investments. The ACI acquisition significantly expands our global compound business by introducing silicone and crosslinked polyethylene compounds into our portfolio.

And it is also -- 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 period, 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 noncash impairment charge of $727 million for all of the goodwill associated with PEMs 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 chlorine.

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 curve continues to persist, we advanced several strategic actions to improve PEMs performance centered around 3 key pillars: number one, improve plant reliability to lower production cost, unit production cost. This pillar is beginning to show results in the third quarter.

Two, reduce costs. We are on track to achieve our $150 million to $175 million of company-wide structural cost reduction in 2025. I 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 segment and these cost reductions will lower PEMS cost and improve our global competitiveness.

Three, optimize our manufacturing footprint, we have taken strategic actions to close facilities such as Pernis in the Netherlands and our sure facility in China. We will take other appropriate asset optimization actions to improve our financial performance as needed. Our relentless focus on these 3 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 a critical driver to improve our costs 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 earnings stability while profitability in our PEM segment is challenged by the ongoing trough.

We believe our determined drive to deliver on the elements of this 3-pillar strategy will return TAM 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?

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. West Lake 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 and our PEMS segment. The challenging global macroeconomic environment and imbalance in supply/demand for many of PEMS products has resulted in an extended trough.

As a result, during the third quarter of 2025, we took a noncash impairment charge of $727 million for all of the goodwill associated with PEMS North American chlorovinyl business. While this impairment reflects the near-term challenges in 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 pretax impact of $37 million compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audit. At a segment level, approximately $32 million of the unfavorable impact was at PEM and the remaining $5 million unfavorable FIFO impact was a HIP.

Before I discuss the details of our segment results, I want to provide some high-level thoughts on 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 segment's 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 2020, a 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 a slower industrial and manufacturing activity. Meanwhile, demand for siding and trim and roof remain 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 HIP EBITDA margin to 20%.

Adjusting for the period weighted expenses and the FIFO impact, HIPS EBITDA margin in the third quarter of 2025 would have been 22% compared to the 24% in each of the second quarter of 2025 in the third quarter of 2024.

Looking at HIP's results on a year-over-year basis when compared to the third quarter of 2024, Hip sales fell less than 1% and as a 0.5% 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 fitting sales volumes have grown nearly 10% and as compared to the first 3 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 U.S. government funding coming from the infrastructure bill.

To summarize HIP's results, the business continue 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 mobile 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 PEMS segment. Third quarter sales of $1.7 billion fell by $46 million in the second quarter of 2025 and 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 core vinyl prices primarily for PVC resin and the 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 and compared to the second quarter of 2025. On a year-over-year basis, PEMS 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 PIMS products, particularly PVC resin. The lower year-over-year average sales price combined with lower sales volume, drove a decline in PIMS 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 PIM results and deliver meaningful profitability improvement in our PIMS 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 2020, net income provided by operating activities was $182 million, while CapEx 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 billion to $4.4 billion, with an EBITDA margin between 20% and 22% for 2025. We However, given the lower North American residential construction activity and the $20 million period related costs 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 structural cost savings target of $150 million 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 PIM profitability improvement strategy.

For the full year of 2025, 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?

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 3 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 HIPS customers.

As a supplier of choice to building product distributors and large national homebuilders, 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 start-up 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 the segment to profitability revolves around our 3 pillar profitability improvement strategy, which I have already detailed and which is well underway. While we are optimistic that global demand growth for PEMS product will improve, we are squarely focused on actions within our control, 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, PEMS 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 unit 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 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 strength, which continues to serve us well. These strengths include a diversified and complementary portfolio of businesses, our vertically integrated business model, our 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 this strength 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?

Thank you, Jean-Marc. 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 2 hours after the call has ended. Steven, we will now take questions.

[Operator Instructions]. Our first question comes from the line of David Begleiter of Deutsche Bank.

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

Yes. 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. The -- 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 segment.

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.

And just for Albert, given the pressures you're seeing in the commodity chemical space, are you in the Board still committed to this current portfolio construct with a building products business with petrochemical business? Or is there a thinking that perhaps these businesses at somewhere down the road or best served being separated?

Yes. Certainly, we are looking at various combination of business. We believe the strength of the 2 businesses being together. As we know that our PBC business is a major supplier 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 in our PVC vinyl business in the U.S., we'll be much better positioned to serve our customers, both domestically and overseas.

And as we see interest rates coming down, it will certainly help the housing construction business in the U.S. that will also improve our hip business as well as our PPC business. So we believe the 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 that some of the parts, but we'll evaluate options as we go.

Our next question comes from the line of Frank Mitch of Fermium Research.

You discussed some of the weakness in the polyethylene markets. PVC hasn't exactly been covering itself in glory. What is your -- what is your near and midterm outlook on the PVC side of things? And what will it take to get it back on track?

Yes. So yes, 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, I mean, efforts on the cost side to bring -- 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.

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 chlor alkali announcements, both in chlor-alkali as well as in PVC. So I think some of those higher cost players have already begun to take actions to address the oversupply and high cost positions.

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 of what transpired in 2025? And are we looking at hip margin type of business? Anything on D&A as we look to model 2026 with the ACI acquisition built into the company.

Yes. So Frank, good question. And the ACI business is a very strong and it's a global compounding business in that Crosslink polyethylene and silicon 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.

Our next question comes from the line of Aleksey Yefremov of KeyBanc Capital Markets.

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, Alex, 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?

Yes. Thank you. I'm sorry. It was 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 costs 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 nonrecurring 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 homebuilders nationwide, they're guiding to similar levels of construction activity, and we are believing to work very closely with those homebuilding 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 million 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 I 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 remained 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.

Our next question comes from the line of Patrick Cunningham with Citi.

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 products just given where like the difference in valuations is? And then maybe if you could just comment on what the pipeline in general looks like.

Yes. 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. And then maybe just on the quarter-on-quarter sequential weakness on PBC, 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 the export markets?

No. I think the industry has historically exported PVC resin in the 40s percent of production and our 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.

Our next question comes from the line of John Roberts of Mizuho.

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, while 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 PMS 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.

Our next question comes from the line of Hassan Ahmad of Alembic Global Advisors.

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 just trying to get a better sense of a bridge to 2026, wise. It seems you guys will get $200 million in cost savings in 26 million, an incremental $100 million from the on 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 -- so -- and then obviously, some accretion from the acquisition. So I mean, is it fair to assume that via self-help and these things that I just laid out, I mean, on a year-over-year basis, all else equal, EBITDA next year would be $500 million higher than this year?

Yes. No, 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 have 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. And as a follow-up, kind of linking a couple of the past questions together. I mean this $727 million impairment associated with the PEM segment.

How should we think about that in light of some of the valuation data points provided by the OxyChem deal? I mean, obviously, that says something about the fundamentals there, Berkshire coming in and maybe scooping these assets up at the bottom of the cycle. 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.

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 chlor-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 -- continue to see good demand over the medium to long term.

So we think it really positions the business to 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 these tough 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 it'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.

Our next question comes from the line of Josh Spector of UBS.

I just wanted to ask around the $20 million of 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 nonrecurring in the nature of those items, which is why I call them out as period related.

But would you expect more integration costs in the 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.

Our next question comes from the line of Matthew DeYoe of Bank of America.

How are you thinking about operating rates in polyethylene because it feels like the industry is running a bit, I guess, see f 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?

As you think about operating rates, 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 interment that creates real value. And so if those operating rates are hovering today for the industry in the mid-80s to low 80s, we certainly had some 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.

Our next question comes from the line of Duffy Fischer of Goldman Sachs.

If you back into the number for HIP, just with what you've given us because we've got the year at the low end at the 4.2% and 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.

Yes. So Duffy, we see the seasonal construction period begin to slow in Q4. And so if you think about the 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 the 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 the third quarter, but also some of 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 their completed and unsold inventory still seem to be moving forward with their construction plans.

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

Yes. This was, of course, just really on a chloralkali 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 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.

Our next question comes from the line of Vincent Andrews from Morgan Stanley.

This is Turner Henricks on for Vincent. So I wanted to level set a little bit comments on outages. You all mentioned earlier, of course, the issue is constituting around $200 million impact this year. And you also had the Petro 1 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?

Yes. 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 -- ethylene cracker planned outage for turnaround. We only have some of the smaller units. And those occur on a pretty regular basis every 2 to 3 years, whether they are PBC or chlor-alkali or polyethylene assets, which typically turn every 2 to 3 years. And so the relative maintenance expense for turnarounds in 2026 should be much lower than they were in 2025.

Okay. 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 $1 billion range?

Yes, we're continuing to finalize our budget plans for 2026, but I would say that I would expect it to be similar in relative size.

Our next question comes from the line of Pete Osterland of Truist Securities.

Within PEM, 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 there? Could it be another $35 million or so?

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

Yes. 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 a 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 million to $175 million target in '25. So we expect that we are moving forward. And many of these leverage the actions in '25 that will continue to be additive in 2026.

Our next question comes from the line of Matthew Blair of TPH.

You mentioned a few times the affordability issues in the U.S. 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 for you. But could you discuss that?

Yes. 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 in 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 you re-upped the ethylene supply agreement with the MLP. Does this raise cost at a time when margin when the industry is in a tough spot. And -- or is it the general idea to just preserve your optionality in case the MLP equity markets ever come back?

Yes. 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 year, 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 $0.10 margin already. So there's really no give up on either side of the equation.

The C Corp as well as the partnership we're 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 have agreed to extend this contract.

Our next question comes from the line of Arun Viswanathan of RBC Capital Markets.

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 million of that in the in the coming months. Maybe you can just elaborate on what you're seeing there in caustic soda.

Yes. And so Arun, the -- 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.

Our next question comes from the line of Kevin McCarthy of Vertical Research Partners.

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?

Yes, Kevin, it's -- with our shuttering of the Pernis facility in Europe, 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 to continue to perform well. The challenge we had in our Epoxy business simply was the fact that we had 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?

Yes. 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 costs 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.

Our next question comes from the line of Michael Sison of Wells Fargo.

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 cost could go higher. So do you see margins, industry margins for PEM could go lower in 2016 given that scenario?

It's really hard to make that call, Mike. When you think about the market that we see today, the outlook we see, and I'm looking at outlook for -- from the consultants on pricing, pricing remains fairly stable. If you look at the average prices, 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 costs 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 chlor vinyls business. welcome.

Thank you. At this time, the Q&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 2 hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded today, August 5, 2025.

I would now like to turn the call over to your first speaker today, John Zoeller, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our second quarter 2025 results. I am joined today by Albert Chao, our Executive Chairman; Jean-Marc 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 2 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 Jean-Marc, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results after which Jean-Marc will add a few concluding comments, and we will open the call up to questions.

During the second quarter of 2025, we accrued expenses of $123 million and $7 million, respectively, to shut down the company's epoxy facility in Pernis, the Netherlands and temporarily ceased operations at a PVC resin production unit in China at the company's 95% owned Huasu joint venture. We refer to these expense items, which in aggregate were $130 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 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 that is 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 10-K 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 second quarter results. This document is available in the press release section of our website at 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, 2 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, August 5, 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 web page at westlake.com.

Now I'd like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Thank you, John, and good morning, everyone. We appreciate you joining us to discuss our second quarter 2025 results. For the second quarter of 2025, we reported EBITDA of $350 million on net sales of $3 billion. Compared to the first quarter of 2025, sales and EBITDA increased due to a seasonal increase in sales volume for most of the businesses in our HIP segment. HIP performed very well in the second quarter, delivering solid EBITDA of $275 million on sales of $1.2 billion, representing a strong 24% EBITDA margin. Our results demonstrate that in an operating environment that has grown more challenging with interest rates remaining elevated, a diversified and balanced operating model in HIP offers strategic benefits to help deliver performance in this market.

Pipe & Fittings sales volume growth benefited from increasing demand for municipal water applications, driven in part by spending from the 2021 Infrastructure Act. The significant underspend in water infrastructure in the United States and the funds from the Infrastructure Act should continue to provide a solid foundation for our pipe and fading sales for many years.

HIPs building product sales volume was lower than the second quarter of 2024, reflecting the slowdown in North American residential construction activity. Pent-up demand, nevertheless, is high as people want and need homes. HIPs Building Products business benefits from a balanced portfolio of approximately 50% new construction oriented sales and 50% repair and remodel oriented sales, and this portfolio provides stability in the current housing market.

Turning to PEM. Earnings and margins were pressured by 2 primary factors. First, PEMs volumes were impacted by lower production levels due to a high level of planned turnaround and unplanned auditors, which impacted second quarter of 2025 EBITDA by approximately $110 million. As we discussed on our first quarter earnings call, we began the tie-in of our new VCM capacity at our Geismar site during its planned turnaround. Following the completion of the turnaround in the second quarter, Geismar slowly ramped up its operating rate with production expected to improve during the third quarter.

Second, the cumulative impact of several quarters of soft global manufacturing activity caused growth in global demand for many chemical products to fall short of industry supply additions, primarily in Asia and over that time of that period of time. The resulting global oversupply in some chemical change has created pressure on PEMs average sales price and EBITDA margin.

In response to these factors, we are taking aggressive actions to improve PEMs financial results. Our PEM profitability improvement strategy is 3-pronged. One, improving plant prior reliability. We have challenged the teams at the plans to address reliability and operations, and we are already seeing production improvement during the third quarter. Two, reducing our cost to improve our global competitiveness.

During the first half of 2025, we achieved over $75 million of company-wide cost reductions towards our full year target of $150 million to $175 million. While we are pleased with this progress, given the protracted nature of the current downturn, we are expanding the scope and nature of our cost reduction efforts to target an additional $200 million of cost reductions by 2026. And third, optimizing our footprint, our manufacturing footprint.

During the second quarter of 2025, we announced the planned closure of our Pernis Epoxycite in the Netherlands, which will put our Epoxy business on a path to profitability. So to summarize the quarter, we were very pleased with the continued solid performance of our HIP businesses. Our experienced teams are leading product positions, our broad geographical footprint and a diverse position serving both new construction and repair and remodel to provide valuable earnings stability and cash flow to the company. We also expect a 3-pronged PEM profitability improvement strategy to enhance our globally competitive position and improve PEMs financial results.

I would like to turn the call over to Steve now to provide more detail on our financial results for the second quarter of 2025. Steve?

Thank you, Jean-Marc, and good morning, everyone. As a reminder, my comments regarding income from operations, EBITDA, net income and earnings per share all exclude the financial impact of these identified items. Westlake reported a net loss of $12 million or $0.09 per share in the second quarter on sales of $3 billion.

Net income for the second quarter of 2025 and improved by $28 million compared to the first quarter of 2025, primarily due to a seasonal increase in HIP sales volumes and margins partially offset by an approximately $30 million higher impact from planned turnarounds and unplanned outages in PEM. When compared to the second quarter of 2024, net income decreased by $325 million due to higher North American feedstock and energy cost and lower average sales price in each segment.

For the second quarter of 2025, our utilization of the FIFO method accounting resulted in an unfavorable pretax impact of $13 million in our PEM segment compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited.

Before I discuss the details of our segment results, I want to provide some high-level thoughts on the quarter. Our HIP segment performed very well, and we are very pleased with the stability and resiliency of the portfolio of the business that we have assembled. At the same time, our PEM segment was impacted by production disruptions and the continued global oversupply in some chemical chains, but the profitability improvement strategy that we are implementing should result in better performance with an improved cost position.

Moving to the specifics of our segment performance. Our Housing and Infrastructure Products segment produced EBITDA of $275 million on $1.1 billion of sales. When compared to the first quarter of 2025, HIP segment sales rose 16%, driven by a 14% increase in sales volumes as a result of growth for Pipe & Fittings and a seasonal increase in building products demand. Average sales price increased 2% sequentially, driven by price increase initiatives in building products and global compounds to pass through rising input cost.

The strong sales growth volume drove HIP segment EBITDA margin to a solid 24% from 20% in the first quarter of 2025. When compared to the second quarter of 2024, HIP EBITDA decreased $61 million due to 2% decline in sales volume and a 1% decline in average sales prices. The sales volume decline was driven by lower customer demand in our global compounds and Building Products business units as a result of slower residential construction activity that more than was offset -- that more than offset volume for our Pipe & Fittings business, a result of solid demand for growth in the municipal water applications.

Our HIP strategy is and has remained clear. We're providing our customers with products to address affordability and adapting our product offering and manufacturing footprint as the market evolves.

Turning to our PEM segment. Second quarter sales of $1.8 billion fell by $57 million from the first quarter of 2025 driven by a 6% decline in sales volume as a result of a more significant impact from planned turnarounds and outages as well as export sales volume disruptions created by tariff uncertainty during the second quarter. Average sales price increased 2% driven by higher chlorine, caustic soda and PVC resin prices. PEM segment EBITDA of $52 million in the second quarter decreased by $21 million from the first quarter of 2025 as a result of the 6% decline in sales volume.

On a year-over-year basis, PEM EBITDA of $52 million was below second quarter of 2024 EBITDA of $391 million due to $83 million of higher ethane and natural gas costs, a $67 million higher year-over-year impact from planned turnarounds and unplanned outages and a 2% decline in average sales prices driven by lower polyethylene and PVC resin prices.

As Jean-Marc mentioned, during the second quarter, we announced a plan to close our epoxy site in Pernis in the Netherlands. Since this acquisition in February of 2022, profitability at this site deteriorated significantly as a result of higher European feedstock and energy cost due to the war in Ukraine and low-priced Asian exports entering the global market. As a result, Pernis experienced losses in excess of $100 million a year drove the June site closure announcement. Following the Pernis closure announcement, we believe that our Epoxy business is now on a path to return to profitability in 2026.

Shifting to our balance sheet. As of June 30, 2025, cash and investments were $2.3 billion and total debt was $4.7 billion with a staggered long-term fixed maturity debt schedule. For the second quarter of 2025, net cash provided by operating activities was $135 million, while capital expenditures were $267 million. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value.

Now let me provide some guidance for your models. We completed our turnarounds and VCM tie-in at Geismar. However, our integrated for vinyl system is continuing to slowly ramp up production during the third quarter. We expect chlorovinyl production sales volumes to be better in the third quarter and thus, we anticipate the impact to earnings from production disruptions in the third quarter will be less than we experienced in the second quarter.

With the slowdown in North American residential construction activity, since the beginning of the year, we now expect 2025 housing and infrastructure products revenue to be in the range of $4.2 billion to $4.4 billion, with an EBITDA margin between 20% and 22%. We continue to expect total CapEx expenditures for the company to be approximately $900 million. In the first half of 2025, we achieved over $75 million toward our 2025 company-wide savings target of $150 million to $170 million. and we're taking actions to drive an additional $200 million of cost reductions by 2026 as part of our PEM profitability improvement plan. For the 2025 year, we expect cash interest expense to be approximately $160 million.

Now let me turn the call over to Jean-Marc to provide a current outlook for our business. Jean-Marc?

Thank you, Steve. Against the backdrop of soft macroeconomic conditions and slower North American construction activity, our HIP team is delivering sales similar to prior year levels. by being a supplier of church with faster-growing building product customers. Sales volume growth for our pipe and filling is driven by megatrends in water and supported by municipal infrastructure investment as well as the growing use of PVC pipe, a municipal infrastructure as compared to competing materials such as concrete and ductile iron.

HIP total margins also remain solid and are indicative of the strong value of our brands and the significant value that our service-oriented business model delivers to our customers. While the long-term outlook for the housing market remains favorable driven by demographics and the undersupply of homes we recognize the current volatility and uncertainty, and we will continue to execute our winning HIP strategy in a disciplined manner to enhance the value of our business.

Longer term, we remain very positive on the outlook for our HIP business to organically grow at a 5% to 7% compound annual growth rate. We expect this growth to come both from market growth, such as the need for home building to recover from 10-plus years of under building and our position as a leading supplier to the faster-growing customers in the market. We also continue to evaluate opportunities to grow our HIP businesses through acquisitions to broaden our product portfolio and deepen our relationship with our key customers. Overall, we continue to see a very bright future for HIP.

Turning to our PEM segment. Near-term macroeconomic conditions show signs of demand stabilizing, albeit at lower levels than we would like. ISM Manufacturing Index readings in the U.S., Europe and China have fluctuated in a relatively narrow range at or slightly below 50, nearly every month this year. As we look ahead to the second half of 2025, we are seeing stable demand for our PEM materials which combined with improved production rates should lead to an increase in our PEM sales volumes compared to the first half of 2025.

We are responding to the business environment in our PEM segment and implementing our 3-pronged PEM profitability improvement strategy to improve plant reliability, accelerate cost reductions, reduction plans to improve our global competitiveness and optimize our manufacturing footprint. These actions will meaningfully improve our PEM segment profitability and cash flows.

Before I open the call to your questions, I want to close by reminding you of Westlake's foundational strength, which serve us really well. These strengths include a diversified and complementary portfolio of businesses, our vertically integrated business model, a globally advantaged feedstock and energy position in the U.S. and our investment-grade balance sheet with $2.3 billion of cash and securities. As we progress through 2025, we will continue to lean on and improve these attributes to continue to create value for our shareholders.

Thank you very much for listening to our second quarter earnings call, and I will now turn the call back over to John.

Thank you, Jean-Marc. 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 2 hours after the call has ended.

Gerald, we will now take questions.

[Operator Instructions] Our first question comes from Patrick Cunningham of Citi.

A question on the HIP guidance. I think previously, you had some price mix headwinds that have you pointing to the lower end of the margin range. And now the sales guide is lower, but the margin guidance is intact. Should we still expect margins on the low end? Or have some of those mix headwinds normalized versus your prior expectations?

Yes, it's a good question Patrick. And as we think about the guidance we're providing, we're simply reflecting the realities we see in the building -- residential building and construction markets. And so I'd still guide you to the rain that we provided of 20% to 22%. Obviously, we delivered a strong quarter this year, and I would expect we'll continue to see continue to see results as we go through the stronger periods of 2Q and 3Q in the construction year, but our guidance still remains really in that 20% to 22% range.

Great. And for my follow-up, the biggest change in the tariff regime has been fresh tariffs on Brazil, the threat of retaliatory tariffs, how should we think about the risk to both chloro vinyls and caustic soda and given this has been such an attractive export market for the industry and for Westlake?

Yes. So Patrick, a good question on exports, let's say, caustic and to Brazil, as you raised. Our sales are direct to customers in the alumina and paper markets. And those markets really export markets. So there's an opportunity for them to access duty drawback. And so we haven't seen really an impact really in that -- in those tariffs at this point in time. We'll continue to monitor the situation, but we believe that we're well positioned with those customers.

Our next question comes from Duffy Fischer from Goldman Sachs.

I want to go back to HIP if we could. So you talked about earlier, some areas of HIP that we're seeing pricing pressure, all of the low gauge pipe. Could you go through, I guess, 2 questions there. What percent of the portfolio do you think is actually seeing kind of excessive competitive pricing versus what part is holding stable? And then just the second part, at the midpoint, your revenue is now down 5%. But again, the margins are stable. So why isn't there a decremental margin degrading. Is there a mix shift improvement in there? Just kind of versus first quarter to today, why don't margins change?

And so Duffy, as you think about the commentary we provided, you've seen really the broad portfolio offering that we have and addressing and adapting to the market conditions within the Building Products business. continue to call out the strength in our water business going into our Pipe & Fittings business, but continue to recognize that as a large diameter for water and that business is really being supported by the Infrastructure Act as well as state cities and counties.

But certainly, I would say that we've certainly had to position the business and adapt with our compounds business, our building products, exterior building products business and our Pipe business to the conditions that we see. So the range of the products we think and the depth of the product we think continue to be able to be addressing this changing and evolving market.

Great. And then if we just go back from the less downtime in Q3 versus Q2 from the ramp-up of the plant. Roughly how much less hit do you have from that and what were operating rates chlorovinyls Q2 to Q3, how much do we actually get to improve operating rates?

As you can see in our prepared remarks that we continue to see improvements quarter-over-quarter in the third quarter. But you could also see that we're continuing to ramp up our core vinyl businesses in the third quarter. So while I see some improvement. We won't be fully clear of this in the third quarter.

Our next question comes from Arun Viswanathan from RBC Capital Markets.

This is Adam on for Arun. If we were to dig a little bit more into bridging into the second half of the year, assuming by the end of the year, some of the planned and unplanned turnarounds are backed out. Do you have any other major turnarounds planned at this time? And of that $110 million impact, approximately how much of that was planned versus unplanned?

Yes. As you can see, we've taken a huge effort in the first half of the year with planned outages, but obviously, we've had some of these unplanned outages. And so the great majority of this was the planned turnarounds. As you recall, we had an ethylene turnaround as well as the VCM tie-ins in Geismar. The majority of this was obviously in the planned arena. As we look into the back half of '25, we really have gotten beyond the major turnaround activity in '25. And so I don't expect a continuance of these planned events for the back half of this year.

Okay. And looking at your additional $200 million cost improvement for next year, how much of that -- is that all Pernis included in that, the $100 million improvement from that? And what would the balance be made up of? Is that primarily going to be additional footprint rationalization? Or is there some other head count reduction included in that as well?

Yes. Thank you for the question. These are really cost reduction initiatives that are across the entire PEM footprint. And so as we think about that, it allows us to address cost in all areas, whether they are in contract labor, whether it's in maintenance and a wide variety of other areas. But this is across the entire PEM footprint and not really targeted solely in the actions that we've taken in our Pernis location. This is really on top of the actions that we've already taken.

Our next question comes from John Roberts of Mizuho.

On M&A, could valuations become cheap enough in PEM opportunities that you would acquire something significant there? Or is your M&A focus exclusively over on the HIP side?

John, it's a good question. We continue to look across the broad spectrum of opportunities, whether they're in the HIP segment or in the PEM segment. And that really is the opportunity is really driven by the valuation opportunity we see in one or the other segment. So there isn't necessarily a strong bias one or the other. It's really where the most opportunities present themselves. The strongest side of our business clearly is on the HIP side of the business. But clearly, should there be value opportunities that we see in chemicals, we'll certainly act on those opportunities as well.

Our next question comes from Vincent Andrews of Morgan Stanley.

In PEM, as part of the initiatives to improve plant reliability, will there be a CapEx component of that, either onetime in nature? Or is there any risk that your maintenance CapEx needs to be revised higher?

No, Vincent, we fully expect that the capital programs we have in place address this is not an issue that requires a large capital outlay. So nothing incrementally beyond the capital programs that we've been discussing all year.

Okay. And then if I could just ask you in terms of HIP, is it a fair assessment from the answers already that we'll see a similar margin in 3Q as we saw in 2Q and then sort of the swing factor where you wind up for the full year is going to be how soft 4Q is?

Yes. The fourth quarter is always uncertain because of seasonal matters. And so we've seen periods of time where we continue to build through October and November. So it really is a function of the weather and the demand picture, of course, on top of that, but typically the strongest quarters are the second and third quarters, and we continue to see continued construction activity carrying us through July and August now. And so I have still an expectation that third quarter will continue to be that seasonal pattern that we've discussed historically.

Our next question comes from Frank Mitsch from Fermium Research LLC.

As someone who probably ought to go back and take a class on tariff impacts 101. I'm wondering if you could elaborate on the comment about your caustic exports to Brazil and the fact that some of that is being processed there and then you'll have a duty drawback. So just conceptually, how much -- of the amount that you're exporting of caustic to Brazil, how much is subject to this duty drawback. And if you could just elaborate on what exactly that all means.

Yes, Frank, it isn't really our ability to see in detail how much the paper and alumina business is exported out of Brazil. But I would say the great majority of it is, as we understand from our customers. So these are direct sales into those individual customers. And as we understand the regulations and opportunities in Brazil, if those products are reexported out of Brazil, they have the ability to have duty drawback.

And so as long as they're exporting some portion or majority of the portion as we understand, they are able to then have that duty drawn back and be insulated from that portion of the export. That's our understanding from our customers.

So that would go -- it would go to 0. So if Brazil throws on a 50% tariff on caustic as long as the customer buys your caustic and reexport out the product, that 50% goes to 0. Is that how we should think about it?

That is how the duty drawback process works in Brazil, correct, as long as those products are exported.

Terrific. Very helpful. And Jean-Marc, just curious, you made the comment that you're already seeing plant reliability improvement here in the third quarter. Any color or any examples that you could provide on that?

Yes, thank you for the question. The -- as Steve said, we've had quite a lot of planned and unplanned outages in the first part of the year. And a lot of them, I mean, the big, big ones were primarily over the first 3, 4 months of the year, and since then, we had additional unplanned outages that have slowed down actually the ramp-up of the plants. But we have started to see, I would say, sequential increase on a month-by-month basis, starting probably around late April, early May.

So -- and that's really what we're expecting to continue in the third quarter. And by the end of the year, we will have pretty much everything behind us.

Our next question comes from Aleksey Yefremov from KeyBanc Capital Markets.

I wanted to go back to hit margins. You revised your sales guidance down by 7%, but maintain the margin. So could you discuss what is going better than expected, such that there's no negative operating leverage in this segment.

Yes. So Aleksey, the broad and deep portfolio offering we have allows us to address the affordability issues that we see in our customers and our end customers. And so as we've addressed that with our exterior building products, the portfolio has allowed us to improve that positioning the strength that we're also seeing in the infrastructure side of our Pipe & Fittings business, this is the larger diameter business that is really addressing state county and city needs for infrastructure.

So continuing to see strength in demand and that infrastructure water requirements. And so that's really where we're seeing the continued ability to deliver good results this quarter.

And I was hoping you could give us some sense of monthly trends in HIP orders. Have you seen a negative from the flection or are things steady as you went through the summer?

Well, clearly, we've seen some reduction in overall construction activity over the course of the year. So going back to first and second quarter, we've seen housing starts trend lower relative 2024. And so I would say the level we're at today, which is roughly 1.3 million starts continues to be that level that we're seeing through the second quarter, and we do expect the seasonal effect to play through in the end of the year and fourth quarter, but I would expect that demand level to continue to persist in the third quarter.

Our next question comes from Kevin McCarthy of Vertical Research Partners.

If we rewind the clock 3 months, it seems to me that Wall Street analysts generally underestimated the industry operating rates in the ethylene chain, for example, and perhaps also for Westlake. And listening to you today, it sounds like those operating rates and the trade flows are in the process of normalizing.

So I was wondering if you could comment on how much harder you might be able to run your crackers and your polymer assets in the third quarter relative to the second quarter. Is it a low single-digit uplift or a high single-digit percentage uplift or somewhere in between? Any guidance on that operating leverage dynamic would be very helpful.

Yes. So I will take that question. So if you look at our cracker, since we went through the major turnaround beginning of the year, these crackers have been -- all of our crackers have been running at full capacity. So -- and as you know, we're a little bit short in ethylene, but they're running at full capacity. If you look downstream on our polyethylene, we're running at pretty high rates, too, since we finished some of the turnarounds. The issue has been for us more on the chlorovinyl side and Epoxy, I mean Epoxy, we said we addressed the problem. And by shutting down the site and basically buying liquid epoxy resin now from the market. and are supplying from our sales from the U.S.

But if you look at the chlorovinyl chain. The problem is -- I mean, the demand is certainly not as high as we would like it to be, but there is demand in the market and it's pretty stable. And it's for us to capture that demand and by increasing our throughput. So how and where it's going to stabilize, I don't know. But we certainly have some leverage by bringing most of our chlorovinyl operating units back to what we consider as normal reliability.

Okay. And then as a follow-up, can you provide an update on your polyethylene resin pricing outlook, for example, have you settled any July contracts in the U.S.? And how much pricing are you seeking for August?

Yes. So Kevin, when you think of polyethylene, we -- pricing for July has not yet settled, but there are a number of price initiatives out for July and for August. So we have in the industry between $0.06 to $0.07 announced for July and for August, their announcements range of between $0.05 and $0.08 for August.

We've seen demand begin to recover really starting earlier this year. But for the month of July, prices have not yet settled. There remains certainly an elevation in ethylene, as Jean-Marc just earlier noted. And so certainly, we're looking to recognize that with those elevated ethylene prices, we need to see some of these increases work your way through the system.

Our next question comes from Michael Sison from Wells Fargo.

You noted that volumes would be better in the third quarter. Can you talk about where you think industry margins sort of ended 2Q? Should they be better sequentially in the various chains, chlor-alkali, polyethylene and such in the third quarter versus the second quarter?

Yes. So Mike, as you think about the comment I just added in polyethylene, we certainly have price announcements out in polyethylene. We have not settled July. We'll see if we get some of those nominations settled in July and into August. And I would say in PVC, July did settle flat for the month. but there are nominations out for later this quarter. In August, there's a nomination of $0.03 in the industry.

So as we think across the PEM and PVC chains, we certainly have seen some announcement action. But obviously, we're still waiting to see if those prices take action and take traction.

Okay. And then what do you think about seasonality. Typically, the fourth quarter for you all is the weakest quarter it's been an unusual year. So how do you think about the normal seasonal trends as we head into the fourth quarter, given -- you've had some tough turnarounds in the second, maybe those don't -- those all go away by the fourth and just directionally how you see that unfolding for the second half.

So as we think about -- and I'll start maybe with the PVC side, the reason we have price nominations out for August to address construction needs. As I mentioned earlier, July settled flat. We'll see if we are able to get any traction on pricing Again, ethylene pricing is up, so we're trying to push some of that higher feedstock cost through in our PVC chain. We need to see some of those price seminations get traction to gain margin growth.

As I mentioned earlier, July for polyethylene has not yet settled, and we have price nominations out for polyethylene as well. When we think about the cost side of the equation, we're reaching the peak of demand for chlorine here in mid-summer. And so as we think about the fourth quarter, to your question, will begin to ramp down chlorine requirements as we reach the end of the fourth quarter, and that will tighten up production of both chlorine and caustic soda.

So really to summarize -- yes, to summarize the pricing environment, we've got a number of nominations out there, but we've obviously got some pressures on feedstocks.

Our next question comes from Josh Spector of UBS.

First, I wanted to follow up on HIP, and you've talked about this in various ways. But if I look at your updated guidance, in the first half in HIP sales, you were down around 3% year-on-year. Your second half HIP outlook is about up 3% year-on-year. So curious if you could talk to 2 things there. I mean, one, the visibility by the markets.

And then two, how you think we should think about your performance relative to housing, considering the outlook has gotten worse, but maybe your second half outlook has gotten a little bit better or maybe even unchanged?

When you think about the outlook we have, as you clearly can see, adjusted our revenue guidance down. But I would say the product mix that we have allows us, and I'd say the product mix we have is a little bit different product mix to the others with our Pipe & Fittings and compounds businesses.

The demand that we're seeing really in the infrastructure water business, this is coming from the infrastructure at past several years ago, allows us to be able to address those needs in cities and counties. And I think that is as you could see a nice contributor in the second quarter, and we'd expect that to provide a tailwind over time. Certainly, in our exterior building products business, we've continued to adjust our portfolio and adapt to the affordability issues you hear much discussed.

So again, recognizing that the back half of the year should begin to trail off depending on weather as we end the third quarter and into the fourth quarter, it's very weather dependent in terms of how volumes and margins unfold. So this is why we've really adjusted our revenue guidance but continue to stick to the margin guidance of 20% to 22% that we provided already.

Okay. And then just one other clarification just around the Pernis shutdown. So $100 million drag on a trailing basis, do you get a benefit in the second half versus first half from the shutdown? Or is that more of a 2026 effect?

It's largely a '26 impact. There will be some benefit as we begin to wind down and bring the plant fully down later this year. But the biggest benefit really is a '26 benefit.

Our next question comes from Bhavesh Lodaya from BMO.

Within the HIP segment, can you size up the municipal what application market for us? Like what's -- maybe what's the total size? How fast is it growing? And if possible, who are the key competitors that you compete with over there?

Yes. The large players in this market really are largely private players. This is the larger dialer PVC business. So you see that players such as Diamond Plastics is one of the larger players and JM Eagle is also one of the other larger players in this business. These are the key players really in the larger diameter PVC space. We do compete in -- with other who are non-PVC producers, but these are the large PVC pipe producers.

The market continues to organically grow very nicely, I'd say in the neighborhood of 5% to 7% over time. And so as we think about the overall business of our Pipe & Fittings business, we're the only producer that is producing not only pipes, but also fittings to provide the entire integrated kit to meet needs that we see in the water business addressing municipal requirements to solve water issues.

Got it. And as a follow-up, within these pipes and fittings, I would say, subsegment I believe you mentioned pricing was down year-over-year, but obviously, your overall pricing is up 2% sequentially for the HIP segment. Would you say the pricing pressures we have seen in Pipe & Fittings are behind us? Or are you still seeing sequential pricing headwinds there?

No, I'd say we're continuing to deal with market issues day-to-day. This is something that we deal with and always deal with day-to-day in each discrete market in which we operate, whether it is in our Pipe & Fittings business or in our Building Products business, which were also nice contributors, but you have to be competitive. And in that competitive market, you have to meet competition. And so there is certainly, as you've seen resin prices have drifted over. We've seen prices drift in pipe as well.

Our next question comes from Hassan Ahmed from Alembic Global Advisors.

Question around chlor-alkali supply, particularly within North America. I mean over the last couple of quarters, there's been some fare in the marketplace that there's been some new projects announced. But I mean, as I look at it, it seems that there is 1 expansion on the table and, call it 2 greenfield projects. And 1 of those 2 greenfield projects doesn't even have an FID.

And the expansion project, the number out there seems to be higher than eventually where it'll end up. So just would love to hear your views on what the supply picture looks like through the end of the decade? And should it be worrisome them or not?

No. I mean, I will take the question. If you look into the market, I think that we see some stability going forward. I think probably at the end of the decade, we're going to start seeing some uplift probably in the -- in market demand. And yes, that's the way we look into it right now.

Understood. And just in terms of the products that you produce, be it on the ethylene, polyethylene side, be it on the chlorovinyl side of it. what rumblings are you hearing in terms of rationalization of those capacities in China, in particular.

That's a -- it's an interesting question. I think that we would -- when you look at the prices currently that you see in China, you would expect that some -- that there would be some restructuring. We haven't seen them. We haven't seen too much restructuring I cannot predict what's going to happen in the future. And for us, as far as Westlake is concerned, I mean we need to adapt and make sure that we can operate in an environment like that and make money in all of our segments in that kind of environment.

So I think some of them are running really close to the edge. You would expect that there would be some restructuring. We haven't seen many yet.

And I would just add that the NDRC has made some announcements here. But as Jean-Marc said, we haven't seen any actions yet. But that will take time. That will take time.

Our next question comes from Peter Ostland from Truist Securities.

So first, I just wanted to ask what percentage of your volumes in PEM were sold into export markets during the second quarter? And how does that compare to what you see as normal? And how would you expect that mix between domestic and export sales to change in the third quarter?

So Pete, when you think about our normalized exports, it varies a little bit by product. But if you look at all those products combined, it's in the 30s, mid-30s. But it does vary by product. But obviously, when you think about a normalized number, we were not selling as many pounds in the export market because of our planned and unplanned outage issues in the second quarter.

Yes, a follow-up question I had, just on the $200 million of incremental cost savings that you announced today, do you have an estimate you can share for the incremental cash outlays that you expect in order to realize these new cost savings?

These actions, we believe are reasonable actions that we don't think require a lot of cash outlay. These actions are really going to deliver really largely in 2026 as you can see we have initiatives already underway, but it's not a large cash outlay.

Our next question comes from David Begleiter from Deutsche Bank.

Jean-Marc and Steve, of the $110 million of average impact in Q2, how much can we add back for Q3?

As you heard us earlier speak, David, I expect that as we slowly ramp up, we're still going to have some carryover from that. As you can see, we had $30 million sequentially from Q1 into Q2. So I do expect that you cannot add all of that $110 million back fully in Q3. But I don't have a number to give you today.

Understood. And the new cost savings of $2 million how much would you view as permanent or structural? How much would be temporary relative to when volumes do come back?

No, I expect these to all be structural, David. And so I expect that $200 million to be structural and really sticky therefore. We obviously have to recognize their inflation in the market. But frankly, we think these are structural changes that we're implementing.

Our next question comes from Matthew DeYoe from Bank of America.

And I apologize if you covered this a little bit because I know it's been a bit of a talking point in the discussion today, but your net short ethylene and have been for a while now. And I know you've been comfortable there. But as your peers tie up some of this excess position, prices are moving higher. And I know Lyondell is maybe delayed here, but I think they remain committed to Flex, too. So like does this just change your view on how you want to position the business over the next 5 years? Is there any desire to kind of tie this up?

Yes, I'll take that one. So yes, you're right. We are short in ethylene. And I think for us, it's a matter of how much do we want to be short. And I think if we -- we always have the opportunity to invest or make some acquisition or do things like that. Right now, I think we like where we are. But it's not to say that it couldn't change in the future if some opportunities present themselves to reduce that short, depending on market conditions and if we see the downstream business grow over the next several years. So I think we're okay for now, but we will not -- we will look at everything that comes our way if we want to redo that chart.

Okay. And look, HIP had a good quarter. It was definitely better than we were expecting. So I don't want to kind of dig too much on it. But I mean the flip side to the stable margins, it looks like it was an 80% decremental margin. And so is this kind of just a mix issue or wanted to -- or tough comps. Obviously, it might be part of that, but I just want to get a little bit better sense of what's going on with the surface.

Yes. So the mix you could see was really -- and again, year-over-year was really driven by the building -- the exterior building products not surprisedly giving lower construction activities. So in our compounds and exterior building products businesses, volumes were certainly lower given the reality of the construction activity level.

So I mentioned the water demand that we're seeing in the infrastructure business with some of the offset to that, but not fully offsetting some of the weakness we saw in our compounds in Building Products businesses year-over-year.

[Operator Instructions] Our next question comes from Matthew Blair from TPH.

Just looking at spot PVC prices that are almost approaching all-time lows. Could you talk a little bit about the global supply-demand outlook for PVC? Clearly, the demand side is affected by weak construction trends, but what about the supply side? How much global capacity do you expect to be added in PVC this year and next year? And what are you seeing in terms of operating rates for China PVC plants.

Yes. So Matthew, when you think about the situation in PVC, certainly, a great majority of that does go into construction markets. And certainly, the weakness that you've seen in the Asian market and the European markets continue to really impact kind of operating rates. The issues that we've seen here in construction, we recognize that the underbuild in North America is just that. It's been a long-term underbuild for over a decade. And we think the demand picture here is ripe for change given the demographic demand for housing.

But when you think of the global supply/demand balance, we don't see a significant amount of new capacity coming into the market incrementally from where we sit in 2025. You saw some of the comments or heard some of the comments we made earlier in terms of some of these markets, some of these producers, especially those in Asia, are currently underwater. And I think this is why you're hearing commentary about the Asians and specifically the NDRC talking about some potential rationalization, which could take many, many years.

But nevertheless, I think the market really needs some demand to rebound here in the North American European markets. But the Asian markets will take longer to recover.

Great. And just looking at the pressures on free cash flow in the quarter, it looked like one pressure was due to another use of working capital. I'm showing a use of working capital year-to-date of almost $400 million. Would you expect that to completely reverse in the back half of the year? And I guess, if not, like what are the factors that would determine whether you can recover that big use of working capital year-to-date.

Yes. There were a large amount of dollars really in the payable side related to the turnaround activity and the unplanned outage activity. And of course, on the receivables side, specifically in Building Products, we saw a buildup in sales and therefore, a buildup in receivables. And I do expect that to turn in the second half of this year.

That's the time allotted for a Q&A session. So it has now come to end. Are there any closing remarks?

Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our third quarter results.

Thank you for participating in today's Westlake Corporation Second Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed via Westlake's website.Goodbye.