Why Is Westlake (WLK) Down 47.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Westlake Chemical (WLK). Shares have lost about 47.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Westlake due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Westlake Chemical’s Q4 Earnings and Sales Lag Estimates

Westlake Chemical saw lower profits in the fourth quarter of 2019, hurt by reduced global sales prices for its major products. The company posted a profit of $72 million or 56 cents per share for the quarter, down around 41% from $123 million or 95 cents it earned in the year-ago quarter.

Barring one-time items, adjusted earnings per share were 37 cents in the quarter. It fell well short of the Zacks Consensus Estimate of 98 cents.

Sales fell roughly 6% year over year to $1,883 million. The figure also missed the Zacks Consensus Estimate of $1,962.7 million.

Lower global sales prices for key products due to trade uncertainties and a slower global economic growth were, in part, masked by reduced purchased ethylene, ethane feedstock and fuel costs.

Full-Year Results

Earnings for 2019 were $3.25 per share, down from $7.62 per share a year ago.

Revenues were $8,118 million for the full year, down around 6% year over year.

Segment Highlights

Sales in the Olefins segment fell around 19% year over year to $398 million in the reported quarter. Operating income in the segment tumbled roughly 46% to $49 million. The decline was mainly due to reduced sales prices for major products resulting from higher olefins production and greater impacts from turnaround activity.

The Vinyls segment generated sales of $1,485 million, down around 1% year over year. Operating income in the segment was $68 million, down around 46% year over year. The decline was caused by reduced sales prices for caustic soda and PVC resin.

Financial Position

Westlake Chemical ended the quarter with cash and cash equivalents of $728 million, down around 3% year over year. Long-term debt was $3,445 million, up roughly 29% year over year.

Cash flow from operations was $1,301 million for 2019, down around 8% year over year. Cash flow from operations was $333 million for the reported quarter.

Outlook

Westlake Chemical said that it remains focused on optimizing its operations and lowering its cost position. The company believes that its advantaged position on the global cost curve coupled with a strong balance sheet have positioned it to boost long-term value for shareholders.

The company expects cash interest expense to be roughly $140 million in 2020. Capital expenditures for the year are projected to be in the band of $650-$700 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -48.5% due to these changes.

VGM Scores

At this time, Westlake has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Westlake has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.