Westlake (NYSE:WLK) reported higher third-quarter earnings and free cash flow from a year earlier, as cost reductions and higher chemical selling prices offset weaker housing demand. But earnings fell sharply from the second quarter as chemical prices retreated and costs rose.
The company reported sales of $3 billion and EBITDA of $408 million for the third quarter of 2026, compared with EBITDA of $313 million a year earlier and $679 million in the preceding quarter. Free cash flow was $220 million, with operating cash flow of $408 million and capital spending of $188 million.
Westlake’s earnings measures discussed on the call exclude $58 million in identified charges, including $51 million related to the shutdown of its Cologne, Germany, PVC facility.
President and CEO Jean-Marc Gilson said the company’s profitability improvement plan had delivered a $500 million EBITDA uplift through the first nine months of the year and remained on track to deliver $600 million for the full year.
Materials Gains Offset Housing Weakness
Performance and Essential Materials, or PEM, sales rose 8% from a year earlier to $1.9 billion. EBITDA increased to $215 million from $90 million, and the segment’s EBITDA margin expanded to 11% from 5%. CFO Jon Baksht attributed the improvement to higher average selling prices and benefits from the profitability plan.
Baksht said the plan contributed approximately $200 million to the company’s year-over-year EBITDA increase, while higher PEM selling prices contributed another $100 million. Cost inflation, European energy expenses, integration costs at the Wilhelmshaven facility and lower housing-product volumes offset part of those gains.
Compared with the second quarter, PEM EBITDA fell $201 million. Prices for polyethylene and PVC resin moderated after rising earlier in the year amid oil supply disruptions associated with the Middle East conflict. Higher European energy costs and plant maintenance also weighed on results.
In Housing and Infrastructure Products, or HIP, sales were roughly unchanged from a year earlier at $1.1 billion, while EBITDA fell $20 million to $195 million. Excluding the contribution from the ACI acquisition, sales volume declined 6% as residential construction slowed. The segment’s EBITDA margin slipped to 18% from 20%.
HIP sales volume fell 17% from the second quarter, partly because pipe and fittings customers shifted orders into the earlier period to secure supply. Baksht said pipe and fittings volume for the first nine months was still 8% higher than a year earlier, supported by infrastructure spending and demand related to construction and data centers.
European Restructuring and Cost Pressures
Westlake is consolidating sales volumes from its closing Cologne PVC resin facility into its recently acquired Wilhelmshaven site. Gilson said Wilhelmshaven’s access to intermediates imported from the U.S. Gulf Coast would help reduce its exposure to high European energy costs.
European energy costs represented roughly a $20 million headwind for PEM in the third quarter, Baksht said. Gilson said Westlake expects its European business to return to profitability in 2027, barring a significant change in conditions, and is targeting cash flow neutrality there next year.
Gilson also said Westlake had closed numerous smaller HIP sites this year and last year and reduced employee numbers as part of productivity efforts. The company plans further cost and reliability improvements across its businesses.
Outlook for the Fourth Quarter and 2027
Westlake expects fourth-quarter HIP revenue of $900 million to $1 billion and an EBITDA margin of approximately 13%, reflecting a typical seasonal decline. Baksht said the forecast assumes continued cost pressures and some customer destocking; meaningful price increases may take time to implement.
In PEM, Westlake expects lower sequential sales volumes because of maintenance and seasonality. It is seeking a further 5-cent-per-pound polyethylene price increase after a 5-cent increase in September. Gilson said demand had been strong in domestic and export markets, although the October price increase had not settled.
Management expects residential construction weakness to continue into 2027, with infrastructure demand providing some offset. Baksht also pointed to global chemical oversupply, including an expected 6% addition to polyethylene capacity next year.
Westlake reduced its 2026 capital spending forecast by $50 million to $850 million. It ended September with $2 billion in cash and investments and $5.1 billion in debt. The company also said it acquired a steel roofing business early in the fourth quarter and began operations at a new PVCO plant in Wichita Falls, with first commercial sales expected in 2027.
About Westlake (NYSE:WLK)
Westlake Corporation is a global manufacturer of materials and products used in construction, packaging, consumer goods, and other industries. Founded in 1986 and headquartered in Houston, Texas, the company serves customers through operations in North America, Europe, and Asia.
Westlake’s Performance and Essential Materials business produces petrochemicals and materials such as polyethylene, styrene, chlor-alkali products, and PVC resins. These materials are used in applications ranging from packaging and household products to water treatment and construction.
Through its Housing and Infrastructure Products business, Westlake supplies building and construction products including pipe and fittings, siding, trim, windows, roofing materials, and stone veneer.
