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Westlake Chemical's (WLK) Q2 Earnings: Is a Beat Likely?

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Westlake Chemical Corporation (WLK - Free Report) is slated to release second-quarter 2018 results on Aug 2, before the opening bell.

In the last reported quarter, the company recorded a net income of $287 million or $2.20 per share, marking a roughly two-fold rise from $138 million or $1.06 earned a year ago. The bottom line was driven by higher selling prices for key products, benefits of lower U.S corporate tax rate and a gain from redemption of debt. Adjusted earnings per share in the quarter were $2.24, which beat the Zacks Consensus Estimate of $2.09.

Net sales went up around 10.7% year over year to $2,150 million. The figure surpassed the Zacks Consensus Estimate of $2,084 million.

Notably, Westlake Chemical surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 5.9%.

Shares of Westlake Chemical have moved up 49.1% in a year’s time, outperforming the 32.5% growth recorded by its industry.

 

 

Let’s take a look at how things are shaping up for the forthcoming announcement.

Earnings Whispers

Our proven model shows that Westlake Chemical is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for Westlake Chemical for the second quarter is +3.09%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $2.60 and $2.52, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Westlake Chemical currently carries a Zacks Rank #3, which when combined with a positive ESP, make us reasonably confident of an earnings beat.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Westlake Chemical is gaining from Axiall acquisition, increased demand and higher selling prices for major products. The Axiall acquisition has diversified the company’s product portfolio and geographical operations, creating a North American leader in Olefins and Vinyls. The company expects to realize $250 million of cost reduction synergies related to the acquisition in 2018.

During first-quarter call, Westlake Chemical noted strong demand for products across the segments. The company is benefiting from investments made last year to improve its operations and reliability. Westlake Chemical is also working diligently on the recently announced expansion of its Vinyls segment. This additional production capacity will help the company address the growing needs of its global customers.

The company is seeing increased global demand for all major products in both Vinyls and Olefins segments, providing a boost to its top line. Favorable demand trends for all of its major products including polyethylene, PVC resin and caustic soda is expected to continue in the second quarter. The company is also expected to gain from lower U.S corporate tax rate as a result of the recent U.S tax reform.

The Zacks Consensus Estimate for Westlake Chemical’s second-quarter 2018 revenues is pegged at $2,157 million, projecting an increase of 9% year over year.

The consensus mark for sales at the company’s Olefins segment is currently pegged at $498 million, showing a decline of around 1% sequentially. Sales at the segment fell roughly 7.4% year over year during first quarter. The company witnessed a decrease in operating income of 9.4% year over year owing to lower polythene sales volume and higher feedstock cost. Operating income in the second quarter is expected to fall 9% sequentially as the Zacks Consensus Estimate is currently pegged at $149 million.

The Zacks Consensus Estimate for Vinyls segment’s second-quarter 2018 sales is pegged at $1,673 million, projecting a sequential growth rate of 1.6%. Net sales at the unit rose roughly 17.6% year over year in the first quarter.

Meanwhile, operating income jumped nearly four-fold year over year, aided by higher prices for major products and increased sales volumes for caustic soda and PVC resin during first quarter. The Zacks Consensus Estimate for second-quarter 2018 operating income is pegged at $338 million, projecting sequential growth rate of 27%

Westlake Chemical Corporation Price and EPS Surprise

Other Stocks Poised to Beat Estimates

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Domtar Corp. (UFS - Free Report) has an Earnings ESP of +1.70% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Orion Engineered Carbons S.A. (OEC - Free Report) has an Earnings ESP of +3.85% and carries a Zacks Rank #2.

The Chemours Company (CC - Free Report) has an Earnings ESP of +2.38% and carries a Zacks Rank #3.   

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