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Why Is Westlake (WLK) Down 4.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Westlake Chemical (WLK - Free Report) . Shares have lost about 4.4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Westlake Chemical’s Earnings & Sales Lag Estimates in Q1

Westlake Chemical delivered a profit of $72 million or 55 cents per share for first-quarter 2019, down from $287 million or $2.20 it earned in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) amounted to 94 cents and fell short of the Zacks Consensus Estimate of $1.38.

Sales declined 5.8% year over year to $2,025 million. Also, the figure missed the Zacks Consensus Estimate of $2,080 million.

Segment Highlights

Sales in the Olefins segment fell 8.7% year over year to $459 million in the quarter. Operating income in the segment plunged roughly 77.3% to $37 million. This was mainly caused by lower margins resulting from reduced sales prices for major products, which followed the sharp drop in global crude oil prices in fourth-quarter 2018. Also, higher olefins production capacity along with increased ethane feedstock costs affected results, partly offset higher polyethylene and styrene sales volumes.

The Vinyls segment generated sales of $1,566 million, down 4.9% year over year. Operating income in the segment was $101 million, down around 62% year over year. The decline was caused by lower sales prices for major products, higher costs related to acquisition, restructuring and integration-related activities along with higher ethane feedstock costs. The downside was partly offset by lower purchased ethylene costs.

Financial Position

Westlake Chemical ended the first quarter with cash and cash equivalents of $445 million, down around 40.9% year over year. Long-term debt was $2,669 million, down from $2,666 million in the year-ago quarter.

Cash flow from operations was $147 million in the quarter, down 34.7% year over year.

Outlook

The company is witnessing good demand for major chemical products in the domestic and export markets. However, it experienced a difficult pricing environment in the first quarter, stemming from sharp decline in global crude oil prices in late 2018 along with softer Chinese demand.

The management is cautiously optimistic that the trade tensions between the United States and China as well as crude oil prices will improve in second-half 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.34% due to these changes.

VGM Scores

Currently, Westlake has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Westlake has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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