Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation PEM Profitability Improvement Plan Update conference call. During the presentation, all participants will be in a listen-only mode. After the speaker's remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, December 15th, 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 two 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 31st, 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 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 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 two 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. PEM's earnings and margins have declined to unacceptable levels as a result of global overcapacity in certain materials, primarily the chlorovinyl 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 chlorovinyl 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 announcements, 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 three, 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 to 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 three chlorovinyl plants, as well as our styrene plant as part of our PEM Profitability Improvement Plan.
The plant closures that we are announcing today will reduce our global chlorovinyl capacity by between 11% and 15%, depending on the specific product. Turning to slide four, we expect to incur total pre-tax charges of approximately $415 million related to the closure of these facilities. This consists of a non-cash 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 non-cash accelerated depreciation, amortization, and asset write-off charges, and other plant shutdown charges, and a substantial portion of the employee severance and separation costs 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 costs, thereby generating free cash flow savings of approximately $175 million in 2026, resulting in less than a one-year payback on the $58 million of cash costs related to execute this plan. When combined with the previously 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 destocking. As a result, we expect PEM's fourth quarter EBITDA to be between $125 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-$4.4 billion and 20%-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 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 two 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.
To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Patrick Cunningham with Citi. Your line is open.
Hi, good morning, and thanks for taking my questions. 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?
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's set high on the cost curve because this asset was challenged with logistics costs as we moved 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 it'll 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'll give us the ability to operate at a much better cost position as a result going forward.
Great. Thank you so much.
You're welcome.
Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Your line is open.
Great. Thanks for taking my question. I hope you guys are well. So I guess just on your last comment about the cost difference, maybe you can just kind of frame how these plants compare to Geismar and Plaquemine 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 two, do you plan on servicing that volume increase from your now future footprint, or would you have to kind of do some debottlenecking, or how do you kind of address that as well? Thanks.
Yeah. Thank you, Arun, for the question. And the answer is we think our assets that are not impacted by this 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 2026 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 cost, but shipping and logistics cost as well.
Thanks for that, Steve. And just as a follow-up, could you potentially frame, I know it's 11%- 15% of your capacity. 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 two, in PVC and chlorine? I mean, what's your kind of outlook on the potential positive impact on pricing and profitability from these actions?
Yeah. 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, 2026 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 chlorovinyl sites. But our real focus was focusing on lowering our cost structure and servicing our customers with the lowest cost possible.
Thanks.
You're welcome.
Thank you. Our next question comes from Duffy Fischer with Goldman Sachs. Your line is open.
Yeah. Good morning, guys. First question is just what were the operating rates of these assets this last year, and how much revenue did they produce?
Yeah. 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 cost 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 cost associated with those assets that we will not be incurring. So it's the $100+ million the $75 million to total the $175 million.
Okay. You got it. Thanks.
Thank you. Our next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Your line is open.
Thanks. Good morning, everyone. 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 chlorovinyl 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 chlorovinyl sites were destined for the export market.
Understood. Thanks for that. And just to 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 three-year or five-year basis? How much lower would your ongoing CapEx be?
Yeah. 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.
Thanks a lot, Steve.
You're welcome.
Thank you. Our next question comes from Michael Sisson with Wells Fargo. Your line is open.
Hey, guys. First question. In terms of the global capacity that's 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?
Yeah. 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.
With that market being served by these three chlorovinyl sites, which were on the higher end of our Westlake 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. The consultants that published 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'd be helpful. And I apologize if I missed that.
Yeah. And so my update was that fourth quarter EBITDA for PEM would be between $125 million-$150 million lower than the third quarter of 2025, excluding any identified items, including the charges related to today's announcements.
Got it. Thank you.
You're welcome.
Thank you. Our next question comes from Salvator Tiano with Bank of America. Your line is open.
Yes. Thank you very much. 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 cost or ethylene cost higher? What essentially made these assets higher cost?
Yeah. So Sal, we were previously buying in the neighborhood of about 1.5 billion lbs in the merchant market, and obviously that's coming down proportionally. So we'll still be buying over 1 billion lbs of ethylene to service the market. These higher cost assets were assets that were serving an export market. And because of the transportation logistics associated with these assets, the lower market, excuse me, 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.
Thank you very much.
You're welcome.
Thank you. Our next question comes from Josh Spector with UBS. Your line is open.
Yeah. Hi. Good morning. 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 recognized 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.
Fair enough. And just quickly on the cost-saving side, the $600 million you called out, is that a number we can add to second half 2025, or is some of that more of a run rate and accrues more in 2027?
No. 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 the 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.
The additive on top of 2026 are realized in 2026?
Realized in 2026.
Great. Thank you very much.
You're welcome.
Thank you. Our next question comes from David Begleiter with Deutsche Bank. Your line is open.
Thank you. Good morning, Steve. Should these actions return PEM to be EBITDA profitable in Q1?
David, a lot of that is a function really of how we see market pricing evolve. I would say there is a strong push to really turn this business around to return profitability to this business. 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 a challenge for a number of years. Thank you.
Yeah. 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.
Thank you.
You're welcome, David.
Thank you. Our next question comes from Jeff Zekauskas with JP Morgan. Your line is open.
Thanks very much. 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. Yeah, Jeff, as you think about the overall impact that we're seeing in cost, and you think about 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 chlorovinyl 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 the combination of tighter margin, the operating cost, as well as the transportation cost 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.
Great. Thank you very much.
You're welcome.
Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Your line is open.
Yes. Thank you and good morning. 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 two? 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.
Okay. Thank you so much.
You're welcome.
Thank you. Our next question comes from Alexey Yefremov with KeyBanc Capital Markets. Your line is open.
Thanks for taking my follow-up. 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?
As we think about the shuttering of 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. 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.
Thanks a lot.
You're welcome.
Thank you. 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 two hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.