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Westlake Chemical (WLK) Q4 Earnings: What's in the Cards?

Westlake ChemicalWLK is set to release its fourth-quarter 2016 results before the market opens on Feb 21.

Westlake Chemical's adjusted earnings came in at 86 cents per share in the third quarter of 2016, missing the Zacks Consensus Estimate of 90 cents. Reported earnings fell 63% year over year to 51 cents per share.

Revenues rose around 7.7% year over year to $1,279 million in the third quarter. Sales in the quarter benefited from the contribution of Axiall Corp. acquisition. However, revenues narrowly missed the Zacks Consensus Estimate of $1,289 million.

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

Westlake Chemical Corporation Price and EPS Surprise

Westlake Chemical Corporation Price and EPS Surprise | Westlake Chemical Corporation Quote

Factors to Consider

Westlake Chemical completed the acquisition of Axiall in the third quarter of 2016. The company paid $33 per share in cash, representing an enterprise value, including debt and certain other liabilities, of $3.8 billion.

Westlake Chemical expects the acquisition to provide annual cost synergies of roughly $100 million and be accretive to its earnings from the first year itself post closure of the deal. The company is also hopeful that the buyout will help improve the financial as well as operational flexibility of the combined company and contribute to the current growth strategy.

The company sees transaction and integration related expenditures of around $5 million to $10 million related to the acquisition in the fourth quarter.

In the third quarter, Westlake Chemical also completed a new $1 billion unsecured revolving credit agreement. The conclusion of the agreement increases the company's financial flexibility and also improves its liquidity position to finance growth plans.

Westlake Chemical expects capital expenditures for 2016 to be in the band of $600-$650 million. This includes spending on the expansion of the Petro 1 ethylene unit in Lake Charles, LA, which was completed in the second quarter. It also includes investment in the Lotte ethylene joint venture as well as early engineering work and the purchase of long lead items related to the expansion of the Calvert City ethylene unit.

Westlake Chemical is expected to continue to benefit from healthy demand for olefins and vinyls products, supported by improving consumer spending. However, the company expects a major turnaround at its Lake Charles vinyls facility to impact earnings by around $30 million in the fourth quarter. The company is also exposed to pricing pressure which may continue to weigh on its margins.

Westlake Chemical has outperformed the Zacks categorized Chemicals-Plastics industry over the past three months. The company's shares gained 19.4% over this period while the industry saw a paltry gain of 0.4%.

Earnings Whispers

Our proven model does not conclusively show that Westlake Chemical is likely to beat estimates this quarter. This 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 not the case here, as you will see below:

Zacks ESP: Earnings ESP for Westlake Chemical is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 75 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Westlake Chemical carries a Zacks Rank #4 (Sell). We caution against stocks with Zacks Ranks #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

Intrepid Potash, Inc. IPI has Earnings ESP of +20% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Iamgold Corporation IAG has an Earnings ESP of +100% and a Zacks Rank #3.

Vale S.A. VALE has Earnings ESP of +34.29% and carries a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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