Westlake Chemical (WLK)

Q1 2012 Earnings Call

May 01, 2012 11:00 am ET


David R. Hansen - Senior Vice President of Administration

Albert Y. Chao - Chief Executive Officer, President, Director, Member of Nominating & Governance Committee, Member of Compensation Committee and Member of Corporate Risk Committee

M. Steven Bender - Chief Financial Officer, Senior Vice President and Treasurer


Brian Maguire - Goldman Sachs Group Inc., Research Division

James Sheehan - Deutsche Bank AG, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Hassan I. Ahmed - Alembic Global Advisors

Tarek Hamid - JP Morgan Chase & Co, Research Division

Gregg A. Goodnight - UBS Investment Bank, Research Division

Robert Reitzes



Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Westlake Chemical Corp. First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, May 1, 2012. I would now like to turn the call over to today's host, Dave Hansen, Westlake's Senior Vice President of Administration. Sir, you may begin.

David R. Hansen

Thank you. Good morning, everyone, and thank you for joining us for the Westlake Chemical Corp. first quarter conference call. I am joined today by Albert Chao, our President and CEO; Steve Bender, our Senior Vice President and Chief Financial Officer; and other members of our management team.

The agenda for today will be as follows: Albert will first make a few comments regarding Westlake's performance in the first quarter and current perspective on the industry. Steve will then provide you with a more detailed look at our financial and operating results. Albert will have a few concluding comments, and then we will open up the call for 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 and uncertainties. Actual results could differ materially based upon factors including: the cyclical nature of the chemical industry; availability, cost and volatility of raw materials energy and utilities; governmental regulatory actions and political unrest; global economic conditions; industry operating rates; the supply-demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; and other risk factors.

As you are probably aware, earlier this year, we publicly announced a proposal to acquire all of the outstanding shares of Georgia Gulf Corporation. We continue to believe that combining the 2 companies would be beneficial to Westlake. While we are still evaluating this acquisition opportunity, during our prepared remarks, we will not comment further on our proposal and we will not be able to respond to any caller's questions regarding Georgia Gulf. Westlake issued earlier this morning a press release with details of our quarterly financial and operating results. This document is available in the Press Release section of our webpage at westlake.com. A replay of today's call will be available beginning 2 hours after completion of this call, until 11:59 p.m. Eastern time on May 8, 2012.

The replay may be accessed by dialing the following numbers: domestic callers should dial 1 (888) 286-8010; international callers may access the replay at (617) 801-6888. The access code for both numbers is 12583170.

Please note that information reported on this call speaks only as of today, May 1, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage at westlake.com.

Now I'd like to turn the call over to Albert Chao. Albert?

Albert Y. Chao

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us. Westlake had a record first quarter and delivered the highest quarterly net income in our history. We reported net income of $87.8 million, or $1.31 per diluted share in the first quarter. We saw sales volumes increased sequentially in both our segments, and margins expanded as ethylene feedstock costs declined significantly. During the first quarter, ethane and poly [ph] feedstock costs decreased driven by the growing supply of the feedstocks and reduced demand as the industry saw a higher level of ethylene plant maintenance turnaround impacting approximately 7% of industry production capacity. The impact of these feedstock price declines resulted in another quarter of strong performance by our Olefins segment and the best Vinyls segment performance since mid-2008. The PVC industry saw its highest domestic and total revenue sales volumes during the first quarter since the second quarter of 2008. Our Vinyls domestic sales volumes improved over those in the first quarter of 2011 and those in the fourth quarter of 2011 as well.

The combination of improved sales volumes due to an earlier start to the construction season as a result of a warm winter and lower feedstock costs drove a significant improvement in earnings in our Vinyls segment this quarter. The lower feedstock costs we saw in the first quarter indicate to us that increased production of natural gas liquids has had, and will continue to have, a positive impact on our feedstock costs. The growing supply of natural gas liquids coming from new shale gas production, new NGL transmission plants and new pipelines should provide lower cost feedstocks for years to come, providing a globally competitive cost position for the ethane-based North American ethylene industry. During the first quarter of 2012, ethane-based ethylene had an average $0.30 per pound production cost advantage over naptha-based ethylene, putting producers who use naptha feedstock at a significant disadvantage. I'm encouraged by this quarter's performance, and I remain confident that feedstock cost advantage resulting from increased production of natural gas liquids will continue to have a very positive impact on our industry.

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