Westlake Chemical (NYSE:WLK) Partners (NYSE: WLKP) reported a successful second quarter in 2024 with net income of $40 million, or $0.41 per unit, as announced in their earnings call on August 6, 2024. This performance was attributed to increased production and sales volume following the previous year's turnaround at Calvert City, as well as higher third-party ethylene sales prices and margins. The company's stable business model and fixed margin ethylene sales agreement were highlighted as key factors in minimizing market volatility and ensuring reliable cash flows and distributions to unit holders.
Key Takeaways
- Westlake Chemical Partners' net income for Q2 2024 stood at $40 million, or $0.41 per unit.
- The company benefited from increased production and sales volume following the Calvert City turnaround.
- Higher third-party ethylene sales prices and margins contributed to the strong quarter.
- The partnership announced its 40th consecutive quarterly distribution since its IPO in July 2014.
- Jean-Marc Gilson joined as the new President and CEO, bringing his industry experience to the role.
- Planned turnaround at Petro 1 ethylene unit in Lake Charles, Louisiana, expected to last 60 days.
Company Outlook
- The company maintains a cumulative distribution coverage ratio of approximately 1.1 times since its IPO.
- Westlake Partners plans to grow distribution through increasing ownership interest in OpCo, acquisitions, organic growth, and negotiation of higher fixed margins in the ethylene sales agreement.
Bearish Highlights
- Higher interest expenses partially offset the gains from increased production and sales volumes.
- The planned turnaround at the Petro 1 ethylene unit may temporarily impact earnings and distribution coverage ratio.
Bullish Highlights
- The stability of the business model and fixed margin sales agreements continue to minimize risks and provide predictable cash flows.
- The partnership has grown its distributions by 71% since the original minimum quarterly distribution.
Misses
- There were no specific misses mentioned in the earnings call summary.
Q&A Highlights
- The turnaround of the Petro 1 unit is expected to have a temporary effect on the coverage ratio and earnings.
- Westlake Partners has been proactive in selling ethylene ahead of schedule due to favorable margins.
- The company is exploring opportunities in the MLP equity markets and maintains dialogue with investors.
Westlake Chemical Partners' second quarter performance in 2024 reflects a solid operational and financial standing, with leadership expressing confidence in the company's ability to navigate the unpredictable global macroeconomic environment and continue delivering stable cash flows to investors. The partnership's commitment to safety, environmental stewardship, and sustainable operations was also reaffirmed.
InvestingPro Insights
Westlake Chemical Partners' (NYSE: WLKP) recent earnings report paints a picture of a company with a strong financial backbone, supported by real-time data and insights. An InvestingPro Tip highlights the company's high shareholder yield, which is further evidenced by a robust dividend yield of 8.2% as of the latest data. This dividend yield is not only significant but also attractive to income-focused investors, especially considering the company's consistent profitability over the last twelve months.
Another InvestingPro Tip points out that Westlake Chemical Partners trades with low price volatility, which is consistent with the company's business model that emphasizes stable cash flows and minimizes market volatility. This stability is critical for investors who prefer predictable returns over uncertain market swings.
From an operational standpoint, the company's P/E ratio stands at 15.04, reflecting a valuation that might appeal to investors looking for reasonable entry points into the chemical industry. Additionally, the company's gross profit margin of 32.85% for the last twelve months as of Q1 2024 indicates efficient operations and a strong ability to convert sales into profits.
InvestingPro provides additional tips for Westlake Chemical Partners, which can be accessed to gain more in-depth insights into the company's financial health and market position. As of the latest update, there are 5 more InvestingPro Tips available, offering a broader analysis for investors considering WLKP as part of their investment portfolio. For more detailed information, investors can visit the dedicated page at https://www.investing.com/pro/WLKP.
Full transcript - Westlake Chemical Partners LP (WLKP) Q2 2024:
Operator: Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Second Quarter 2024 Earnings 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, this conference is being recorded today, August 6, 2024. I would now like to turn the call over to today's host, John Zoeller, Westlake Chemical Partners Vice President and Treasurer. Sir, you may begin.
John Zoeller: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners second quarter 2024 conference call. I am joined today by Albert Chao, our Executive Chairman; 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 refer to Westlake Partners, or the partnership. References to Westlake refer to our parent company, Westlake Corporation, and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the partnership which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners MLP distributable cash flow. Definitions of these terms are available on the partnership's website. 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. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our filings, which are also available on our investor relations website. This morning, Westlake Partners issued a press release with details of our second quarter 2024 financial and operating results. This document is available in the press release section of our webpage at wlkpartners.com. A replay of today's call will be available beginning two hours after the conclusion of this call. The replay can be accessed via the partnership website. Please note that information reported on this call speaks only as of today, August 6, 2024. 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 wlkpartners.com. Now I'd like to turn the call over to Albert Chao. Albert?
Albert Chao: Thank you, John. Good afternoon, everyone, and thank you for joining us to discuss our second quarter 2024 results. In this morning's press release, we reported Westlake Partners' second quarter 2024 net income of $40 million, or $0.41 per unit. Compared to the second quarter of 2023, our second quarter of 2024 sales and earnings benefited from a higher production and sales volume as a result of last year's Calvert City turnaround, and higher third-party ethylene sales prices and margins. The stability of Westlake Partners' business model is consistently demonstrated through our fixed margin ethylene sales agreement, which minimizes market volatility and other production risks. The high degree of stability in cash flow, when paired with the predictability of our business, has enabled us to deliver a long history of reliable distributions and coverage. This quarter's distribution is the 40th consecutive quarterly distribution since the IPO in July of 2014, without any reductions. We're happy to welcome Jean-Marc to the partnership with his appointment as our new President and CEO. He's a seasoned industry leader with a proven track record of delivering sustained financial performance, most recently as President and CEO of Mitsubishi Chemical Group. Jean-Marc's appointment is a culmination of a thoughtful succession plan that ensures the continuation of our strategy to provide stable, predictable cash flows, supporting our distributions to unit holders. Now, I would like to turn the call over to Jean-Marc to provide some initial thoughts. Jean-Marc?
Jean-Marc Gilson: Thank you, Albert, and good afternoon, everyone. It's a pleasure to join Westlake Partners as President and CEO. Since its formation 10 years ago, the partnership's predictable fee-based cash flow, supported by OpCo’s Ethylene sales agreement with Westlake, has differentiated it from peers with the consistency of its earnings and cash flows. Looking back since our IPO in July of 2014, we have maintained a cumulative distribution coverage ratio of approximately 1.1 times, and the partnership has continued to provide stability in cash flows to deliver an attractive distribution to our investors. I look forward to evaluating opportunities to grow the distribution via our four levers of growth in the future, including increases of our ownership interest of OpCo, acquisitions of other qualified income streams, organic growth opportunities such as expansions of our current ethylene facilities, and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter. Steve?
Steve Bender: Thank you, Jean-Marc, and welcome to the partnership, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' second quarter 2024 net income of $14 million, or $0.41 per unit. Consolidated net income, including OpCo’s earnings, was $88 million on consolidated net sales of $284 million. The partnership had distributable cash flows for the quarter of $17 million, or $0.49 per unit. Second quarter 2024 net income for Westlake Partners of $14 million was $2 million higher than the second quarter 2023 partnership net income. Compared to the second quarter of 2023, the partnership benefited from OpCo’s higher production and sales volumes due to last year Calvert City's turnaround in higher third-party Ethylene sales prices and margins, which were partially offset by higher interest expense. Distributable cash flow of $17 million for the quarter of 2024 increased by $2 million compared to the second quarter of 2023 due to primarily higher production and sales volumes. Turning our attention to the balance sheet and cash flows, at the end of the second quarter, we had consolidated cash balances and cash investments with Westlake through our investment management agreement, totaling $160 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the partnership, and the remaining $23 million was at OpCo. In the second quarter of 2024, OpCo spent $10 million on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately one times. On July 30, 2024, we announced a quarterly distribution of $0.4714 per unit with respect to the second quarter of 2024. Since our IPO in 2014, the partnership has made 40 consecutive quarterly distributions to unit holders, and we have grown our distributions 71% since the partnership's original minimum quarterly distribution of $0.275 per unit. The partnership's second quarter distribution will be paid on August 27, 2024, to unit holders of record of August 12, 2024. For modeling purposes, we have one planned turnaround in 2024 at our Petro 1 ethylene unit in Lake Charles, Louisiana. This turnaround is scheduled to begin next month and is projected to last approximately 60 days. In prior years where we've had a planned turnaround, such as this one, the distribution coverage ratio is impacted for the period before recovering. And for this turnaround, we expect a similar result. The cost of this turnaround has been included in the amount we charge to Westlake and has been fully reserved for and funded as we commence the turnaround. Now I'd like to turn the call back over to Albert to make some closing comments. Albert?
Albert Chao: Thank you, Steve. We are pleased with the partnership's financial and operational performance in the second quarter. In particular, the recent improvement in margins on ethylene sales to third parties, primarily as a result of new industry-wide U.S. polyethylene capacity coming online, is encouraging, following a period of low third-party ethylene sales margin in 2023. While the overall global macroeconomic environment remains unpredictable, our ethylene sales agreement, which provides a predictable fee-based cash flow structure from our take-or-pay contract with Westlake for 95% of OpCo's production, will continue to deliver stable and predictable cash flows through economic ups and downs, as well as planned and unplanned turnarounds. As always, we will continue to focus on safe operations along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our second quarter earnings call. Now I'll turn the call back over to John.
John Zoeller: Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available two hours after the call has ended. We will provide instructions to access the replay at the end of the call. Lauren, we will now take questions.
Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Matthew Blair with TPH. Your line is now open.
Matthew Blair: Thank you, and good morning, everyone.
John Zoeller: Good afternoon, Matthew.
Matthew Blair: Good afternoon. Regarding the turnaround of Petro 1, should we assume approximately 30 days in the third quarter and 30 days in the fourth quarter? And in terms of the financial impact, you mentioned this is a temporary impact to your coverage ratio, but this will also depress your earnings temporarily as well. Is that correct?
Albert Chao: Yeah, and so you're right, Matthew. From a planning perspective, it's probably half-half in terms of how it falls in the quarter, since it is a 60-day plan turnaround. And I think your assumptions of earnings and production impact are appropriate.
Matthew Blair: That sounds good. And then on the spot exposure to the rising ethylene cracker margins. It kind of sounds like in the first half of the year, you were actually below that 5% maximum level. Is that the right inference? And I guess going forward, would you expect to be at 5% in the third quarter?
Albert Chao: We've actually been selling, I should say, ethylene in advance -- because ethylene margins were advanced or elevated over the normal $0.10 margin earlier this year. So we actually have had major good progress in selling that normal 5% target through the course of ‘24. So knowing that we'd have this outage, we wanted to try to get advance of that, especially since margins were actually in pretty good shape. But as we think about the back half of the year, we've seen elevated ethylene margins, and I hope that we're able to participate in that for the rest of the year.
Matthew Blair: Sounds good. And then the last question, has there been any -- I guess, spalling of MLP equity markets, or are you seeing any sort of increase in interest there, or is that still an area that's fairly closed off for you?
Albert Chao: It's still an area that we're exploring, I would say. As we look at the opportunities in the marketplace. I'd say while the number of MLP names have continued to shrink, there still remains an active interest in investors looking for values at the right price. And so we continue to maintain a good dialogue, looking for the opportunities where the arbitrage and the valuations make sense for us to pull on one of those four levers that you heard us mention just a moment ago.
Matthew Blair: Sounds good. Thank you.
Albert Chao: You're welcome.
Operator: Thank you. At this time, the Q&A session has now ended. I'll turn the call back over to John Zoeller.
John Zoeller: Thank you again for participating in today's call. We hope you will join us for our next conference call to discuss our third quarter 2024 results.
Operator: Thank you for participating in today's Westlake Chemical Partners second quarter 2024 earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Tuesday, August 20, 2024. The replay can be accessed via the partnership website. Goodbye.
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