Westlake Corporation (NYSE: WLK) released its first-quarter 2025 earnings on May 2. Despite maintaining a robust financial position, the numbers revealed significant operational challenges. 

The manufacturer of chemical and building products announced a drop in profitability, which it attributed to increased raw material costs and a slow housing market.

The result: new cost-cutting measures and lower capital spending targets for the year.

The company’s results mirror wider macroeconomic challenges impacting its Performance and Essential Materials (PEM) and Housing and Infrastructure Products (HIP) segments, a weakness in international markets and a sluggish beginning to the North American housing construction season.

Quarterly Performance Highlights

Westlake announced net sales of $2.8 billion for the first quarter of 2025, which changed little from the preceding quarter but declined 10% (from $2.98B) during the same period last year. 

Analysts highlight a concerning trend: a shift to an operating loss of $32 million, compared to an operating income of $66 million in Q4 2024 and $223 million in Q1 2024.

EBITDA decreased to $288 million, a notable drop from $416 million in the prior quarter and $546 million in the first quarter of 2024. 

This profitability decline is attributed to pricing and volume challenges, as average sales prices fell by 2.3% and volumes decreased by 2.0% YoY.

The company’s performance varied significantly between its two main segments. The Housing and Infrastructure Products segment remained profitable with an EBITDA of $203 million and a 20% margin, although this was a decline. 

In contrast, the Performance and Essential Materials segment posted an operating loss of $163 million and only $73 million in EBITDA, leading to a 4% margin.

The Housing and Infrastructure Products segment, including building products and infrastructure, reported $996 million in Q1 2025. The segment remained profitable but faced challenges from a slow start to housing construction due to winter storms and rising mortgage rates.

Management has lowered expectations for the HIP segment, now guiding towards $4.4-4.6 billion in revenue and 20-22% EBITDA margin for 2025. 

Despite near-term challenges, the company believes long-term housing fundamentals remain strong due to over a decade of under-building, favorable demographics, and the rise of remote work.

Strategic Initiatives

In response to the earnings numbers, Westlake said it is implementing several strategic initiatives to preserve cash flow and improve operational efficiency. 

The company achieved approximately $40 million in cost savings during Q1 2025 and has raised its 2025 cost savings target by $25 million to $150-175 million.

Moreover, Westlake is lowering its capital spending target for 2025 by 10% to $900 million to enhance cash flows. This marks a notable shift from the previously outlined $1 billion capital expenditure plan.

Financial Position

Despite operational challenges, Westlake maintains a strong balance sheet, which provides financial flexibility to navigate the current environment. As of March 31, 2025, the company reported $2.5 billion in cash and investments, with a fully undrawn $1.5 billion revolver, bringing total available liquidity to approximately $4.0 billion.

Westlake’s net debt to EBITDA ratio stands at 1.0x, significantly below the peer average of 4.0x, highlighting the company’s financial strength relative to competitors. 

The weighted average debt maturity is approximately 15 years, with over 99% of debt at fixed rates averaging 3.3% APR.

Outlook & Forward Guidance

Westlake faces a challenging operating environment and is taking proactive measures to address these headwinds, looking ahead. 

Management expects positive sales volume growth in 2025 for the HIP segment, driven by the strength of its brands and position as a leading supplier to fast-growing national homebuilders.

Westlake notes that North American demand remains relatively stable for the moment, but global conditions remain sluggish in Europe and Asia.

According to the earnings call, the company’s strong cash position of $2.5 billion provides "significant optionality," suggesting potential for strategic acquisitions or other capital allocation initiatives despite the challenging operating environment.