Westlake Chemical (WLK) Q3 Earnings: A Beat in the Cards?

Westlake Chemical Corporation WLK is slated to release third-quarter 2017 results before the market opens on Nov 7.

Westlake Chemical’s adjusted earnings came in at $1.21 per share in second-quarter 2017 which beat the Zacks Consensus Estimate of $1.19.

Westlake Chemical reported net sales of $1,979.2 million, up around 82.2% year over year. Sales in the quarter benefited from higher sales contributed from Axiall and increased selling prices of major products. Revenues, however, trailed the Zacks Consensus Estimate of $2,083.6 million.

The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missing in one, with an average positive surprise of 17.7%.

Shares of Westlake Chemical have moved up 22.4% in last three months outperforming the 20.2% growth recorded by its industry.

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

Earnings Whispers

Our proven model shows that Westlake Chemical is likely to beat the Zacks Consensus Estimate 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 the case here as you will see below:

Zacks ESP: Earnings ESP for Westlake Chemical for the third quarter is +2.40%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.42 and $1.39, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Westlake Chemical currently sports a Zacks Rank #1, which when combined with a positive ESP, makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Westlake Chemical, in August, said that second-quarter results benefited from strong global demand of its key products and increasing prices in Vinyls segment. The company is making notable progress in integrating, improving activities and achieving the expected synergies associated with the acquisition of Axiall business. Westlake Chemical believes that continued investment and acquisition will help to fully leverage the improving Vinyls market.

Total revenues for the third quarter is projected to increase roughly 66% year over year as the Zacks Consensus Estimate for the third quarter is pegged at $2,123 million.

Operating income of the Olefins segment increased 1.9% year over year to $143.3 million in the last reported quarter supported by higher sales prices all major products and higher production rates which resulted in higher olefins integrated product margins.

Moreover, the Vinyls segment logged sales of $1,489.9 million, a roughly two-and-a-half-fold year-over-year surge while operating income witnessed 174.5% year-over-year increase aided by Axiall and higher selling prices for PVC caustic soda and resin.

The Vinyls segment also benefited from higher margins across major products on the back of higher sales prices in North America and European markets. Lower feedstock cost and energy costs also aided second-quarter earnings.

Westlake Chemical is expected to continue to benefit from the Axiall acquisition in the to-be-reported quarter. The acquisition has diversified the company’s product portfolio and geographical operations, creating a North American leader in Olefins and Vinyls. The company is on track to realize around $120 million in synergies and cost savings related to the acquisition in 2017.

Other Stocks Poised to Beat Estimates

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

U.S. Silica Holdings, Inc. SLCA has an Earnings ESP of +1.18% and sports a Zacks Rank #3.

Southern Copper Corporation SCCO has an Earnings ESP of +4.00% and flaunts a Zacks Rank #1.

Versum Materials Inc. VSM has an Earnings ESP of +9.47% and carries a Zacks Rank #3.

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