Breaking Down Westlake Chemical Partners LP (WLKP) Financial Health: Key Insights for Investors

Understanding Westlake Chemical Partners LP (WLKP) Revenue Streams

Understanding Westlake Chemical Partners LP’s Revenue Streams

For the nine months ended September 30, 2024, total net sales decreased by $47.7 million, or 5.3%, to $845.8 million from $893.5 million for the same period in 2023. This decline was primarily attributed to lower ethylene sales prices to Westlake, despite higher ethylene sales volumes to Westlake and increased ethylene and co-products sales volumes and prices to third parties.

For the third quarter of 2024, net sales decreased by $44.7 million, or 13.9%, to $277.0 million from $321.7 million in the third quarter of 2023.

Year-over-Year Revenue Growth Rate

The year-over-year revenue growth rate for the nine months ended September 30, 2024, showed a decline of 5.3% compared to the previous year. The decrease in net sales was primarily due to lower average sales prices, contributing to a 7.9% decline, although higher sales volumes contributed a 2.6% increase.

Contribution of Different Business Segments to Overall Revenue

During the nine months ended September 30, 2024, Westlake accounted for approximately 81.6% of the Partnership's net sales, compared to 86.3% in the prior year. The breakdown of revenue sources is as follows:

Significant Changes in Revenue Streams

In the third quarter of 2024, the revenue from ethylene and co-products sales to third parties increased, despite a decrease in sales volumes and prices to Westlake. This shift indicates a strategic pivot towards increasing third-party sales to offset losses from direct sales.

Net income attributable to the Partnership increased to $47.4 million for the nine months ended September 30, 2024, compared to $40.0 million in the same period in 2023.

The gross profit for the nine months ended September 30, 2024, was $320.4 million, representing an increase from $286.8 million in the prior year. The gross profit margin also improved to 37.9% from 32.1%.

Quarterly Revenue Overview

The increase in gross profit margins for both the third quarter and the nine months ended September 30, 2024, can be attributed to lower ethane feedstock costs and natural gas prices.

A Deep Dive into Westlake Chemical Partners LP (WLKP) Profitability

A Deep Dive into Westlake Chemical Partners LP's Profitability

Gross Profit Margin: For the third quarter of 2024, the gross profit was $116.9 million on net sales of $277.0 million, resulting in a gross profit margin of 42.2%. This compares to a gross profit of $93.0 million on net sales of $321.7 million for the same period in 2023, which had a gross profit margin of 28.9%.

Operating Profit Margin: Operating income for Q3 2024 was $109.7 million, leading to an operating profit margin of 39.6%. In Q3 2023, operating income was $86.2 million, which resulted in an operating profit margin of 26.8%.

Net Profit Margin: The net income for Q3 2024 was $104.1 million, yielding a net profit margin of 37.6%. In comparison, net income for Q3 2023 was $80.9 million, resulting in a net profit margin of 25.1%.

Trends in Profitability Over Time: For the nine months ended September 30, 2024, net income was $281.8 million on net sales of $845.8 million, compared to net income of $247.6 million on net sales of $893.5 million for the same period in 2023. This indicates a year-over-year increase in net income of $34.2 million.

Comparison with Industry Averages: The gross profit margin of 42.2% in Q3 2024 is higher than the industry average of approximately 30% for similar companies. The operating profit margin of 39.6% also surpasses the industry average of around 25%.

Operational Efficiency: Selling, general and administrative expenses for Q3 2024 were $7.3 million, up from $6.7 million in Q3 2023, reflecting a 9.0% increase. This increase is mainly attributable to a higher provision for credit losses. Despite the increase in expenses, the gross profit margin improvement is attributed to lower ethane feedstock costs and natural gas prices.

Debt vs. Equity: How Westlake Chemical Partners LP (WLKP) Finances Its Growth

Debt vs. Equity: How Westlake Chemical Partners LP Finances Its Growth

Overview of Debt Levels

As of September 30, 2024, the total long-term debt payable to Westlake was $399.7 million. This includes:

• OpCo Revolver: $22.6 million
• MLP Revolver: $377.1 million

In addition, the company had $21.4 million in short-term debt, reflecting its reliance on revolving credit facilities for operational flexibility.

Debt-to-Equity Ratio

The debt-to-equity ratio is a key indicator of financial leverage. As of September 30, 2024, the debt-to-equity ratio was approximately 0.48, calculated as follows:

• Total Debt: $421.1 million (Long-term + Short-term)
• Total Equity: $877.8 million (Total capital as of September 30, 2024)

This ratio is below the industry average of approximately 0.75, indicating a conservative capital structure.

Recent Debt Issuances and Credit Ratings

In 2024, the company issued $163 million in debt payable to Westlake, which was fully repaid by September 30, 2024. The company maintains a credit rating of Baa2 from Moody's, reflecting stable credit quality.

Balancing Debt Financing and Equity Funding

The company employs a balanced approach to financing growth, utilizing both debt and equity. In the first nine months of 2024, operating cash flow amounted to $352.5 million, allowing for funding of capital expenditures and maintaining liquidity without excessive reliance on external financing.

Assessing Westlake Chemical Partners LP (WLKP) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio for the quarter ended September 30, 2024, was calculated at 2.35, indicating a strong liquidity position, as it shows that current assets cover current liabilities more than twice over. The quick ratio stood at 1.85, suggesting that even when excluding inventories, the company can comfortably meet its short-term obligations.

Analysis of Working Capital Trends

As of September 30, 2024, the working capital was approximately $109.8 million, reflecting a significant increase from $87.5 million in the same period last year. This upward trend underscores improved operational efficiency and better management of current assets and liabilities.

Cash Flow Statements Overview

Potential Liquidity Concerns or Strengths

As of September 30, 2024, cash and cash equivalents totaled $60.2 million, with additional cash invested under the Investment Management Agreement amounting to $109.5 million. The company has a revolving credit facility of $600 million, with $22.6 million drawn as of the end of the quarter, indicating sufficient liquidity to support its operational and capital needs.

Overall, the metrics suggest a robust liquidity position, with the ability to meet short-term obligations comfortably while maintaining operational flexibility.

Is Westlake Chemical Partners LP (WLKP) Overvalued or Undervalued?

Valuation Analysis

In assessing the valuation of the company, key financial ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) are critical metrics. Below is a summary of these ratios based on the latest financial data.

Over the last twelve months, the stock price of the company has experienced fluctuations reflecting market conditions and operational performance. Here’s a brief overview of the stock price trends:

Regarding dividends, the company has maintained a steady dividend yield and payout ratio, reflecting its commitment to returning value to shareholders:

Analyst consensus on the stock valuation is also crucial for investors. The current sentiment among analysts regarding the stock is as follows:

Key Risks Facing Westlake Chemical Partners LP (WLKP)

Key Risks Facing Westlake Chemical Partners LP

Overview of Internal and External Risks:

The financial health of the company is influenced by various internal and external risks. Key internal risks include operational inefficiencies and dependency on specific suppliers, particularly Westlake, which accounted for approximately 81.6% of net sales in the nine months ended September 30, 2024. External risks encompass industry competition, fluctuating commodity prices, and regulatory changes affecting the chemical sector.

Industry Competition:

The chemical industry is characterized by intense competition. The company faces pressure from both domestic and international competitors, which may impact pricing strategies and market share. In the nine months ended September 30, 2024, total net sales decreased by 5.3% to $845.8 million from $893.5 million in the same period of 2023.

Regulatory Changes:

Changes in environmental regulations can impose additional costs and operational restrictions. The company is subject to various environmental laws that may require significant expenditures for compliance and remediation.

Market Conditions:

Fluctuations in market conditions, particularly in the pricing of ethylene and other co-products, pose a risk. For instance, the average sales price of ethylene decreased by 15.1% in the third quarter of 2024 compared to the third quarter of 2023. This decline can adversely affect revenue and profitability.

Operational, Financial, or Strategic Risks Highlighted in Recent Earnings Reports

The recent earnings reports have highlighted several operational and financial risks. For the third quarter of 2024, net income was $104.1 million, an increase from $80.9 million in the third quarter of 2023, primarily due to higher ethylene sales volumes and prices. However, the company also reported a decrease in net sales, which fell by 13.9% to $277.0 million.

Cash Flow Concerns:

Cash flows from operating activities provided $352.5 million in the first nine months of 2024, compared to $344.3 million in the same period of 2023. However, changes in working capital resulted in an unfavorable shift of $38.3 million compared to the previous year.

Mitigation Strategies or Plans

The company has implemented various strategies to mitigate its risks. Operational efficiencies are being targeted through investments in technology and personnel training. Furthermore, the company employs hedging strategies to manage commodity price volatility. Proactive compliance measures are in place to address regulatory challenges, ensuring that the company remains in good standing with environmental laws and regulations.

Overall, while risks are inherent in the chemical industry, the company has established frameworks to navigate these challenges effectively.

Future Growth Prospects for Westlake Chemical Partners LP (WLKP)

Future Growth Prospects for Westlake Chemical Partners LP

Analysis of Key Growth Drivers

Westlake Chemical Partners LP anticipates growth through several avenues:

• Product Innovations: The company is focusing on enhancing its ethylene production capabilities and exploring co-products that can generate additional revenue streams.
• Market Expansions: Westlake aims to expand its market presence by increasing sales volumes to third parties. For the nine months ended September 30, 2024, sales volumes to third parties increased significantly.
• Acquisitions: The partnership may pursue strategic acquisitions to bolster its production capacity and operational efficiency.

Future Revenue Growth Projections and Earnings Estimates

Revenue projections for Westlake indicate a moderate growth trajectory. For the nine months ended September 30, 2024, total net sales were $845.8 million, a decrease of 5.3% from $893.5 million in the same period of 2023. However, net income rose to $281.8 million, up from $247.6 million in 2023, indicating improved profitability despite lower sales figures.

Strategic Initiatives or Partnerships

Strategic initiatives include:

• Investment Management Agreement: The partnership has made net investments of $15 million under this agreement, compared to $19.1 million in the previous year, reflecting a strategic allocation of resources.
• Partnership with Westlake: Approximately 81.6% of the partnership's net sales are attributable to Westlake, highlighting the importance of this relationship for future growth.

Competitive Advantages

Westlake's competitive advantages include:

• Cost Efficiency: The company benefits from lower ethane feedstock costs and natural gas prices, enhancing its profit margins. The gross profit margin for the nine months ended September 30, 2024, was 37.9%, up from 32.1% in 2023.
• Strong Cash Flow: Operating activities provided cash of $352.5 million in the first nine months of 2024, compared to $344.3 million in the same period of 2023, indicating strong operational performance.

Updated on 16 Nov 2024

Resources:

1. Westlake Chemical Partners LP (WLKP) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Westlake Chemical Partners LP (WLKP)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Westlake Chemical Partners LP (WLKP)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.