Westlake Corporation delivered a sharp recovery in its Performance and Essential Materials business during the second quarter of 2026 as higher polyethylene and PVC resin prices, lower energy costs, supply disruptions, and internal profitability initiatives transformed the segment’s earnings.
PEM generated $185 million of reported operating income, compared with a $318 million operating loss during the prior-year quarter.
That represented a year-over-year operating-income swing of $503 million.
The prior-year result included $130 million of charges associated with facility shutdowns.
After excluding those identified items, PEM still moved from an operating loss of $188 million to operating income of $185 million.
The underlying improvement therefore reached $373 million.
PEM’s adjusted EBITDA increased to $416 million from $52 million.
The segment’s adjusted EBITDA margin expanded to 21% from 3%, representing an improvement of 1,800 basis points.
Reported PEM EBITDA shifted to a $416 million profit from a $78 million loss.
The recovery was driven partly by a 14% year-over-year increase in the segment’s average selling price.
Higher prices for polyethylene and PVC resin generated most of the increase in Performance Materials revenue.
PEM sales reached approximately $2.02 billion, compared with $1.79 billion during the prior-year quarter.
Performance Materials revenue increased to $1.24 billion from $1.02 billion, while Essential Materials sales rose to $783 million from $771 million.
Reported PEM volume declined 2%, but that comparison included the effects of Westlake’s facility closures.
After excluding closed plants, PEM volume increased 7% year over year.
Sequentially, PEM’s average selling price increased 21%, while adjusted volume increased 2%.
Westlake attributed part of the pricing improvement to logistical disruptions in the Strait of Hormuz.
The disruption affected global supply-demand conditions and supported pricing for products including polyethylene and PVC resin.
The geopolitical benefit means that some of the quarter’s margin expansion reflected an unusually tight supply environment rather than only permanent operational improvements.
Westlake also cited its three-pillar profitability improvement plan, which includes footprint optimization, cost reduction, and reliability improvements.
The company said the plan remains on track to provide approximately $600 million of operating-income benefits.
That target equals approximately 88% of Westlake’s second-quarter EBITDA of $679 million.
It also exceeds the company’s $192 million of reported operating income during the entire first half of 2026.
The comparisons demonstrate the potential scale of the program relative to Westlake’s current earnings base.
PEM also benefited from lower North American natural gas costs.
The segment moved from an underlying operating loss of $194 million during the first quarter to operating income of $185 million during the second quarter.
That represented a sequential improvement of $379 million.
Companywide net sales increased approximately 11% to $3.27 billion from $2.95 billion.
Overall sales volume increased 7% after adjusting for plant closures and the ACI acquisition, while the average selling price increased 8%.
Gross profit surged to $652 million from $258 million, representing growth of approximately 153%.
Cost of sales declined to $2.62 billion from $2.70 billion despite the increase in revenue.
The combination of higher pricing and lower costs produced unusually strong operating leverage.
Westlake reported operating income of $364 million, compared with a $109 million operating loss during the prior-year quarter.
Net income attributable to Westlake reached $260 million, or $2.01 per diluted share, compared with a net loss of $142 million, or $1.11 per share.
Excluding identified items, the prior-year net loss was $12 million, or $0.09 per share.
EBITDA increased to $679 million from $210 million on a reported basis.
Excluding identified items from the prior-year comparison, EBITDA doubled to $679 million from $340 million.
The companywide EBITDA margin expanded to 21% from 12% on an adjusted basis.
Housing and Infrastructure Products delivered higher sales but weaker year-over-year profitability.
HIP sales increased to $1.25 billion from $1.16 billion.
Reported volume grew 10%, including the ACI acquisition, while adjusted volume increased 6%.
Average selling prices declined 3%.
HIP operating income declined to $212 million from $222 million.
EBITDA remained nearly unchanged at $276 million, compared with $275 million, while the segment’s EBITDA margin contracted to 22% from 24%.
Higher demand for pipe and fittings helped offset slower North American homebuilding activity and affordability pressures.
Infrastructure Products revenue increased by $61 million to $241 million, primarily because of Westlake’s January 2026 acquisition of ACI.
Housing Products revenue increased by $31 million to approximately $1.01 billion.
Westlake also completed the acquisition of a PVC and vinyl chloride monomer production site in Wilhelmshaven, Germany.
The company expects the facility’s logistical assets to strengthen its European chlorovinyls operation.
Operating cash flow reached $318 million during the quarter, while capital expenditures totaled $207 million.
Free cash flow was therefore $111 million, compared with negative $132 million during the prior-year quarter and negative $303 million during the first quarter.
First-half free cash flow remained negative at $192 million because the company’s first-quarter cash use exceeded its second-quarter generation.
Westlake used approximately $500 million to redeem its remaining 3.60% senior notes due in 2026.
The company ended June with approximately $1.9 billion in cash, cash equivalents, and fixed-income investments and $5.1 billion of total debt.
Westlake also replaced a revolving credit facility scheduled to expire in 2027 with a new $1.5 billion facility maturing in 2031.
The company returned $99 million to shareholders through dividends and share repurchases during the quarter.
Westlake’s results demonstrate the earnings leverage created when higher chemical prices combine with lower energy expenses, increased plant reliability, and a smaller production footprint.
However, future PEM profitability will also depend on whether elevated resin prices and supply constraints persist after disruptions affecting the Strait of Hormuz ease.
KEY QUOTES:
“The significant improvement in PEM’s second quarter earnings underscores its substantial leverage to improving global supply-demand fundamentals, driven in part by logistical disruptions in the Strait of Hormuz, as well as the meaningful actions that we took last year to improve PEM earnings through footprint optimization, cost reduction, and reliability improvement.”
Jean-Marc Gilson, President And Chief Executive Officer Of Westlake Corporation
“During the second quarter of 2026 we returned to free cash flow generation, reduced debt by $500 million and replaced our existing revolving credit facility, which had a scheduled expiration in 2027, with a new $1.5 billion revolver that expires in 2031.”
Jonathan Baksht, Senior Vice President And Chief Financial Officer Of Westlake Corporation
