Westlake (WLK)

Why the GAAP Line Misleads Here

Westlake shows why a commodity chemicals screen must say which EBITDA it uses. FY2025 EBITDA excluding identified items was $1,144M, down 50% from $2,286M, and the margin fell to 10% from 19%. GAAP EBITDA was a $248M loss after $1,392M of identified items: a goodwill write-off, plant shutdowns and restructuring. Net debt was $2,656M at 31 December 2025 (calculated), 2.3x the adjusted figure.

An EV/EBITDA multiple on the GAAP figure means nothing, because the denominator is negative. The adjusted line is the one to compare across years, but it still carries 2025's depressed spreads.

Westlake makes PVC and the chlorine and caustic soda that go into it (chlor-alkali), and cracks ethane, a natural-gas liquid, into ethylene at Lake Charles and Calvert City. It has about 85% of its production capacity in North America, where it cites energy and feedstock advantages (Q4 2025 earnings presentation). Its main chain is PVC; Dow and LyondellBasell are mostly polyethylene. The feedstock point is the same: US ethane crackers sit low on the global ethylene cost curve when gas is cheap against oil.

How the Numbers Read

Management described "global overcapacity in certain PEM materials", PEM being its performance and essential materials segment, and said 2026 was "not expected to be a tailwind". It did not use the word trough.

That leverage ratio divides by a downturn year's EBITDA. Leverage is better judged on mid-cycle EBITDA, and Westlake files no company-wide mid-cycle figure, so that has to be built from capacity, utilisation and long-run spreads.

Cheap ethane explains the cost position; the ethane vs naphtha guide covers the yields. But Westlake's chain earns on ethylene and PVC spreads, so LyondellBasell's $580/t North American PE margin does not measure it.

How You Would Value a Business Like This

Any multiple comes after EBITDA is rebuilt at mid-cycle PVC and chain spreads; the Selborne Excel model assumes PVC at 54¢/lb over the long run. The mid-cycle EBITDA guide works the arithmetic and the multiples on fictional producers.

Westlake's PEM profitability improvement plan targets $600M of EBITDA improvement in 2026. That is a programme target and does not replace building a company-wide mid-cycle figure.

What to Watch in the Financials

Identified items. FY2025's included a $727M goodwill write-off plus plant shutdown and restructuring costs; if such charges recur, the adjusted line overstates normal earnings.

Margin. A move back towards the FY2024 margin would show spreads recovering.

Overcapacity commentary. Management's language on PEM oversupply is the demand and supply signal for PVC and derivatives; the cycle guide sets it beside the other producers.

Key Risks

PVC and chlor-alkali spreads. The chain behaves differently from PE, so PE margin data does not track it.