Westlake Chemical Earnings Call Insights: FIFO LIFO Effect and Polyolefin Change
FIFO LIFO Effect
Brian Maguire – Goldman Sachs: I was hoping you could quantify some of the non-operational gains and losses that might’ve occurred in the quarter. First off, just wondering if you could quantify the FIFO impact and then any potential trading gain or loss that you might have had in the quarter?
M. Steven Bender – SVP, CFO and Treasurer: We saw a rising feedstock, so there was a FIFO LIFO effect. We didn’t break it out this quarter, but it was embedded in that $48 million number that impacted our first quarter results that I mentioned earlier. As it relates to trading activity, we had a $7 million gain in the quarter.
Brian Maguire – Goldman Sachs: Then, I notice the corporate expense is a little bit higher, I was just wondering if there weren’t some one-time expenses related to the CertainTeed acquisition that were in there or is that $11 million a pretty good run rate going forward?
M. Steven Bender – SVP, CFO and Treasurer: No, remember that also includes some of the inter-Company elimination numbers between the segments and so I wouldn’t use that as a run rate number. There are some small numbers related to the CertainTeed transaction, but a lot of that’s just inter-Company elimination.
Brian Maguire – Goldman Sachs: Then I just wanted to better understand the unit margin accounting related to the building of inventory in the fourth quarter and also the fixed cost absorption in the first quarter, how that might impact the second quarter? I think you mentioned about $30 million pretax impact to the second quarter, so if I understand you ran your plant harder than normal in the fourth quarter, so you had better fixed cost absorption that would have probably helped your cost of goods sold in the first quarter and likewise you weren’t able to run your plant very hard because of the turnaround in the first quarter and that will hurt the second quarter unit margin. Am I thinking about it right there?
M. Steven Bender – SVP, CFO and Treasurer: This is mostly related – Brian, the $30 million pretax number I mentioned is mostly related to the impact of lost production and the impact of buying ethylene in the first quarter that will be consumed more fully in polyethylene that comes due in the second quarter…
Brian Maguire – Goldman Sachs: That’s because of the FIFO accounting, you see it more in the second quarter – you see it early impacting the second quarter?
M. Steven Bender – SVP, CFO and Treasurer: That’s right. I mentioned at the end of the year in our call in February that it had be about two-thirds, one-third split and that’s what you are seeing here is about two-thirds effect in the first quarter and the other third in the second quarter. The $30 million is that second quarter impact.
Andrew Cash – SunTrust Robinson Humphrey: Just a question on that $48 million, just a clarification on that. Does that include the $20 million in unabsorbed cost?
M. Steven Bender – SVP, CFO and Treasurer: Yes.
Andrew Cash – SunTrust Robinson Humphrey: Also the Olefins volume was down 18% year-over-year. Could you give us an idea of the polyolefin change year-over-year?
M. Steven Bender – SVP, CFO and Treasurer: Well, the lower numbers were really just as a result of selling ethylene and ethylene co-products on a year-to-year comparison.
Andrew Cash – SunTrust Robinson Humphrey: So, poly was kind of flat or up year-over-year or just (arrears)?
M. Steven Bender – SVP, CFO and Treasurer: We saw good results on a comparative basis.
A Closer Look: Westlake Chemical Earnings Cheat Sheet>>