Westlake Chemical Partners (WLKP) Q3 2026 Earnings Call: Cash Flow and Coverage Improve

Key Takeaways

• Westlake Chemical Partners reported Q3 2026 net income of $16 million, or $0.46 per unit, above both Q2 2026 and Q3 2025 due primarily to higher production and sales volumes.
• Distributable cash flow rose by $3 million year over year to $18 million, or $0.51 per unit, supported by higher volumes and lower maintenance capital expenditures.
• The trailing 12-month distribution coverage ratio improved sequentially to 1.09x from 1.04x as the impact of the Petro 1 turnaround in the first half of 2025 rolled out of the calculation.
• The Partnership declared a quarterly distribution of $0.4714 per unit, its 49th consecutive quarterly distribution since its July 2014 IPO without a reduction.
• Management said no turnarounds are planned for the remainder of 2026 or during 2027. The Partnership also maintained consolidated leverage of approximately 1x.
• Rising Q4 2026 ethylene prices could provide a modest benefit to the roughly 5% of annual sales made to third parties, according to management.

Core Financial Data

Business and Operating Performance

Higher production and sales volumes drove the year-over-year and sequential improvement in Partnership net income. Distributable cash flow also benefited from lower maintenance capital expenditures compared with Q3 2025.

Management emphasized that the fixed-margin ethylene sales agreement with Westlake limits exposure to market volatility and production risk. Since its July 2014 IPO, the Partnership has maintained a cumulative distribution coverage ratio above 1x and increased its quarterly distribution by 71% from the original minimum of $0.275 per unit.

Approximately 5% of annual sales are made to third parties. Management said Q4 2026 ethylene prices had risen above the Q3 2026 average at the time of the call, potentially providing a modest benefit to the Partnership.

Management Guidance

Management said there are no planned turnarounds for the remainder of 2026 or in 2027.

The Partnership continues to evaluate four potential growth levers: increasing its ownership interest in OpCo, acquiring other qualified income streams, expanding existing ethylene facilities, and negotiating a higher fixed margin under its ethylene sales agreement with Westlake.

The current contract remains in place through 2027, with discussions expected in 2027. Management described the existing $0.10 margin paid by Westlake for ethylene as appropriate under current conditions, while stating that the Partnership would seek higher pricing in future negotiations.

Risks and Key Watchpoints

Management cited volatile third-party ethylene prices in 2026, driven largely by the ongoing conflict in the Middle East. Because third-party sales represent roughly 5% of annual sales, price movements can affect a limited portion of the Partnership’s results.

Future fixed-margin negotiations involve Westlake as the counterparty. Management noted that both parties have an interest in operational stability, but any revised pricing will be subject to negotiation.

Analyst Q&A Highlights

Management clarified that maintenance expenditures and additions to property, plant and equipment are not equivalent. Maintenance expenditures can include both capitalized amounts and items recognized directly as expenses.

The Petro 1 turnaround created higher comparative cash outflows in 2025. Management said turnaround expenses are prefunded through the turnaround reserve, although the spending still appears in the cash flow statement during the year in which the turnaround occurs.

On the ethylene sales agreement, management reiterated that the current fixed margin has provided stability for more than 10 years. The Partnership intends to pursue higher pricing when negotiations reopen, while recognizing that Westlake and the Partnership will negotiate as two parties.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 4, 2026.

I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President of Finance and Investor Relations. Sir, you may begin.

Jeffrey Holy

Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners Third Quarter 2026 Conference Call. I'm joined today by Albert Chao, our Executive Chairman; Jean-Marc Gilson, our President and CEO; Jon Baksht, our Senior Vice President and Chief Financial Officer; and other members of our management team.

During this call, we will refer to ourselves as Westlake Partners or the Partnership. References to Westlake refer to our parent company, Westlake Corporation, and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of both Westlake and the Partnership, which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the Partnership's website.

Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs and assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website.

This morning, Westlake Partners issued a press release with details of our third quarter 2026 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com. A replay of today's call will be available beginning 2 hours after the conclusion of this call. The replay can be accessed via the Partnership's website.

Please note that information reported on this call speaks only as of today, November 4, 2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at wlkpartners.com.

Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc?

Jean-Marc Gilson

Thank you, Jeff. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2026 results. In this morning's press release, we reported Westlake Partners' third quarter 2026 net income of $16 million, or $0.46 per unit, which was above our net income in both the second quarter of 2026 and the third quarter of 2025.

The stability of Westlake Partners' business model is consistently demonstrated through our fixed-margin ethylene sales agreement, which minimizes market volatility and other production risk. The high degree of stability in cash flow, when paired with the predictability of our business, has enabled us to deliver the long history of reliable distributions and coverage. This quarter's distribution is the 49th consecutive quarterly distribution since our IPO in July of 2014 without any reductions.

And with that, I would like now to turn over our call to Jon to provide more detail on the financials and operating results for the quarter. Jon?

Jonathan H. Baksht

Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' third quarter 2026 net income of $16 million, or $0.46 per unit. Consolidated net income, including OpCo's earnings, was $91 million on consolidated net sales of $314 million. The Partnership had distributable cash flow for the quarter of $18 million, or $0.51 per unit.

Third quarter 2026 net income for Westlake Partners of $16 million was higher than the third quarter 2025 Partnership net income, primarily due to higher production and sales volume. Distributable cash flow of $18 million for the third quarter of 2026 increased by $3 million compared to the third quarter of 2025 due to the higher production and sales volume and lower maintenance capital expenditures. On a sequential basis, net income for Westlake Partners of $16 million in the third quarter of 2026 was higher than the second quarter on higher production and sales volume. Sequentially, our trailing 12-month coverage ratio improved to 1.09x from 1.04x, reflecting the aging out of the impact of the Petro 1 turnaround that occurred in the first half of 2025.

Turning our attention to the balance sheet and cash flows. At the end of the third quarter, we had a consolidated cash balance and cash investments with Westlake through our investment management agreement totaling $113 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership and the remaining $23 million was at the OpCo. In the third quarter of 2026, OpCo spent $12 million on capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio of approximately 1x.

On November 2, 2026, we announced a quarterly distribution of $0.4714 per unit with respect to the third quarter of 2026. Since our IPO in 2014, the Partnership has made 49 consecutive quarterly distributions to our unitholders, and we have grown distributions 71% since the Partnership's original minimum quarterly distribution of $0.275 per unit. The Partnership's third quarter distribution will be paid on December 1, 2026, to unitholders on record on November 13, 2026.

The Partnership's predictable fee-based cash flow continues to prove beneficial in today's economic environment and is differentiated by the consistency of our earnings and cash flows. Looking back, since our IPO in July of 2014, we have maintained a cumulative distribution coverage ratio in excess of 1x. And with the Partnership's stability and cash flows, we are able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have no planned turnarounds for the remainder of 2026 or in 2027.

Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc?

Jean-Marc Gilson

Thank you, Jon. Turning to our outlook. Third-party ethylene prices have been volatile in 2026 due largely to the ongoing conflict in the Middle East. Thus far, in the fourth quarter of 2026, ethylene prices have been rising and are currently higher than the average price in the third quarter of 2026, which could provide a modest benefit to the Partnership on the roughly 5% of annual sales made to third parties.

Turning to our capital structure. We maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our 4 levers of growth in the future, including: increases of our ownership interest of OpCo; acquisitions of other qualified income streams; organic growth opportunities such as expansions of our current ethylene facilities; and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake.

We remain focused on our ability to continue to provide long-term value and distributions to our unitholders. As always, we will continue to focus on safe operations, along with being good stewards of the environment where we work and live as part of our broader sustainability efforts.

Thank you very much for listening to our third quarter earnings call. Now I will turn the call back over to Jeff.

Jeffrey Holy

Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind listeners that a replay of this teleconference will be available 2 hours after the call has ended. We will provide instructions to access the replay at the end of the call.

Grace, we will now take questions.

Operator

[Operator Instructions] Our first question comes from the line of James Altschul with Aviation Advisory Service, Inc.

Question-and-Answer Session

James Altschul

Actually, two questions. First of all, just now you made reference to the possibility of negotiating an increased fixed margin with Westlake. What incentive would they have to increase the margin? I mean, what's in it for them? Why would they want to do that?

Jonathan H. Baksht

The current contract we have in place is in place through 2027, and we'll have those discussions next year. As it relates to margins, I think the comment was referring to the margins that we're seeing in the marketplace. And ethylene PE margins are, currently with the current pricing in polyethylene, are constructive. And it's the third-party margins we refer to, the 5% of third-party sales.

James Altschul

Okay. Okay. Well -- but -- okay. If that's -- following on, on what you just said -- sorry. Busy day today. What incentive -- I mean, I believe when you're negotiating with Westlake, they're sort of like on both sides of the trend.

Jean-Marc Gilson

So if you refer to the $0.10 margin that Westlake is paying for ethylene, we think that this is an appropriate level right now. And considering sometimes it goes up -- I mean, the marketplace, sometimes it goes up, sometimes it goes down, the real price of ethylene. So we think that over the last more than 10 years, it has provided a stable -- I mean, some stability to the Partnership, and we intend to continue to do it like that.

James Altschul

Okay. Because I mean, Westlake is sort of on both sides of the negotiation. So they wouldn't have a lot of incentive to make the terms more favorable to the Partnership, would they?

Jean-Marc Gilson

Yes. No. I mean, it's -- now Westlake has an incentive also in having that stability in the operation. And so that's why we will continue like that right now, and there is a negotiation, and the negotiation opens and just happened last year. And so we do not intend to change anything. We'll try to negotiate higher prices, but we are two parties at the table.

James Altschul

Okay. The other thing, if you're looking to compare the cash flow statement with the reconciliation of MLP distributable cash flow to net income, the -- and the reconciliation, the number for maintenance capital expenditures is different from the additions to property, plant and equipment on the cash flow statement. Why is the discrepancy? Or is PP&E addition to property, plant and equipment separate from maintenance capital expenditures?

Jonathan H. Baksht

That's correct. So when you're thinking of maintenance expenditures, many of those will not be capitalized. And so you're thinking of that maintenance expenditure piece being both -- that cash flow number is going to include both capitalized numbers and pure expense items.

James Altschul

Okay. Okay.

Jonathan H. Baksht

And just as a reminder as well, last year, on a year-over-year basis, we did have the Petro turnaround. And so you will see higher levels on a year-over-year comparative basis on the full year set of cash flows. So that's also some of the delta when looking at it on a comparative basis.

James Altschul

Okay. And I guess, finally, am I correct in thinking that the idea is ordinarily, the turnaround expenses will be covered by what you have in the turnaround reserve?

Jonathan H. Baksht

That's correct. It's prefunded with the turnaround reserve, but you'll still see those flow through in the cash flow statement in the year of the turnaround. It's just funded from cash on the balance sheet that's already been received through the turnaround reserve.

Operator

At this time, the Q&A session has now ended. I will now turn the call back over to Jeff Holy.

Jeffrey Holy

Thank you. Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our fourth quarter and full year 2026 results.

Operator

Thank you for participating in today's Westlake Chemical Partners Third Quarter 2026 Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Wednesday, November 18, 2026. The replay can be accessed via the Partnership website. Goodbye.