WLKP - Fundamentals, Financials, History, and Analysis
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Westlake Chemical Partners LP (NYSE: WLKP) is a Delaware limited partnership formed by Westlake Corporation to operate, acquire, and develop ethylene production facilities and related assets. The partnership has consistently delivered stable and predictable cash flows, enabling it to provide reliable quarterly distributions to its unitholders.

Financials

For the full year 2023, Westlake Partners reported net income of $54.3 million on revenue of $1.19 billion. The partnership generated annual operating cash flow of $452.0 million and free cash flow of $405.2 million. These strong financial results demonstrate the resilience and stability of the partnership's business model.

In the first quarter of 2024, Westlake Partners reported net income of $15.0 million, or $0.42 per unit, on net sales of $284.7 million. Distributable cash flow for the quarter was $17.0 million, or $0.48 per unit. The partnership's first quarter performance was impacted by slightly lower production and sales volumes, which were offset by lower interest expense.

Stable and Predictable Cash Flows

The key driver of Westlake Partners' financial performance is its long-term, fee-based Ethylene Sales Agreement with parent company Westlake Corporation. Under this agreement, Westlake is obligated to purchase a minimum of 95% of the partnership's ethylene production, providing a stable revenue stream. The agreement also includes a fixed margin per pound of ethylene sold, which helps mitigate the partnership's exposure to commodity price fluctuations.

In addition to the Ethylene Sales Agreement, Westlake Partners benefits from its ownership of a 22.8% limited partner interest in Westlake Chemical OpCo LP (OpCo), which owns and operates the partnership's ethylene production facilities. This ownership structure, combined with the partnership's control of OpCo through its general partner interest, further enhances the stability and predictability of Westlake Partners' cash flows.

Consistent Distributions and Coverage

Westlake Partners has a long history of providing reliable quarterly distributions to its unitholders. Since its initial public offering in 2014, the partnership has made 39 consecutive quarterly distributions without any reductions. The partnership's distribution coverage ratio, which measures the ability to cover distributions from available cash flow, has remained strong, averaging approximately 1.1x over the same period.

The partnership's consistent distribution history and coverage ratio are a testament to the stability of its business model and the effectiveness of its management team in navigating market conditions. Looking ahead, Westlake Partners expects to maintain its current distribution level, barring any unforeseen circumstances.

Liquidity

Westlake Partners maintains a strong balance sheet and conservative financial metrics. As of the end of the first quarter of 2024, the partnership had $150.0 million in consolidated cash and investments, and $400.0 million in long-term debt, of which $377.0 million was at the partnership level and $23.0 million was at the OpCo level. The partnership's consolidated leverage ratio was approximately 1.0x, well within its target range.

The partnership's liquidity position and capital structure provide it with the financial flexibility to pursue growth opportunities, such as increasing its ownership interest in OpCo, acquiring other qualified income streams, or expanding its existing ethylene production facilities. Westlake Partners also has access to a $600.0 million revolving credit facility with Westlake, which can be used to fund growth projects and working capital needs.

Growth Opportunities and Sustainability Initiatives

While Westlake Partners' business model is primarily focused on providing stable and predictable cash flows, the partnership is also exploring opportunities for growth and sustainability initiatives. The partnership is evaluating potential increases in its ownership interest in OpCo, as well as the acquisition of other qualified income streams that would be accretive to its distributable cash flow.

Additionally, Westlake Partners is working closely with its parent company, Westlake Corporation, to identify and implement initiatives that will reduce the environmental impact of its operations. This includes investments in capital projects that will lower the partnership's Scope 1 and Scope 2 greenhouse gas emissions, in line with Westlake's broader sustainability goals.

Risks and Challenges

As with any investment, Westlake Partners is subject to certain risks and challenges that could impact its financial performance and ability to maintain its distribution level. These include, but are not limited to, fluctuations in commodity prices, operational disruptions at its ethylene production facilities, changes in environmental regulations, and broader macroeconomic conditions.

To mitigate these risks, Westlake Partners relies on its long-term Ethylene Sales Agreement, conservative financial management, and strong operational expertise. The partnership also benefits from Westlake's indemnification of certain environmental and other liabilities related to its assets.

Conclusion

Westlake Chemical Partners LP has demonstrated its ability to consistently deliver stable and predictable cash flows, enabling it to provide reliable quarterly distributions to its unitholders. The partnership's unique business model, conservative financial management, and growth opportunities make it an attractive investment for investors seeking exposure to the petrochemical industry with a focus on income and stability.

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