WLKP · Westlake Chemical Partners LP

The increase in net sales for the first quarter of 2026 compared to the first quarter of 2025 stemmed primarily from higher ethylene sales volumes to Westlake and elevated co-products sales volumes. This volume surge, rebounding from the prior-year Petro 1 turnaround downtime, more than offset declines in third-party sales prices and volumes, delivering 28.6% revenue growth to $305.7 million. Gross profit expanded sharply by 73.4% to $93.8 million, lifting the gross margin to 30.7%. This margin improvement reflects the benefits of higher production utilization against the backdrop of last year's maintenance disruptions, even as natural gas costs rose.

Operating income climbed 85.7% to $86.6 million, achieving an operating margin of 28.3%. Management's focus on controlling operating expenses, maintenance capital expenditures, and turnaround costs—expenses embedded in the per-pound ethylene price charged to Westlake under the Ethylene Sales Agreement—supported this profitability surge. Operating expenses remained relatively stable across production volumes, aside from feedstock and utilities, with fluctuations tied mainly to maintenance timing. Net income reflected this strength, more than doubling to $14.2 million and growing 186.4% year-over-year.

Cash generation normalized robustly post-turnaround. Net cash provided by operating activities tripled to $110.2 million from $45.8 million, fueled by higher operational performance and less working capital drag from maintenance activities. Capital expenditures fell to $5.6 million from $16.0 million, primarily funding projects to boost production capacity, cut costs, cover maintenance, and address safety and environmental needs at facilities. This resulted in free cash flow of $104.6 million, underscoring improved liquidity.

These results highlight the Partnership's operational leverage from its primary ethylene sales to Westlake, where contract terms ensure recovery of operating and maintenance costs. However, the Ethylene Sales Agreement does not cover expansion capital expenditures, which management expects to fund through Westlake loans or external sources like equity or debt issuances if internal cash flow proves insufficient. Per the Investment Management Agreement, invested cash earns a market return plus five basis points, with Westlake ensuring daily liquidity availability. This structure positions the Partnership to sustain operations while pursuing capacity enhancements, though reliance on Westlake for expansion funding persists absent obligation.