Westlake Corporation (WLK) Cash Flow Statement

The OCF/NI ratio is erratic, with negative net income in several quarters while OCF remained positive, suggesting that depreciation and amortization (D&A) of roughly $280-300M per quarter provides a substantial non-cash add-back that cushions cash generation. However, in 2026Q1, OCF turned negative at -$94M despite a net loss of -$169M, implying that working capital outflows overwhelmed the D&A cushion. This divergence suggests that reported losses may not fully capture the cash drain during trough periods, and investors should monitor the sustainability of cash conversion as the cycle recovers.

Despite a revenue rebound to $3.3B in 2026Q2, FCF margin remains at -5.9%, and the company has not generated positive FCF since 2024Q4. The persistent negative FCF, even as net income turned positive in 2026Q2, indicates that capital expenditures and working capital demands are outpacing operating cash flow. This suggests that the company is in a reinvestment phase or that the cyclical recovery has not yet translated into cash generation, warranting close monitoring of whether FCF can turn positive as the cycle matures.

The CapEx/Revenue ratio has remained elevated, peaking at 12.7% in 2026Q2, which is high for a chemicals company and suggests significant investment in growth or maintenance. Since D&A is roughly in line with CapEx, it appears that the company is barely replacing its asset base, and any growth capex is incremental. This capital intensity, combined with negative FCF, implies that Westlake is relying on external financing or cash reserves to fund its investment program, which could strain the balance sheet if the cycle does not improve.

The working capital line is a major driver of cash flow variability, with negative changes in most quarters, indicating cash outflows from inventory build-up or receivables. In 2025Q4, a positive $361M swing provided a temporary boost to OCF, but this reversed in 2026Q1 with a -$264M outflow. This pattern suggests that Westlake's cash flow is highly sensitive to inventory and receivable management, and the company may be building inventory in anticipation of demand recovery, which could pressure cash if sales do not materialize.

The company has maintained its dividend and engaged in buybacks despite negative free cash flow, indicating a commitment to returning capital to shareholders. However, this is funded by debt or cash reserves, as operating cash flow alone cannot cover these distributions. The sustainability of this policy is questionable if the cyclical downturn persists, and investors should monitor whether the company will prioritize balance sheet health over shareholder returns.

The large positive gap between cumulative OCF and net income is primarily due to substantial D&A and other non-cash charges, which have allowed the company to generate cash despite reporting losses. However, this also means that the company's earnings quality is low, as the cash generation is not translating into profitability. The cumulative FCF is deeply negative, indicating that the company is spending more on capex and working capital than it generates from operations, which may lead to increased leverage or asset sales if not reversed.