Westlake Corporation (WLK) Income Statement

The sequential recovery from $2.5B to $3.3B over two quarters indicates a potential inflection in volume or pricing, though the year-over-year growth in 2026Q2 is the first positive since 2024Q4. The earlier quarters showed consistent declines, with 2025Q4 down 10.9% year-over-year, reflecting a prolonged downturn. This recent rebound may signal the start of a new cycle, but sustainability is uncertain given the prior volatility.

The gross margin improvement of over 37 percentage points in two quarters is extraordinary, likely reflecting both lower input costs and improved product spreads. However, the negative gross margin in 2025Q4 indicates severe inventory write-downs or pricing collapses, which may not fully recur. The 19.9% margin in 2026Q2 is still below the 20.7% seen in 2024Q2, suggesting room for further recovery but also potential volatility.

SG&A expenses have been remarkably stable, ranging from $209M to $253M, even as revenue fluctuated between $2.5B and $3.3B. This stability means that operating leverage works both ways: when revenue drops, losses are magnified, as seen in 2025Q3 and Q4. The recent recovery in revenue has allowed operating income to turn positive, but the fixed cost base suggests that any future revenue decline could quickly return the company to losses.

The cost of goods sold is the dominant expense line, and its volatility is the main determinant of gross margin. The 2025Q4 COGS exceeding revenue suggests inventory write-downs or raw material cost spikes that were not passed through. The subsequent normalization to 79% in 2026Q2 indicates a return to more typical cost structures, but the historical swings imply that management has limited control over input costs, which are likely tied to energy and feedstock prices.

This quarter was the nadir of the downturn, with revenue at $2.5B and gross profit negative, likely due to severe pricing pressure and inventory devaluation. The subsequent recovery in 2026Q1 and Q2 suggests that the company has moved past the worst, but the lasting impact is a weakened balance sheet and a need to rebuild profitability. The sharp rebound in margins indicates that the trough may have been an anomaly, but it also highlights the cyclicality of the chemicals industry.