LyondellBasell Earnings Call: Cash Strength Amid Weak Margins

Lyondellbasell Industries ((LYB)) has held its Q4 earnings call. Read on for the main highlights of the call.

LyondellBasell Leans on Cash Discipline to Weather Prolonged Downturn

LyondellBasell’s latest earnings call struck a tone of disciplined resilience amid one of the most challenging industry environments in decades. Management emphasized record safety, strong cash generation and aggressive cost and value programs that are helping offset deeply depressed margins and weak profitability. While the numbers underscore how tough 2025 was for the chemicals and polyolefins industry, the company’s liquidity, capital discipline and structural efficiency gains position it to benefit materially once the cycle turns.

Historic Safety Performance Under Heavy Operating Stress

LyondellBasell reported its safest year on record in 2025, with the total recordable incident rate reaching a historic low despite elevated maintenance and turnaround activity. For investors, this matters beyond ESG optics: strong safety performance tends to support operational reliability, reduce unplanned outages and lower long-term costs. Management framed this as evidence that the organization is executing well operationally even while undertaking significant restructuring and asset work.

Strong Cash Generation and Exceptional Cash Conversion

The company generated $2.3 billion of cash from operations in 2025 and delivered a cash conversion ratio of 95%, far above its long-term 80% target. This exceptional conversion was driven by tight working capital management and disciplined capital allocation, helping LyondellBasell produce cash even as EBITDA and earnings remained subdued. For shareholders, the ability to translate modest earnings into robust cash flow is crucial in a downcycle, supporting both balance sheet strength and returns.

Outperformance on Cash Improvement Plan

Management highlighted clear overdelivery on its 2025 cash conservation program. Against an original target of $600 million, LyondellBasell achieved $800 million in cash improvement—roughly 33% above plan—supported by working capital actions including a more than $1 billion release in the fourth quarter alone. Building on this, the company is now targeting an additional $500 million of incremental cash in 2026, lifting the cumulative cash-improvement ambition to $1.3 billion through the end of next year.

Value Enhancement Program Upsized After Beating Initial Targets

The value enhancement program (VEP), aimed at structural cost reduction and margin improvement, delivered $1.1 billion of recurring annual EBITDA in 2025. On the back of this performance, LyondellBasell raised its VEP target to $1.5 billion of recurring annual EBITDA by 2028, a roughly $400 million increase. These recurring gains are designed to be “through-cycle” earnings improvements, meaning investors should see permanent uplift in profitability once markets normalize.

Robust Liquidity and Preserved Financial Flexibility

LyondellBasell ended 2025 with $3.4 billion of cash and short-term investments and total available liquidity of $8.1 billion. The company issued $1.5 billion of bonds to address near-term maturities while maintaining its investment-grade priorities. This liquidity cushion provides a significant buffer against prolonged weak margins and gives management optionality to fund strategic projects or pursue shareholder returns without stressing the balance sheet.

Capital Discipline and Tightened CapEx Plans

The company announced a 2026 capital plan of about $1.2 billion, split between roughly $800 million for sustaining needs and $400 million for profitable growth projects. Several lower-priority growth and circularity projects have been deferred or reprioritized, signaling a cautious stance on capital deployment until industry conditions improve. This disciplined approach helps conserve cash and reduces execution risk while still supporting essential maintenance and targeted high-return investments.

Strategic Portfolio Moves and Circularity Progress

On the strategic front, LyondellBasell is advancing the divestment of four European assets, with completion targeted for the second quarter of 2026. The company also reported continued progress on its first MoReTec advanced recycling unit (MoReTec-1), which remains on track for startup in 2027, and it has secured new allocation of cost-advantaged Middle Eastern feedstocks. Together, these actions aim to sharpen the portfolio, shift exposure toward higher-return and lower-cost assets, and build capabilities in circular and sustainable plastics.

Shareholder Returns Sustained Despite Downturn

Despite the tough cycle, LyondellBasell returned $2.0 billion to shareholders in 2025 via dividends and share repurchases while still growing its cash balance and preserving liquidity. This signals management’s confidence in the company’s cash-generation capacity and its commitment to maintaining an attractive capital return profile, even in a low-margin environment. For income-focused investors, the continuity of returns is a notable positive.

Segment-Level Operational Improvements in APS and IND

While headline profitability was subdued, certain segments showed meaningful progress. The Advanced Polymer Solutions (APS) segment delivered a 55% year-over-year increase in EBITDA and significantly improved cash generation, reflecting both demand recovery in selected end markets and internal cost and pricing actions. The Intermediates & Derivatives (IND) segment completed the La Porte acetyls turnaround and began converting to a proprietary catalyst system designed to enhance margins over time, laying the groundwork for future earnings uplift despite near-term downtime impacts.

Industry Margins Near Multi-Decade Lows

The broader backdrop remains harsh: management indicated that industry margins were about 45% below historical averages in 2025, even worse than 2024’s already weak levels. This prolonged downturn has pressured profitability across LyondellBasell’s core businesses, particularly in polyolefins and derivatives. The company’s message to investors is that current earnings do not reflect mid-cycle economics and that structural improvements being made now should provide leverage when margins normalize.

Modest Profitability and Soft Fourth Quarter Results

Full-year EBITDA came in at $2.5 billion with earnings per share of $1.70, underscoring how deeply the cycle has compressed earnings power. The fourth quarter was particularly soft, with EBITDA of $417 million, constrained by seasonal demand weakness, higher feedstock and energy costs, and maintenance-related downtime. Segment detail showed O&P Americas at $164 million, O&P Europe, Asia & International (EAI) in a loss, IND at $205 million, APS at $38 million, and Technology at $80 million.

O&P Europe, Asia & International Hit by Losses

The O&P EAI segment posted a fourth-quarter EBITDA loss of $61 million, weighed down by soft demand, a surge in low-cost imports into Europe, customer destocking and elevated maintenance. These conditions illustrate the structural challenges facing European assets, where higher energy costs and intense import competition are eroding margins. The ongoing asset divestments and portfolio reshaping are partly a response to this pressure.

Feedstock, Energy and Maintenance Headwinds

Higher ethane and natural gas prices, together with both planned and unplanned maintenance, dragged on margins across the portfolio. Cold-weather startup issues at the IND business are expected to reduce first-quarter 2026 EBITDA by about $20 million. These operational and cost headwinds compounded the already weak pricing environment, limiting the benefit from any incremental volume or utilization improvements.

Accounting Impacts from LIFO and Other Identified Items

Noncash LIFO inventory valuation charges, combined with identified items including roughly $61 million (net of tax) mainly linked to closure costs and APS Specialty Powders, reduced reported fourth-quarter earnings. The net impact was around $52 million for the quarter. While these items do not fully reflect ongoing cash economics, they add another layer of pressure on reported GAAP results that investors must adjust for when assessing underlying performance.

Structural Challenges in Polyolefins Markets

Management highlighted pronounced structural headwinds in polyolefins, particularly in North America. Polyolefin margins are at multi-decade lows, with polypropylene especially weak due to its heavy exposure to durable goods such as autos and construction, where demand has been sluggish. Global oversupply and rising exports from China are keeping pricing under pressure. Until capacity additions slow and demand growth absorbs excess inventory, margins are likely to remain constrained.

Deferred Growth Projects and Timing Risks

To protect cash and maintain balance sheet strength, LyondellBasell has deferred or reprioritized certain growth initiatives, including projects such as Flex-2 and MoReTec-2. In addition, some sustainability and circularity-related investment timelines have been revised. While this bolsters near-term financial resilience, it introduces potential long-term timing risks around growth and circularity targets, which investors will need to monitor as markets recover and capital becomes more available for expansion.

Workforce Reductions and Operational Trade-Offs

Cost and cash actions included a roughly 7% reduction in the global workforce, or about 1,350 employees, bringing staffing to the lowest level since 2018. Management framed these moves as necessary to align the cost base with current market realities and to support structural margin improvements. However, such cuts carry operational and cultural implications, and investors will be watching to ensure that service levels, innovation capacity and safety performance remain intact.

Working Capital Rebuild Expected to Temper Free Cash Flow

After releasing more than $1 billion of working capital in the fourth quarter of 2025 alone, LyondellBasell expects a moderate rebuild of working capital in 2026. This normalization, which is already embedded in the company’s cash improvement plans, is likely to reduce free cash flow headroom in the near term. Even so, management believes ongoing cash conservation initiatives and disciplined CapEx will keep overall cash generation healthy.

Guidance and Outlook: Incremental Improvement, Structural Gains

For 2026, LyondellBasell guided to approximately $1.2 billion in capital expenditures, split between about $800 million of sustaining spend and $400 million aimed at profitable growth. The company plans to deliver an additional $500 million of cash improvement in 2026, taking its cumulative cash-improvement target to $1.3 billion through next year, and expects an effective tax rate of around 10% with cash taxes roughly 10 percentage points higher. Operationally, management is assuming modest sequential market improvement in the first quarter, with planned operating rates of roughly 85% for O&P Americas (up from ~75% in Q4, with crackers near 90%), 75% for O&P EAI and 85% for IND, albeit with about a $20 million EBITDA drag from the La Porte restart. Strategic targets include holding onto the $1.1 billion of recurring VEP EBITDA achieved in 2025 and growing that figure to $1.5 billion by 2028, positioning the company for stronger mid-cycle earnings as the industry works through a period of margins some 45% below historical norms.

In sum, LyondellBasell’s earnings call painted a picture of a company under heavy cyclical pressure but responding with stringent cash discipline, structural cost improvements and measured strategic moves. Safety performance, liquidity and recurring value enhancements are clear bright spots, even as margins, especially in polyolefins and European operations, remain severely depressed. For investors willing to look through the downturn, the story is increasingly about how much earnings power can be unlocked when industry conditions normalize and the benefits of today’s efficiency and portfolio actions fully flow through.