LyondellBasell Industries (LYB) FY2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-20, FY ended December 31, 2025) + Yahoo Finance

Auditor: PricewaterhouseCoopers LLP (PCAOB ID 238) — Unqualified opinion

One-line verdict: LyondellBasell reported a net loss of $738 million in FY2025, posted a $420 million operating loss, recognized $1.25 billion in impairment charges (including $972 million of goodwill impairments), shut down its Houston refinery, permanently closed its European PO/SM joint venture, and carries $14.6 billion in debt against only $3.4 billion in cash — all while gross margin compressed from 13.9% to 8.5%. The company is in structural decline, not a cyclical trough. Two critical screening failures (leverage at 12.6x Debt/EBITDA and cash covering only 24% of debt) drive the F grade.

A Company Unwinding Itself

The 10-K paints a picture of deliberate retreat. Per the filing: "In February 2025, we ceased business operations at our Houston refinery. Accordingly, our refining business, previously disclosed as the Refining segment, is reported as a discontinued operation." The refinery closure contributed to discontinued operations generating only $47 million in FY2025, versus $255 million in FY2023.

In March 2025, LYB "announced the permanent closure of the PO/SM production unit at the Maasvlakte site in the Netherlands, a joint venture between us and Covestro, resulting in the recognition of $126 million in shutdown costs during the year ended December 31, 2025."

The company manages five operating segments: O&P-Americas, O&P-EAI, Intermediates & Derivatives, Advanced Polymer Solutions, and Technology. The filing discloses that "lower average sales prices for many of our products resulted in an 8% decrease in revenues, while lower sales volumes driven by lower demand led to a 4% decrease."

Profitability: The Numbers Are Ugly

The consolidated income statement tells the story directly: sales dropped to $30.2B, cost of sales was $27.6B, and on top of that the company booked $972 million in goodwill impairments and $279 million in other impairments. Operating loss was $420 million. Pre-tax loss from continuing operations was $715 million.

Per the filing: "In 2025, we recognized a last-in, first-out (LIFO) benefit of $196 million, net of tax, resulting from the liquidation of low-cost inventory." LIFO liquidation gains are a classic sign of a company consuming its own inventory reserves to cushion earnings — though in LYB's case, the loss was so deep that even this benefit couldn't prevent a net loss.

Cash Flow: Operating Cash Masks Deeper Weakness

The CFFO/NI ratio of -3.04 is mechanically distorted by the net loss — operating cash flow was positive at $2.3B even while the company lost money, driven by $1.4B of depreciation/amortization add-backs and $1.25B in impairment charges (non-cash). This is not earnings quality strength; it's the hallmark of a capital-intensive business burning through its asset base.

Per the filing: "During 2025, we generated $2.3 billion in cash from operating activities. We invested $1.9 billion in capital expenditures and returned $2.0 billion to shareholders through dividend payments and share repurchases." Returning $2.0B to shareholders while generating only $0.4B in free cash flow means LYB funded shareholder returns with debt.

The 18-Point Screening

Revenue Quality

Revenue quality passes because receivables are shrinking faster than revenue — this reflects lower sales volume and possibly tighter credit terms, not manipulation.

Expense Quality

B4 is concerning. A 5.4 percentage point gross margin decline in a single year for a commodity chemicals company signals severe pricing pressure. The filing attributes this to "lower average sales prices for many of our products" across all segments.

Cash Flow Quality

C4 is a critical failure. The balance sheet shows current maturities of long-term debt at $588M, short-term debt at $226M, and long-term debt at $12.1B. Total debt of $14.6B against cash of $3.4B means LYB is deeply leveraged, and the Altman Z-Score of 1.97 sits squarely in the grey zone where distress risk is elevated.

Balance Sheet

D2 is a critical failure. Debt/EBITDA at 12.6x is extreme — the threshold for concern is 4x. Interest coverage of 1.7x (operating income before impairments divided by interest expense) means the company barely earns enough to service its debt. The $487M interest expense against the operating loss of $420M means LYB is underwater on an operating basis before any debt service.

Acquisition Risk

Goodwill dropped because the company wrote $972 million of it off — the $1.25 billion in total impairments represents the market telling LYB that acquired assets are worth less than book value.

Manipulation Score

The M-Score passes comfortably. The GMI (Gross Margin Index) at 1.627 is elevated — reflecting the margin collapse — but the model correctly interprets this as operational deterioration rather than manipulation. The books appear honestly terrible.

Key Risks from the 10-K

1. $1.25 Billion in Impairments — And More May Come

The filing states: impairment charges included "non-cash impairment charges of $1,182 million, presented in both Goodwill impairments and Other impairments." The filing warns that any "decision to permanently close facilities or exit a business may result in impairment and other charges to earnings." Given the ongoing portfolio restructuring, additional impairments in FY2026 cannot be ruled out.

2. Structural Overcapacity in Petrochemicals

LYB's revenue declined 10% while no single customer accounted for 10% or more of total revenues. The filing's MD&A attributes the decline to industry-wide pricing weakness: "lower average sales prices for many of our products resulted in an 8% decrease in revenues, while lower sales volumes driven by lower demand led to a 4% decrease." This is not a company-specific problem — it's a global petrochemical supply/demand imbalance that LYB has limited ability to address.

3. Debt Load During a Loss Year

Total equity fell from $12.5B to $10.1B in a single year. Meanwhile, long-term debt rose from $10.5B to $12.1B. The company borrowed more while earning less. With $588M in current maturities of long-term debt due, plus $226M in short-term debt, LYB needs to continuously refinance in a rising-rate environment while posting losses.

4. Environmental Liabilities

Per the filing, LYB incurred "$241 million in capital expenditures for health, safety and environmental compliance purposes" in FY2025 and estimates approximately $235 million in 2026. The filing explicitly warns that "capital expenditures or operating costs for environmental compliance, including compliance with potential legislation and potential regulation related to climate change, cannot be predicted with certainty."

Summary

Grade: F. Multiple critical red flags — this company should be flagged for elevated risk.

LyondellBasell posted a net loss, swung to an operating loss, wrote off $1.25 billion in assets, shut down a refinery, permanently closed a European joint venture, and loaded up on debt — all in a single fiscal year. The Altman Z-Score of 1.97 places the company in the financial distress grey zone. Debt/EBITDA at 12.6x and interest coverage at 1.7x are both deeply concerning. The M-Score is clean, meaning the books honestly reflect a business in decline. The company returned $2.0B to shareholders while generating only $0.4B in free cash flow, funding the gap with additional borrowing.

The commodity chemical cycle will eventually turn, but the structural questions — overcapacity, environmental costs, portfolio shrinkage — suggest that the next upcycle may not fully repair the balance sheet damage.

**Disclaimer**: This report is based on LyondellBasell's FY2025 10-K filed with SEC EDGAR on February 20, 2026. This is NOT investment advice.

Data: SEC EDGAR 10-K + Yahoo Finance

Auditor: PricewaterhouseCoopers LLP (Unqualified opinion)

Fiscal year ended: December 31, 2025