Hexcel Reports 2024 Third Quarter Results

Hexcel Corporation (NYSE:HXL):

See Table C for reconciliation of GAAP and non-GAAP operating income, net income, earnings per share and operating cash flow to free cash flow. Free cash flow is cash from operations less capital expenditures.

Hexcel Corporation (NYSE:HXL) today reported third quarter 2024 results including net sales of $457 million and adjusted diluted EPS of $0.47 per share.

CEO and President Tom Gentile said, "Hexcel saw 9% growth in total revenue year over year, driven by a robust 17% growth in commercial aerospace. Year-to-date commercial aerospace is now up 14%. Air traffic continues to grow post pandemic leading to record demand for aircraft that use Hexcel lightweight materials, but supply chain challenges in the global aerospace industry continue to delay planned production rate increases at our major customers. Our customers are currently indicating that production rates will increase in 2025. We will continue to monitor our cost and labor training position to meet those projected production rate increases as schedules firm."

Mr. Gentile continued, "Whereas the overall aerospace supply chain seemed to be recovering in late-2023, new challenges and shortages have developed as 2024 has progressed. As our business is impacted by the near-term slowing of previously planned production rate ramps by our key customers, we now expect FY 2024 sales and adjusted EPS to be at the lower end of our 2024 guidance ranges and will benefit from lower tax rates. Further, given recent developments, the assumptions for future production rates that were the basis for our mid-term guidance for the three-year period 2024-2026 provided in February 2024 are no longer valid. We are therefore withdrawing our previously issued mid-term guidance and will provide guidance for 2025, with our Q4 earnings in January."

Mr. Gentile concluded: "Our longer-term growth outlook remains robust, driven by the ongoing recovery of commercial aerospace production to meet historically strong backlogs. Hexcel lightweight materials are also in demand for military aerospace and next generation commercial aircraft that seek composite lightweighting to reduce fuel consumption, increase range, and decrease carbon emissions. We are continuing to focus on execution and cash generation. We see compelling value in our business and repurchased another $50 million of Hexcel common stock in the third quarter bringing the year-to-date total to $252 million."

Markets

Sales in the third quarter of 2024 were $456.5 million compared to $419.5 million in the third quarter of 2023.

Commercial Aerospace

• Commercial Aerospace sales of $295.9 million for the third quarter of 2024 increased 17.5% (17.0% in constant currency) compared to the third quarter of 2023. Airbus programs, which represent the largest portion of Hexcel sales, drove the sales growth including the A350 and A320neo. Boeing 787 sales, which represent about half of Hexcel's sales to Boeing, also increased, whereas 737 MAX sales decreased modestly. Other Commercial Aerospace increased 9.1% for the third quarter of 2024 compared to the third quarter of 2023 led by latest-generation business jet sales.

Space & Defense

• Space & Defense sales of $128.2 million were relatively unchanged (0.9% lower in constant currency) for the quarter as compared to the third quarter of 2023. Strength in Sikorsky CH-53K and Black Hawk was offset by lower Bell V-22 sales and softer Space sales, with launchers, satellites, and rocket motors all lower.

Industrial

• Total Industrial sales of $32.4 million in the third quarter of 2024 decreased 16.5% (17.3% in constant currency) compared to the third quarter of 2023 due to declines in all sub-markets.

Consolidated Operations

Gross margin for the third quarter of 2024 was 23.3% compared to 21.8% in the third quarter of 2023. As a percentage of sales, selling, general and administrative expenses for the third quarter of 2024 was 8.7% compared to 8.4% for the third quarter of 2023. R&T expenses as a percentage of sales was 3.0% for the third quarter of 2024 compared to 3.2% for the third quarter of 2023. Adjusted operating income in the third quarter of 2024 was $52.9 million or 11.6% of sales, compared to $42.8 million, or 10.2% of sales in 2023. The impact of exchange rates on operating income as a percent of sales was favorable by approximately 10 basis points in the third quarter of 2024 compared to the third quarter of 2023.

Year-to-Date 2024 Results

Sales for the first nine months of 2024 were $1,429.2 million compared to $1,331.5 million, a 7.3% increase from the same period in 2023.

Commercial Aerospace (64% of YTD sales)

• Commercial Aerospace sales of $915.9 million increased 14.4% (14.3% in constant currency) for the first nine months of 2024 compared to the first nine months of 2023. Growth was led by both the A350 and 787, and the A320neo. Sales were down nominally for the 737 MAX. Other Commercial Aerospace increased 5.8% for the first nine months of 2024 compared to the same period in 2023, supported by latest-generation business jet sales.

Space & Defense (28% of YTD sales)

• Space & Defense sales of $406.2 million increased 3.5% (3.4% in constant currency) for the first nine months of 2024 as compared to the first nine months of 2023. Key program growth including F-35, CH-53K, Black Hawk and European military helicopter programs was partially offset by the winding down of V-22 production and lower satellite and civilian helicopter sales.

Industrial (8% of YTD sales)

• Total Industrial sales of $107.1 million in the first nine months of 2024 decreased 22.6% (22.8% in constant currency) compared to the first nine months of 2023 as all sub-markets declined.

Consolidated Operations

Gross margin for the first nine months of 2024 was 24.6% compared to 24.8% in the prior year period. As a percentage of sales, selling, general and administrative for the first nine months of 2024 was 9.0% compared to 9.2% for the first nine months of 2023. R&T expenses as a percentage of sales for the first nine months of 2024 was 3.1% compared to 3.0% for the first nine months of 2023. Adjusted operating income for the first nine months of 2024 was $179.0 million or 12.5% of sales, compared to $167.6 million or 12.6% of sales in 2023. Other operating expense (income) for the first nine months of 2024 and 2023 included restructuring costs and the first nine months of 2023 also included a pre-tax net gain of $0.8 million from the sale of a facility in Windsor, Colorado. The impact of exchange rates on operating income as a percent of sales was favorable by approximately 30 basis points in the first nine months of 2024 compared to the first nine months of 2023.

Cash and other

• Net cash provided by operating activities in the first nine months of 2024 was $127.3 million, compared to $98.1 million for the first nine months of 2023. Working capital was a cash use of $93.1 million for the first nine months of 2024 and a use of $112.1 million for the comparable period in 2023. Capital expenditures on a cash basis were $68.4 million for the first nine months of 2024 compared to $94.4 million for the same period in 2023, which included approximately $38 million for the purchase of the land and building at the Hexcel Amesbury, Massachusetts facility. Net cash used for investing activities for the nine months ended September 30, 2023 included net proceeds of $10.3 million received from the sale of a facility in Windsor, Colorado. Free cash flow was $58.9 million in the first nine months of 2024 compared to $3.7 million in the first nine months of 2023. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures. Capital expenditures on an accrual basis were $59.6 million and $88.7 million for the first nine months of 2024 and 2023, respectively.
• The Company used $50.4 million to repurchase shares of its common stock during the third quarter of 2024 and $252.2 million during the first nine months of 2024. The aggregate remaining authorization under the share repurchase program as of September 30, 2024 was $234.9 million.
• As announced today, the Board of Directors declared a quarterly dividend of $0.15 per share payable to stockholders of record as of November 1, 2024, with a payment date of November 8, 2024.

2024 Guidance

• Sales of $1.90 billion to $1.98 billion (unchanged)
• Adjusted diluted earnings per share of $2.02 to $2.18 (unchanged)
• Free cash flow of around $200 million (unchanged)
• Capital expenditures less than $100 million (unchanged)
• Effective tax rate approximately 19% (reduced from 22.0%)

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Hexcel will host a conference call at 10:00 a.m. ET, on October 22, 2024 to discuss third quarter 2024 results. The live webcast will be available on the Investor Relations section of the Hexcel website via the following link: https://events.q4inc.com/attendee/273321724 The event can also be accessed by dialing +1 (646) 307-1963. The conference ID is 2360739. Replays of the call will be available on the website.

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About Hexcel

Hexcel Corporation is a global leader in advanced lightweight composites technology. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all. Our broad and unrivaled product range includes carbon fiber, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, resins, engineered core and composite structures for use in commercial aerospace, space and defense, and industrial applications.

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Disclaimer on Forward Looking Statements

This news release contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others, and the revenues we may generate from an aircraft model or program; expectations with regard to the impact of regulatory activity related to the Boeing 737 MAX or Boeing 787 on our revenues; expectations with regard to raw material cost and availability; expectations of composite content on new commercial aircraft programs and our share of those requirements; expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; expectations regarding sales for industrial applications; expectations regarding cash generation, working capital trends, and inventory levels; expectations as to the level of capital expenditures, capacity, including the timing of completion of capacity expansions, and qualification of new products; expectations regarding our ability to improve or maintain margins; expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy; projections regarding our tax rate; expectations with regard to the continued impact of macroeconomic factors or geopolitical issues or conflicts; expectations regarding our strategic initiatives, including, our sustainability goals; expectations with regard to the effectiveness of cybersecurity measures; expectations regarding the outcome of legal matters or the impact of changes in laws or regulations; and our expectations of financial results for 2024 and beyond. Actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors, including but not limited to the extent of the impact of macroeconomic factors or geopolitical issues or conflicts; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to regulatory activity or public scrutiny impacting the Boeing 737 MAX or the Boeing 787; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; the availability and cost of raw materials, including the impact of supply disruptions and inflation; our ability to successfully implement or realize our strategic initiatives, including our sustainability goals and any restructuring or alignment activities in which we may engage; changes in sales mix; changes in current pricing due to cost levels; changes in aerospace delivery rates; changes in government defense procurement budgets; timely new product development or introduction; our ability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including the effect of change in global trade policies, such as sanctions; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the effects of natural disasters or other severe weather events, which may be worsened by the impact of climate change, and other severe catastrophic events, including any public health crisis; and the unexpected outcome of legal matters or impact of changes in laws or regulations. Additional risk factors are described in our filings with the Securities and Exchange Commission. We do not undertake an obligation to update our forward-looking statements to reflect future events.

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