PART I. FINANCIAL INFORMATION [Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=ITEM%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for the six months ended June 30, 2025, show a decrease in net income and operating cash flow compared to the prior year [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $2,843.3 million, an increase from $2,725.6 million at year-end 2024 Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$2,843.3** | **$2,725.6** | | Cash and cash equivalents | $77.2 | $125.4 | | Inventories, net | $375.4 | $356.2 | | Net property, plant and equipment | $1,629.0 | $1,596.7 | | **Total Liabilities** | **$1,289.4** | **$1,197.7** | | Long-term debt | $827.7 | $700.6 | | **Total Stockholders' Equity** | **$1,553.9** | **$1,527.9** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter of 2025, net sales decreased to $489.9 million and net income fell sharply to $13.5 million Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $489.9 | $500.4 | $946.4 | $972.7 | | Gross Margin | $111.5 | $126.6 | $213.9 | $244.8 | | Operating Income | $30.0 | $71.8 | $74.2 | $124.7 | | Net Income | $13.5 | $50.0 | $42.4 | $86.5 | | Diluted EPS | $0.17 | $0.60 | $0.52 | $1.03 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash used for operating activities was $5.2 million, a significant decrease from the prior year Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used for) provided by operating activities | $(5.2) | $37.2 | | Net cash used for investing activities | $(42.5) | $(51.6) | | Net cash used for financing activities | $(4.1) | $(136.0) | | **Net decrease in cash and cash equivalents** | **$(48.2)** | **$(151.6)** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, debt refinancing, revenue reporting changes, and restructuring charges - The company is exploring strategic options for its Austrian operations, which have been **classified as held for sale**[20](index=20&type=chunk)[21](index=21&type=chunk) - In Q1 2025, the company issued **$300 million of 5.875% Senior Unsecured Notes due 2035** and redeemed its notes due 2025[37](index=37&type=chunk)[38](index=38&type=chunk) - Beginning in Q1 2025, revenue is reported under two new market categories: **Commercial Aerospace and Defense, Space & Other**[59](index=59&type=chunk) - A restructuring charge of **$24.2 million** was recognized in Q2 2025 for the closure of the Welkenraedt facility in Belgium[79](index=79&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the decline in sales and operating income to weakness in the Commercial Aerospace market and restructuring charges [Business Overview](index=18&type=section&id=Business%20Overview) Hexcel is a global leader in advanced lightweight composites, facing ongoing challenges from supply chain issues and inflation - The company operates in a single industry, Advanced Composites, with two reportable segments: **Composite Materials and Engineered Products**[86](index=86&type=chunk) - Post-pandemic recovery faces challenges including **delays in aircraft production, supply chain issues, and inflation**, which may negatively impact financial results[87](index=87&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Q2 2025 results showed a decline in net sales and operating income, driven by a fall in Commercial Aerospace sales Financial Performance Summary (in millions) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $489.9 | $500.4 | (2.1)% | | Operating Income | $30.0 | $71.8 | (58.2)% | | Net Income | $13.5 | $50.0 | (73.0)% | Net Sales by Market - Q2 (in millions) | Market | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Commercial Aerospace | $293.1 | $320.7 | (8.6)% | | Defense, Space & Other | $196.8 | $179.7 | 9.5% | - Gross margin for Q2 2025 was **22.8%**, down from 25.3% in Q2 2024, due to lower sales and inventory reduction actions[99](index=99&type=chunk) - Other operating expenses in Q2 2025 included **$24.2 million in restructuring charges** related to a facility closure in Belgium[102](index=102&type=chunk) [Financial Condition](index=20&type=section&id=Financial%20Condition) The company's liquidity remains strong with significant undrawn credit, despite a decrease in cash and a reversal in operating cash flow - Cash on hand decreased to **$77.2 million** at June 30, 2025, from $125.4 million at December 31, 2024[110](index=110&type=chunk) - The company has **$620 million in undrawn availability** under its credit facility as of June 30, 2025[111](index=111&type=chunk) - Net cash used for operating activities was **$5.2 million** for the first six months of 2025, compared to cash provided of $37.2 million in the prior year period[114](index=114&type=chunk) - During the first six months of 2025, the company repurchased **$100.9 million of common stock** and paid **$27.5 million in dividends**[116](index=116&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes in the company's market risk from the information provided in its 2024 Annual Report - There have been **no material changes** in market risk since the 2024 Form 10-K[131](index=131&type=chunk) [Controls and Procedures](index=23&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures and concluded they were effective as of the end of the quarter - Management concluded that **disclosure controls and procedures were effective** as of June 30, 2025[132](index=132&type=chunk)[133](index=133&type=chunk) - **No material changes** to internal control over financial reporting were identified during the quarter ended June 30, 2025[134](index=134&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=24&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from the notes to the financial statements - Details on legal proceedings are provided in **Note 11 (Commitments and Contingencies)** on pages 16-17[135](index=135&type=chunk) [Risk Factors](index=24&type=section&id=ITEM%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its 2024 Annual Report - There have been **no material changes** in the Company's risk factors from the 2024 Form 10-K[136](index=136&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, the company repurchased over 939,000 shares of its common stock for a total cost of $50.5 million Share Repurchase Activity for Q2 2025 | Period | Shares Purchased | Average Price Paid | Total Cost (Millions) | | :--- | :--- | :--- | :--- | | May 1 – May 31, 2025 | 939,012 | $53.24 | $50.5 | - As of June 30, 2025, approximately **$134.0 million remained available** for repurchases under the 2024 Share Repurchase Plan[138](index=138&type=chunk) [Exhibits](index=25&type=section&id=ITEM%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including required CEO and CFO certifications - Filed exhibits include **CEO/CFO certifications (Exhibits 31.1, 31.2, 32)** and financial statements in Inline XBRL format (Exhibit 101)[141](index=141&type=chunk)

[Hexcel Q2 2025 Earnings Report](index=1&type=section&id=HEXCEL%20REPORTS%202025%20SECOND%20QUARTER%20RESULTS) [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Hexcel's Q2 2025 results reflect a year-over-year decline in sales and EPS, while maintaining full-year guidance Q2 & YTD 2025 Financial Performance Summary (vs. 2024) | (In millions, except per share data) | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $489.9 | $500.4 | (2.1)% | $946.4 | $972.7 | (2.7)% | | **Operating Income (GAAP)** | $30.0 | $71.8 | (58.2)% | $74.2 | $124.7 | (40.5)% | | **Net Income (GAAP)** | $13.5 | $50.0 | (73.0)% | $42.4 | $86.5 | (51.0)% | | **Diluted EPS (GAAP)** | $0.17 | $0.60 | (71.7)% | $0.52 | $1.03 | (49.5)% | | **Adjusted Operating Income** | $54.2 | $72.0 | (24.7)% | $99.5 | $126.1 | (21.1)% | | **Adjusted Diluted EPS** | $0.50 | $0.60 | (16.7)% | $0.87 | $1.04 | (16.3)% | - The company returned **$64 million** to stockholders in Q2 2025 through a combination of share repurchases and dividends[5](index=5&type=chunk) - Full-year 2025 guidance remains unchanged[5](index=5&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributes Q2 performance to A350 program softness offset by defense growth, while actively streamlining operations - Sales performance was impacted by softness in the **Airbus A350 program**, attributed to production rate decreases and supply chain destocking[4](index=4&type=chunk) - The Defense, Space & Other market provided **robust, high single-digit growth** over Q2 2024[4](index=4&type=chunk) - Strategic operational streamlining includes the closure of the Welkenraedt, Belgium facility, a strategic review of the Neumarkt, Austria facility, and the divestiture of the US additive printing business[6](index=6&type=chunk) - The company executed **$50 million in share repurchases** during the second quarter, having repurchased nearly 6% of outstanding shares since the start of 2024[6](index=6&type=chunk) [Market Performance Analysis](index=2&type=section&id=Market%20Performance%20Analysis) Commercial Aerospace sales declined while the Defense, Space & Other market saw strong growth in Q2 2025 - Beginning in Q1 2025, the company reports sales under two markets: Commercial Aerospace and a combined Defense, Space & Other market[7](index=7&type=chunk) [Commercial Aerospace](index=2&type=section&id=Commercial%20Aerospace) Commercial Aerospace Sales Performance | Period | Sales (in millions) | YoY Change | YoY Change (Constant Currency) | | :--- | :--- | :--- | :--- | | **Q2 2025** | $293.1 | (8.6)% | (8.9)% | | **YTD 2025** | $573.2 | (7.5)% | (7.7)% | - Sales decreased year-over-year for all four major programs: **Airbus A350, A320neo, Boeing 787, and 737 MAX**[8](index=8&type=chunk) - Other Commercial Aerospace sales, which excludes the four major programs, increased by **5.1% in Q2** and **6.0% YTD** compared to the prior year[8](index=8&type=chunk)[13](index=13&type=chunk) [Defense, Space & Other](index=2&type=section&id=Defense%2C%20Space%20%26%20Other) Defense, Space & Other Sales Performance | Period | Sales (in millions) | YoY Change | YoY Change (Constant Currency) | | :--- | :--- | :--- | :--- | | **Q2 2025** | $196.8 | 9.5% | 7.6% | | **YTD 2025** | $373.2 | 5.8% | 5.2% | - Growth in Q2 was driven by the **Sikorsky CH-53K helicopter**, two international fighter programs, and various space programs including launchers, rocket motors, and satellites[9](index=9&type=chunk) [Consolidated Operations Review](index=2&type=section&id=Consolidated%20Operations%20Review) Q2 gross margin declined due to lower sales and inventory efforts, with operating income impacted by a significant restructuring charge Key Operational Metrics Comparison (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Gross Margin** | 22.8% | 25.3% | | **SG&A as % of Sales** | 8.8% | 8.0% | | **R&T as % of Sales** | 2.9% | 2.9% | | **Adjusted Operating Margin** | 11.1% | 14.4% | - Q2 operating income included restructuring charges of **$24.2 million** related to the closure of the Welkenraedt, Belgium facility[10](index=10&type=chunk) - For the first six months of 2025, total restructuring charges amounted to **$25.3 million**, which also included the divestiture of the Hartford, Connecticut business[15](index=15&type=chunk) [Cash Flow, Capital Allocation, and Guidance](index=3&type=section&id=Cash%20Flow%2C%20Capital%20Allocation%2C%20and%20Guidance) The company experienced negative free cash flow in H1 2025 but continued its capital return program and reaffirmed full-year guidance Cash Flow Summary (First Six Months) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $(5.2) | $37.2 | | Capital expenditures | $(41.4) | $(51.6) | | **Free Cash Flow** | **$(46.6)** | **$(14.4)** | - The company repurchased **$100.9 million** of its common stock in the first six months of 2025, with the remaining authorization under the share repurchase program at approximately **$134 million**[18](index=18&type=chunk) - The Board of Directors declared a quarterly dividend of **$0.17 per share**[18](index=18&type=chunk) Full Year 2025 Guidance (Unchanged) | Metric | Guidance | | :--- | :--- | | Sales | $1.88 billion to $1.95 billion | | Adjusted diluted EPS | $1.85 to $2.05 | | Free cash flow | Approximately $190 million | | Capital expenditures | Less than $90 million | | Effective tax rate | 21.0% (excluding discrete items) | [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents Hexcel's unaudited condensed consolidated Statements of Operations, Balance Sheets, and Statements of Cash Flows [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 Statement of Operations Highlights (in millions) | Line Item | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net sales | $489.9 | $500.4 | | Gross margin | $111.5 | $126.6 | | Operating income | $30.0 | $71.8 | | Net income | $13.5 | $50.0 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (in millions) | Line Item | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $77.2 | $125.4 | | Inventories, net | $375.4 | $356.2 | | Total assets | $2,843.3 | $2,725.6 | | Long-term debt | $827.7 | $700.6 | | Total stockholders' equity | $1,553.9 | $1,527.9 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Highlights - Six Months Ended June 30 (in millions) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used for) provided by operating activities | $(5.2) | $37.2 | | Net cash used for investing activities | $(42.5) | $(51.6) | | Net cash used for financing activities | $(4.1) | $(136.0) | | Net decrease in cash and cash equivalents | $(48.2) | $(151.6) | [Supplemental Financial Information](index=8&type=section&id=Supplemental%20Financial%20Information) This section provides supplementary data on net sales by market, segment performance, non-GAAP reconciliations, and debt schedules [Table A: Net Sales by Market](index=8&type=section&id=Table%20A%3A%20Net%20Sales%20by%20Market) Q2 2025 Net Sales by Market (in millions) | Market | 2025 Sales | 2024 Sales | % Change | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Commercial Aerospace | $293.1 | $320.7 | (8.6)% | (8.9)% | | Defense, Space & Other | $196.8 | $179.7 | 9.5% | 7.6% | | **Consolidated Total** | **$489.9** | **$500.4** | **(2.1)%** | **(2.9)%** | [Table B: Segment Information](index=9&type=section&id=Table%20B%3A%20Segment%20Information) Q2 2025 Segment Performance (in millions) | Segment | Net Sales to External Customers | Operating Income (Loss) | Operating Margin | | :--- | :--- | :--- | :--- | | Composite Materials | $393.2 | $58.3 | 14.1% | | Engineered Products | $96.7 | $(13.6) | (14.0)% | - The Engineered Products segment reported an operating loss of **$13.6 million**, which includes a **$24.2 million** restructuring charge[31](index=31&type=chunk) [Table C: GAAP to Non-GAAP Reconciliation](index=10&type=section&id=Table%20C%3A%20GAAP%20to%20Non-GAAP%20Reconciliation) Q2 2025 GAAP to Non-GAAP Reconciliation (in millions, except EPS) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Operating Income | $30.0 | $24.2 | $54.2 | | Net Income | $13.5 | $26.9 | $40.4 | | Diluted EPS | $0.17 | $0.33 | $0.50 | - Adjustments for Q2 2025 primarily consist of a **$24.2 million** pre-tax restructuring charge for the Welkenraedt facility closure, a **$0.9 million** gain on a pension settlement, and a related **$3.4 million** tax charge[33](index=33&type=chunk)[34](index=34&type=chunk) [Table D: Schedule of Total Debt](index=11&type=section&id=Table%20D%3A%20Schedule%20of%20Total%20Debt) Total Debt, Net of Cash (in millions) | Date | Total Debt | Cash & Equivalents | Total Debt, Net of Cash | | :--- | :--- | :--- | :--- | | June 30, 2025 | $827.7 | $77.2 | $750.5 | | Dec 31, 2024 | $700.7 | $125.4 | $575.3 | | June 30, 2024 | $795.0 | $75.4 | $719.6 |

Company Overview - Hexcel Corporation (NYSE: HXL) is positioned as a leader in the advanced composites sector, playing a crucial role in the aerospace, defense, and next-generation mobility industries [1] Market Position - The company has a deep integration into many large aerodefense platforms, showcasing its dominance in the market [1] Investment Insights - Hexcel's story is compelling for investors looking at growth opportunities within the advanced materials space, particularly given the increasing demand in aerospace and defense sectors [1]

Core Viewpoint - Hexcel (HXL) is anticipated to report a year-over-year decline in earnings due to lower revenues for the quarter ended June 2025, with a consensus outlook indicating potential impacts on its near-term stock price [1][3]. Earnings Expectations - The consensus EPS estimate for Hexcel is $0.46 per share, reflecting a year-over-year decrease of 23.3% [3]. - Expected revenues for the quarter are $471.17 million, down 5.8% from the same quarter last year [3]. Estimate Revisions - Over the last 30 days, the consensus EPS estimate has been revised 2.83% lower, indicating a reassessment by covering analysts [4]. - The Most Accurate Estimate for Hexcel is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +0.93% [12]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive Earnings ESP reading can indicate a likely earnings beat, particularly when combined with a strong Zacks Rank [10]. - Hexcel currently holds a Zacks Rank of 4, which complicates the prediction of an earnings beat despite the positive Earnings ESP [12][20]. Historical Performance - In the last reported quarter, Hexcel was expected to post earnings of $0.43 per share but delivered only $0.37, resulting in a surprise of -13.95% [13]. - Over the past four quarters, Hexcel has beaten consensus EPS estimates three times [14]. Industry Comparison - Teledyne Technologies (TDY), a peer in the Aerospace - Defense Equipment industry, is expected to report earnings of $5.01 per share for the same quarter, indicating a year-over-year increase of 9.4% [18]. - Teledyne's revenues are projected to be $1.47 billion, up 7.1% from the previous year, with a higher Most Accurate Estimate leading to an Earnings ESP of +1.22% [19].

Financial Performance & Market Position - Hexcel's Last Twelve Months (LTM) sales as of September 2017 reached $1.945 billion[5] - Commercial Aerospace accounted for 72% of LTM sales[8] - Space & Defense represented 17% of LTM sales[9] - Industrial applications contributed 11% to LTM sales[9] - The company's backlog from Airbus and Boeing is currently worth almost $10 billion in sales[34] Growth & Investment - Hexcel is targeting markets with long-term growth potential[8] - The company is investing in research and technology with a double-digit investment strategy[18] - Hexcel completed $629 million in share repurchases since 2013[53] - Quarterly dividends increased 14% in 2017 to $0.125/share[53] Future Outlook - Hexcel anticipates sales to be just under $2 billion for 2017[52] - The company projects adjusted diluted EPS to be between $2.64 and $2.72 for 2017[52] - Hexcel is targeting >$100 million of free cash flow in 2017[53]

DECEMBER 12, 2017 | NEW YORK CITY 1 ©2017 Hexcel. All rights reserved. Risks, Uncertainties and Other Factors with Respect to Forward-Looking Statements Disclaimer Certain statements contained in this presentation constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements that are not of historical fact constitute "forward-looking statements" and accordingly, involve estimates, assumptions, judgments and uncertainties. There are a numb ...

Core Viewpoint - Hexcel's shares have increased by approximately 11.1% since the last earnings report, but this performance is still below that of the S&P 500 [1] Estimates Movement - Estimates for Hexcel have trended downward over the past month, with a consensus estimate shift of -8.64% [2] VGM Scores - Hexcel currently holds an average Growth Score of C, a Momentum Score of D, and a Value Score of C, resulting in an aggregate VGM Score of D, placing it in the middle 20% for investment strategies [3] Outlook - The downward trend in estimates suggests a negative outlook for Hexcel, reflected in its Zacks Rank of 4 (Sell), indicating expectations of below-average returns in the coming months [4]

Core Viewpoint - The partnership between Hexcel and JetZero aims to revolutionize the production of composite materials for JetZero's all-wing design aircraft, enhancing fuel efficiency and reducing carbon emissions in the aviation industry [1][2]. Group 1: Partnership and Collaboration - Hexcel and JetZero are accelerating their strategic partnership under the FAA's Aviation Sustainable Transformation (FAST) program to develop certified composite materials for JetZero's aircraft [1]. - The collaboration focuses on breakthroughs in manufacturing non-cylindrical pressure vessels, which is expected to lead to revolutionary advancements in aviation composite production [1]. Group 2: Aircraft Design and Efficiency - JetZero is developing the world's first commercial all-wing design aircraft, the Z4 model, which features a wider and shorter fuselage with four rows of passenger cabins, each equipped with independent aisles and dedicated overhead luggage compartments [1]. - Compared to traditional tube-wing aircraft of the same size, the Z4 design offers a 50% improvement in fuel efficiency due to greater lift and reduced drag [1]. Group 3: Environmental Impact and Future Plans - The aircraft is projected to enter commercial service by 2030, aiming to provide a clear pathway for the aviation industry to introduce mid-range passenger aircraft capable of carrying over 250 people with a range of 5,000 nautical miles while significantly lowering carbon emissions [1][2]. - NASA estimates that if 30% of the global mid-range fleet adopts this technology, it could reduce aviation carbon emissions by approximately 15 million tons annually, marking a significant step towards net-zero aviation [2].

Market Overview - The stock market is experiencing pressure in 2025, with the S&P 500 index down approximately 9% and the Nasdaq Composite index down about 13.5% due to various catalysts including China's DeepSeek R-1 model and trade war concerns [1][2] Reddit Analysis - Reddit's stock has decreased by 52% from its high this year, primarily due to weaker-than-expected user engagement metrics reported in its fourth-quarter results [3] - Despite the decline, Reddit achieved a 71% year-over-year revenue growth, reaching $427.7 million in the fourth quarter, and daily average unique users increased by 39% year-over-year to 101.7 million [4] - Reddit is positioning itself as a significant player in the AI market, licensing data for APIs and AI model training, with the AI market projected to grow at a 20% compound annual growth rate, reaching $1 trillion by 2027 [6] - The company is leveraging AI to enhance content relevance and safety, aiming to expand its international reach [7] Hexcel Analysis - Hexcel's stock is down 30% from its high in 2025, largely due to supply chain disruptions affecting its major customers, Boeing and Airbus [8] - The company has lowered its full-year sales, earnings, and free cash flow guidance due to production rate increases for commercial aircraft not meeting expectations, particularly impacting the Airbus A350 program [9] - Despite near-term challenges, Hexcel has multiyear backlogs from Boeing and Airbus, and it can support higher production rates, indicating potential for significant cash flow growth when sales improve [10] - The revised guidance for 2025 indicates adjusted diluted earnings of $1.85 to $2.05 and free cash flow of $190 million, suggesting the stock is trading at a favorable valuation with long-term growth prospects [11]

Financial Data and Key Metrics Changes - In Q1 2025, the company generated sales of $457 million and adjusted diluted EPS of $0.37, with commercial aerospace sales of $280.1 million, down 6.3% year-over-year on a constant currency basis [13][31][32] - Gross margin decreased to 22.4% from 25% in the same period last year, impacted by lower operating leverage and a power outage at the Decatur facility [18][35] - Adjusted operating income was $45.3 million or 9.9% of sales, compared to $54.1 million or 11.5% in the prior year [36] Business Line Data and Key Metrics Changes - The Composite Materials segment represented 80% of total sales, with an adjusted operating margin of 14.2%, down from 16% in the prior year [37] - The Engineered Products segment, accounting for 20% of total sales, had an adjusted operating margin of 6.8%, down from 14.3% in the prior year due to vendor quality issues [37][38] - Sales in the defense, space, and other market totaled $176.4 million, up 2.7% year-over-year, driven by growth in various defense programs [15][33] Market Data and Key Metrics Changes - Commercial aerospace sales represented approximately 61% of total sales, with a decline primarily due to lower sales of Boeing 787 and 737 MAX [31][32] - Sales for other commercial aerospace increased by 7.1% year-over-year, led by international demand [14][33] - The company expects 2025 commercial aerospace sales to be flat compared to 2024, with defense space and other sales also expected to remain unchanged [46] Company Strategy and Development Direction - The company is focused on operational excellence, innovation, and growth, particularly in defense and space markets [49][50] - Plans to streamline operations and improve margins through investments in research and technology [50] - The company is well-positioned to benefit from increased production rates across commercial and military programs as the industry recovers from the pandemic [51] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain disruptions affecting production rates, particularly in commercial aerospace [13][25] - The company is managing costs and cash flow carefully, with a focus on maintaining operational efficiency [20][36] - Despite near-term challenges, management remains optimistic about future cash flows and growth opportunities, particularly in the A350 program [26][110] Other Important Information - The company repurchased $50 million of common stock in Q1 2025 and has additional authorization for $185 million [11][41] - The Board declared a quarterly dividend of $0.17, payable on May 9, 2025 [42] - The company is divesting its wind and recreation-focused facility in Austria, with expectations to complete this by Q2 2025 [12][24] Q&A Session Summary Question: What is the overall tariff impact and profitability outlook? - Management indicated a direct tariff impact of $3 to $4 million per quarter, which can be offset by productivity improvements [54][56] Question: Are there pricing levers to offset tariff impacts? - Most contracts are structured to pass through costs, including tariffs, to buyers, providing a natural hedge [62][64] Question: What is the confidence level regarding inventory at Airbus? - Management acknowledged some inventory exists and has built plans considering potential destocking [106] Question: How is the company managing headcount in response to production changes? - The company is aligning headcount with current production levels and allowing attrition to manage costs effectively [82][85] Question: What is the outlook for the A350 production rates? - The company expects a reduction in A350 production rates, impacting revenue guidance, but remains optimistic about future cash flow generation [25][74][110]