Hexcel(HXL) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Highlights Hexcel reported increased net sales but decreased profitability in Q1 2024, while reaffirming full-year guidance and returning capital to shareholders Summary of Q1 2024 Results Hexcel reported Q1 2024 net sales of $472.3 million, a 3.2% increase year-over-year. However, profitability declined, with GAAP net income falling 14.5% to $36.5 million and adjusted diluted EPS decreasing 12.0% to $0.44. The company returned $113 million to shareholders and reaffirmed its full-year 2024 guidance Q1 2024 vs. Q1 2023 Key Financial Metrics | (In millions, except per share data) | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $472.3 | $457.7 | 3.2% | | Operating Income | $52.9 | $62.8 | (15.8)% | | Net Income | $36.5 | $42.7 | (14.5)% | | Adjusted Operating Income | $54.1 | $63.0 | (14.1)% | | Adjusted Diluted EPS | $0.44 | $0.50 | (12.0)% | - The company returned $113 million to stockholders in Q1 2024 through a combination of share repurchases and dividends[5] - Full-year 2024 guidance has been reaffirmed[5] Management Commentary and Market Performance Management highlights strong commercial aerospace momentum and market recovery, while detailing varied performance across key segments Management Commentary CEO Nick Stanage highlighted building momentum in the commercial aerospace market, with sequential sales growth from Q4 2023 driven by both widebody and narrowbody programs. He noted that global air passenger traffic has surpassed pre-pandemic levels, fueling demand for new, composite-intensive aircraft. The company remains confident in its full-year and mid-term guidance - Commercial aerospace sales grew sequentially from Q4 2023, with growth in both widebody and narrowbody programs[7] - Management is encouraged by reports that global air passenger traffic has exceeded pre-pandemic levels, which supports demand for new aircraft[7] - The company is pleased with recent large orders for new widebody aircraft, where Hexcel has significant content[7] Market Segment Performance In Q1 2024, Commercial Aerospace, the largest segment, grew 5.2% driven by higher widebody sales. Space & Defense sales increased by a strong 10.2%, led by programs like the F-35 and A400M. In contrast, the Industrial segment experienced a significant decline of 27.9% due to lower sales across all its sub-markets Q1 2024 Sales by Market Segment (vs. Q1 2023) | Market Segment | Q1 2024 Sales (millions) | % of YTD Sales | YoY Growth (Constant Currency) | | :--- | :--- | :--- | :--- | | Commercial Aerospace | $299.3 | 63% | 5.2% | | Space & Defense | $139.1 | 30% | 10.0% | | Industrial | $33.9 | 7% | (28.5)% | - The increase in Space & Defense sales was led by fixed-wing aircraft programs, including the Lockheed F-35 and Airbus A400M, as well as classified programs[10] Consolidated Operations and Cash Flow The company experienced improved cash flow from operations despite lower margins, actively returning capital to shareholders through repurchases and dividends Consolidated Operations Gross margin for Q1 2024 was 25.0%, a sequential improvement but a decrease from 27.9% in Q1 2023, which benefited from favorable absorption and sales mix. Adjusted operating margin was 11.5%, down from 13.8% in the prior-year quarter. Exchange rates had a favorable impact of approximately 30 basis points on the operating margin Q1 Operating Metrics Comparison | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gross Margin | 25.0% | 27.9% | | SG&A and R&T (% of sales) | 13.6% | 14.1% | | Adjusted Operating Margin | 11.5% | 13.8% | Cash Flow and Capital Allocation The company reported a free cash outflow of $35.7 million, an improvement from an outflow of $41.5 million in Q1 2023. This was driven by a lower cash use for working capital. Hexcel actively returned capital to shareholders, repurchasing $100.7 million of its common stock and declaring a quarterly dividend of $0.15 per share. The share repurchase authorization was increased by $300 million in February 2024 Q1 Cash Flow Summary (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash Used for Operating Activities | $(7.0) | $(23.4) | | Capital Expenditures (Cash Basis) | $(28.7) | $(18.1) | | Free Cash Flow | $(35.7) | $(41.5) | - The company used approximately $100.7 million to repurchase common stock in Q1 2024[15] - The Board of Directors declared a quarterly dividend of $0.15 per share[15] 2024 Guidance Hexcel reaffirms its full-year 2024 financial guidance, anticipating sales growth across all market segments Full Year 2024 Guidance (Unchanged) Hexcel has reaffirmed its full-year 2024 guidance. The company expects sales between $1.925 billion and $2.025 billion, with adjusted diluted EPS in the range of $2.10 to $2.30. Free cash flow is projected to be greater than $200 million. Growth is anticipated across all market segments, led by a mid-teens increase in Commercial Aerospace Full Year 2024 Financial Guidance | Metric | Guidance | | :--- | :--- | | Sales | $1.925B - $2.025B | | Adjusted Diluted EPS | $2.10 - $2.30 | | Free Cash Flow | > $200 million | | Capital Expenditures | < $100 million | | Effective Tax Rate | 22.0% | Full Year 2024 Market-Specific Sales Outlook | Market Segment | Expected Growth | | :--- | :--- | | Commercial Aerospace | Up mid-teens | | Space & Defense | Up mid-single digits | | Industrial | Up low to mid-single digits | Financial Statements and Supplemental Data Detailed financial statements and supplemental data provide a comprehensive overview of the company's Q1 2024 performance, balance sheet, cash flows, and segment information Condensed Consolidated Statements of Operations For Q1 2024, net sales increased to $472.3 million from $457.7 million in Q1 2023. However, higher cost of sales led to a lower gross margin of 25.0% compared to 27.9%. Operating income decreased to $52.9 million from $62.8 million, and net income fell to $36.5 million from $42.7 million year-over-year Q1 2024 Income Statement Highlights (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $472.3 | $457.7 | | Gross margin | $118.2 | $127.7 | | Operating income | $52.9 | $62.8 | | Net income | $36.5 | $42.7 | | Diluted EPS | $0.43 | $0.50 | Condensed Consolidated Balance Sheets As of March 31, 2024, Hexcel's total assets were $2.82 billion, down from $2.92 billion at year-end 2023, primarily due to a decrease in cash and cash equivalents. Total liabilities remained relatively stable at $1.19 billion. Total stockholders' equity decreased to $1.63 billion from $1.72 billion, reflecting share repurchase activity Balance Sheet Summary (in millions) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $85.9 | $227.0 | | Total current assets | $789.7 | $864.2 | | Total assets | $2,821.2 | $2,918.5 | | Total liabilities | $1,189.1 | $1,202.0 | | Total stockholders' equity | $1,632.1 | $1,716.5 | Condensed Consolidated Statements of Cash Flows In Q1 2024, net cash used for operating activities was $7.0 million, an improvement from a $23.4 million use in Q1 2023. Investing activities used $28.7 million, mainly for capital expenditures. Financing activities used $104.3 million, driven by $100.7 million in common stock repurchases. This resulted in a net decrease in cash of $141.1 million for the quarter Q1 Cash Flow Highlights (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used for operating activities | $(7.0) | $(23.4) | | Net cash used for investing activities | $(28.7) | $(18.1) | | Net cash (used for) provided by financing activities | $(104.3) | $34.8 | | Net decrease in cash and cash equivalents | $(141.1) | $(6.3) | Supplemental Data This section provides detailed breakdowns of company performance, including sales by market and segment, a reconciliation of GAAP to non-GAAP financial measures, and a schedule of total debt Net Sales by Market (Table A) Table A details net sales by market for Q1 2024 versus Q1 2023, both as reported and in constant currency. Commercial Aerospace sales grew 5.2% to $299.3 million, Space & Defense grew 10.2% to $139.1 million, while Industrial sales fell 27.9% to $33.9 million. The total consolidated sales grew 3.2% to $472.3 million Q1 2024 Net Sales by Market (in millions) | Market | 2024 Sales | 2023 Sales | % Change (As Reported) | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | | Commercial Aerospace | $299.3 | $284.5 | 5.2% | 5.2% | | Space & Defense | $139.1 | $126.2 | 10.2% | 10.0% | | Industrial | $33.9 | $47.0 | (27.9)% | (28.5)% | | Consolidated Total | $472.3 | $457.7 | 3.2% | 3.1% | Segment Information (Table B) Table B presents financial data by operating segment. In Q1 2024, the Composite Materials segment generated $379.5 million in external sales and $63.7 million in operating income (15.8% margin). The Engineered Products segment had $92.8 million in external sales and $12.9 million in operating income (13.9% margin). Both segments saw a decline in operating margin compared to Q1 2023 Q1 2024 Segment Performance (in millions) | Segment | External Sales | Operating Income | Operating Margin | | :--- | :--- | :--- | :--- | | Composite Materials | $379.5 | $63.7 | 15.8% | | Engineered Products | $92.8 | $12.9 | 13.9% | Reconciliation of GAAP to Non-GAAP Measures (Table C) Table C reconciles GAAP results to non-GAAP measures by excluding special items, primarily restructuring costs. For Q1 2024, adjusted operating income was $54.1 million, adjusted net income was $37.4 million, and adjusted diluted EPS was $0.44. It also shows the calculation for free cash flow, which was an outflow of $35.7 million Q1 2024 GAAP to Non-GAAP Reconciliation (in millions, except EPS) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Operating Income | $52.9 | $1.2 | $54.1 | | Net Income | $36.5 | $0.9 | $37.4 | | Diluted EPS | $0.43 | $0.01 | $0.44 | Schedule of Total Debt (Table D) Table D provides a detailed schedule of the company's debt. As of March 31, 2024, total debt was $714.7 million. After subtracting cash and cash equivalents of $85.9 million, the total debt, net of cash, stood at $628.8 million, an increase from $472.5 million at the end of 2023 Total Debt, Net of Cash (in millions) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Debt | $714.7 | $699.5 | | Less: Cash & cash equivalents | $(85.9) | $(227.0) | | Total debt, net of cash | $628.8 | $472.5 |