Core Insights - The aerospace industry is experiencing a recovery with elevated production rates supported by a significant backlog of commercial aircraft orders exceeding 17,000 units and a delivery shortfall of at least 5,300 aircraft to date [3] Company Performance - Hexcel reported 2025 sales of $1.894 billion, adjusted EPS of $1.76, and free cash flow of $157 million, impacted by A350 schedule changes and channel destocking [6][8] - In Q4 2025, Hexcel's sales were approximately $492 million, with commercial aerospace sales around $300 million, driven by A320, 787, and 737 volumes, while defense and space sales were about $192 million [9][11] Financial Outlook - Hexcel guided for 2026 sales of $2.0–$2.1 billion, adjusted EPS of $2.10–$2.30, and free cash flow of over $195 million, based on improved build rates across key programs [6][17] - The company plans for higher build rates in 2026, assuming approximately 80 A350 units, low-to-mid 700s A320 units, mid-400s 737 MAX units, and 90–100 787 units [7][19] Cost Management and Capital Allocation - Hexcel has implemented cost controls, reducing headcount by about 330 positions and exiting certain industrial markets, while also completing a $350 million accelerated share repurchase [5][13] - The board approved a 6% increase in the quarterly dividend to $0.18 per share, reflecting confidence in the recovery outlook [16] Industry Trends - The aerospace sector is seeing a sustained ramp-up in production, with demand for newer, more fuel-efficient aircraft driving continued orders despite a historically high backlog [3][4] - Defense demand remains robust, supported by rising budgets in the U.S. and allied nations, with Hexcel strengthening its defense team to pursue emerging opportunities [21]

Core Insights - Madison Small Cap Fund experienced a challenging third quarter in 2025, with a decline of 1.3% in its performance, underperforming benchmarks due to stock selection and a speculative market environment [1] Company Overview: Hexcel Corporation - Hexcel Corporation is a leader in advanced composite materials, producing carbon fiber reinforcements, resin systems, and honeycomb structures for commercial aerospace, space, and defense applications [2][3] - The stock of Hexcel Corporation had a one-month return of -3.08% but gained 15.30% over the last 52 weeks, closing at $70.55 per share with a market capitalization of $5.616 billion on November 20, 2025 [2] Investment Position - The small cap team initiated a new investment position in Hexcel Corporation, citing its critical role in lightweight, high-performance applications, particularly in aerospace [3] - Major clients include industry leaders such as Airbus and Boeing, benefiting from a duopoly market structure and significant competitive moats [3] - The company faces challenges from previous COVID-related supply chain issues, but these headwinds are believed to be largely resolved [3] - The competitive landscape is characterized by high capital intensity and regulatory hurdles, leading to substantial switching costs for customers [3] - The intrinsic value of Hexcel's franchise is estimated at $85 [3]