Hexcel(US:HXL)2022-04-26 19:30Financial Data and Key Metrics Changes - Hexcel reported adjusted first quarter diluted EPS of $0.22 and sales of $391 million, representing a year-over-year revenue increase of 26% compared to $310 million in the previous year [10][18] - Gross margin for the first quarter was 22.2%, up from 17.1% in the first quarter of 2021, marking the best gross margin percentage performance since Q1 2020 [34] - Adjusted operating income in the first quarter was $31.1 million, or 8% of sales, with selling, general and administrative expenses decreasing to 14.2% of sales from 16.5% in the prior year [36][34] Business Line Data and Key Metrics Changes - Commercial Aerospace sales were $219 million, up almost 49% year-over-year in constant currency, driven by strengthening narrowbody sales and higher A350 sales [19][31] - Space & Defense sales totaled $118 million, representing a 7% increase in constant currency, with strong growth in military platforms [23][32] - Industrial sales increased more than 9% in constant currency to $54 million, supported by strength in recreation, automotive, and consumer electronics markets [26][33] Market Data and Key Metrics Changes - Commercial Aerospace accounted for approximately 56% of total first quarter sales, with significant growth in narrow-bodies and business jets [31] - Space & Defense represented 30% of first quarter sales, with strong demand anticipated from platforms like the F-35 and CH-53K [32][25] - Industrial comprised 14% of first quarter sales, with wind energy demand lower but offset by growth in other sectors [33][26] Company Strategy and Development Direction - Hexcel is focused on operational efficiency and cash management while expanding manufacturing capabilities, including a facility in Morocco to double production capacity [20][27] - The company is well-positioned to capitalize on emerging markets such as Urban Air Mobility (UAM) and Advanced Air Mobility (AAM) [22] - Hexcel aims to maintain double-digit adjusted operating margins for 2022 while managing inflationary pressures and supply chain challenges [37][67] Management's Comments on Operating Environment and Future Outlook - Management noted that the effects of the pandemic are lessening, with increasing demand and a solid foundation for growth [9][10] - The company is facing inflationary pressures but has protections in place through long-term supply contracts [14][67] - Management remains confident in achieving the 2022 guidance of $1.5 billion to $1.63 billion in sales and adjusted diluted EPS of $1 to $1.24 [27][46] Other Important Information - Free cash flow for Q1 2022 was negative $39.9 million, with working capital increasing to support higher sales [41] - Capital expenditures were $11.1 million in Q1 2022, reflecting investments in capacity expansion and innovation centers [42] - The Board declared a $0.10 quarterly dividend, with a payment date of May 13 [44] Q&A Session Summary Question: Sequential growth in Commercial Aerospace - Management indicated steady growth in A320 and A350 programs, with expectations for continued growth driven by these platforms [51][52] Question: Risks in the supply chain - Management acknowledged holding more inventory than normal to mitigate supply chain disruptions, but remains confident in managing these challenges [59][60] Question: Inflation impact on margins - Management confirmed that while inflationary pressures exist, long-term contracts provide some protection, and they aim for double-digit operating margins [67][68] Question: Capital deployment priorities - Management emphasized organic investments as a priority, with share buybacks and M&A opportunities also being considered [75][112] Question: Disconnects among customers - Management stated that there is good alignment among customers regarding build rates and inventory levels, with no significant disconnects observed [126]