Hexcel(US:HXL)2022-01-27 18:42Financial Data and Key Metrics Changes - Fourth quarter sales reached $360 million, a nearly 22% increase compared to Q4 2020, with adjusted diluted EPS of $0.16 compared to a negative $0.18 last year [15][18] - For the full year 2021, sales totaled $1.325 billion, down 12.6% year-over-year in constant currency, but adjusted diluted EPS improved to $0.27 from $0.25 in 2020 [18][19] - Gross margin for Q4 was 19.2%, up from 10.3% in Q4 2020, driven by higher sales and improved efficiency [37] Business Line Data and Key Metrics Changes - Commercial Aerospace sales in Q4 were $199.7 million, up 58.7% year-over-year, driven by increased sales in narrow-body, wide-body, and business jets [35] - Space & Defense sales were $105.9 million, a decrease of 10.8% from Q4 2020, impacted by softer space sales and lower military rotorcraft sales [35] - Industrial sales totaled $54.7 million, increasing 12.8% year-over-year, with strength in automotive and recreation markets [36] Market Data and Key Metrics Changes - Commercial Aerospace represented approximately 56% of total Q4 sales, while Space & Defense accounted for 29% and Industrial for 15% [35] - For the full year, Commercial Aerospace sales were about $668 million, a decline of about 19% compared to 2020, while Space & Defense sales were approximately $435 million, reflecting a 3% year-over-year decline [20][23] Company Strategy and Development Direction - The company is focused on a steep growth trajectory in 2022, addressing challenges such as supply chain constraints and inflationary pressures [12][13] - Hexcel is transitioning to more advanced composite production technologies, moving less complex work to a joint venture with Boeing, which is expected to enhance margins [22][96] - The company has reinstated a dividend, reflecting confidence in its recovery and growth prospects [32][43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about strong growth in 2022, driven by recovery in air travel and increased demand for lightweight composite materials [12][51] - The company anticipates challenges from inflation and supply chain issues but remains focused on efficiency and productivity to control its destiny [52][53] - Future growth is expected to be supported by strong order activity in Commercial Aerospace and ongoing demand in Space & Defense [21][70] Other Important Information - The company is guiding for 2022 sales between $1.50 billion and $1.63 billion, with adjusted EPS of $1 to $1.24 and free cash flow exceeding $145 million [25][44] - Hexcel is moving away from providing specific platform shipset values for Commercial Aerospace programs, opting instead for shipset ranges to better reflect value propositions [26][28] Q&A Session Summary Question: How should we think about excess capacity and idle assets tied to the widebody side of the business? - Management indicated that idle assets are being methodically brought back online as demand increases, with no new assets needed in the foreseeable future [56][58] Question: Can you update us on your research efforts for high volume out of autoclave parts? - Management confirmed ongoing development of advanced materials that can be cured outside of autoclave, which will penetrate narrowbody markets [63] Question: What is the outlook for Space & Defense sales in 2022? - Management expects about 8% year-over-year growth, driven by programs like the F-35 and CH-53K, despite some softness in legacy programs [68][70] Question: How will free cash flow be utilized moving forward? - Management plans to use free cash flow for dividends, potential M&A opportunities, and possibly stock buybacks once covenants are cleared [72][76] Question: What is the impact of working capital as revenue ramps back up? - Management acknowledged that as sales grow, working capital will increase, but they aim to manage it efficiently [83] Question: How does the transition of work to the joint venture impact EBIT? - The transition involved moving lower-margin work to the joint venture, but management expects to replace it with higher-margin programs at the Kent facility [96][99]