Hexcel(HXL) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Overall sales in Q3 2021 were $334 million, an increase from$ 287 million in Q3 2020, reflecting strong earnings performance as sales recover and margins expand [14][30] - Aerospace sales reached $167 million, representing a nearly 30% increase compared to Q3 2020, driven by stronger narrowbody demand [14][26] - Gross margin for Q3 was 19.8%, significantly up from 4.7% in Q3 2020, benefiting from a strong fiber-rich sales mix and reduced overhead costs [30][34] Business Line Data and Key Metrics Changes - Commercial Aerospace accounted for approximately 50% of Q3 sales, with a 29.8% increase year-over-year [26] - Space & Defense sales totaled$ 110.4 million, a 1.4% increase from the same period in 2020, with strength in fixed-wing aircraft and commercial helicopters [27] - Industrial sales were $56.2 million, an 11.7% increase compared to Q3 2020, although wind energy sales declined over 31% due to softer demand [28][19] Market Data and Key Metrics Changes - The U.S. is expected to lift its international travel ban in November, which is anticipated to boost demand for air travel and aircraft orders [13] - The company is closely monitoring supply chain constraints and inflationary pressures, particularly in energy and freight costs [10][11] Company Strategy and Development Direction - The company has completed its restructuring and is now focused on leveraging its advanced composite technology to meet increasing demand for lightweight materials [8][48] - Plans for expansion include doubling the size of the engineered core facility in Morocco by early 2023 and establishing a new center for research and technology excellence in Salt Lake City [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a sustained recovery in aerospace, supported by growing OEM backlogs and production rate increases [48] - The company remains cautious about the uncertain market environment and is focused on cost control and cash management [47] Other Important Information - The effective tax rate for Q3 2021 was 38.3%, influenced by the pandemic and the mix of results across different countries [36] - Free cash flow for Q3 2021 was$ 19.5 million, with year-to-date free cash flow at $49.2 million, despite modest increases in working capital [39] Q&A Session Summary Question: Can you give us a split of raw materials and labor, and what percentage of your raw materials you've hedged? - Management clarified that acrylonitrile is the primary commodity hedged, and they have long-term contracts for key aerospace resins to mitigate cost pressures [56] Question: What are your thoughts on the 2022 revenue consensus? - Management is optimistic about growth in 2022, particularly in narrowbody aircraft, and believes the consensus estimate is reasonable [59] Question: Can you remind me of your sales mix in terms of carbon fiber versus honeycomb? - Management indicated that while they do not disclose specific product line sales, carbon fiber sales have been growing and are expected to continue [67] Question: How do you view the new industrial applications? - Management sees these as sustainable opportunities that will continue to grow, rather than placeholders while waiting for aerospace recovery [86] Question: What is the expected impact of the Kent relocation of work? - Management confirmed that the transfer of work from the Kent facility to a joint venture will reduce revenue but is expected to be manageable [98]