Hexcel(US:HXL)2020-02-04 18:51Financial Data and Key Metrics Changes - Fourth quarter sales reached $564 million, a nominal increase from Q4 2018, with adjusted diluted EPS at $0.86, reflecting a 5% year-over-year increase [8][10] - Full year 2019 sales were $2.356 billion, up 8% year-over-year, with adjusted diluted EPS at $3.54, an increase of over 16% compared to the previous year [13][55] - Free cash flow generation reached a record $287 million in 2019, surpassing the previous year's $237.3 million [23][53] Business Line Data and Key Metrics Changes - Aerospace sales in Q4 were impacted by the slowdown in 737 MAX production, but business jets saw a 20% year-over-year sales increase, primarily driven by Gulfstream programs [10][12] - Space & Defense sales increased by 18% in Q4 compared to Q4 2018, with strong contributions from the ARC acquisition and various defense programs [11][44] - Industrial sales declined by approximately 11% compared to a strong Q4 last year, although wind energy sales increased significantly throughout the year [12][46] Market Data and Key Metrics Changes - Commercial aerospace sales for 2019 were 5.1% higher than 2018, totaling almost $1.6 billion, with strong performance from the Airbus A350 and Boeing 787 programs [16][18] - Space & Defense sales for 2019 reached almost $445 million, a 21.6% increase over 2018, driven by the F-35 Joint Strike Fighter and other military programs [18] - Industrial sales in 2019 were $313 million, a 10.6% increase year-over-year, with wind energy sales showing strong growth [19] Company Strategy and Development Direction - The company is focused on operational excellence, continuous improvement, and developing new technologies to enhance customer solutions [22][30] - A transformational merger with Woodward was announced, aimed at creating a premier integrated systems provider to address challenges in fuel efficiency and emissions reduction [31][32] - The company is transitioning its Kent plant strategy to focus on more complex, highly engineered product manufacturing [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the return of the 737 MAX to service and its impact on future sales, while acknowledging the challenges posed by production suspensions [15][64] - The guidance for 2020 includes flat to low-single digit sales growth and low-to-mid single digit EPS growth, with expectations of strong margin intensity despite headwinds [29][56] - The company anticipates continued investment in research and technology to maintain its leadership position in aerospace composites [60] Other Important Information - The company repurchased approximately $76 million of common stock in Q4 2019, totaling $143 million for the year, with $242 million remaining under the share repurchase program [54] - The effective tax rate for Q4 2019 was 16.6%, with a full-year rate of 21% [52] Q&A Session Summary Question: Synergy potential with Airbus in the Woodward merger - Management noted that while Woodward does not have significant direct sales to Airbus, they have strong positions through engines and tier one suppliers, and discussions on new opportunities are ongoing [70][71] Question: 737 MAX shipsets guidance - In 2019, the company was in the range of 42 to 52 shipsets, and for 2020, they are guiding for 200 shipsets, with production expected to resume midyear [72][73] Question: Capital expenditure reductions - The reduction in capital expenditures is primarily due to productivity initiatives and the slowdown in the MAX production, allowing for a push of spending to future years [76][77] Question: Revenue impact from Kent plant transition - The transition of work from the Kent plant will take two to three years, with efforts to win new packages already underway [83][84] Question: Inventory management challenges - The biggest headwind for 2020 is expected to be inventory management, particularly with uncertainties in the market and the timing of the 737 MAX return to service [90][91] Question: Profitability profile and margin guidance - Management confirmed that the guidance accounts for potential margin pressures from the MAX and 787, but they expect to maintain strong margins through productivity and efficiency improvements [94][96]