Hexcel(US:HXL)2023-10-24 18:59Financial Data and Key Metrics Changes - Hexcel reported third quarter sales of approximately $252 million, reflecting a year-over-year increase of over 19% in constant currency compared to Q3 2022 [7][31] - Year-to-date total sales exceeded $1.3 billion, up more than 15% year-over-year in constant currency, with EPS increasing over 50% to $1.38 from $0.88 [26][40] - Adjusted operating income for Q3 was $42.8 million, or 10.2% of sales, down from 11.3% in the prior year [35][49] Business Line Data and Key Metrics Changes - Commercial Aerospace sales were nearly $252 million, up 19.2% year-over-year, driven by the Airbus A350 and Boeing 787 programs, while narrowbody sales remained flat [7][31] - Space and Defense sales totaled approximately $129 million, increasing 17% in constant currency, with growth across various military platforms [18][32] - Industrial sales decreased by 21% to about $39 million, primarily due to lower wind energy sales, although automotive sales grew year-over-year [24][34] Market Data and Key Metrics Changes - The commercial aerospace industry is expected to ramp up build rates for narrowbody aircraft by nearly 50% and for widebody aircraft to almost double over the next three years [6] - The combined backlog for Airbus and Boeing stands at a record 13,775 aircraft, indicating strong demand for new, efficient aircraft [15][20] Company Strategy and Development Direction - Hexcel is focused on operational capacity recovery and talent recruitment to meet anticipated demand growth, aiming for significant cash generation in the coming years [4][12] - The company is committed to operational excellence to drive efficiencies and productivity, despite facing inflationary pressures, particularly in Europe [5][48] - Hexcel is strategically positioned to support the ramp-up in aircraft build rates, ensuring timely delivery of products to customers [6][40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the robust outlook for Commercial Aerospace, anticipating strong double-digit growth over the next few years [20][73] - The company acknowledged ongoing supply chain challenges but remains optimistic about future demand and growth potential [21][70] - Management highlighted the importance of aligning cost structures with anticipated sales growth to achieve mid-teens margins in the future [81][134] Other Important Information - Hexcel's net debt-to-EBITDA leverage was approximately 1.8 times at the end of Q3, with capital expenditures expected to remain below $100 million for the next few years [40][12] - The company declared a quarterly dividend of $0.125 and repurchased approximately $30 million of common stock during Q3 [39][40] Q&A Session Summary Question: Margin discussion and impact of hiring ahead of demand - Management indicated that margin decline was primarily due to increased infrastructure and cost base in preparation for future growth, rather than a mix issue [55][70] Question: Outlook for Space and Defense growth - Management expects continued strong growth in Space and Defense over the next few years, although not necessarily double digits every year [80][98] Question: Capacity and production rates for key aircraft programs - Management confirmed alignment with customers and readiness to support increased production rates for Boeing and Airbus models, with specific targets for 2024 and beyond [93][100] Question: Risks to Defense program revenue - Management acknowledged budgetary risks but expressed confidence in the strong growth outlook for Space and Defense [90] Question: Free cash flow and inventory management - Management discussed efforts to manage working capital tightly and improve inventory levels while preparing for future demand [120][128]