Hexcel(HXL)2023-07-25 19:26Financial Data and Key Metrics - Composite Materials segment represented 83% of total sales with an operating margin of 16.2%, up from 14% in the prior year period [2] - Commercial Aerospace sales increased 15.4% to $264.3 million, driven by growth in Airbus A350 and Boeing 787 programs [188] - Space & Defense sales increased 22.1% to $137.5 million, marking the highest quarterly sales ever for this segment [79] - Industrial sales decreased 3.3% to $52.5 million due to lower wind energy sales, partially offset by growth in automotive and other industrial markets [61] - Adjusted operating income was $61.8 million, or 13.6% of sales, compared to $44.7 million, or 11.4% of sales, in the prior year period [62] - Free cash flow for the first half of 2023 was negative $44.7 million, including $37.8 million for the Amesbury property acquisition [11][82] Business Line Performance - Composite Materials segment saw strong demand for Hexcel fiber-rich products, contributing to higher margins [2][96] - Engineered Products segment generated an 8.9% operating margin, softer than usual due to higher development and tooling costs related to space programs [81] - Industrial segment faced headwinds from lower wind energy sales but saw growth in automotive and marine markets [61][128] Market Performance - Commercial Aerospace growth was driven by Airbus A350, Boeing 787, and business jet demand [188] - Space & Defense achieved record sales, supported by programs like F-35, Rafale, and Black Hawk [79][130] - Industrial markets showed mixed performance, with automotive and marine growth offsetting declines in wind energy [61][128] Strategy and Industry Competition - The company is focused on expanding its composite materials portfolio to support next-generation fuel-efficient aircraft and reduce emissions [58][84] - Hexcel is well-positioned to capitalize on the growing demand for lightweight composites in aerospace and defense [58][68] - The acquisition of the Amesbury property provides control and flexibility for future growth and expansion [1][109] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to meet growing demand and navigate supply chain challenges [56][68] - The company is optimistic about the recovery of air travel and the strong backlog of commercial aircraft orders [50][57] - Hexcel is committed to driving efficiency, productivity, and cash management to deliver value to shareholders [12] Other Important Information - The company updated its 2023 guidance, raising sales expectations to $1.765 billion to $1.835 billion and EPS to $1.80 to $1.94 [83] - Hexcel sold its former wind energy facility in Colorado for $11 million, which will be accounted for in Q3 2023 [11] - The company renewed its $750 million revolving credit facility, with a focus on maintaining a target leverage range of 1.5 to 2 times [64] Q&A Session Summary Question: Impact of 737 MAX and A220 rate changes - The company noted strong product mix in Q1, particularly with Hexcel carbon fiber-rich products, driving strong margins [7][96] Question: Free cash flow outlook and facility acquisition - The Amesbury property acquisition was the primary driver of the change in cash flow outlook, with no significant other moving pieces [121] Question: Hexcel's opportunity on Airbus's Wing of Tomorrow project - Hexcel is actively involved in the Wing of Tomorrow project, leveraging its diverse portfolio to optimize wing design [22][125] Question: Wind energy business outlook - The wind energy business has stabilized and is expected to remain solid, driven by legacy products in Europe [23] Question: Capital allocation and share buybacks - The company plans to resume share buybacks in the coming periods, prioritizing organic growth and disciplined M&A [40] Question: Airbus A220-500 potential and CapEx requirements - Hexcel sees significant potential in the A220-500, with opportunities for IM fiber and minimal additional CapEx requirements [27][120] Question: Supply chain alignment with Boeing and Airbus - The company is closely aligned with Boeing and Airbus on production rates and supply chain dynamics [93][151] Question: Margin progression and incremental leverage - Management expects margins to improve as volumes increase, targeting mid-teens margins on $1.8 billion to $1.9 billion in revenue [150][98] Question: Technology and material advancements for future programs - Hexcel is working on multiple material types and technologies to support future aerospace programs, including the Wing of Tomorrow [22][125][176] Question: Defense revenue growth and platform outlook - Space & Defense revenue is expected to grow, with strong performance from programs like F-35 and Rafale [79][130]