A month has gone by since the last earnings report for Hexcel (HXL). Shares have lost about 8.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hexcel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hexcel's Q3 Earnings Surpass Estimates, Sales Improve Y/Y

Hexcel Corporation reported third-quarter 2024 adjusted earnings of 47 cents per share, which improved 23.7% from the year-ago quarter’s figure of 38 cents.

The bottom line also surpassed the Zacks Consensus Estimate of 46 cents by 2.2%.

The company reported GAAP earnings of 49 cents per share, which increased 8.9% from the year-ago quarter’s figure of 45 cents.
 
The year-over-year bottom line improvement can be attributed to higher net sales and operating income compared with the prior-year quarter.

Total Sales

The company’s net sales totaled $456.5 million, which beat the Zacks Consensus Estimate of $456.2 million by 0.1%. The top line also witnessed an improvement of 8.8% from the year-ago quarter’s figure of $419.5 million.

The year-over-year improvement can be attributed to sales growth in the Commercial Aerospace market.

Operational Update

Hexcel's gross margin was 23.3%, which increased 150 basis points from the prior-year quarter. The improvement can be attributed to favorable cost leverage driven by higher sales.

Selling, general and administrative (SG&A) expenses increased 12.4% year over year to $39.8 million. Meanwhile, research and technology expenses rose 3% year over year to $13.8 million.

HXL’s adjusted operating income was $52.9 million compared with $42.8 million in the year-ago period.

Market Performance

Commercial Aerospace: Net sales increased 17.5% year over year to $295.9 million, driven by sales growth from A350, A320neo as well as Boeing 787 programs.

Space and Defense: Net sales dropped 0.5% year over year to $128.2 million. This decrease was due to lower Bell V-22 and space sales.

Industrial: Net sales decreased 16.5% year over year to $32.4 million due to a decline witnessed in sub-markets.

Financial Details

As of Sept. 30, 2024, Hexcel’s cash and cash equivalents were $98.2 million compared with $227 million as of Dec. 31, 2023.

The company’s long-term debt totaled $805.1 million as of Sept. 30, 2024, up from $699.4 million as of 2023-end.

In the first nine months of 2024, HXL’s cash flow from operating activities was $127.3 million compared with $98.1 million in the year-ago period.

Hexcel’s adjusted free cash flow as of Sept. 30, 2024, was $58.9 million compared with $3.7 million in the year-ago period.

Guidance

Hexcel has tweaked its guidance for 2024. The company now expects to generate sales at the lower end of its prior announced range of $1.90-$1.98 billion. The Zacks Consensus Estimate is pegged at $1.91 billion, which lies near the lower end of the company’s sales guidance.

HXL also expects its adjusted earnings per share to be at the lower end of its earlier announced range of $2.02-$2.18. The Zacks Consensus Estimate is currently pegged at $2.05 per share.

Hexcel still expects to generate a free cash flow of approximately $200 million in 2024. Its capital expenditure outlook also remains unchanged at less than $100 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -7.11% due to these changes.

VGM Scores

At this time, Hexcel has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hexcel has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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