• Revenue: $457 million, up more than 8% year-over-year.
• Adjusted EPS: $0.47, over 20% better than Q3 2023.
• Commercial Aerospace Sales: $296 million, increased 17% year-over-year in constant currency.
• Space & Defense Sales: $128 million, essentially flat in constant currency.
• Industrial Sales: $32.4 million, decreased 17.3% year-over-year.
• Gross Margin: 23.3%, compared to 21.8% in the prior year period.
• Adjusted Operating Income: $52.9 million, 11.6% of sales.
• Net Cash Provided by Operating Activities: $127.3 million for the first nine months of 2024.
• Free Cash Flow: $58.9 million for the first nine months of 2024.
• Capital Expenditures: $59.6 million for the first nine months of 2024.
• Share Repurchases: $50 million during the third quarter, totaling $252.2 million year-to-date.
• Dividend: $0.15 per share, payable November 8.

• Warning! GuruFocus has detected 5 Warning Signs with HXL.

Release Date: October 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hexcel Corp (NYSE:HXL) reported a 17% year-over-year increase in commercial aerospace sales, driven by strong performance in key programs like the A350, A320neo, and 787.
• The company achieved a 20% improvement in adjusted EPS compared to Q3 2023, reflecting strong adjusted EBIT leverage.
• Hexcel Corp (NYSE:HXL) repurchased approximately $50 million of its stock during the quarter, bringing total repurchases to over $250 million for the year, demonstrating confidence in its value proposition.
• The company is well-prepared for future production rate increases, having recruited and trained new labor to meet anticipated demand.
• Hexcel Corp (NYSE:HXL) maintains a strong position in the defense and space markets, with growth in programs like the Lockheed F-35 and Sikorsky helicopters.

Negative Points

• Ongoing supply chain challenges, including the Boeing strike, have disrupted planned production rate increases, impacting Hexcel Corp (NYSE:HXL)'s operations.
• The company has withdrawn its previously issued midterm guidance due to continued uncertainty in the aerospace supply chain.
• Hexcel Corp (NYSE:HXL) is experiencing near-term margin headwinds due to carrying excess labor and overhead costs in anticipation of future demand.
• Industrial sales decreased by 17.3% compared to the third quarter of 2023, reflecting softness across all submarkets.
• The company expects its 2024 results to be at the lower end of its guidance range, supported by a more favorable tax rate rather than operational improvements.

Q & A Highlights

Q: Can you provide an update on the growth outlook for 2024, particularly in commercial aerospace, defense, and industrial sectors? A: For 2024, we expect the A350 and 787 to continue pulling at seven per month, while the A320 is just under 53. The 737 MAX was pulling at 30 in Q3 but was at 36 in Q2. We forecasted Q4 with no pulls from the MAX to be conservative. The US defense market remains strong, with growth in F-35 and Black Hawk programs, though the European market was softer. For industrial, the Austrian plant sale could be a $30-40 million headwind next year.

Q: How are you managing the impact of the Boeing strike on your operations, particularly regarding the 737 MAX? A: We took a conservative outlook for Q4, assuming no pulls from the MAX. We have sufficient inventory to support Boeing once the strike ends. We expect higher production rates next year, and we'll align with Boeing's guidance once the strike is resolved.

Q: Are there any plans to divest other parts of your portfolio, similar to the Austrian plant? A: We are reviewing our portfolio, but Hexcel's product mix is fairly homogenous. The Austrian plant was an exception, focusing on industrial markets with industrial-grade fibers. We don't foresee divesting other parts of our portfolio at this time.

Q: What is the status of your workforce in relation to upcoming production rate increases? A: We are staffed to meet the production schedules for Airbus and Boeing for next year. Although we are currently overstaffed due to production rate delays, we are maintaining our workforce to ensure readiness for future increases. This approach allows us to provide quality and on-time delivery as rates rise.

Q: How is the Boeing strike affecting your inventory and production plans? A: Boeing issued stop-ship orders but encouraged suppliers to continue building inventory. We have built up some inventory, which will help us meet demand once the strike ends. This approach has led to higher inventory levels, but it positions us well for post-strike production.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.