Headline: "Hexcel Corp Reports Growth Despite Supply Chain Challenges"

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Headline: "Hexcel Corp Reports Growth Despite Supply Chain Challenges"

Hexcel Corporation (NYSE: HXL), a leading producer of advanced composite materials, held its Third Quarter 2024 Earnings Conference Call. The company reported sales reaching $457 million, a solid 8% increase year-on-year, with a notable 17% growth in commercial aerospace sales. Adjusted earnings per share rose by 20% to $0.47. Despite increased general expenses, ongoing supply chain disruptions, and a strike at Boeing affecting production rates, Hexcel remains optimistic about its long-term growth prospects. The company is also reviewing strategic options to divest its Austrian facility serving non-core industrial markets.

Key Highlights:

  • Third-quarter sales increased by 8% year-on-year, reaching $457 million.
  • Commercial aerospace sales grew by 17% to $296 million.
  • Adjusted earnings per share rose by 20% to $0.47.
  • Supply chain challenges and the Boeing strike impacted margins.
  • Hexcel is optimistic about long-term growth in the commercial and military aircraft sectors.
  • The order book for new Airbus and Boeing planes stands at approximately 15,000 units.
  • Mid-term guidance has been withdrawn; 2025 guidance will be provided in January.
  • Defense and Space segment sales remained steady at $128 million.
  • Hexcel is exploring options to divest its Austrian facility.
  • The company repurchased $50 million in shares during the third quarter, bringing the year-to-date total to over $250 million.
  • A quarterly dividend of $0.15, payable on November 8, 2024, was declared.

Company Outlook:

  • Results for 2024 are expected at the lower end of the guidance range.
  • Plans to keep capital expenditures under $100 million annually.
  • Focus on organic growth and disciplined M&A opportunities.
  • Adjusted earnings per share guidance slightly lowered due to a more favorable tax rate of approximately 19%.

Challenges:

  • Supply chain disruptions delayed production rate increases.
  • Industrial sales declined by 17.3% to $32.4 million.
  • The company faces excess staffing due to production delays.

Opportunities:

  • A strong order book of approximately 15,000 units for Airbus and Boeing aircraft indicates robust future demand.
  • The commercial aerospace sector is expected to grow in the mid-teens percentage range.
  • The company is prepared for increased production rates next year.

Gaps:

  • Mid-term guidance withdrawn due to supply chain and production uncertainties.
  • The MAX program is projected to draw zero units in the fourth quarter due to potential strike impacts.

Q&A Highlights:

  • The A350 and 787 programs are expected to continue drawing seven units each.
  • The A320 draw is projected to be just under 53 units.
  • The defense sector remains strong in the U.S. with solid demand for F-35 and CH-53K.
  • Divesting Austrian facilities could result in a revenue drop of $30 million to $40 million.
  • Margins for 2025 are expected to generally exceed the 30%-35% range.

Hexcel Corporation's third-quarter earnings call underscored the company's resilience in the face of supply chain disruptions and rising general expenses. With a strong order book and strategic focus on core markets, Hexcel is positioning itself for sustainable growth and shareholder returns. The management team is actively managing current challenges while preparing for increased production rates and opportunities in the commercial aerospace and defense sectors.

InvestingPro Insights: Hexcel Corporation's (NYSE: HXL) recent earnings call presents a picture of a company navigating challenges while positioning itself for future growth. This narrative is supported by InvestingPro data providing additional context on the company's financial health and market position.

According to InvestingPro data, Hexcel's market capitalization is $5.26 billion, reflecting its significant presence in the aerospace composites market. The company reported trailing twelve-month revenue of $1.85 billion as of Q2 2024, with a growth rate of 8.42%. This aligns with the 8% annual sales increase reported in the earnings call, indicating consistent growth trends.

An InvestingPro Tip highlights that Hexcel operates with moderate debt, which could be advantageous as the company deals with supply chain disruptions and prepares for anticipated production rate increases. This financial flexibility may allow Hexcel to invest in capacity expansion or weather temporary setbacks without excessive pressure on its balance sheet.

Another relevant InvestingPro Tip notes the management's aggressive share buyback activity. This aligns with the earnings call information, where Hexcel completed a $50 million share buyback in the third quarter, bringing the year-to-date total to $250 million. Such actions typically reflect management's confidence in the company's future prospects and a commitment to create shareholder value.

It is worth noting that Hexcel's P/E ratio stands at 50.65; the InvestingPro system flags this as trading at a high earnings multiple. This valuation could reflect market expectations for future growth, especially given the strong order book in commercial aerospace and the company's optimistic long-term outlook.

For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips on Hexcel, providing a deeper examination of the company's financial health and market positioning.