Hexcel Reports 2017 First Quarter Results

• GAAP diluted EPS of $0.70, includes $0.10 of a discrete tax benefit. Adjusted diluted EPS of $0.60 exceeded the prior year of $0.59.    
• Sales of $478.8 million were 3.8% lower than last year (2.6% in constant currency).
• FY2017 adjusted diluted EPS guidance maintained: $2.64 to $2.76. FY2017 sales guidance lowered to $2.0 billion to $2.08 billion.

See Tables A & C for reconciliations to constant currency sales and Non-GAAP operating income and net income. 

STAMFORD, Conn., April 19, 2017 (GLOBE NEWSWIRE) -- Hexcel Corporation (NYSE:HXL) today reported first quarter results with diluted EPS of $0.70 on net sales of $478.8 million. 

Chairman, CEO and President Nick Stanage commented, “Strong execution and good cost control led to solid results for the first quarter. Our adjusted diluted EPS of $0.60 was above last year’s $0.59, on a constant currency sales decrease of 2.6%. Although reductions in certain build rates and customer inventory adjustments lowered sales for the quarter, we are fully committed to meeting our adjusted diluted EPS guidance for the year as we continue to prepare for the production ramp up of new programs, led by Commercial Aerospace.” 

Outlook

Our initial guidance for 2017 Commercial Aerospace sales was to grow mid-single digits compared with last year. Since our guidance, B777 buildrate reductions have been announced, and various customers are optimizing their supply chains and reducing inventory levels. Accordingly, we now expect Commercial Aerospace sales to be modestly higher compared to 2016 with growth in the A350 and the new narrowbodies mostly offset by reductions in legacy widebody sales.

We expect total Space & Defense and Industrial sales to be in line with our initial guidance. In addition, if current exchange rates hold throughout the year, we anticipate total sales to translate approximately 1% lower than our initial guidance. In total, our full year 2017 sales guidance is now $2.0 billion to $2.08 billion (it was previously $2.05 billion to $2.15 billion), as we expect the remaining three quarters of 2017 to be more in line with our initial expectations.

Looking ahead, Mr. Stanage said, “As demonstrated in the first quarter, we are focused on productivity and cost control as we respond to some softness with our sales. We remain confident in achieving our 2017 guidance of adjusted diluted EPS of $2.64 to $2.76 and free cash flow of more than $100 million. We are also on track with the startups of our previously announced new greenfield sites in France and Morocco as the Company’s focus in 2017 continues to be driving manufacturing throughput, capacity expansion and innovation.”

Markets

Sales for the first quarter of 2017 were 2.6% less in constant currency than the first quarter of 2016.

Commercial Aerospace (73% of total sales)

• Commercial Aerospace sales of $347.2 million were 0.9% lower (0.3% in constant currency) for the quarter as compared to the first quarter of 2016. While the sales growth of the A350 and the new narrowbodies were in line with expectations, the growth was offset by declines in certain legacy widebody sales (i.e. A380, B777 and B747).
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, were down modestly from the first quarter of 2016 and just above the fourth quarter of 2016.

Space & Defense (16% of total sales)

• Space & Defense sales of $76.7 million were 3.3% lower (1.7% in constant currency) than the first quarter of 2016. Rotorcraft sales comprise just over half of Space & Defense sales, with civil rotorcraft sales remaining at historic low levels and now comprising about 10% of total rotorcraft sales.

Industrial (11% of total sales)

• Total Industrial sales of $54.9 million for the first quarter of 2017 were 19.4% lower (16.1% lower in constant currency) than last year, and were just higher than the fourth quarter of 2016. Hexcel expects sales to be more level loaded by quarter in 2017, as sales for the second half of 2016 were nearly 20% lower than the first half of 2016.
• As expected, wind energy sales are in for a challenging year and were down more than 25%. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.  

Operations

• Gross margin for the first quarter of 2017 was a solid 28.0% as compared to 28.7% for the first quarter of 2016. The Company is well underway with hiring, training and start-up costs at the previously announced two new greenfield manufacturing sites in France and Morocco. Operating income in the first quarter of 2017 was $78.6 million or 16.4% of sales as compared to $83.9 million or 16.9% of sales in 2016. Depreciation and amortization was $2.7 million higher this quarter, on a constant currency basis, than a year ago. The 2017 operating income percentage as compared to 2016 was nearly 40 basis points higher due to exchange rates.
• Selling, general and administrative expenses were $4.5 million lower than the first quarter of 2016. This is about a 7% reduction in constant currency and reflects strong cost control. Research and technology expenses were $0.9 million higher (11% higher in constant currency) than the comparable 2016 period as the Company continues to invest in innovative composite products and solutions to support its customers and next generation products.

Cash and other

• The tax provision was $8.6 million for the quarter, including a nonrecurring discrete benefit of $9.1 million ($0.10 per diluted share) from the release of a valuation allowance in a foreign jurisdiction. Excluding this discrete benefit, the effective tax rate was 24.4% as compared to 29.0% in 2016. Both periods benefitted from deductions associated with share-based compensation payments, as activity is typically highest in the first quarter. Excluding these discrete benefits, the Company’s first quarter effective tax rate was 30%, in line with our full year expectations.
• Free cash flow for the first quarter of 2017 was a use of $31 million versus a use of $75 million in 2016, as seasonal effects cause significant working capital cash usage in the first quarter. Working capital usage in the first quarter of 2017 was $40 million versus a usage of $91 million in the first quarter of 2016. Cash payments for capital expenditures primarily related to capacity expansions were $86 million in the first quarter of 2017, about the same as the first quarter of 2016. Free cash flow is defined as cash provided from operating activities less cash paid for capital expenditures.
• Total debt, net of cash, as of March 31, 2017 was $759 million, an increase of $106 million from December 31, 2016. During the quarter, the Company used $64 million to repurchase shares of its common stock and has $329 million remaining under authorized share repurchase programs.    
• As announced today, the Board of Directors approved a quarterly dividend of $0.11 per share. The dividend will be payable to stockholders of record as of May 2, 2017, with a May 9, 2017 payment date.

2017 Guidance

• Revised full year sales outlook is $2.0 to $2.08 billion (previously it was $2.05 to $2.15 billion).  The revisions include the impact of both lower expected sales and the impact of exchange rates.
• Adjusted diluted earnings per share of $2.64 to $2.76.
• Free cash flow >$100 million.
• Accrual basis capital expenditures of $270 to $290 million. 

Hexcel will host a conference call at 10:00 A.M. ET, tomorrow, April 20, 2017 to discuss the first quarter results and respond to analyst questions.  The telephone number for the conference call is (719) 325-2337 and the confirmation code is 9381027.  The call will be simultaneously hosted on Hexcel’s web site at http://www.media-server.com/m/acs/b4ad870caa958f593c1d02efeee379dd. Replays of the call will be available on the web site for approximately three days.

Hexcel Corporation is a leading advanced composites company. It develops, manufactures and markets lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, engineered core and composite structures, used in commercial aerospace, space and defense and industrial applications.

Disclaimer on Forward Looking Statements

This press release contains statements that are forward looking, including statements relating to anticipated trends in constant currency for the markets we serve (including changes in commercial aerospace revenues, the estimates and expectations based on aircraft production rates provided or publicly available by Airbus, Boeing and others, the revenues we may generate from an aircraft model or program, the impact of delays in the startup or ramp-ups of new aircraft programs, the outlook for space & defense revenues and the trend in wind energy and other industrial applications, including whether certain programs might be curtailed or discontinued or customers’ inventory levels reduced); our ability to maintain and improve margins in light of the current economic environment; the success of particular applications as well as the general overall economy; our ability to manage cash from operating activities and capital spending in relation to future sales levels such that the Company funds its capital spending plans from cash flows from operating activities, but, if necessary, maintains adequate borrowings under its credit facilities to cover any shortfalls; and the impact of the above factors on our expectations of all financial results for 2017 and beyond. The loss of, or significant reduction in purchases by Airbus, Boeing, Vestas, or any of our other significant customers could materially impair our business, operating results, prospects and financial condition. Actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors, including but not limited to changes in currency exchange rates, changing market conditions, increased competition, inability to install, staff and qualify necessary capacity or achievement of planned manufacturing improvements, conditions in the financial markets, product mix, achieving expected pricing and manufacturing costs, availability and cost of raw materials, supply chain disruptions, work stoppages or other labor disruptions, uncertainty regarding the exit of the U.K. from the European Union, unforeseen vulnerability of our network and systems to interruptions or failures and changes in or unexpected issues related to environmental regulations, legal matters, interest rates and tax codes. Additional risk factors are described in our filings with the SEC.  We do not undertake an obligation to update our forward-looking statements to reflect future events.

(a) To assist in the analysis of our net sales trend, total net sales and sales by market for the quarter ended March 31, 2016 have been estimated using the same U.S. dollar, British pound and Euro exchange rates as applied for the respective period in 2017 and are referred to as “constant currency” sales.

(b) FX effect is the estimated impact on “as reported” net sales due to changes in foreign currency exchange rates.

(a) We do not allocate corporate expenses to the operating segments.

(a) The 2017 first quarter includes benefits of $9.1 million related to the release of a valuation allowance in a foreign jurisdiction.

Note: Management believes that sales measured in constant dollars, adjusted EBITDA, adjusted net income, adjusted diluted net income per share and free cash flow (defined as cash provided by operating activities less cash payments for capital expenditures), which are non-GAAP measurements, are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results excluding special items. Special items represent significant charges or credits that are important to an understanding of Hexcel’s overall operating results in the periods presented. In addition, management believes that total debt, net of cash, which is also a non-GAAP measure, is an important measure of Hexcel’s liquidity. Such non-GAAP measurements are not recognized in accordance with generally accepted accounting principles and should not be viewed as an alternative to GAAP measures of performance.

Contact Information Michael Bacal (203) 352-6826 michael.bacal@hexcel.com