Prepregs producer Hexcel delivers excellent results
April 25, 2012 - United States Of America
Hexcel Corporation reported results for the first quarter of 2012. Net sales during the quarter were $400.1 million, 20.7% higher than the $331.6 million reported for the first quarter of 2011. Operating income for the period was $60.6 million, compared to $47.2 million last year. Net income for the first quarter of 2012 was $39.6 million, or $0.39 per diluted share, compared to $26.4 million or $0.26 per diluted share in 2011.
Mr. Berges commented, “This was another strong quarter for Hexcel, as solid execution combined with increased sales delivered excellent results. For the quarter, our adjusted diluted EPS of $0.39 was 56% higher than last year, on a 22% increase in constant currency sales, as we achieved $400 million in sales. We are also particularly pleased that our operating income exceeded 15% of net sales. Revenues from the commercial aerospace market, now 60% of our total sales, grew 23% this quarter compared to the prior year. We continue to focus on leveraging our additional sales to higher margins, even as we prudently add people and infrastructure to support current and anticipated future growth."
Looking ahead, Mr. Berges said, “2012 has gotten off to a very strong start. Our capital expansion program continues on our accelerated schedule, as we add capacity to meet surging demand. Based on our current market outlook and first quarter results, we are increasing 2012 adjusted diluted EPS guidance to $1.45 - $1.55 (from $1.33 - $1.45). We are also raising our sales guidance for the year to $1.55 billion - $1.65 billion (from $1.5 billion - $1.6 billion).”
Markets
Commercial Aerospace
• Commercial Aerospace sales of $242.3 million increased 22.6% (23.7% in constant currency) for the quarter as compared to the first quarter of 2011. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) increased more than 20% versus the same period last year and continue to comprise more than 25% of Commercial Aerospace sales. Airbus and Boeing legacy aircraft related sales for the quarter were up over 20% compared to 2011, as we experience increasing demand related to line-rate increases.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, increased more than 15% for the first quarter compared to 2011, and were up modestly on a sequential basis.
Space & Defense
Space & Defense sales of $84.9 million were 6.5% higher (7.5% in constant currency) than the first quarter of 2011. Rotorcraft sales accounted for all of the growth, led by strong sales in Europe and Asia Pacific.
Industrial
Total Industrial sales of $72.9 million for the first quarter of 2011 were 34.3% higher (37.3% in constant currency) than the first quarter of 2011. Wind sales have now grown sequentially for the last five quarters and have reached our expected run rate for the balance of the year.
Operations
• Strong sales volume and the continued improvement in operating performance resulted in gross margin of 26.6% of net sales for the quarter, as compared to 25.0% in the first quarter of 2011. Selling, general and administrative and Research and technology expenses in the first quarter of 2012 were 10.4% higher than the comparable 2011 period due to higher variable compensation expenses and the addition of infrastructure and related staffing to support our growth.
• Adjusted operating income in the 2012 first quarter was $60.6 million or 15.1% of sales as compared to $41.5 million or 12.5% of sales in 2011. Foreign exchange rates contributed almost 50 basis points to the higher gross margin and operating income percentages in the first quarter of 2012 as compared to 2011.
Cash and other
• Free cash flow for the first quarter of 2012 was a use of $61 million versus a use of $19 million in 2011. While seasonal effects typically cause cash usage in the first quarter, this period was further impacted by outlays for our capital expansion program as well as the working capital required for the $45 million sequential sales growth. Cash used for capital expenditures was $83 million in the first quarter of 2012 as compared to $36 million in 2011. We expect free cash flow to be a modest use in the second quarter followed by an offsetting source in the second half of 2012, so that it ends the year at around the same level as the first quarterr usage. 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, 2012 was $260.6 million, an increase of $59.2 million from December 31, 2011. As of March 31, 2012 we had $195 million in available borrowing capacity and cash on hand.
2012 outlook:
• Sales to be in the range of $1.55 to $1.65 billion; previously it was $1.5 to $1.6 billion.
• Adjusted diluted earnings per share to be in the range of $1.45 to $1.55; previously it was $1.33 to $1.45.
• Accrual basis capital expenditures remain in the range of $250 to $275 million. We expect our capital spending to be funded by our cash from operating activities and our existing credit facilities. We expect free cash flow for the year to be in the range of a use of $50 - $75 million.
Mr. Berges commented, “This was another strong quarter for Hexcel, as solid execution combined with increased sales delivered excellent results. For the quarter, our adjusted diluted EPS of $0.39 was 56% higher than last year, on a 22% increase in constant currency sales, as we achieved $400 million in sales. We are also particularly pleased that our operating income exceeded 15% of net sales. Revenues from the commercial aerospace market, now 60% of our total sales, grew 23% this quarter compared to the prior year. We continue to focus on leveraging our additional sales to higher margins, even as we prudently add people and infrastructure to support current and anticipated future growth."
Looking ahead, Mr. Berges said, “2012 has gotten off to a very strong start. Our capital expansion program continues on our accelerated schedule, as we add capacity to meet surging demand. Based on our current market outlook and first quarter results, we are increasing 2012 adjusted diluted EPS guidance to $1.45 - $1.55 (from $1.33 - $1.45). We are also raising our sales guidance for the year to $1.55 billion - $1.65 billion (from $1.5 billion - $1.6 billion).”
Markets
Commercial Aerospace
• Commercial Aerospace sales of $242.3 million increased 22.6% (23.7% in constant currency) for the quarter as compared to the first quarter of 2011. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) increased more than 20% versus the same period last year and continue to comprise more than 25% of Commercial Aerospace sales. Airbus and Boeing legacy aircraft related sales for the quarter were up over 20% compared to 2011, as we experience increasing demand related to line-rate increases.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, increased more than 15% for the first quarter compared to 2011, and were up modestly on a sequential basis.
Space & Defense
Space & Defense sales of $84.9 million were 6.5% higher (7.5% in constant currency) than the first quarter of 2011. Rotorcraft sales accounted for all of the growth, led by strong sales in Europe and Asia Pacific.
Industrial
Total Industrial sales of $72.9 million for the first quarter of 2011 were 34.3% higher (37.3% in constant currency) than the first quarter of 2011. Wind sales have now grown sequentially for the last five quarters and have reached our expected run rate for the balance of the year.
Operations
• Strong sales volume and the continued improvement in operating performance resulted in gross margin of 26.6% of net sales for the quarter, as compared to 25.0% in the first quarter of 2011. Selling, general and administrative and Research and technology expenses in the first quarter of 2012 were 10.4% higher than the comparable 2011 period due to higher variable compensation expenses and the addition of infrastructure and related staffing to support our growth.
• Adjusted operating income in the 2012 first quarter was $60.6 million or 15.1% of sales as compared to $41.5 million or 12.5% of sales in 2011. Foreign exchange rates contributed almost 50 basis points to the higher gross margin and operating income percentages in the first quarter of 2012 as compared to 2011.
Cash and other
• Free cash flow for the first quarter of 2012 was a use of $61 million versus a use of $19 million in 2011. While seasonal effects typically cause cash usage in the first quarter, this period was further impacted by outlays for our capital expansion program as well as the working capital required for the $45 million sequential sales growth. Cash used for capital expenditures was $83 million in the first quarter of 2012 as compared to $36 million in 2011. We expect free cash flow to be a modest use in the second quarter followed by an offsetting source in the second half of 2012, so that it ends the year at around the same level as the first quarterr usage. 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, 2012 was $260.6 million, an increase of $59.2 million from December 31, 2011. As of March 31, 2012 we had $195 million in available borrowing capacity and cash on hand.
2012 outlook:
• Sales to be in the range of $1.55 to $1.65 billion; previously it was $1.5 to $1.6 billion.
• Adjusted diluted earnings per share to be in the range of $1.45 to $1.55; previously it was $1.33 to $1.45.
• Accrual basis capital expenditures remain in the range of $250 to $275 million. We expect our capital spending to be funded by our cash from operating activities and our existing credit facilities. We expect free cash flow for the year to be in the range of a use of $50 - $75 million.