Hexcel Reports Strong 2013 Third Quarter Results

  Hexcel Reports Strong 2013 Third Quarter Results

  *Sales of $412.3 million were 5.3% higher than last year (4.2% in constant
    currency) driven by Commercial Aerospace (up 11.5% in constant currency).

  *Net income of $48.7 million was up 22%, resulting in $0.48 per diluted
    share, versus $39.8 million and $0.39 last year, respectively.
  *Operating income was $69.0 million, 16.7% of sales, as compared to $60.0
    million, 15.3% of sales in 2012.
  *2013 adjusted EPS guidance increased to $1.80 to $1.86 (previously $1.73
    to $1.83)

Business Wire

STAMFORD, Conn. -- October 21, 2013

Regulatory News:


                Quarter Ended                 Nine Months Ended
                                                                 
                September 30,                 September 30,
(In millions,                       %                                 %
except per     2013     2012     Change   2013       2012       Change
share data)
                                                       
Net Sales       $ 412.3   $ 391.6   5.3%      $ 1,251.4   $ 1,190.9   5.1%
Net sales
change in                           4.2%                              4.4%
constant
currency
Operating         69.0      60.0    15.0%       203.9       194.5     4.8%
Income
Net Income        48.7      39.8    22.4%       140.8       127.4     10.5%
Diluted net
income per      $ 0.48    $ 0.39    23.1%     $ 1.38      $ 1.25      10.4%
common share
                                                                             
Non-GAAP
Measures for
y-o-y
comparisons:
Adjusted
Operating       $ 69.0    $ 60.0    15.0%     $ 203.9     $ 185.0     10.2%
Income (table
C)
As a % of         16.7%     15.3%               16.3%       15.5%
sales
Adjusted Net
Income (table     48.7      39.8    22.4%       141.4       122.1     15.8%
C)
Adjusted
diluted net    $ 0.48   $ 0.39   23.1%    $ 1.39     $ 1.20     15.8%
income per
share

Hexcel Corporation (NYSE:HXL)(Paris:HXL), today reported results for the third
quarter of 2013. Net sales during the quarter were $412.3 million, 5.3% higher
than the $391.6 million reported for the third quarter of 2012. Operating
income for the period was $69.0 million compared to $60.0 million last year.
Net income for the third quarter of 2013 was $48.7 million or $0.48 per
diluted share, compared to $39.8 million or $0.39 per diluted share in 2012.

Chief Executive Officer Comments

Mr. Stanage commented, “This was another strong quarter for Hexcel, as solid
execution combined with increased sales to yield excellent results. For the
quarter, our adjusted diluted EPS of $0.48 was 23% higher than last year on a
4% increase in constant currency sales. We are also particularly pleased that
our adjusted operating income was 16.7% of net sales for the quarter, 140
basis points better than last year.”

Looking ahead, Mr. Stanage said, “While there is some concern that our
customers will reduce year-end inventories, we expect aerospace sales (both
Commercial Aerospace and Space & Defense) to continue their steady growth
trend. Though challenging Industrial sales have limited our top line growth,
strong operational performance allows us to raise our 2013 earnings guidance.”

Markets

Commercial Aerospace

  *Commercial Aerospace sales of $262.0 million increased 11.9% (11.5% in
    constant currency) for the quarter as compared to the third quarter of
    2012. Combined revenues attributed to new aircraft programs (A380, A350,
    B787, B747-8) increased over 20% versus the same period last year. Sales
    for Airbus and Boeing legacy aircraft were up 5% compared to the third
    quarter of 2012.
  *Sales to “Other Commercial Aerospace,” which include regional and business
    aircraft customers, were up about 7% compared to the same period last
    year, and sales for the first nine months are about 2% lower than the same
    period last year.

Space & Defense

  *Space & Defense sales of $94.4 million were 4.2% higher (2.9% in constant
    currency) than the third quarter of 2012. We continue to benefit from
    participating in a wide range of programs, with rotorcraft sales
    comprising about 60% of Space & Defense sales for the quarter.

Industrial

  *Total Industrial sales of $55.9 million for the third quarter of 2013 were
    16.4% lower (19.0% in constant currency) than the third quarter of 2012,
    and just above the second quarter of 2013. As expected, wind sales were
    down about 25% in constant currency from the third quarter of 2012.

Operations

  *Growth, sales mix and continued improvement in operating performance
    resulted in gross margin of 27.2% as compared to 25.3% in the third
    quarter of 2012. Selling, General and Administrative expenses for the
    quarter were $32.9 million or 7.6% higher than 2012 in constant currency,
    reflecting added infrastructure to support our growth. Research and
    Technology expenses were $10.2 million for the quarter as compared to $8.9
    million last year. The higher spending is in line with recent quarters and
    reflects the increased efforts on new product and process developments.

Tax

  *The tax provision was $18.7 million for the third quarter of 2013
    resulting in an effective tax rate of 27.9%. The quarter had a $1.8
    million benefit from favorable tax return to provision adjustments and the
    release of reserves for uncertain tax positions. Excluding these discrete
    benefits, our effective tax rate for the quarter was 30.5%, which is what
    we expect for the fourth quarter. Last year’s third quarter tax provision
    was $18.0 million, an effective tax rate of 31.1%.

Cash and other

  *Free cash flow (defined as cash provided from operating activities less
    cash paid for capital expenditures) for the first nine months of 2013
    generated $62.8 million versus a use of $58.4 million in the first nine
    months of 2012, reflecting lower capital expenditures, lower working
    capital usage and higher earnings.
  *Total debt, net of cash as of September 30, 2013 was $207.1 million, a
    decrease of $16.9 million from December 31, 2012. This includes the $50
    million buy back of Hexcel’s shares in the first half of 2013. As of
    September 30, 2013, our available borrowing capacity was $334 million.

2013 Outlook

We have updated our 2013 outlook:

  *Adjusted diluted earnings per share to be in the range of $1.80 to $1.86
    (previously it was $1.73 to $1.83)
  *Our sales outlook is narrowed to $1,655 million to $1,685 million
    (previously it was $1,640 million to $1,740 million)
  *Free cash flow for the year to be in the range of $50 million to $80
    million (previously it was $40 million to $80 million). Accrual based
    capital expenditures are unchanged at $180 million to $200 million, as we
    expect the pace of our spending to increase from the level of the first
    nine months.

                                    *****

Hexcel will host a conference call at 10:00 A.M. ET, tomorrow, October 22,
2013 to discuss the third quarter results and respond to analyst questions.
The telephone number for the conference call is (719) 325-2376 and the
confirmation code is 5675212. The call will be simultaneously hosted on
Hexcel’s web site at www.hexcel.com/investors/index.html. 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, reinforcements, prepregs, honeycomb, matrix systems,
adhesives and composite structures, used in commercial aerospace, space and
defense and industrial applications such as wind turbine blades.

                                    *****

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 new aircraft programs, the
outlook for space & defense revenues and the trend in wind energy, recreation
and other industrial applications, including whether certain programs might be
curtailed or discontinued); 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 financial results for 2013 and
beyond. The loss of, or significant reduction in purchases by Boeing, EADS,
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 and changes in or unexpected issues related to environmental
regulations, legal matters, interest expense 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.

Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
                          Unaudited
                           Quarter Ended           Nine Months Ended
                                                 
                           September 30,           September 30,
(In millions, except per  2013       2012       2013         2012
share data)
Net sales                  $ 412.3    $ 391.6     $ 1,251.4    $ 1,190.9
Cost of sales              300.2    292.4    910.5      879.8   
                                                                             
Gross margin                 112.1       99.2        340.9         311.1
% Gross margin               27.2  %     25.3  %     27.2    %     26.1    %
                                                                             
Selling, general and         32.9        30.3        105.7         99.4
administrative expenses
Research and technology      10.2        8.9         31.3          26.7
expenses
Other operating (income)   —        —        —          (9.5    )
(a)
                                                                             
Operating income             69.0        60.0        203.9         194.5
                                                                             
Interest expense, net        1.9         2.2         5.7           8.2
Non-operating expense      —        —        1.0        1.1     
(b)
                                                                             
Income before income
taxes and equity in          67.1        57.8        197.2         185.2
earnings from affiliated
companies
Provision for income       18.7     18.0     57.2       58.5    
taxes
                                                                             
Income before equity in
earnings from affiliated     48.4        39.8        140.0         126.7
companies
Equity in earnings from    0.3      —        0.8        0.7     
affiliated companies
                                                                             
Net income                $ 48.7    $ 39.8    $ 140.8     $ 127.4   
                                                                             
                                                                             
                                                                             
Basic net income per       $ 0.49     $ 0.40     $ 1.41       $ 1.27    
common share:
                                                                             
Diluted net income per     $ 0.48     $ 0.39     $ 1.38       $ 1.25    
common share:
                                                                             
Weighted-average common
shares:
Basic                        99.7        100.3       100.0         100.1
Diluted                    101.7    102.1    102.1      102.0   

(a) Other operating income for the nine months ended September 30, 2012
includes income from a $9.6 million business interruption insurance settlement
related to a prior year claim, a $4.9 million gain on the sale of land and a
$5.0 million charge for additional environmental reserves primarily for
remediation of a manufacturing facility sold in 1986.

(b) Non-operating expense is the accelerated amortization of deferred
financing costs and the deferred expense on interest rate swaps related to
repaying the term loan and refinancing our revolving credit facility in June
2013. In 2012, the non-operating expense is the accelerated amortization of
deferred financing costs and expensing of the call premium from redeeming
$73.5 million in June 2012 of the Company’s 6.75% senior subordinated notes.

Hexcel Corporation and Subsidiaries

Condensed Consolidated Balance Sheets
                                    Unaudited
(In millions)                        September 30, 2013  December 31, 2012
Assets                                                   
Current assets:
Cash and cash equivalents             $    59.7            $   32.6
Accounts receivable, net                   236.2               229.0
Inventories, net                           260.3               232.8
Current deferred tax assets and          96.9             81.3      
other current assets
Total current assets                       653.1               575.7
                                                                             
Property, plant and equipment              1,574.9             1,459.2
Less accumulated depreciation            (579.6    )       (544.8    )
Property, plant and equipment, net         995.3               914.4
                                                                             
Goodwill and other intangible              60.9                57.8
assets, net
Investments in affiliated companies        22.3                22.6
Deferred tax assets                        14.0                15.4
Other assets                             15.8             17.2      
Total assets                         $    1,761.4       $   1,603.1   
                                                                             
Liabilities and Stockholders'
Equity
Current liabilities:
Notes payable and current
maturities of capital lease           $    4.8             $   16.6
obligations
Accounts payable                           108.3               115.7
Accrued liabilities                      130.2            103.0     
Total current liabilities                  243.3               235.3
                                                                             
Long-term notes payable                    262.0               240.0
Other non-current liabilities            136.3            133.7     
Total liabilities                          641.6               609.0
                                                                             
Stockholders' equity:
Common stock, $0.01 par value,
200.0 shares authorized, 103.9
shares issued at September 30, 2013        1.0                 1.0
and 102.4 shares issued at December
31, 2012
Additional paid-in capital                 644.9               617.0
Retained earnings                          589.0               448.2
Accumulated other comprehensive          (17.5     )       (31.9     )
loss
                                           1,217.4             1,034.3
Less – Treasury stock, at cost, 4.3
shares and 2.5 shares at September       (97.6     )       (40.2     )
30, 2013 and December 31, 2012,
respectively
Total stockholders' equity               1,119.8          994.1     
Total liabilities and stockholders'  $    1,761.4       $   1,603.1   
equity

Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
                                                    Unaudited
                                                     Year to Date Ended

                                                     September 30,
(In millions)                                       2013        2012
                                                                
Cash flows from operating activities
Net income                                           $ 140.8      $ 127.4
                                                                             
Reconciliation to net cash provided by operating
activities:
Depreciation and amortization                          42.8         43.0
Amortization of deferred financing costs and call      1.8          2.5
premium expense
Deferred income taxes                                  18.1         21.3
Equity in earnings from affiliated companies           (0.8   )     (0.7   )
Share-based compensation                               14.7         13.1
Gain on sale of land                                   —            (4.9   )
Excess tax benefits on share-based compensation        (5.0   )     (5.8   )
                                                                             
Changes in assets and liabilities:
Increase in accounts receivable                        (0.1   )     (45.0  )
Increase in inventories                                (25.2  )     (20.7  )
(Increase) decrease in other current assets            (2.0   )     1.5
Increase in accounts payable and accrued               12.9         26.9
liabilities
Other – net                                          (2.1   )   (8.1   )
Net cash provided by operating activities (a)        195.9     150.5  
                                                                             
Cash flows from investing activities
Proceeds from sale of land                             —            5.3
Capital expenditures (b)                             (133.1 )   (208.9 )
Net cash used for investing activities               (133.1 )   (203.6 )
                                                                             
Cash flows from financing activities
Borrowings from new senior secured credit facility     309.0        122.0
Capital lease obligations and other debt, net          (1.9   )     1.8
Issuance costs related to senior secured credit        (2.4   )     (0.6   )
facility
Repayment of senior secured credit facility – term     (85.0  )     (5.0   )
loan
Repayment of previous senior secured credit            (165.0 )     —
facility
Purchase of stock                                      (50.0  )     —
Repayment of senior secured credit facility            (47.0  )     —
Activity under stock plans                             5.6          3.0
Repayment of 6.75% senior subordinated notes           —            (73.5  )
Call premium payment for 6.75% senior subordinated   —         (0.8   )
notes
Net cash provided by financing activities            (36.7  )   46.9   
                                                                             
Effect of exchange rate changes on cash and cash     1.0       (0.1   )
equivalents
Net decrease in cash and cash equivalents              27.1         (6.3   )
Cash and cash equivalents at beginning of period     32.6      49.5   
Cash and cash equivalents at end of period          $ 59.7     $ 43.2   
                                                                             
Supplemental Data:
Free cash flow (a)+(b)                               $ 62.8       $ (58.4  )
Accrual basis additions to property, plant and       $ 121.9      $ 174.7
equipment

Hexcel Corporation and Subsidiaries
Net Sales to Third-Party Customers by Market Segment
                                                                              
Quarters Ended September 30, 2013 and 2012      (Unaudited)         Table A
(In           As Reported                      Constant Currency (a)
millions)
                                                 FX                   B/(W)
Market        2013       2012       B/(W) %          2012      
Segment                                          Effect               %
                                                 (b)
Commercial    $ 262.0    $ 234.1    11.9     $  0.9  $ 235.0    11.5
Aerospace
Space &          94.4        90.6      4.2          1.1     91.7      2.9
Defense
Industrial     55.9      66.9     (16.4 )    2.1   69.0     (19.0 )
Consolidated  $ 412.3    $ 391.6    5.3     $  4.1  $ 395.7    4.2   
Total
Consolidated
% of Net      %          %                         %          
Sales
Commercial       63.5        59.8                           59.4
Aerospace
Space &          22.9        23.1                           23.2
Defense
Industrial     13.6      17.1                     17.4     
Consolidated   100.0     100.0                    100.0    
Total
                                                                              
Nine Months Ended September 30, 2013 and 2012   (Unaudited)         
(In           As Reported                      Constant Currency (a)
millions)
                                                 FX                   B/(W)
Market        2013       2012       B/(W) %          2012      
Segment                                          Effect               %
                                                 (b)
Commercial     $ 800.9     $ 709.9     12.8      $  2.4   $ 712.3     12.4
Aerospace
Space &          287.1       263.6     8.9          1.7     265.3     8.2
Defense
Industrial     163.4     217.4    (24.8 )    3.3   220.7    (26.0 )
Consolidated  $ 1,251.4  $ 1,190.9  5.1     $  7.4  $ 1,198.3  4.4   
Total
Consolidated
% of Net      %          %                         %          
Sales
Commercial       64.0        59.6                           59.5
Aerospace
Space &          22.9        22.1                           22.1
Defense
Industrial     13.1      18.3                     18.4     
Consolidated   100.0     100.0                    100.0    
Total

(a) To assist in the analysis of our net sales trend, total net sales and
sales by market for the quarter and nine months ended September 30, 2012 have
been estimated using the same U.S. dollar, British pound and Euro exchange
rates as applied for the respective period in 2013 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.

Hexcel Corporation and Subsidiaries
Segment Information                             (Unaudited)    Table B
(In millions)   Composite       Engineered    Corporate &    Total
                 Materials (b)    Products       Other (a)(b)
Third Quarter                                             
2013
Net sales to
external        $  312.6        $  99.7       $    —         $ 412.3
customers
Intersegment      17.1          0.1           (17.2  )   —       
sales
Total sales         329.7            99.8             (17.2  )     412.3
Operating           68.7             14.9             (14.6  )     69.0
income (loss)
% Operating         20.8     %       14.9   %                      16.7    %
margin
                                                                             
Depreciation
and                 13.4             1.2              0.1          14.7
amortization
Stock-based
compensation        1.0              0.2              1.5          2.7
expense
Accrual based
additions to      36.8          3.0           —         39.8    
capital
expenditures
                                                                             
Third Quarter                                             
2012
Net sales to
external         $  299.9         $  91.7        $    —          $ 391.6
customers
Intersegment      14.0          0.9           (14.9  )   —       
sales
Total sales         313.9            92.6             (14.9  )     391.6
Operating
income (loss)       57.0             14.9             (11.9  )     60.0
(b)
% Operating         18.2     %       16.1   %                      15.3    %
margin
                                                                             
Depreciation
and                 13.4             1.2              0.1          14.7
amortization
Stock-based
compensation        0.7              0.2              1.7          2.6
expense
Accrual based
additions to      55.6          4.6           —         60.2    
capital
expenditures
                                                         
First Nine                                                
Months 2013
Net sales to
external         $  962.1         $  289.3       $    —          $ 1,251.4
customers
Intersegment      51.8          1.2           (53.0  )   —       
sales
Total sales         1,013.9          290.5            (53.0  )     1,251.4
Operating           207.8            43.4             (47.3  )     203.9
income (loss)
% Operating         20.5     %       14.9   %                      16.3    %
margin
                                                                             
Depreciation
and                 39.1             3.5              0.2          42.8
amortization
Stock-based
compensation        4.3              0.9              9.5          14.7
expense
Accrual based
additions to      113.2         8.7           —         121.9   
capital
expenditures
                                                                             
First Nine                                                
Months 2012
Net sales to
external         $  932.8         $  258.1       $    —          $ 1,190.9
customers
Intersegment      44.8          1.2           (46.0  )   —       
sales
Total sales         977.6            259.3            (46.0  )     1,190.9
Operating
income (loss)       203.7            38.4             (47.6  )     194.5
(b)
% Operating         20.8     %       14.8   %                      16.3    %
margin
                                                                             
Other
operating           (14.5    )       —                5.0          (9.5    )
(income)
expense (b)
Depreciation
and                 39.6             3.3              0.1          43.0
amortization
Stock-based
compensation        3.7              0.7              8.7          13.1
expense
Accrual based
additions to      166.2         8.3           0.2       174.7   
capital
expenditures

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

(b) Other operating income for the nine months ended September 30, 2012
includes income from a $9.6 million business interruption insurance settlement
related to a prior year claim, a $4.9 million gain on the sale of land and a
$5.0 million charge for additional environmental reserves primarily for
remediation of a manufacturing facility sold in 1986.

Hexcel Corporation and Subsidiaries
Reconciliation of GAAP and Non-GAAP Operating        Table C
Income and Net Income
                          Unaudited
                          Quarter Ended          Nine Months Ended
                                               
                          September 30,          September 30,
(In millions)            2013        2012     2013            2012
                                                                
GAAP operating            $69.0        60.0      $203.9       $       194.5
income
- Other operating        —          —       —               (9.5  )
(income) (a)
Adjusted Operating        $69.0        60.0      $203.9       $       185.0
Income
% of Net Sales            16.7   %     15.3  %   16.3    %            15.5  %
- Stock Compensation      $2.7         2.6       $14.7        $       13.1
Expense
- Depreciation and       14.7       14.7    42.8            43.0  
Amortization
Adjusted EBITDA          $86.4      77.3    $261.4     $    241.1 
                            
                             Unaudited
                              Nine Months Ended September 30,
                              2013                   2012
(In millions, except per     As Reported  EPS      As Reported  EPS
diluted share data)
                                                  
GAAP net income               $140.8        $ 1.38    $127.4        $ 1.25
- Other operating             —             —         (6.0      )     (0.06 )
(income) (net of tax) (a)
- Non-operating expense      0.6          0.01     0.7          0.01  
(net of tax) (b)
Adjusted net income          $141.4       $ 1.39   $122.1      $ 1.20  

(a) Other operating income for the nine months ended September 30, 2012
includes income from a $9.6 million business interruption insurance settlement
related to a prior year claim, a $4.9 million gain on the sale of land and a
$5.0 million charge for additional environmental reserves primarily for
remediation of a manufacturing facility sold in 1986.

(b) Non-operating expense in 2013 is the accelerated amortization of deferred
financing costs and the deferred expense on interest rate swaps related to
repaying the term loan and refinancing our revolving credit facility in June
2013. Non-operating expense in 2012 is the accelerated amortization of
deferred financing costs and expensing of the call premium from redeeming
$73.5 million in June 2012 of the Company’s 6.75% senior subordinated notes.

Management believes that adjusted operating income, adjusted EBITDA, adjusted
net income 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.

Hexcel Corporation and Subsidiaries
Schedule of Total Debt, Net of Cash                            Table D
                                   Unaudited
                                    September 30,  June 30,   December 31,
(In millions)                      2013           2013       2012
                                                                             
Notes payable and current
maturities of capital lease         $   4.8         $ 5.0       $  16.6
obligations
Long-term notes payable               262.0      309.0     240.0  
Total Debt                              266.8         314.0        256.6
Less: Cash and cash equivalents       (59.7  )    (56.7 )    (32.6  )
Total debt, net of cash            $   207.1     $ 257.3   $  224.0  

Contact:

Hexcel Corporation
Michael Bacal, 203-352-6826
michael.bacal@hexcel.com
 
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