Hexcel Corporation (HXL) Earnings & Analysis

Latest quarter

Hexcel reported third-quarter revenue of $496.4 million, below the consensus estimate of $500.2 million. Adjusted earnings per share were $0.50, above the consensus estimate of $0.48.

Revenue increased from $456.2 million a year earlier. The filing shows Commercial Aerospace sales rose 20.5% to $330.3 million, with growth across widebody and narrowbody aircraft programs. Defense, Space & Other sales fell 8.7% to $166.1 million; Hexcel attributed the decline partly to its Austrian industrial business divestment and softer demand for launchers and rocket motors.

Gross margin increased to 23.3% from 21.9%, which Hexcel primarily attributed to higher sales leverage. Operating margin rose to 11.0% from 7.89%, while diluted earnings per share increased to $0.50 from $0.26.

Hexcel reported quarterly free cash flow of $50.7 million, down from $96.5 million a year earlier. For the first nine months, the filing shows operating cash flow rose to $171.1 million from $105.0 million, while working capital used $78.1 million in cash.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Thomas Gentile said demand across commercial aerospace, defense and space supports Hexcel’s production ramp. He said the company typically ships materials months before aircraft assembly and manages production against customer orders rather than reported aircraft deliveries.

Gentile attributed the quarter’s defense and space performance partly to softness in US launchers and rocket motors, customer scheduling on the F-35 and summer seasonality on the Rafale. He expected defense and space revenue to improve somewhat in the fourth quarter.

On the A350, analysts pressed Gentile on the gap between aircraft deliveries and material demand, and whether customers might reduce inventories next year. He said firm purchase orders support this year’s outlook, while customer schedules, supplier surveys and initial orders underpin his expectation for next year. He contrasted those signals with the weakening demand Hexcel saw in the prior year.

Gentile said Hexcel had hired about 525 people by the end of September and had started carbon fiber lines early to prepare for production. CFO Sales Coogan said hiring and training created inefficiencies during a seasonally lower-volume quarter and could continue to affect margins into the first half of 2027. As volume rises, he expects better absorption of fixed costs.

On pricing, Coogan said he is working on contract price realization, cost management and production efficiency. Asked about the cost of preparing for the ramp, Gentile pointed to hiring as an indicator of investment; he did not quantify its effect on near-term margins in dollars. He said the production ramp, contract pricing, productivity and cost control provide a path to approximately 18% adjusted operating margins before the end of the decade.

Asked about competition from a Chinese carbon fiber producer, Gentile said Hexcel was watching its progress but that qualification and industrialization work remained. Coogan also said hedges and procurement contracts were cushioning higher oil prices, although sustained increases could gradually raise energy and raw-material costs.

Guidance

Hexcel reaffirmed its full-year financial guidance on the call. CFO Sales Coogan now expects a fourth-quarter tax rate of 17% to 18%; on the previous call, he said Hexcel had modeled a 20% rate for the second half of the year.