- Q2 2018 GAAP diluted EPS was $0.76 compared to $0.67 in Q2 2017.
- Adjusted diluted EPS was $0.75 compared to Q2 2017 EPS of $0.67, an increase of 11.9% year over year.
- Q2 2018 sales of $547.5 million increased 11.4% compared to Q2 2017 (10.3% in constant currency).
- Free cash flow of $55 million year-to-date is $42 million higher compared to 2017.
- Quarterly dividend will increase 20% to $0.15 per share from $0.125 per share.
- Full year 2018 guidance is reaffirmed.
Hexcel Corporation (NYSE:HXL), today reported second quarter 2018 results including net sales of $547.5 million and adjusted diluted EPS of $0.75.
Chairman, CEO and President Nick Stanage said: “With sales increases across all our markets and significant growth in free cash flow during the first half of 2018, we are on a steady course toward delivering on our commitments to shareholders. Our adjusted diluted EPS this quarter of $0.75 was 11.9% higher than last year, on a constant currency sales increase of 10.3%. We delivered operating income of 17.6% while continuing the startup of our new facility in France, which will provide additional capacity to support our forecasted growth. We remain fully committed to our 2018 guidance, including generating in excess of $230 million of free cash flow. The endorsement by the Hexcel Board of Directors to increase both the dividend and the share repurchase authorization demonstrates continued confidence in our ability to execute and deliver cash flow and reinforces our commitment of returning at least 50% of net income to our shareholders. Our focus in 2018 continues to be driving innovation and operational excellence to achieve strong sustainable financial results.”
Second Quarter 2018 Results
Sales of $547.5 million in the second quarter of 2018 were 11.4% higher (10.3% higher in constant currency) than the second quarter of 2017.
Commercial Aerospace
- Commercial Aerospace sales of $383.8 million increased 10.0% (9.7% higher in constant currency) for the quarter compared to the second quarter of 2017. Primary growth drivers were increased production rates and higher composite content on the new narrowbody aircraft.
- Sales to “Other Commercial Aerospace,” which include regional and business aircraft, were up over 40% for the second quarter of 2018 as compared to soft 2017 results.
Space & Defense
- Space & Defense sales of $91.7 million increased 4.4% (3.1% in constant currency) for the quarter as compared to the second quarter of 2017. The increase was driven by rotorcraft. Rotorcraft sales comprise just over half of Space & Defense sales, with key programs being the V-22 Osprey and UH-60 Black Hawk.
Industrial
- Total Industrial sales of $72.0 million in the second quarter were up 32.1% (24.8% in constant currency) compared to the second quarter of 2017.
- Wind energy sales (the largest submarket in Industrial) are experiencing a period of substantial growth relative to lower sales last year as new generation composite blades are adopted.
Consolidated Operations
- Gross margin for the second quarter was 26.4% compared to 28.5% in the second quarter of 2017. Similar with the first quarter of 2018, gross margin for the second quarter included an increase in depreciation of approximately $5 million compared to the second quarter of 2017. As expected and previously highlighted, the Company experienced headwinds related to the startup and qualification of the new precursor (PAN) and carbon fiber plant in France.
- Selling, general and administrative expenses for the second quarter were lower than the prior year period with the Company maintaining tight cost controls while, at the same time, growing revenue. R&T costs were up around 5% in constant currency as compared to the second quarter of 2017.
- Adjusted operating income in the second quarter of 2018 was $96.5 million, or 17.6% of sales, compared to $89.7 million, or 18.3% of sales, in 2017. The impact of exchange rates in the second quarter of 2018 was effectively neutral compared to 2017.
Year-to-Date 2018 Results
Sales of $1,087.6 million for the first six months of 2018 increased 10.3% in constant currency compared to the same period in 2017.
Commercial Aerospace (70% of YTD sales)
- Commercial Aerospace sales of $766.5 million increased 9.6% in constant currency compared to the first six months of 2017. Growth was driven by narrowbody build rate increases and the Airbus A350 program.
- Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, increased 39% year to date, driven by higher business jet sales.
Space & Defense (17% of YTD sales)
- Space & Defense sales of $181.8 million increased 8.1% in constant currency compared to the first six months of 2017. Strong sales for the F-35 Joint Strike Fighter program drove the increase and higher rotorcraft sales offset the previously announced Airbus A400M production rate reductions.
Industrial (13% of YTD sales)
- Total Industrial sales of $139.3 million increased 17.4% in constant currency compared to the first six months of 2017.
- For the first six months of 2018, wind energy sales increased more than 30% in constant currency compared to last year.
Consolidated Operations
- Gross margin for the first six months of 2018 was 26.4% compared to 28.2% for the first six months of 2017. As expected, the first six months of 2018 included approximately $5 million of costs related to the startup and training for the new greenfield site in France. Both the carbon fiber line and the precursor line at this new site are now operational and have begun the aerospace qualification process. Depreciation expense increased $10 million over the first half of 2017, due to continued capital investment for future expected growth.
- Selling, general and administrative expenses for the first six months of 2018 were approximately 4% lower in constant currency than the prior year as the Company maintained tight cost controls, while revenue increased just over 10% in constant currency during the period. Research and technology expenses for the first six months of 2018 increased approximately 4% in constant currency compared to the prior 2017 period, reflecting continued investment in innovative composite products and solutions to support customers and next-generation applications.
- Adjusted operating income in the first six months of 2018 was $178.9 million, or 16.4% of sales, compared to $168.3 million, or 17.3% of sales, in 2017. The year-over-year impact of exchange rates was insignificant.
Cash and other
- The effective tax rate for the quarter was 22.8% compared to 26.7% in 2017, and the first half effective tax rate was 21.0% compared to 19.8% in 2017. The second quarter of 2018 included a discrete benefit from the release of reserves for uncertain tax positions of approximately $1.3 million, while both the quarter and the first half provision benefitted from deductions associated with share-based compensation payments. Excluding the discrete tax benefit, the first half effective tax rate was 21.8%. The expected underlying effective tax rate for each of the quarters in the second half of 2018 continues to be 25%, unchanged from prior guidance.
- Free cash flow for the first half of 2018 was $55 million compared to $13 million in 2017. Working capital increased $16 million in the second quarter of 2018, which resulted in a cash use of $60 million in the first half of 2018 as compared to a use of $7 million in the first half of 2017. Sales growth has led to higher receivables. Performance on receivable collections continues to be strong. The free cash flow profile of the business experiences seasonal fluctuations with the second half of the fiscal year tending to be a significant source of cash compared to the first half. Cash used for capital expenditures was $102 million in the first half of 2018 compared to $169 million in the first half of 2017. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures.
- The Company used $151 million to repurchase shares of its common stock during the second quarter of 2018 and used $181 million for share repurchases in the first half of 2018. The remaining authorization under the share repurchase program at June 30, 2018 was $562 million.
- As announced today, the Board of Directors declared a 20% increase in the quarterly dividend from $0.125 per share to $0.15 per share. The dividend will be payable to stockholders of record as of August 3, 2018, with a payment date of August 10, 2018.
2018 Guidance (unchanged)
- Full year sales outlook of $2.10 billion to $2.20 billion.
- Adjusted diluted earnings per share of $2.96 to $3.10.
- Free cash flow >$230 million.
- Accrual basis capital expenditures of $170 million to $190 million.
The event will be webcast via the investor relations webpage at www.Hexcel.com. A replay of the call will be available on the investor relations page of the Hexcel website approximately two hours after the conclusion of the call. The event can also be accessed by dialing +1 (409) 350-3491. The conference ID is 7687433.
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. Learn more at www.Hexcel.com
