Hexcel Corporation Q4 FY2024 earnings call

· Hexcel had solid 2024 results with sales of $1.903 billion, up 6.4% from 2023, adjusted EPS of $2.03, and free cash flow of $203 million. · Commercial aerospace sales grew 11.9% full year, driven by 787, A350, and A320neo. Space and defense sales grew 4.6% full year, with F-35, CH-53K, and classified programs contributing. · Industrial sales were challenging, with a 21.1% decline for the year, leading to divestiture of Neumarkt, Austria site and Hartford 3D printing business. · Focus on Future Factory initiatives for operational efficiency and innovation to support next-generation aircraft and propulsion systems.

The Composite Materials segment represented 79% of total fourth quarter sales, generating an adjusted operating margin of 15.3%. The Engineered Products segment, making up 21% of total sales, had an adjusted operating margin of 10.7%. In Q4 2024, commercial aerospace sales increased 4.6% year-over-year in constant currency, space and defense sales rose 7.6%, and industrial sales decreased 14.8%. For the full year, commercial aerospace sales grew 11.9%, space and defense 4.6%, while industrial sales declined 21.1%.

· 2025 sales forecast: $1.95 billion - $2.05 billion, adjusted EPS $2.05 - $2.25, free cash flow > $220 million. · Muted sales growth expected in 2025 due to industry supply chain issues and rate ramp challenges. · Margin pressure from headcount growth, higher R&D costs for next-gen materials, and ERP system upgrade. · Expect 5% sales growth midpoint and 6% adjusted EPS growth midpoint. · Excludes ~$40 million in annual sales from Neumarkt divestiture.

· Supply chain and labor challenges persisting in the aerospace industry, impacting production rates. · Uncertainty in production rate recovery affecting 2025 performance. · Inflationary pressures including labor inflation posing challenges to margin improvement.

Q: Ken Herbert asks about commercial aerospace guide and program details.

A: Tom Gentile discusses Boeing (737, 787, 777) and Airbus (A320, A350, A220) build rates, noting conservative assumptions but capacity to flex.

Q: Matt Akers inquires about 2025 quarters and industrial sales.

A: Patrick Winterlich mentions upward ramp in programs but slower start, and industrial sales impacted by Austria divestiture and automotive softness.

Q: Sheila Kahyaoglu asks about profitability and margins.

A: Tom Gentile talks about margin recovery from operating leverage as production rates increase and productivity initiatives to offset inflation.

Q: Pete Skibitski clarifies revenue guide and ERP impact.

A: Patrick Winterlich notes Austria sales not yet closed, ERP implementation ~$5-7 million headwind, but productivity benefits long-term.

Q: John McNulty asks about SG&A and R&T.

A: Patrick Winterlich and Tom Gentile discuss SG&A as combination of infrastructure, inflation, and one-time costs, and R&T at ~3% of revenue for next-gen development.

Q: Michael Ciarmoli asks about currency hedging and defense strategy.

A: Patrick Winterlich says no immediate hedging policy change, Tom Gentile mentions direct engagement with defense primes for material system innovation.

Q: Scott Deuschle asks about Boeing purchase orders and A350 build rates.

A: Tom Gentile confirms Boeing orders restart, and A350 build rates based on Airbus indications.

Q: Richard Safran asks about business jets and supply chain progress.

A: Tom Gentile talks about Dassault Falcon 10X contribution, and supply chain improving but not fully resolved by end of 2025.

Q: Scott Mikus asks about Embraer and tariffs.

A: Tom Gentile mentions good relationship with Embraer, and limited tariff exposure as most materials sourced from US, Europe, Japan.

Q: Jack Ayers asks about earnings normalization.

A: Tom Gentile and Patrick Winterlich discuss margin recovery with operating leverage as production rates return to pre-pandemic levels.

Q: Ron Epstein asks about 787 facility expansion.

A: Tom Gentile notes expansion of 787 facility in South Carolina supports increased aircraft production, benefiting Hexcel with good shipset value.