Hexcel Corporation Q1 FY2025 earnings call

Key Messages - Hexcel's value proposition is strong with a broad product range of lightweight innovative aerospace composites, protected by intellectual property and decades of experience. - Commercial aerospace sales in the first quarter were impacted by supply chain disruptions, with Boeing 787 and 737 MAX sales contributing to the year - over - year decline, but other commercial aerospace had a 7.1% increase. - Defense space and other sales grew due to programs like CH - 53K, Blackhawk, classified programs, space programs, and an international fighter program. - The company has a solid balance sheet, having used $50 million to repurchase shares and refinanced a $300 million fixed - rate note. - It is changing how it reports sales by market, with industrial business related to automotive to be divested later. - The company has three key strategies: deliver (ensuring operational excellence, meeting production schedules, quality, and safety), innovate (investing in R&D for new materials and processes), and grow (benefiting from build rate increases on existing programs and pursuing opportunities in defense, space, etc.).

In the first quarter of 2025, Hexcel generated sales of $457 million. Commercial aerospace sales were $280.1 million, down 6.3% on a constant currency basis from the same period in 2024, representing approximately 61% of total first - quarter sales. Defense, space, and other sales were $176.4 million, up 2.7% in constant currency from the same period in 2024, representing approximately 39% of total first - quarter sales. The Composite Materials segment, which represented 80% of total first - quarter sales, generated an adjusted operating margin of 14.2% (adjusting for non - recurring charges). The Engineered Products segment, which was 20% of total sales, generated an adjusted operating margin of 6.8%.

Guidance - 2025 sales guidance midpoint reduced by $85 million, mainly due to Airbus cutting 2025 demand for A350 material. - 2025 commercial aerospace sales expected to be flat compared to 2024, and defense space and other sales also expected to be flat. - Adjusted EPS guidance midpoint lowered by $0.20. - Free cash flow guidance expected to be around $190 million. - Guidance excludes impact of new tariffs announced after March 31, 2025, with direct tariff impact expected to be about $3 - $4 million per quarter.

Risks - Supply chain disruptions continuing to cause commercial aircraft production rate increases to not meet initial expectations. - Uncertainty in tariff policy, including potential direct impact of about $3 - $4 million per quarter and unknown indirect impact on the aerospace supply chain and OEM production rates. - Airbus significantly revising A350 demand forecast, lowering production in 2025 which is a major driver of guidance revision.

Q: On tariffs, how do we think about overall tariff impact and what drives margin improvement?

A: Tom Gentile said the direct tariff impact is $3 - $4 million per quarter, but uncertainty exists. Margin in Q1 was depressed due to lower revenue and not getting expected operating leverage.

Q: On Boeing side, what are you assuming in terms of production?

A: Tom Gentile said on Boeing 737, plan is around low thirties; on 787, Boeing delaying rate increase by 3 - 6 months could impact 5 - 10 units, with ship set value $1 - $2 million.

Q: On A350, what's your confidence level in inventory and how much does revised guide imply is worked off this year?

A: Tom Gentile said plan takes into account some destocking, Airbus still plans to get to 12 aircraft per month in 2028, and revised guide accounts for reduction in A350 and A320 demand.