# Hexcel Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Hexcel Corp](/companies/hxl.md) (CIK 717605)
- Form: 10-Q
- Filed: 2024-04-22
- Accepted by EDGAR: Apr 22, 2024, 16:30 ET
- Period: 2024-03-31
- Accession: 0000950170-24-046457
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/717605/000095017024046457/hxl-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/717605/000095017024046457/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $472.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $354.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $118.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-01-01 to 2024-03-31 | $15.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $49.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $52.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $6.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $9.9m | us-gaap:IncomeTaxExpenseBenefit |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 84,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$7.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $28.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $12.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $100.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $85.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $789.7m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $2.82bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $288.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $1.19bn | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $714.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $100.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $1.63bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 21,219 characters.

### Business Overview

We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fiber, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, resins, engineered core and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all.

We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Europe, Asia Pacific, India, and Africa.

We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, radio frequency/electromagnetic interference (“RF/EMI”) and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality and thermoplastic additive manufacturing.

The Commercial Aerospace market has recovered strongly following the severe negative economic impacts on this industry resulting from the COVID-19 pandemic that began in 2020. Our business is continuing to recover driven by growth in air travel and an increase in aircraft build rates. The recovery has created many challenges across the markets Hexcel operates in, related to global logistics, supply chains, inflationary pressures and has also been impacted by the effects of geopolitical issues and conflicts. These challenges have had and may continue to have further negative impacts on our operations, supply chain, transportation networks and customers, all of which have and may continue to compress our financial results.

### Financial Overview

### Results of Operations

*(In millions, except per share data)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Net sales | **$472.3** | $457.7 | 3.2% |
| Net sales change in constant currency |  |  | 3.1% |
| Operating income | **$52.9** | $62.8 | (15.8)% |
| As a percentage of net sales | **11.2%** | 13.7% |  |
| Net income | **$36.5** | $42.7 | (14.5)% |
| Diluted net income per common share | **$0.43** | $0.50 | (14.0)% |

17

#### Net Sales

The following table summarizes net sales to third-party customers by segment and end market for the quarters ended March 31, 2024 and 2023:

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| **Consolidated Net Sales** | **$472.3** | **$457.7** | **3.2%** |
| Commercial Aerospace | 299.3 | 284.5 | 5.2% |
| Space & Defense | 139.1 | 126.2 | 10.2% |
| Industrial | 33.9 | 47.0 | (27.9)% |
| **Composite Materials** | **$379.5** | **$378.2** | **0.3%** |
| Commercial Aerospace | 251.5 | 243.2 | 3.4% |
| Space & Defense | 94.7 | 88.8 | 6.6% |
| Industrial | 33.3 | 46.2 | (27.9)% |
| **Engineered Products** | **$92.8** | **$79.5** | **16.7%** |
| Commercial Aerospace | 47.8 | 41.3 | 15.7% |
| Space & Defense | 44.4 | 37.4 | 18.7% |
| Industrial | 0.6 | 0.8 | (25.0)% |

### Sales by Segment

***Composite Materials:*** Net sales of $379.5 million in the first quarter of 2024 increased by $1.3 million or 0.3% from the prior year quarter. Commercial Aerospace sales increased $8.3 million or 3.4% in the first quarter of 2024 and Space & Defense sales increased $5.9 million or 6.6% as compared to the prior year quarter. These increases were partially offset by a decrease in Industrial sales of $12.9 million or 27.9% compared to the prior year quarter.

***Engineered Products:*** For the first quarter of 2024, net sales of $92.8 million increased $13.3 million or 16.7% as compared to the prior year quarter. The increase was driven by higher Commercial Aerospace sales, which were up $6.5 million or 15.7% in the first quarter of 2024 as compared to the same period in 2023, as well as higher Space & Defense sales of $7.0 million, or 18.7%.

### Sales by Market

Commercial Aerospace sales of $299.3 million increased 5.2% (5.2% in constant currency) for the first quarter of 2024 compared to the first quarter of 2023 driven by strong Boeing 787 sales. Other Commercial Aerospace sales of $55.1 million decreased 6.3% for the first quarter of 2024 compared to the first quarter of 2023 due to softer business jet sales.

Space & Defense sales of $139.1 million increased 10.2% (10.0% in constant currency) for the quarter as compared to the first quarter of 2023 with strong fixed wing aircraft programs, including the Lockheed F-35 and Airbus A400M, as well as classified programs.

Total Industrial sales of $33.9 million in the first quarter of 2024 decreased 27.9% (28.5% in constant currency) compared to the first quarter of 2023, due to lower sales across all industrial sub-markets.

#### Gross Margin

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Gross margin | **$118.2** | $127.7 | (7.4)% |
| Percentage of sales | **25.0%** | 27.9% |  |

Gross margin for the first quarters of 2024 and 2023 was 25.0% and 27.9%, respectively. The higher prior year gross margin benefited from favorable sales mix and absorption.

#### Operating Expenses

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| SG&A expense | **$49.0** | $50.8 | (3.5)% |
| Percentage of sales | **10.4%** | 11.1% |  |
| R&T expense | **$15.1** | $13.9 | 8.6% |
| Percentage of sales | **3.2%** | 3.0% |  |

Selling, general and administrative expenses were lower for the three months ended March 31, 2024 compared to the same period in 2023 due to lower employee-related expenses. Research and technology expenses for the quarter ended March 31, 2024 were higher than the prior year period primarily due to increases in materials, depreciation and employee-related expenses.

#### Operating Income

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Consolidated operating income | **$52.9** | $62.8 | (15.8)% |
| Operating margin | **11.2%** | 13.7% |  |
| Composite Materials | **63.7** | 73.2 | (13.0)% |
| Operating margin | **15.8%** | 18.4% |  |
| Engineered Products | **12.9** | 12.0 | 7.5% |
| Operating margin | **13.9%** | 14.9% |  |
| Corporate & Other | **(23.7)** | (22.4) | (5.8)% |

Operating income for the first quarter of 2024 and 2023 was $52.9 million and $62.8 million, respectively. The decrease in operating income for the first quarter of 2024 compared to the same period last year was primarily driven by the lower gross margin.

#### Interest Expense, Net

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: |
| Interest expense, net | **$6.5** | $9.4 | (30.9)% |

Net interest expense for the first quarter ended March 31, 2024 was lower compared to the first quarter of 2023 due to lower average borrowings and higher interest income.

#### Provision for Income Taxes

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Income tax expense | **$9.9** | $11.7 |
| Effective tax rate | **21.3%** | 21.9% |

The tax expense for the quarter ended March 31, 2024 was $9.9 million compared to a tax expense of $11.7 million for the quarter ended March 31, 2023.

### Financial Condition

***Liquidity:*** Cash on hand at March 31, 2024 was $85.9 million as compared to $227.0 million at December 31, 2023. As of March 31, 2024, total debt was $714.7 million as compared to $699.5 million at December 31, 2023.

Under the senior unsecured credit facility (the "Facility"), total borrowings at March 31, 2024 were $15.0 million, which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $50.0 million. As of March 31, 2024, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $735.0 million. The weighted average interest rate for the Facility was 8.6% for the three months ended March 31, 2024. For further information regarding our Facility, see Note 5, Debt, to the accompanying condensed consolidated financial statements of this Form 10-Q.

We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of March 31, 2024, long-term liquidity requirements consisted primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until August 2025 when our 4.7% Senior Unsecured Notes are due.

The remaining authorization under the Share Repurchase Program at March 31, 2024 was $386.4 million. On April 22, 2024, our Board of Directors declared a quarterly dividend of $0.15 per share payable to stockholders of record as of May 3, 2024, with a payment date of May 10, 2024.

***Operating Activities:*** Net cash used for operating activities for the first three months of 2024 was $7.0 million compared to $23.4 million for the same period last year. Working capital was a cash use of $84.5 million for the first three months of 2024 compared to a use of $104.0 million in the same period in 2023. The improvement in the current year was primarily driven by lower payments of payables and lower increases in inventory levels.

***Investing Activities:*** Net cash used for investing activities was $28.7 million and $18.1 million in the first three months of 2024 and 2023, respectively, reflecting an increase in capital expenditures.

***Financing Activities:*** Net cash used for financing activities was $104.3 million for first three months of 2024 compared to net cash provided of $34.8 million in the same period in 2023. Borrowings under the Facility during the first quarter of 2024 were $15.0 million compared to $65.0 million in borrowings and repayments of $20.0 million for the same period in the prior year. Quarterly dividend payments to shareholders were $12.6 million during the first quarter of 2024 compared to $10.5 million in the first quarter of 2023. During the three months ended March 31, 2024, repurchases of common stock totaled $100.7 million.

***Financial Obligations and Commitments:*** The next significant scheduled debt maturity will not occur until 2025, when the 4.7% Senior Unsecured Notes mature. Certain sales and administrative offices, data processing equipment, vehicles and manufacturing equipment, and facilities are leased under operating leases.

### Critical Accounting Estimates

Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.

We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

#### Commitments and Contingencies

We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change, such as new developments, or a change in approach, including a change in settlement strategy or in an environmental remediation plan, or in our existing insurance coverage, that could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future. For further discussion, see Note 11, Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements of this Form 10-Q.

### Non-GAAP Financial Measures

The Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for items included in operating expense and non-operating expenses; and free cash flow. Management believes these non-GAAP measures are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. These adjustments can represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measures are not determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to or substitutes for GAAP measures of performance. Our calculation of these measures may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.

*(In millions)*

|  | Operating Income Quarter Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| GAAP operating income | **$52.9** | $62.8 |
| Other operating expense (a) | **1.2** | 0.2 |
| Adjusted operating income (non-GAAP) | **$54.1** | $63.0 |

*(In millions, except per diluted share data)*

|  | Quarter Ended March 31, 2024 Net Income | Diluted Net Income Per Share | 2023 Net Income | Diluted Net Income Per Share |
| --- | ---: | ---: | ---: | ---: |
| GAAP net income | **$36.5** | **$0.43** | $42.7 | $0.50 |
| Other operating expense, net of tax (a) | **0.9** | **0.01** | 0.2 | - |
| Adjusted net income (non-GAAP) | **$37.4** | **$0.44** | $42.9 | $0.50 |

(a) The quarters ended March 31, 2024 and 2023 included restructuring costs primarily related to severance.

*(In millions)*

|  | Quarter Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used for operating activities | **$(7.0)** | **$(23.4)** |
| Less: Capital expenditures | **(28.7)** | **(18.1)** |
| Free cash flow (non-GAAP) | **$(35.7)** | **$(41.5)** |

### Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “target,” “would,” “will” and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.

Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others and the revenues we may generate from an aircraft model or program; (b) expectations with regard to the impact of regulatory activity related to the Boeing 737 MAX or Boeing 787 on our revenues; (c) expectations with regard to raw material cost and availability; (d) expectations of composite content on new commercial aircraft programs and our share of those requirements; (e) expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (f) expectations regarding sales for industrial applications; (g) expectations regarding cash generation, working capital trends, and inventory levels; (h) expectations as to the level of capital expenditures, capacity, including the timing of completion of capacity expansions, and qualification of new products; (i) expectations regarding our ability to improve or maintain margins; (j) expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy; (k) projections regarding our tax rate; (l) expectations with regard to the continued impact of macroeconomic factors or geopolitical issues or conflicts; (m) expectations regarding our strategic initiatives, including our sustainability goals; (n) expectations with regard to the effectiveness of cybersecurity measures; (o) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations; and (p) our expectations of financial results for 2024 and beyond.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the extent of the impact of macroeconomic factors or geopolitical issues or conflicts; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to regulatory activity or public scrutiny impacting the Boeing 737 MAX or the Boeing 787; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; the availability and cost of raw materials, including the impact of supply disruptions and inflation; our ability to successfully implement or realize our strategic initiatives, including our sustainability goals and any restructuring or alignment activities in which we may engage; changes in sales mix; changes in current pricing due to cost levels; changes in aerospace delivery rates; changes in government defense procurement budgets; timely new product development or introduction; our ability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including the effect of change in global trade policies, such as sanctions; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the effects of natural disasters or other severe weather events, which may be worsened by the impact of climate change, and other severe catastrophic events, including any public health crisis; and the unexpected outcome of legal matters or impact of changes in laws or regulations.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated, see the information under the caption “Risk Factors,” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31. 2023. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.

## Market risk

As filed, 166 characters.

There have been no material changes in our market risk from the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 1,341 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of March 31, 2024, and with the participation of the Company's management have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 405 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition or future results. There have been no material changes in the Company's risk factors from the aforementioned Form 10-K.

Filed Apr 22, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-046457. Last ingested by Listed: Oct 29, 2026, 04:32 ET. No prices; not investment advice.