HEXCEL CORP /DE/ (HXL)·Q3 2024 Earnings Summary

Executive Summary

• Q3 2024 net sales were $456.5 million (+8.8% YoY), GAAP diluted EPS $0.49 and adjusted diluted EPS $0.47; sequentially, sales declined from $500.4 million in Q2 and margins compressed on known summer seasonality and carrying incremental labor ahead of 2025 rate increases .
• Commercial Aerospace grew 17.5% YoY to $295.9 million, led by Airbus A350/A320neo and Boeing 787; Space & Defense was flat at $128.2 million; Industrial declined 16.5% to $32.4 million .
• Full-year 2024 guidance ranges for Sales ($1.90–$1.98B), Adjusted EPS ($2.02–$2.18), FCF (~$200M), and Capex (<$100M) were maintained, but the effective tax rate was reduced to ~19% (from 22%); management expects results at the low end of ranges .
• Management withdrew mid-term 2024–2026 guidance given OEM supply-chain disruptions (engines, castings, seats, landing gear) and the Boeing strike; 2025 guidance will be provided with Q4 results—this withdrawal and tax-rate cut are key narrative drivers for the stock .

What Went Well and What Went Wrong

What Went Well

• Commercial Aerospace strength: “Hexcel saw 9% growth in total revenue year over year, driven by a robust 17% growth in commercial aerospace” with double‑digit growth in A350, A320neo, and 787 programs .
• Margin improvement YoY: Gross margin expanded to 23.3% (from 21.8%), and adjusted operating margin rose to 11.6% (from 10.2%), reflecting operating leverage on higher sales .
• Cash return: Repurchased ~$50 million in Q3 (YTD ~$252 million) and declared a $0.15 dividend; remaining buyback authorization ~$234.9 million .

What Went Wrong

• Sequential margin compression: Gross margin fell vs Q2 (23.3% vs 25.3%) and adjusted operating margin declined (11.6% vs 14.4%) due to seasonality, supply chain challenges, and intentional pre‑hiring/training ahead of 2025 ramps .
• Industrial weakness: Industrial sales fell 16.5% YoY, with declines across all sub‑markets; management is exploring strategic options for an Austrian plant focused on wind/recreation/marine .
• Visibility reset: Mid‑term guidance withdrawn amid continuing OEM supply-chain turbulence and the Boeing strike—reducing investor visibility and pushing rate increases “to the right” .

Financial Results

Key Financials (trend and compares)

Notes: Adjusted EPS and operating income exclude items in Table C (restructuring/other operating items and discrete tax impacts) .

Segment and Market Sales

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We now expect FY 2024 sales and adjusted EPS to be at the lower end of our 2024 guidance ranges and will benefit from lower tax rates.” — Tom Gentile .
• “Given recent developments, the assumptions for future production rates… are no longer valid. We are therefore withdrawing our previously issued mid-term guidance and will provide guidance for 2025, with our Q4 earnings in January.” — Tom Gentile .
• “Our 3 key commercial aerospace programs, the A350, the A320neo and the 787, all generated double-digit sales growth year-over-year.” — Tom Gentile .
• “We recruited the next wave of direct labor… we will carry too much labor… a near-term headwind to margins.” — Tom Gentile .
• “Space & Defense… select key programs grew… [but] space subsegment was broadly soft… the V‑22 is also a headwind.” — Tom Gentile .

Q&A Highlights

• Industrial divestiture impact: Austrian plant sale could be a $30–$40 million revenue headwind in 2025; margin impact “low” .
• Boeing strike and LEAP risk: MAX pulls cut in September with stop‑ship orders; management kept building inventory; no LEAP destock risk seen .
• Staffing and margins: Company is staffed for expected rate increases (e.g., A350/A320) and paused new hiring; labor carrying costs are a headwind, but workforce fungible across programs .
• 2025 trajectory: Volume leverage expected to improve margins through 2025 as rates rise; defense typically stronger in Q4, and core programs remain solid .
• Balance sheet and capital return: Maintain net debt/EBITDA in 1.5×–2× range (currently ~1.9×) while continuing buybacks/dividends .

Estimates Context

• Wall Street consensus from S&P Global for Q3 2024 and Q2 2024 could not be retrieved due to system limits. Values unavailable; Wall Street consensus via S&P Global could not be retrieved due to system limits.
• Given the unavailability, we cannot quantify beats/misses vs consensus for revenue and EPS this quarter. If needed, we can refresh and add this comparison once S&P Global access resumes.

Key Takeaways for Investors

• Commercial Aerospace remains structurally strong (A350/A320neo/787), but near‑term OEM supply‑chain constraints and the Boeing strike have delayed expected rate increases; expect sequential margin tailwinds as rate increases materialize in 2025 .
• Hexcel is intentionally carrying trained labor to be ready for 2025 demand; this depresses margins near term but should support quality/on‑time delivery and leverage when rates rise .
• Management reset visibility by withdrawing mid‑term guidance; look to January for 2025 guidance. This reset plus maintained FY24 ranges (at low end) and lowered tax rate are core to the current narrative .
• Industrial portfolio simplification (Austrian plant) should de‑emphasize lower‑priority markets; expect a ~$30–$40M revenue headwind in 2025 but limited margin impact, sharpening focus on aerospace-grade applications .
• Cash returns remain active (Q3 buyback ~$50M, YTD ~$252M, dividend maintained); leverage within target 1.5×–2× and capex < $100M support FCF resiliency .
• Watch for Q4 defense strength and Boeing/Airbus production updates; resolution of strike dynamics and clearer OEM schedules are catalysts for estimate revisions and margin trajectory .
• Non‑GAAP adjustments (restructuring and discrete tax) influenced adjusted EPS; underlying operating performance YoY improved, but sequential compression reflects timing and strategic labor decisions .