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HC

HEXCEL CORP /DE/ (HXL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered modest top-line growth and stronger underlying profitability: net sales $473.8M (+3.6% YoY) and adjusted diluted EPS $0.52 (+20.9% YoY), while gross margin expanded to 25.0% from 22.5%; GAAP EPS was $0.07 due to significant non-cash impairment and restructuring charges tied to industrial portfolio actions .
  • Commercial Aerospace and Space & Defense drove the quarter (CA +4.0% YoY; S&D +7.2% YoY), offset by Industrial weakness (-14.6% YoY), consistent with management’s narrative of continued OEM supply-chain rate-ramp challenges and a deliberate reshaping of Industrial exposure .
  • 2025 guidance: sales $1.95–$2.05B, adjusted EPS $2.05–$2.25, free cash flow >$220M, capex <$100M, tax rate ~21%; dividend increased 13% to $0.17, signaling confidence in multi-year cash generation and capital return capacity .
  • Stock-relevant catalysts: Airbus/Boeing build-rate trajectory, margin leverage as rates recover, pricing tailwinds, and execution on portfolio divestitures; near-term margin headwinds from elevated R&T (~3% of sales), ERP/MES expense ($5–$7M), and growing into headcount temper the pace of margin expansion until production normalizes .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EPS and margins improved: adjusted EPS $0.52 (+20.9% YoY), adjusted operating margin 12.1% (+140 bps YoY), and gross margin 25.0% (+250 bps YoY), reflecting operating leverage and solid execution as volumes recover .
  • Segment strength in core markets: Commercial Aerospace +4.0% YoY on A320neo/787 and regional jets; Space & Defense +7.2% YoY on CH-53K and F-35, with broadening international demand .
  • Management delivered on 2024 targets and set constructive 2025 guide: “Hexcel met its latest 2024 guidance, including $203 million of free cash flow…We are also forecasting increased cash generation to exceed $220 million” (Tom Gentile) .

What Went Wrong

  • Industrial weakness intensified: Q4 Industrial -14.6% YoY with broad sub-market declines, prompting planned divestiture of Neumarkt, Austria (glass fiber wind/industrial), and related non-cash charges .
  • Boeing 737 MAX softness and OEM rate ramp volatility: MAX down YoY; management embeds conservative assumptions and potential destocking in 2025 planning .
  • Near-term margin headwinds: elevated R&T (~3% of revenue) and ERP/MES expense ($5–$7M) will dampen margins until production rates normalize; interest expense likely higher on 2025 note refinancing .

Financial Results

Quarterly Trend (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD Millions)$500.4 $456.5 $473.8
Adjusted Diluted EPS ($)$0.60 $0.47 $0.52
GAAP Diluted EPS ($)$0.60 $0.49 $0.07
Gross Margin %25.3% 23.3% 25.0%
Adjusted Operating Margin %14.4% 11.6% 12.1%
SG&A % of Sales8.0% 8.7% 10.1%
R&T % of Sales2.9% 3.0% 2.8%

Q4 YoY Comparison

MetricQ4 2023Q4 2024
Net Sales ($USD Millions)$457.5 $473.8
Adjusted Diluted EPS ($)$0.43 $0.52
GAAP Diluted EPS ($)$(0.21) $0.07
Gross Margin %22.5% 25.0%
Adjusted Operating Income ($USD Millions)$49.1 $57.1
Adjusted Operating Margin %10.7% 12.1%
Operating Income (GAAP, $USD Millions)$47.6 $8.9
Other Operating Expense ($USD Millions)$1.5 $48.2
Net Income ($USD Millions)$(18.2) $5.8

Market Sales Breakdown (oldest → newest)

Market ($USD Millions)Q4 2023Q3 2024Q4 2024
Commercial Aerospace$267.5 $295.9 $278.3
Space & Defense$152.3 $128.2 $163.3
Industrial$37.7 $32.4 $32.2
Consolidated Total$457.5 $456.5 $473.8
% Commercial Aerospace59% 65% 59%
% Space & Defense33% 28% 34%
% Industrial8% 7% 7%

Segment Performance

Segment MetricQ4 2023Q4 2024
Composite Materials: Net Sales ($M)$377.0 $375.3
Composite Materials: Operating Margin %14.4% 5.2%
Engineered Products: Net Sales ($M)$80.5 $98.5
Engineered Products: Operating Margin %9.6% 3.7%
Corporate & Other: Operating Loss ($M)$(17.0) $(15.5)

KPIs (FY context)

  • Free Cash Flow FY 2024: $202.9M; FY 2023: $148.9M .
  • Adjusted EBITDA FY 2024: $382.3M .
  • Cash & Equivalents 12/31/2024: $125.4M .
  • Total Debt net of cash 12/31/2024: $575.3M .
  • Share repurchases FY 2024: $252.2M; remaining authorization $234.9M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($B)FY 2024$1.90–$1.98 Actual $1.903 Achieved lower end
Adjusted Diluted EPS ($)FY 2024$2.02–$2.18 Actual $2.03 Achieved lower end
Free Cash Flow ($M)FY 2024~$200 Actual $202.9 Met
Effective Tax Rate (%)FY 2024~19 N/A disclosed actualN/A
Sales ($B)FY 2025N/A$1.95–$2.05 New guide
Adjusted Diluted EPS ($)FY 2025N/A$2.05–$2.25 New guide
Free Cash Flow ($M)FY 2025N/A>$220 New guide
Capex ($M)FY 2025N/A<$100 New guide
Effective Tax Rate (%)FY 2025N/A21 New guide
Dividend ($/share)Q1 2025$0.15 (Q4 2024) $0.17 Raised 13%

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
OEM supply chain/rate rampsCautious stance; delayed planned rate increases; revised FY’24 guidance Continued rate-ramp challenges; 2025 guide embeds conservative assumptions and potential MAX destock Gradual improvement but still a headwind
Commercial programs (A320neo, 787, 737 MAX)Q2: double-digit CA growth; MAX modest decline ; Q3: CA +17.5% YoY; MAX down Q4: CA +4.0% YoY; A320neo/787 modest growth; MAX down YoY Widebody up; MAX remains soft
Space & DefenseQ2: +1% with strong CH-53K/Apache ; Q3: flat to down slightly Q4: +7.2% YoY; strength in CH-53K, F-35; ~35% S&D outside U.S. Re-accelerating; diversified
Industrial exposureQ2/Q3: declines in all sub-markets Q4: −14.6% YoY; Neumarkt divestiture; Hartford 3D printing exit Portfolio reshaping; focused
R&T investmentQ2: 3.1% of sales ; Q3: 3.0% Target ~3% of revenue; elevated in 2025 to develop next-gen materials Increasing to support innovation
PricingNot emphasizedPricing contributes a minority of 2025 CA growth; ongoing opportunities as contracts roll Supportive tailwind
FX/HedgingFavorable tailwind to margins (Q2 +40bps; Q3 +10bps) Strong USD benefits; 10-quarter hedging horizon; euro average ~$1.08 in 2024 Well-positioned, dependent on actual rates
Tariffs/MacroNot highlightedMinimal exposure to tariff-targeted countries; acrylonitrile sourced domestically/regionally Limited risk

Management Commentary

  • “Hexcel’s sales increased 6% in 2024…Our adjusted EPS of $2.03 increased 12%, highlighting the inherent operating leverage opportunity within the business as production rates continue to recover” (Tom Gentile) .
  • “Our priorities for 2025 are Operational Excellence…Innovation to win positions… and Growth…We will also explore inorganic growth through disciplined strategic deployment of our robust and growing capital resources” (Tom Gentile) .
  • “We are forecasting 2025 sales between $1.95 billion and $2.05 billion, adjusted earnings per share between $2.05 and $2.25, and free cash flow greater than $220 million” .
  • Medium-term margin path: return to high-teens margins requires production recovery to 2018/2019 levels and productivity to offset inflation (Future Factory initiatives) .

Q&A Highlights

  • Commercial aerospace rate assumptions for 2025: A320 ~low-60 APM; 737 MAX ~low-30 APM; 787 mid-80s units; A350 6–7 APM; conservative with destocking risk mainly on MAX .
  • Quarter cadence: expectation of growth as 2025 progresses, especially as MAX ramps; near-term Europe/US labor/supply chain issues persist .
  • Margin headwinds and investments: ERP/MES expense $5–$7M; elevated R&T (~3% of revenue) to qualify next-gen materials; grow into existing headcount .
  • Pricing: majority of 2025 CA growth is volume, with some pricing tailwind; LT contracts roll annually (~20% of portfolio), enabling price adjustments .
  • FX and hedging: strong USD favorable; 10-quarter hedging policy; 2024 euro average rate ~$1.08; further tailwind depends on actual FX .
  • Portfolio actions: Neumarkt revenue excluded from guidance (~$40M annual); Hartford 3D printing sale de minimis .

Estimates Context

  • S&P Global Wall Street consensus estimates were unavailable at query time due to provider limits; as a result, explicit beat/miss versus consensus cannot be quantified. Management indicated they met the latest FY 2024 guidance and provided FY 2025 guidance ranges for sales, adjusted EPS, and FCF .

Key Takeaways for Investors

  • Underlying momentum: adjusted EPS and margins expanded, with gross margin at 25.0% despite Industrial drag; leverage to Airbus and Boeing rate normalization remains the core earnings driver .
  • 2025 setup: mid-single-digit sales growth at midpoint and >$220M FCF target underpin capital returns and optionality for disciplined M&A in advanced materials; dividend raised to $0.17 .
  • Watchlist catalysts: Airbus A320/A350 and Boeing 787 build-rate ramps, MAX recovery/destock dynamics, and Space & Defense program demand (F-35, CH-53K) .
  • Near-term margin pressure: elevated R&T, ERP/MES expense, and headcount absorption temper drop-through; operating leverage should improve as rates stabilize in 2026–2027 .
  • Portfolio discipline: Neumarkt divestiture and niche industrial focus should reduce volatility and improve mix; Hartford exit limits non-core exposure .
  • Pricing tailwinds: ongoing opportunities as contracts roll can help offset inflation; majority of growth remains volume-driven .
  • FX tailwinds: strong USD benefits margins; hedging policy provides visibility but realized benefit depends on spot rates .