Hexcel Corp. (HXL) filed Quarterly Report for the period ended 2009-09-30.
HEXCEL CORP. is an international developer and manufacturer of lightweight high-performance composite materials parts and structures for use in the commercial aerospace space and defense recreation and general industrial markets. Hexcel Corp. has a market cap of $1.13 billion; its shares were traded at around $11.74 with a P/E ratio of 14.7 and P/S ratio of 0.9.
Highlight of Business Operations:
Net sales for the quarter were $257.1 million, 22.4% lower (21.1% lower in constant currency) than the $331.4 million reported for the third quarter of 2008. Year to date, net sales are 15.2% lower than last year in constant currency. The drop in sales is related to significant supply chain inventory adjustments, the rapid decline in the regional and business aircraft market and new program delays. The wind energy market is also now experiencing lower levels of demand as financing issues facing wind generator customers have begun to delay previously announced projects.
Therefore, in response to these tough market conditions, Hexcel has taken the difficult but necessary steps to control its cost structure in the near term while preserving our ability to meet customers’ needs over the medium term. In the quarter we continued to reduce headcount, controllable costs, capital expenditures and inventories. We have furloughed workers at several plants and reduced the number of days that several of our facilities are in operation in an effort to better balance our cost structure with the current demand environment. These actions have translated into strong free cash flows (defined as cash provided by operating activities less capital expenditures) for the Company as we generated $36 million in free cash flow for the quarter, and we are now $58 million free cash flow positive for the year as compared to $82 million of usage in the first nine months of 2008.
There were significant working capital improvements as the lower sales volumes combined with concerted efforts to reduce accounts receivable and inventories resulted in $30 million of cash in 2009 from working capital as compared to a $75 million use of cash for the same period in 2008. Accrual basis additions to capital expenditures were $65.8 million in the first nine months of 2009, as compared to $125.8 million during the first nine months of 2008.
In 2008, other commercial aerospace sales, which include regional and business aircraft, totaled almost $200 million in 2008, while the current run rate based on the last two quarters is now in the range of $100 million per year. This reduction reflects the sharp
The much lower sales volume more than offset improvements gained from factory productivity initiatives, headcount reductions, lower commodity and freight costs and overall good cost control for the quarter and nine months ended September 30, 2009. The strengthening of the Dollar against the Euro and the British pound over most of the last year creates mixed effects on our results. The Dollar movement against the two currencies resulted in a decrease in sales of $5.7 million in the quarter and $43.4 million in the nine-month period on a year over year basis. However, operating income was slightly favorably impacted by these same currency movements for the nine months of 2009 as compared to same period in 2008 as many European commercial aerospace sales are generally in US Dollars with related costs in Euros and British pounds.
(a) The three and nine-month periods of 2009 include a $1.7 million ($1.1 million after-tax) net gain related to the 2007 sale of a business, primarily due to the receipt of an earn-out payment from the buyer.
HXL is in the portfolios of John Keeley of Keeley Fund Management.
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