Hexcel Corp. Reports Operating Results (10-K)

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Feb 09, 2013
Hexcel Corp. (HXL, Financial) filed Annual Report for the period ended 2012-12-31.

Hexcel Corporation has a market cap of $2.73 billion; its shares were traded at around $27.36 with a P/E ratio of 16.6667 and P/S ratio of 1.7999. Hexcel Corporation had an annual average earning growth of 9% over the past 5 years.

Highlight of Business Operations:

The Engineered Products segment has a 50% ownership interest in a Malaysian joint venture, Asian Composites Manufacturing Sdn. Bhd. (ACM) with Boeing Worldwide Operations Limited. Under the terms of the joint venture agreement, Hexcel and The Boeing Company (Boeing) have transferred the manufacture of certain semi-finished composite components to this joint venture. Hexcel purchases the semi-finished composite components from the joint venture, and inspects and performs additional skilled assembly work before delivering them to Boeing. The joint venture also manufactures composite components for other aircraft component manufacturers. ACM had revenue of $59 million, $51 million, and $45 million in 2012, 2011 and 2010, respectively. For additional information on the joint venture investment see Note 5, Investments in Affiliated Companies.

Approximately 29%, 30% and 31% of our 2012, 2011 and 2010 net sales, respectively, were to Boeing and related subcontractors. Of the 29% of overall sales to Boeing and its subcontractors in 2012, 25% related to Commercial Aerospace market applications and 4% related to Space & Defense market applications. Approximately 28%, 27% and 24% of our 2012, 2011 and 2010

net sales, respectively, were to European Aeronautic Defence and Space Company (EADS), including its business division Airbus Industrie (Airbus), and its subcontractors. Of the 28% of overall sales to EADS and its subcontractors in 2012, 25% related to Commercial Aerospace market applications and 3% related to Space & Defense market applications.

The impact on Hexcel of Airbus and Boeings production rate changes is typically influenced by two factors: the mix of aircraft produced and the inventory supply chain effects of increases or reductions in aircraft production. We have products on all Airbus and Boeing planes. The dollar value of our materials varies by aircraft type twin aisle aircraft use more of our materials than narrow body aircraft and newer designed aircraft use more of our materials than older generations. On average, for established programs, we deliver products into the supply chain about six months prior to aircraft delivery. Depending on the product, orders placed with us are received anywhere between one and eighteen months prior to delivery of the aircraft to the customer. For aircraft that are in the development or ramp-up stage, such as the A350, we will have sales as much as several years in advance of the delivery. Increased aircraft deliveries combined with the secular penetration of composites resulted in our Commercial Aerospace revenues increasing by approximately 15% in 2012, 28% in 2011 and 16% in 2010.

We have concentrated customers in the Commercial Aerospace and wind energy markets. In the Commercial Aerospace market, approximately 83%, and in the Space & Defense market, approximately 33%, of our 2012 net sales were made to Boeing and EADS (including Airbus) and their related subcontractors. For the years ended December 31, 2012 and December 31, 2011, approximately 29% and 30% of our total consolidated net sales were to Boeing and its related subcontractors, respectively, and approximately 28% and 27% of our total consolidated net sales, respectively, were to EADS, including Airbus and its related subcontractors. In the wind energy market, our primary customer is Vestas Wind Systems A/S. Significant changes in the demand for our customers end products, program delays, the share of their requirements that is awarded to us or changes in the design or materials used to construct their products could result in a significant loss of business with these customers. The loss of, or significant reduction in purchases by, Boeing, EADS and Vestas or any of our other significant customers could materially impair our business, operating results, prospects and financial condition. The level of purchases by our customers is often affected by events beyond their control, including general economic conditions, demand for their products, business disruptions, disruptions in deliveries, strikes and other factors.

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