Hexcel Corp. (HXL, Financial) filed Quarterly Report for the period ended 2010-03-31.
Hexcel Corp. has a market cap of $1.42 billion; its shares were traded at around $14.64 with a P/E ratio of 22.9 and P/S ratio of 1.3. HXL is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Manning & Napier Advisors, Inc.
Gross margin for the quarter was 25.1%, the same as the first quarter of 2009 despite 14.4% lower sales. Favorable product mix as well as gains from cost reductions and efficiency improvement initiatives helped the results for the quarter. While we expect an increase in depreciation of approximately $2 million per quarter to begin in the second quarter and a return to more typical product mix, we hope to continue to experience year over year margin gains as growth returns. Our adjusted operating income was 10.4% of sales as compared to 13.0% for the first quarter of 2009. SG&A expenses were $2.1 million, or 7%, higher than first quarter of 2009, reflecting higher stock compensation expense and currency translation. Lower sales combined with the higher SG&A expenses resulted in the decline in operating margin. As previously anticipated, we expect our interest expense starting in the second quarter to increase a little over $1 million from the first quarter rate.
We continue to tightly control our cost structure and have furloughed workers at several plants and reduced the number of days that several of our facilities are in operation, primarily related to the manufacture of wind related products, in an effort to better balance our cost structure with the current demand. We continue to moderate our pace of capital spending to maintain alignment with current growth assumptions for us and our customers and are committed to achieving factory efficiencies and yields to both reduce cost and capital requirements going forward. Accrual basis additions to capital expenditures were $6.9 million in the first quarter of 2010 as compared to $28.1 million during the first quarter of 2009. These actions have translated into a lower use of free cash flows (defined as cash provided by operating activities less capital expenditures) for the quarter, $9.7 million, as compared to a use of $25.0 million in the first quarter of 2009. We do expect the pace of capital expenditures to increase from the first quarter rate and to be less than $75 million for the year. We also expect to be free cash flow positive for the year.
Commercial Aerospace: Net sales decreased $1.8 million, or 1.2% (3.1% on a constant currency basis), to $152.0 million for the first quarter of 2010. Airbus and Boeing related sales were up over 10%, led by Boeing due to the B787 increase and last years strike-effected first quarter. Regional and business aircraft sales, which account for approximately 16% of sales for this market, were down 40% from a year ago, but at a similar level with sales for the last three quarters. New programs (A380, A350, B787 and B747-8) contributed over 15% to total Commercial Aerospace sales.
Industrial: Net sales decreased $37.7 million, or 49.5% (down 51.5% on a constant currency basis), to $38.5 million for the first quarter of 2010. Wind energy sales were down considerably due to a temporary shutdown and a significant inventory correction at key locations of our largest wind energy customer. Industrial sales, excluding wind energy, were more than 20% lower in constant currency for the current quarter as compared to 2009 due to USECs American Centrifuge Project, which has been on hold since the third quarter of 2009.
Despite the 14.4% lower sales, the gross margin percentage equaled the prior-year quarter resulting from favorable product mix as well as the ongoing cost reductions and efficiency initiatives implemented. A weaker dollar in the first quarter of 2010 versus last year caused about a 40 basis point reduction in gross margin. Depreciation and amortization expense, included in cost of sales during the quarter increased $0.6 million to $10.4 million.
Read the The complete Report
Hexcel Corp. has a market cap of $1.42 billion; its shares were traded at around $14.64 with a P/E ratio of 22.9 and P/S ratio of 1.3. HXL is in the portfolios of Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Manning & Napier Advisors, Inc.
Highlight of Business Operations:
Net sales for the quarter were $263.0 million, 14.4% lower (16.4% lower in constant currency) than the $307.3 million reported for the first quarter of 2009. Sales in the first quarter of 2009 were the highest of the year and comparisons to 2009 will get easier as the year progresses. Commercial aerospace sales (our largest market comprising 58% of our total first quarter sales) are down 3% from last year in constant currency, but they are higher than each of the last three quarters as the impact of our customers inventory destocking appears to be behind us and new program sales are picking up. As expected, regional and business aircraft sales were down sharply from a strong first quarter last year, but our total Airbus and Boeing related sales were higher than any quarter in 2009. A partial shutdown and a significant inventory correction at key locations of our largest wind energy customer resulted in the lowestGross margin for the quarter was 25.1%, the same as the first quarter of 2009 despite 14.4% lower sales. Favorable product mix as well as gains from cost reductions and efficiency improvement initiatives helped the results for the quarter. While we expect an increase in depreciation of approximately $2 million per quarter to begin in the second quarter and a return to more typical product mix, we hope to continue to experience year over year margin gains as growth returns. Our adjusted operating income was 10.4% of sales as compared to 13.0% for the first quarter of 2009. SG&A expenses were $2.1 million, or 7%, higher than first quarter of 2009, reflecting higher stock compensation expense and currency translation. Lower sales combined with the higher SG&A expenses resulted in the decline in operating margin. As previously anticipated, we expect our interest expense starting in the second quarter to increase a little over $1 million from the first quarter rate.
We continue to tightly control our cost structure and have furloughed workers at several plants and reduced the number of days that several of our facilities are in operation, primarily related to the manufacture of wind related products, in an effort to better balance our cost structure with the current demand. We continue to moderate our pace of capital spending to maintain alignment with current growth assumptions for us and our customers and are committed to achieving factory efficiencies and yields to both reduce cost and capital requirements going forward. Accrual basis additions to capital expenditures were $6.9 million in the first quarter of 2010 as compared to $28.1 million during the first quarter of 2009. These actions have translated into a lower use of free cash flows (defined as cash provided by operating activities less capital expenditures) for the quarter, $9.7 million, as compared to a use of $25.0 million in the first quarter of 2009. We do expect the pace of capital expenditures to increase from the first quarter rate and to be less than $75 million for the year. We also expect to be free cash flow positive for the year.
Commercial Aerospace: Net sales decreased $1.8 million, or 1.2% (3.1% on a constant currency basis), to $152.0 million for the first quarter of 2010. Airbus and Boeing related sales were up over 10%, led by Boeing due to the B787 increase and last years strike-effected first quarter. Regional and business aircraft sales, which account for approximately 16% of sales for this market, were down 40% from a year ago, but at a similar level with sales for the last three quarters. New programs (A380, A350, B787 and B747-8) contributed over 15% to total Commercial Aerospace sales.
Industrial: Net sales decreased $37.7 million, or 49.5% (down 51.5% on a constant currency basis), to $38.5 million for the first quarter of 2010. Wind energy sales were down considerably due to a temporary shutdown and a significant inventory correction at key locations of our largest wind energy customer. Industrial sales, excluding wind energy, were more than 20% lower in constant currency for the current quarter as compared to 2009 due to USECs American Centrifuge Project, which has been on hold since the third quarter of 2009.
Despite the 14.4% lower sales, the gross margin percentage equaled the prior-year quarter resulting from favorable product mix as well as the ongoing cost reductions and efficiency initiatives implemented. A weaker dollar in the first quarter of 2010 versus last year caused about a 40 basis point reduction in gross margin. Depreciation and amortization expense, included in cost of sales during the quarter increased $0.6 million to $10.4 million.
Read the The complete Report
