Hexcel Corp. Reports Operating Results (10-Q)

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Oct 25, 2010
Hexcel Corp. (HXL, Financial) filed Quarterly Report for the period ended 2010-09-30.

Hexcel Corp. has a market cap of $1.8 billion; its shares were traded at around $18.52 with a P/E ratio of 30.87 and P/S ratio of 1.62. HXL is in the portfolios of Chuck Royce of Royce& Associates, Pioneer Investments, Bruce Kovner of Caxton Associates.

Highlight of Business Operations:

Net sales for the quarter were $294.5 million, 14.5% higher (18.2% higher in constant currency) than the $257.1 million reported for the third quarter of 2009. Year to date net sales were 3.2% higher than last year in constant currency. Commercial Aerospace sales increased 26.4% for the quarter, in constant currency. Space and Defense increased 1.8% in constant currency and Industrial sales increased 21.8% in constant currency.

Commercial Aerospace sales increased 23.6% (26.4% in constant currency) for the quarter and were 12.3% higher for the nine-month period as compared to 2009. Airbus and Boeing related sales were up over 20%, led by new program sales and the increase in production rates for their legacy programs. These two combined have 6,857 planes in backlog at September 30, 2010 and, based on their estimates, are on track in 2010 to approach the record deliveries of 979 aircraft in 2009. New aircraft such as the Boeing 787 and 747-8, as well as the Airbus A380 and A350, continue to be a key component of our growth representing more than 20% of our total Commercial Aerospace sales for the second quarter in a row. In the third quarter of 2010, Boeing announced the delay of the first delivery of the B787 to the middle of the first quarter of 2011 and the first delivery of the B747-8 to mid-year in 2011. It is unclear what impact, if any, these delays will have on Hexcels sales of materials to these two new programs. Sales to Other Commercial Aerospace, which includes regional and business aircraft customers, were more than 10% above their low point of the third quarter of last year and slightly lower than the second quarter of 2010.

Industrial sales were up 13.4% (21.8% increase in constant currency) for the quarter and down 15.5% for the nine-month period compared to last year. Wind energy sales were about the same as the second quarter 2010 and were up just over 20% above third quarter of 2009. While we are optimistic about the longer term prospects for prepreg sales for wind turbines, we are cautious in the short-term as we expect continued choppiness in this market. Industrial sales, excluding wind energy, were also up over 20% compared to the third quarter of 2009, but were down slightly on a sequential basis.

Gross margin was 23.9% of net sales for the quarter as compared to 20.3% in the same period last year. The improved gross margin percentage over last year reflects the higher volume, factory productivity and cost reduction initiatives and favorable product mix. These more than offset the increase in depreciation expense included in cost of sales of $1.3 million versus last year. Exchange rates resulted in about a 50 basis points improvement in gross margin compared to last year. SG&A expenses were $28.7 million versus $25.8 million in 2009, primarily reflecting higher variable incentive based compensation expense from our improved outlook versus 2009.

Net sales increased for the quarter and nine months ended September 30, 2010 over the same periods in 2009, primarily reflecting higher sales volume in the Commercial Aerospace markets. On a constant currency basis, sales for the quarter ended September 30, 2010 were 18.2% higher than the same quarter in 2009 (14.5% increase at actual rates) and sales for the nine months ended September 30, 2010 were 3.2% higher than the nine months ended September 30, 2009 (2.5% increase at actual rates).

Commercial Aerospace: Net sales increased $30.1 million, or 23.6% (26.4% on a constant currency basis), to $157.6 million for the third quarter of 2010. Net sales for the nine months ended September 30, 2010 increased $51.5 million or 12.3% (12.6% on a constant currency basis) to $470.6 million over the nine months ended September 30, 2009. For the quarter, Airbus and Boeing related sales were up over 20%, led by new program sales as well as an increase in sales for the legacy programs. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) represented more than 20% of Commercial Aerospace sales for the second quarter in a row and for the nine months ended September 30, 2010. Sales to Other Commercial Aerospace, which includes regional and business aircraft customers, were more than 10% above their low point of the third quarter of last year and slightly lower than the second quarter of 2010. Sales for this sub-market, for the first nine months of 2010, were more than 10% lower than the prior year period as a result of the reduction in demand that began in the second quarter of 2009.

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