Hexcel Reports 2020 Fourth Quarter and Full Year Results

STAMFORD, Conn. –

Hexcel Corporation (NYSE: HXL):

Hexcel Corporation (NYSE: HXL) today reported fourth quarter and full year 2020 results including fourth quarter net sales of $296 million and adjusted diluted EPS of ($0.18) per share.

Chairman, CEO and President Nick Stanage said, “Fourth quarter revenue of $296 million was in line with our expectations and consistent with our previous commentary that the third and fourth quarters of 2020, along with the first quarter of 2021, have been and are expected to be our most challenging quarters during this pandemic driven market downturn. Adjusted EPS for the quarter was negative 18 cents, reflecting stronger margin performance than the third quarter of 2020, although sales mix and reduced overhead absorption continue to be significant headwinds. Revenue for the full year was $1,502 million, down 36% in constant currency compared to 2019, with adjusted diluted EPS for the year of $0.25. Our cash management continued to be strong with Hexcel delivering $214 million of free cash flow for 2020, ensuring that our liquidity position remains robust.”

Mr. Stanage continued: “Our results clearly reflect an unusual and tumultuous year for our customers, our suppliers, and our Hexcel employees who have remained laser-focused on managing through the challenges at hand. The Hexcel team has responded quickly and worked safely and efficiently through significant uncertainty. Employees have been challenged in ways we never imagined, yet their commitment to excellence and to our customers has never wavered with many relationships actually being strengthened through innovative ways of working.”

“We continue to forecast stabilizing demand as we move into the second quarter of 2021, with the inventory de-stocking process expected to be largely winding down and the potential for some narrowbody build rate recovery as we progress into the second half of the year. However, there is no room for complacency during this pandemic. A quick and successful rollout of the vaccines is crucial to a significant increase in airline passenger traffic, which will ultimately be the driver of demand for new, composite-rich aircraft.”

In conclusion, Mr. Stanage said: “As we enter 2021, we will continue to tightly manage cash and costs, and ensure that we deliver our performance targets. The overall long-term demand for efficient aircraft and our advanced composites technology remains robust, and the potential for a significant upturn in 2022 and beyond continues to look positive. The actions being taken, coupled with our industry-leading technology and strong customer relationships, will ensure that Hexcel emerges from this pandemic stronger than ever, with a more efficient cost base, strategically positioned for growth to support the future of aerodynamics and sustainability in aerospace and industrial markets.”

Markets

Sales in the fourth quarter of 2020 were $295.8 million compared to $564.3 million in the fourth quarter of 2019.

Commercial Aerospace

• Commercial Aerospace sales of $126.7 million decreased 66.6% (also 66.6% in constant currency) for the quarter compared to the fourth quarter of 2019. All major programs were down substantially with the largest sales value impact related to the A350. Boeing 737 MAX sales continue to be at a very low level. Build rate reductions driven by the COVID-19 pandemic combined with significant supply chain inventory destocking led to the reduced sales levels.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft, fell by 59.2% for the fourth quarter of 2020 compared to the fourth quarter of 2019 as demand was negatively impacted by the global pandemic, particularly business jets.

Space & Defense

• Space & Defense sales of $119.7 million increased 3.8% (2.5% in constant currency) for the quarter as compared to 2019. The increase was due to strength in US military rotorcraft programs.

Industrial

• Total Industrial sales of $49.4 million in the fourth quarter were down 28.6% (31.3% in constant currency) compared to the fourth quarter of 2019.
• Wind energy sales (the largest submarket in Industrial) experienced a decline of 42.1% in constant currency compared to the fourth quarter of 2019. The reduction reflects a customer demand shift, primarily in the U.S. market, and includes the impact of the November 2020 closure of Hexcel’s wind energy prepreg production facility in Windsor, Colorado, as previously communicated.

Consolidated Operations

Gross margin for the fourth quarter was 10.3% compared to 26.0% in the prior year period. Sales mix continues to be a headwind, particularly lower sales of Hexcel carbon fiber products, combined with the under absorption of fixed overhead magnified by the continued temporary idling of select production assets and facilities. Selling, general and administrative and R&T expenses for the fourth quarter of 2020 decreased $12.6 million or 26% compared to the prior year as ongoing realignment actions and headcount reductions reduce the cost structure. Other operating expenses were restructuring charges primarily related to labor actions outside of the US. Adjusted operating loss in the fourth quarter of 2020 was $6.1 million, or (2.1)% of sales, compared to operating income of $97.4 million, or 17.3% of sales in 2019. The impact of exchange rates was negative by approximately 40 basis points in the fourth quarter of 2020 compared to 2019.

FY 2020 Results

Full year 2020 sales were $1,502.4 million, a decrease of 36.3% in constant currency compared to 2019.

Commercial Aerospace (55% of YTD sales)

• Commercial Aerospace sales of $822.3 million decreased 48.6% in constant currency compared to 2019 due to significant pandemic-induced production cuts across the major aircraft programs during 2020 and only limited sales for the Boeing 737 MAX program. The decline was compounded by significant destocking across the supply chain.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, decreased 32.5% in 2020 as the global pandemic negatively impacted demand, particularly for business jets.

Space & Defense (30% of YTD sales)

• Space & Defense sales of $448.5 million increased nominally in constant currency compared to 2019. While 2020 sales for some defense platforms were negatively impacted by temporary pandemic-induced disruptions, Space and Defense remains an attractive growth market.

Industrial (15% of YTD sales)

• Total Industrial sales of $231.6 million decreased 26.5% in constant currency compared to 2019.
• Wind energy sales decreased 29.3% in constant currency during 2020 compared to 2019 resulting from global production disruptions caused by the pandemic and lower customer demand, notably in the U.S.

Consolidated Operations

Gross margin for the year was 16.0% compared to 27.2% for 2019. Total operating expenses in 2020 decreased $47.5 million or 22.1% compared to the prior year, reflecting cost reduction actions. Other operating expenses consisted primarily of severance costs, as well as restructuring expenses related to the closure of the Windsor, Colorado wind energy prepreg facility, and expenses related to the terminated merger with Woodward. Adjusted operating income for 2020 was $72.0 million, or 4.8% of sales, compared to $425.2 million, or 18.0% of sales in 2019. The impact of exchange rates was negative by approximately 30 basis points in 2020 compared to 2019.

Cash and other

• The tax benefit for the fourth quarter and year-to-date periods of 2020 was ($12.3) million and ($61.0) million, respectively. The benefit was primarily due to losses incurred in various jurisdictions due to the impacts of COVID-19. The 2020 tax benefit was also impacted by discrete tax benefits of $54.7 million, primarily composed of a valuation allowance released in the third quarter of 2020. The impacts on earnings have already, and will continue to have, an impact on the Company’s overall effective tax rate throughout 2021.
• Net cash generated from operating activities for 2020 was $264.3 million, compared to $491.1 million for 2019. Capital expenditures on a cash basis were $50.6 million for 2020 compared to $204.1 million for 2019. Free cash flow was $213.7 million for 2020 compared to $287.0 million for 2019. Working capital was a cash source of $87.8 million in Q4 2020 as compared to a source of $96.5 million in Q4 2019. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures.
• The share repurchase program remains temporarily suspended and no shares were repurchased during the fourth quarter of 2020. Further, share repurchases are also restricted per the amendment to Revolver facility that was executed in late September 2020. The remaining authorization under the share repurchase program at December 31, 2020 was $217 million. The quarterly dividend remains temporarily suspended. The Board of Directors will continue to evaluate capital allocation strategies on at least a quarterly basis.
• The Company continues to withhold financial guidance due to the market uncertainties arising from the global pandemic.

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Hexcel will host a conference call at 10:00 a.m. ET, on January 26, 2021 to discuss fourth quarter and full-year 2020 results. The event will be webcast via the Investor Relations webpage at www.Hexcel.com. The event can also be accessed by dialing +1 (647) 689-5685. The conference ID is 6392205. Replays of the call will be available on the website.

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Hexcel Corporation is a leading advanced composites company. It develops, manufactures and markets lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, engineered core and composite structures, used in commercial aerospace, space and defense and industrial applications. Learn more at www.Hexcel.com.

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Disclaimer on Forward Looking Statements

This news release contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others; the revenues we may generate from an aircraft model or program; the impact of the possible push-out in deliveries of the Airbus and Boeing backlog and the impact of delays in the startup or ramp-up of new aircraft programs or the final Hexcel composite material content once the design and material selection have been completed; expectations with regard to the build rate of the Boeing 737 MAX following its return to service and the related impact on our revenues; expectations with regard to the timing of inventory de-stocking related to the current decrease in customer demand; expectations of composite content on new commercial aircraft programs and our share of those requirements; expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; expectations regarding sales for wind energy, recreation, automotive and other industrial applications; expectations regarding working capital trends and expenditures and inventory levels; expectations as to the level of c

Quelle: Business Wire