Hexcel Reports 2021 Second Quarter Results

• Q2 2021 GAAP diluted EPS of $0.03 and adjusted diluted EPS of $0.08, compared to Q2 2020 GAAP diluted EPS of ($0.01) and adjusted diluted EPS of $0.08.
• Q2 2021 Sales were $320 million, compared to $379 million in Q2 2020.
• Free Cash Flow YTD of $30 million.

See Table C for reconciliation of GAAP and non-GAAP operating income (loss), net income (loss), earnings (loss) per share and operating cash flow to free cash flow. Free cash flow is cash from operations less capital expenditures.

Hexcel Corporation (NYSE: HXL):

Hexcel Corporation (NYSE: HXL) today reported second quarter 2021 results including net sales of $320 million and adjusted diluted EPS of $0.08 per share.

Chairman, CEO and President Nick Stanage said, “I am pleased to report a positive quarter for Hexcel as we begin to return to top line growth. Sales in the second quarter were in line with our expectations, and we delivered solid margin performance supported by favorable mix from higher fiber sales, which combined with planned reductions in our overhead cost base, resulted in 8 cents of adjusted EPS for the quarter. Looking forward, we expect the majority of commercial aerospace supply chain destocking to be largely behind us with a small amount remaining in the second half of the year.”

Mr. Stanage continued, “We are encouraged that airlines are placing new orders with the commercial aerospace OEMs, leading once again to a growing aircraft backlog as passenger numbers continue to increase steadily around the world. Our team is prepared and focused on ramping up production levels to meet growing customer demand, particularly as aircraft operators seek more aerodynamic, lightweight aircraft that improve fuel efficiency and reduce emissions. I am excited about the path ahead with significant Hexcel sales growth expected in 2022, 2023 and beyond as we drive strong incremental profits, generate robust positive cash flow and deliver increasing shareholder returns.”

Markets

Sales in the second quarter of 2021 were $320.3 million compared to $378.7 million in the second quarter of 2020.

Commercial Aerospace

• Commercial Aerospace sales of $153.7 million decreased 24.6% (24.8% in constant currency) for the quarter compared to the second quarter of 2020. Narrowbody demand is recovering with sales in the second quarter of 2021 reaching their highest level since the first quarter of 2020 when the pandemic was just beginning.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft, fell by 26.6% for the second quarter of 2021 compared to the second quarter of 2020. Business jets is the largest market within Other Commercial Aerospace and sales continued to recover sequentially in the second quarter of 2021 however remained below prior year levels.

Space & Defense

• Space & Defense sales of $106.9 million decreased 1.4% (2.7% in constant currency) for the quarter as compared to 2020. This nominal decrease reflected temporary pandemic-induced disruptions within select space and defense platforms globally, while overall the space and defense outlook remains robust.

Industrial

• Total Industrial sales of $59.7 million in the second quarter were down 10.1% (15.1% in constant currency) compared to the second quarter of 2020. Solid sales in other industrial markets including automotive and recreation helped offset some of the reduced wind energy sales.
• Wind energy sales (the largest submarket in Industrial), experienced a decline of 43.9% in constant currency compared to the second quarter of 2020 reflecting the continued lower demand and cessation of sales in North America.

Consolidated Operations

Gross margin for the second quarter was 19.3% compared to 14.5% in the prior year period reflecting a step up in carbon fiber production and sales resulting in a strong margin mix as well as the lower operating overhead cost base. Selling, general and administrative and R&T expenses for the second quarter of 2021 were 20% higher than the prior year, however 21% lower than Q2 2019. Other operating expenses included restructuring costs. Adjusted operating income in the second quarter of 2021 was $19.3 million, or 6.0% of sales, compared to $19.5 million, or 5.1% of sales in 2020. The impact of exchange rates on operating income as a percent of sales was favorable by approximately seventy basis points in the second quarter of 2021 compared to 2020.

Year-to-Date 2021 Results

Sales of $630.6 million for the first six months of 2021 decreased 31.4% (32.5% in constant currency) compared to the same period in 2020.

Commercial Aerospace (48% of YTD sales)

• Commercial Aerospace sales of $301.3 million decreased 46.8% (47.2% in constant currency) compared to the first six months of 2020. Destocking in the commercial aerospace supply chain impacting Hexcel is now largely completed with only a small amount related to widebody aircraft forecasted for the 2^nd half of 2021.
• Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, decreased 39.2% year to date.

Space & Defense (35% of YTD sales)

• Space & Defense sales of $218.6 million decreased 0.6% (1.8% in constant currency) compared to the first six months of 2020.

Industrial (17% of YTD sales)

• Total Industrial sales of $110.7 million decreased 16.7% (21.1% in constant currency) compared to the first six months of 2020.
• For the first six months of 2021, wind energy sales decreased 43.2% in constant currency compared to last year due to the cessation of sales in North America.

Consolidated Operations

Gross margin for the first six months of 2021 was 18.2% compared to 21.3% in the prior year period. Selling, general and administrative and R&T expenses for the first six months of 2021 were relatively flat compared to the prior year. Other operating expenses for the first six months of 2021 were $15.2 million compared to $27.8 million in 2020 as the prior year included expenses related to the terminated merger with Woodward, Inc. Adjusted operating income for the first six months of 2021 was $21.2 million, or 3.4% of sales, compared to $99.9 million, or 10.9% of sales in 2020. The impact of exchange rates on operating income as a percent of sales for the first six months of 2021 was favorable by approximately twenty five basis points compared to 2020.

Cash, 2021 Guidance Update and other

• The effective tax rate for the second quarter of 2021 was 58.0% and included a discrete tax charge of $2.7 million related to the remeasurement of the net deferred tax liability in one of the foreign jurisdictions as a result of an unfavorable tax rate change. Excluding the discrete item, the effective tax rate for the second quarter was 18.8%. The effective tax rate year-to-date was 25.7% and included a discrete tax benefit of $3.2 million from the revaluation of deferred tax liabilities related to a favorable U.S. state tax law change in addition to the $2.7 million discrete tax charge previously mentioned. The effective tax rate was 16.5% for the first six months of 2020 and included a $2.7 million benefit, primarily for the release of reserves of unrecognized tax benefits, as a result of tax audit settlements in the second quarter of 2020. The underlying effective tax rate for the remainder of 2021 continues to be 23%.
• Net cash generated from operating activities for the first six months of 2021 was $38.9 million, compared to $73.6 million for the first six months of 2020. Capital expenditures on a cash basis were $9.2 million for the first six months of 2021 compared to $40.4 million for the first six months of 2020. Free cash flow was $29.7 million for the first six months of 2021 compared to $33.2 million for the first six months of 2020. Working capital was a cash use of $19.6 million for the first six months of 2021 compared to a use of $52.0 million for the first six months of 2020. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures. Liquidity remained strong with cash of $115 million and revolver borrowing availability of $543 million at June 30, 2021.
• Share repurchases are restricted per the second amendment to the Revolver facility that was executed in January 2021. The remaining authorization under the share repurchase program at June 30, 2021 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 continuing market uncertainties arising from the global pandemic.

Hexcel will host a conference call at 10:00 a.m. ET, on July 27, 2021 to discuss second quarter 2021 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 8696963. Replays of the call will be available on the website.

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.

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 destocking resulting from the pandemic-related 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 capital expenditures and completion of capacity expansions and qualification of new products; expectations regarding our ability to maintain and improve margins in view of the pandemic-induced economic environment; projections regarding our tax rate; expectations with regard to the continued impact of the COVID-19 pandemic on worldwide air travel and aircraft programs, as well as on our customers and suppliers and, in turn, on our operations and financial results; and the anticipated impact of the above factors and various market risks on our expectations of financial results for 2021 and beyond. Actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors, including but not limited to the impact of the COVID-19 pandemic, including continued disruption in global financial markets, ongoing restrictions on movement and travel, employee absenteeism and reduced demand for air travel, on the operations, business and financial condition of Hexcel and its customers and suppliers; reductions in sales to any significant customers, particularly Airbus or Boeing, including reduction in revenue related to the timing of ramp-up of production of the Boeing 737 MAX, as well as due to the impact of the COVID-19 pandemic; inability to effectively adjust production and inventory levels to align with customer demand; inability to effectively motivate, retain and hire the necessary workforce; inability to successfully implement or realize our business strategies, plans and objectives of management, including any restructuring or alignment activities in which we may engage; timing of inventory destocking caused by the COVID-19 pandemic; changes in sales mix; changes in current pricing and cost levels; changes in aerospace delivery rates; changes in government defense procurement budgets; changes in military aerospace program technology; timely new product development or introduction; industry capacity; increased competition; availability and cost of raw materials; supply chain disruptions; inability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including, but not limited to, the effect of change in global trade policies and the impact of the exit of the U.K. from the European Union; work stoppages or other labor disruptions; unexpected outcome of legal matters or impact of changes in laws or regulations. Additional risk factors are described in our filings with the Securities and Exchange Commission. We do not undertake an obligation to update our forward-looking statements to reflect future events.