Volatile Movements – Hexcel Corporation (NYSE:HXL)

On Wednesday, Shares of Hexcel Corporation (NYSE:HXL) down -0.23% to close at $52.79. The stock kicked off the day at $53.05 and traded between a low of $52.67 and a high of $52.79. The company traded 558,550 shares higher than average volume of 435,888 shares.

Hexcel Corporation (HXL) recently stated first quarter results with diluted EPS of $0.70 on net sales of $478.80M.

Markets:

Sales for the first quarter of 2017 were 2.60% less in constant currency than the first quarter of 2016.

Commercial Aerospace (73% of total sales):

Commercial Aerospace sales of $347.20M were 0.9% lower (0.3% in constant currency) for the quarter as contrast to the first quarter of 2016. While the sales growth of the A350 and the new narrowbodies were in line with expectations, the growth was offset by declines in certain legacy widebody sales (i.e. A380, B777 and B747).

Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, were down modestly from the first quarter of 2016 and just above the fourth quarter of 2016.

Space & Defense (16% of total sales):

Space & Defense sales of $76.70M were 3.3% lower (1.70% in constant currency) than the first quarter of 2016. Rotorcraft sales comprise just over half of Space & Defense sales, with civil rotorcraft sales remaining at historic low levels and now comprising about 10% of total rotorcraft sales.

Industrial (11% of total sales):

Total Industrial sales of $54.90M for the first quarter of 2017 were 19.40% lower (16.10% lower in constant currency) than last year, and were just higher than the fourth quarter of 2016. Hexcel anticipates sales to be more level loaded by quarter in 2017, as sales for the second half of 2016 were nearly 20% lower than the first half of 2016.

As predictable, wind energy sales are in for a challenging year and were down more than 25%. However, the Company anticipates wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.

Operations:

Gross margin for the first quarter of 2017 was a solid 28.0% as contrast to 28.70% for the first quarter of 2016. The Company is well underway with hiring, training and start-up costs at the formerly declared two new greenfield manufacturing sites in France and Morocco. Operating income in the first quarter of 2017 was $78.60M or 16.4% of sales as contrast to $83.90M or 16.9% of sales in 2016. Depreciation and amortization was $2.70M higher this quarter, on a constant currency basis, than a year ago. The 2017 operating income percentage as contrast to 2016 was nearly 40 basis points higher because of exchange rates.

Selling, general and administrative expenses were $4.50M lower than the first quarter of 2016. This is about a 7% reduction in constant currency and reflects strong cost control. Research and technology expenses were $0.90M higher (11% higher in constant currency) than the comparable 2016 period as the Company continues to invest in innovative composite products and solutions to support its customers and next generation products.

Cash and other:

The tax provision was $8.60M for the quarter, counting a nonrecurring discrete benefit of $9.10M ($0.10 per diluted share) from the release of a valuation allowance in a foreign jurisdiction. Apart from this discrete benefit, the effective tax rate was 24.40% as contrast to 29.0% in 2016. Both periods benefitted from deductions associated with share-based compensation payments, as activity is typically highest in the first quarter. Apart from these discrete benefits, the Company`s first quarter effective tax rate was 30%, in line with our full year expectations.

Free cash flow for the first quarter of 2017 was a use of $31.0M as compared to a use of $75.0M in 2016, as seasonal effects cause noteworthy working capital cash usage in the first quarter. Working capital usage in the first quarter of 2017 was $40.0M as compared to a usage of $91.0M in the first quarter of 2016. Cash payments for capital expenditures mainly related to capacity expansions were $86.0M in the first quarter of 2017, about the same as the first quarter of 2016. Free cash flow is defined as cash offered from operating activities less cash paid for capital expenditures.

Total debt, net of cash, as of March 31, 2017 was $759.0M, a boost of $106.0M from December 31, 2016. During the quarter, the Company used $64.0M to repurchase shares of its common stock and has $329.0M remaining under authorized share repurchase programs.

As declared recently, the Board of Directors approved a quarterly dividend of $0.11 per share. The dividend will be payable to stockholders of record as of May 2, 2017, with a May 9, 2017 payment date.

2017 Guidance:

Revised full year sales outlook is $2.0 to $2.08B (formerly it was $2.05 to $2.15B).  The revisions include the impact of both lower predictable sales and the impact of exchange rates.

Adjusted diluted earnings per share of $2.64 to $2.76.

Free cash flow >$100.0M.

Accrual basis capital expenditures of $270 to $290.0M.

HXL offered 2.65% EPS for prior five years. The company has 20.20% return on equity value while its ROI ratio was 14.00%. The company has $4.76 billion market capitalization and the institutional ownership was 3.90%. Its price to book ratio was 1.44. Volatility of the stock was 1.44% for the week while for the month booked as 1.45%.

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