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Hexcel Reports 2011 Fourth Quarter And Full Year Results

Stocks in this article: HXL

Chief Executive Officer Comments

Mr. Berges commented, “This was another strong quarter that completed a very good year for Hexcel. For the quarter, our adjusted diluted EPS of $0.33 was 65% higher than last year on a 14.4% increase in constant currency sales, while for the year our adjusted diluted EPS of $1.24 was 59% higher on a 17.1% increase in constant currency sales. Revenues from the commercial aerospace market, now nearly 60% of our total sales, grew 21% this quarter compared to the prior year. Solid gross margins coupled with continued cost controls allowed us to achieve fourth quarter operating margins of 13.9% versus 10.0% in 2010. The quarter was consistent with the strong execution displayed throughout 2011, enabling us to improve our adjusted operating margin for the year to 13.6%, as compared to 11.4% in 2010.”

Looking ahead, Mr. Berges said, “Despite concerns about the global economy, the large backlogs of orders at our major customers suggest we are well positioned for 2012 and beyond. As previously disclosed, we are accelerating our capital spending plans to expand our capacity in line with our outlook. We remain focused on delivering earnings leverage on our expected higher levels of sales in the coming years. We reaffirm our previously announced 2012 guidance and look forward to a period of sustained growth.”

Markets

Commercial Aerospace

  • Commercial Aerospace sales of $210.7 million increased 21.0% (21.3% in constant currency) for the quarter as compared to the fourth quarter of 2010. Revenues attributed to new aircraft programs (A380, A350, B787, B747-8) increased more than 20% versus the same period last year and continue to comprise more than 25% of Commercial Aerospace sales. Airbus and Boeing legacy aircraft related sales for the quarter and for the year were up over 15% compared to 2010 as we experience increasing demand related to expected line-rate increases.
  • Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, were up over 30% for the fourth quarter compared to 2010.
  • For the full year 2011, Commercial Aerospace sales were up 27.1% in constant currency. Combined sales to Airbus and Boeing and their subcontractors accounted for 82% of Commercial Aerospace sales. “Other Commercial Aerospace” sales were up 34% for the full year and totaled $150 million for the year. This was down from the $200 million 2008 peak, but about 50% above the trough which began in late 2009.

Space & Defense

  • Space & Defense sales of $77.1 million were 8.4% lower (8.2% in constant currency) than the record fourth quarter of 2010, due primarily to the timing of shipments. For the year, Space & Defense sales were up 2.0% in constant currency over 2010.

Industrial

  • Total Industrial sales of $67.5 million for the fourth quarter of 2011 were 28.1% higher (27.8% in constant currency) than the fourth quarter of 2010. Wind sales were up significantly from a weak fourth quarter of 2010. For the year, wind sales were up more than 15% in constant currency and grew sequentially in each of the four quarters.

Operations

  • This quarter benefitted from strong sales volume and the continued improvement in operating performance resulting in gross margin of 24.1% of net sales for the quarter as compared to 21.7% in the fourth quarter of 2010. In addition, combined with good selling, general and administrative expense control, adjusted operating income was 13.9% for the quarter compared to 10.0% for the fourth quarter of 2010.
  • Gross margin for the year was 24.6% as compared to 24.1% last year. Selling, general and administrative expenses were only 1.7% higher than 2010 for the year, while sales increased 18.6% resulting in adjusted operating income leverage of 25.5% on the incremental sales. Adjusted operating income of $189.0 million for the year was $55.7 million higher than 2010, as adjusted operating income improved from 11.4% of sales in 2010 to 13.6% for 2011.

Tax

  • The tax provision was $8.1 million for the fourth quarter of 2011, an effective tax rate of 17.2%. The current quarter included benefits of $5.8 million primarily related to the reversal of valuation allowances against net operating loss and foreign tax credit carry-forwards, while the fourth quarter of 2010 included $2.9 million of these benefits. Excluding these benefits, our effective tax rate would have been 29.5% for the quarter, versus 25.7% for the same period the prior year. Excluding the tax adjustments in Table C, our effective tax rate was 30.1% for the full year 2011 and 29.4% for 2010.

Cash and other

  • Free cash flow for 2011 was $12.5 million versus $77.7 million in 2010, as higher earnings were more than offset by increased capital spending. Free cash flow is defined as cash provided from operating activities less cash paid for capital expenditures. Total debt, net of cash as of December 31, 2011 was $201.4 million, a decrease of $13.6 million from December 31, 2010. As of December 31, 2011 we had $254 million in available borrowing capacity and cash on hand. Our accrual basis capital expenditures were $184.5 million for the full year 2011, while cash capital expenditures were $158 million due to significant commitments made in December 2011 that will be paid for in the first quarter of 2012.
  • Interest expense for the fourth quarter was $2.3 million compared to $4.2 million last year. For the year, interest expense was $11.6 million compared to $23.2 million in 2010. The decrease reflects the lower borrowing rate as a result of the July 2010 refinancing and the February 1, 2011 bond redemption, as well as lower average outstanding debt for the year.

2012 Outlook

We reaffirm our 2012 outlook, which was previously issued on December 7, 2011. Our 2012 outlook includes:

  • Sales to be in the range of $1,500 to $1,600 million
  • Adjusted diluted earnings per share to be in the range of $1.33 to $1.45
  • Accrual basis capital expenditures to be in the range of $250 to $275 million. We expect our capital spending to be funded by our cash from operating activities and our existing credit facilities.

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