Form 8-K HEXCEL CORP /DE/ For: Jul 22

Delaware

1-8472

94-1109521

(State of Incorporation)

(Commission File No.)

(IRS Employer Identification No.)

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001

HXL

New York Stock Exchange

On July 22, 2019, Hexcel Corporation (the “Company”) issued a press release in which the Company announced its financial results for its fiscal quarter ended June 30, 2019.  A copy of this earnings press release is being furnished as Exhibit 99.1 and is incorporated herein by reference.

The information contained in Item 2.02 of this report is incorporated by reference into this Item 7.01.

On July 22, 2019, the Company posted to its website a table which summarizes sales by segment and market for the quarters ended June 30, 2019 and 2018, March 31, 2019 and 2018 and the six-month periods ended June 30, 2019 and 2018.  A copy of this information is being furnished as Exhibit 99.2 and is incorporated herein by reference.  Other information appearing on the Company’s website is not incorporated by reference herein.

99.1

Press Release issued by the Company on July 22, 2019.

99.2

Sales by segment and market for the quarters ended June 30, 2019 and 2018, March 31, 2019 and 2018 and the six-month periods ended June 30, 2019 and 2018.  

Senior Vice President, Corporate Controller & Chief Accounting Officer

•Q2 2019 GAAP diluted EPS was $0.94 compared to Q2 2018 diluted EPS of $0.76.  

•Adjusted diluted EPS for Q2 2019 was $0.94, a 25% year-over-year increase compared to adjusted diluted EPS of $0.75 in Q2 2018.

•Q2 2019 Sales were $609.0 million, an increase of 11.2% over second quarter 2018 (12.1% increase in constant currency).

•Quarterly dividend increased 13.3% to $0.17 per share from $0.15 per share.

•EPS guidance raised to $3.43-$3.53 (previously $3.38-$3.52).

Summary of Results from Operations

Quarters Ended

Six Months Ended

June 30,

June 30,

(In millions, except per share data)

2019

2018

% Change

2019

2018

% Change

Net Sales

$

609.0

$

547.5

11.2

%

$

1,218.9

$

1,087.6

12.1

%

    Net sales change in constant currency

12.1

%

13.5

%

Operating Income

115.1

96.5

19.3

%

217.9

178.9

21.8

%

    As a % of sales

18.9

%

17.6

%

17.9

%

16.4

%

Net Income

80.9

68.8

17.6

%

153.1

130.4

17.4

%

Diluted net income per common share

$

0.94

$

0.76

23.7

%

$

1.78

$

1.44

23.6

%

Adjusted Operating Income

$

115.1

$

96.5

19.3

%

$

217.9

$

178.9

21.8

%

Adjusted Net Income

80.9

67.5

19.9

%

153.1

129.1

18.6

%

Adjusted diluted net income per share

$

0.94

$

0.75

25.3

%

$

1.78

$

1.43

24.5

%

•

Commercial Aerospace sales of $416.5 million increased 8.5% (8.6% in constant currency) for the second quarter of 2019 as compared to the prior year period. Growth was driven by particularly strong performance from the Airbus A320neo, the Boeing 787 and Airbus A350 programs. Despite reduced demand for materials related to the Boeing 737 MAX, overall commercial aerospace demand remains strong globally and provides confidence in the Company’s projected growth for the year.

•

Sales to “Other Commercial Aerospace” which includes regional and business aircraft were up 6.5% for the second quarter of 2019 as compared to 2018.

•

Space & Defense sales of $111.8 million increased 21.9% (23.4% in constant currency) for the quarter as compared to the second quarter of 2018. Growth in the F-35 Joint Strike Fighter was the primary driver in the quarter supported by other fixed-wing programs. The quarter also included sales from ARC Technologies acquired in the first quarter of 2019.

•

Total Industrial sales of $80.7 million for the second quarter of 2019 increased 12.1% (17.3% in constant currency) as compared to the second quarter of 2018. Wind energy sales (the largest sub-market in Industrial) increased 44.3% in constant currency compared to Q2 2018, when the current wind energy growth phase began.            

•

Gross margin for the second quarter of 2019 was 27.7% compared to 26.4% in the second quarter of 2018. The year-over-year improvement reflects strong operational execution combined with the decline in a number of operational headwinds incurred in 2018.

•

Operating expenses for the second quarter were in line with Company expectations, supporting higher sales levels compared to the prior year period. The period saw increased expenditure on

product qualifications and R&T expenditures, both of which reflect the Company’s continued focus on innovation and growth. Selling, General and Administrative expenses increased 14.5% in constant currency, and Research & Technology expenses increased 12.2% in constant currency.

•

Operating income in the second quarter of 2019 was $115.1 million, or 18.9% of sales, compared to $96.5 million, or 17.6% of sales, in 2018. Exchange rates, after taking hedges into account, favorably impacted the second quarter by approximately 40 basis points compared to 2018.

•

Commercial Aerospace sales of $832.0 million increased 9.1% in constant currency compared to the first six months of 2018. Growth was driven by narrowbody build rate increases and the completion of the transition to the Neo and MAX configurations, as well as the Airbus A350 and Boeing 787 programs.

•

Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, increased 6.8% year to date, driven by higher business jet sales, notably Gulfstream.

•

Space & Defense sales of $219.6 million increased 22.6% in constant currency compared to the first six months of 2018. Strong sales for the F-35 Joint Strike Fighter program, other fixed-wing programs, and the acquisition of ARC Technologies drove the increase.

•

Total Industrial sales of $167.3 million increased 26.6% in constant currency compared to the first six months of 2018.

•

For the first six months of 2019, wind energy sales increased almost 60% in constant currency compared to last year.

•

Gross margin for the first six months of 2019 was 27.6% compared to 26.4% for the first six months of 2018. Sustained strong operational performance drove the margin improvement year over year combined with fewer cost headwinds compared to 2018. Depreciation expense increased $13 million over the first half of 2018, due to continued investment for future expected growth.

•

Selling, general and administrative expenses for the first six months of 2019 were approximately 11.5% higher in constant currency than the prior year supporting general growth in the company, while revenue increased 13.5% in constant currency during the period. Research and technology expenses for the first six months of 2019 increased approximately 11.9% in constant currency compared to the prior 2018 period, reflecting continued investment in innovative composite products and solutions to support customers and next-generation applications.

•

Operating income in the first six months of 2019 was $217.9 million, or 17.9% of sales, compared to $178.9 million, or 16.4% of sales, in 2018. The year-over-year impact of exchange rates was favorable by approximately 45 basis points.

•

The tax provision was $23.6 million for the quarter, reflecting an effective tax rate of 22.9%,  compared to 22.8% in 2018. Both periods benefited from deductions associated with share-based compensation payments. The underlying effective tax rate is expected to be 24% for the remaining quarters of the year.  

•

Net cash generated from operating activities for the first six months of 2019 was $157.2 million, in line with the first six months of the prior year. Capital expenditures were $99.3 million for the first six months of 2019, compared to $101.9 million for the first six months of 2018. Free cash flow was $57.9 million for the first six months of 2019, compared to $55.3 million for the same period of the prior year. Free cash flow is defined as cash provided from operating activities less cash paid for capital expenditures. Working capital was a use of $82.7 million in the second quarter of 2019 compared to a $60.2 million use in the second quarter of 2018 with the higher working capital levels supporting increased sales.

•

The Company allocated free cash flow generated during the second quarter of 2019 to debt repayment following a recent acquisition and did not repurchase any of its common stock during the period. The Company has $374 million remaining under the authorized share repurchase program.  

•

As announced today, the Board of Directors declared a quarterly dividend of $0.17 per share, representing a 13.3% increase compared to the prior quarter’s dividend. The dividend is payable to stockholders of record as of August 2, 2019, with a payment date of August 9, 2019.

•

Sales of $2.375 billion to $2.475 billion (unchanged)

•

Adjusted diluted earnings per share of $3.43 to $3.53 (previously $3.38 - $3.52)

•

Free cash flow greater than $250 million (unchanged)

•

Accrual basis capital expenditures of $170 million to $190 million (unchanged)

Contact Information

Kurt Goddard,

Vice President – Investor Relations

(203) 352-6826

[email protected]

Hexcel Corporation and Subsidiaries

Consolidated Statements of Operations

Unaudited

Quarters Ended

Six Months Ended

June 30,

June 30,

(In millions, except per share data)

2019

2018

2019

2018

Net sales

$

609.0

$

547.5

$

1,218.9

$

1,087.6

Cost of sales

440.2

402.7

882.9

800.2

  Gross margin

168.8

144.8

336.0

287.4

    % Gross Margin

27.7

%

26.4

%

27.6

%

26.4

%

Selling, general and administrative expenses

39.5

35.3

89.0

81.7

Research and technology expenses

14.2

13.0

29.1

26.8

  Operating income

115.1

96.5

217.9

178.9

Interest expense, net

11.9

8.7

23.9

16.7

Income before income taxes, and equity in earnings of affiliated companies

103.2

87.8

194.0

162.2

Provision for income taxes

23.6

20.0

44.2

34.1

Income before equity in earnings of affiliated companies

79.6

67.8

149.8

128.1

Equity in earnings from affiliated companies

1.3

1.0

3.3

2.3

  Net income

$

80.9

$

68.8

$

153.1

$

130.4

Basic net income per common share:

$

0.95

$

0.77

$

1.80

$

1.45

Diluted net income per common share:

$

0.94

$

0.76

$

1.78

$

1.44

Weighted-average common shares:

    Basic

85.2

88.8

85.1

89.4

    Diluted

86.2

89.9

86.1

90.5

Hexcel Corporation and Subsidiaries

Consolidated Balance Sheets

Unaudited

June 30,

December 31,

(In millions)

2019

2018

Assets

Cash and cash equivalents

$

55.4

$

32.7

Accounts receivable, net

313.3

260.9

Inventories, net

339.3

297.8

Contract assets

59.7

50.5

Prepaid expenses and other current assets

30.4

33.9

Total current assets

798.1

675.8

Property, plant and equipment

3,005.3

2,902.1

Less accumulated depreciation

(1,083.4

)

(1,025.6

)

     Net property, plant and equipment

1,921.9

1,876.5

Goodwill and other intangible assets, net

283.6

142.3

Investments in affiliated companies

51.8

48.7

Other assets

139.7

80.8

Total assets

$

3,195.1

$

2,824.1

Liabilities and Stockholders' Equity

Liabilities:

Short-term borrowings

$

9.7

$

9.4

Accounts payable

177.8

161.9

Accrued compensation and benefits

66.9

75.8

Accrued liabilities

105.3

79.6

Total current liabilities

359.7

326.7

Long-term debt

1,115.8

947.4

Retirement obligations

42.4

42.0

Other non-current liabilities

234.8

186.0

Total liabilities

$

1,752.7

$

1,502.1

Stockholders' equity:

Common stock, $0.01 par value, 200.0 shares authorized,

109.0 shares issued at June 30, 2019 and 108.5 shares

issued at December 31, 2018

$

1.1

$

1.1

Additional paid-in capital

817.9

798.3

Retained earnings

1,854.1

1,726.5

Accumulated other comprehensive loss

(118.1

)

(108.0

)

2,555.0

2,417.9

Less – Treasury stock, at cost, 24.0 at June 30, 2019 and 23.7 shares issued at December 31, 2018, respectively

(1,112.6

)

(1,095.9

)

Total stockholders' equity

1,442.4

1,322.0

Total liabilities and stockholders' equity

$

3,195.1

$

2,824.1

Hexcel Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Unaudited

Six Months Ended

June 30,

(In millions)

2019

2018

Cash flows from operating activities

  Net income

$

153.1

$

130.4

Reconciliation to net cash provided by operating activities:

  Depreciation and amortization

72.7

59.6

  Amortization related to financing

0.9

0.7

  Deferred income taxes

6.8

12.7

  Equity in earnings from affiliated companies

(3.3

)

(2.3

)

  Stock-based compensation

13.5

12.0

Changes in assets and liabilities:

  Increase in accounts receivable

(48.0

)

(43.4

)

  Increase in inventories

(36.3

)

(28.6

)

  Increase in prepaid expenses and other current assets

(15.8

)

(12.9

)

  Increase in accounts payable/accrued liabilities

17.4

24.7

  Other - net

(3.8

)

4.3

Net cash provided by operating activities (a)

157.2

157.2

Cash flows from investing activities

  Capital expenditures (b)

(99.3

)

(101.9

)

  Acquisitions of business and investments in affiliates

(163.2

)

-

Net cash used in investing activities

(262.5

)

(101.9

)

Cash flows from financing activities

  Borrowing from senior unsecured credit facility - 2024

408.0

-

  Repayment of senior unsecured credit facility - 2024

(30.0

)

-

  Borrowing from senior unsecured credit facility - 2021

345.0

379.0

  Repayment of senior unsecured credit facility - 2021

(547.0

)

(244.0

)

  Repayment and finance lease obligation and other debt, net

(9.4

)

(4.2

)

  Issuance costs related to senior credit facility

(2.2

)

-

  Dividends paid

(25.5

)

(22.4

)

  Repurchase of stock

(11.2

)

(181.0

)

  Activity under stock plans

0.5

(0.7

)

Net cash provided by (used in) financing activities

128.2

(73.3

)

Effect of exchange rate changes on cash and cash equivalents

(0.2

)

(3.0

)

Net increase (decrease) in cash and cash equivalents

22.7

(21.0

)

Cash and cash equivalents at beginning of period

32.7

60.1

Cash and cash equivalents at end of period

$

55.4

$

39.1

Supplemental data:

Free Cash Flow (a)+(b)

$

57.9

$

55.3

Accrual basis additions to property, plant and equipment

$

107.6

$

90.0

Hexcel Corporation and Subsidiaries

Net Sales to Third-Party Customers by Market

Quarters Ended June 30, 2019 and 2018

Unaudited

Table A

(In millions)

As Reported

Constant Currency (a)

B/(W)

FX

B/(W)

Market

2019

2018

%

Effect (b)

2018

%

Commercial Aerospace

$

416.5

$

383.8

8.5

$

(0.2

)

$

383.6

8.6

Space & Defense

111.8

91.7

21.9

(1.1

)

90.6

23.4

Industrial

80.7

72.0

12.1

(3.2

)

68.8

17.3

Consolidated Total

$

609.0

$

547.5

11.2

$

(4.5

)

$

543.0

12.1

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

68.4

70.1

70.6

Space & Defense

18.4

16.7

16.7

Industrial

13.2

13.2

12.7

Consolidated Total

100.0

100.0

100.0

Six Months Ended June 30, 2019 and 2018

Unaudited

(In millions)

As Reported

Constant Currency (a)

B/(W)

FX

B/(W)

Market

2019

2018

%

Effect (b)

2018

%

Commercial Aerospace

$

832.0

$

766.5

8.5

$

(3.8

)

$

762.7

9.1

Space & Defense

219.6

181.8

20.8

(2.7

)

179.1

22.6

Industrial

167.3

139.3

20.1

(7.2

)

132.1

26.6

Consolidated Total

$

1,218.9

$

1,087.6

12.1

$

(13.7

)

$

1,073.9

13.5

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

68.3

70.5

71.0

Space & Defense

18.0

16.7

16.7

Industrial

13.7

12.8

12.3

Consolidated Total

100.0

100.0

100.0

(a)

To assist in the analysis of the Company’s net sales trend, total net sales and sales by market for the quarter ended June 30, 2018 have been estimated using the same U.S. dollar, British pound and Euro exchange rates as applied for the respective period in 2019 and are referred to as “constant currency” sales.

(b)

FX effect is the estimated impact on “as reported” net sales due to changes in foreign currency exchange rates.

Hexcel Corporation and Subsidiaries

Segment Information

Unaudited

Table B

(In millions)

Composite Materials

Engineered Products

Corporate

& Other (a)

Total

Second Quarter 2019

Net sales to external customers

$

484.0

$

125.0

$

-

$

609.0

Intersegment sales

21.5

-

(21.5

)

-

Total sales

505.5

125.0

(21.5

)

609.0

Operating income (loss)

111.8

16.3

(13.0

)

115.1

     % Operating margin

22.1

%

13.0

%

18.9

%

Depreciation and amortization

30.1

3.8

0.1

34.0

Stock-based compensation expense

1.1

0.4

0.9

2.4

Accrual based additions to capital expenditures

49.0

1.1

-

50.1

Second Quarter 2018

Net sales to external customers

$

445.8

$

101.7

$

-

$

547.5

Intersegment sales

20.3

-

(20.3

)

-

Total sales

466.1

101.7

(20.3

)

547.5

Operating income (loss)

93.1

15.9

(12.5

)

96.5

     % Operating margin

20.0

%

15.6

%

17.6

%

Depreciation and amortization

27.5

2.3

-

29.8

Stock-based compensation expense

0.9

0.1

1.1

2.1

Accrual based additions to capital expenditures

43.4

1.3

-

44.7

First Six Months 2019

Net sales to external customers

$

971.7

$

247.2

$

-

$

1,218.9

Intersegment sales

40.7

0.1

(40.8

)

-

Total sales

1,012.4

247.3

(40.8

)

1,218.9

Operating income (loss)

224.3

31.1

(37.5

)

217.9

     % Operating margin

22.2

%

12.6

%

17.9

%

Depreciation and amortization

65.0

7.6

0.1

72.7

Stock-based compensation expense

5.2

1.2

7.1

13.5

Accrual based additions to capital expenditures

105.8

1.8

-

107.6

First Six Months 2018

Net sales to external customers

$

890.4

$

197.2

$

-

$

1,087.6

Intersegment sales

39.5

-

(39.5

)

-

Total sales

929.9

197.2

(39.5

)

1,087.6

Operating income (loss)

184.1

25.8

(31.0

)

178.9

     % Operating margin

19.8

%

13.1

%

16.4

%

Depreciation and amortization

55.0

4.6