Regulatory News:
Quarter Ended
June 30,
Six Months Ended
June 30,
(In millions, except per share data)
2011 2010
% Change
2011 2010
% Change
Net Sales
$ 353.7 $ 305.1 15.9 %
$ 685.3 $ 568.1 20.6 % Net sales change in constant
currency 11.9 % 18.4 % Operating Income
49.4 40.5 22 %
96.6 64.3 50 % Net Income
37.4 23.1 62 %
63.8
38.9 64 % Diluted net income per common share
$ 0.37
$ 0.23 61 %
$ 0.63 $ 0.39 62 % Non-GAAP
Measures for y-o-y comparisons: Adjusted Operating Income (table C)
$ 49.4 $ 40.5 22 %
$ 90.9 $ 67.8 34 %
As a % of sales
14.0 % 13.3
%
13.3 % 11.9 % Adjusted Net Income (table C)
31.9 23.1 38 %
57.2 37.6 52 % Adjusted diluted net
income per share
$ 0.32
$ 0.23 39 %
$ 0.57 $ 0.38
50 %
Hexcel Corporation (NYSE: HXL), today reported results for the
second quarter of 2011. Net sales during the quarter were $353.7
million, 15.9% higher than the $305.1 million reported for the
second quarter of 2010. Operating income for the period was $49.4
million, compared to $40.5 million last year. Net income for the
second quarter of 2011 was $37.4 million, or $0.37 per diluted
share, compared to $23.1 million or $0.23 per diluted share in
2010. Excluding the $5.5 million impact of a tax settlement (Table
C), adjusted diluted net income for the second quarter of 2011 was
$0.32 per share compared to $0.23 per share in 2010.
Chief Executive Officer
Comments
Mr. Berges commented, “This was another strong quarter,
especially in commercial aerospace as we benefited from increased
airplane build rates and the ramp-up of new programs. Solid gross
margin performance coupled with our good operating expense control
efforts, resulted in a 14% operating margin (our highest in
history) and a 39% increase in adjusted diluted EPS compared to
last year.”
Looking ahead, Mr. Berges said, “Thanks to the strong first half
of the year and our current outlook, we are increasing our 2011
adjusted diluted EPS guidance to $1.05 - $1.12 (from $0.95 -
$1.05). We are also raising our sales guidance for the year to
$1,325 million - $1,375 million (from $1,275 million - $1,350
million).”
Markets
Commercial Aerospace
- Commercial Aerospace sales of $207.8
million increased 29.1% (26.7% in constant currency) for the
quarter as compared to the second quarter 2010. Revenues attributed
to new aircraft programs (A380, A350, B787, B747-8) increased more
than 30% 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 were up over 25%
compared to the second quarter of 2010 as we see the additional
demand of upcoming line-rate increases.
- Sales to “Other Commercial Aerospace,”
which include regional and business aircraft customers, were up
over 20% compared to the same period last year, maintaining their
improved level of the first quarter of 2011. We are encouraged with
the modest recovery in this sub-market.
Space & Defense
- Space & Defense sales of $81.7
million were 2.9% higher (0.2% in constant currency) than the
second quarter of 2010. We continue to benefit from rotorcraft
related growth as new programs and blade retrofit programs are
increasingly composites based.
Industrial
- Total Industrial sales of $64.2 million
for the second quarter of 2011 were 0.8% lower (8.9% in constant
currency) than the second quarter of 2010. Wind sales were down
about 10% from the same period last year, but up more than 10%
sequentially and remained in line with the average of the last
twelve months.
Operations
- Gross margin was 24.6% of net sales for
the quarter as compared to 25.7% in the second quarter of 2010.
This year’s results include increased spending for new line
start-ups, higher acrylonitrile costs and the disruption caused by
April’s Decatur, Alabama tornado. Selling, general and
administrative expenses were flat compared to last year, but were
4% lower in constant currency. Combined with the higher sales
volume, adjusted operating income was 14% for the quarter compared
to 13.3% for the second quarter of 2010.
Tax
- The tax provision was $9.3 million for
the second quarter of 2011, an effective tax rate of 20%. The
current quarter included the release of $5.5 million of reserves
primarily for uncertain tax positions as a result of an audit
settlement. Excluding this benefit, our effective tax rate would
have been 31.8%, in line with our guidance for the year. Last
year’s second quarter tax provision was $10.6 million, a 31.7%
effective tax rate.
Cash and other
- Free cash flow for the first half of
2011 was $9.5 million versus $11.6 million in the first half of
2010, as higher earnings and lower working capital increases were
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 June 30, 2011 was
$195.5 million, a decrease of $19.5 million from December 31, 2010.
Our accrual based capital expenditures were $55.1 million for the
first half of 2011, and we still expect these expenditures for 2011
to be $150 - $175 million. We target free cash flow to be
break-even by the end of the year.
- Interest expense for the second quarter
was $2.9 million compared to $7.1 million last year. 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 outstanding debt.
Hexcel will host a conference call at 10:00 A.M. ET, tomorrow,
July 26, 2011 to discuss the second quarter results and respond to
analyst questions. The telephone number for the conference call is
(719) 325-2271 and the confirmation code is 2511234. The call will
be simultaneously hosted on Hexcel’s web site at
www.hexcel.com/investors/index.html. Replays of the call will be
available on the web site for approximately three days.
Hexcel Corporation is a leading advanced composites company. It
develops, manufactures and markets lightweight, high-performance
structural materials, including carbon fibers, reinforcements,
prepregs, honeycomb, matrix systems, adhesives and composite
structures, used in commercial aerospace, space and defense and
industrial applications such as wind turbine blades.
Disclaimer on Forward Looking Statements
This press release contains statements that are forward looking,
including statements relating to anticipated trends in constant
currency for the market segments we serve (including changes in
commercial aerospace revenues, the estimates and expectations based
on aircraft production rates made publicly available by Airbus and
Boeing, the revenues we may generate from an aircraft model or
program, the impact of delays in new aircraft programs, the outlook
for space & defense revenues and the trend in wind energy,
recreation and other industrial applications); our ability to
maintain and improve margins in light of the changes in product
mix, efficiency improvements, continued cost reduction efforts and
the current economic environment; outcome of legal matters; and the
impact of the above factors on our expectations of 2011 financial
results. 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 changing market conditions,
increased raw material costs, competition, product mix, inability
to achieve planned manufacturing improvements and cost reductions,
supply chain disruptions, conditions in the financial markets and
changes in currency exchange rates, interest rates, governmental
and environmental regulations and tax codes. Additional risk
factors are described in our filings with the SEC. We do not
undertake an obligation to update our forward-looking statements to
reflect future events.
Hexcel Corporation and Subsidiaries Condensed
Consolidated Statements of Operations Unaudited
Quarter Ended
June 30,
Six Months Ended
June 30,
(In millions, except per share data)
2011 2010
2011 2010 Net
sales
$ 353.7 $ 305.1
$
685.3
$ 568.1 Cost of sales
266.7
226.7
515.3 423.6 Gross
margin
87.0 78.4
170.0 144.5 % Gross margin
24.6 % 25.7 %
24.8 % 25.4 %
Selling, general and administrative expenses
29.7 29.6
62.6 61.0 Research and technology expenses
7.9 8.3
16.5 15.7 Other operating (income) expense (a)
— —
(5.7 ) 3.5
Operating income
49.4 40.5
96.6 64.3 Interest
expense, net
2.9 7.1
7.1 13.7 Non-operating expense
(b) — —
4.9
— Income before income taxes and equity in earnings
from affiliated companies
46.5 33.4
84.6 50.6
Provision for income taxes (c)
9.3 10.6
21.5 12.1
Income before equity in earnings from affiliated companies
37.2 22.8
63.1 38.5 Equity in earnings from
affiliated companies
0.2
0.3
0.7 0.4 Net income
$ 37.4 $ 23.1
$
63.8 $ 38.9 Basic net
income per common share:
$ 0.38
$ 0.24
$
0.65 $ 0.40 Diluted net income per
common share:
$ 0.37
$
0.23
$
0.63 $ 0.39 Weighted-average
common shares: Basic
98.6 97.5
98.4 97.4
Diluted
100.7 99.7
100.5 99.6 (a)
Other operating income for the six months ended June 30, 2011 is a
$5.7 million benefit from the curtailment of a pension plan. For
the six months ended June 30, 2010 other operating expense is for
an increase in environmental reserves for remediation of a
manufacturing facility sold in 1986. (b) Non-operating expense is
the accelerated amortization of deferred financing costs and
expensing of the call premium from redeeming $150 million of 6.75%
senior subordinated notes. (c) Provision for income taxes for the
quarter ended June 30, 2011 includes a release of $5.5 million of
reserves primarily for uncertain tax positions as a result of an
audit settlement. Provision for income taxes for the six months
ended June 30, 2010 includes $3.5 million of New Clean Energy
Manufacturing Tax Credits awarded in January 2010 for qualifying
capital investments made in our U.S. wind energy facility in 2009.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance
Sheets
Unaudited
(In millions)
June 30, 2011
December 31, 2010
Assets
Current assets: Cash and cash equivalents $
55.9 $ 117.2 Accounts receivable, net
207.8 173.9
Inventories, net
207.9 169.9 Prepaid expenses and other
current assets
50.8
36.7 Total current assets
522.4 497.7 Property, plant and equipment
1,139.8 1,063.9 Less accumulated depreciation
(502.4 )
(465.6 ) Property, plant and equipment, net
637.4 598.3
Goodwill and other intangible assets, net
56.8 56.2
Investments in affiliated companies
21.6 19.9 Deferred tax
assets
62.9 63.6 Other assets
18.3 22.4 Total
assets $
1,319.4
$ 1,258.1
Liabilities and Stockholders'
Equity Current liabilities: Notes payable and current
maturities of capital lease obligations $
9.3 $ 27.6
Accounts payable
108.7 83.0 Accrued liabilities
109.1
95.3 Total current liabilities
227.1 205.9
Long-term notes payable and capital lease obligations
242.1 304.6 Other non-current liabilities
73.7 88.2
Total liabilities
542.9 598.7 Stockholders'
equity:
Common stock, $0.01 par value, 200.0
shares authorized, 100.3 shares issued atJune 30, 2011 and 99.5
shares issued at December 31, 2010
1.0 1.0 Additional paid-in capital
573.7 552.3
Retained earnings
212.2 148.4 Accumulated other
comprehensive income (loss)
14.4
(15.1 )
801.3 686.6
Less – Treasury stock, at cost, 2.0 shares
and 2.2 shares at June 30, 2011 andDecember 31, 2010,
respectively
(24.8
) (27.2 ) Total stockholders'
equity
776.5
659.4 Total liabilities and
stockholders' equity $
1,319.4
$ 1,258.1
Hexcel Corporation and
Subsidiaries Condensed Consolidated Statements of Cash
Flows Unaudited Year to Date Ended
June 30,
(In millions)
2011 2010
Cash flows from operating activities
Net income
$ 63.8 $ 38.9 Reconciliation to net cash
provided by operating activities: Depreciation and amortization
27.9 25.6
Amortization of debt discount and deferred
financing costs and call premium expense
5.9 2.4 Deferred income taxes
6.7 4.2 Equity in
earnings from affiliated companies
(0.7 ) (0.4 )
Share-based compensation
8.8 8.3 Pension curtailment gain
(5.7 ) — Excess tax benefits on share-based
compensation
(3.6 ) (0.7 ) Changes in assets
and liabilities: Increase in accounts receivable
(25.4
) (52.3 ) Increase in inventories
(31.5 )
(28.9 ) (Increase) decrease in prepaid expenses and other current
assets
(3.1 ) 0.4 Increase in accounts
payable/accrued liabilities
36.0 36.9 Other – net
(1.8 ) (2.7 ) Net cash
provided by operating activities (a)
77.3
31.7
Cash flows from
investing activities Capital expenditures (b)
(67.8 ) (20.1 ) Net cash
used for investing activities
(67.8 )
(20.1 )
Cash flows from financing
activities Borrowings from senior secured credit facility
135.0 — Repayment of 6.75% senior subordinated notes
(150.0 ) — Repayment of senior secured credit
facility
(60.0 ) — Call premium payment for 6.75%
senior subordinated notes
(3.4 ) — (Repayments)
borrowings from credit line
(3.3 ) 1.7 Repayment of
senior secured credit facility – term loan
(2.5 )
(30.0 ) Repayments of capital lease obligations and other debt, net
(0.2 ) (0.2 ) Activity under stock plans
7.4 0.6 Net cash
(used in) financing activities
(77.0 )
(27.9 ) Effect of exchange rate changes
on cash and cash equivalents
6.2
(9.8 ) Net decrease in cash and cash equivalents
(61.3 ) (26.1 ) Cash and cash equivalents at
beginning of period
117.2
110.1 Cash and cash equivalents at end of period
$ 55.9 $ 84.0
Supplemental Data: Free cash flow (a)+(b)
$
9.5 $ 11.6 Accrual basis additions to property, plant and
equipment
$ 55.1 $ 13.7
Hexcel Corporation and
Subsidiaries Net Sales to Third-Party Customers by Market
Segment Quarters Ended June 30, 2011 and 2010
(Unaudited) Table
A (In millions)
As Reported
Constant Currency (a) Market
Segment 2011
2010
B/(W) %
FX
Effect (b)
2010
B/(W) %
Commercial Aerospace
$ 207.8
$ 161.0
29.1
$ 3.0
$
164.0 26.7 Space & Defense
81.7 79.4
2.9 2.1
81.5 0.2 Industrial
64.2
64.7
(0.8 )
5.8
70.5
(8.9 ) Consolidated Total
$ 353.7 $ 305.1
15.9 $ 10.9
$ 316.0
11.9 Consolidated % of Net Sales
%
%
%
Commercial Aerospace
58.7 52.8
51.9 Space & Defense
23.1 26.0
25.8
Industrial
18.2
21.2
22.3
Consolidated Total
100.0 100.0
100.0 Six Months Ended
June 30, 2011 and 2010 (Unaudited)
Table A (In millions)
As
Reported Constant Currency (a)
Market Segment 2011
2010
B/(W)
% FX
Effect (b)
2010
B/(W) %
Commercial Aerospace
$ 405.4
$ 313.0
29.5
$ 3.1
$
316.1 28.3 Space & Defense
161.4 151.9
6.3 2.0
153.9 4.9
Industrial
118.5
103.2
14.8
5.5
108.7
9.0 Consolidated Total
$ 685.3 $ 568.1
20.6 $ 10.6
$ 578.7 18.4
Consolidated % of Net Sales
% %
% Commercial Aerospace
59.1 55.1
54.6 Space & Defense
23.6 26.7
26.6 Industrial
17.3
18.2
18.8
Consolidated Total
100.0 100.0
100.0 (a)
To assist in the analysis of our net sales trend, total net sales
and sales by market for the quarter and six months ended June 30,
2010 have been estimated using the same U.S. dollar, British pound
and Euro exchange rates as applied for the respective period in
2011 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
(b)
Engineered Products
Corporate & Other
(a)(b)
Total Second Quarter 2011
Net sales to external customers
$ 276.8
$ 76.9
$
—
$
353.7
Intersegment sales
13.9
0.2
(14.1) — Total sales
290.7 77.1 (14.1) 353.7 Operating
income (loss)
48.5 11.9 (11.0) 49.4 %
Operating margin
16.7% 15.4% 14.0%
Depreciation and amortization
12.8 1.0
— 13.8 Stock-based compensation expense
0.9
0.1 1.4 2.4 Accrual based additions to capital
expenditures
28.4
1.5 —
29.9 Second Quarter 2010
Net sales to external customers $ 238.9 $ 66.2 $ —
$
305.1 Intersegment sales 11.5
0.3 (11.8)
— Total sales 250.4 66.5 (11.8) 305.1
Operating income (loss) (b) 42.8 10.7 (13.0) 40.5 % Operating
margin 17.1% 16.1% 13.3% Depreciation and amortization 12.7
0.9 — 13.6 Stock-based compensation expense 1.1 0.2 1.3 2.6 Accrual
based additions to capital expenditures
6.2 0.5 0.1
6.8
First Six Months 2011
Net sales to external customers
$
533.1 $ 152.2
$ — $
685.3 Intersegment sales
27.8 0.5
(28.3 )
— Total sales
560.9 152.7
(28.3 ) 685.3 Operating income (loss) (b)
98.3 24.4 (26.1 ) 96.6 %
Operating margin
17.5 % 16.0 %
14.1 % Other operating income
5.7
— — 5.7 Depreciation and amortization
25.7 2.1 0.1 27.9 Stock-based
compensation expense
2.5 0.4 5.9 8.8
Accrual based additions to capital expenditures
52.7
2.4 —
55.1 First Six Months
2010
Net sales to external
customers $ 439.3 $ 128.8 $ — $ 568.1 Intersegment sales
20.4 0.3
(20.7 )
— Total sales 459.7 129.1 (20.7 ) 568.1 Operating
income (loss) (b) 73.3 22.1 (31.1 ) 64.3 % Operating margin 15.9 %
17.1 % 11.3 % Other operating expense — — 3.5 3.5
Depreciation and amortization 23.6 1.9 0.1 25.6 Stock-based
compensation expense 2.7 0.5 5.1 8.3 Accrual based additions to
capital expenditures 13.0
0.6 0.1
13.7 (a) We do not
allocate corporate expenses to the operating segments. (b) The
first six months 2011 Composite Materials operating income includes
a $5.7 million benefit from the curtailment of a pension plan. The
first six months 2010 Corporate and Other includes a $3.5 million
charge to the environmental reserves primarily for remediation at a
manufacturing facility sold in 1986.
Hexcel Corporation and
Subsidiaries Reconciliation of GAAP and Non-GAAP Operating
Income and Net Income Table C
Unaudited
Quarter Ended
June 30,
Six Months Ended
June 30,
(In millions)
2011
2010
2011 2010
GAAP operating income
$ 49.4 40.5
$ 96.6 $ 64.3 - Other
operating (income) expense (a)
—
—
(5.7 ) 3.5
Adjusted Operating Income
$ 49.4 40.5
$
90.9 $ 67.8 % of Net Sales
14.0 % 13.3 %
13.3 % 11.9 % - Stock Compensation Expense
$
2.4 2.6
$ 8.8 $ 8.3 - Depreciation and
Amortization
13.8
13.6
27.9 25.6 Adjusted
EBITDA
$ 65.6
56.7
$
127.6 $ 101.7
Unaudited Quarter Ended June 30,
2011
2010 (In millions, except per
diluted share data)
As Reported
EPS As Reported
EPS
GAAP net income
$ 37.4 $
0.37 $ 23.1 $ 0.23 - Benefit from tax audit settlement (c)
(5.5 )
(0.05 ) —
— Adjusted net income
$ 31.9
$ 0.32 $ 23.1
$ 0.23 Unaudited Six
Months Ended June 30,
2011 2010
(In millions, except per diluted share data)
As Reported EPS
As Reported EPS GAAP net
income
$ 63.8 $ 0.63 $ 38.9 $ 0.39 -
Other operating (income) expense (net of tax) (a)
(4.1
) (0.04 ) 2.2 0.02 - Non-operating expense
(net of tax) (b)
3.0 0.03 — — - Benefit from tax
audit settlement (c)
(5.5 ) (0.05 ) -
Tax credits for capital investments in wind energy facility (d)
—
— (3.5 )
(0.04 ) Adjusted net income
$ 57.2 $
0.57 $ 37.6
$ 0.38 (a) Other operating expense for the six months
ended June 30, 2011 is a benefit from the curtailment of a pension
plan. In 2010, other operating expense is the increase in
environmental reserves primarily for remediation of a manufacturing
facility sold in 1986. (b) Non-operating expense is the accelerated
amortization of deferred financing costs and expensing of the call
premium from redeeming $150 million of 6.75% senior subordinated
notes. (c) Tax benefit from the release of $5.5 million of reserves
primarily for uncertain tax positions as a result of an audit
settlement. (d) New Clean Energy Manufacturing Tax Credits included
in the six month period of 2010 were for qualifying capital
investments made in our U.S. wind energy facility in 2009.
Management believes that adjusted operating income, adjusted
EBITDA, adjusted net income and free cash flow (defined as cash
provided by operating activities less cash payments for capital
expenditures), which are non-GAAP measurements, are meaningful to
investors because they provide a view of Hexcel with respect to
ongoing operating results excluding special items. Special items
represent significant charges or credits that are important to an
understanding of Hexcel’s overall operating results in the periods
presented. In addition, management believes that total debt, net of
cash, which is also a non-GAAP measure, is an important measure of
Hexcel’s liquidity. Such non-GAAP measurements are not recognized
in accordance with generally accepted accounting principles and
should not be viewed as an alternative to GAAP measures of
performance .
Hexcel Corporation and Subsidiaries
Schedule of Total Debt, Net of Cash
Table D Unaudited
June
30, 2011
March 31, 2011
December 31, 2010 (In millions)
Notes
payable and current maturities of capital lease obligations
$ 9.3 $ 11.4 $ 27.6 Long-term notes payable and
capital lease obligations
242.1
268.4 304.6
Total Debt
251.4 279.8 332.2 Less: Cash and cash equivalents
(55.9)
(50.6) (117.2) Total debt, net
of cash
$ 195.5
$ 229.2 $ 215.0
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