First quarter 2021 results better position Hexcel to support post-pandemic industry

On April 19 Hexcel Corp. (Stamford, Conn., U.S.) reported its first quarter 2021 results, with net sales of $310 million, and adjusted diluted EPS of $(0.10) per share, compared to $541 million Q1 2020. According to Chairman, CEO and President Nick Stanage, the results were in line with the company’s expectations, and reflect a strong focus on cost controls in light of the pandemic-related economic headwinds the industry faces, including the impact of continued supply chain destocking. 

“This first quarter, along with Q3 and Q4 2020, are projected to be the low point of the current pandemic-driven demand cycle, and we now expect destocking to wind down as we move through the second quarter and to be mostly behind us as we enter the second half of the year,” Stanage says. “At that point, Commercial Aerospace sales should start to grow steadily, more closely reflecting OEM aircraft build rates. We expect a gradual step up in sales each quarter as 2021 progresses, followed by an extended period of growth starting in 2022.”

Hexcel says a steady, yet slow recovery is developing as the world emerges from the pandemic and regains its confidence in traveling once again. As it does, Hexcel believes it is well positioned to support the sizable OEM aircraft backlog with its innovative, lightweight advanced composites technology that drives fuel efficiency, reduces emissions and improves performance.

“We also previously communicated our target to reduce overhead costs on an annual basis by $150 million by mid-2021 and I’m pleased to report a significant portion of those savings have been achieved and are reflected in our first quarter results,” adds Stanage. “Hexcel has never been more focused on its customers, on operational excellence and on innovation. We expect to emerge from these challenges as a leaner and stronger company, even better positioned to deliver strong growth and increasing shareholder returns.”

 

Markets

Hexcel reports that sales in the first quarter of 2021 were $310.3 million compared to $541.0 million in the first quarter of 2020.

• Commercial Aerospace sales of $147.6 million decreased 59.3% (59.7% in constant currency) for the quarter compared to the first quarter of 2020. Sales were down significantly across all major platforms reflecting pandemic-induced build rate reductions by the aircraft OEMs and continued supply chain destocking. Boeing 737 MAX sales continue at a low level.
  • Sales to “Other Commercial Aerospace,” which include regional and business aircraft, decreased 48.0% in the first quarter of 2021 as compared to 2020, as the global pandemic negatively impacted demand across this market sector, particularly business jets.
• Space and Defense sales of $111.7 million were unchanged compared to the first quarter of 2020 (decrease of 1.0% in constant currency). Strength in rotorcraft, including the CH-53K, as well as the F-35 joint strike fighter was offset by the collective impact of a softer quarter for a number of smaller U.S. defense and space programs.
• Total Industrial sales of $51.0 million in the first quarter were down 23.3% (27.1% in constant currency) compared to the first quarter of 2020. Lower wind energy sales drove the decrease, partially offset by stronger automotive sales.
• Wind energy sales (the largest submarket in Industrial) experienced a decline of 42.5% in constant currency compared to the first quarter of 2020. The decrease was due to general lower demand and the cessation of sales in North America following a previously reported customer demand shift.

 

Consolidated operations

Gross margin for the first quarter was 17.1% compared to 26.0% in the prior year period. Similar to the second half of fiscal year 2020, lower volumes continue to be a headwind, leading to the under absorption of fixed overhead magnified by the continued temporary idling of select production assets and facilities. Hexcel notes that sales mix did, however, improve in the first quarter of 2021 compared to the fourth quarter of 2020. Selling, general and administrative and R&T expenses for the first quarter of 2021 decreased $9.3 million or 15.4% compared to the prior year due to global realignment actions and headcount reductions to lower the cost structure. Other operating expenses that were restructuring charges primarily related to labor actions outside the U.S. Adjusted operating income in the first quarter of 2021 was $1.9 million, or 0.6% of sales, compared to adjusted operating income of $80.4 million, or 14.9% of sales in 2020. The impact of exchange rates on operating income as a percent of sales was negative by approximately 10 basis points in the first quarter of 2021 compared to 2020.

 

Cash, 2021 guidance update 

Hexcel notes that net cash from operating activities in the first quarter of 2021 was a use of $1.2 million compared to a source of $8.6 million in the first quarter of 2020. Capital expenditures on a cash basis were $4.9 million during the first quarter of 2021 compared to $27.2 million during the first quarter of 2020. Free cash flow was ($6.1) million for the first quarter of 2021 compared to ($18.6) million in the first quarter of 2020. Working capital was a cash use of $26.2 million in the first quarter of 2021, principally related to an increase in receivables, compared to a cash use of $94.8 million in the first quarter of 2020. 

Share repurchase program remains temporarily suspended and no shares were repurchased during the first quarter of 2021. The company also continues to withhold financial guidance due to the market uncertainties arising from the global pandemic.

For first quarter financial results, view the full report here.