Hexcel Reports Strong 2013 Second Quarter Results
Hexcel Reports Strong 2013 Second Quarter Results
- Sales of $422.6 million were 5.9% higher than last year (5.2% in constant currency) driven by Commercial Aerospace (up 15.1% in constant currency).
- Adjusted net income of $49.1 million was up 15%, resulting in $0.48 per adjusted diluted share, versus $42.7 million and $0.42 last year, respectively.
- Adjusted operating income was $71.9 million, 17.0% of sales, as compared to $64.4 million, 16.1% of sales in 2012.
- Additional $150 million share repurchase authorized.
See Table C for reconciliation of GAAP and non-GAAP operating income, net income and earnings per share
STAMFORD, Conn.--(BUSINESS WIRE)-- Regulatory News:
|Six Months Ended
|(In millions, except per share data)||2013||2012||% Change||2013||2012||% Change|
|Net sales change in constant currency||5.2%||4.6%|
|Diluted net income per common share||$||0.48||$||0.47||2.1%||$||0.90||$||0.86||4.7%|
|Non-GAAP Measures for y-o-y comparisons:|
|Adjusted Operating Income (table C)||$||71.9||$||64.4||11.6%||$||134.9||$||125.0||7.9%|
|As a % of sales||17.0%||16.1%||16.1%||15.6%|
|Adjusted Net Income (table C)||49.1||42.7||15.0%||92.7||82.3||12.6%|
|Adjusted diluted net income per share||$||0.48||$||0.42||14.3%||$||0.91||$||0.81||12.3%|
Hexcel Corporation (NYS: HXL) (Paris:HXL), today reported results for the second quarter of 2013. Net sales during the quarter were $422.6 million, 5.9% higher than the $399.2 million reported for the second quarter of 2012. Operating income for the period was $71.9 million compared to $73.9 million last year ($64.4 million adjusted operating income, see Table C). Net income for the second quarter of 2013 was $48.5 million or $0.48 per diluted share, compared to $48.0 million or $0.47 per diluted share in 2012 ($0.42 per share as adjusted, see Table C).
Chief Executive Officer Comments
Mr. Berges commented, "This was another strong quarter for Hexcel, as solid execution combined with increased sales to yield excellent results. For the quarter, our adjusted diluted EPS of $0.48 was 14% higher than last year on a 5% increase in constant currency sales. We are also particularly pleased that our adjusted operating income was 17.0% of net sales for the quarter, 90 basis points better than last year. This quarter also marked the first flight of the A350 XWB the newest Airbus offering with over 50% composite structure. The A350 XWB will be a key contributor to Hexcel's future and involves shipments to over 40 customers in 14 different countries."
Looking ahead, Mr. Berges said, "Assuming the scheduled ramp-up of the Boeing 787 is sustained, we expect aerospace sales (both Commercial Aerospace and Space & Defense) to continue their steady growth trend. Though seasonal effects typically result in slightly lower margins in the second half, and our industrial markets remain challenged, strong operational performance allows us to reaffirm our 2013 earnings guidance."
- Commercial Aerospace sales of $270.0 million increased 15.6% (15.1% in constant currency) for the quarter as compared to the second quarter of 2012. Combined revenues attributed to new aircraft programs (A380, A350, B787, B747-8) increased over 20% versus the same period last year and comprise over 30% of Commercial Aerospace sales.
- Sales for Airbus and Boeing legacy aircraft were up over 10% compared to the second quarter of 2012, and were just lower than the first quarter of 2013.
- Sales to "Other Commercial Aerospace," which include regional and business aircraft customers, were down about 5% compared to the same period last year.
Space & Defense
- Space & Defense sales of $96.7 million were 9.8% higher (9.3% in constant currency) than the second quarter of 2012. Growth was again led by rotorcraft, which accounted for nearly 60% of Space & Defense sales for the quarter.
- Total Industrial sales of $55.9 million for the second quarter of 2013 were 28.0% lower (28.8% in constant currency) than the second quarter of 2012, but up sequentially versus the first quarter of 2013. As expected, wind sales were down over 35% from the record level in the second quarter of 2012.
- The tax provision was $20.6 million for the second quarter of 2013 resulting in an effective tax rate of 30%. Last year's second quarter tax provision was $22.1 million, an effective tax rate of 31.7%. We expect our effective tax rate for the rest of the year to be about 30.5%.
Cash and other
- As previously announced, in June 2013, we entered into a new $600 million senior secured revolving credit facility which matures in June 2018. The new facility replaces the Company's previous senior secured facility ($82.5 million term loan and $360 million revolving loan) that would have expired in July 2015. The new loan has an initial rate 50 basis points less than the previous facility, and at our current leverage ratio will decrease an additional 25 basis points after September 30, 2013. As a result of the refinancing, the Company accelerated certain unamortized financing costs of the credit facility being replaced and the deferred expense on related interest rate swaps and incurred a pretax charge of $1.0 million in the second quarter of 2013.
- Free cash flow (defined as cash provided from operating activities less cash paid for capital expenditures) for the first half of 2013 was a source of $16.2 million versus a use of $70.6 million in the first half of 2012, reflecting lower capital expenditures and better working capital usage.
- During the quarter, the Company invested $35 million and completed its $50 million authorized share repurchase program. Total shares bought back under the program were 1,573,588 shares. On July 22, 2013, the Company's Board of Directors authorized the repurchase of an additional $150 million of the Company's common stock. Under the program, the Company may purchase its common stock from time to time in the open market or in privately negotiated transactions. The repurchases will be funded from cash from operating activities and, if needed, the existing credit facilities. The amount and timing of the purchases will depend on a number of factors including the price and availability of shares of common stock, trading volume and general market conditions.
- Total debt, net of cash as of June 30, 2013 was $257.3 million, an increase of $33.3 million from December 31, 2012. As of June 30, 2013, our available borrowing capacity was $288.4 million.
We now expect free cash flow for the year to be in the range of $40 million to $80 million (previously it was $20 million to $60 million).
We reaffirm the rest of our 2013 outlook:
- Adjusted diluted earnings per share to be in the range of $1.73 to $1.83
- Our sales outlook is $1,640 million to $1,740 million with strong aerospace markets offsetting the weakness in the industrial market
Hexcel will host a conference call at 10:00 A.M. ET, tomorrow, July 23, 2013 to discuss the second quarter results and respond to analyst questions. The telephone number for the conference call is (719) 325-2469 and the confirmation code is 9152997. 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 markets we serve (including changes in commercial aerospace revenues, the estimates and expectations based on aircraft production rates provided or publicly available by Airbus, Boeing and others, 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 current economic environment; the success of particular applications as well as the general overall economy; our ability to manage cash from operating activities and capital spending in relation to future sales levels such that the company funds its capital spending plans from cash flows from operating activities, but, if necessary, maintains adequate borrowings under its credit facilities to cover any shortfalls; and the impact of the above factors on our expectations of financial results for 2013 and beyond. The loss of, or significant reduction in purchases by, Boeing, EADS, Vestas, or any of our other significant customers could materially impair our business, operating results, prospects and financial condition. 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 changes in currency exchange rates, changing market conditions, increased competition, inability to install, staff and qualify necessary capacity or achievement of planned manufacturing improvements, conditions in the financial markets, product mix, achieving expected pricing and manufacturing costs, availability and cost of raw materials, supply chain disruptions, work stoppages or other labor disruptions and changes in or unexpected issues related to environmental regulations, legal matters, interest expense 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|
Six Months Ended
|(In millions, except per share data)||2013||2012||2013||2012|
|Cost of sales||305.8||293.7||610.3||587.4|
|% Gross margin||27.6||%||26.4||%||27.3||%||26.5||%|
|Selling, general and administrative expenses||34.8||32.5||72.8||69.1|
|Research and technology expenses||10.1||8.6||21.1||17.8|
|Other operating (income) (a)||—||(9.5||)||—||(9.5||)|
|Interest expense, net||2.1||3.0||3.8||6.0|
|Non-operating expense (b)||1.0||1.1||1.0||1.1|
|Income before income taxes and equity in earnings from affiliated companies||68.8||69.8||130.1||127.4|
|Provision for income taxes||20.6||22.1||38.5||40.5|
|Income before equity in earnings from affiliated companies||48.2||47.7||91.6||86.9|
|Equity in earnings from affiliated companies||0.3||0.3||0.5||0.7|
|Basic net income per common share:||$||0.49||$||0.48||$||0.92||$||0.88|
|Diluted net income per common share:||$||0.48||$||0.47||$||0.90||$||0.86|
|Weighted-average common shares:|
(a) Other operating income for the three and six months ended June 30, 2012 includes income from a $9.6 million business interruption insurance settlement related to a prior year claim, a $4.9 million gain on the sale of land and a $5.0 million charge for additional 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 the deferred expense on interest rate swaps related to repaying the term loan and refinancing our revolving credit facility in June 2013. In 2012, the non-operating expense is the accelerated amortization of deferred financing costs and expensing of the call premium from redeeming $73.5 million in June 2012 of the Company's 6.75% senior subordinated notes.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
|June 30, 2013||December 31, 2012|
|Cash and cash equivalents||$||56.7||$||32.6|
|Accounts receivable, net||246.1||229.0|
|Current deferred tax assets and other current assets||71.8||81.3|
|Total current assets||626.3||575.7|
|Property, plant and equipment||1,521.0||1,459.2|
|Less accumulated depreciation||(560.2||)||(544.8||)|
|Property, plant and equipment, net||960.8||914.4|
|Goodwill and other intangible assets, net||57.4||57.8|
|Investments in affiliated companies||23.3||22.6|
|Deferred tax assets||13.9||15.4|
|Liabilities and Stockholders' Equity|
|Notes payable and current maturities of capital lease obligations||$||5.0||$||16.6|
|Total current liabilities||213.7||235.3|
|Long-term notes payable||309.0||240.0|
|Other non-current liabilities||131.1||133.7|