41 annotations
Well, first, we're continuing to bring up assets, just to roughly calibrate, you think of 2019 of as us running close to capacity, we'd never be at 100%, but think of mid-90s. And if you think about our ratio of sales today to where we were then, think of our assets being utilized at about 75%. That will give you a good proxy for where we are with respect to utilization.
Some plants, that means we have some lines still down.
Some plants that may mean we have a line up, but aren't running it at 100% of capacity, meaning we may have more positions that we could turn on, which make it much less efficient, but the right thing to do so that we don't overbuild inventory and to optimize our cash position going forward.
So from an asset base, in the fiber specifically, we have brought in a lot of assets, a lot of resources over the last 3 to 6 months. And that fibers is one of the big drivers within Hexcel from a cash, from a profitability generation. And there, I'm not going to say we don't have to add a few people, but basically, most of our lines are running now where we see them for the next 6, 12, maybe even a little bit longer.
So we feel like we're in a great position there.
Other plants depends on the technology, whether it's prepreg or blending or core engineered products, there may be select adds here and there. But overall, we're entering -- we're going to enter 2024 in a very strong position to deliver on that demand.
75% capacity of 2019, but sales much lower
Transcript
2023 Q3
26 Oct 23
Looking forward, over the next couple of years, we see strong double-digit growth for a couple of years now in front of us, with 2025 getting sort of back to where 2019 was. That should be the expectation out there.
In terms of the mid-teens margins, we're strongly going to be pushing for that, and we will get there once we line up our cost base with the right level of sales. We've got to do the training. We've got to have the infrastructure, but our ability to get to mid-teens once the revenue comes, and once -- I mean, we should be able to push past it ultimately is what I'm trying to say, Myles, back to where we were. We -- that's not going to happen tomorrow, but that's definitely the target on the table, and we're not taking that away.
mid teens margins and 2019 sales in the offing by 2025?
Transcript
2023 Q3
26 Oct 23
And so our cost base is perhaps just a little bit ahead of the sales growth, but we're going to be ready. And when that comes, we will generate the margins, and we will generate the cash.
cost ahead of sales growth
Transcript
2023 Q3
26 Oct 23
Clearly, increased demand on the narrowbody would have helped, but it would not have changed our position and the fact that in the environment we're in, after taking our assets down to the low point we did at the pandemic to preserve cash and to position for a strong viable future, we knowingly took out 35% of our resources in our heads.
In today's hiring environment, with the unemployment where it is, with the pull for talent globally, we had to get ahead of the hiring, and we do that intentionally so that we can train them. And as the growth comes, we can get the efficiency back to and above 2019 levels.
And I have to tell you, the third quarter, we're seeing our efficiencies come up. And as that demand and that growth continues to pull through for Q4 and into '24 and '25, we're expecting to convert very strongly on that volume.
wasn't s much sabout narriwbody build rates in the Q
Transcript
2023 Q3
26 Oct 23
nd it just slowed it down a little bit, caused some inspections and reworks within that supply chain.
And my perspective is that these will be resolved. And given the demand and the pull for those new lightweight narrowbody and widebody aircraft, the rates are going to continue to go up, and that's what we're positioning for is strong '24 and '25 build rates and growth for Hexcel.
hexcel is not the issue on supply chain
Transcript
2023 Q3
26 Oct 23
It's much more to do with the gradual infrastructure and cost base that we've been building and putting in place, quite honestly, over the last several quarters, really to be ready for the really strong growth that we see, and we've just called out over the next sort of couple of years. We're running more lines, as Nick called out in his part of the comments, but perhaps they're not all efficient, they're not sort of at the utilization level individually that we would like. And we have more people, and we continue to train and upgrade that experience as we go.
And so we're carrying that higher level of overhead, if you like, infrastructure in the company for the future growth, and it's going to take time to really get a top line that really pulls all that product, production and all those sales through to really drive the margins. And certainly, when you have a quarter as we have forecasted as our third quarters are, reduced by the European seasonality impact, then you see the margin headwind that we saw. It was much more of that in the third quarter than anything to do with mix.
margin headwinds --- cost base "take time" to see margin driven higher
Transcript
2023 Q3
26 Oct 23
Our Q3 sales were impacted by the expected seasonality we previously highlighted as well as some general challenges in the commercial aerospace market supply chain.
q3 sales
Transcript
2023 Q3
26 Oct 23
Industrial
Industrial--lower wind energy (vestas) is largesr customer
Transcript
2023 Q3
26 Oct 23
material selections for those aircraft are several years in advance of launch, and that time is now.
We have tremendous efforts underway as we pursue those opportunities with our customers.
working to delect msteriasls -- re what calhoun said
Transcript
2023 Q3
26 Oct 23
combined Airbus, Boeing backlog currently stands at a record 13,775 aircraft. Airlines are securing their place in line that is 8 to 10 years long as they plan to replenish their fleets with new efficient lightweight aircraft. Virtually every OEM out there is ramping as fast as the supply chain will allow.
Commercial Aerospace is booming and demand remains strong, perhaps stronger than ever. Lightweight materials for fuel-efficient aircraft are being pulled harder than I have seen in my 14 years with Hexcel, and the reason is clear, making flying platforms light and strong is the #1 enabler for both performance and sustainability, and Hexcel is at the leading edge of developing and producing these technologies.
8-10 year backlog
Transcript
2023 Q3
26 Oct 23
The strongest growth came from the Airbus A350 and Boeing 787 widebody programs. Narrowbody sales were relatively flat year-over-year, reflecting some temporary disruptions in the overall aerospace supply chain.
While each quarter, we highlight the strongest programs from Airbus and Boeing, remember, we have great positions in the business jet segment. Other Commercial Aerospace increased more than 20% in the third quarter on continued strong business jet demand.
sales colour -- hit by slow propductrion at Boeing 737 max
Transcript
2023 Q3
26 Oct 23
Over the next 3 years, build rates for narrowbody aircraft are expected to increase by nearly 50% and build rates for widebody aircraft are expected to almost double. This is both a challenge and a great opportunity, and Hexcel is determined to be ready to ensure our products are produced efficiently and delivered on time to our customers.
big increase coming in airplane production
Transcript
2023 Q3
26 Oct 23
The supply chains for our raw materials are greatly improved compared to last year, though shipping lead times are still not quite back to the levels seen prepandemic.
Pressures also continue around certain inflationary impacts, most notably energy costs in Europe.
energy costs higher in Europe
Transcript
2023 Q3
26 Oct 23
Given our higher number of production assets in service today, along with the preparation to support strong growth ahead, the expected lower third quarter sales resulted in a reduction in our margins
sale sequentislly lower
Transcript
2023 Q3
26 Oct 23
As a reminder, we continue to expect capital expenditures to remain below $100 million for the next few years as we grow into, and reutilize existing plant and equipment.
capex below 100m next few years
Transcript
2023 Q3
26 Oct 23
This involves bringing back operational capacity, which has been either turned off or running at reduced rates since the pandemic.
We have been recruiting the talent we need to meet the strong demand ahead of us, and we continue to focus on training and expanding shop floor experience to prepare for the higher production rates.
recruiting to build caoacity
Transcript
2023 Q3
26 Oct 23
However, I want to caution that the gross margin this quarter was particularly strong for a number of reasons; sales mix was favourable with strong demand for Hexcel fiber-rich products; there was a favourable absorption impact as a result of increasing finished goods inventory; and foreign exchange was also a tailwind this quarter due to the significant dollar strength compared to the first quarter of 2022.
favorable gm
Transcript
2023 Q1
1 Aug 23
A350,
a350
Transcript
2023 Q1
1 Aug 23
t seems like most everything has been asked, but maybe just some big picture stuff. When we think about what potential new opportunities that are out there for you, I mean, like Boeing and Airbus are going to go on an airplane development vacation for a little while. What else is there out there? Is there some defense things you're looking at? Or is there other things we should be looking for as potential additional growth drivers for the company?
Nick Stanage
Yes, Ron.
So again, there's always derivatives. More frequently the new aircraft, you see reengineering, and you should expect that, that will continue. And that requires a new cell. And just as a reminder, we have very strong position on engines and the cells and continue to drive the material for hotter temperatures, for better sound attenuation, for other applications that composites can't fulfil today but can tomorrow.
So we're working on those. We're working on secondary structures and certain elements that are easier to qualify and replace on derivatives.
The A220 is a big opportunity for us. We've got various materials on the fiber, on the prepreg, on the technology side that could offer a great advantage and an opportunity going forward.
We continue to work with our customers on that.
So in the Commercial Aerospace, and Patrick touched on all the penetration and the secular growth on business jets with Gulfstream, with Dassault and others big platforms, and again, just more and more of the aircraft transitioning over to composites.
If I flip to Space & Defense, always a lot of technology opportunities there, which we set to new platforms on the Flora and space. It's just a very diversified market, and we're working on multiple programs along with sizable programs like the CH-53K, which is a very large program for us, and we're ramping up as we speak in our Washington facility.
So there's a lot of opportunities out there. And again, we don't neglect the wind and the industrial and the automotive all the other sub-segments in industrial that are keys are finding niches and areas where we can provide a sustainable competitive advantage.
So the growth opportunity, the areas where customers want stronger, tougher, more durable, lightweight materials it's just continuing to expand. The question is on the economics and whether or not it fits within our target of what we want to invest in and where we want to drive the business going forward.
A220. opportunities outside boeing/airbus new planes
Transcript
2023 Q1
7 Jun 23
I'd also say we're firm believers that the penetration -- the secular penetration of composites will continue to grow.
So as we can make our materials more flexible, more adaptable to new processing, it opens up the window of the next composite airplane to be above 50%, who knows, maybe 70%
secular penetration of composites will grow
Transcript
2023 Q1
7 Jun 23