HXL - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen and welcome to Hexcel Corporation's Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. I would now introduce your host for today’s conference, Mr. Patrick Winterlich, Chief Financial Officer. Sir, you may begin.

Patrick Winterlich

everyone. morning, Good Corporation's Hexcel XXXX conference earnings Welcome second call. to quarter

me Before cover let formalities. the beginning,

future course want of the of I estimates, today. provisions release. variety statements during constitute Reform filings or statements factors any Harbor page everyone Act detailed a call actual this by will the our cause from related statements results night’s A forward-looking call. judgments to could forward-looking may in the assumptions, Private caused contained make Litigation in call Relations this may statements Such First, of website. involve be materially we differ remind news uncertainties of to XXXX. of and last to SEC outcomes on within The that about available forward-looking Investor this are and Certain meaning of replay the the our company’s Safe Securities factors the

by this copyrighted recorded Lastly, and cannot permission. expressed without is It recorded is material. call or our re-broadcast being Hexcel Corporation be

The is on Nick second in Your are that of XXXX With President to request. constitutes our President; news Investor consent our call our issued results Kurt your today Vice of Relations. call release CEO the Goddard, our me and to Chairman, Stanage, review this and detailed purpose quarter participation yesterday.

Now, call to let the turn me Nick. over

Nick Stanage

XXXX. and million The flow first cash for revenue generation us joining increasing free to you today. business year-to-date everyone with continued a cash of thank per growth earnings of cash approximately Good solid share posted has half $XX the morning, quarter Thanks and Patrick. We free compared demonstrated flow.

across on Adjusted million year-over-year. $XXX For increased currency with the of our markets. year-over-year sales of basis three XX.X% second a XX.X% all $X.XX quarter, constant diluted EPS increased of growth

travel. and and portfolio world well which with affordable led leading strong their our flow adopt advanced remains broad wind and edge continued the for grow U.S. our combination clean and power us likely The industrial innovation budgets along for global increasing growth future demand business. markets market cash based of the passenger by aerospace continue free positions materials upward to continues strong trajectory generation. strengthens on Defense world and class our airline seem commercial Our to of composite to

share I’ll quarter. and the of into some Patrick provide insight Now financial each then for our will details markets

year-over-year in constant flow usual, currency. with be As air Airbus favorable continue trends be increasing support commercial traffic order rates which and passenger two will expressed key by our Boeing. largest Aerospace, aircraft Commercial to Beginning continued production growth customers comparisons macro including for and

fares concern traffic rising less have historically be for prices which fuel more to aircraft, tamper While growth, new increases Hexcel. led may fuel retirement passenger some in of and oil that's have high good oil airline and leads efficient efficient demand there the then generated for older, prices that to air programs

to the Our light role cost our making that are fuel critically third weighting airlines advanced Considering and efficient. operating and composites and efficient lighter important play leading airline of more fuel a is in aircraft about technologies fuel, customers. a

new increasing MAX ramp compared and AXXXneo quarter the of strongly continue in benefit for second sales narrowbody up XXXX the year from with is the of prior We pace gaining BXXX which period. to the now programs to

configurations. are we announced future low well for number has aircraft. year-over-year for upside trends strength comparable and driven comments, Dassault there's spread Based Bombardier from We together, take already reporting XX,XXX a aircraft public backlogs maintained business order growth see rate by a commercial though increases increasing about The advantage on should Boeing materialize. XXXX. strong that Gulfstream, around to market continue of jet business are to opportunity across been regional in it positioned was of and and recent beyond combined Airbus jet XX% narrowbody The of and what its different potential

chain be constraints Commercial Aerospace these continue to for have to not shipments publicized sector issues Aerospace to continues program. there unaffected in and Finally, been for particularly the we be asked by supply narrowbodies. any delay among Hexcel Commercial suppliers

to grew over interest growth F-XX, by and Space Fighter X% primarily F-XX The strength rotorcraft to year-over-year, which AXXXM is Turning in with previously the a in production announced driven to & demand we were program. sales Defense, weaken V-XX the and for the platform for see orders line expectations Strong continued program Strike the decreases. in global pleased growth just following Joint Hexcel, recent continued rate continues Osprey.

was please key Sikorsky This a growth new to the also see the platform begins to May are production We delivered first for high U.S. penetration Space that illustrates when & next us will year. for composite the CH-XXK be Stallion to in Corps. CH-XXK platforms. solution The King ramp secular Marine Defense

them including interior the and helicopters doors of positive to In the continued revenue. countries of and & spending composites blades with use fact, aspect though recent could almost second increase they panels. every airframe, use CH-XXK for than The Space NATO less recently of civil in a indicating trend more. remain to does defense the rotors, quarter that Sales total trend spend XX% willingness Defense continues globally their

expect world, benefit this business. spending Space around relationships with over the trend our time to defense upward Defense & in defense deep have we We and contractors

up our quantities for wind our industrial Europe, using market customer, we by sales manufacture Asia. and to half of industrial our business. industrial led Vestas that market makes energy expected, our Vestas. energy were America generation up is North transitioning in strongly, largest of materials revenue, blades our just greater by Wind over currently As new driven

in wind We backlog. based confident Also for energy customers’ sales our growth market quarter. our continue recorded industrial and the strong in sales on outlook be to the for within other industrial automotive

aerospace fully is presence, In of to fiber France I'm qualification and new manufacturing way. Roussillon, our that and operational carbon our terms lines share pleased in precursor global our under at site are

We're include the additional in growth and other to summary, reinforce As we as programs. and EPS grew deployment this driving Europe. continue almost be Patrick generation optimistic on year support remain execution our fiber XX% key program we year-over-year operational We and AXXX cash to driving reminder, next with the generate shareholders. numbers. strong With provide In more excellence. quarter re-affirming quarter free XXXX our a We are our improvements. I’ll to to productivity solid increase a financial sales that, on which growth throughput the and capacity delivered we growth, over R&D support priorities, disciplined our for turn and to color to used it will improving adjusted flow. focusing follow we combined our by and investment grow continue EPS capital including to revenue in return and for Results we innovation with And guidance. cash

Patrick Winterlich

I’m Thank to with Nick. you, a begin review going our of markets.

As in usual, comparisons discuss currency. constant I will year-over-year

currency impacts reported of majority some these results revenue in not our a dollars. of influence reminder, our intuitive. and be As may The movements is denominated

base a and is as presence However, pound significant dollars, of British we manufacturing a our the euros in have mix cost Europe.

dollar. resulting also sales a and to dollar we higher, margins. As costs headwind a the euro result, our our prefer but against the translate higher, Accordingly, our weak to a net in British pounds, strong dollar a when translate weakens the

that employ a over hedging, In hedges terms in strategy disciplined quarter currency a hedging of we horizon. lays XX

currency of impact currency dollar degree moderate second in and second half X% in of the is last shared or to were expected to $XXX XX.X% from smoothing Sales XXXX a rate a million expected smaller is modest now trend X% improvement there The EPS, lessened recent a result, to be fluctuations. the strengthening has up year-over-year. XXXX the quarter headwind quarter. of a to headwind estimates our As of

Our the EPS impacts from quarter the increase an contracts of was XXXX. customers less Year-to-date $XXX,XXX. for XX.X% adjusted the compared ASC $X.XX, XXX diluted to of with is quarter second than second of revenue

to that While EPS the that statements. impact impact we or our as is may stated, feel be previously up fluctuations do will potential not ongoing $X.XX $X.XX, financial of there material to this the quarterly standard for by

increasing remain continue recent from Commercial the to revenues Joint of a rate the offset $XXX period though quarter from rotorcraft particularly Space Aerospace second XX% sales, same the Aerospace trends X.X% Commercial million, quarter $XX drove total markets. X.X% portion than demand a represented strengthening smaller XX% it & a represented sales. Defense the strength sales. in the Industrial Increasing Commercial in was also XXXX. Growth in increases quarter for the & Commercial at increased Space of in second program XX% XXXX less XXXX. jet quarter second to Defense sales. comprised rates. sales, and increase production benefited of in Strike compared of Turning business. total business million total is to narrow-body Aerospace Aerospace Civil Fighter sales XX% coming of of our reduction. helicopters in AXXXM although in the quarter quarter sales continued positive, F-XX

sales XX.X% quarter, remain generation margin new reflecting percentage, industrial second the quarter adoption France also costs depreciation consolidated to second capital The blades Roussillon, second with start-up sales reflecting become quarter XX.X% million, second the gross the higher guidance For the totaled growth as compared expense our with gross the increase XXXX. XXXX. On impacted investments would consistent the in would compared the energy quarter that Wind as second with our drove was basis, apparent of to of margin our and a in was recent for strong quarter $XX prior a facility. XXXX. XX.X% by expected, and associated through

This cost expense pollution impacted in felt raw costs include our result leading approximately higher I has X, a closure capital investments. reduce wind measures in base in Please energy and the indices, align note including a number second involving to makes $X.X to which the remainder pressures, mention of depreciation led modest XXXX. to the our temporary the plants in China the trend through that increased as which is previously wind million a business. $XX price of want we in are levels is to energy to expect the of and over year-on-year a have of be by cost headwind chain expected in we as for Total resins supply Chinese our recent we expense used oil, increases chemical long-term quarter these acrylonitrile to resins authorities which continue has been of taken the continue to some the XXXX, time. a carbon for which related the result will contracts as fiber. will reflecting XXXX, stated, our experiencing of million. the Additionally, business quarter our Depreciation increase to also from prior tightening material of of

technology and Our reduction growth, X% the Research and thus strong administrative expenses with to expenses cost year-over-year ongoing positive year-over-year approximately general, focus commitment on selling, in increased sales in control our consistent of innovation. a X% cost providing against drove invest backdrop leverage.

second For to segment currency the compared Materials rates as Engineered and we second quarter total margin to periods. margin was XX.X% quarter, to our program. effectively dollars to of margin the to XX.X% dollars XX.X% operating impact represented million a due Engineered compared engineered of income the for the quarter. our sales $XX.X comprised XX.X% operating a total sales which sales exchange a see. operating core in year-over-year of to Composite second margin of $XX.X income of returning million XX.X% XX% XXXX XX.X% hedging quarter XX% to XXXX. represented is million operating as XXXX. or the second in income prior for of typically in generated second of Year-to-date, The and year the XX.X% neutral as XXXX $X.X Engineered structures segment for range, The the second The for Products increased XX% hedging for expect quarter compared generated Products Product businesses the of to the margin quarter XX.X% sales or of

the below quarter for this segment. average margin is first Following percentage

XX.X%. Materials The return This While related margins effective capital. discrete effective share the by which adjustment attractive and much rate rate are based XXXX lower on of impacted was than a Products a second benefit favorably tax lower quarter Engineered level segment, yields very Composite was compensation. for to invested investment requires of

XXXX. year during seasonality $XX normal We underlying $XX capital the expect in In $XX and Free the accrual Year-to-date the for in the reflecting basis. on comparison, million year XXXX typically million of half a were quarter the continue $XX for our the Working quarter XXXX. of financial program. XXXX. expenditures year-to-date effective XXXX quarter expenditures was capital during the $XX of million And XX% be to expected $XXX business. of to half compared for stronger to million year-to-date of rate to were cash flow capital to of for million half is $XXX cash share prior are see of tax to stock to million of the the for our quarter be quarter total half compared million. second first million free source second flow forecast the second $XX the repurchase Capital cash the second an expenditures have million. $XXX second line common in bringing We guidance. with repurchases remaining our our repurchased second under we We

from As France an Roussillon, Nick complete the engineering standpoint. is described, facility now

XXXX. to we neutral release While begin reiterated will qualification in guidance that resulted of the for yesterday. of and start-up the as I earnings discussing be second of we the half contributing entered it incremental relatively facility the half continued by first issued and in the cost XXXX, this the we cost in margin year conclude expect to

content look guidance be to we our than of programs $X.X billion rates the and second are & the as of year range MAX replacing Boeing higher midpoint now billion above previously key growth drivers the the they the believe half to Airbus than programs of are Space with $X.X sales Defense both AXXXneo As to stronger The and we forward XXXX, modestly potential is increased. as legacy to build narrowbody due for narrowbody the forecast. XXX appropriate revenue contained

multiple Boeing per grown year-over-year growth the than XXX forecast. based JSF Our planes end XX is general month production Aerospace the as XX defense in programs XXXX. such AXXXM overcoming has be the month XXXX per to as Airbus of strongly early Key to to and reductions. across more strong, the Airbus continues AXXX moving announced are Other defense Commercial VXX the by on programs and planes ramping and markets in rate

expect energy up wind double-digits year. sales As and are strength the forecast, the previously of we for continued rest

$X.XX to an expect effective tax quarters For underlying the we at of rate the remaining for XXXX, of XX% EPS $X.XX XXXX. with each in

in I we Nick. of XX% let that With than me like to anticipate capital call through reiterate flow to dividends million. forecast expenditures $XXX cash $XXX and Free stock the be back would continue the than to to returning our forecast of to also shareholders turn that, greater We range to $XXX million net is income million. buyback. greater

Nick Stanage

for half results financial solid of Thanks year and we financial remainder to Patrick. reaffirm We post a the for the the of guidance. year the confident remain first our

cycle from Our markets remain strong investment a and we continue to innovate and execute cycle operationally. an cash-generating The clear. transition is to

priorities Our to we’ll that, on disciplined and capital unchanged we take are deployment Sabrina, questions. delivering our shareholders. remain now With our commitments

Operator

Sheila Instructions] will from with first [Operator Jefferies. Kahyaoglu the question line of Our come

Your line is open. now

Sheila Kahyaoglu

case and regards Can of coming you investment potential Just on the a the of and Farnborough for out composites surrounding lot Hexcel? elaborate on as material maybe and press the M&A. wing for it fuselage to applications thoughts just just for your

Nick Stanage

solutions generation of will intensive parts share Lots market legacy aircraft. perceive the secondary again our included solutions flying when are what And to expectations. and more work confident that the of say can not than continue the questioning we today. configuration. get exceeding we we remain our articles Boeing on and questioning next nacelles. aircrafts predict Obviously, for launched, a will materials size, to to will is than moving as orders and going position and be providing engines and at lots structures new Sheila. some for structures, Farnborough the composite question, direction to I it if with customers position lots for of take some more fair excitement I'm what ultimately take Boeing What the plane the from is primary we M&A a Thanks with design

Sheila Kahyaoglu

more line. I regionals subdivision little on asked And to biz try with bit jet? going terms I you in you about other that of a just in to the elaborate aerospace regard aerospace, Patrick on can then on what's get in the

Nick Stanage

has GXXX, saw pretty the have the the Bombardier, specifically last quarter the across strong the Gulfstream different. it were as business But was say robust and Dassault, market strong GXXX, segment. very three and jet no entire XXXX, again, drivers. those biggest been Global this we probably very I’d Well, quarter was to

Operator

come next line with the will And Krishna Vertical the question Sinha Partners. from of Research

is line now open. Your

Krishna Sinha

works talk about that a recovery and the pricing So, bit and headwind little about you a long-term under can you expected little costs your material the margin Can rising input long-term from contracts? agreements? how just your talk bit the

Nick Stanage

We've got mentioned. the headwinds I

actions resin the Chinese has by So, The been up your other the sort out there. authorities. by sort to last I some related is guess point called energy taken just directly of wind It blade caused in is sort price contracts. put a year these supply is the of us. We tightness resins, indices which impacting the do our manufacturers. for this on have which It pressure chain of in picking

of we And the headwind XXXX for I sales, movements, to we think year. it total and want year will mean, end that I a those sort don't wind to into but if this X% us. is of as is towards so, the this some there recover is overplay move the our headwind but headwinds, energy you

is mentioned, related we're oil, before buy seeing there. do front scheme commercial of we if Hexcel at supply is swings see we chain our we our end for headwinds but to the as other we said by price wild contracts, you enormous moved know in in some protection headwinds formula oil movements. it are price Within have the lots up. things of not The and to oil marginal right That’s and acrylonitrile of sort polypropylene I've a this movements. of I with is, which It's driven seeing I

of would pass able to were be impact some through. that if So, that happen, we to

tariffs. about for around guess the is an million. call out I basis current also time, of million just I tariff a other $X The to impact on $X completeness we see At would annual thing

change China our that in depending bringing for front. impact we're the of move aluminum Now, where tariff on material things the second from That's on obviously that related will some could to half of and But suppliers. XXXX.

Krishna Sinha

And just one on follow-up more plant. the Roussillon

about to instrumental Fighter that also and You've AXXX Joint us sort give you that on into other full of Can talked expect like utilization? Aero that programs you But some in plant ramp. the Strike plant. talked going about narrowbodies when hit the being timeline a you've capacity

Nick Stanage

that the really running on should XXXX. plant from beginning be be aerospace of So, qualification should

I out sort aerospace for qualification this goes see will called be it little qualification through a the think making neutral that half I second the As but say bit cost through AXXX is that plant we carbon focused would What making for year. blade in the the going primarily of material as program the is say I the fiber of towards programs.

those sort of facilities. fiber carbon material honeycomb, core our of most is to planes from the Just to going narrowbodies engineered on reaffirm, on and so the separate

Operator

The will Richard from next with come of Buckingham question Research. Safran the line

Your line now is open.

Richard Safran

rates? current Hexcel’s for actually finally I remarks, comments I is are it and to XX, - And that, discussions comment potential you going would investing has take your to discussions still because Airbus the study best it I higher I you're that as mean, follow I up for capacity in you're your are rates? been the customer, rate that be off, about new take where wanting OEM for supporting covers, on narrowbody with out not higher first To on where about the something capacity what recognize wanted about get you about do opening higher there as I well this MAX. your rates. example, to on the just by can contracting you should think talking from And you or front Nick, are rates in of efforts,

Nick Stanage

with take the to I'll market the narrowbody growth. function you are position order strong. And their the will know share the will those to more intake of been Boeing continues the not than do which readiness. be to go have Airbus So whether what trying be with a in of backlogs, recognize space, or their to which to already with it have be strong starting higher continue I to rates and narrowbody. then Obviously, both and do supply get have It'll that the platforms chain positioning than the communicated

that. asked So can I look been to at studies. we say have done various We've

new Patrick We and also, that. MAX I to nacelles, are in you essence, new it, AXXXneo capital And of airplanes. remember the but tell coming product which you on do would and the I requirements capacity the and content it intensity would we our are, XXX of metal with and legacy engines and is cells lower They’re remind very again, that majority the continue a in our mentioned out put quickly. driving the engines Hexcel level. can type has and much of place airplanes

well worry of not rates when needed. that the brought do We we that you for in XX. up So, order positioned be is about could OE the

Richard Safran

this heard rest the when know XXXX for did guiding call. on of and year. I’ve about think rest for When issuing the strong to going XXXX? has continued I far been remarks Patrick, might thus XXXX this generally guide you be to But you’re strength the that comment in directionally pretty you're when of I your not a about

blades, think might just if tracking And also rate that comment the a what wanted new in know how still on you maybe adoption for - you XXXX? if thought these work on I plan? the they're to So, comment I could

Patrick Winterlich

what called we I exactly to. expected above Sure. rates mean, We the XXXX obviously forecasted up substantial is doing digit as from step is double as be I which XXXX. XXXX – to a out we

of backlog key specifics. to see this through confident very that. very into at rest without XXXX Vestas, getting confident And our what we're the for point the we’re based of on I’m would So, year. I say customer, pleased the the

the the backlog, of of we're for record and best, pretty terms we in at where I as mean, right XX-month strong look now, is yes, at period level. feeling sort as So, say adoption out I

new products material. that to liking the have I contain market is believe So our the

helps to be that again us positive. So

Operator

the line of question with Strauss next the David comes Barclays. from And

now Your line open. is

David Strauss

for you very guidance When your & Space a asked Defense quarter. the in about first had good the quarter

quarter showing still you're second The some growth.

been forecast full I flat. think you year? that halfway of through have off Are for to year ready now the the move the

Nick Stanage

the I we've down. down come Yes, It the we first come the AXXXM quarter think didn't way seen expected. in

getting you And aligned. second quarter growth as was The see more lower quarter. the our is much second quarter than first

So low given be performance think XXXX our or in the for today, original we the David, of clearly, growth flat. single-digit we’ll guidance versus stable

David Strauss

AXXX. I wanted about to ask Airbus

significant you that have that of XX, Is XX, that XX. from X% - X% a guidance commercial that banks? in down So year your term or closer fair amount yet? that to a for how content does on How XXXX? the is a AXXX impact And moved longer a down more Airbus has you of moving that to – does impacting process

Patrick Winterlich

Yes.

obviously, David. AXXXneo of to orders So long-term and aircraft. change down forecast We've a Airbus positioning Airbus build about forecast of there's our and had X% doesn't AXXX, that X% written lot it our into step the

David Strauss

Where you that AXXX? Nick on today on the

Nick Stanage

and be moment AXXXneo David. for pretty the We’re you're It's not going through Obviously, about. But We're us it's think in at on pretty still XXXX low at low asking is rates around program to I significant the which rate? now. a XXXX. what honest a

Operator

of KeyBanc. next the comes line Sison question Mike the And from with

line Your open. is now

Mike Sison

edge the characteristic versus coming share about Can on Are good about basis you and lighter competition? you really your the up and that mentioned an you’ve manufacturing fair potential newer talk you costs looking what's you launches. with is maybe Nick getting a you giving grades, weight resin OEM new give thought structures for what feel think technology new a there? do just maybe composites us quick fiber trance, carbon a

Nick Stanage

of gives your primary are coming the more out our that materials confidence think grades So, cycles is me more fiber Working with point those. processing, we're applications, that we're on the efficient or working those. working to to of up new enhance that cure solutions autoclave require the I quick portfolio breadth factor for productive

at then that core in forward. we us confidence Parts have in business materials to complex give we the at and will going working win retain We're where Looking look value, continue engine we and fab value at high the engineered where marketplace. that nacelle areas we’ll materials positions it's business to blade next-generation a provide And incremental and

it’s our So portfolio. I think –

with get and I great direction a think offering developing which solutions, portion that of positions to decides in a it's go, again, business. the customer multiple customers. we're regardless our that And to position ultimately so

Mike Sison

that of mentioned areas there's supply you that and in asked you constraints? stay kind that you carbon constraints shipments the is normal some track other haven't particular Any on composite Aerospace haven't fiber supply delay then, And and despite been Commercial to tends chain that affected. reason been of to

Nick Stanage

Well, I function up. think in catch being able confidence to it's a of customer’s our

are obviously there those know you materials as sitting and And engines. engines. our our airplanes that into to So, into are it's been materials finished well-publicized going are without going those airplanes some and extent

done is up the job. sense have path And that manufacturers they're the great get and on on catch I So recovery my a think to engine schedule.

for volumes, OEs it's to I fact entire that reduce anyone. to good at whipsaw look increase reduce supply is a So supply the understand the chain the the think not and and some chain volumes,

Operator

question next with McNulty the from line of BMO come The Capital Markets. John will

now is line open. Your

John McNulty

was headwind guess think reversing we I that. that XXXX? at first if What the about as of the kind it was and kind should a regard we in the cost, and the in like Roussillon With what look second to the terms going becomes things understood expected half sounds as up facility, of how are of the of I and it neutral half the year in ramp such,

Patrick Winterlich

the So, the $X.X headwinds million. two for of quarters first each

should going the carbon $X of cost and plant standard margins second And we through fiber XXXX. So, effectively, overhead in million in total and half, to then we're for half first cover in of XXXX. running good sort the the margins, that be

simple $X not in XXXX had in million be that XXXX So, essentially that there terms. we've in should

John McNulty

the some I whether guess I out pressure guess it. this part of how margin bucket mix you then, think in has the as year-over-year it's I margin would look the And how out I about mean so a forward? little power that should it well, guess about I that guess bit rest or cases materials the it's modeling could lower look I business so we of be you XQ, we saw it slightly as margins like and looks raw when in think obviously wind

Patrick Winterlich

And called headwind, headwinds a up guidance the cost the wind relatively want margins but energy FX I Roussillon the the are business. was carbon don't for small our a headwind the I there. our to headwind, it, then, of resin our marginal In marginal out, again. headwind. we've some headwinds some second a part mentioned mean had acrylonitrile is step I some on year fiber there's ever depreciation there I but against we've business tariffs, of half play as as say

those are the we've out. that year-on-year that headwinds called being So

John McNulty

Is be being a as margin or mix the with there is strong may it expected? there incremental what bigger is as negative wind than we've

Patrick Winterlich

I dilution, there, X% to margin on sales a wind company. small it's of is it's lower but a I because The good But dilution of lower There say overseas, a only mean, at is relatively the at grows have John. total margin. a capital return but invested small.

Operator

America. the Ron from of comes question Epstein next with of the line Bank And

open. now is line Your

Ron Epstein

generation color could if you do discussed more maybe you wondering be was guys thermal could the Farnborough, kind give opportunity and future could of little thermal At plastics what where airplanes. or for some you've there. a us you I bit on plastics an

thermal opportunities substitution that plastics Boeing where about AXXX for think for Airbus are we when or metallic’s XXX So today? our

Nick Stanage

poll discussing new a We're which carbon-filled, plastics, seen of lot plastics aspect. aspects. about we're from you've a applications, acquisition PEKK And That's our our which thermal of thermal of is Oxford a new couple one with opportunities. we're obviously plastic system Material excited Performance for with customers. additive getting using manufacturing So thermal

Arkema. into our The you that world probably a other also in PEKK, recall generation prepreg Arkema which one with in collaboration a announcement partnering can the manufacture next with system resin is thermal go leader of aircraft. plastic develop we're that to is solutions is

smaller resin all parts parts, faster certain welding brackets, thermoplastics, So, welding, parts. that the where offer out if components it want a you're take very of that will where of become composite of epoxy for attractive do there over customers can believer, the possibly not images niche materials, types may prevented a is for but they will in-situ I'm aircraft with all to or systems. manufacturer to clip's, autoclave consider it

You solutions. can thermoplastic do that with

it's that's slow the Again, to portfolio, but relatively we want So, be adoption, a excited our to make about it. sure generation. we're really given next of going part

we that customers. full to So, have and a support new those programs offering

Ron Epstein

some used blades engines, big would two an it. you be, you I or any more one don't or is the go, that to of would in matrix do ceramic think products you make know, about what guys mean to desire composites, I direction? you matrix call that of just little go you want that ceramic now same would engines if blades maybe vein, The area follow-ons along the And

Nick Stanage

to the have you really thing, manufacturing that recognize first Well, CMCs, is quite different. process is

little So, there's very technologies. synergy respect or with factories to

love always we solution materials Now, space. materials and advanced

footprint manufacturing fit I'm So, or into not to today offering. interest, product really does it not say but our going no of it's

Ron Epstein

nonmetallics, question. We would were recently into And then last metallic like move they company one large materials that right. a talking they maybe and with to suggested just

lunch, are that's it you do environment mean, I your for you about that? right now really desirable? your question. right? the to where how the most do part, I yourself? big, how do your think have think how the – I kind I big going Do materials it about is you seems in is of So, come worry others that you you industry mean, be mean, defend about and like that mean, competitive in eat trying a this But

Nick Stanage

if the lighter. own. factor they kind of cut stand They're density think lighter. look you on care how between aluminum, it composite at solutions their any I carbon Well, is don't I fiber you

have weight is micro cracking you always nonexistent. advantage. Crack resistance The So corrosion superior. a propagation and is

So And composite the say. continues evolve from as They're the a becoming to familiar from more think productive. as with standpoint hard a composite customers more become technology is it. standpoint, manufacturing our to processing I material

versus heavier solution. You a to that’s want to back lighter go something

Ron Epstein

I nonmetallics, mean, We on see guy your one thing. to is all to right. meaning that go the want into But market understand just wall, is doing the the do. right. writing actually going nobody backwards, getting they metallics I

more as or or about the So to moves an industry do you trying Alleghany PCC metallic? whoever do away nonmetallics from worry

Nick Stanage

the very barriers going do you've That to about Lake I'm and have or would They intellectual been the don't say there's Salt you at reason that of have prove can't can would they to too players ramp We're if I'm and road. going at take not is many, away. ever that a you to look that. I assure think our because this our and very not that And the your giving do it. if entry, property the you technology to look gain to I to years few protective have down question, not world the in They them that site say worry City answer many it. it of that. to would we're specifically. But long. would up. only in I is They

Operator

Capital Kapsch And the question Markets. come with from will line next Chris the Loop of

is line Your now open.

Chris Kapsch

new on my the You of material and content these that Bombardier penetrated just been if question, increased I'm around some over think on do have wondering sort you those over what platforms jets greater industry. they've composite alliances, composites those adoption questions do jets. my under how those the been like had that Traditionally, But sort was and of if a alliances respectively. by portends materialize? period time something terms see with on between time over little and given commentary the Embraer content, regional Boeing platforms, one of developing could you of time in Airbus of

Nick Stanage

those you markets. But growing. secular been less There's it's tell right. I in you're so would penetration Chris,

which solutions, take hopefully in and that the position good new business Embraer, market positions penetration range, very have more advantage will know and the make help and more with and you includes as jet Bombardier to Boeing drive We composite great even jet at aircraft C with more and Bombardier about and we're platforms throughout business and forward combination Series. got their Airbus the with look competitive. optimistic Bombardier relationship position opportunities more Bombardier Similarly, to the we've and a

Chris Kapsch

subject, And longer your think and on or term that longer sort of Nick maybe auto bigger you play you terms on role fiber opportunity then carbon term. strategic that composites if maybe technology moving a opportunity exciting in industry of of a in into may address an you could just how thinking Thanks. it's I the update way either different if the

Nick Stanage

that Hexcel space. that and we the getting I growth sustainable long automotive that for So, platforms always an the have not is that opportunity said the as commodity and it into applications space is treat at are we're for are us. as looking I like appropriately

special quarter clearly our productive our on more adoption focusing material that new over over We're space. will So, multiple on happen to automotive we're That solutions there nice advancing time. programs Pillars their on Lamborghini to again that position with we ourselves. vehicles working opportunities. those positions for be for end and differentiated But did BMW high in what tends are similar drive with can make working quarter them growth in so seen increased. be to the sustainable it areas really B to We've ruffs

So, to and over change we're not the industrial a to business continue in the of excited it. of or sales. wildly said will side as It term it's investing drive going percentage in about the near Hexcel I'm that the it. to automotive grow. makeup Having

Chris Kapsch

France. of one just follow-up and And qualification on the facility in the then ramp

producing are industrial As that selling assume into you're you currently fiber, currently presumably and in you're qualification mode markets. - I

did industrial those the headwind $X that was half mix or affect So presumably with out adverse you and in of to first that to that contribute - the the sales - that was XXXX? question the is segment called that Thanks. materially contemplated the did million growth in in associated

Nick Stanage

So, know, running a as you customers. portfolio of we're offer we lines, to wide as you qualify fibers and we have as we mentioned, various as the

effort underway. qualification markets So used sell industrial that into or to material is other is markets. The

qualifying the we essence, have of But, product takes scrap just the is that. numerous there's on blades time forms goal amount fiber fan the qualifying to and and LEAP Airbus AXXX, our into can zero it that through you qualified to market. imagine, for us As that it virtually get for to proceed for in feed

planning all into So up headwind earlier. those were forecasts Patrick our that rolled that summarized and

Operator

the will Goldman from question with And Sachs. Noah the of line next come Poponak

Your now open. is line

Noah Poponak

for XX% now? the Patrick, guess, some contract new Obviously, pieces. half what's the the of you the You've had right I while. incremental hand, moving moving had pieces. there those long-term a the one wasn't margin first on And with

given guess and On having what's other with the I depreciation you step maybe CapEx. happened ups keep could hand,

leverage pieces the and So view on to kind just three curious for operating your of the latest your opportunity. year moving thoughts two on

Patrick Winterlich

last income look yields looking to moved productivity through improvements. up our way we're mean, and sort the you several it, know, and XX%. the And up XX%, operating years, of efficiency we've from XX% margins as over we our I drive at always to XX%,

customers, time up. the to to So continuing we've through our we're going operating initiatives, trying to period. lines through working income driving our push seen the significant normal that our margin that and and with faster, gross And improvement and push continue keep grow our over to

got revenue that. us to that ahead growth So believe drive allow will we we've

going to so push. And we're to continue

Noah Poponak

Are to committed the you still XX%?

Patrick Winterlich

drive and to we're we're do. said, to that's We've from to going XX% to years our continue going XX% to XX%, continue I’ve As XX%, margins. what over pushed them the

Noah Poponak

longer So as you no XX% are should I as number? interpret a specifically that targeting specific

Nick Stanage

gross not through right we're our say, our view incremental basically, margins, going pushing translating communicate - we the - leverage. and our margins, we're to down plant. but we would our a that Basically, sales XXX% I number start income with

So plants. people stingy We to the new that’s when through leverage bottom top why we're line. need on add to line that very try we or

not talk ourselves So, going there. to But number. really number can to really to we curve, XX% a don't you we're out I we're through limiting a about that want assure growth as this put

Noah Poponak

versus could the press year me new clear the I for second the tax tax entirely the was full maybe the it's guidance old pointed number on just cleaner not I rate? And I half number. guess my rate, you guess then in year if release number tell Patrick to the brain full because the in

Patrick Winterlich

the math. guidance. that do XX% used that Well, and But months you first not can second as number for don't the going of say because six the average to redo I sort you've we the is I'm such tell you rate got what our for six would months

for going year seen that have XX%. basis in of that's be But the we the for average So, second first still to XX%. than the what the in an lower But come clearly now under we've half. half as is - average where the will because

Noah Poponak

in you month happening? final need how to one month once And XX a know it’s just where that close Airbus sort they that could business past that pretty around, if you're would And it that how rate on clear fit that you two, guess the the I you’ve you turn it plans seems unit into one three, the to you higher through were pretty anywhere but like I if guess one the do the decision make of case with I said not and to else. a quickly know on AXXX, if it's or could visibility that. invest for plan Is where something it four there is don’t much I go

Nick Stanage

what into our we frequently they're and Airbus give us So, thinking. customers with insight they talk and

one, have source increase capacity supply we your were chain our given point, to in some So if we to they have sole positions. to that have

If planning. handle we went X that that X, do period. to We to existing we cost productivity So, We to time to get our little we're And point time, when assets. more that capacity. long up be or they a not going would of least on required at bit XX-month manage through to to we which It surge invest a more they're the could aggressively fiber. period capacity and capital you in and existing compare a evaluate need for in in at over compare working would high that. be throughput have improvements and wouldn't our it if capital to

Operator

end o’clock a XX Time. at conference as reminder, And Eastern will this

Spingarn question with Suisse. next Robert line Credit the from come will of Our

Your line open. is now

Robert Spingarn

question, incremental limit the but want to just you Nick, you to XX%. margin to belabor said Not yourself

when higher again? XX% hit you or that does will least you're at to So, to that imply going get go

Nick Stanage

My are we not reiterating again, So, any limiting ourselves. not was number. we're point

our leverage the and forward. Clearly, in years. leverage so, plants, these as ramp R&T historically over invest going fill to we our lumpiness the seen And as plants as we appropriate Roussillon there's Morocco. sure up continue We you've business, spending, the making both new up

push basically And continues we're the to the going balance that as volume is can. grow, it guidance the as fast business while to grow capital As margins as profitably positioning as our against to can, we we'll hard investments.

Robert Spingarn

the that flat don't with beyond, how the then balances XXX business? was have suggested incrementals fact work, in XX wonder as just AXXX in and leverage once will just both if raise that months, with will I all be next then relatively rate the rates case, they the might at let's say, you lines that And happen and do hit all which growth In to you've AXXX. least, done this those

Nick Stanage

spot is summary Your on.

M&A getting an derivatives and along include doesn't engine replacement. road, that applications launched and investment the Now, down a potential wing or requiring new coming or new

moving So there's parts. lot a of

it's platforms based if hits been then rate, rate point, XXX at AXXX derivatives going forward. new market what's and narrowbodies your just to communicated, and about the look hits and today you new If really the on

Robert Spingarn

Is way on side this question. sales, the the On well going done in margin particularly forward? you've overhead of that And other quarter. Patrick, of there about this then, SG&A sustainable? to percentage think is the

Patrick Winterlich

we're lumpy, bit see continually, it’s us going little a you but to going be and will I mean, certainly SG&A do I to leverage time think occasionally yes. over

we see cost. As our And good SG&A you in should revenue leverage grows, manage will our that space.

the going is we same, Yes. quarter going I'm do a lumpy. every to that. So bit little not say to to but able be should be

Robert Spingarn

off buyback And dividends very Obviously, on the deployment. the then lastly strong. capital just

You've I your believe capital already deployment. year for on hit target the

going think forward? So about we this how do

Nick Stanage

shareholders would I which then applications, or looking at do our new return on deployment dividends capital market looking and through a target than or We balancing at acquisition M&A, to never portfolio other continue clarify. positions, or we priorities constantly, gave to bolt-on, and three and opportunities, our opportunities enhance both. or to new So, buyback

Robert Spingarn

the on it shareholders. return there to focus the should I guess I latter Well,

traditionally. - of maybe least there, been you're you already but have ahead target at I you’ve a believe where didn't You've

Patrick Winterlich

Yes.

last more We going net XX%. than said didn't year probably to this call obviously, But - of we deliver our to formally to year We what ourselves our exceed XX% were going out called income. target. than we're that So comfortably return down. we was tie greater

yes. So

well so far. doing we’re So,

Robert Spingarn

QX things of to the like buyback? things Is the harbinger come a with

Nick Stanage

Again, optimize we've on guidance we I provide looking this everyday the our in plan. make appreciate any said not part you're or we testing as really, it's we every going and to And our forecast evaluating simple we're capital. us, truly but at how how business as always opportunities of

flexibility what fact. get report ahead going not after it we going to just ourselves. that's We’ll around have we're of at forward. to maintain the to So, do or always And

Operator

participating today's This and gentlemen, concludes today's conference. session. This you. in you Ladies question-and-answer thank Thank does for the conclude program.

disconnect. day. You Everyone may great all a have

Hexcel (HXL) 24 Jul 182018 Q2 Earnings call transcript