HXL - Earnings call transcript Q2 2019

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Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hexcel Second Quarter 2019 Earnings Call. [Operator Instructions]. Thank you. Officer, begin Financial conference. Chief Winterlich, you your may Patrick

Patrick Winterlich

Hexcel everyone. Quarter Thank morning, to Corporation's you. Good Call. Welcome Second Conference XXXX Earnings

beginning, the Before cover me formalities. let

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

this Relations will the call website. on available page our of Investor be A of replay

Hexcel is this material. permission. cannot be call Lastly, our or recorded It being express and copyrighted without rebroadcast recorded is Corporation by

on request. your this consent Your constitutes that to call participation

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

turn Nick. over call Now to me let the

Nick Stanage

see second joining with in income. Thanks, the us started We and and everyone, growth increasing forward cash that margin flow the quarter. all XXXX you sales carried improvement, momentum and in while share driving operating first our second Patrick. were in Good year thank quarter great as morning, three for to pleased enhanced results. we the markets quarter We of

than penetration our million quarter second in $X.XX, in leverage quarter constant of and Diluted line. was an bottom all-time an quarter markets more XXXX. increase the margin to share currency. over XX% year-over-year were the our growing strong for of the XX% deliver per Earnings second XX.X% and $XXX the reflecting was the objective EPS up of in to secular Sales high,

XX% $XXX XX.X% an income year-over-year, which quarter operating compared million, resulted income second up margin operating of delivered We XXXX. of to QX XX.X% in in

primary million, Commercial sales QX three Boeing as had that quarter, the Boeing of our by $XXX compared Aerospace XXXMAX programs. to X.X% QX seen were primarily AXXX very in reported and driven Last increase AXXXneo, Turning the XXXX, markets. we little impact we XXX in constant reduction. to currency rate an from

quarter As from we in second Today demand our of rate anticipated, as XX Tier we to sales plan. will monthly of rate a MAX higher XX service. into level we general the recognizing than range, suppliers. Boeing some Demands before initial experience MAX continue Boeing's of between in time anticipate that the in this and did softer uncertainty X a announced fell build key forecast reentry passes the

year's were growth. be in quarter-over-quarter, sales program's not continued Despite the perspective and total Hexcel's expect second surrounding that grow are Based we reentry revenue Aerospace aerospace broader a on With across regional and the for high Sales for the ramp-up and a annual positions, grow. where and as X.X% thanks commercial market is guidance recovery. increase, to an program our up we maintaining Commercial versus in yet and previously solid continued our quarter the overall confident sales long-term including growing double-digit jets remain market uncertainty programs, I the confirmed, date in those to part performance continues other business to communicated, viability that Commercial strength market in we as favorable. continue single-digit expect year-over-year the Aerospace to mentioned to eventual earlier. Other last XXXMAX

Fighter the in and acquired growth the sales of Space a other XX.X% experienced include was about which Joint and from reflecting year-over-year primarily in driven constant & These Space be XX% Strike strong wing & almost we to quarter million, sales currency. to January by or of results with by Other robust $XXX F-XX contributed strong an ARC Turning Defense XXXX, We Technologies, to supported continues in Defense. fixed increase. increase programs.

million sales Industrial second the which XX% increase were currency. in an for Finally, constant about XX.X% $XX quarter, of is or

materials with We on continue demand longer the in wind strong adopts from to benefit in more blades sales as efficient industry more turbines. and constant larger energy up XX.X% wind currency enable composite to

from turn back like to a the it I highlights I'd Before share to Patrick, few quarter.

pleasure many to to to share Several returning Investor market meet and entry. investments in excellence so shareholders. Lake business new composite and in leaders innovation, you, opportunities and of projections our you for of scale barriers who thank City and the on clearly outlook and for It tour some Hexcel and equipment, us demonstrating Salt those Day Salt faces site to a the joined First, like their shared direction technology, of growth, our and with value you world-leading our highlighted I'd reconnect we May. was recent operational Lake City in our facilities with as

a During opened laboratory opening sales office to new commitment the we cementing new quarter, a this of celebrated and the Shanghai, materials our also venture we long-term and testing joint region. official second facility in in India,

on market in aerospace Pacific We opportunities Asia key by in and space. the this focused are maximizing encouraged the market expanding are

and positive had great customers. Paris another our interactions Show many key with we exciting Finally, with Air

content. thrilling Hexcel see is that all extensive product it growing has always, the aircraft on As knowing and to display,

our robust advanced lower, uncertainties we opportunities win continuously remain to on highs, XXXMAX, and for and in ability and that future. demonstrate concerning to market for and innovate, capability grow, industry-leading the secular recognize costs next-generation, investment. reflecting strongly to market and and Hexcel changing yet demand deliver for to strong will with that deliver Aircraft fuel-efficient to passengers. summary, we returns the in respond this confident we and positions have continue needs is growth, space. In the allow demand improved all-time generation cash cabin When to comfort confident aircraft couple shareholder continue order positioned backlogs and exceptional value. the our long-term penetration growth We to maintenance for continue near composites on composites improve positive are growth Hexcel you The remain

As raised you as guidance release expenditure our have EPS flow deliver our guidance to confidence cash our strong we yesterday, we and to maintained reflecting capital revenue, for earnings to earnings in seen performance. our free $X.XX $X.XX,

the call I'll details. Patrick of turn more the financial Now over to discuss to quarter's

Patrick Winterlich

as will I usual, our review Nick. markets. in year-over-year you, Thank currency. these And constant a are comparisons provide of

reported The sales our majority currency our As be a intuitive. results may are reminder, not and of of in movements dollars. impact influence this some denominated

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

result, translate our a the net euro when resulting but and lower, dollar. costs margins. As a also the the to tailwind weak pound, Accordingly, translate a to prefer in our lower, we a dollar dollar against strengthens strong sales

the XXXX, Commercial sales and the rates hedging, million XX% In production a Aerospace layers quarter to fluctuations. a disciplined to strategy the hedging total of on generation Aerospace platforms. sales. both hedges well of terms $XXX latest as shift of increases, that wide-body currency horizon, increased narrow-body driven mix we currency favorable as compared second narrow-body XX-quarter represented by X.X% rate quarter to leading of in employ Commercial second almost over smoothing impact

XX% Space & represented Defense sales. of

contributor the For of quarter of comprised more Space XX% The XXXX. increase growth million, by energy advanced same growth strong & Hexcel's second quarter the year prior Space platforms. XX.X% strength period Defense XXX wind composite F-XX than compared compared Industrial increased The Recall materials XX% programs. $XXX to quarter, totaled was remains $XX in sales, to and fixed Defense benefited XX.X% revenues that which period. are in different year-over-year. also the an sales. Industrial second on a the driven & program from increasing other results totaled to million, sales second wing

pronounced sales the We current to XXXX, throughout will forecast growth became growth lessen the continue second of year-over-year wind phase more energy although the half growth during XXXX. as

On a XX.X% second XX.X% compared of the gross XXXX. second basis, was in for margin to quarter consolidated the quarter

higher to year, year-over-year drove operational with absence experienced excellence combined the of focus headwinds improvement. last We levels on and continue the some which, leveraging sales

reflecting depreciation expense million growth. second compared support $X.X prior increased to the Total of continued investment year the our quarter XXXX period, in to capital

constant administrative second growth, the our ARC supporting well and Technologies, XX.X% opportunities. as increased as year-over-year selling, higher and including strengthening currency, sales general sales level in For quarter, new foundation expenses pursue to

million basis impact utilization. XX.X% programs total Operating income increased technology sales $X.X The for we constant expenses technology, XXXX currency of expanded rates XX.X% of continuously of in year-over-year. XXXX. million our support to by for approximately favorable or and or year-over-year as points. to improve XX The second quarter the second future sales continue margin Research was innovation XX.X% process increased product year-over-year and total XX.X% asset of and to income operating of compared in exchange to invest $XX.X to quarter the new

of income compared second and sales margin and to a margin the generated the segment, total and The operating compared comprised an XXXX in for quarter represented of XX.X% in total structures Composite income to Materials second is generated our sales represented segment prior XX.X% Engineered operating of as which of of businesses, XXXX. Products margin core the engineered second an period. XX% the of XXXX quarter The year quarter of of XX% XX% for XX%

margins strong sales of weaker of XXXX, XXXX. a a You second are particularly delivering our the Year-to-date quarter in line targets. with may quarter we recall XXXX had mix first after

is While level margin Products margin, a generating the Materials much invested requires returns than capital. lower of operating investment, the lower on Composite Engineered strong

second seen commented XXXMAX, Nick the some in we As relation the expected, have quarter. impact, as in to

the in Materials to most capacity flexibility we segment, seen less of will As segment. Engineered to communicated, where Composite program-specific compared the previously have Products impact be refocus our

to a programs Engineered mitigated the XXXX impact ARC the sales during was there other the from grew Technologies. MAX second modest result, year-over-year of as program, a of from although Engineered quarter Products impact sales was the acquisition As and Products

quarter for rate was XX.X%. second The of XXXX tax the

tax quarter $XXX.X to rate and is of continue effective XXXX. an second million was year-to-date. the now of operations in from We half cash $XXX.X underlying XX% for Net forecast the million

target first period the This just million XXXX. We ARC of the in second of quarter X.X flow on a debt Xx. XXXX from represented of use the $XX.X leverage acquisition as of debt-to-EBITDA the of represents Free used the between ratio same repaying Technologies. leverage second capital of accrual second and XXXX. expenditures compared At focused portion XXXX year-to-date in basis were $XX.X XXXX the $XX.X quarter decrease a XXXX. our million is January on cash Xx. of quarter $X.X of sequential second in the to financing $XX.X gross Working Capital a of the million XXXX, for an now compared quarter million quarter a the below was end we million in to in

second the of during stock common any repurchase quarter XXXX. not did We

under We have remaining repurchase $XXX million reprogram. our share

maturity our the the more our of flexible, $X syndication interest 'XX growth credit quarter XXXX, June into June our lower, second our Pricing new to charges entered of agreement liquidity, credit that a new group recent a will and that covenants agreement reflecting are extended we from lower result bank includes During and going forward, with level in 'XX. for billion which is rating. reflecting investment-grade increased

followed Our growth, targeted committed returning priorities our organic net than XX% capital allocation we to remain and and disciplined shareholders stock continue to greater in income through and M&A dividends investing of to be buybacks. by

yesterday to quarter. a we quarter XX% quarterly in $X.XX terms cash from increase a returning our of shareholders, to the $X.XX previous dividend In a announced

the I Nick, yesterday. XXXX release to back like would call review guidance included the earnings issued in to turning the Before

return Despite around service, maintaining we to the XXXMAX the revenue are guidance. timing our uncertainty

expect We Industrial in both and to forecast Space consolidated continue Aerospace to we single-digit continue to $X.XXX double-digit By and & billion. Defense billion $X.XXX the high sales growth growth of in Commercial market, markets.

compared million. now within a of guidance forecasting $X.XX the half reflects prior the is along with of are the related be to forecast Free strong which $XXX million. operational adjusted $XXX midpoint cash expected to to performance, $XXX of the million our $X.XX, are of exceed expenditures the in $X.XX. our expectation of EPS to to diluted MAX. uncertainty flow in first Capital This $X.XX while range recognizing still continued to $X.XX XXXX strong range earnings increase to our We represents to

to With Nick. that, the let back call me turn

Nick Stanage

Thanks, Patrick.

leadership earnings accordingly. With guidance technology and sales year and growth behind half we XXXX EPS confident our strong and from and in revised the ability to to benefit markets with our penetration. continues another us, in secular are of deliver of Hexcel first growth broad portfolio have our long-term position

to of We the create opportunities and We to and innovation, are delivering while achieve advantage to providing financial through improve on to value. and operational continuously grow commitments sustainable exceptional customers stay every excellence continuing take disciplined shareholder results value.

so now to turn it questions. Melissa, over I you we'll up, for will it wrap

Operator

[Operator Instructions].

from line from Myles first UBS. Walton Your comes of the question

Myles Walton

Wondering assembly somewhere the I Tier comment -- well you kind you're in as levels last maybe, if point, levels. you -- pull a on between on stable final as see bit you that the XXXMAX going that provided to Do as do the you at transitioning quarter of has see a that Boeing future could, as or element any in know said either quarter? little X movement today funding Or pull largely from forecast? seeing your is for that this this

Nick Stanage

Yes.

don't in to QX. XX and conservatism QX the a very again, took same in impact as mix. any revenue we why So last we to basically been little that's Myles, based quarter, a our what's did. that we mentioned change time, guidance, We we build think in bit And on we we didn't XX forward. in the see foresee of responded quickly At opportunity held where adjustment, going the the on communicated,

until overall, news, more really defined service we entry So to holding we're or there's where are. is

Myles Walton

conservatism, Is the mix anything -- -- might level rate conservatism goes second is reserving perspective second half Materials with to in be looks aside the from that some areas or of run most you Composite of And guess like -- it a run the year of I anything Okay. is margin the the the margin for that implied the there in year. [indiscernible]? that half from rate again, hurts in there

Nick Stanage

We see continue We continuing, certainly, and leverage today. with strong the that to deliver expect sales strong anything don't margins. to

little which glad it are of are of don't we certainly we're in. a last foresee bit many in monitoring behind built we're closely. change that experienced So, but the headwinds that, We year We tariffs a us. got

Myles Walton

for just expense one, mentioned. the last expense for what interest is the Patrick, expectation And interest year? Okay. you the the

Patrick Winterlich

so this we So, to basis forward, had advantage. finance a see going as refinancing, we've But year, we've the about obviously net off the enter pay the of XX points and sort small got we'll gain old a because speak, to new.

Operator

line Your Robert next the question of from Research. Vertical Stallard of comes

Robert Stallard

questions. A couple of quick

deal XX a Airbus moving First characterize Show, on would their the beyond rate gave Airbus the plans Hexcel's capitalization At Paris front. on little the a of the AXXXneo all, XXXX, Air to a move you bit rate clarity expecting How more to with higher. beyond month?

Nick Stanage

AXXX. I the So, AXXX? Robert, you you said meant assume

Robert Stallard

XXX. Sorry, Yes.

Nick Stanage

and to I and engine the talking they works. that Yes, is about go to that they some haven't to in been there's in guys, time. forward well growth And Airbus officially But that I position a and quite think have further for XX great Clearly to Certainly, that. know above it. announced studies a support the yet. we're looking been path beyond beyond XX even potentially and

Robert Stallard

of But to a sales of terms this moment? would be relative in additional of percentage just what CapEx, seeing steady the at you're sort

Nick Stanage

that either online line in CapEx such carbon the drive that assets year XXXX. PAN later be fiber to as early will it line are and qualified indicator as rolled we speak, Yes, under come and big it's wouldn't next and construction

those So don't really, see I for anything programs. incremental

Robert Stallard

follow-up, XXXX. then have unfortunate was Okay. or whether on for And of no-deal as Brexit any view what follow-up. on risk your a I could XXXX is your a the that business, implications wondering

Nick Stanage

Yes.

is end believe. Brexit I end So, where of going election, deadline there uncertainty think seeing is results the the up there in with the looming I ultimately to October,

event disruption I ourselves optimistic to will closely and and is a be -- have that. Airbus, Right protect We've hopeful disruption. I'm and other supply chain. in working customers managed We'll the there our minimal through continue We Safran been that do now, the working with been customers. European very the that the to with

Robert Stallard

you sort put Okay. of, the into Will for specific any, contingency guidance that?

Patrick Winterlich

But we So well, going we mainland mean supply will a bit -- it's to overly other we're it's working Europe. of of a and around capital. build say thing little is is I looking of be U.K. what bit -- between not obviously chains I'd buffer significant, the do don't the perhaps biggest little believe than inventory specific

Operator

from of line the McNulty from comes John Capital question BMO Markets. next Your

Colton Bina

Colton is for This on John. Bina

First congratulations what strong like slightly a of environment. a difficult all, quarter in seems on

we immediately about moderate we it some, you So, takes wind. on front, expected, but little the dropped in got especially there? the some expected of given more speak Industrial you off growth XX% growth than to Can a the and puts the that

Nick Stanage

year, I'll So, can comment. our Patrick if start, growth and quarter of remember, last second wind, started. In you

more up going the scale. the more and are get hybrid production blade, complicated to and new as full ramp come comparables blades to the into So,

growth year. in the totally out, our some on not this come pretty bit where was. and a in side, forward. during of lumpy. again automotive more slow expected. much expect course our programs just unexpected going little that forecast we where there can there where but lumpiness Still a and had in to a recreation and drop was down we came right So very the little we'd QX for of there and that winter in recover below In percentage to And see be within bit And sports, then

Colton Bina

Okay, changing helpful. thanks. the for follow-up. That's And little a course bit then

more buy is quarter have this in first anything you seeing? that what you robust it believe, do drove seven Can to I time that talk decision? So, that Does back you're didn't about some stock. quarters, M&A with the pipeline the

Nick Stanage

simple No. key on range. our to and XX% One, ratio to Basically, facts. return we net committed return target again in we investment which We shareholders, you X.X have by organic have then a clearly continue to X to M&A and focus leverage followed the told few shareholders. on technologies income

took to we ARC at, looking are and of deal that the really organic balance we did, has driven today. that's on, the we at where we're what the us look So, you'll opportunities debt the

Operator

line from question Sheila Kahyaoglu from of the comes Jefferies. Your next

Sheila Kahyaoglu

maybe whether How Just into workflow? last think about do the the along, and or ARC new synergies integrating progressing it's timeline that's on we technologies topic. revenue for how

Nick Stanage

had review we So, days. do just last three our -- internal strategic strategic our week where review we

the obviously see have the the we've between say opportunities have ARC technology synergies to the ARC composite visit a team locations. with we I further the visit advance technologies global but We've some portfolio. two multiple to had of identified leaders I our ARC our piece understand between Similarly, on in. of and teams. can opportunities the integration fiber very so was We only that team that. And the could had progress our the how they am potential excited not

So, of I'm than through the very had ARC's projected case want delighted is what few just this to in than And our expected. more for plan what with was excited. strategic performance to that see those. bigger I'm find excited business to and acquisition. I'm excited see their growth we a go I'm to that fix I be year stronger I

Sheila Kahyaoglu

And do Got absence So NMA it. we And term? of commercial how the production you're market happy rates the an outlook and are how narrow-body the new for near on about about that aero. given end currently? think we I'm growth then wide-body happy, the the where Aerospace, do think maybe for Nick. Commercial just or trajectory a in NMA just

Nick Stanage

the guidance, confident year Obviously, X% we're respect with rate. we're still our X% the to the at year AXXX in to of growth. this first So, seeing midterm feeling

the MAX year versions when from back to transition NEO to narrow-bodies around. turns see grow and XXX continuing the MAX year, with rate of the in legacy first full Next at we'll the

be engines continues the So, to and incremental growth and sales there strong.

strong for going for that's long on a maintain for of AXXX. the XXX watch your clearly, order obviously to have increase rates, to rates time, item backlog been to intake both To the But that's there. everyone. and point the is a period demand There's wide-body

as can. our to grow with that aligned And those the we're helping customers, build So, them orders rates. we're time, we're sustaining confident back we over continue will current

the I and announced position technology Xs we for Boeing NMA, the to when comment on new Tier that to with to gets work that respect with it And launched. continue opportunity and just can

Operator

Your & next Gautam Khanna line from of question comes the Company. from Cowen

Gautam Khanna

us all-clear us? have us for be still that XX, and of kind to wondering MAX I guys? that way then, at content on what the with if of Any we content CFM. get you reported help yes, those sense the Maybe the are the on the could that give And XXXMAX the square once folks will a XX. percentage XX to Spirit snapback for the could what you was relates frame your

Nick Stanage

not be be half, the to Well, that today. the little think specifically, say demand and I Products, product-type who our is don't want dollar-wise support can other about just MAX engineered to takes of on for Rough order, redeployable the assets into fiber, a matrix, to of we're shipping Engineered to it's get Whereas MAX. this based on easily customer, more way: going I percentage-wise balance or it are it think core, time. impossible, --

Gautam Khanna

Okay. on mean that The cetera, That's And the side, XX% Albany International, et presume right? ... it of XX%, fiber helpful. would I I is Spirt/CFM,

Patrick Winterlich

the majority through Yes. fiber Yes. The goes the Albany. vast of towards blade

Nick Stanage

Blades and cases.

Gautam Khanna

Got it.

Okay.

you're come down. it the there de other or thing, can that fairly ARC. tuck-ins minimis looking as the M&A if to I mean much what's it's I pipeline. these pipeline? to you -- -- speak more just out enter that's needle-moving, at got you helpful. technology Is is ARC that's the there And then mean So,

Nick Stanage

Well, again, that identified review, really we things comment our hard like, similar again, it's and are following looking detail. for at. to But us we've strat things we that in ARC, evaluating technologies to

opportunities said change. evaluate. of to discipline So, going us for to plenty I there our is think are that, not Having

I our our team to it's think grown. actually and is understanding due not from in -- deviate said out we space. the pipeline But get core are, We're who having of think I really job our fit. fantastic going that, does diligence a

Operator

comes the Spingarn Crédit line question Suisse. of next from Robert from Your

Robert Spingarn

in ARC of want to Patrick, defense I did contribute get quarter? I and revenues how the space. but, just sense a may in have missed the growth the organic was to what it underlying

Patrick Winterlich

can was said it, year, just that And $XX think the it spread of you obviously I'll I over revenue. calling is it assume evenly out we across specifically. million not we when what say. acquired fairly We're What

Robert Spingarn

higher typically say it lower Okay. Would the of spanning at growing rest business? of you a or the it's that rate? Or is

Patrick Winterlich

Yes. No. growing it's I mean typically.

that's think to it. way fair put I a

Robert Spingarn

Okay. a had it it's between at trend's XX% there. about exceptional margin two And you ask and forward? fairly wind then to segments, this and number Obviously, when you good But I on look incremental wanted are I of incremental to quarter. margins, volumes the think best going segments, of by What's kind the variable the to volatile. the going be two incrementals way what

Patrick Winterlich

Well, say I because Materials thing as me really think well Composite all year-over-year obvious XXXX. Materials stepped and resin Roussillon startup were has trend more costs the within most in much for Materials year. as wind to Composite had last AN is about the Composite in headwinds the particular, the up The strongly energy, the

that, so step-up year-over-year. And nice those that away, taking hence see you

we if 'XX. talked first of XX% Products say in But in bit at lumpy. XX% earlier the year-over-year, performance weaker-than-normal fairly bit -- X QX that narrative, it's strange tried weak I and I've tunnel sort you And that is Engineered QX a in before. a was in more little a look stronger-than-normal in to a to similar had about the XXXX sort really, 'XX months over of the segment

So, I away from to. headwinds composites would year-over-year, it's moving really the point that

Robert Spingarn

Okay.

basis go-forward it settles would once have noise? don't you a on we the where say So

Nick Stanage

margin for not not to a range. can because, respond you, really I going driving to expansion, tells going unless and we're improving top-end tell me provide he's he continuously

Patrick Winterlich

point. XXXX guiding not we're at this And for

Robert Spingarn

Patrick, for one, you. enough. Okay. Last also Well, fair

Just cash on -- declines, -- taxes, the as imagine somewhat? depreciation on going forward, as down CapEx would come what's effect

Patrick Winterlich

mean I our so, rates, so -- taxes, going cash is On underlying XX%. forward,

will tax given the than a lower year effective first that average few the quarters. for rate the bit So, be

would moment, to it's will a the of I from But It bit sort little time rate, lumpy. tax cash to obviously would you, guide of in XX%. Our point to and time direction. I you kind at between that XX% of kind vary

Operator

comes next from question of the from Paretosh Your Misra Berenberg. line

Paretosh Misra

Just to the back wind going business.

rest to higher-margin the a business if the there. talk Just could Is wondering relative that segment? of you the margins about

Patrick Winterlich

our have anything, businesses the lower support. little the the fiber than of or lower But of much tend composite assets, don't If to for be to level example, capital, No. Industrial we have businesses a the in invested composite bit sector. business, our margin -- carbon Industrial rest and we a

can say we so, are on I generate And slightly lower margins. returns good what would

Paretosh Misra

Got the Industrial, is it in of Fair it. the Industrial? with of or line is the higher rest that rest enough. than But the

Patrick Winterlich

Yes. of Industrial, I a little bit a say get you Industrial, market. than you to a Commercial mean bag. it's typical & But for bit and into Defense yes, start mixed the more Space Aerospace could lower

Paretosh Misra

Got then And just second follow-up. a it.

about can side, materials the your raw the year? you what are you of On and talk that just rest what for seeing are expectations

Patrick Winterlich

this the a Well, than cleared has nice priced lower year quarters through it last trial year-over-year, two certainly first been year.

out. combined We're year-over-year Although hedging that's with it still smoothing seeing a the fact now improvement. we're and we're of kind

a contracts, with long-term lot commercial long-term are part which are of know, back-to-back contracts. as resins, of our you those Our

point mitigate in -- kind dramatic So, there. I we're point than actually at time don't this of risks that, too out. other think there's we anything And to

Operator

Barclays. the of Your next question from David comes line Strauss from

David Strauss

qualified qualified? expansion and you Decatur seeing in that capacity what are there, this I for narrow numbers getting your wanted headwind of year kind timeline to getting ask about from

Nick Stanage

indicator We're we lines we've David, lines qualification expect we're that, carbon schedule. the So, on the up a the to these XXXX. that fiber half expediting it have both start side. actually early replicated in PAN fully said demand Then We bit some PAN Having process will support been seeing. getting and on come qualified of to second XXXX.

So, fiber carbon going put With line guidance. to built in first into with respect experienced headwind it's we've respect carbon the our and to fiber, it's Roussillon, it's to be fraction a small in the Decatur.

Lake City. and But Spain team in we're them technology we replicating again, Lake that in lot existing is have Salt with have a City. in the of Salt We them

we as expect well. immaterial to -- expect those would relatively be would I So, headwinds

David Strauss

wanted I cash to Okay. about flow. free ask

gave So, this you out through $X.X billion forecast 'XX.

You previously had through this 'XX. I $X think, billion forecast,

proceed? 'XX should So, period. it Or Is taking that those somewhere in billion ramp? $X.X that period? the implies to two, it $X.X 'XX that How during look like we through -- does billion, what linear if you a expect

Patrick Winterlich

on mean through the billion, again $X term confident XXXX, 'XX Yes. longer 'XX course say. And for $X.X the the I through called that. out we on 'XX, we're we're as you billion,

the In we $XXX whatever, and that, three growth in, steady do to terms certainly CapEx of foresee cash the trajectory the from guided towards 'XX, $XXX then the 'XX, years, or million. ramp earnings operations. 'XX, for And obviously, to million we yes, next

different. one year through don't changes dramatic I that's So, step that There isn't period. suddenly be expect to dramatically any going

or perfectly So, not, a be it's going linear growth steady whether to billion. I'm say, to $X.X not will but it be fairly that to going

David Strauss

working capital at you you in think capital. all what I terms kind Or don't in grow do expected does Patrick, what line about -- commented of of working with And sales? you've

Patrick Winterlich

I some our our mean, we I inventory. best that's we'll mean inevitably, manage capital obviously we to can. will and as that of our But working receivables We'll do as days of our objective. Yes. and tightly as see days grow, we holding manage growth

Operator

next line Capital from Siegmeyer Curt of Keybanc from Your the question Markets. comes

Curtis Siegmeyer

on Just the Industrial a follow-up business.

tends a basis. on of in I how and little just you Nick, describe the piece half of the wind kind business lumpy on cycle hoping on see the as investment a I think inning would And to know, On could well, the color you in what year-over-year second we you that said piece, more performing bit give nonwind you piece maybe how might there? that be be was you the

Nick Stanage

Yes.

wind grew up I year, and guidance ahead. again, XX% want backlog XXXX. to at points, of and too not look a it We're get quarter how quite on ready in don't couple QX you it ended give far just to XXXX. backlog from every is where last Vestas and if But So data

So, to be the very strong. demand continues

production side, which some forecast farms. flip winding in credits, strong new unless of down, get to guidance which some as forward at being expire been continue put efficient, have of the the right to which enable and now, continue to have impact. tax developed the and helps the we technology blades, new going end which But could the incentive On justify demand, more see strong longer those year is place, new

recently announcement unsubsidized totally an was was announced farm a also there in where Denmark. wind think I

And stand own. really, It competitive. its point. to it's close very to getting wind So think that be needs to I needs on

Curtis Siegmeyer

detail And last Defense, may give can how And & been or Space us that helpful. that's better any have maybe some performed of versus worse rotorcraft other the in more quarter? Okay, you then then on programs year? in the

Nick Stanage

So, on wing in step-up fixed India. the nice fixed wing, we program did program Europe, a program a in see on nice a step-up in

we're excited We wing nice the had fixed combined share stepped U.S. a other programs path. which, of handful can't the those, was also I with that bump. names the in but up, of a

that, fairly military, on we've bit does was pointed down the maybe out one down bit Rotorcraft civil. a and little tend a lumpy. a again, lumpy and to that quarter, neutral, on But the little bit be

little So, was growth V-XX rates. quarter-over-quarter. our the it line down with production drive just in a bit, line with really didn't in and guidance build current

Operator

comes line from from Chris Markets. Loop of next question Kapsch Your the Capital

Christopher Kapsch

think the you get to second Yes. in it year-over-year I it was up, million. the up had quarter, $X.X expense. I just $X.X million on said, well, a depreciation first quarter. But I one, quick

million. sequentially, D&A down is So $X.X

what should over expect be levels to 'XX? an we Just And explanation. those the balance looking for of

Patrick Winterlich

Yes.

by Roughly out, to we So, onetime I basically XXXX and tooling we we it little our saw sure step-up depreciation XXXX, over $XX had in was be of called some that. quarter, Industrial in lumpy. million pretty I'm first quarter, a it and we program write-down year-over-year, a bit a the might guided $X stand What business. million a in

the a hike of roughly per gave to is bit of almost million Really, sort underlying to rate first the $X that side. that put I'd a so a But one And quarter. I year-over-year plus first a million step-up, had we admittedly. second increase in by $XX the I onetime stand that lower the quarter. quarter would event the think bit quarter in But little

$XX maybe $XX million, the So full for million year. now

Christopher Kapsch

Is guess FX? modest the would I be from that any. second was quarter, there if some it benefit on was Or there

Patrick Winterlich

obviously it's translation big. a little bit FX There's there, of but not in

Christopher Kapsch

had on process? basically energy discussion, any to technology Got wind transferring your it. And luck have customers? then work still you that just the so is in what Or non-Vestas wind following up --

Nick Stanage

to we even our and new and efficient with that cure demonstrating respect and customers have to are surface has we be So, wind finish. proven technology, time installation multiple very time developing which

them we've these have the customers. I we But with them, It's made early excited out. with to really highlight strong too point progress. real I'm So, think progress made

Christopher Kapsch

PTC. the create I've of seen this just one then on prebuys cycles. in follow-up sort And past the

So, or is as exploration well? PTC an The America reference. EU, case this that North just in it is that you

Patrick Winterlich

actually North about are what the of And wind America. It's sales only of outside X/X you remember need to U.S. that is our

U.S. affects or phased is subsidy all. It China, X/X, the it's This out. is the the So, doesn't North at Asia, and being that affect Europe only America. really PTC

Operator

Wolfe Your next question Keay from line Hunter the comes Research. from of

William Lee

given deemphasis So, NMA? less Will the this urgency MAX for On situation, in some seeing This the you technology invest is to has some are there ongoing or new been for Hunter. NMA, on platform?

Nick Stanage

Yes.

So, on work of I forward. not technology their most, Boeing now team solution, it's the technical and with that continues XXXMAX. if them. solutions But regulatory subs Clearly, has suspect process. we our been And on R&T the that put all is to behind the attention in

have to So, date see, same feel work. not a stopped. announcement. launch But a at we not program efforts there has do or continue that been time, We the

So, path. Boeing define to that needs

Operator

Your next Canaccord. question Ken line from of Herbert from comes the

Kenneth Herbert

to wanted year. you this did up the earlier just on follow acquisition Technologies ARC I

a areas relative better maybe you little that where performance, as to it's mentioned out could specific or expectations you'd think I your there call performing on of Is that than you could seeing part you expected. unique bit anything comment better initially? you're and any

Nick Stanage

when I on we and Lockheed I particular due there's that our Martin. they JSF the than our prepared, diversified what anticipated, program probably And that Hexcel, or we better platform our very proposal that's business. case, doing one in team's support. I don't a and part the -- Clearly, supports had to as think big what on offer business building package referenced conservatism they're

So broad-based strong of we their classified, pretty again, talk it's growth, which certainly lots But technologies. strong programs, of are it's can't across growth many really much so about. on opportunities

Kenneth Herbert

you you this. Okay. missed where pipeline now maybe maybe on what comment moving But I Nick, more just opportunities? M&A apologize highest I there the opportunity for you be forward would M&A or maybe -- can what at again here look and as And just if priorities the you're more growth seeing, perhaps

Nick Stanage

Yes.

materials haven't priorities can highest the our and They're around existing changed. technology, innovation, we again, advanced portfolio Composite enhance ways Materials. So around advanced where

acquisition manufacturing the there with and was and think pursuits how at a technologies, I look Boeing ARC qualification these great of additive acquisition our So, of and we example materials. as recent OPM well as continued

our of those wouldn't think bolt-ons solid space, that our team. financials and have within fit of that that distract So, type

Operator

from question of Sachs. the Noah line Poponak from Goldman comes next Your

Noah Poponak

Patrick, actually, a D&A follow-up.

Just annual you've based the on effort to that slower back will CapEx Or at see just D&A decline actually operating the solve for increase? rates reduction incremental we to Will beyond margin. point XXXX some of had?

Patrick Winterlich

Yes.

point of that future the to But the anyway. declining. foreseeable of level do I years don't coming think actually for declining it D&A latter I I next we've down sort I year-over-year, see reflecting CapEx for the the goes No, X the -- increase see with see rates or there. had don't capital lower X now. of the

Noah Poponak

the down to pretty a what rate in is XXXX? of in XXXX compared Is it in big Okay. step increase it

Patrick Winterlich

point. good a That's

there what I back in So, XXXX. highlighted

only been I have mentioned without $XX probably before. ARC I So, step And XXXX million a think that the up. acquisition, would

'XX would've is to sizable. So I going depends imagine from ARC, down it But would that, without be $XX small you XXXX if you step what a million. call been imagine.

Noah Poponak

the quantify dollars on possible to the revenue of then it And it. MAX, is just Got the Okay. impact quarter? millions in

Nick Stanage

dollars. to going not into get specific We're

I provided that. think lots of on we've color

content do shipset and math assumptions. you on our let your know the I'll You

Noah Poponak

you maybe being others the and good the some then, more your OEM have really The broadly to perspective grounding. into, enough. perspective up Nick, on would broad chain, maybe have which clean the had in Fair that able challenges some love it. I about on And to just of get supply grounding. before talked

So, of kind XX, -- a short at happened? Boeing supply that with time? back the has that any the period on sort XX next ability from it in do system-wide to stating chain's year, move Has supply relatively make XX of XX And where of chain cleanup? perspective see -- some to you to

Nick Stanage

Yes.

and the recognizes you engines. chain we've especially if for I growth there ramp-up supply So type engines don't engine the ramp-up the a challenges think were seen and of on as engine. And I new both on of think NEO I recognized, MAX, again, markets other around for unprecedented believe that and everybody in the some seen ever the components. cell mean

Having is some supply cases And are back the their rates of types mind, to we're opportunity going my starts doubt rate would entry that, Airbus and up. one inventory of ramp making confident going supply the are had working up. and the there's no potential the up, put some approvals stay thoughtful close in building chain inventory I'm once said the into things in catch in there's in sure proposed chain Boeing will support as regulatory to has Boeing And So, service be confirmed be we the and in that to and to. that are expected place.

XX are those a to I to aligned think going with for numbers, staying so and think big XX, certainly in chain shape. again, a from are is better support we Boeing up So very to Again, ramping I good recovery -- well in going the Airbus. as position as those supply from XX, XX back

Operator

concludes today. This joining today's call. Thank us you for conference

now You may disconnect.

Hexcel (HXL) 23 Jul 192019 Q2 Earnings call transcript