HXL - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to Hexcel’s Third Quarter 2019 Earnings Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Patrick Winterlich, Hexcel’s Chief Financial Officer. Please go ahead, sir.

Patrick Winterlich

Thank you. everyone. morning, Good Corporation’s Hexcel XXXX conference earnings Welcome third call. to quarter

me Before cover let formalities. the beginning,

course want I provisions statements during any Harbor everyone related forward-looking call. the make may First, we remind to to about this of the Safe

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

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

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

With our CEO, me of is today are third 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

third joining Thanks us everyone, you and share our Patrick. Good thank quarter as morning, for results. we

a team These cash a capability to to the we was continue for track the exceeding XX.X% quarter on our share year margin strong QX reflect deliver delivered It flow. and XXXX, execute with a commitment value increase We of per XX%. operating our shareholders. versus in earnings results toward and and record

third numbers. million constant was of Adjusted up XXXX. provide quarter will $XXX X.X% year-over-year more the to the EPS quarter of some Sales results, were me Let Patrick and diluted compared in of then details the the $X.XX in $X.XX in currency. on highlight

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

operating efficiencies, quarter the focusing we as driving improvement. was Our margin and continue productivity, continuous increasing robust in on

for generate committed improve commitment to is quality. which are throughout and Clearly, to momentum. opportunities translates constantly productivity excellence gaining Our and operational savings business people the to looking working to improved our margin cost

our an three were AXXXneo Airbus Boeing of constant sales currency X.X% Now, Aerospace the compared and in XXXX, by turning QX markets. programs. $XXX primary driven Commercial AXXX increase to as to QX million, primarily XXX, in

We The business programs. by aerospace primarily growth Stream and the are Gulf encouraged regional by almost commercial strong growth XX% jets. other of includes in was which driven

XXX although of see by to grounding our the Aerospace in the significantly decrease in up affect during benefited not few inventory effects of continue growth suppliers QX. a the from the taking The we slowed in advantage Commercial Boeing the of catch production and year sales as half We Boeing build MAX to MAX first grounding. did

as were However, progressed, as build Boeing the and grew, the sales by XXX inventory affected rates. ships QX our lower grounding thirds two more MAX channel of extended, the than

service following sales read our levels last resumption XXX us we Today, guidance for our timing and growth right approvals. of MAX year regulatory for to higher required return return as the service to the production sales optimistic night. with has release to and remain Boeing revise Unfortunately, a you pushed of the to uncertain in

with lower the markets volume which global industrial our sales reported impacting some economy guidance softening leads XXX the in are to the a lower sustained that for along reflects revised A sales. Boeing to uncertainties stronger due MAX and program dollar, of

the the the original a strength to sales perspective, the sustained guidance. some our add To euro of for against dollar now our expected $XX as result be to are lower reported million approximately by of year compared

tailwind as European into remain XXX to our build shipset reminder, and rates return remainder service when to to for a content. MAX net cautiously to and year head increase, lower our for leads optimistic operations two-thirds to more results expect we more dollar the we margins. max a a for than We cost stronger of in As XXXX of positive driving the and growth the

from Sales aerospace strong. commercial key other programs remained

composites are rate AXXX at the will on and market continued during We share currently secular steadily to remained at grow and XXXX. the continues our first adoption the robust rate while Backlogs ramp XXXX in XXX continued penetration and is XX,XXX for year AXXX the Boeing over full and at growing. accelerate; be to to aircrafts; and full strong

and With leading innovative portfolio industry, key position sustainable barriers customer the technology, with advantage, a excellent a competitive in broadest high sole in the markets source has aerospace product relationships, entry Hexcel global to of opportunities value advanced ahead there than and position billion Hexcel. our company other that is plants growth has advantage no $X equipment, better and take gross space materials property of to in the composite

over QX an XXXX. reflecting constant million Now, There XX.X% almost with were quarter turning and terrific to increase space Sales growth was defense. in currency. double-digit $XXX another of

Growth was Fighter rotorcraft. the Strike F-XX driven Joint along in increasing with by military strength primarily program

business sales Space well market. Defense & is in in making growth continues and contributions to our Our ARC technologies strong perform our overall

about sales industrial were line X% in QX in third Finally, quarter, with $XX was XXXX, about which the constant for million essentially up currency.

market remain of is the steep turbine composite materials growth blades as a in end and stabilizing up. ramp we near for demand this While strong, wind

quarters, has few sales. benefited past the from strong growth For wind Hexcel in

near markets, growth elevated Coupled the demand global softness of be short-term both relatively out likely current sales in XXXX. levels. appears recreational ahead forward, to and keep in with Going industrial factors in to are automotive expected at these leveling the term constant

related returns demonstrate and investment. Customer have never strong expansion, we exceptional relationships and margin year-over-year to Hexcel been summary, Backlogs growth, on win generation, to stronger healthy. are the cash continue and continues In Other our revising create movements, MAX to in exchange the and guidance guidance marketplace of the value unchanged. for XXX shareholders. grounding is our foreign remainder sales XXXX than

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

Patrick Winterlich

Thank Nick. you,

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

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

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

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

our to over In hedging employ XX-quarter hedges terms of protect disciplined in currency income layers a that hedging, we horizon. a strategy operating

approximately Commercial AXXXneo aircraft increasing of production tampered per by aircraft month, driven month per XX quarter sales. including total Commercial quarter $XXX compared of the rate to increases MAX rate. the sales to and increasing the midyear to the XXXX, lower of XXX third third Aerospace Aerospace X.X% million increased XXX represented by XX% XX production

was Defense BXX period to program & Space Growth for as in sales third XXXX. XX.X% including programs, the represented totaled supported by other $XXX Space well of the quarter Defense red & of increase the cord F-XX wide same the the by million, Blackhawk compared XX% and driven sales an craft as fixed-wing plates.

remains period. compared industrial $XX industrial quarter XX% the just Industrial year within comprised third totaled XX% prior X.X% of strong Industrial million, to energy over comprising largest submarket the increase in sales. of Wind sales. revenues

that in period Our of wind mid-XXXX. energy very growth are the a steep stabilizing, began sales following

fluctuations XX not is notably within automotive some we different And these within during which business. We of have the Industrial. submarkets markets, unusual for third experienced quarter,

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

XX% in future to We drives last over continue we headwinds quarter some which on support of year-over-year. year depreciation growth. the the experienced led as year focus combined third to invest excellence the with and when million operational XXXX Total expense margins incremental to prior $X.X we to margins, compared higher of increase continue period to absence operating

and currency. constant selling, currency. general, quarter, X.X% and administrative third in Research increased expense in year-over-year has the constant increased expenses For technology X% year-over-year

through global centers We investments leading North of research in America. excellence expand in continue our by supported to and seven R&D positions Europe located technology

posted Operating XX.X% which third income sales Hexcel. one margin increased for of or operating of margins ever year-over-year. income highest quarter by The XX.X% the the to million expanded of XXXX, quarterly is $XX.X operating

an XX compares points. the quarter rates of performance exchange margin XX.X% margin strong XXXX. of operating impact basis The of was to approximately by The year-over-year third for favorable

XX% of compared engineered product The comprised core generated favorable XXXX operating margin in of due quarter quarter the engineered operating The an third XXXX is an of to for compared businesses in year income represented XXXX. which quarter to and our of structures and and represented a of as XX.X% of generated composite XX.X% XX.X% period. third XX.X% total prior sales the income third program segment segment margin the of XX.X% material mix the in of sales to margin

the generating investment, was material and requires adjusted margin rate capital. level effective than quarter products is of invested strong lower lower comps While a of the third returns XXXX operating tax for segment, The much engineered on the XX.X%.

effective the third quarter is of $X of of of XXXX. $XXX.X in rate continue in cash million Net $XXX operations the We was from XX% quarter year-to-date. the an underlying of use to million tax capital and for fourth forecast represents Working million cash the quarter XXXX.

X of million an quarter the were quarter accrual on debt XXXX. million Hexcel basis leverage of with Free flow target of in expenditures in the compared ratio million stronger EBITDA times. second We and for the between third XXXX. and to third the compared XXXX same cash typically year-to-date million Capital $XXX.X in $XXX.X half in was gross is X.X of year $XX.X period $XX.X the a during to

XXXX quarter, with was used X.X the decrease combined from ARC for and of quarter represents of a EBITDA. the a acquisition technologies the as January the of XXXX leverage debt our third the portion growing first we repaid At of continued ratio This end strong times. financing

XXXX We of the our quarter share have common repurchased third million of stock repurchase during under program. $XX remaining our $XXX approximately million and

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

Nick, sales first to the issued XXXX XXXX, rate build $X.XX expecting by publicly yesterday. to turning guidance sales in guidance month XX guidance range call included consistent issued with would the back the production We billion a disclosed issued our release Boeing. released were Before earnings per rates January reach by XXXX forecasted the we like midyear to I When the in MAX to we billion. to the XXXX $X.X review

to time. quarter, quarter experiencing, we last MAX with were industry fourth in expectations re-affirmed at When of XXXX return expecting early consistent guidance the service we the that

service now including the to expected initially general our due some with softness sales headwinds other economy. industrial of than to to MAX reduced exchange the short-term foreign in have We rates and return due recent being delayed flattening unanticipated further sales global guidance combined the expected

to excellence EPS, generation. drive earnings guidance confidence free employees flow expenditures, capital our our for on maintaining our and cash our in are operational cash and and We focus reflecting

Our are expenditures in from $X.XX generate EPS significant of flow share. raised be per fourth the of guidance Recall that $X.XX to last $XXX EPS is to million per $X.XX of expected range is quarter $X.XX XXXX. expect million we $XXX midpoint again, as to share. share in cash our Capital increasing million. $X.XX we, the per to a guidance exceed forecast to Free range to $XXX quarter cash the by

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

Nick Stanage

Patrick. Thanks

we As cash track we record year. on are to this flow mentioned, deliver

that So the me that restating by M&A. up business our through organically cash let and include for plans growing follow

materials teams diligently programs and opportunities. on next-generation customers our with Our growth future support are working to

technology with opportunities customers Our active future. remain very business deliver We the that to to multiple better portfolio projects. and areas serve to our solutions and development benefit committed ongoing is our finding expand pipeline

share We report we when XXXX full quarter our expect January results. year our in and guidance to fourth

year for XXXX including additional month. of XXXX next at our we its stages which achieve our programs initial Boeing rolling rate rate We beginning higher year XXX, in up XX for year toward that per are growth month growth there's XX And should view as and and that several the have of and the for further AXXXneo plan is moves the per full at expected first of and AXXX. robust a next Airbus Airbus

of look move to during we XXXX. to flight largest the from we forward XXXX. in as demand in production expect the part we long-term positive and Currently, growth at is and confident remain base rate gradual MAX for up On its its through and the XXX of ramp our a MAX, that we XX, return success

competitive, positive. of for extremely our Defense a to continues see Wind of many Space continues wind outlook initiatives cost penetration deposits. The support to is source generation, more industry be power advanced & energy to material we business with become and further possibilities

customers are materials Hexcel’ broadly, lightweighting enable numbers more to electrification relevant And our significant to composite with meet these and becoming projects of increasingly emerging, challenges.

for In demonstrate strong return expect investment will a and shareholders. results the closing, exceptional this on growth, generation, year we solid cash

We and ramp delivering objectives continued shareholders. strong advanced disciplined, and investing long-term by the secular and our in benefit continued demand ups, continue on of staying from adoption our excellence, with customers on operational commitments we're future, program to achieving aircraft growth. composites to focusing by

Julian, that our ends prepared remarks.

So, we're ready questions. take to

Operator

Your first question Khanna from Company. Cowen Instructions] [Operator & Gautam from comes

line Your is open.

Gautam Khanna

background I any wanted comments to you seeing from Spirits are just Sorry just kind noise there’s on this one you and in that? now. you for your of sum Or an [indiscernible] seeing of of below XX? saying the from point customers XX this at i.e. are or then XX airport. here a below mythical Are follow-up

Patrick Winterlich

on that We I MAX most XX level. customers bulk the think of is up are the our now picked to trending believe So noise. lot there question, the of Gautam, a background of the I

have into that. exact and to customer We base visibility broad have hard it's

But key balance at the some is checks, they're is it XX XX. and have and when stated between XX, what that ship somewhere together of portion, three-quarters the comfortable set another of to content whereas we ties somewhere at, we're at the two-thirds suppliers pretty about sanity our do between look our we MAX the where and

Operator

from comes question Fargo. from next Your Mike Wells Sison

Your line is open.

Mike Sison

of of growth the the it of sits end get bottom? from driven more top control either range terms Or low in the or high top your year, at by sales the the segments? guidance, about Nick, Is delta the your $X.XX. within is generally to In this

Patrick Winterlich

it's look both at potential downside the centered. we we as as believe the risk. well upside very And So

is they So I Aerospace with Commercial How the fourth for us do happen as over normally to become quarter. within think opportunity there's and mark. issue as in issues what question given may cash chains depending much could MAX deliver tightening supply a an

is think accurate we're what deliver guidance we on We and see based covered. believe know can So and we that. but think today our we -

Mike Sison

guess little a to give it's sort Aerospace. stays that programs specific I the know I the Commercial year, drive for if of full sound for XXXX, you other MAX then And for outlook bit will does like XX early growth but it have at

growth that can you even really good stays in still So the Aerospace you XX? is that the case can if sales get year MAX next Commercial at pretty

Patrick Winterlich

to meaningful let's Hexcel. MAX the we're not at Well, broader XX than down or down it's we if MAX. certainly to impact. ship program can programs, have would $XXX,XXX for where other on And a full the do year growth per from that and intends Boeing to in forget, set, XX what you number, a go, equate But pick is the math a on for it

as very are and across your that defense markets answer programs been strength to has bullish on many question, strong, Space our in But we including and we're other. well. incredibly seeing

Operator

Your Spingarn next Robert Suisse. Credit question comes from from

Your line open. is

Robert Spingarn

XXXX, also not have And you've concern to to that down, MAX, about that shifting are to following that, but mentioned in Boeing XXX in XXX but right. the you on Boeing the the and course, talked on rates so come growth Just going last has there's maybe but XXXX, much been XXXX. of the embedded XXXX for not some question,

So, XXXX? that how for your does cloud view

Nick Stanage

AXXX So, build is of you do today where they rates, Boeing if look plus. again, to if years at the close a receive have backlog. they and at half another three still not are even five order, stays and

view those to don't programs. those risk we build XXXX relative So, a in being item rates

those and build on can hopeful do, but Airbus. start for both the being now, we're We're and or in that required, they they orders wide-body justify rates Boeing start coming XXXX, existing also bullish replenishment whether rates XXXX,

Robert Spingarn

growth it to as what this XXXX, your Is resuming are my in follow-up else? something industrial, you that, Is then, drives switching back? to talked on win what come assumptions And about to just it automotive?

Nick Stanage

see of have build premium has we're high-end have I then get plan so, basis. speak, want timing very a do ourselves. down and typical. in ahead seeing quarter not and mind automotive on X rolling lumpiness on where is up and keep the and that, quarter, per cars Well, automotive especially We steady some in we'll But the with the necessarily is we'll a our a as we month and big are to rates to rec business don't lot a of in

some and similar is seasonality Rec in with climate with there.

that our So, there. back. new good to been that's continue Vestas When We come our on we're going work we comfortable there's their that, and restructuring mix. with positions real about to technologies some feel

the at see going rates, of continue and we're forward. to rates that, not the they're we few growth because said we've Having high going simply past expect experienced quarters very to kind those over

where growth segments. the those quarters, for the last to a rate will looking we're in over So, few growth still compared been but business have come down we nice

Operator

Your next Myles question comes from UBS. from Walton

Your line open. is

Myles Walton

if it’s wondering Patrick I'm first.

the But fourth on implied the on as quarter third with the range the sales of you're they the margins low maybe decline. why the sales parts quarter just in of in the would moving a it's guess, margin struggling modest they Patrick, I'm engineered range, and fourth end looking and implied in So, just also about much at I for margin end quarter. perhaps products more decline, particular the high margins talk maybe to would if as

could If that. touch on you

Patrick Winterlich

we're as to fairly at ourselves to the the we're said, mean sensitive the would kind of the opposed I range or bottom. say EPS top Nick say, balance midpoint I trying I in with would the again of where sales as terms

decent terms drive a of those the the continue volumes it. fourth based overhead nothing all of But in the the and bit to going we month costs. into December of exceptional always quarter. expect margins recovery in terms to There's and rest ranges on is funny And of a

we centered. strongly reasonably would can. the say I are We margin we incremental will leverage And drive as as

Engineered XX-plus and third starting it strong the ARC that then kind And Engineered can all was of help which terms perhaps a that bit bit. a quarter, Technologies stand being mix up of is a probably to Products. there. little out, mean, of which factors I does segments it high. just and of Products combined Engineered exceptionally with in was a Products, wait There's lumpiness we get the In percent through of the couple reported program

that time that repeat it outlier that I would be say able So tell. now. will those But was things for XX%. XX%, Whether certainly the two we'll a together drove to high was

Myles Walton

ARC, in Space mentioned F-XX. And I have & you by a contributor? the Nick, driven or been bigger. I bigger the contributor Defense ARC a think guess the growth then ARC bigger I the would thought maybe Was on F-XX was

Nick Stanage

bigger as the we in legacy well have before F-XX talk good contributor. Hexcel was when And position ARC Well, mind, ARC. in ARC does keep F-XX, a as

total, clearly the but in and role the of bulk quarter-over-quarter the business. the was So acquisition F-XX ARC in

Patrick Winterlich

Space in I digits high Myles, add But, growth without the also Defense was ARC. & would single underlying even

Myles Walton

it tailwind I the Patrick, the know effect push last it… the adjustments? to And line, or net operating FX a OI, on on a net income, was

Patrick Winterlich

income small small only and a FX a got because basically tailwind, boost. The It the operating do. hedges we but slight operating benefit. hedges is was protects with a the level slight of we the

Operator

from from Markets. Your next Capital question John comes BMO McNulty

open. Your line is

John McNulty

I they driving better though I bit of notably they mean, was engineered have in easier you lumpiness seen little I bit that some, first a to the regards argued, the the long higher With a were like what than some products, and does comps mean, in certainly maybe but even had to anything else half, incremental the were half. would was sound a in there we've it first that? time, were relative margins, clearly

how guess, about should that? we I So, think

Nick Stanage

of resin. easier faced you comps last think we because with simply and the I of headwinds some Well, AN touched the year on

up running So, those is full getting Roussillon certainly is subsided. productive have speed and more and day. every

wasn't anything unusual. there really, So,

that team operations. the Again, ourselves. which I and sustaining continuing proud throughout That productivity to respect very job helping obviously am applaud and level have business to with our is that and our doing of counting of the to efficiencies we're on performance is stretch

CapEx been fantastic some and improvements the So, seen of look some right. to us we've that even that to productivity opportunities have causing at the push our to

all a confidence us So, strength. give it's combination of drive factors margin continuing those that in to

John McNulty

come outlook And things as the how year. huge a back? then XXXX, when for we had you for year comes there to kind you've guess about XXXX? look regard to way of think the should play back step Is potential be we next more to starts where with And to up track the XXXX further out on this for margin MAX get if thinking expansion and look the I margin

Nick Stanage

for team I call pass. but I've said little me. They're look, drive different improvement as Well, year-over-year up it's and as had no John, opportunities a to not only the I haven't quarter-over-quarter, for this rolling and expect my on it's my early before first ideas first XXXX. and but productivity continuous and knows

with for the some stepping With leverage. MAX opportunity gives our sites running of just or as they and up provides back full and it very are strong as efficiently leg

Operator

next comes Olin Research. Longbow question Chris Your from from

open. is Your line

Chris Olin

had the just you growth quick line XX% posted. sales guys I and Aerospace other question a Commercial that on that

I of I sustainable question in rate outside highlighted Space Should the management? would type I & And include on of guess growth or be, some fill run then of question that would guess would or start rate thinking we same thinking I you about the type to like terms Gulfstream. that offer? channels think of the is I the have contracting F-XX. guess Defense, my inventory

Patrick Winterlich

and other, positions big the cells continues GXXX it start did, portion although would positions in the I engines be launched pointed and to but So was with our on quarter-over-quarter expect very platforms broad good. was being our the me new let you out quarter. of wouldn't pretty XX% growth, and I really say a the and at as based we drove and large Gulfstream that, Gulfstream

continue So we well. to to other do see

combination a the Defense, it's & the On Obviously, F-XX. Space growth we there. with expect more

programs with we've like got contribution and acquisition our technologies. from growth growth more new the And expect broad-based then, our We CH-XXK. of

and growth the side. the performance with on rotorcraft military steady Continued

be and and and in unmanned won't that, at, there's we’re of more looked ultimately drones material because production. they provide to great translate probably vehicles other supplying evaluated, will more but that size, opportunities materials being into And them

Operator

next Your Misra comes Berenberg. from from Paretosh question

Your line is open.

Paretosh Misra

is you of for - business the Commercial as this big Commercial Aerospace? How percentage Aerospace

Patrick Winterlich

Paretosh. Sorry,

about of it's or So, XX% total the so Aerospace. Commercial

Paretosh Misra

just your up follow any largely updates. by How on is facility of Thank year? Decatur the on be to coming the And facility then end that you. And done CapEx along? this would that

Nick Stanage

we or was to So There the that would overall, a on year. year XXXX. completed then how there, and we're we're very CapEx sometime What come doing on would to where ahead your maybe it never have We're even question or the this be actually track said great. spent for had gone doing that. But project in qualified of we schedule completed well. was completely next has on online plan lines

Operator

question from next Sheila from Your comes Jefferies. Kahyaoglu

Your is open. line

Sheila Kahyaoglu

Nick, to off remarks. prepared in closed wanted the I turn finishing to - - you as something the you and

not composite And seems manufacturing? the about maturity growing It high organically through the the Hexcel’s more offering to that aircraft. NMA view shift talk future focus volume happen. more to how you about and Maybe, when it small comes of can you will and You talked maybe the M&A. business technology, the will

Nick Stanage

Sure.

a materials, Bombardier positions in So whether guys, growing And cells. secondary empennage, it's our we the it's it's market with primary structures, or in Embraer, good customers we whether it's fuselage, for where us have working engines are always engine Boeing, interiors, for very on next-generation whether structures, wings, which could whether the that hasn't changed. include Airbus,

be materials growth the NEOs marketplace the MAXs the down to believer our to that provide applications, customers continue we're need cure on of best that and upgrades, be will forward. launched, next aggressively package for economic will a other going I'm airplanes, customers those Whether there continue provide working NMA think gets to a going faster, to We're there faster, are be continue penetration. the I the expanded for or to positioned solutions lay secular for not there better commercial, in will and that generation the in and

ready and not NMA going. stay I'm I we'll it like pessimistic as if So, when optimistic, on be to does. and not

Operator

Noah Sachs. Your comes from next from question Goldman Poponak

open. line is Your

Noah Poponak

of rate give us full-year Patrick, new can EPS tax the you inside the and guidance? the old

Patrick Winterlich

Well, the so is obviously the of year-to-date average three quarters. the just

mean, XX%. just think fourth tax rate Noah, is as point I I we underlying the over starting mean, will it's we I quarter, as that into I say, XX%. the go use effective

move historically, we But I will know what et tweaks cetera, get and for the with that year-to-date first it’s fourth combine then will stock I number that for is final I starting adjustments but you needle store we quarters. going the won't as to say, obviously, how and exercised, the don't have the average and XX% point year options, that. what to quarter those the many Now, or be. obviously three That’s to get say, be

much I going it’s So total don’t how to be under but know. XX% in

Noah Poponak

to can't that me specific question? give the numbers you just reason Any

Nick Stanage

- I number. the know I don’t don't

Noah Poponak

prior both or a them had and have am I… earnings guidance new tax than rate you But right have guidance of you assumption,

Patrick Winterlich

I'll this on. then So answer move and we'll

guidance X actual as were quarters, the tax three our X, first QX. the for assumption midpoint The X, has and XX% rate

Noah Poponak

suggest variance a you between to ramping closer interpreted versus XX comments and suggested building were in up. that I On XX. that would prior back then Boeing to and your But comments need XX, was the right to think suggest today, as closer your MAX, even to I Boeing had unwind you've

would little if that Or that has a and you need variance goes the Boeing chain, XX somebody it's just that wondering while then to clean have they engine to the lower. bit, things and gravitated closer that's I'm been effort to any XX, higher? burn stayed up an you've then so, is close like all to or not if position along off as better whether understand improved supply their in And manufacturer

Nick Stanage

Yes.

we inventory just behind, said or We we that to suppliers to there that moving one was clarify, We the at that, never we did we rate. were to another. fact in reported and weren't last or when to we market capacity my and our way plan build basically So empty, anticipation do that. do say, not did excess that the for of we're not knowledge, was quarter do going believe did experience chain they supply that did

rate, period that's knew XX, perhaps a two an quarter we elevated some if time why at impact. or any that. cases And And catch would we we above quarter up. at stay even basically i.e. little to for the that saw cases higher of over the And saw first XX, they second in in some

Third month up. at long build XX per it to inventories quarter, take doesn't for

change our some swung with And big we abrupt than the XX saw change chipset drove pretty especially rate that the closer that suppliers a XX. to around engines

past really amount that it's and the of So, built the inventory quarter. over was a timing

Operator

next question comes from from Loop Chris Your Capital. Kapsch

is line Your open.

Chris Kapsch

Yes, up assuming sorry, try on sort quarter. for closer and XX the - guidance. there? like a - that. the shift that of the Could delta you I'm following a and combination out guidance between on I'm continuing it reaffirmed And as one of maybe reconcile rolling the hedges, from FX to not operating guidance that leverage then fourth lot the mix. to the want those rate just if also to based reduced wondering a so the much sounds just delta sales you the said to given like of I'm earliest contributors the more really sounds little It tax a well is rate. bit of tailwind parse of you the a it's as time

Nick Stanage

at just much I'll the then we’re correct. We the XX the balance to the part delivery MAX And over But the being take we’ll the and guidance now. is right XX. turn I'll at that our above into current your that's shared and built had being towards guidance it on part, pretty at stay that over Patrick. assumption So, we easy that two-thirds first

Patrick Winterlich

deliver in and guidance margins, be mean, can those midpoint the we strong the see standing to moved level very there's where We just of XX.X% that. relation drive $X.XX, with at we to mean, we're incremental productivity, of and in we I I fourth $X.XX the see sustain income, end to seen have that. should efficiency, quarter. won't Essentially, operating reason income quarter - quarter. levels, of we third the absolute to you no operations strong $X.XX, a another And by able we last if

even about, roll Tax, you've to cost but sales. reduced got account the carry honest. it's in more out where three quarters to and into level should first be just it to exceptional I'm obviously tax, take expecting anything we we as the were that, doing I And productivity on talked about be on not control with see of going

Chris Kapsch

just Industrial then the one on segment. follow And up

to And including seemingly, weakness Europe, the move demise I’m composite currently And You there's the mentioned automotive, sales on like, of that the the a towards more Europe. market weakness. into pretty an skewed acceleration weakness pronounced contributor broad-based end there's sort is maybe partly But electrification. But industry the there. in in diesel auto auto in means assuming Brexit. of in bigger

you’ve or been you Just an adoption similar to this have of where the vehicles? transition wondering if there what in a to over there’s composites the early likelihood over accelerated composite Do higher-end seeing more on of time. play electrification some view paradigm in

Nick Stanage

mean, opportunities with term term. all market material the in as extremely composite light-weighting the relatively It's I is factor. the us for to suggests, important very be still that's electrification, lumpiness, the medium a as you be we Europe, suggest, in term, hitting Yes. the you softness adoption short in still electric going near vehicles, to would positive longer I about the think

becomes longer very to offer, sector. of more vehicles’ the more composites important, But an as optimistic where the of composites part we a lot the automotive is battery the vehicles term, in adoption, weight remain integration integral future has of for and batteries

Operator

next from Research. Wolfe question Hunter Keay Your from comes

is open. line Your

William Lee

much fiber for Do the in This a XXXX lines step PAN in when come of online? will - have Hunter. depreciation initial how and Will Decatur you up sense sense is

Patrick Winterlich

those Well, as Nick lines, be come probably kind online of to won't until actually XXXX. indicated, qualifying

So, would we in XXXX this lines Obviously, about which those year, from we’ve the of I the whatever had year. given called much so million but $XX million. say CapEx $XX we as at D&A impact would the million. as million next or year’s spend, a I range $XXX shouldn't look this say up ARC $XXX bit, out, pushed depreciation acquisition I to see a about step-up being, in would

Operator

Strauss from comes next Your David from Barclays. question

open. is line Your

Kate Copouls

to to MAX? Was for the talk QX? else about sales Kate QX David. This large there is drop from in Copouls sequential aerospace besides Wanted there the anything in

Patrick Winterlich

MAXs moving into step The shift out in the and the we have major the engine called in as quarter. change. that that movement really guys demands went third the detail was was factor the Nick on the towards really XX That

Kate Copouls

you lot about talked a guys productivity then have And improvements.

you're see ask kind of working capital then carrying, do XXXX-XXXX the flow out you feel to for cash Does capital, grow in how much I guess with sales targets. you context about year there? of wanted kind and efficiency of your So, or proportionally working free how opportunities I

Patrick Winterlich

the I much seen I of working efficiencies in mean down we in in the that to do capital. longer from near out we run on we're the to these cycle the cash many as capital. term second can would times. mean We always term, some the going the drive nearly It's working half normal year our last have drive quarter as drivers. in always you

And will, base will days what will improve do going forward, is as to we capital make improve we receivable we're extent. grow some possible to we our days, efficient our our as try growth inventory working which as what that always is to Obviously, do. striving and to grow

Operator

Esptein last question Lynch. Your Bank from from of America Ronald Merrill comes

is open. Your line

Caitlin Dullanty

This is Caitlin Dullanty on for Ron.

your of production long-term production XXXX. orders, outlook cut your may for in which rate should Looking we think sensitivity doesn't if rate risk your more looks Boeing the XXXX, starting the to for in like about X% Boeing X% the they the how If downside growth to program XXX, XXXX, have CAGR? at skyline it do get is

Nick Stanage

a you number, XX, math the from Well, about if rate a basically pick you on that's run if XX full the be they says do X.X% to go and that’d my math basis and impact.

Operator

questions. for no concludes have today's participating. call. This Thank you We further

now may disconnect. You

Hexcel (HXL) 22 Oct 192019 Q3 Earnings call transcript