HXL - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to Hexcel’s Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Patrick Winterlich, Chief Financial Officer. you. Thank ahead. go Please

Patrick Winterlich

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

Before beginning, let me cover the formalities.

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

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

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

to let Now, over turn Nick. the me call

Nick Stanage

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

today’s value. we’re delivering essential planning, Understanding, we global and could are and a the experiencing to part magnitude Looking one nature consequences have steps shareholder time in strategic real learning and scenario back specific no economic today. pandemic to adjusting our the realities at do of annual imagined reviews, of

will One aggressively. act continue Our and team quickly Hexcel to

the will to even vigilant be when Company position and to will responsive growth customers returns. We stronger our we remain and

and These COVID-XX on operating the results our we and earnings night, a second our share. saw earlier our Aerospace to the industrial of pandemic last pandemics some a come. per income years unfolded that decline not this Once effect impact ever. global most one yet the you surprising. industries will As sales, air ahead pandemic, economy on quarter been and downturn challenging lead in result year, the had the travel for are swiftly would knew impacted significantly to release to extend and disappointing, Commercial assess expect aerospace significant the impact has of we moved on time as this steep and

levels. airlines down aircraft, you narrow-body flying as more As well-below are are both, for major their jets. business market, well as and than is planned Commercial year-over-year, global Aerospace and know, XX% wide-body flights demand capacity In down our

in orders years a could Our we full and of industry recovery. indicate currently see deliveries, faces number rising backlogs, deferrals take it and cancellations declines while before

so quickly quarantines, and cancel faced addition, we our social automotive have loss that distancing especially and or for that All-in-all, shelter-in-place delay In this and a negatively materialized impacted personal magnitude us have industrial of significantly. as orders, consumers income recreation purchases. headwind factors rarely are major so contributing impacted plans segment,

a we we the push we readily with combination align continue and operational doing excellence. to boundaries to actions April, current for our rebound greater market to decisive plans to demand. And accept that. announced us rapidly to For signals operations of challenge just recover, forecasted respond agile, to early In and and even stay the are take

and costs spending, reducing and well job have cost cut eliminations reductions of eliminating as We benefits expenditures, hold. XX%, as includes and minimizing continue and discretionary Hiring about we are today to reducing approximately by target on labor furloughs. in X,XXX more. salaries overhead reductions temporary promotions which capital And

countries where more do, have to time. in some work for take particularly We processes restructuring

were we for to can in million shareholder was to organization, diluted to We XX.X% million, down painful deliver leverage quarter assure in our it second processes restructure Sales in that that we EPS you our compared margin $XXX lose operating value. our second our is XXXX. team. XX% talented Adjusted and as a As I of as income enable to us simplify adjusted strong will of operating QX to quarter continue quarter $X.XX streamline strong we ensure to to team and compared of year-over-year. XXXX. second and delivered continue X.X% we the Company $X.XX, $XX.X -- right-size members, with

rapidly COVID-XX draw. Now, Commercial across declined the Aerospace rates and let programs the the in our all were build have turn sales revenue representing to with lower Airbus primary pandemic markets. me largest response AXXX, three to correspondingly

inventory significant addition, sales. to year-over-year chain the In decline saw Aerospace, in supply reductions Commercial other decrease contributed revenue. in In we XX% the in

demand impacted mentioned most the news been As the our last of in as one for the fiber. carbon release has our areas of on supply result chain correction night, a

a temporarily we our to match demand. As reductions rates a idled part have large result, build of in and capacity

their to We supply are communicating expected and remained and regularly with chain our requirements. and meet production aligned customers flexible

For number Defense, Space of drop. Defense, up were at a Space sales only & sales we If lower contributed & to modest U.S. slightly. international demand programs look a in

current Industrial for Technologies. our key remain not has levels, industry in expect the in pandemic, ARC & with defense declined at year-over-year. in the and general, pressures Space due half, primarily in submarket we energy growing, spending The wind the wind position Defense into continued pandemic from that sales blades. in and second general this can turbine are will production for acquisition sales continue decline challenges, attributed indications the specifically second be Wind been XX.X% also largest increased Current to optimistic cost from and that but QX In resulting of Our sector. are and quarter especially extended disruptions only the we headwinds. energy

the to creating everything long-term shareholders. support will that Those are innovation, our forward, excellence, remain this matter the pandemic relationships, and our ensure and do most strong customer focused we to we include value unique and as we look recovery. for we in investing opportunity on driving As optimistic viewing maintaining are things that operational a reevaluate

While it feels past we changed the about nothing has changed over Hexcel. everything like are few at who has months,

world a a share we in and advanced softer technology sales, and collaborative supplier in to that strong key we serve remain face demand to technology. leader customers lower whom years Even the composite will for of We’re our come. relationships us well with

focus clear, objectives strong on and near-term a recovery are that decisive and growth. Our vigilant us taking for staying prepare with today actions sustainable future sharp agile a

Not greater aircraft. for our and pressing closely supply an focus our front, in us to also drive growth and examine time to a work teams entire opportunity this only that On further new new efficiency advanced next Hexcel products future. to solve a inventory most our as This is and secure helps secure global business to new generate continue generation the both, leader the for chain is on and technology, challenges, it composite optimize customers’ innovation position in to formulations, cash. to R&T especially levels will even existing

of that realigning during liquidity of and increasing We balance XXXX, take our strengthened All cost ahead. advantage while believe the million, foundation better growth sheet we to global prepare us and our headcount. further will lies by $XX strong the quarter recovery our strengthen second structure these of actions and

dynamics. our to customers costs, staying close to understand actions demand decisive to cash taking and generate market reduce the We’re

Patrick it over to Now, numbers. I’ll more details turn provide the to on

Patrick Winterlich

Thank you, Nick.

our reminder, a comparisons As in in of constant year-over-year The currency. the denominated are dollars. majority are sales

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

translate to lower, rate a exposure income. $XXX.X currency results. horizon As is sales magnified million. Accordingly, sales to our to when hedge The translate by the decreases which euro the in rapid customers result, response pounds, Quarterly financial lower, our was our our protect year-over-year but to costs also lines. over our totaled strengthens We leading this XX-quarter pandemic, a against production benefit by to our destocking a was decrease the margin. due favorable dollar across and net product significant operating stronger dollar to sales a the

decline close represented XX.X% of Aerospace decreased of of to second sales steep XXX as chain. expecting to rate second XXXX. compared Turning historically revenue. quarter were second Also XX% following inventory. in substantially We Commercial were approximately of significant is million as substantial quarter the production for total result of a represented inventory channel resumption total of historically lower XX% our cuts sales to a sales. markets. customers, shift supply sales XXX Commercial the to during Aerospace only is combined quarter This by our with destocking three the $XXX.X a Boeing led Aerospace platform year-over-year. Commercial minimal of The MAX the our MAX high-volume lower the production

second significant the of destocking channel with entire sales. direct to including carbon aerospace product carbon This expect quarter impacting XXXX. a impregnated one and prepregs major portion composites beyond across our resin formulations. is as range prepregs our Carbon the of continue of represent reminder, fiber And the of proprietary those business. prepregs programs fiber our We

to carbon fiber suggesting has others, Destocking process then parts. been high it We fiber in who directly channel. carbon inventory level the also a sell of significant, into of

establish due the to one-time increased same Defense a sales this growth for X.X% period $XXX.X international across in lower the demand support represented Space ultimately inventory totaled & will sales quarter as future. of for Space realignment Commercial supply of Aerospace was nominally in near XX% second XXXX. that in Defense the million, year-over-year. the to & will new painful decrease Although the right-sized Defense chain term, & sustainable a and U.S. Space The decreased compared base

with tempered customers Industrial continuing sales. overall, the to the quarter sub bullish $XX.X of many we We pandemic. course from including Industrial different due XX% and impacts across by primarily million, and the space, & the within pandemic, recreation, are of totaled chain weakness Space industrial XX.X% business supply Defense our disruptions near-term wind on second comprised energy, automotive with markets sales the experiencing remain decreasing pandemic. our of though

wind our For we to by fiber blades their material energy manufacturers composite wind used is in-house. the the turbine make business, glass that supply

gross XX% XX.X% a quarter consolidated largest was submarket are margin for and within Industrial increase Industrial, of wind witness energy the second we expect quarter the manufacture compared cost remains comprising sales. more this XXXX. second We wind than of basis, of of to as pressures continue. the the beginning Wind in industry in outsourcing the complete XX.X% On greater outsourcing to blades to

We capacity are underutilized mix. from and facing substantial headwinds

Keep restructuring at our realignment be discretionary and expenses Selling, the in decreased as we drives Research and controlled constant the benefits focused in tightly to the general quarter continuing. area reductions constant are material XX.X% and cost on we ongoing that spending. during expenses innovation. number fully headcount that months of actions in R&T a business. administrative currency, is mind Note headcount across are with taking plants technology reduced reduced costs this decreased and innovation. Additionally, company in quarter initiated science continued were and Hexcel the further manufacturing throughout advanced efforts currency, as an XX.X% realized. this

cost most our and actions technology. So, realignment selective in the research are

the The other costs, severance expense category principally predominantly U.S. consists of in

will tightly upcoming in depreciation the further developed, was mix points. be exchange in sales, capital periods some sales in which decline actions of as additional year-over-year $XX.X approximately have severance the actions. rapid The of a or expenditures. reduction already rates of operating fiber, we million being the initiated. Total totaled basis costs all business increased for income unfavorable related XX and of cost This $X.X We by expense to margin Adjusted reflects decrease incurring labor lower million, X.X%. been impact lag carbon impact reduction effects managed

discuss comments would to margins. like I on operating make additional few results, I our Before segment a

operating an with visibility guidance pandemic our to communicated withdrawn While would the the able the early annualized throughout we previously that basis financial we in belief customers at be on our supply deliver of due to double-digit conversations based chain uncertainties, and time, we have our cycle. inventory on the margins

and challenging. work XXXX customers, Now to from and remain cost going that visibility Yet, of to our be we determined of chain performance. maximize margin achieving clarity better our aggressively have to more actions is level in we drive recognize the we supply strongly our that

fiber is clearer during mix particularly impact quarter, in near-term a to example, leading previously destocking our us overall there that The in to channel anticipated. the it of carbon For we became and than reduction which significant competed previously level on than more fiber to, has a margins. greater had the paths sales was visibility

lower be the MAX for understood. XXX than recovery to Additionally, production previously expected the is we

margin sales of in segment Now turning Products XXXX, two historical compared consistent XX.X% X% as our hit general Materials is Composite The by core and operating which comprised of the quarter compared to patterns. operating generated Engineered was X.X% represented for XX% as of negative the second to well XXXX. situation, to XX% total total MAX XX% income of the represented which segments. with of second margin The particularly period. sales, as margin quarter and The in a Engineered hard was businesses, prior pandemic engineered impact. the our is year Products structures segment, the

of million As the year million $XX to was the a and effective generates $XX Working returns million for was Composite Engineered capital. operating effective and activities Products XX.X%. continues cash the level conditions, Net quarter be $XX.X year-to-date. period six-month for the of source June cash attractive the rate requires lower quarter. provided for Materials, XXXX adjusted was tax in remainder reminder, of much market rate capital of of on tax second expected a XX%. by The normal than XX, investment The a under invested XXXX ended

to XXXX. were We second the continue XXXX, the million capital of an compared period during on $XX.X Capital XXXX. the half working in generate in expect $XX.X comparable from million accrual expenditures for cash quarter to second to basis of

cash $XX.X million remain $XX.X expenditures. compared and preserving year XXXX Free the for for comparable second of million, was prior cash. continue curtail the flow We generating to We to period. on capital focused quarter

second a maintain we level in our half cash generation the levels of receivable the collections. We as higher year, expect manage strong flow free inventory and of

quarter. during share did temporarily we program suspended, the remained so Our second buyback not any repurchase shares

quarterly of We strengthened XX, XXXX. payments. further well Our we XX, repurchases, June sheet million Board increased $XX as resumption by evaluate share to the liquidity our our balance as dividend will compared as of as continue to XXXX, March

quarter grade reinforces consisting balance an which Hexcel revolver million, our million in sheet Our of undrawn cash the total rating, second liquidity was million XXXX at investment $XXX $XXX of and availability. the of the end of of strength. credit $XXX belief has

have We maturities. debt no near-term

two June. with business financial XXXX uncertainties. generates withdrew Our notes Late When due the we now $XXX of million $X operate revolver billion our of markets matures minimal proactively to senior million the the in XXXX, of resolver, the from balance debt and we predictable, in our have continued confidence on first bank balance we the cash are respectively. our XXXX, mature a XXXX with generation $XXX repaid the Based we syndicates, strength cash as cash. quarter pandemic and and in in revolver

In and is Our We XX, the With was Difficulty] at measured drive on covenant Nick. call remain me and [Technical well XXXX, that continue cost at to a debt X.X X.X times the cash compared June sheet basis leverage gross we times alignments, conditions. balance to turn to XXXX. March closing, generation. let XX, within back protect

Nick Stanage

Thanks, Patrick.

processes stayed extraordinary, moment include cuts maintaining open to enhanced team. furloughs. been few utilizing has focused and we say and to Throughout the our in future has our difficult team Hexcel questions, have customer workforce Before while the have the take ways. all, has precautions, equipment. redefined commitments. want Many pay our a for remarkable committed least, for It a recognize deliver I safe, to The lines to great past distancing, personal We’ve stepped remains team it been taken our months or our meeting dedicated protective yet strongly but Hexcel. determined extra up to social

safety fear, be year. U.S. current these our our all boxes of hand Employees diversity I strengthen and donated better expand organization. last suppliers the donated have inclusion sanitizer in inventory tracking hospitals couldn’t is of in innovation we team plants challenging team hospitals and during performance and made the I masks leadership part Hexcel hit respirator throughout than our Europe. hardest the produced even in uncertainty the that and local example, and and our to own prouder other U.S. We for throughout resilience some the day, shipped Throughout our the The shows in areas and to need For [ph] U.S. to supplies of initiatives every continue Europe masks and times. the of

we One common It we and excel role or the of support rich will call People of Hexcel. a in something one One we soon. first we We industrial regardless once products meet strive domestically is and achieving Hexcel. another industrial that One are, who to In The unchanged. that Company, to as and then trend but that we order that purpose our toward We means purpose and Hexcel our have recover industries core with materials to values lightweight is each strong consistent again we assure inclusive again and on strong. an in how rather our and individual will composite the within time work contributions aerospace culture Hexcel. they and airlines isn’t both, me brings summary, aircraft will let embody proposition you recover. demand. value internationally, integrating where that to next-generation will growing Question fly take our high-performance if new understand aircraft remains in diverse

focus ready. so a We of the climb. is to challenge. is now, is up can the recognize uphill us on long we I ahead you assure Our that preparing that are road that Hexcel

any support with on has unwavering becomes to its is even future. of savings before processes to by Julianne, Hexcel. no I’ll continuous and be and will fewer and the to grow resilient our its during quality thrive say times Our talented you as improvement it productivity team customer take never again. questions. greater stronger positioned that will over even our in I’m commitment crisis that strong the we’ll confident leading critical. that in been The leveraged business and operational perseveres challenge, said perfect these turn the impact it relationships now face excellence towards better will challenging a With drive customers it and more technology, passes, innovation, than resources. and When company passion we cost I operate for

Operator

The Instructions] [Operator Cowen. from first from Gautam comes question Khanna you. Thank

Your line is open.

Gautam Khanna

Thanks. Good morning, guys.

Nick Stanage

Good morning.

Gautam Khanna

you, for gentlemen, guess, of Maybe, just I on channel both inventory. the

in said you How on we any make expect sure. much I programs, them, But much quarters You is and greatest? to it, longer ticket you think do overhang to mentioned for can which how sense QX identify the [indiscernible] number, think I fell in wanted and you inventory my should destocks if of the you

Nick Stanage

at really And Commercial it’s started percentage on. the clearly And of look that’s reductions continue with. shot clearly And inventory was to what Aerospace based QX. programs one where been the obviously be very impact greatest So, platforms. down start that rates rate directionally have significantly that’s had to Hexcel board. the some build to with of see content. the magnitude MAX has you for come the into across build the is And our going the if I’ll strong you had seeing those reductions math, high happening XXX the the AXXX the take going shifts related a throughout we much pretty even QX, being and belief destocking, biggest. to across it’s again, that the in In correction high to year, the guys QX, on of going we

where to hopeful XXXX Boes it’s subside. rates, We’re and revenue as But travel. evaluated, based it’ll dependent still on that land discussed be ultimately being going which are production passenger on know, again, you on very

on it. close a eye keeping we’re So,

what’s customers visibility getting good understand better to chain their we’re and with closely have in supply we’re We throughout. very with our -- visibility, working

see So, of into where QX. We kind extension are. Gautam, certainly that’s we an

Gautam Khanna

gradual gradual that of we’re customers dramatically some it’s the any program comments get and seeing of platforms? in the we’re Maybe rate that what in and Thank you than on specific Are more more the than on just more where seeing the decline decline seeing starting destock program? Yes. you. to ahead a production XXX XXX

Nick Stanage

the say nothing really production of I of kind It’s out abnormal. would jumped the along lines rate.

slog, seen through work to haven’t we we surge gradually a XXX come out inventory and expect of major that the a So, pipeline. in

Gautam Khanna

Thank much, you very guys.

Nick Stanage

Gautam. Thank you,

Operator

Spingarn from comes from Suisse. Robert Your Credit next question

Your line open. is

Robert Spingarn

morning. Yes. Hi, good

say But to Just probably have now. Gautam saying. to the of heard XXX course, some that on going calibrating other on they’re suppliers what to they’re to following a X, XX. up from just We’ve year was calibrate

fair? And like so, when continued the you program it sounds Is be of one could and that’s factor in that that pressure. source a destocking lingering decline, the

Nick Stanage

X. that XX, dependent when It’s I but X. required than stocks Yes, rate they’re a fair, you’re are think when is from are of at XX you much running not of to the rate going a buffer at only bigger build rate

So there’ll it’s number, rate And rightsizing rate, to final buffer that’s we X until be rightsizing continued that supply if get squeezing the run chain, at that a build of number, the stock. to Robert.

Robert Spingarn

new are Because are thinking the look chain. major And versus health extent and aircraft, a maintain the extent to to some into your the supply are it’s aircraft all the Airbus can of needed then How some factoring that aircraft old do that, balance to Yes. produce secure Nick you on minimums customers, versus new between to a do dessert conversation returning at? to the What But, at it we minimum so looking Boeing, real a what want plug to at the capacity. and we aircraft the supply chain? what extent you the from about that talk extent production have I’m happening? They what time. they safe what -- actually thresholds is that’s

Nick Stanage

taking that would seen the longer talking Yes, shifting, Boeing, customers are planes historically, idled out stay with I comments. have and back that we’ve to with get coupe likely but we’re production. to our mean, they’re all Having sitting less be aligned to basically of said the daily in virtually and Boeing them. taken we’ve I Airbus pulled critical sheet, of are balance just you a their both and in Simply, specifically, is and the our tell how with what we strength minimum we on question of production flexibility to costs we Airbus operations. our out, not of sustainable. have, because had have to level the responsiveness

we’re So, very-aligned.

us. have they think I in confidence

to them hand get to today. that’s we’re their times. help continuing I what through And in think, do that seem work troubled hand with them we they

Operator

next Richard from Global. Safran comes question Your Seaport from

Richard Safran

a strategically. first just to about thinking R&D, wanted I a So, ask question bit

So, R&D down. was

you of the also At looking R&D of looking but you’re You’re to look to into into your what should expect you And controls, new the current markets? markets markets. comment say move though, decline, balance when defense some clearly new might are that. like you’re I on proud thought right cost in same time

Nick Stanage

The I on a have more But, new a opportunities with and a we’re our vehicles, niche focused discussions. our would Yes. Since and Great September. said difference three get our to it’s activity maybe question drones, were strategic I to Defense global opportunities. in that area, this do of don’t to technology, of unmanned that that a wouldn’t they and look that our & the year new reviews. many partnering days flight, on the work & I we’re for resources we’re great only and applications had team in send space. with Defense. Space every -- want year, other. pre-cursor prioritizing suppliers. ready week, Board’s really with last timing. have virtually. more few and plan say working electric that, and and We done technology Space there’s And only we for focus to allocating we in customers quite on that lot Having little we productive had as at message in accordingly we we live strategic What reviews plan

lower Industrial targeting aren’t Aerospace, to long. segment and investment That’s we allocation can and a initiatives resources. technology where and those the technology the where some quicker, areas, new demand risk drive refocused have where displace and quite opportunities with ability some in another as tend And are Commercial new older prioritized. have of life We being area then, you in little on and cycles we’re to the specific emphasized

we’re that So, at putting customers huge technology look continuing a on lot element. the near-term sure spend our focused R&T what being, and technology the we’re at supporting they look we’re deferring We time the on of we’re that for make is on, backburner or time a really to midterm. need the

Richard Safran

Thanks.

was Just flow switching I in the for excluding spot good, Cash the payment. $XX a that free because to minute, that cash pretty flow thought looked quarter. million bright

you in in know could more it payables. both, is and or discuss cash expect how and want bulk of Should QX in I and of more half, be second for, terms that capital on it to if about just QX QX? comparable expand we more of So, source opening specifically looks Patrick’s working the inventories, receivables of it remarks

Nick Stanage

seen, Well, let me start, to the clearly, But, production levels. demand maybe in and our right-size new in And during review opportunity materials, I believe, including throughout push levels some chain, our we’ve finished reviewed process we even raw here. with want believe we’ve strategic there’s our the that inventory goods. plenty in organization to supply of work new and chime is the Patrick and

inventory it’s water, being costs that the As we and organizational the on to it’s unfortunately pipeline, the and it down. takes there’s some a on delivered is took and that restructuring, time slow the quick actions such restructuring little in

capital. of being it’s fully the year a second we working the and around see big priority a And half So, quite from inventory. honestly, especially source

Patrick Winterlich

add, would revenue in in. thing raw coming to to we really down materials and is reflect again want these the echo Receivable only the obviously pain on so over took QX, Difficulty] ultimately around. that just The came receipts that the lower of bit payables to mean, turn quickly a cash. grow Nick, I I Yes. edged sword of a materials, we double [Technical

Nick that inventory, benefit. really as it is lot So, of we a had But said. probably

second year opportunity -- stronger huge the than year-to-date. of a should have the We at be half what Yes. we’ve seen

Operator

from Kahyaoglu question Jefferies. from comes Your next Sheila

is line open. Your

Sheila Kahyaoglu

hard carbon should a margins about being clearly your mix expectations, to double-digit and about XXXX is trajectory talked previous fiber. the you achieve that expect of talk impact Can we to for Patrick, how you improve? this versus with big

Patrick Winterlich

chain numbers. Well, Difficulty] perfect were clearly, expected. visibility were larger, customers upfront, have impact I’m the and initially we stronger think supply magnitude get the greater than And I but not with But, market can’t destocking. you and yes, in specific dynamics our the to the [Technical the into the going insight of from

hard are to But And is so, challenge. we be clearly, in can as going XXXX. going we the double-digit a huge push to as

we we incremental, we should into As go forward, see ourselves once to back going actually very-strong get double drive digits, top we’re line and growth. the

saw a Now to emerges get clearly, sizing once strong cost alignment, the ourselves with right But be We’ll line. previously. all we’re the we top foundation. doing, the up around not but that is only position uncertainty push that right we’re to back in putting levels the low-double-digits into in that very

Sheila Kahyaoglu

obviously And fiber, just be we could we start more, on that’s looking up, is growth wide-bodies improving? and should carbon the have more mix see margins see little where that impact given bit where to a the

Nick Stanage

I mean, mean, also the and the But prepreg, spectrum single and carbon narrow-bodies, engines, I the fiber. that pull through has programs. casings the [ph] largest fiber AXXX program, nasals impact. broadly the is through we provide of secondary carbon the clearly across an yes, structure

we way us generally, to will So, way help That incremental will the back as out. the significantly some up, impact and drive prepreg makes on the it on fiber pull margin. down way again see carbon that strong back

Sheila Kahyaoglu

you so much. Thank Great.

Operator

next from Myles comes question Your Walton UBS. from

open. is line Your

Louis Raffetto

did quarter you to I Raffetto gentlemen. mentioned the back go just This in down morning, were that -- to first Myles. you you know, essentially Louis QX. want on the shut MAX, is I Patrick, for Good restart

year? because there in who point So, anything the producing, until on can basically MAX you out at not shipping peers some said, you next they’re confirm you some are had

Patrick Winterlich

low will shipping What material. but are is say levels. of quantities is shipping small low levels, we we’re I pretty still It at

Louis Raffetto

or else the curious you And say, the it? considerably or guess, be they large So past customers, then, worthwhile let’s around specifically a with of Okay. you had whether down Industrial fiber. think in the Have about sort those shut carbon I is of fungibility part it anywhere any, conversations conversations going? how also, talked I just

Nick Stanage

mean Yes. I a fungible, it our lot but are time. of takes assets

and will applications So, our get composite we but with our our of It overnight, customers redirect we conversations the carbon wins. we prepreg applications happen sort that. segment short-term some sector about absolutely sources and vast for having are do other industrial of lines majority can we can for where doesn’t fiber,

no with value-add. low-margin We’re not going to chase commodity,

to carbon want bit But, definitely going that to we those bring automotive stick that. utilize Industrial may are that. place. principles, flexible for in of if more going to value. our recreation, provide some we taking And conversations some our are respectable a still to little can applications do fiber We’re be We around we margins, some

Louis Raffetto

Okay. very much. you Thank

Operator

Gibbs Your comes of next from question Phil KeyBanc Capital.

is open. line Your

Phil Gibbs

very thanks Hey, much. morning. Good

Nick Stanage

Good morning.

Phil Gibbs

The in how labor side. cost How rest and the be baked going the XX% quarter you is reduction targeted that is the much to to you in? of think second be got on about

Patrick Winterlich

reductions we’re cost, out Yes. costs, we salary temporary in were you things time mean, furloughs sort XX%, reductions, We salary do to out the then we of pure and close but cuts that mean -- I combine heads, total very time. in think benefit called in I X,XXX and probably I working. and XX%, called take These range. short with

our we So, cost we worked it’s and the taking through many cards switch, those base. played could improve as not line our sort to of quarter as of we as our way

clearly So, those in place. are the permanent X,XXX heads,

we are on As to permanent script, further in we the restructurings. continuing indicated work

takes Some around geographies, rules in will with that we because to continue time regulations [indiscernible]. combine of Europe. especially working again in of push. short But, that other furloughs And and we’ll more longer

I be in to got large precise. exactly mean, going be chunk it’s of not precise. I’m hard we But, a QX. to saving So,

we the to year, But, of year. we’ll progress the QX. And large as see towards I European flag would done. next could even have end going of We’re of that some into the a get in portion that stretch again

Phil Gibbs

with much And how expect over severance I quarters, Okay. that. actions? cash next should associated we the appreciate of then, these couple costs

Patrick Winterlich

I’m be this It number that really severance call a million, less quarter. than vast through. bulk be in there was number. costs half, the incentive the specific related further again, to out $XX come XX% severance going that so The will of that second the but So, will

Phil Gibbs

the like question new bit you last then, Can a It outsourcing you just market. and And impacts talk is about seems and revelation. wind these run issues the that short long little energy how on run? a in

understand Just trying to it.

Nick Stanage

price And plays. see is of mean, these increasing increasing of doing the is I just competitive, manufacturers to seeing to I And outsource Yes. they’re this the can for we’re seeing and getting stronger costs. But mean, we’re sort highly wind of pressure, shift obviously what having emerge over oil energy perhaps, on and energy everything that wind it’s The even is to compete. trying focus an starting push now. some really -- market sort time. energy they are we’re

And so, really we’re just challenges. flagging increasing that market is going to have

continuing. we do and it market cost as be see always, can competitive pressures as As as to see drive our going that we we forward, but we’re to going efficiencies, try

Operator

next Noah comes Goldman Your from from Poponak Sachs. question

Noah Poponak

think states at sites dates some quarter, going suspend operations release you’re to few the during production inventory. align third I and The to that doing that temporarily and a

Do similar reads So, in that more versus -- that is inventory third quarter. rate it quarter us versus action I XQ? a second that correct of XQ the in I have read destocking or incrementally

Nick Stanage

into What made out So, of for and earnings say based assets really in quarter along doing been plants, that to the we Destocking typically us the would going are of carbon our see in idling things. and going the and customer within pointed the I timeframe. couple demand to that’s idling above in timeframe, to. resources is what idled continue a assets we that end March-April earlier we’re back sense fiber beyond it we’ve on And the quarter. Europe allocate were the seasonality with that third we the had release in most

in we expect So, destocking third the and pressure quarter. see significant do more

Noah Poponak

Yes. Okay.

versus year-over-year the XQ the dollars as being I the in the also rate decline of be think if a rate quarter, in seasonality, of quarter in decline about was versus your decline well with normal the absolute that. bit Should third aerospace larger second XQ? rate So, revenues from same lower of would a

Nick Stanage

don’t I so. think

may in quarter. color made moved some fair to the we’ve Patrick think, dramatic I add quickly. a I a adjustment want We change. see second there. don’t But,

Patrick Winterlich

magnitude need the layer mean, on decline, Noah, minus. underlying But plus seasonally. to I probably think, similar, you or then, I of is the

difference, that probably. we that’s would Nick as make said, So, the

Noah Poponak

Right.

or year-over-year, down sequentially? would amount, bit roughly same make be on take, would give the it down So, but that a -- little it then, and

Patrick Winterlich

that. say could you Yes,

Noah Poponak

few & was quarter the specific? or a items growth Directionally, yes. one quarters Defense negative moving segment last The that the forward, are timing quarter, pretty that that in for rate items made those Space

Patrick Winterlich

We be I word Defense. strong. up And remain bullish that, to is around I softness holding Fundamentally, be Noah. optimistic. & think, on The the particular mean, precise see the remaining really pandemic, is for or we Space see in use in sector Space & Hard build see market But us, that think, fundamentally, we the down. Europe, shifting as don’t it within some we I Defense, was of of it’s overall, pressures. budgetary timing. rate we going some coming to U.S.

year quarter So, be bump form may this still performance little see bit to quarter, a the to there year may this But, a of be noisy. overall we robust. be bit

as I optimistic. say, remain so, we And

or to alluded we don’t And lot if think I the would think I first programs, the which So, new encouraging. a of term, anything, point which to, specific very medium And elsewhere. anything is see U.S., robustness question. in Europe in on I Nick

Noah Poponak

far. hold would and from cut margin to the If you of Boeing they in able Airbus the get digits hypothetical one production gave need the that able to you last all did just that question. they’ve for double us, announced further I operating And be anymore me, hypothetical, on the XXXX? what not so In to margin rates into back were Patrick,

Patrick Winterlich

is definitely ourselves to to that. Our drive objective

top-line specific, I to given certainty double-digit drive But, our cost question hypothetical. some and we think, going top-line your is keep growth, some up. will and Yes. align a bit to even if little

Operator

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

John McNulty

free one about guess not pretty certainly that any the XX% rest the cash How bit of normal. about on figuring help; so in year, maybe in year. earnings to have terms that question the I so to relatively inventory XX% of think that? the going side, going half give little going -- think cash your of more would know incrementally should decent or a is is Maybe -- you’re cash this a last on to that have are I normally we flow, to flow have you just year’s second you’re be the metric is so extreme less a But, help? on to

Patrick Winterlich

mean, year. to QX, lot pressure. is good the space. you’re be EBITDA top-line, second I yes, drive cash in we inventory, the I we have some able thought were numbers. of lot a right with the the than a have of was directionally, the very stronger under opportunity and half don’t what -- year think of Yes. will we we Obviously, half But, first

Operator

from comes question from next Misra Your Paretosh Berenberg.

is line open. Your

Paretosh Misra

Kurt. Patrick morning. Good Thank Nick, you. and

your or Aerospace. to just another you’re composite? applications, Commercial carbon just material Are producers, wanted products competitor new or currently to So, to opportunities back share I basically for metal-based, more from you’re gain some composite which gain Like, looking opportunities a market looking some revenue is share outside exploring these fiber, it go use you to substitution story? are are grow other where for this the that market story of

Nick Stanage

predominantly it’s materials. new I’d applications requiring opportunities, new new say,

of the solutions new are displacement that new new of be we’re seeing some innovative industrial others. in metals forward. of for drones, Some prior models, of going technical or some of the unmanned opportunities But, may vehicles, the some

opportunities. So, predominantly, new

areas materials. we are some from to existing standpoint opportunities a performance where think technology has overall that have there we do some enhanced and Although displace cost

Paretosh Misra

up see if follow you to on current might rates? FX tried quantify, have just in from kind headwind wondering you impact, what QX maybe base margins on of FX And Thanks. exchange just to the operating on

Patrick Winterlich

expect I be it in XXXX. place becoming XX-XX have the just based don’t called we a -- will significant. significantly I in be year. I year-to-date. points It versus think, hedges headwind, see on we XX second mean, But, don’t about half this I different continued to the basis of

Paretosh Misra

Good everything. luck guys. Thanks, it. Got with

Nick Stanage

Thank you.

Operator

from Pete Your from Alembic next comes Global Skibitski Advisors. question

open. is line Your

Pete Skibitski

Hey. morning, guys. Good

cost Washington sharply lower last in within Kent, it obviously at pretty I the talked down in about there saw that kind call think, of the Products, site you And XQ the less complex suppliers. of work to was we sales migrating on Engineered segment. some kind of

impacted just I’m of softness? that much versus trying much market -- to underlying suppliers migrating So, work that how how understand to was was other

Patrick Winterlich

Yes.

that’s going supply that so the to to a movement we already. Most So, that’s reduction cost saw, that going it And transition the market, that as honest, in of is we’ve quarter If the from take from be you build a revenue -- and perspective. to was rate. general lower say, do place. seen we flagged agreement large second is because headline pandemic what stop in -- up what anything,

the coming as we back, the get some same transition much of And underlying back, taking at business time. won’t of that so, as the place just comes because

to-date in to not certain that So, saw to smooth the I whereas of we we Products, is perhaps more step expected in is largely say, so would time. seeing what stat probably point at transition transition. we’re Engineered it say, to down But, be going the

Pete Skibitski

Last markets. me one the in Industrial for

to see expect into just you’ve straight down to softness the Do this quarter for trying XXXX to wind you the in feel, guess in incremental in you’re you expect Industrial there? maybe quarter. good up comps in in your three third is quarters pretty The of Industrial. fourth I’m my double-digit now fourth So, easier, been head decline because see inflection obviously, or you’d another going quarter. headwind, maybe the as

Nick Stanage

Yes.

done really markets be and We’re all the the to consistent. the uncertainty because simply just and in guidance, adjustments giving avoiding of being any

closely working we’re new we’re on their working key chain. our customers closely with opportunities; supply rightsizing them with on So,

a sales don’t we from perspective. quarter-over-quarter I to know expect So, into get direction giving want see any on what to

Operator

Your will last America. from of Bank Epstein Ron from question come

Ron Epstein

So there’s a on know so deep ultimately been enough, because But lot turn, you Just will and call, mean, maybe things so cutting and I reasonably on the dark when forth. How The cut broadly. cost some broadly? seems be now. when There’ll this? It focus you do things as do right whole right? get that you that? of fix right? you’ve how bone, don’t do for you you assure into So, about haven’t better, far cut that say, they pass. think will cut of pandemic how just too do all sort

Nick Stanage

our the one priorities next thing. they nor aligned those what with are, down for haven’t they to customers. but the programs on slimmed respect Their We stay initiatives, components, and have with we. align So, technology advanced have for engines it cells, generation, airplanes, stopped we may

to continue customers. we stay to So, our very close

how time the And our assets spend our large train -- at allocating Keep look not into in continue and to just team challenges with make a the bone. our we Patrick it’s we skill-set only take of We certain portion assets our to to working we’re our And a can need in we’re in throughout I year. sure that not mind R&T. in business some to that. that of up doing the

the growth So, move the that and maintain have our appropriate the when assets, customer of to into do on we fungible the in comes demand, the fact optimize cost we consideration skilled resources footprint we back. can our capitalize they and level structure, allocate take throughout but around, how organization also take growth the

of big, it’s couple couple doubt, the So, a need no back cut we if or we weekly. R&T. percent add percent need not real just but time is daily to we R&T it’s adjust another to monitor it organization. throughout and if of we entire And

Ron Epstein

of or the remarks far, call, anticipated. been was maybe channel just visibility then, prepared it it you guys fiber that And than the was have your is mentioned worse that? you so quick In just for the there in What only was one the cause for sort things that more carbon had than everybody is Is follow-on. just anticipating? for maybe longer

Nick Stanage

fan pick look, structure. might shroud engine the times itself. with a I a or whether think, choose a or flap lead delivering blade XX and different it’s of the vastness got and piece And point you or [ph] starts their chain and a complexity everybody’s an can ship, the supply puzzle, the in primary it of the ship XX have you program,

supply So, complex. chain is the very

with they’re squeezed chain of have I visibility as that also them, internally, so our clearly visibility less and though And it. down and in is but you think, have doing a the rates perfect one more. I even get you would don’t with Xs. down, say, Boeing factor, we also And both. to the combination start supply Tier best when fact, again, to what Airbus we’ve production work Even going of the you’ve combination seen are is visibility continues got going we

Operator

conference are questions your will This We participation. call. out you Thank today. today’s conclude time of for for

You may now disconnect.

Hexcel (HXL) 28 Jul 202020 Q2 Earnings call transcript