Hexcel Reports 2023 Fourth Quarter and Full Year Results
See Table C for a reconciliation of GAAP and non-GAAP operating income, net income, earnings per share, and operating cash flow to free cash flow. Free cash flow is cash from operations less capital expenditures.
| Summary of Results from Operations | |||||||||||||||||||||||
| Quarters Ended | Years Ended | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | % Change | 2023 | 2022 | % Change | |||||||||||||||||
| Net Sales | $ | 457.5 | $ | 429.4 | 6.5 | % | $ | 1,789.0 | $ | 1,577.7 | 13.4 | % | |||||||||||
| Net sales change in constant currency | 6.4 | % | 12.9 | % | |||||||||||||||||||
| Operating Income | 47.6 | 40.5 | 17.5 | % | 215.3 | 175.2 | 22.9 | % | |||||||||||||||
| Net (Loss) Income | (18.2 | ) | 37.0 | (149.2 | )% | 105.7 | 126.3 | (16.3 | )% | ||||||||||||||
| Diluted net (loss) income per common share | $ | (0.21 | ) | $ | 0.43 | (148.8 | )% | $ | 1.24 | $ | 1.49 | (16.8 | )% | ||||||||||
| Non-GAAP measures for year-over-year comparison (Table C) | |||||||||||||||||||||||
| Adjusted Operating Income | $ | 49.1 | $ | 46.3 | 6.0 | % | $ | 216.7 | $ | 163.3 | 32.7 | % | |||||||||||
| As a % of sales | 10.7 | % | 10.8 | % | 12.1 | % | 10.4 | % | |||||||||||||||
| Adjusted Net Income | 36.6 | 33.7 | 8.6 | % | 154.8 | 108.8 | 42.3 | % | |||||||||||||||
| Adjusted diluted net income per share | $ | 0.43 | $ | 0.40 | 7.5 | % | $ | 1.81 | $ | 1.28 | 41.4 | % | |||||||||||
Hexcel Corporation (NYSE: HXL) today reported fourth quarter 2023 results including net sales of $458 million and adjusted diluted EPS of $0.43 per share.
Chairman, CEO, and President Nick Stanage said, “Sales in our Commercial Aerospace and Space & Defense markets each grew 17% in 2023 and our annual adjusted EPS grew more than 40% year over year from improved operating leverage. Commercial Aerospace growth was led by widebody sales as demand for lightweight and fuel-efficient composite aircraft is strong and growing. Our Space and Defense sales benefitted from higher spending globally, with record-level sales achieved in the fourth quarter. We continue to focus on ensuring operational readiness for the expected growth ahead – this involves training new labor across our manufacturing sites, driving operational excellence programs for yield and efficiency gains, and bringing assets online for the expected increase in demand. Although there is some near-term margin pressure as a result, all of these efforts will position Hexcel to maximize our margin opportunity in the coming years as build rates ramp upwards.
Mr. Stanage continued, “Based on record commercial aircraft backlogs and our customer’s anticipated build rate ramp, we expect double-digit sales growth again in 2024. Operational margins are expected to continue to grow as the business benefits from increased operating leverage and enhanced productivity, supporting another year of strong EPS growth forecasted in 2024. We generated $149 million of free cash flow in 2023, and as sales grow, margins expand, and capital expenditure remains subdued, we anticipate continued strong free cash flow generation in the coming years. This will enable us to continue to invest in our people, drive operational excellence, and pursue technology innovation, as well as return cash to our stockholders.”
Patrick Winterlich, Chief Financial Officer commented, “During the fourth quarter of 2023, we transferred our UK pension plan, which was frozen in 2011, to a third-party insurer, thereby removing any future liability for the company. The pension buy-out resulted in a non-cash accounting charge of $70.5 million in the quarter and a return of $1.9 million cash, as the plan was in a surplus position.”
Markets
Sales in the fourth quarter of 2023 were $457.5 million compared to $429.4 million in the fourth quarter of 2022.
Commercial Aerospace
- Commercial Aerospace sales of $267.5 million for the fourth quarter of 2023 increased 4.4% (5.3% in constant currency) compared to the fourth quarter of 2022. Increasing widebody sales for the Airbus A350 and Boeing 787 supported the sales growth, partially offset by lower narrowbody sales year-over-year. Other Commercial Aerospace increased modestly in the fourth quarter of 2023, led by continued growth in business jets.
Space & Defense
- Space & Defense sales of $152.3 million increased by 20.4% (19.7% in constant currency) for the quarter as compared to the fourth quarter of 2022. Growth was particularly strong with space markets and classified programs.
Industrial
- Total Industrial sales of $37.7 million in the fourth quarter of 2023 decreased 19.3% (22.3% in constant currency) compared to the fourth quarter of 2022. Automotive sales continued to grow, though this growth was more than offset by sales declines in other industrial markets.
Consolidated Operations
The gross margin for the fourth quarter of 2023 was 22.5% compared to 23.1% in the fourth quarter of 2022. The fourth quarter 2023 margin reflected higher infrastructure levels ahead of anticipated increases in customer production rates in 2024 and beyond. As a percentage of sales, selling, general and administrative, and R&T expenses for the fourth quarter of 2023 were 11.8% compared to 12.3% for the fourth quarter of 2022. Adjusted operating income in the fourth quarter of 2023 was $49.1 million or 10.7% of sales, compared to $46.3 million, or 10.8% of sales in 2022. Other operating expenses for both the fourth quarter of 2023 and 2022 included restructuring costs.
During the fourth quarter of 2023, Hexcel sold its 50% interest in Malaysian-based Aerospace Composites Malaysia (ACM) to joint venture partner Boeing for cash proceeds of approximately $44.7 million and in addition, received a cash dividend of $7.5 million. Income to Hexcel from this joint venture has previously been reported as equity in earnings from affiliated companies, and this contributed approximately $0.09 to as reported and adjusted diluted EPS in 2023. Following this transaction, Hexcel will no longer have any equity in earnings from affiliated companies.
Other non-operating expenses in the fourth quarter of 2023 included (i) the non-cash pre-tax charge of $70.5 million related to the buy-out of the UK pension plan; (ii) a pre-tax gain of $1.9 million for the reversion of excess assets related to the UK pension plan; and (iii) an accounting charge of $3.0 million (including the write-off of approximately $9 million in currency translation amounts) related to the sale of the ACM JV interest. Other non-operating income in the fourth quarter of 2022 included the receipt of $10.5 million related to the Aviation Manufacturing Jobs Protection program. Foreign exchange rates had a favorable impact of approximately 30 basis points on operating income as a percentage of sales in the fourth quarter of 2023 compared to the fourth quarter of 2022.
FY 2023 Results
Sales for the full year of 2023 were $1,789.0 million compared to $1,577.7 million, a 13.4% increase from 2022 sales.
Commercial Aerospace (60% of sales)
- Commercial Aerospace sales of $1,068.2 million increased 17.2% (17.0% in constant currency) for the full year of 2023 compared to the full year of 2022. The strongest growth came from the Airbus A350 and Boeing 787 widebodies, supported by moderate growth from the Airbus A320neo and Boeing 737 MAX narrowbodies. Other Commercial Aerospace increased 14.1% for the full year of 2023 compared to the same period in 2022, driven by increasing composite adoption on large-cabin business jets.
Space & Defense (30% of sales)
- Space & Defense sales of $544.8 million increased 17.1% (16.6% in constant currency) for the full year of 2023 as compared to the full year of 2022. Growth was across numerous programs including fixed-wing and space programs globally and European helicopters.
Industrial (10% of sales)
- Total Industrial sales of $176.0 million in the full year of 2023 decreased 12.3% (13.6% in constant currency) compared to the full year of 2022 as a number of industrial sub-markets softened, more than offsetting the double-digit sales growth in automotive.
Consolidated Operations
Gross margin for 2023 was 24.2% compared to 22.6% in the prior year benefiting from higher sales volume leverage. As a percentage of sales, selling, general and administrative, and R&T expenses for the full year of 2023 were 12.1% compared to 12.3% for 2022. Adjusted operating income for the full year of 2023 was $216.7 million or 12.1% of sales, compared to $163.3 million or 10.4% of sales in 2022. Other operating expenses for the full year of 2023 included restructuring costs partially offset by a pre-tax net gain of $0.8 million from the sale of a facility in Colorado. Other operating income for the full year of 2022 included a pre-tax net gain of $19.4 million from the sale of a facility in California, partially offset by restructuring costs. Other non-operating expenses for the full year of 2023 included (i) a non-cash pre-tax charge of $70.5 million related to the buy-out of the UK pension plan; (ii) a pre-tax gain of $1.9 million for the reversion of excess assets related to the UK pension plan; and (iii) an accounting charge of $3.0 million (including the write-off of approximately $9 million in currency translation amounts) related to the sale of the ACM JV interest. Other non-operating income for the full year of 2022 included the receipt of $10.5 million related to the Aviation Manufacturing Jobs Protection program. The impact of foreign exchange rates on operating income as a percentage of sales was favorable by approximately 40 basis points for 2023 compared to 2022.
Cash and other
- Net cash provided by operating activities in 2023 was $257.1 million, compared to $173.1 million in 2022. Working capital was a cash use of $27.4 million in 2023 compared to a use of $72.7 million in 2022. Capital expenditures on a cash basis were $108.2 million in 2023, including approximately $38 million for the purchase of the land and building at the Hexcel Amesbury, Massachusetts facility. Capital expenditures in 2022 were $76.3 million. Net cash used for investing activities in 2023 included net proceeds of $44.7 million from the sale of the ACM JV interest, and net proceeds of $10.3 million received from the sale of the Colorado facility. Net cash used for investing activities for the full year of 2022 included the net proceeds of $21.2 million received from the California facility sale. Free cash flow was $148.9 million in 2023 compared to $96.8 million in 2022. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures. Capital expenditures on an accrual basis were $121.6 million in 2023 and $69.8 million in 2022.
- The Company did not repurchase shares of its common stock during the fourth quarter. The remaining authorization under the share repurchase program on December 31, 2023, was $187 million.
- As announced today, the Board of Directors declared a quarterly dividend of $0.15 per share payable to stockholders of record as of February 9, 2024, with a payment date of February 16, 2024.
2024 Guidance
- Sales of $1.925 billion to $2.025 billion
- Adjusted diluted earnings per share of $2.10 to $2.30
- Free cash flow of greater than $200 million
Market-Specific Sales Outlook
- Commercial Aerospace: Up mid-teens
- Space & Defense: Up mid-single digits
- Industrial: Up low to mid-single digits
Hexcel will host an investor day on February 20, 2024, where additional 2024 guidance and mid-term outlook will be provided. The event will be webcast.
Hexcel will host a conference call at 10:00 a.m. ET, on January 25, 2024, to discuss fourth quarter and full-year 2023 results. The live webcast will be available on the Investor Relations section of the Hexcel website via the following link: https://events.q4inc.com/attendee/422300454. The event can also be accessed by dialing +1 (646) 960-0452. The conference ID is 3428143. Replays of the call will be available on the website.
