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Hexcel (HXL) Up 7.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
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A month has gone by since the last earnings report for Hexcel (HXL). Shares have added about 7.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hexcel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hexcel Q4 Earnings Surpass Estimates, Revenues Miss

Hexcel Corporation reported fourth-quarter 2018 adjusted earnings of 82 cents per share, surpassing the Zacks Consensus Estimate of 80 cents by 2.5%. Further, the bottom line improved 17.1% from the prior-year figure of 70 cents.

In the reported quarter, the company’s GAAP earnings came in at 76 cents compared with the prior-year quarter’s 96 cents.

For 2018, Hexcel's earnings were $3.05 per share, up 14% from $2.68 registered in the year-ago period. The full-year earnings figure surpassed  the Zacks Consensus Estimate of $3.03 by 0.7%.

Total Revenues

Net sales totaled $561 million, which missed the Zacks Consensus Estimate of $562 million by 0.18%. However, the top line witnessed an increase  of 9.6% from the year-ago quarter’s $511.7 million.

In 2018, total revenues increased 10.9% year over year to $2.19 billion. The full-year revenues  figure surpassed the Zacks Consensus Estimate of  $2.18 billion by a whisker.

Operational Update

Hexcel's gross margin was 26.8% in the fourth quarter, reflecting a year-over-year contraction of 100 basis points. The contraction was owing to  unfavorable acrylonitrile prices, wind energy resin prices and tariffs.

The company’s operating expenses amounted to $54.6 million in the quarter compared with the previous year’s $49 million. Selling, general and
administrative expenses were down 12.2%, while Research and technology expenses were up 17.8%.

Quarterly Performance

Commercial Aerospace: Net sales were up 6.7% year over year to $385.4 million. The uptick can be attributed to the new generation narrow-body and
wide-body commercial aircraft programs, particularly strong growth from the sale of Airbus A320neo and Boeing 737 MAX jets.

Space and Defense: Net sales rose 1.3% year over year to $97.7 million, primarily owing to growth across a number of military and civil rotorcraft programs along with the F-35 Joint Strike Fighter (JSF) program.

Industrial: Net sales surged 43.7% year over year to $77.9 million, driven by high wind energy sales.

Financial Details

As of Dec 31, 2018, cash and cash equivalents were $32.7 million compared with $60.1 million as of Dec 31, 2017.

Long-term debt totaled $947.4 million as of Dec 31, 2018, up from $805.6 million as of Dec 31, 2017.

At the end of 2018, cash generated from operating activities summed $421.4 million compared with $428.7 million in the prior year.

Other Financial Updates

The effective tax rate for the fourth quarter of 2018 was 24.2% compared with tax benefit of 2% in the fourth quarter of 2017, as it was favorably impacted by the Tax Cuts and Jobs Act legislation. The company used $358 million to repurchase shares of its common stock during 2018. The remaining authorization under the share repurchase program on Dec 31, 2018 was $385 million.

2019 Guidance

The company currently expects 2019 sales to be in the range of $2.375-$2.475 billion. Also, it projects adjusted diluted earnings per share to be $3.38-$3.52 next year.

Moreover, Hexcel forecasts its free cash flow to exceed $250 million and accrual basis capital expenditures to remain between $170 – $190 million in 2019.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

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