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Hexcel (HXL) Down 3.8% Since Last Earnings Report: Can It Rebound?

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

A month has gone by since the last earnings report for Hexcel (HXL). Shares have lost about 3.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hexcel due for a breakout? 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 Q3 Earnings Match Estimates, Revenues Miss

Hexcel Corporation reported third-quarter 2018 adjusted earnings of 80 cents per share, which was in line with the Zacks Consensus Estimate. The bottom line, on the other hand, improved 12.7% from the prior-year
figure of 71 cents.

In the reported quarter, the company’s GAAP earnings came in at 91 cents compared with the prior-year figure of 76 cents.

Total Revenues

Net sales totaled $540.5 million, which missed the Zacks Consensus Estimate of $544 million by 0.6%. However, the top line witnessed an increase of 10% from the year-ago figure of $491.5 million.

Operational Update

Hexcel's gross margin was 26.5% in the third quarter, reflecting a contraction of 110 basis points year over year.

The company’s operating expenses amounted to $46.5 million in the quarter, in line with the previous year’s expenses. Selling, general and administrative expenses were down by 6%, while Research and technology expenses were up 17.8 %.

Quarterly Performance

Commercial Aerospace: Net sales were up 5.8% year over year to $373.1 million. The uptick can be attributed to a number of Bombardier, Embraer and Dassault programs along with new commercial aircraft programs.

Space and Defense: Net sales rose 9.3% year over year to $90.4 million, primarily owing to growth across a number of military, rotorcraft and space programs.

Industrial: Net sales surged 37% year over year to $77 million, driven by high wind energy sales.

Financial Details

As of Sep 30, 2018, cash and cash equivalents were $47.2 million compared with $60.1 million as of Dec 31, 2017.

Long-term debt totaled $980.7 million as of Sep 30, 2018, up from $805.6 million as of Dec 31, 2017.

At the end of the third quarter, cash generated from operating activities summed $278.4 million compared with $308.5 million in the year-ago period.

Other Financial Updates

The effective tax rate for the quarter was 9.1% compared with 16.5% in the third quarter of 2017. The company used $102 million to repurchase shares of its common stock during the third quarter of 2018. The remaining
authorization under the share repurchase program on Sep 30, 2018 was $460 million.

2018 Guidance

Management reiterated its 2018 guidance. The company expects 2018 sales to be $2.14-$2.20 billion. Also, it projects adjusted diluted earnings per share to be $2.99-$3.07.

Moreover, Hexcel still forecasts its free cash flow to exceed $230 million and accrual basis capital expenditures between $170 million and $190 million, in 2018.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Hexcel has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Hexcel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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