It has been about a month since the last earnings report for Hexcel (HXL). Shares have added about 4.9% 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 Corporation Q3 Earnings Beat, Revenues Up Y/Y
Hexcel Corporation reported third-quarter 2019 earnings of 90 cents per share, which surpassed the Zacks Consensus Estimate of 89 cents by 1.1%. The bottom line also improved 12.5% from the prior-year quarter’s 80 cents. The year-over-year upside can be attributed to robust sales and margin improvement.
The company reported GAAP earnings of 93 cents per share compared with the year-ago quarter’s 91 cents.
Net sales totaled $572.5 million, which missed the Zacks Consensus Estimate of $604 million by 5.2%. However, net sales improved 5.9% from the year-ago quarter’s $540.5 million. The year-over-year increase can be attributed to sales growth in the company’s Commercial Aerospace, and Space and Defense segments.
Hexcel’s gross margin was 27.6% in the third quarter, expanding 110 basis points year over year. The improvement reflects strong operational execution.
The company’s operating expenses amounted to $48 million in the third quarter compared with the year-ago quarter’s $46.5 million. Selling, general and administrative expenses grew 3.7%, while research and technology expenses rose 2.2%.
Commercial Aerospace: Net sales increased 3.4% year over year to $385.9 million. The uptick can be attributed to the strong performance of the Airbus A320neo, Airbus A350 and Boeing 787 programs.
Space and Defense: Net sales grew 21.5% year over year to $109.8 million, primarily owing to the growth in the F-35 Joint Strike Fighter program.
Industrial: Net sales declined 0.3% year over year to $76.8 million on low automotive sales.
As of Sep 30, 2019, cash and cash equivalents were $47 million compared with $32.7 million as of Dec 31, 2018.
Long-term debt totaled $1,115.2 million as of Sep 30, 2019, up from $947.4 million as of Dec 31, 2018.
At the end of third-quarter 2019, cash generated from operating activities summed $277.3 million compared with $278.4 million generated at the end of third-quarter 2018.
The effective tax rate was 18.4% in the reported quarter compared with 9.1% in the third quarter of 2018. Free cash flow was $114.6 million for the first nine months of 2019 compared with $128.2 million for the same period last year.
For 2019, Hexcel lowered its sales guidance to $2.34-$2.40 billion from $2.38-$2.48 billion. The Zacks Consensus Estimate for full-year sales, pegged at $2.43 billion, lies above the company’s projected view.
Hexcel projects the adjusted earnings per share to be $3.43-$3.53 for the year. The Zacks Consensus Estimate for the company’s 2019 earnings, pegged at $3.52, toward the endpoint of the company’s guided range.
Hexcel expects free cash flow to exceed $250 million and accrual basis capital expenditures between $170 million and $190 million for 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Hexcel has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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.
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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