Why Is Hexcel (HXL) Up 8.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Hexcel (HXL). Shares have added about 8.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

Hexcel Q1 Earnings Top Estimates on Solid Sales Growth

Hexcel Corporation reported first-quarter 2019 earnings of 84 cents per share, which surpassed the Zacks Consensus Estimate of 79 cents by 6.3%. The bottom line also improved 23.5% from the prior-year figure of 68 cents. This year-over-year upside can be attributed to robust sales growth and solid margin improvement.

Total Sales

Net sales totaled $609.9 million, which exceeded the Zacks Consensus Estimate of $596 million by 2.3% and also increased 12.9% from the year-ago quarter’s $540.1 million.

Operational Update

Hexcel's gross margin was 27.4% in the first quarter, reflecting a year-over-year expansion of 100 basis points. Strong operational execution along with the decline in acrylonitrile (AN) pricing and wind energy resin pricing led to the uptick.

The company’s operating expenses amounted to $64.4 million in the quarter compared with the previous year’s $60.2 million. Selling, general and administrative expenses were up 6.7%, while research and technology expenses rose 7.8%.

Segmental Performance

Commercial Aerospace: Net sales increased 8.6% year over year to $415.5 million. The uptick can be attributed to growth witnessed for majority of its programs, particularly A320neo and B737 MAX. Also, the Boeing 787 and Airbus A350 widebody programs contributed to this unit’s top line.

Space and Defense: Net sales surged 19.6% year over year to $107.8 million, primarily owing to the F-35 Joint Strike Fighter (JSF) program. Also, revenues from ARC Technologies, which the company acquired in January 2019, contributed to this segment’s sales.

Industrial: Net sales surged 28.7% year over year to $86.6 million, driven by high wind energy sales.

Financial Details

As of Mar 31, 2019, cash and cash equivalents were $43.7 million compared with $32.7 million as of Dec 31, 2018.

Long-term debt totaled $1,160 million as of Mar 31, 2019, up from $947.4 million as of Dec 31, 2018.

At the end of first quarter 2019, cash generated from operating activities summed $45.9 million compared with $62.6 million in the prior year.

The effective tax rate was 22.7% in the reported quarter compared with 18.9% in the first quarter of 2018. Free cash outflow was $15.2 million against free cash inflow of $3.1 million in year-ago quarter.

Furthermore, Hexcel used $11 million to repurchase shares of its common stock during the reported quarter. The remaining authorization under the share repurchase program on Mar 31, 2019, was $374 million.

2019 Guidance

For 2019, Hexcel continues to expect sales in the range of $2.38-$2.48 billion. The Zacks Consensus Estimate for the company’s full-year sales, pegged at $2.41 billion, lies below the mid-point of the company’s projected view.

Also, it projects adjusted earnings per share to be $3.38-$3.52 this year. The Zacks Consensus Estimate for the company’s 2019 earnings, pegged at $3.45, is in line with the mid-point of the company guided range.

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

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Hexcel has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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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