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Why Is Hexcel (HXL) Down 3.8% Since Last Earnings Report?

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It has been about a month 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 catalysts.

Hexcel Q2 Earnings Beat Estimates, Sales Decline Y/Y

Hexcel Corporation reported second-quarter 2021 adjusted earnings of 8 cents per share, which exceeded the Zacks Consensus Estimate of a penny.

In the quarter under review, the company posted GAAP earnings of 3 cents against the prior-year quarter’s GAAP loss of a penny.

Total Sales

Net sales totaled $320.3 million, narrowly missing the Zacks Consensus Estimate of $321 million by 0.2%. However, the top line witnessed a decline of 15.4% from the year-ago quarter’s $378.7 million.

Operational Update

Hexcel's gross margin for the second quarter was 19.3% compared to 14.5% in the prior-year period, reflecting a step up in carbon fiber production and sales resulting in a strong margin mix.

Selling, general and administrative, and R&T expenses for the second quarter of 2021 rose 20% year over year.

The company’s adjusted operating income amounted to $19.3 million in the quarter compared with $19.5 million in the year-ago period.

Quarterly Performance

Commercial Aerospace: Net sales were down 24.6% year over year to $153.7 million. Lower sales across all major programs, resulted in this unit’s poor top-line performance.

Space and Defense: Net sales dropped 1.4% year over year to $106.9 million on account of temporary pandemic-induced disruptions within select space and defense platforms.

Industrial: Net sales declined 10.1% year over year to $59.7 million, primarily due to lower wind energy sales.

Financial Details

As of Jun 30, 2021, cash and cash equivalents were $115.3 million compared with $103.3 million as of Dec 31, 2020.

Long-term debt totaled $904.5 million as of Jun 30, 2021, down from $925.5 million as of 2020-end.

At the end of second-quarter 2021, cash generated from operating activities was $38.9 million compared with $73.6 million in the prior year.

Hexcel’s adjusted free cash outflow at the end of second-quarter 2021 was $29.7 million compared with $33.2 million at the end of the prior-year period.

2021 Guidance

The company continues to withhold its financial guidance due to the market uncertainties arising from the global pandemic.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -34.38% due to these changes.

VGM Scores

Currently, 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

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hexcel has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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