Hexcel Corporation (HXL)
Q2 2009 Earnings Call
July 28, 2009 11:00 AM ET
Wayne C. Pensky - Senior Vice President and Chief Financial Officer
David E. Berges - Chairman and Chief Executive Officer
Howard Rubel - Jefferies
Steve Levenson - Stifel Nicolaus
Noah Poponak - Goldman Sachs
John McNulty - Credit Suisse
Cristina Fernandez - UBS
Michael Sison - KeyBanc
Michael Lew - ThinkEquity
Al Kaschalk - Wedbush Morgan
Previous Statements by HXL
» Hexcel Corporation Q3 2009 Earnings Call Transcript
» Hexcel Corporation Q1 2009 Earnings Call Transcript
» Hexcel Q4 2008 Earnings Call Transcript
For opening remarks and introductions, I would like to turn the call over to Wayne Pensky, Chief Financial Officer. Please go ahead sir.
Wayne C. Pensky
Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2009 Second Quarter Earnings conference call on July 28, 2009.
Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statement today. Such factors are detailed in the Company's SEC filings, 2008 10-K and last night's press release and the filing of the second quarter 10-Q.
Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request.
With me today are Dave Berges, Hexcel's Chairman and CEO and Michael Bacal, our Communications and Investors Relations Manager. The purpose of the call is to review our 2009 second quarter results detailed in our press release issued last night. First, Dave will cover the markets, then I'll cover the financials, then Dave will return with some final comments.
David E. Berges
Thanks Wayne. The second quarter revenues were about 23% lower than last year, 19% lower in constant currency, due to a broad-based decline in our commercial aerospace market coupled with recent weakness in our wind energy business.
But operational improvements, along with good cost controls and some exchange help, enabled us to increase adjusted operating income margins by 70 basis points over last year despite the dramatically lower level of sales.
The lower sales volume and our focus on cash enabled us to generate $47 million of free cash flow for the quarter. And as a result, we're now 22 million positive free cash flow year-to-date, 114 million better than last year at the same time. Adjusted net income of $17.9 million was down only $2.4 million despite a $64 million sales drop.
As usual, let me first cover our markets using constant dollars to describe sales trends. While the dollar lost significant ground to the Euro in the second quarter as compared to the first quarter, it's still 13% stronger than last year's comparable period causing some compression in our parent sales, but helping our margins.
Commercial aerospace sales were about $138 million from the quarter, down almost 28% in constant dollars from last year. While there've been few near-term build rate changes announced by large OEMs, the inventory destocking reported by many other suppliers also hit Hexcel. This was more pronounced for Airbus programs due to the anticipation of higher build rates last year and the resultant lag effect in inventory corrections.
Beyond Boeing and Airbus, our other commercial aerospace sub-segment dropped over 40% from last year and 30% from the first quarter. This sub-segment has grown over 25% CAGR for five years in a row and last year represented $200 million in sales. The second quarter run rate was closer to $110 million sales. We still believe this sector is vulnerable to further declines over the course of the year.
Finally, revenues from new programs were slightly higher sequentially for the second quarter in a row, but down year-over-year, due primarily to the 787 delays. This grouping includes sales for the A380, A350, Boeing 787 and now the 747-8, and have accounted for about 10 to 15% of our commercial aerospace sales for the last few quarters.
Sales to space and defense were 74.7 million for the quarter, up about 3% in constant currency. Rotorcraft programs, including the B-22, constituted over half of the space and defense sales again this quarter and continued to be the growth driver for this market.
Sales for our industrial markets of $64.8 million were down nearly 16% versus the second quarter of 2008 on a constant currency basis, though the as-reported sales were down almost 25% due to the strength of the dollar.
Our glass prepreg sales for wind turbine blades are predominantly in Europe historically and were uncharacteristically down on both an as-reported and a constant- currency basis. Year-to-date sales to wind are now flat versus 2008 on a constant currency basis after a double-digit decline in the second quarter. Financial issues by end installers seems to be the problem, particularly in Europe.
The estimated installed megawatts in Europe were down 18% for the first half of the year as compared to last year, and the order intake is well off the expected pace. U.S. government guidelines for 30% wind-related investment cash grants were finally favorably clarified in July, and they expect to see a gradual resumption activity here in the States. China demand and stimulus incentives are sharply up.