Hexcel Corporation (HXL)

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Hexcel Corporation (HXL)

Q4 2012 Earnings Conference Call

January 24, 2013 11:00 ET


Wayne Pensky - Chief Financial Officer

Dave Berges - Chairman and Chief Executive Officer

Nick Stanage - President and Chief Operating Officer

Michael Bacal - Communications and Investor Relations Manager


John McNulty - Credit Suisse

Amit Mehrotra - Deutsche Bank

Noah Poponak - Goldman Sachs

Andrew Doupé – Imperial Capital

Steve Levenson - Stifel Nicolaus

Avinash Kant - D.A. Davidson & Company

Mike Sison - KeyBanc Capital Markets



Good day and welcome to the Hexcel Corporation Fourth Quarter Earnings Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Wayne Pensky, Chief Financial Officer. Please go ahead, sir.

Wayne Pensky - Chief Financial Officer

Thanks. Good morning, everyone. Welcome to Hexcel Corporation’s 2012 Fourth Quarter and Full Year Earnings Conference Call on January 24, 2012.

Before beginning, let me cover the formalities. First, I wanted 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 statements today. Such factors are detailed in the company’s SEC filings, including our 2011 10-K, our third quarter 10-Q, and last night’s press release. We expect to file our 2012 10-K on February 8.

Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be rerecorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request.

With me today are Dave Berges, Hexcel’s Chairman and CEO; Nick Stanage, our President and COO, and Michael Bacal, our Communications and Investor Relations Manager. Purpose of the call is to review our 2012 fourth quarter and full year results detailed in our press release issued yesterday. First, Dave will cover the markets, then I will cover some of the financial details, and then we will open up for questions.

Dave Berges - Chairman and Chief Executive Officer

Thanks Wayne. You remind me of the accountant reading the voting procedure for the Oscars. Good morning everyone. Despite a significant drop in sales to wind turbine customers, we had another good quarter with sales of $387 million, 9.5% better than last year on a constant currency basis. EPS of $0.36 for the quarter compared to adjusted diluted EPS of $0.33 in 2011.

Unfortunately as expected, the expiration of the production tax credit for wind turbines did cause a significant decline in our wind business causing us to lose a few points off of our traditional sales growth, but our sales in EPS ended up right in the middle of our October guidance for the quarter. Our full year sales were $1.578 billion just over 15% better than 2011 on a constant currency basis, but the EPS of $1.56 was 26% better than 2011. Also for the year, our adjusted operating income of $239 million was $50 million higher than the prior year. And as a percent of sales, we have pushed past the elusive 15% mark, a full 160 basis points better than the record setting 2011.

Now, let me cover the markets using constant dollars to describe the sales trends. Commercial aerospace sales of $234 million for the quarter were up 11% in constant currency from the same period of 2011. Total revenues from new Airbus and Boeing programs increased by more than 20% for the quarter and continued to account for more than 30% of our total commercial aerospace sales.

Sales for legacy platforms at Airbus and Boeing were up 10% from the fourth quarter of 2011 and in line with build rates. Sales to other commercial aerospace, which includes regional and business aircraft, were about the same as the fourth quarter of the prior year. For the full year, FX adjusted commercial aerospace sales were up 15.5% with new program sales up over 25%, legacy platform sales up more than 10%, and commercial aerospace sales up 7%, I am sorry, other commercial aerospace sales.

Space and defense revenues for the quarter were $93 million, up almost 22% on a constant currency basis. Rotorcraft sales to India and China were particularly strong in this quarter in part due to the concentrated timing of shipments. Sales in Europe were also strong due to helicopters, but also due to the ramp up of the new A400M cargo plane. Rotorcraft sales ended the year at 60% of space and defense sales and again delivered double-digit growth.

In industrial markets, sales for the fourth quarter were $60 million, down by about 10% year-over-year in constant currency. Wind sales were down over 15% from both last year’s fourth quarter and from the third quarter of 2012. For the full year, FX adjusted industrial sales were up about 16% with wind sales up about 30% due to an exceptionally strong first half ahead of the PTC cliff.

Now let me turn the call back to Wayne for some additional comments on the financials.

Wayne Pensky - Chief Financial Officer

Thanks Dave. Gross margin of $96 million for the quarter was 24.7% of sales as compared to 24.1% in the fourth quarter of 2011. For the full year gross margin of $407 million was 25.8% of sales as compared to 24.6% in 2011 due to productivity gains and good leverage in the increased sales volume. Our selling, general and administrative costs were 11.8% above last year’s abnormally low fourth quarter, but about the same run rate as the prior two quarters. Our R&D costs of $10 million for the quarter were up $1.8 million over last year as we continue to invest in new products and process technology improvement. On average we expect R&D cost to remain at this run rate over the course of 2013.

Read the rest of this transcript for free on seekingalpha.com