Hexcel Corporation (HXL)

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Hexcel Corporation (HXL)

Q4 2008 Earnings Call

January 22, 2009 0011 a.m. ET

Executives

Wayne C. Pensky, Chief Financial Officer

Analysts

Howard Rubel - Jefferies

John McNulty - Credit Suisse

Richard Safran – Goldman Sachs

Nigel Coe – Deutsche Bank

Al Kaschalk - Wedbush Morgan

Stephen Levinson - Stifel Nicolaus

Karl Oehlschlaeger - Macquarie Securities

Cristina Fernandez – UBS

Mike Sison - KeyBanc

Michael Lew - ThinkEquity

Presentation

Operator

Good day, everyone, and welcome to this Hexcel Corporation’s fourth quarter 2008 earnings conference call. As a reminder, today’s conference is being recorded. For opening remarks and introductions, I would now turn the call over to Mr. Wayne Pensky, Chief Financial Officer. Please go ahead, sir.

Wayne C. Pensky

Thank you. Good morning, everyone. Welcome to Hexcel Corporation’s 2008 fourth quarter earnings conference call on January 22, 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 statements today. Such factors are detailed in the company’s SEC filings including our 2007 10-K and last night’s press release.

Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded 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; and Michael Bacal, our Communications/Investor Relations Manager.

The purpose of the call is to review our 2008 fourth quarter and full year results detailed in our press release issued last night. First, Dave will cover the markets, then I will cover the financials and then Dave will return with some comments on our outlook.

So let me hand the call over to Dave.

David Berges

Thanks, Wayne. Fourth quarter sales of about $290 million were well below our original expectations, almost 9% lower than last year, due primarily to the impact of the Boeing strike. Net income from continuing operations of $28 million is more than double last year aided by tax benefits recorded in the quarter. Excluding one-time items in both ‘08 and ‘07’s fourth quarter, adjusted net income was down 18%, again primarily due to sales and margin lost to the Boeing strike.

For the full year, we saw sales grow by about 13% or 11% in constant currency, in line with our expectations led by a strong growth in each of our target markets.

Net income for the year increased over 75%, reflecting our higher sales levels, gain on the sale of a joint venture, and the recognition of certain tax benefits. Excluding one-time items, adjusted EPS were $0.82, up 15% for the year.

I’m sure you are more concerned about our outlook for sales going forward, but let’s first cover the quarter just closed and I’ll come back after Wayne with some thoughts about the future.

As usual, in talking about markets I’ll use constant dollars to comment on the trends. For reference again, our reported top line sales for the quarter were down 8.8% from last year as reported, but only 5.1% on a constant currency basis. So the apparent sales decline of about $28 million was $16 million in real terms for the quarter.

Commercial aerospace sales were about $143 million for the quarter, down 13% in constant dollars from last year, due again to the Boeing strike. In fact, our sales to Boeing and its subcontractors were down 40% as compared to the fourth quarter of 2007.

In the second half of 2008, Boeing Commercial delivered 107 fewer airplanes than in the second half of 2007. If you assume an average Hexcel content of $400,000 to $500,000 per plane, the damage to our revenue should total $40 million to $50 million in the September to February time period. We’re now returning to pre-strike levels of activity on legacy programs

Sales to Airbus and its subcontractors were down slightly for the quarter as the fourth quarter of 2007 was particularly strong and some of our customers had year-end inventory initiatives.

In our other commercial aerospace grouping, a sub-markets that’s been growing by over 20% for two years, sales were flat compared to last year for the quarter principally because business jet activities have slowed.

For the year, sales to the entire commercial aero market were up over $88 million or 13.5% on a constant currency basis. As a result of the strike, sales to Boeing and their related subcontractors were wholly flat as compared to 2007 levels, losing all of the significant growth they generated in the first nine months of the year. Airbus and other aerospace sales were up over 20% for the year, thanks to a very strong first half.

Sales to space and defense markets were about $77 million for the quarter, up 10% in constant currency. For the year, we had growth in excess of 16%, well above our historic 8 to 10, as we benefited from a broad range of programs in the US, Europe and Asia, including rotorcraft, fixed wing attack, transport, and satellite programs.

Constant dollar sales for our industrial markets of $69 million were essentially flat for both the quarter and the year versus 2007, glass prepregs for wind turbine blades continued strong, growing in the high teens in constant currency for both the quarter and the year. As expected, wind finished the year at more than half of our 2008 industrial market sales.

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