Hexcel Corporation (HXL)
Q1 2009 Earnings Call Transcript
April 28, 2009 11:00 am ET
Wayne Pensky – SVP and CFO
Dave Berges – Chairman and CEO
Howard Rubel – Jefferies & Co.
John McNulty – Credit Suisse First Boston
Cristina Fernandez – UBS
Al Kaschalk – Wedbush Morgan Securities
Noah Poponak – Goldman Sachs
Steve Levenson – Stifel Nicolaus
Nigel Coe – Deutsche Bank
Michael Lew – ThinkEquity
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Thank you. Good morning, everyone. Welcome to Hexcel Corporation’s 2009 first quarter earnings conference call on April 28th, 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 2008 10-K and last night’s press release and the filing of the first quarter 10-Q.
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, Communications and Investor Relations Manager.
The purpose of the call is to review our 2009 first quarter 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 for some final comments.
Thanks, Wayne. First quarter revenues were 10.8% lower than last year. About half of the reduction was due to the broad based decline in our commercial aerospace market, a bad thing, but half due to a dramatic strengthening of the dollar, a good thing. Space and defense and industrial sales were up nicely, but not enough to cover the aerospace decline.
Nevertheless, operational improvements along with good cost controls helped us generate record operating income of $39.9 million, 9.6% higher than last year’s first quarter. Net income of $23.4 million was also above last year.
As usual, let me fist cover the markets using constant dollars to describe sales trends. After years of a weakening dollar, there has been a major year-over-year swing that affects many of our numbers and ratios. The first quarter euro is on average 15% weaker than last year and the British pound is 27% weaker. For reference, our top line sales for the quarter of $307 million were 10.8% lower than last year’s reported, but down only 5.5% on a constant currency basis. So, the apparent sales decline of about $37 million was really $18 million in real terms. It’s important to note that if these rates stay as they are the second quarter exchange swing will be even more, maybe $26 million.
Commercial aerospace were about $154 million for the quarter, down about 16% in constant dollars from last year. While there have been few near term aircraft build rate changes announced by large OEMs there is clear evidence of across the board management of inventories by all of the Tier 1 and Tier 2 customers that we serve. We also felt the lingering inventory correction effects from the Boeing strike that spilled over into the first quarter as many of the Boeing supply chain only slowed their production through the strike.
Beyond Boeing and Airbus, our other aerospace sub-segment, which represents 25% to 30% of our commercial aero sales, was aided a bit by some non-recurring engineering and tool sales, but this sub-segment includes sales to the regional and business jet markets, which are under particular stress. We expect further declines over the course of the year.
Finally, the 787 program delay hurt our year-over-year comparisons we have begun to record some strong sales in the first half of 2008 for the program ramp up then it stalled after the delays were announced in April 2008. With the first 787 expected in June, we hope to be back on the growth path in the second half for new program sales.
Sales to space and defense markets were $77.3 million for the quarter, up almost 8% in constant currency, in line with our traditional growth rates in this area. Sales to rotocraft programs – let me include the V-22 in this category – constituted over a half of the space and defense sales this quarter and continued to be the growth driver in this market.
Sales for our industrial markets of $76 million were up nearly 10% versus the first quarter of last year on a constant currency basis though the as reported sales were down 3% due to the strength of the dollar. Glass prepreg sales for wind turbine blades were predominantly in euros and once adjusted for FX grew at double digit rates again this quarter. Vestas reported on their quarter last night and indicates continued strong demand, but cautioned of concerns about project funding due to credit markets. They continue to expect a year of double digit sales growth.