Hexcel Corporation (HXL)
Q3 2009 Earnings Call
October 27, 2009 10:00 am ET
Wayne Pensky - SVP and CFO
Dave Berges - Chairman and CEO
Howard Rubel - Jefferies & Co
Al Kaschalk - Wedbush Securities
Noah Poponak - Goldman Sachs
Nigel Coe - Deutsche Bank
Steve Levenson - Stifel Nicolaus
Michael Lew - ThinkEquity
Cristina Fernandez - UBS
Avinash Kant - DA Davidson
Previous Statements by HXL
» Hexcel Q2 2009 Earnings Transcript
» Hexcel Corporation Q1 2009 Earnings Call Transcript
» Hexcel Q4 2008 Earnings Call Transcript
For opening remarks and introductions, I will now turn the call over to Wayne Pensky, Chief Financial Officer. Please go ahead, sir.
Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2009 third quarter earnings conference call on October 27, 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 the 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, last night's press release, and the filing of the third 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 third quarter results detailed in our press release issued last night. First, Dave will cover the markets, then I will cover the financials, then we'll turn it over for questions.
Thanks, Wayne. Third quarter revenues of $257 million were down $74 million, or 22.4% lower than last year, with only space and defense holding at comparable levels. The magnitude of this sales decline in two of our three core markets overwhelmed our efforts to improved operations and further tightened costs, and resulted in an adjusted operating margin of 7%.
We did, however, take advantage of the lower sales volume to further tighten our capital spending plan and focus on all elements of cash, resulting in another $36 million of free cash flow for the quarter. Year-to-date we've now delivered $58 million of positive free cash flow, $140 million better than last year.
Given the demand outlook, we're again reducing our capital expenditure plan to below $90 million for this year and below $100 million next year. As usual, I'll cover our markets in constant dollars to describe sales trends. The dollar, you may have noted, has lost an additional ground to the Euro and to the pound in the third quarter, putting us back almost to last year's record low levels.
Commercial aerospace sales were about $127 million for the quarter, down 27% in constant currency. Despite limited aircraft build rate changes announced by the large OEMs, there has been a continuation of the across-the-board management of inventories by our customers, particularly with respect to Airbus sales. As a result of Boeing's strike, which began in September of last year, the decline for Boeing-related sales was less pronounced.
Our other commercial aerospace submarket, which includes regional and business jet customers, had sales drop more than 50% versus last year. Over the past two quarters this submarket, which last year represented 28% of our commercial aerospace sales, is running at $100 million run rate, down dramatically from last year's $200 million level. We hope that we have found the right run rate for this business, but because this decline for Hexcel only began in April, we have two more quarters of tough comparisons ahead of us.
On large aircraft, both Boeing and Airbus have recently reaffirmed 2010 build rates, and we expect some modest pickup in sales once the inventory lag is exhausted. Revenues from new programs were slightly higher than last year's levels and were essentially flat sequentially as sales of materials for the A350 and the 747-8 offset the 787 delay impact.
New program sales remained less than 15% of our commercial aerospace sales, but are expected to contribute to accelerated growth once in production. Sales to space and defense markets were $74.5 million for the quarter, essentially flat with last year's results.
Sales to rotorcraft programs, including the V22, constituted about half of our space and defense for the quarter. We expect the growth in rotorcraft to ramp up with the Joint Strike Fighter and the new A400M transport to more than offset the potential wind-down of the F22 program and eventually the C17, though a timing mismatch could cause a temporary sales decline.
Sales for our industrial markets of $55.1 million were down nearly 28% versus the third quarter of 2008 on a constant currency basis as the impact of the declines in the wind market between became truly evident. In August, we stopped shipping premium grade carbon fiber for the American Centrifuge Program, while USEC works to obtain program funding. We began sales to this $100 million contract last December, but have only shipped about $16 million to date. So we're anxious to see this program restored.
Our glass prepreg sales for wind turbine blades to-date have been predominantly in Europe and were down more than 25% in constant currency for the quarter. Wind farm financing issues have resulted in a significant inventory correction as short-term growth projections were revised downwards. For Hexcel, year-to-date sales to wind are now down double digits versus 2008 despite a very strong first quarter.