Hexcel (NYSE:HXL) Reports Sales Below Analyst Estimates In Q3 Earnings

Aerospace and defense company Hexcel (NYSE:HXL) missed Wall Street’s revenue expectations in Q3 CY2024, but sales rose 8.8% year on year to $456.5 million. Its non-GAAP profit of $0.47 per share was 2.3% above analysts’ consensus estimates.

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CEO and President Tom Gentile said, “Hexcel saw 9% growth in total revenue year over year, driven by a robust 17% growth in commercial aerospace. Year-to-date commercial aerospace is now up 14%. Air traffic continues to grow post pandemic leading to record demand for aircraft that use Hexcel lightweight materials, but supply chain challenges in the global aerospace industry continue to delay planned production rate increases at our major customers. Our customers are currently indicating that production rates will increase in 2025. We will continue to monitor our cost and labor training position to meet those projected production rate increases as schedules firm.”

Company Overview

Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Hexcel struggled to generate demand over the last five years as its sales dropped by 4.3% annually, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hexcel’s annualized revenue growth of 11.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

Hexcel also breaks out the revenue for its most important segments, Commercial aerospace and Space & defense, which are 64.8% and 28.1% of revenue. Over the last two years, Hexcel’s Commercial aerospace revenue (customers like Airbus, Boeing) averaged 17.9% year-on-year growth while its Space & defense revenue (government customers) averaged 12.4% growth.

This quarter, Hexcel’s revenue grew 8.8% year on year to $456.5 million, missing Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11.1% over the next 12 months, similar to its two-year rate. This projection is noteworthy and illustrates the market sees some success for its newer products and services.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hexcel has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.9%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Hexcel’s annual operating margin rose by 4.5 percentage points over the last five years, showing its efficiency has improved.

This quarter, Hexcel generated an operating profit margin of 11.5%, up 1.1 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

Earnings Per Share

Analyzing long-term revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Hexcel, its EPS by declined more than its revenue over the last five years, dropping 11.1% annually. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Hexcel, its two-year annual EPS growth of 36.6% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Hexcel reported EPS at $0.47, up from $0.38 in the same quarter last year. This print beat analysts’ estimates by 2.3%. Over the next 12 months, Wall Street expects Hexcel’s full-year EPS of $1.94 to grow by 25%.

Key Takeaways from Hexcel’s Q3 Results

We were glad Hexcel's full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, this quarter's revenue and EBITDA fell short of Wall Street’s estimates. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 2.5% to $61.99 immediately following the results.

Is Hexcel an attractive investment opportunity at the current price?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock.We cover that in our actionable full research report which you can read here, it’s free.