Business Overview

We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fiber, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, resins, engineered core and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all.

We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Europe, Asia Pacific, India, and Africa. We also have a presence in Malaysia where we are a partner in a joint venture which manufactures composite structures for Commercial Aerospace applications.

We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, radio frequency/electromagnetic interference ("RF/EMI") and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality and thermoplastic additive manufacturing.

The Commercial Aerospace market is now recovering strongly following the severe negative economic impacts on this industry resulting from the COVID-19 pandemic that began in 2020, and our business is continuing to recover robustly driven by growth in air travel and an increase in aircraft build rates. The recovery has created many challenges across industrial markets, including those that Hexcel operates in, related to global logistics, supply chains, labor constraints, and inflationary pressures. Geopolitical issues also remain a challenge, notably the Russian/Ukraine conflict, which has little direct material impact on our business, but is indirectly creating further challenges for energy supply, global logistics and certain raw material availability, all of which have and may continue to compress our financial results.


                               Financial Overview
                             Results of Operations

                                              Quarter Ended March 31,

(In millions, except per share data) 2023 2022 % Change Net sales

$  457.7     $ 390.6           17.2 %
Net sales change in constant currency                                  18.0 %
Operating income                        $   62.8     $  30.1          108.6 %
As a percentage of net sales                13.7 %       7.7 %
Net income                              $   42.7     $  17.8          139.9 %

Diluted net income per common share $ 0.50 $ 0.21 138.1 %








                                       17

--------------------------------------------------------------------------------



                                   Net Sales

The following table summarizes net sales to third-party customers by segment and end market for the quarters ended March 31, 2023 and 2022:



                               Quarter Ended March 31,
(In millions)              2023        2022        % Change
Consolidated Net Sales   $  457.7     $ 390.6           17.2 %
Commercial Aerospace        284.5       218.9           30.0 %
Space & Defense             126.2       118.2            6.8 %
Industrial                   47.0        53.5          (12.1 )%

Composite Materials      $  378.2     $ 313.8           20.5 %
Commercial Aerospace        243.2       184.8           31.6 %
Space & Defense              88.8        76.6           15.9 %
Industrial                   46.2        52.4          (11.8 )%

Engineered Products      $   79.5     $  76.8            3.5 %
Commercial Aerospace         41.3        34.1           21.1 %
Space & Defense              37.4        41.6          (10.1 )%
Industrial                    0.8         1.1          (27.3 )%



Sales by Segment

Composite Materials: Net sales of $378.2 million in the first quarter of 2023 increased by $64.4 million or 20.5% from the prior year quarter. Commercial Aerospace sales increased $58.4 million or 31.6% in the first quarter of 2023 as compared to the prior year quarter primarily due to growth in the Airbus A350 and A320neo programs as well as expanding business jet demand.

Engineered Products: For the first quarter of 2023, net sales of $79.5 million increased $2.7 million or 3.5% as compared to the prior year quarter. The increase was driven by higher Commercial Aerospace sales which were up $7.2 million or 21.1% in the first quarter of 2023 as compared to the same period in 2022, partially offset by lower Space & Defense sales.

Sales by Market

Commercial Aerospace sales of $284.5 million increased $65.6 million or 30.0% (30.0% in constant currency) for the first quarter of 2023 compared to the first quarter of 2022 from growth in the Airbus A350 and A320neo programs. Other Commercial Aerospace increased 23.5% for the first quarter of 2023 compared to the first quarter of 2022 on expanding business jet demand.

Space & Defense sales of $126.2 million increased 6.8% (7.6% in constant currency) for the first quarter of 2023 compared to the first quarter of 2022 with growth across a number of platforms globally, including fixed-wing aircraft and both military and civilian rotorcraft.

Total Industrial sales in the first quarter of 2023 of $47.0 million decreased 12.1% (9.1% in constant currency) compared to the first quarter of 2022, due to lower wind energy sales that were partially offset by sales growth in recreation, automotive and other industrial markets.



                                  Gross Margin

                            Quarter Ended March 31,
(In millions)           2023          2022       % Change
Gross margin          $   127.7      $ 86.7           47.3 %
Percentage of sales        27.9 %      22.2 %

Gross margin for the first quarter of 2023 and 2022 was 27.9% and 22.2%, respectively. The improvement in the first quarter of 2023 compared to the same period last year was primarily due to favorable absorption and product mix.


                                       18
--------------------------------------------------------------------------------


                               Operating Expenses

                            Quarter Ended March 31,
(In millions)           2023          2022       % Change
SG&A expense          $   50.8       $ 44.7           13.6 %
Percentage of sales       11.1 %       11.4 %

R&T expense           $   13.9       $ 10.9           27.5 %
Percentage of sales        3.0 %        2.8 %

Selling, general and administrative expenses were higher for the three months ended March 31, 2023 compared to the same period in 2022, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the current quarter was primarily driven by higher employee-related expenses. Research and technology expenses were higher than the prior year period primarily due to higher employee-related and materials and supplies expenses in the current year period.

© Edgar Online, source Glimpses