HEXCEL CORP NEW earnings calls

A350 production and margins

Q (Michael Ciarmoli · Guggenheim): Analyst asked if there is risk of destocking or production slowdowns given Hexcel shipping ahead of Airbus, and whether the A350 ramp should drive higher margins next year.

A: Management said they have firm purchase orders and are materially upstream, so they see high probability of meeting 80 this year and expect 100 next year. They triangulate Airbus public guidance, long-term schedules, and supplier surveys and do not expect destocking. As the A350 ramps, higher volume will help fixed-cost absorption and improve margins.

"So that is 1 thing is that we still see a very high probability that 80 is the right number for this year." — Thomas C. Gentile (CEO·CHAIR)

Hiring and corporate expense

Q (Gavin Parsons · UBS): Analyst asked how big the accelerated investment is and what to assume for corporate (SG&A) expense and run rate.

A: Management used headcount as a proxy for investment and said they planned to hire 400 this year but have hired about 525 by end of September and expect more hires by year end. They said SG&A was about 9.0% of sales and they expect to return to 6.5%–7.0% of sales as production increases.

"So at the beginning of this year, we said that we were gonna hire 400 people over the course of the year." — Thomas C. Gentile (CEO·CHAIR)

Toray competition and CapEx needs

Q (Scott Mikus · Melius): Analyst asked how Toray entering A350 might affect pricing and whether more capital investment makes sense if Airbus rises above 12/month.

A: Management said material systems are complex and hard to change, so switching systems takes years. They believe current lines are sufficient to support Airbus reaching 12 per month by 2028 and said an additional carbon fiber line would only be needed if rates go above that in the early 2030s.

"In terms of capital investments, we are capitalized sufficiently with the production lines that we have in place." — Thomas C. Gentile (CEO·CHAIR)

Rotorcraft revenue and programs

Q (Richard Safran · Seaport Research Partners): Analyst asked how pressure on army aviation budgets affects Hexcel and what rotorcraft programs are included in guidance.

A: Management said CH-53K is a major marine program with about $2.5 million to $3.5 million per shipset and a 200-unit program of record with Sikorsky pacing toward 24 per year. They also cited a strong Black Hawk position with $250 thousand to $300 thousand per shipset and long aftermarket demand, and noted V-280 is promising but several years out.

"we have about $2.5 million to $3.5 million per shipset on the CH-53K." — Thomas C. Gentile (CEO·CHAIR)

2027 outlook and margin framework

Q (David Strauss · Wells Fargo): Analyst asked if 100 A350 shipsets in 2027 fits with Airbus reaching 12/month in 2028 and whether low-double-digit revenue growth and ~30% incremental margin are reasonable for 2027.

A: Management said they will provide more full-year 2027 outlook when they report year-end results and reiterated they expect revenue growth next year with better fixed-cost absorption. They cautioned that recent hiring creates near-term inefficiencies that will temper early-year performance before improving later in the year.

Demand drivers for Q4 and 2027

Q (Morgan Stanley): Analyst asked whether Q4 and 2027 demand that justifies hiring and new lines comes mainly from higher commercial rates or from defense and space.

A: Management said commercial programs are strong: A350 around 7/month trending slightly up, A320 at about 55 and pushing to 870 deliveries, 787 and 737 also solid. They expect Q4 to continue the trend, defense to recover from a soft F-35 quarter, and space launchers to pick up into 2027 after a quieter year.

"On all the commercial programs, we see fourth quarter continuing in the same trend With some strong upside." — Thomas C. Gentile (CEO·CHAIR)

Q4 split, margin targets, and CapEx

Q (Noah Poponak · Goldman Sachs): Analyst asked how much of Q4 growth is defense versus commercial, where margins can go long term, and near-term spending tied to investments.

A: Management said Q4 growth will be stronger and the split remains about 65% commercial / 35% defense. They set a path back to prior peak margins, targeting about 18% EBIT with potential to approach 20% through G&A efficiency, process improvements, and price realization. Near-term CapEx is expected in the range of $100 million to $125 million.

"we could hone in on about 18% overall EBIT margins for the business." — Sales G. Coogan (CFO)

6th-gen fighters and launcher softness

Q (Ronald Epstein · BofA): Analyst asked about opportunity from Boeing’s 6th-gen fighter awards and why launchers and rocket motors showed softness.

A: Management said sixth-generation programs want range and low observability, which favors lightweight composites, and Hexcel will work with Boeing as those programs develop. They said launcher activity this year was lighter, driven mainly by SpaceX launches and pauses at other launchers, so some carbon-fiber-intensive launchers had fewer launches this year.

F-35 10-year award and strikes impact

Q (Peter Skibitski · Alembic Global): Analyst asked how the new 10-year Lockheed F-35 contract affects Hexcel and whether recent Airbus strikes or French unrest affected supply or demand.

A: Management said they only just read about the 10-year Lockheed deal and do not yet know contract flow-downs, but they view it as an encouraging long-term demand signal given Hexcel's significant position. They also said the Spain labor issues and the France unrest so far have shown no impact to their production or pull activity.

A350 channel inventory and conviction

Q (Gautam Khanna · Cowen): Analyst asked how aligned Hexcel’s customers are on pulling A350 shipsets, how many shipset equivalents moved through Q3, and why management is more confident now than a year ago.

A: Management said about 60 to 65 shipset equivalents have been pulled year-to-date through Q3, leaving roughly 20 for Q4 at current pull rates, consistent with guidance. They said they talk to about 15 Airbus and supplier sites and see firm purchase orders and strengthening demand this year versus the weakening seen last year, which is why they hired and started lines now.

"we have had probably about you know, the equivalent of 60 to 65 already pulled for the year." — Thomas C. Gentile (CEO·CHAIR)

Tax rate and China carbon fiber risk

Q (Myles Walton · Wolfe): Analyst asked what tax rate is implied in guidance and whether Chinese carbon fiber makers are a near-term competitor for aerospace programs.

A: Management said Q4 tax rate is around 17% to 18% and full-year tax may be slightly north of 16%. On China, they noted a vendor showed IM10-like material but it is not qualified on any program today and would need significant work to qualify and industrialize, so it is not a current competitor on existing Airbus/Boeing programs though it could be a factor for next-generation products.

"we do expect that tax rate for the full year to be maybe slightly north of 16% for the full year period" — Sales G. Coogan (CFO)

Margins, hiring inefficiency, and raw material hedging

Q (Sheila Kahyaoglu · Jefferies): Analyst asked if hiring ~700 people implies about $50 million excess cost this year and how labor and raw material input costs affect 2027 margins given hedging.

A: Management said hiring causes short-term inefficiencies and margin pressure, but as volume ramps the absorption benefit will improve margins; they expect some first-half 2027 inefficiency from recent hires then improvement through the year. They reiterated a path to about 18% margins at full production (with potential toward 20%) and said they hedge feedstock like propylene on an 8-quarter basis to mitigate acrylonitrile cost swings.

"our target as we get up to the full rates of production is we see a path to the 18% margin." — Thomas C. Gentile (CEO·CHAIR)