•

Diluted EPS of $0.67 compared to prior year diluted EPS of $0.70.  

•

Sales of $491.3 million were 6.0% lower than last year (5.4% in constant currency).

•

13.6% increase in quarterly dividend from $0.11 per share to $0.125 per share.

•

FY2017 adjusted diluted EPS guidance range unchanged at $2.64 to $2.76.                          

•

FY2017 free cash flow on track to exceed $100 million.

Quarter Ended

June 30,

Six Months Ended

June 30,

(In millions, except per share data)

2017

2016

% Change

2017

2016

% Change

Net Sales

$

491.3

$

522.6

(6.0%)

$

970.1

$

1,020.3

(4.9%)

   Net sales change in constant currency

(5.4%)

(4.0%)

Operating Income

89.7

100.1

(10.4%)

168.3

184.0

(8.5%)

Net Income

61.6

66.1

(6.8%)

126.2

122.1

3.4%

Diluted net income per common share

$

0.67

$

0.70

(4.3%)

$

1.37

$

1.29

6.2%

Non-GAAP Measures for y-o-y comparisons:

Adjusted Operating Income (Table C)

$

89.7

$

100.1

(10.4%)

$

168.3

$

184.0

(8.5%)

    As a % of sales

18.3%

19.2%

17.3%

18.0%

Adjusted Net Income (Table C)

61.6

66.4

(7.2%)

117.1

122.4

(4.3%)

Adjusted diluted net income per share

$

0.67

$

0.70

(4.3%)

$

1.27

$

1.29

(1.6%)

•

Commercial Aerospace sales of $349.0 million were 5.3% lower (5.2% in constant currency) for the quarter as compared to the second quarter of 2016. Sales for the first half of 2017 were 2.8% lower in constant currency than the first half of 2016. The sales decline in certain legacy widebody sales (i.e. A380, B777 and B747) more than offset the growth of the A350 and the new narrowbodies.  

•

Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, were down about 8% for the first half of 2017 as compared to 2016.

•

Space & Defense sales of $87.8 million increased 7.3% (8.4% in constant currency) for the quarter as compared to the second quarter of 2016. The increase was across all key programs.  Rotorcraft sales comprise just over half of Space & Defense sales and were at their highest level in two years. First half Space & Defense sales of $164.5 million were 3.5% higher in constant currency than the first half of 2016 sales.

•

Total Industrial sales of $54.5 million for the second quarter of 2017 were 24.6% lower (22.3% in constant currency) than the second quarter of 2016. Industrial sales for the first half of 2017 were $109.4 million or 19.3% lower in constant currency than the first half of 2016 sales.

•

As expected, wind energy sales (the largest submarket in Industrial) are experiencing a challenging year and were down more than 30% for both the quarter and first half of 2017 as compared to last year. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.            

•

Gross margin for the second quarter was 28.5% compared to 28.8% in the second quarter of 2016, and 28.2% and 28.7% for the first half of 2017 and 2016, respectively, as all periods reflected strong operating performance. As expected, the first half of 2017 included about $5 million of costs related to the startup and training for the new greenfield sites in France and Morocco.

•

Selling, general and administrative expenses for the second quarter and first half were slightly lower in constant currency (3% for the first half) than the prior year as we maintained tight cost control. First half research and technology expenses of $24.7 million were about 10% higher in constant currency than the comparable 2016 period as the Company continues to invest in innovative composite products and solutions to support our customers and next-generation products.

•

Adjusted operating income in the second quarter of 2017 was $89.7 million or 18.3% of sales compared to a record $100.1 million or 19.2% of sales in 2016. The second quarter and first half of 2017 were both favorably impacted from exchange rates by about 70 and 50 basis points, respectively, compared to 2016 periods. For the first half of 2017, depreciation and amortization expense was $5 million higher in constant currency than the comparable period for 2016.            

•

The effective tax rate for the quarter was 26.7% compared to 30.5% in 2016, and the first half effective tax rate was 19.8% compared to 29.8% in 2016. The quarter benefitted from favorable state tax return to provision adjustments, while both the quarter and the first half provision benefitted from deductions associated with share-based compensation payments. The first quarter provision included a nonrecurring discrete benefit of $9.1 million ($0.10 per diluted share) from the release of a valuation allowance in a foreign jurisdiction. Excluding this discrete benefit, the first half effective tax rate was 25.7% and the full year 2017 effective tax rate is expected to be around 27% as additional discrete benefits are anticipated in the second half of 2017.    

•

Free cash flow for the first half of 2017 was a source of $13 million versus a use of $21 million in 2016. Working capital decreased $33 million in the second quarter of 2017 resulting in a use of $7 million in the first half of 2017 as compared to a $72 million use in the first half of 2016. The primary driver was an improvement in receivables due to lower sales and continued strong collections. Our free cash flow has seasonal fluctuations with the second half tending to be a significant source of cash compared to the first half. Cash used for capital expenditures was $169 million in the first half of 2017 compared to $156 million in the 2016 period. Free cash flow is defined as cash provided from operating activities less cash paid for capital expenditures.

•

During the quarter, the Company used $57 million to repurchase shares of its common stock ($121 million for the first half of 2017) and has $272 million remaining under the authorized share repurchase program.

•

As announced today, the Board of Directors declared a 13.6% increase in the quarterly dividend from $0.11 per share to $0.125 per share. The dividend will be payable to stockholders of record as of August 3, 2017, with a payment date of August 10.

•

Revised full year sales outlook to be about $2.0 billion, (guidance was previously $2.0 billion to $2.08 billion).

•

Adjusted diluted earnings per share of $2.64 to $2.76 (unchanged).

•

Free cash flow >$100 million (no change).

•

Accrual basis capital expenditures of $270 million to $290 million (no change).

Contact Information

Michael Bacal

(203) 352-6826

michael.bacal@hexcel.com

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

Unaudited

Quarter Ended

June 30,

Six Months Ended

June 30,

(In millions, except per share data)

2017

2016

2017

2016

Net sales

$

491.3

$

522.6

$

970.1

$

1,020.3

Cost of sales

351.4

372.3

696.1

727.0

Gross margin

139.9

150.3

274.0

293.3

  % Gross margin

28.5%

28.8%

28.2%

28.7%

Selling, general and administrative expenses

38.1

38.6

81.0

86.0

Research and technology expenses

12.1

11.6

24.7

23.3

  Operating income

89.7

100.1

168.3

184.0

Interest expense, net

6.8

5.7

13.0

11.3

Non-operating expense (a)

-

0.4

-

0.4

  Income before income taxes and equity in earnings from affiliated companies

82.9

94.0

155.3

172.3

Provision for income taxes

22.1

28.7

30.7

51.4

  Income before equity in earnings from affiliated companies

60.8

65.3

124.6

120.9

Equity in earnings from affiliated companies

0.8

0.8

1.6

1.2

  Net income

$

61.6

$

66.1

$

126.2

$

122.1

Basic net income per common share:

$

0.68

$

0.71

$

1.39

$

1.31

Diluted net income per common share:

$

0.67

$

0.70

$

1.37

$

1.29

Weighted-average common shares:

Basic

90.7

93.1

91.1

93.3

  Diluted

92.0

94.6

92.4

94.7

(a)

Non-operating expense is the accelerated amortization of deferred financing costs related to refinancing our credit facility in June 2016.  

Hexcel Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

Unaudited

(In millions)

June 30,  2017

December 31, 2016

Assets

Current assets:

Cash and cash equivalents

$

45.5

$

35.2

Accounts receivable, net

253.3

245.6

Inventories

313.0

291.0

Prepaid expenses and other current assets

36.6

35.2

Total current assets

648.4

607.0

Property, plant and equipment

2,593.1

2,378.4

Less accumulated depreciation

(807.6)

(752.8)

Property, plant and equipment, net

1,785.5

1,625.6

Goodwill and other intangible assets, net

73.5

72.2

Investments in affiliated companies

63.9

53.1

Other assets

56.0

42.7

Total assets

$

2,627.3

$

2,400.6

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of debt

$

4.3

$

4.3

Accounts payable

139.5

137.3

Accrued liabilities

127.0

130.3

Total current liabilities

270.8

271.9

Long-term debt

817.3

684.4

Other non-current liabilities

208.9

199.4

Total liabilities

1,297.0

1,155.7

Stockholders' equity:

Common stock, $0.01 par value, 200.0 shares authorized, 107.5 shares issued at June 30, 2017 and 106.7 shares issued at December 31, 2016

1.1

1.1

Additional paid-in capital

763.1

738.8

Retained earnings

1,360.6

1,254.7

Accumulated other comprehensive income

(93.0)

(174.4)

2,031.8

1,820.2

Less – Treasury stock, at cost, 17.7 and 15.3 shares at June 30, 2017 and

   December 31, 2016, respectively.

(701.5)

(575.3)

Total stockholders' equity

1,330.3

1,244.9

Total liabilities and stockholders' equity

$

2,627.3

$

2,400.6

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Unaudited

First half Ended

June 30,

(In millions)

2017

2016

Cash flows from operating activities

Net income

$

126.2

$

122.1

Reconciliation to net cash provided by operating activities:

Depreciation and amortization

49.5

45.5

    Amortization related to financing

0.4

1.1

Deferred income taxes

2.0

24.6

Equity in earnings from affiliated companies

(1.6)

(1.2)

Stock-based compensation expense

13.3

12.8

Changes in assets and liabilities:

Decrease (increase) in accounts receivable

2.4

(53.4)

Increase in inventories

(11.6)

(22.6)

Increase in prepaid expenses and other current assets

(2.9)

(5.6)

Increase in accounts payable/accrued liabilities

5.0

9.3

Other – net

(0.3)

2.3

Net cash provided by operating activities (a)

182.4

134.9

Cash flows from investing activities

Capital expenditures (b)

(169.2)

(156.0)

Acquisition of business and investments in affiliates

(10.0)

(33.6)

Net cash used for investing activities

(179.2)

(189.6)

Cash flows from financing activities

Proceeds from senior notes due 2027

398.3

-

Issuance costs related to senior notes due 2027

(3.7)

-

Proceeds from settlement of treasury locks

10.0

-

Proceeds from Euro term loan

37.4

-

Repayments of Euro term loan

(4.1)

-

Borrowings from senior unsecured credit facility

-

123.1

Issuance costs related to credit facility

-

(1.7)

Repayment of senior unsecured credit facility

(300.0)

-

Other debt, net

0.2

(0.2)

Dividends paid on common stock

(20.1)

(19.6)

Repurchase of stock

(120.8)

(54.9)

Activity under stock plans

5.6

(4.7)

Net cash provided by financing activities

2.8

42.0

Effect of exchange rate changes on cash and cash equivalents

4.3

(0.2)

Net increase (decrease) in cash and cash equivalents

10.3

(12.9)

Cash and cash equivalents at beginning of period

35.2

51.8

Cash and cash equivalents at end of period

$

45.5

$

38.9

Supplemental Data:

Free cash flow (a)+(b)

$

13.2

$

(21.1)

Accrual basis additions to property, plant and equipment

$

170.1

$

142.2

Hexcel Corporation and Subsidiaries

Net Sales to Third-Party Customers by Market

Quarters Ended June 30, 2017 and 2016

(Unaudited)

Table A

(In millions)

As Reported

Constant Currency (a)

Market

2017

2016

B/(W) %

FX

Effect (b)

2016

B/(W)

%

Commercial Aerospace

$

349.0

$

368.5

(5.3)

$

   (0.4)

$

368.1

(5.2)

Space & Defense

87.8

81.8

  7.3

(0.8)

81.0

  8.4

Industrial

54.5

72.3

(24.6)

(2.2)

70.1

(22.3)

Consolidated Total

$

491.3

$

522.6

   (6.0)

$

   (3.4)

$

519.2

(5.4)

Consolidated % of Net Sales

%

%

Commercial Aerospace

71.0

70.5

70.9

Space & Defense

17.9

15.7

15.6

Industrial

11.1

13.8

13.5

Consolidated Total

100.0

100.0

100.0

Six Months Ended June 30, 2017 and 2016

(Unaudited)

(In millions)

As Reported

Constant Currency (a)

Market

2017

2016

B/(W) %

FX

Effect (b)

2016

B/(W)

%

Commercial Aerospace

$

696.2

$

718.8

  (3.1)

$

(2.5)

$

716.3

(2.8)

Space & Defense

164.5

161.1

2.1

(2.2)

158.9

  3.5

Industrial

109.4

140.4

(22.1)

   (4.8)

135.6

(19.3)

Consolidated Total

$

970.1

$

1,020.3

(4.9)

$

(9.5)

$

1,010.8

(4.0)

Consolidated % of Net Sales

%

%

Commercial Aerospace

71.8

70.4

70.9

Space & Defense

17.0

15.8

15.7

Industrial

11.2

13.8

13.4

Consolidated Total

100.0

100.0

100.0

(a)

To assist in the analysis of our net sales trend, total net sales and sales by market for the quarter and six months ended June 30, 2016 have been estimated using the same U.S. dollar, British pound and Euro exchange rates as applied for the respective period in 2017 and are referred to as “constant currency” sales.

(b)

FX effect is the estimated impact on “as reported” net sales due to changes in foreign currency exchange rates.

Hexcel Corporation and Subsidiaries

Segment Information

(Unaudited)

Table B

(In millions)

Composite Materials

Engineered Products

Corporate & Other (a)

Total

Second Quarter 2017

Net sales to external customers

$

397.3

94.0

-

491.3

Intersegment sales

15.1

-

(15.1)

-

Total sales

412.4

94.0

(15.1)

491.3

Operating income (loss)

92.1

12.1

(14.5)

89.7

% Operating margin

22.3%

12.9%

18.3.%

Depreciation and amortization

23.3

1.8

-

25.1

Stock-based compensation expense

1.2

0.2

            1.0

2.4

Accrual based additions to capital expenditures

74.5

2.7

-

77.2

Second Quarter 2016

Net sales to external customers

$

425.3

$

97.3

$

—

$

522.6

Intersegment sales

18.9

—

(18.9)

—

Total sales

444.2

97.3

(18.9)

522.6

Operating income (loss)

101.6

11.7

(13.2)

100.1

% Operating margin

22.9%

12.0%

19.2%

Depreciation and amortization

21.4

1.8

0.1

23.3

Stock-based compensation expense

1.1

0.3

0.9

2.3

Accrual based additions to capital expenditures

67.2

1.7

—

68.9

First Six Months 2017

Net sales to external customers

$

784.8

185.3

-

$

970.1

Intersegment sales

32.2

-

(32.2)

-

Total sales

817.0

185.3

(32.2)

970.1

Operating income (loss)

174.0

25.1

(30.8)

168.3

% Operating margin

21.3%

13.5%

17.4%

Depreciation and amortization

45.8

3.7

-

49.5

Stock-based compensation expense

4.6

0.9

7.8

13.3

Accrual based additions to capital expenditures

161.1

9.0

-

170.1

First Six Months 2016

Net sales to external customers

$

821.1

$

199.2

$

—

$

1,020.3

Intersegment sales

37.0

—

(37.0)

—

Total sales

858.1

199.2

(37.0)

1,020.3

Operating income (loss)

192.4

23.9

(32.3)

184.0

% Operating margin

22.4%

12.0%

18.0%

Depreciation and amortization

41.8

3.6

0.1

45.5

Stock-based compensation expense

4.2

0.9

7.7

12.8

Accrual based additions to capital expenditures

137.2

5.0

—

142.2

(a)

We do not allocate corporate expenses to the operating segments.

Hexcel Corporation and Subsidiaries

Reconciliation of GAAP  Operating Income and Net Income to Adjusted EBITDA and Non-GAAP Net Income

Table C

Unaudited

Quarter Ended

June 30,

Six Months Ended

June 30,

(In millions)

2017

2016

2017

2016

GAAP operating income

$

89.7

$

100.1

$

168.3

$

184.0

- Stock-based compensation expense

2.4

2.3

13.3

12.8

- Depreciation and amortization

25.1

23.3

49.5

45.5

Adjusted EBITDA

$

117.2

$

125.7

$

231.1

$

242.3

Unaudited

Quarter Ended June 30,

2017

2016

(In millions, except per diluted share data)

As Reported

EPS

As Reported

EPS

GAAP net income

$

61.6

0.67

$

66.1

$  0.70

- Non-operating expense (net of tax) (a)

-

-

0.3

—

Adjusted net income

$

61.6

0.67

$

66.4

$ 0.70

Unaudited

Six Months Ended June 30,

2017

2016

(In millions, except per diluted share data)

As Reported

EPS

As Reported

EPS

GAAP net income

$

126.2

1.37

$

122.1

$  1.29

- Non-operating expense (net of tax) (a)

-

-

0.3

—

- Discrete Tax Benefits (b)

             (9.1)

        (0.10)

—

—

Adjusted net income

$

117.1

1.27

$

122.4

$ 1.29

(a)

Non-operating expense is the accelerated amortization of deferred financing costs related to refinancing our credit facility in June 2016.    

(b)

The 2017 six-month period includes benefits of $9.1 million related to the release of a valuation allowance in a foreign jurisdiction.

Hexcel Corporation and Subsidiaries

Table D

Schedule of Total Debt, Net of Cash

Unaudited

June 30,

December 31,

June 30,

(In millions)

2017

2016

2016

Current portion of capital lease

$

0.2

$

0.5

$

0.8

Euro term loan

4.1

3.8

-

Total current debt

4.3

4.3

0.8

Euro term loan

60.4

22.6

-

Senior unsecured credit facility due 2021

65.0

365.0

410.0

4.7% senior notes due 2025, net

297.0

296.8

296.6

3.95% senior notes due 2027, net

394.8

-

-

Other debt

0.1

-

0.2

Total long-term debt

817.3

684.4

706.8

Total Debt

821.6

688.7

707.6

Less: Cash and cash equivalents

(45.5)

(35.2)

(38.9)

Total debt, net of cash

$

776.1

$

653.5

$

668.7