•Q2 2018 GAAP diluted EPS was $0.76 compared to $0.67 in Q2 2017.

•Adjusted diluted EPS was $0.75 compared to Q2 2017 EPS of $0.67, an increase of 11.9% year over year.  

•Q2 2018 sales of $547.5 million increased 11.4% compared to Q2 2017 (10.3% in constant currency).

•Free cash flow of $55 million year-to-date is $42 million higher compared to 2017.

•Quarterly dividend will increase 20% to $0.15 per share from $0.125 per share.

•Full year 2018 guidance is reaffirmed.

Summary of Results from Operations

Quarter Ended

Six Months Ended

June 30,

June 30,

(In millions, except per share data)

2018

2017

% Change

2018

2017

% Change

Net Sales

$

547.5

$

491.3

11.4 %

$

1,087.6

$

970.1

12.1 %

    Net sales change in constant currency

10.3 %

10.3 %

Operating Income

96.5

89.7

7.6 %

178.9

168.3

6.3 %

Net Income

68.8

61.6

11.7 %

130.4

126.2

3.3 %

Diluted net income per common share

$

0.76

$

0.67

13.4 %

$

1.44

$

1.37

5.1 %

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

Adjusted Operating Income

$

96.5

$

89.7

7.6 %

$

178.9

$

168.3

6.3 %

    As a % of sales

17.6%

18.3%

16.4%

17.3%

Adjusted Net Income (Table C)

67.5

61.6

9.6 %

129.1

117.1

10.2 %

Adjusted diluted net income per share

$

0.75

$

0.67

11.9 %

$

1.43

$

1.27

12.6 %

•

Commercial Aerospace sales of $383.8 million increased 10.0% (9.7% higher in constant currency) for the quarter compared to the second quarter of 2017. Primary growth drivers were increased production rates and higher composite content on the new narrowbody aircraft.

•

Sales to “Other Commercial Aerospace,” which include regional and business aircraft, were up over 40% for the second quarter of 2018 as compared to soft 2017 results.

•

Space & Defense sales of $91.7 million increased 4.4% (3.1% in constant currency) for the quarter as compared to the second quarter of 2017. The increase was driven by rotorcraft. Rotorcraft sales comprise just over half of Space & Defense sales, with key programs being the V-22 Osprey and UH-60 Black Hawk.  

•

Total Industrial sales of $72.0 million in the second quarter were up 32.1% (24.8% in constant currency) compared to the second quarter of 2017.

•

Wind energy sales (the largest submarket in Industrial) are experiencing a period of substantial growth relative to lower sales last year as new generation composite blades are adopted.          

•

Gross margin for the second quarter was 26.4% compared to 28.5% in the second quarter of 2017. Similar with the first quarter of 2018, gross margin for the second quarter included an increase in depreciation of approximately $5 million compared to the second quarter of 2017. As expected and previously highlighted, the Company experienced headwinds related to the startup and qualification of the new precursor (PAN) and carbon fiber plant in France.

•

Selling, general and administrative expenses for the second quarter were lower than the prior year period with the Company maintaining tight cost controls while, at the same time, growing revenue. R&T costs were up around 5% in constant currency as compared to the second quarter of 2017.

•

Adjusted operating income in the second quarter of 2018 was $96.5 million, or 17.6% of sales, compared to $89.7 million, or 18.3% of sales, in 2017. The impact of exchange rates in the second quarter of 2018 was effectively neutral compared to 2017.

•

Commercial Aerospace sales of $766.5 million increased 9.6% in constant currency compared to the first six months of 2017. Growth was driven by narrowbody build rate increases and the Airbus A350 program.

•

Sales to “Other Commercial Aerospace,” which include regional and business aircraft customers, increased 39% year to date, driven by higher business jet sales.

•

Space & Defense sales of $181.8 million increased 8.1% in constant currency compared to the first six months of 2017. Strong sales for the F-35 Joint Strike Fighter program drove the increase and higher rotorcraft sales offset the previously announced Airbus A400M production rate reductions.

•

Total Industrial sales of $139.3 million increased 17.4% in constant currency compared to the first six months of 2017.

•

For the first six months of 2018, wind energy sales increased more than 30% in constant currency compared to last year.

•

Gross margin for the first six months of 2018 was 26.4% compared to 28.2% for the first six months of 2017. As expected, the first six months of 2018 included approximately $5 million of costs related to the startup and training for the new greenfield site in France. Both the carbon fiber line and the precursor line at this new site are now operational and have begun the aerospace qualification process. Depreciation expense increased $10 million over the first half of 2017, due to continued capital investment for future expected growth.

•

Selling, general and administrative expenses for the first six months of 2018 were approximately 4% lower in constant currency than the prior year as the Company maintained tight cost controls, while revenue increased just over 10% in constant currency during the period. Research and technology expenses for the first six months of 2018 increased approximately 4% in constant currency compared to the prior 2017 period, reflecting continued investment in innovative composite products and solutions to support customers and next-generation applications.

•

Adjusted operating income in the first six months of 2018 was $178.9 million, or 16.4% of sales, compared to $168.3 million, or 17.3% of sales, in 2017. The year-over-year impact of exchange rates was insignificant.

•

The effective tax rate for the quarter was 22.8% compared to 26.7% in 2017, and the first half effective tax rate was 21.0% compared to 19.8% in 2017. The second quarter of 2018 included a discrete benefit from the release of reserves for uncertain tax positions of approximately $1.3 million, while both the quarter and the first half provision benefitted from deductions associated with share-based compensation payments. Excluding the discrete tax benefit, the first half effective tax rate was 21.8%. The expected underlying effective tax rate for each of the quarters in the second half of 2018 continues to be 25%, unchanged from prior guidance.    

•

Free cash flow for the first half of 2018 was $55 million compared to $13 million in 2017. Working capital increased $16 million in the second quarter of 2018, which resulted in a cash use of $60 million in the first half of 2018 as compared to a use of $7 million in the first half of 2017. Sales growth has led to higher receivables. Performance on receivable collections continues to be strong. The free cash flow profile of the business experiences seasonal fluctuations with the second half of the fiscal year tending to be a significant source of cash compared to the first half. Cash used for capital expenditures was $102 million in the first half of 2018 compared to $169 million in the first half of 2017. Free cash flow is defined as cash generated from operating activities less cash paid for capital expenditures.

•

The Company used $151 million to repurchase shares of its common stock during the second quarter of 2018 and used $181 million for share repurchases in the first half of 2018. The remaining authorization under the share repurchase program at June 30, 2018 was $562 million.

•

As announced today, the Board of Directors declared a 20% increase in the quarterly dividend from $0.125 per share to $0.15 per share. The dividend will be payable to stockholders of record as of August 3, 2018, with a payment date of August 10, 2018.

•

Full year sales outlook of $2.10 billion to $2.20 billion.

•

Adjusted diluted earnings per share of $2.96 to $3.10.

•

Free cash flow >$230 million.

•

Accrual basis capital expenditures of $170 million to $190 million.

Contact Information

Kurt Goddard

Vice President – Investor Relations

(203) 352-6826

Kurt.Goddard@Hexcel.com

Hexcel Corporation and Subsidiaries

Consolidated Statements of Operations

Unaudited

Quarter Ended

Six Months Ended

June 30,

June 30,

(In millions, except per share data)

2018

2017

2018

2017

Net sales

$

547.5

$

491.3

$

1,087.6

$

970.1

Cost of sales

402.7

351.4

800.2

696.1

  Gross margin

144.8

139.9

287.4

274.0

    % Gross Margin

26.4

%

28.5

%

26.4

%

28.2

%

Selling, general and administrative expenses

35.3

38.1

81.7

81.0

Research and technology expenses

13.0

12.1

26.8

24.7

  Operating income

96.5

89.7

178.9

168.3

Interest expense, net

8.7

6.8

16.7

13.0

Income before income taxes, and equity in earnings of affiliated companies

87.8

82.9

162.2

155.3

Provision for income taxes

20.0

22.1

34.1

30.7

Income before equity in earnings of affiliated companies

67.8

60.8

128.1

124.6

Equity in earnings from affiliated companies

1.0

0.8

2.3

1.6

  Net income

$

68.8

$

61.6

$

130.4

$

126.2

Basic net income per common share:

$

0.77

$

0.68

$

1.45

$

1.39

Diluted net income per common share:

$

0.76

$

0.67

$

1.44

$

1.37

Weighted-average common shares:

    Basic

88.8

90.7

89.4

91.1

    Diluted

89.9

92.0

90.5

92.4

Hexcel Corporation and Subsidiaries

Consolidated Balance Sheets

Unaudited

(In millions)

June 30, 2018

December 31, 2017

Assets

Cash and cash equivalents

$

39.1

$

60.1

Accounts receivable, net

287.2

248.7

Inventories, net

305.4

314.0

Contract assets

37.7

-

Prepaid expenses and other current assets

38.4

33.9

Total current assets

707.8

656.7

Property, plant and equipment

2,800.1

2,743.9

Less accumulated depreciation

(920.5

)

(877.6

)

     Net Property, plant and equipment

1,879.6

1,866.3

Goodwill and other intangible assets, net

145.3

148.7

Investments in affiliated companies

44.6

47.7

Other assets

58.8

61.5

Total assets

$

2,836.1

$

2,780.9

Liabilities and Stockholders' Equity

Liabilities:

Current portions of debt

$

9.3

$

4.3

Accounts payable

147.1

144.1

Accrued liabilities

137.4

113.7

Total current liabilities

293.8

262.1

Long-term debt

930.1

805.6

Other non-current liabilities

212.4

218.1

Total liabilities

$

1,436.3

$

1,285.8

Stockholders' equity:

Common stock, $0.01 par value, 200.0 shares authorized,

108.4 shares issued at June 30, 2018 and 107.8 shares

issued at December 31, 2017

$

1.1

$

1.1

Additional paid-in capital

792.0

774.3

Retained earnings

1,606.2

1,496.1

Accumulated other comprehensive loss

(80.8

)

(45.0

)

2,318.5

2,226.5

Less – Treasury stock, at cost, 20.9 and 18.2 shares at

June 30, 2018 and December 31, 2017, respectively

(918.7

)

(731.4

)

Total stockholders' equity

1,399.8

1,495.1

Total liabilities and stockholders' equity

$

2,836.1

$

2,780.9

Hexcel Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Unaudited

Six Months Ended

June 30,

(In millions)

2018

2017

Cash flows from operating activities

  Net income

$

130.4

$

126.2

Reconciliation to net cash provided by operating activities:

  Depreciation and amortization

59.6

49.5

  Amortization related to financing

0.7

0.4

  Deferred income taxes

12.7

2.0

  Equity in earnings from affiliated companies

(2.3

)

(1.6

)

  Stock-based compensation expense

12.0

13.3

Changes in assets and liabilities:

  (Increase) decrease in accounts receivable

(43.4

)

2.4

  Increase in inventories

(28.6

)

(11.6

)

  Increase in prepaid expenses and other current assets

(12.9

)

(2.9

)

  Increase in accounts payable/accrued liabilities

24.7

5.0

  Other - net

4.3

(0.3

)

Net cash provided by operating activities (a)

157.2

182.4

Cash flows from investing activities

  Capital expenditures (b)

(101.9

)

(169.2

)

  Acquisitions of business and investments in affiliates

-

(10.0

)

Net cash used in investing activities

(101.9

)

(179.2

)

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

  Repayment of Euro term loan

(4.2

)

(4.1

)

  Borrowings from senior unsecured credit facility

379.0

252.0

  Repayment of senior unsecured credit facility

(244.0

)

(552.0

)

  Repayments of other debt, net

-

0.2

  Dividends paid on common stock

(22.4

)

(20.1

)

  Repurchase of stock

(181.0

)

(120.8

)

  Activity under stock plans

(0.7

)

5.6

Net cash (used in) provided by financing activities

(73.3

)

2.8

Effect of exchange rate changes on cash and cash equivalents

(3.0

)

4.3

Net (decrease) Increase in cash and cash equivalents

(21.0

)

10.3

Cash and cash equivalents at beginning of period

60.1

35.2

Cash and cash equivalents at end of period

$

39.1

$

45.5

Supplemental data:

Free Cash Flow (a)+(b)

$

55.3

$

13.2

Accrual basis additions to property, plant and equipment

$

90.0

$

170.1

Hexcel Corporation and Subsidiaries

Net Sales to Third-Party Customers by Market

Quarters Ended June 30, 2018 and 2017

Unaudited

Table A

(In millions)

As Reported

Constant Currency (a)

B/(W)

FX

B/(W)

Market

2018

2017

%

Effect (b)

2017

%

Commercial Aerospace

$

383.8

$

349.0

10.0

$

0.8

$

349.8

9.7

Space & Defense

91.7

87.8

4.4

1.1

88.9

3.1

Industrial

72.0

54.5

32.1

3.2

57.7

24.8

Consolidated Total

$

547.5

$

491.3

11.4

$

5.1

$

496.4

10.3

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

70.1

71.0

70.5

Space & Defense

16.7

17.9

17.9

Industrial

13.2

11.1

11.6

Consolidated Total

100.0

100.0

100.0

Six Months Ended June 30, 2018 and 2017

Unaudited

(In millions)

As Reported

Constant Currency (a)

B/(W)

FX

B/(W)

Market

2018

2017

%

Effect (b)

2017

%

Commercial Aerospace

$

766.5

$

696.2

10.1

$

3.4

$

699.6

9.6

Space & Defense

181.8

164.5

10.5

3.7

168.2

8.1

Industrial

139.3

109.4

27.3

9.3

118.7

17.4

Consolidated Total

$

1,087.6

$

970.1

12.1

$

16.4

$

986.5

10.3

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

70.5

71.8

70.9

Space & Defense

16.7

17.0

17.1

Industrial

12.8

11.2

12.0

Consolidated Total

100.0

100.0

100.0

(a)

To assist in the analysis of the Company’s net sales trend, total net sales and sales by market for the quarter ended June 30, 2017 have been estimated using the same U.S. dollar, British pound and Euro exchange rates as applied for the respective period in 2018 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 2018

Net sales to external customers

$

445.8

$

101.7

$

-

$

547.5

Intersegment sales

20.3

-

(20.3)

-

Total sales

466.1

101.7

(20.3)

547.5

Operating income (loss)

93.1

15.9

(12.5)

96.5

     % Operating margin

20.0%

15.6%

17.6%

Depreciation and amortization

27.5

2.3

-

29.8

Stock-based compensation expense

0.9

0.1

1.1

2.1

Accrual based additions to capital expenditures

43.4

1.3

-

44.7

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

First Six Months 2018

Net sales to external customers

$

890.4

$

197.2

$

-

$

1,087.6

Intersegment sales

39.5

-

(39.5)

-

Total sales

929.9

197.2

(39.5)

1,087.6

Operating income (loss)

184.1

25.8

(31.0)

178.9

     % Operating margin

19.8%

13.1%

16.4%

Depreciation and amortization

55.0

4.6

-

59.6

Stock-based compensation expense

4.5

0.8

6.7

12.0

Accrual based additions to capital expenditures

88.7

1.3

-

90.0

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%

17.3%

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

(a)

Hexcel does not allocate corporate expenses to the operating segments.    

Hexcel Corporation and Subsidiaries

Reconciliation of GAAP to Non-GAAP Net Income, EPS and Tax Rate

Table C

Unaudited

Quarter Ended June 30,

2018

2017

(In millions, except per diluted share data)

Net Income

EPS

Tax Rate %

Net Income

EPS

Tax Rate %

GAAP

$

68.8

0.76

22.8

$

61.6

$

0.67

26.7

Discrete Tax Benefit (a)

(1.3

)

(0.01

)

1.5

-

-

-

Non-GAAP

$

67.5

0.75

24.3

$

61.6

$

0.67

26.7

(a)

The 2018 period includes a benefit of $1.3 million from the release of reserves for uncertain tax positions.

Unaudited

Six Months Ended June 30,

2018

2017

(In millions, except per diluted share data)

Net Income

EPS

Tax Rate %

Net Income

EPS

Tax Rate %

GAAP

$

130.4

$

1.44

21.0

$

126.2

$

1.37

19.8

Discrete Tax Benefits (a)(b)

(1.3

)

(0.01

)

0.8

(9.1

)

(0.10

)

5.9

Non-GAAP

$

129.1

$

1.43

21.8

$

117.1

$

1.27

25.7

(a)

The 2018 period includes a benefit of $1.3 million from the release of reserves for uncertain tax positions.

(b)

The 2017 period includes a benefit of $9.1 million primarily related to the release of a valuation allowance in a foreign jurisdiction.

Hexcel Corporation and Subsidiaries

Schedule of Total Debt, Net of Cash

Table D

Unaudited

June 30,

December 31,

June 30,

(In millions)

2018

2017

2017

Current portion of capital lease

$

-

$

-

$

0.2

Euro term loan

9.3

4.3

4.1

Total current debt

9.3

4.3

4.3

Euro term loan

52.3

63.3

60.4

Long-term credit facility due 2021

185.0

50.0

65.0

Unsecured bonds due 2025

300.0

300.0

300.0

Unsecured bonds due 2027

400.0

400.0

400.0

Original issue discounts, deferred financing fees and other

(7.2

)

(7.7

)

(8.1

)

Total long-term debt

930.1

805.6

817.3

Total Debt

939.4

809.9

821.6

Less: Cash and cash equivalents

(39.1

)

(60.1

)

(45.5

)

Total debt, net of cash

$

900.3

$

749.8

$

776.1