Why is Hexcel (HXL) up 4.9% since its last earnings report?

It’s been about a month since Hexcel (HXL) last reported earnings. Shares are up about 4.9% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Hexcel due for a pullback? Before we dive into how investors and analysts have reacted lately, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hexcel Corporation’s Q3 results soar, revenues up year-on-year

Hexcel Corporation reported third-quarter 2019 earnings of 90 cents per share, which was 1.1% ahead of the Zacks Consensus Estimate of 89 cents. The bottom line also improved by 12.5% ​​from 80 cents in the previous quarter. The year-over-year increase was attributable to solid sales and margin improvements.

The company reported GAAP earnings per share of 93 cents, compared to 91 cents in the year-ago quarter.

Total sales

Net sales were $572.5 million, missing the Zacks Consensus Estimate of $604 million by 5.2%. However, net sales increased 5.9% from $540.5 million in the year-ago quarter. The year-over-year increase was attributable to sales growth in the Commercial Aerospace and Space & Defense segments.

Operational update

Hexcel’s gross margin was 27.6% in the third quarter, up 110 basis points year over year. The improvement reflects good operational execution.

The company’s operating expenses were $48 million in the third quarter compared to $46.5 million in the same quarter last year. Selling, general and administrative expenses increased by 3.7%, while research and technology costs increased by 2.2%.

Segment efficiency

Commercial aviation:Net sales increased by 3.4% year-on-year to $385.9 million. The increase was attributable to strong performance from the Airbus A320neo, Airbus A350 and Boeing 787 programs.

Space and Defense:Net sales increased 21.5% year over year to $109.8 million, primarily due to the expansion of the F-35 Joint Strike Fighter program.

Industrial:Net sales decreased 0.3% year-over-year to $76.8 million due to weak auto sales.

Financial details

As of September 30, 2019, cash and cash equivalents were $47 million compared to $32.7 million as of December 31, 2018.

Long-term debt was $1,115.2 million as of September 30, 2019, compared to $947.4 million as of December 31, 2018.

Cash provided by operating activities at the end of the third quarter of 2019 was $277.3 million, compared to $278.4 million at the end of the third quarter of 2018.

The effective tax rate was 18.4% in the reported quarter compared to 9.1% in the third quarter of 2018. Free cash flow was $114.6 million for the first nine months of 2019 compared to $128.2 million this year. same period last year.

Guidelines for 2019

For 2019, Hexcel lowered its sales forecast to $2.34-2.40 billion from $2.38-2.48 billion. The Zacks Consensus Estimate for full-year sales of $2.43 billion exceeds the company’s forecasts.

Hexcel forecasts adjusted earnings per share of $3.43-$3.53 for the year. The Zacks Consensus Estimate for the company’s 2019 earnings, pegged at $3.52, is nearing the end of the company’s forecast range.

Hexcel expects free cash flow to exceed $250 million and accrual-based capital expenditures to be between $170 million and $190 million in 2019.

How have estimates changed since then?

The latest estimates have shown a downward trend over the past two months.

VGM results

Right now, Hexcel has an average Growth Score of C, however its Momentum Score is doing slightly better at B. Plotting a somewhat similar path, the stock is given a C grade on the value side, placing it in the middle 20% for this investment strategy.

Overall, the stock has an Overall VGM Rating of C. If you’re not focused on one strategy, this rating should interest you.

Perspectives

Hexcel has a Zacks Rank #3 (Hold). We expect the stock to turn around in the next few months.

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