Hexcel Q3 Earnings Call Highlights

Key Points

• Strong commercial aerospace growth drove Hexcel’s third-quarter results, with sales up 9% to $496 million and commercial aerospace revenue rising 21%. Demand for Airbus A350/A320neo and Boeing 787/737 MAX programs supports at least 80 A350 shipsets in 2026 and approximately 100 in 2027.
• Profitability improved, with adjusted operating margin increasing to 11% and adjusted EPS rising to $0.50, though hiring, factory restarts and training costs are creating near-term pressure. Management is targeting roughly 18% margins before the end of the decade, with potential to approach 20%.
• Hexcel reaffirmed its 2026 guidance for revenue of $2.025 billion to $2.15 billion, EPS of $2.30 to $2.40 and free cash flow above $195 million. The company expanded its share-repurchase authorization to $750 million but expects to resume buybacks after reaching its target leverage range.

Hexcel NYSE: HXL reported third-quarter 2026 sales of $496 million, up 9% from a year earlier, as commercial aerospace demand increased across its major aircraft programs. Adjusted operating margin rose to 11% from 9.8%, while adjusted diluted earnings per share increased to $0.50 from $0.37 in the prior-year quarter.

Chairman, CEO and President Tom Gentile said the quarter reflected customary summer seasonality, including extended European holiday periods, while the company continued restarting idle manufacturing lines and hiring employees to support higher expected production rates. Those actions pressure margins in the near term but are intended to position Hexcel for greater operating leverage as volumes rise, he said.

Commercial aerospace drives quarterly growth

Commercial aerospace sales totaled $330 million, rising 21% year over year and representing about 67% of quarterly revenue. Hexcel cited volume growth on the Airbus A350 and A320neo as well as the Boeing 787 and 737 MAX.

Gentile emphasized that Hexcel supplies materials several months before final aircraft assembly, meaning its shipments are based on customer production demand and purchase orders rather than reported aircraft deliveries. The company said orders received through year-end support its expectation of at least 80 A350 shipsets in 2026.

For 2027, Hexcel said current demand signals point to approximately 100 A350 shipsets, a roughly 25% increase from its 2026 outlook. Gentile said the company has not seen evidence suggesting a potential A350 inventory reduction next year, citing Airbus production plans, customer schedules, supplier surveys and initial purchase orders for early 2027.

In the question-and-answer session, Gentile said Hexcel believes it has enough installed production capacity to support Airbus’ stated target of 12 A350 aircraft per month by 2028. Additional carbon-fiber capacity could be needed in the early 2030s if rates rise beyond that level, he said.

Defense and space sales decline amid temporary softness

Defense, space and other sales were $166 million, down 9% from a year ago and accounting for approximately 33% of revenue. The decline reflected the divestiture of Hexcel’s non-core industrial business in Austria, the winding down of industrial operations at its Leicester, U.K., site, lower U.S. space-launcher and rocket-motor volume, and timing-related softness in the F-35 and Rafale programs.

Gentile described the weaker space-launcher demand as temporary, noting that launch activity among some customers that use more composite materials had slowed following operational issues. The company expects activity in that area to begin improving, if not in the fourth quarter, then during 2027.

Management said defense and space remain strategic growth priorities despite the quarter’s decline. Gentile pointed to Hexcel’s positions on rotorcraft, fixed-wing and other defense platforms, including the CH-53K and Black Hawk. He also said the company sees potential opportunity from Boeing’s sixth-generation fighter awards, though production material decisions have yet to be finalized.

Margins improve, with further expansion targeted

Chief Financial Officer Jamie Coogan said third-quarter gross margin increased to 23.3% from 21.9%, aided by improved operating leverage and price realization. Adjusted operating income was $54 million, or 11% of sales, compared with $45 million, or 9.8% of sales, a year earlier.

Composite Materials, Hexcel’s larger segment, generated a 14.6% adjusted operating margin, up from 11.2% in the prior-year period. Engineered Products posted an 11.8% adjusted operating margin, down from 15.5% a year earlier.

Coogan said foreign exchange reduced third-quarter operating margin by about 30 basis points because of a weaker dollar. He also said higher oil prices have had a muted near-term effect because of hedges and procurement contracts. Acrylonitrile, a petroleum-derived input used in carbon fiber production, represents only a low-single-digit percentage of sales, management said.

Hexcel is pursuing a multiyear margin-expansion effort centered on price realization, cost control, continuous improvement, manufacturing yields and general-and-administrative efficiency. Management said the company sees a path to approximately 18% adjusted operating margin before the end of the decade as volumes move through existing capacity. Coogan said further pricing and operational improvements could create an opportunity to approach 20% margins.

The company added about 525 employees through the end of September, exceeding its earlier expectation to hire 400 during 2026, and expects to add more workers before year-end. Management said onboarding and training costs will continue to create some pressure, including into the first half of 2027, before higher production volumes improve absorption.

Guidance and capital allocation

Hexcel reaffirmed its full-year 2026 outlook for revenue of $2.025 billion to $2.15 billion, diluted earnings per share of $2.30 to $2.40, and free cash flow greater than $195 million. The company said it expects fourth-quarter revenue to reflect its typical mix of roughly 65% commercial aerospace and 35% defense, space and other markets.

For the first nine months of 2026, free cash flow rose to $103 million from $50 million a year earlier. Net debt to trailing-12-month adjusted EBITDA was about 2.1 times at Sept. 30, compared with just under 2.7 times at year-end 2025. Hexcel said it remains on track to return to its target leverage range of 1.5 times to 2 times during the fourth quarter.

The board increased the company’s share-repurchase authorization to $750 million from the $381 million remaining as of Sept. 30. Hexcel said it expects to consider restarting buybacks once it reaches its targeted leverage range. The board also declared a quarterly dividend of $0.18 per share, payable Nov. 9 to shareholders of record on Nov. 2.

About Hexcel (NYSE:HXL)

Hexcel Corporation is an advanced materials company that develops and manufactures lightweight, high-performance composite materials and structural components. Its products are designed to improve strength, durability, fuel efficiency, and performance across demanding applications.

The company's portfolio includes carbon fiber, fiberglass, specialty reinforcements, prepregs, adhesives, honeycomb materials, engineered core products, and composite structures. These materials and components are used in commercial aircraft, military and space systems, helicopters, wind turbine blades, and various industrial applications.

Hexcel serves customers worldwide through manufacturing, research, and distribution operations in North America, Europe, Asia, and other international markets.

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