Why Is Hexcel (HXL) Down 10.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Hexcel (HXL). Shares have lost about 10.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hexcel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hexcel's Q4 Earnings Surpass Estimates, Revenues Miss

Hexcel Corporation reported fourth-quarter 2019 adjusted earnings of 86 cents per share, surpassing the Zacks Consensus Estimate of 85 cents by 1.2%. Further, the bottom line improved 4.9% from the prior-year quarter’s 82 cents.

In the reported quarter, the company’s GAAP earnings came in at 86 cents compared with the prior-year quarter’s 76 cents.

For 2019, Hexcel's earnings were $3.54 per share, up 16.1% from $3.05 in the year-ago period. The full-year earnings figure surpassed the Zacks Consensus Estimate of $3.53 by 0.3%.

Total Revenues

Net sales totaled $564.3 million, which missed the Zacks Consensus Estimate of $591.1 million by 4.5%. However, the top line witnessed an increase of 0.6% from the year-ago quarter’s $561 million.

In 2019, total revenues grew 7.6% year over year to $2,355.7 million. However, the full-year revenues figure missed the Zacks Consensus Estimate of $2,380 million by 1%.

Operational Update

Hexcel's gross margin was 26% in the fourth quarter, reflecting a year-over-year contraction of 80 basis points.

The company’s operating expenses amounted to $49.1 million in the quarter compared with the previous year’s $54.6 million. Selling, general and administrative expenses were up 13.3%, while research and technology expenses were down 13.2%.

Quarterly Performance

Commercial Aerospace: Net sales were down 1.5% year over year to $379.8 million. The decline can be attributed to lower sales for legacy narrow-body programs.

Space and Defense: Net sales rose 18% year over year to $115.3 million, primarily owing to growth across several defense and space programs, and the F-35 Joint Strike Fighter (JSF) program alongside the contribution from ARC Technologies.

Industrial: Net sales declined 11.2% year over year to $69.2 million, primarily due to soft wind energy sales.

Financial Details

As of Dec 31, 2019, cash and cash equivalents were $64.4 million compared with $32.7 million as of Dec 31, 2018.

Long-term debt totaled $1,050.6 million as of Dec 31, up from $947.4 million as of 2018-end.

At the end of 2019, cash generated from operating activities summed $491.1 million compared with $421.4 million in the prior year.

Other Financial Updates

The effective tax rate for the fourth quarter of 2019 was 16.6% compared with 24.2% in the year-ago period. The fourth quarter of 2019 was favorably impacted by a rate adjustment

The company used $76 million to repurchase shares of its common stock during the fourth quarter of 2019, bringing the total share repurchase value to $143 million in 2019. The remaining authorization under the share repurchase program as of Dec 31 was $242 million.

2020 Guidance

Hexcel forecasts its free cash flow to exceed $300 million and accrual basis capital expenditures to remain between $100 million and $120 million in 2020. The underlying effective tax rate is estimated at 23%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.