Hexcel Corporation (HXL)

Hexcel Corporation Q1 2025 Financial Report

Report Date: April 30, 2025
Period Covered: Quarter ended March 31, 2025

1. Executive Summary

• Net sales of $4,565 million vs. $4,723 million in Q1 2024 (–3.3%).
• Gross margin of 22.4% vs. 25.0% in Q1 2024, reflecting lower volume leverage.
• Operating income of $442 million (9.7% margin) vs. $529 million (11.2% margin).
• Net income of $289 million (EPS $0.035 diluted) vs. $365 million (EPS $0.043 diluted).
• Total debt increased to $7,872 million from $7,007 million, driven by $5,875 million 2035 note issuance and refinancing activities.

2. Revenue & Profit Analysis

• Commercial Aerospace sales down 6.4% to $2,801 million, impacted by Boeing 787 and MAX production delays.
• Defense & Space sales up 2.0% to $1,764 million on stronger military and space programs.
• Composite Materials segment sales of $3,653 million (–3.7%), Engineered Products $912 million (–1.7%).
• Lower volumes eroded gross margin; SG&A and R&T expenses declined year-over-year, partially offsetting margin pressure.

3. Debt Profile

• Q1 2025 total debt: $7,872 million vs. $7,007 million in Dec 2024 (+12.3%).
• Issued $5,875 million 2035 senior unsecured notes at 6.0% to refinance near-term maturities and extend debt maturity profile.
• Unused revolving credit availability: $6,600 million.
• Weighted average interest rate on facility: 5.7% in Q1 2025 vs. lower rates prior year.

4. Cash Flow & Liquidity

• Net cash used in operating activities: $285 million vs. $... million in Q1 2024.
• CapEx of $261 million; Free cash flow of $546 million on a non-GAAP basis.
• Cash balance: $892 million vs. $1,254 million at year-end 2024.
• Repurchased $504 million of shares; $1,845 million remaining authorization on share buyback plan.

5. Pros and Cons

Pros:

• Defense & Space segment growth supports diversification.
• Strong order backlog in aerospace long-term recoveries.
• Robust liquidity with low utilization of revolver.
• Active capital return via buybacks and dividend.

Cons:

• Commercial aerospace headwinds from production delays.
• Rising interest expense due to higher debt levels and rates.
• Margin pressure from lower volumes and inflationary costs.
• Environmental liabilities (Passaic River) remain uncertain.

Conclusion: Q1 2025 results show resilience in defense markets but illustrate margin impact of aerospace volume softening and higher financing costs. The debt increase is strategic to extend maturities, though interest burden is rising. Continued focus on cost discipline, working‐capital efficiency, and diversification into defense & space will be critical to offset commercial aerospace cyclicality.

Revenue by market (Q1 2025 vs. Q1 2024): Commercial Aerospace $2,801 M vs. $2,993 M; Defense & Space $1,764 M vs. $1,730 M. Segment sales: Composite Materials $3,653 M vs. $3,795 M; Engineered Products $912 M vs. $928 M. Operating income by segment: Composite Materials $546 M vs. $637 M; Engineered Products $155 M vs. $129 M.

Hexcel’s focus on high‐growth defense & space markets and disciplined share repurchases underpin its near‐term strategy. The extended debt maturity profile enhances financial flexibility, albeit at higher interest rates. Risks include aerospace production volatility, raw material inflation, and environmental contingencies. Opportunities lie in new aircraft programs, electric vehicle composites, and expanding defense contracts. Maintaining margin improvement through operational efficiencies and selective pricing actions will be key to navigating cyclical aerospace headwinds and sustaining long‐term growth.