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Why Is Hexcel (HXL) Up 52.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for Hexcel (HXL - Free Report) . Shares have added about 52.1% in that time frame, 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 as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Hexcel Reports Loss in Q3, Misses Revenue Estimates

Hexcel Corporation reported third-quarter 2020 loss of 29 cents per share against the Zacks Consensus Estimate of earnings of 7 cents. The bottom line also declined from the prior-year quarter’s earnings per share of 90 cents. The year-over-year downside can be attributed to poor sales figures.

The company reported GAAP earnings of 12 cents per share compared with the year-ago quarter’s 93 cents.

Total Sales

Net sales totaled $286.9 million, missing the Zacks Consensus Estimate of $344 million by 17.4%. Moreover, the top line witnessed a decline of 49.9% from the year-ago quarter’s $572.5 million.

The year-over-year deterioration in sales can be primarily attributed to the impacts of the pandemic, leading to an unprecedented decline in demand, affecting the aerospace industry.

Operational Update

Hexcel’s gross margin was 4.7% in the third quarter compared to the year-ago quarter’s gross margin of 27.6%. The deterioration reflects the under absorption of fixed overhead from lower sales levels magnified by the temporary idling of select production assets and facilities during the period to align production with demand.

The company’s operating expenses amounted to $51.1 million in the third quarter compared with the year-ago quarter’s $48 million.

Quarterly Performance

Commercial Aerospace: Net sales were down 66.6% year over year to $128.8 million. Lower sales across all major programs, with the Airbus A350 generating the largest quarterly revenue decline, resulted in this unit’s poor top-line performance.

Space and Defense: Net sales edged down 0.9% year over year to $108.8 million on account of lower demand from a number of European space & defense programs.

Industrial: Net sales declined 35.8% year over year to $49.3 million, primarily due to lower wind energy sales on account of soft demand arising from the COVID-19 pandemic.

Financial Details

As of Sep 30, 2020, cash and cash equivalents were $68 million compared with $64.4 million as of Dec 31, 2019.

Long-term debt totaled $998.7 million as of Sep 30, 2020, down from $1,050.6 million as of Dec 31, 2019.

At the end of third-quarter 2020, cash generated from operating activities summed $157 million compared with $277.3 million generated at the end of third-quarter 2019.

2020 Guidance

Hexcel continues to withhold its financial guidance in the wake of the ongoing market uncertainties as a result of the pandemic.


 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -184.44% due to these changes.

VGM Scores

Currently, Hexcel has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Hexcel has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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