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Why Is Hexcel (HXL) Down 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Hexcel (HXL - Free Report) . Shares have lost about 2.8% in that time frame, outperforming 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 Corporation Beats on Q2 Earnings, Hikes Dividend

Hexcel Corporation HXL) reported second-quarter 2019 earnings of 94 cents per share, which surpassed the Zacks Consensus Estimate of 88 cents by 6.8%. The bottom line also improved 25.3% from the prior-year quarter’s 75 cents. This year-over-year upside can be attributed to robust sales growth and solid margin improvement.

Total Sales

Net sales totaled $609 million, which exceeded the Zacks Consensus Estimate of $604 million by 0.8% and increased 11.2% from the year-ago quarter’s $547.5 million.

Operational Update

Hexcel’s gross margin was 27.7% in the second quarter, reflecting a year-over-year expansion of 130 basis points. The year-over-year improvement reflects strong operational execution combined with reduced operational headwinds as compared to 2018.

The company’s operating expenses amounted to $53.7 million in the quarter compared with the previous year’s $48.3 million. Selling, general and administrative expenses were up 11.9%, while research and technology expenses rose 9.2%.

Segmental Performance

Commercial Aerospace: Net sales increased 8.5% year over year to $416.5 million. The uptick can be attributed to strong performance of the Airbus A320neo, the Boeing 787 and Airbus A350 programs.

Space and Defense: Net sales increased 21.9% year over year to $111.8 million, primarily owing to strong sales of the F-35 Joint Strike Fighter and fixed-wing programs, and the acquisition of ARC Technologies.

Industrial: Net sales rose 12.1% year over year to $80.7 million on high wind energy sales.

Financial Details

As of Jun 30, 2019, cash and cash equivalents were $55.4 million compared with $32.7 million as of Dec 31, 2018.

Long-term debt totaled $1,115.8 million as of June 30, 2019, up from $947.4 million as of Dec 31, 2018.

At the end of second-quarter 2019, cash generated from operating activities summed $157.2 million, which came in line with the prior-year quarter’s figure.

The effective tax rate was 22.9% in the reported quarter compared with 22.8% in the second quarter of 2018. Free cash flow was $57.9 million for the first six months of 2019 compared with $55.3 million for the same period last year.

Dividend Hike Announcement

Along with the second-quarter earnings announcement, the company's board of directors declared a quarterly dividend of 17 cents per share, representing 13.3% increase from the prior quarter’s dividend of 15 cents. The dividend is payable to stockholders of record as of Aug 2, 2019, on Aug 9.

2019 Guidance

For 2019, Hexcel continues to expect sales of $2.38-$2.48 billion. The Zacks Consensus Estimate for the company’s full-year sales, pegged at $2.41 billion, lies below the mid-point of the company’s projected view.

It now projects adjusted earnings per share to be $3.43-$3.53 for the year compared with the previous guidance of $3.38-$3.52. The Zacks Consensus Estimate for the company’s 2019 earnings, pegged at $3.45, lies below the mid-point of the company’s guided range.

Hexcel forecasts free cash flow to exceed $250 million and accrual basis capital expenditures between $170 million and $190 million in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Hexcel has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 B. 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 this revision looks promising. Notably, Hexcel has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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