Earnings call transcript: Hexcel’s Q2 2025 earnings beat expectations

Hexcel Corporation reported its second-quarter earnings for 2025, surpassing analysts’ expectations with an adjusted diluted earnings per share (EPS) of $0.50, compared to the forecasted $0.46. This 8.7% surprise came alongside a revenue of $490 million, exceeding the anticipated $474.69 million. The $4.86 billion market cap company, which InvestingPro analysis shows is trading at a high earnings multiple of 40x, saw its stock price fall by 2% in aftermarket trading, closing at $62.36, reflecting broader market concerns and sector-specific challenges.

Key Takeaways

• Hexcel’s EPS of $0.50 exceeded the forecast by 8.7%.
• Revenue reached $490 million, beating expectations by 3.2%.
• Aftermarket trading saw a 2% decline in Hexcel’s stock price.
• Commercial aerospace sales decreased by 8.9% year-over-year.
• The company anticipates generating over $1 billion in cash over the next four years.

Company Performance

Hexcel’s Q2 2025 performance showed resilience, with revenue and EPS both surpassing market expectations. However, a notable decline in commercial aerospace sales, down 8.9% year-over-year to $293 million, highlighted challenges in this sector. In contrast, the Defense, Space, and Other sales segment grew by 7.6%, reaching $197 million, underscoring the company’s diversified market presence.

Financial Highlights

• Revenue: $490 million, up from the forecast of $474.69 million.
• Earnings per share: $0.50, compared to the forecast of $0.46.
• Gross margin: 22.8%, down from 25.3% in 2024.
• Adjusted operating income: $54.2 million, representing 11.1% of sales.

Earnings vs. Forecast

Hexcel’s earnings per share of $0.50 exceeded the forecasted $0.46, marking an 8.7% positive surprise. Revenue also surpassed expectations, coming in at $490 million against the projected $474.69 million. This performance indicates a robust quarter despite sector-specific challenges, such as the destocking in the A350 program.

Market Reaction

Despite the earnings beat, Hexcel’s stock fell by 2% in aftermarket trading, closing at $62.36. This decline reflects investor caution amidst broader aerospace sector challenges and market volatility. The stock remains within its 52-week range, with a high of $71.05 and a low of $45.28. InvestingPro analysis reveals that Hexcel has maintained its dividend growth for three consecutive years, currently offering a 1.11% yield. For deeper insights into Hexcel’s valuation and growth potential, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Outlook & Guidance

Hexcel is optimistic about future cash generation, projecting over $1 billion in cash flow over the next four years. The company maintains its full-year 2025 EPS guidance at $1.95 and anticipates a strong fourth quarter, driven by increased production rates in the aerospace sector. However, potential tariff impacts of $3-4 million per quarter remain a concern. The company’s trailing twelve-month EBITDA stands at $332.1 million, with a revenue of $1.88 billion. Discover more detailed financial forecasts and expert analysis through InvestingPro’s comprehensive coverage of over 1,400 US stocks.

Executive Commentary

CEO Tom Gentile expressed confidence in Hexcel’s future, stating, "We expect to generate over $1,000,000,000 of cash flow in the next four years." He also highlighted growth opportunities in the defense sector, which accounts for 35% of total revenue, and emphasized the company’s focus on lightweight composite materials.

Risks and Challenges

• Supply chain disruptions could impact production schedules.
• Tariff-related expenses may affect profitability.
• Destocking in the A350 program presents short-term challenges.
• Market volatility and economic uncertainties could influence investor sentiment.
• Competition in the aerospace sector remains intense.

Q&A

During the earnings call, analysts focused on the A350 program’s destocking, which is expected to conclude in Q3. Questions also addressed the potential for increased defense spending in the U.S. and Europe, as well as ongoing contract negotiations and potential mergers and acquisitions.

Full transcript - Hexcel Corp (HXL) Q2 2025:

Conference Operator: Hello, and welcome to the Hexcel Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. I would now like to turn the conference over to Curt Goddard, Vice President, Investor Relations. Please go ahead.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation: Hello, everyone. Welcome to Hexcel Corporation’s second quarter twenty twenty five earnings conference call. Before beginning, let me cover the formalities. I want to remind everyone about the safe harbor provisions related to any forward looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward looking statements today. Such factors are detailed in the company’s SEC filings and earnings release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our expressed permission.

Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO and President and Patrick Winterlich, our Executive Vice President and Chief Financial Officer. The purpose of the call is to review our second quarter twenty twenty five results detailed in our news release issued yesterday. Now let me turn the call over

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: to Tom. Tom? Thanks, Kurt. Hello, everyone, and thank you for joining us today as we discuss our twenty twenty five second quarter results. The fundamentals for the commercial aerospace industry and for Hexcel’s outlook continue to be very positive.

Hexcel has a strong market position with its uniquely extensive range of advanced lightweight composite materials to meet the requirements for the record levels of new commercial aircraft on order with Airbus and Boeing as well as supporting military applications and growing global defense spending. Starting with Boeing. There is a positive momentum for their key programs, with Boeing stating that they are now at a production rate of 38 aircraft per month for the seven thirty seven MAX aircraft. Solid progress also continues to the seven eighty seven build rate as Boeing moves towards producing seven aircraft per month in 2025 following the apparent resolution of supply chain issues. For Airbus, the outlook for the a 03/20 ramp is also becoming more encouraging in terms of the growing availability of engines in the 2025 to enable Airbus to increase the build rate and then push monthly build rate through the sixties in 2026.

Airbus continues to project that they will achieve a production rate of 75 aircraft per month on the a three twenty neo program by 2027. The a three fifty, Hexcel’s largest program, is currently one of our major challenges as Airbus looks to stabilize the program’s build rates and move monthly rates towards seven by the end of twenty twenty five. In addition to A350 production challenges due to supply chain disruption, we have seen some destocking impact in Europe in the second quarter based on high levels of inventory for A350s for certain parts, including the wing. As previously communicated, we expect this destocking to continue through the third quarter. Airbus has indicated that the destocking should end as we go into q four, and they are still targeting to achieve a build rate of 12 aircraft per month on the a on the a three fifty program by 2028.

Remember that the ship set for Hexcel in the a three fifty is between 4 and a half million and $5,000,000 per ship set, and each monthly step up in the monthly a three fifty build rate brings significant revenue and operating leverage benefits for Hexcel. The medium to longer term outlook is very positive for Hexcel, including the expected multi decade production life for both the A350 and the seven eighty seven. The material demand requirement from these two programs will drive strong ongoing capacity utilization for Hexcel, which will underpin strong cash generation for years to come. As we have communicated, we expect to generate over $1,000,000,000 of cash cumulatively over the next four years. Demand within other commercial aerospace is also solid, and second quarter revenue saw growth both year over year and sequentially.

As a reminder, the modern large cabin business jets now have extensive composite content with shipset values between $200,000 and $500,000 per shipset. The second quarter of twenty twenty five saw strong defense sales with broad strength across a number of domestic and international programs. Military and defense budgets around the globe continue to strengthen. Notably, NATO members in Europe have indicated that they will increase defense spending to 5% of GDP, which ultimately translates to higher and sustained build rates for most platforms. Development of new platforms is also encouraging, such as sixth generation fighters and autonomous drone.

Hexcel participated in the Paris Air Show last month. We provided a confident outlook for the aerospace industry and where we reinforced existing relationships, announced new relationships, and highlighted recent advances with our innovative technology for lightweight material. Some items of notes included, Embraer and Hexcel celebrated fifty years of Hexcel supplying lightweight composite solutions by signing a preferred supplier agreement for composites. Hexcel has been a long standing provider to Embraer on a range of advanced lightweight composite materials, including prepreg, engineered core, and advanced structures. Various Embraer aircraft platforms use these lightweight composite materials, such as the three the c three ninety military transport and the KC three ninety tanker, the e two jet family of narrow body regional aircraft, and the Phenom 300 business jet.

We also signed a long term agreement with Kansberg, the Norwegian defense and aerospace systems provider. The agreement covers the supply of Hexcel’s lightweight engineered honeycomb and prepreg products for strategic production programs over five years. This is just one example of Hexcel’s strong European presence in relation to the increasing defense spending in Europe. In addition, we announced a collaboration with Flying Whale and Hexcel on an exciting project to develop an advanced solution for modern airship structures. Project will utilize a broad range of Hexcel’s products and especially Hexcel’s lightweight carbon fiber, which has been selected for the pultruded tube that composed the skeleton of the flying wells airship.

Each airship is forecast to have a ship set of more than a million dollars. Looking at our financial results for q two twenty twenty five, we generated sales of $490,000,000 and adjusted diluted EPS of $0.50 per share. As we highlighted at our last earnings call, aircraft production rates in 2025 will not meet the initial expectations due to supply chain disruptions. Commercial aerospace sales in the 2025 were $293,000,000 down 8.9% on a constant currency basis in the same period in 2024. Lower sales year over year were primarily due to the A350 and the Boeing seven eighty seven.

However, this was partially offset by a 5.1 increase in sales within the other commercial aerospace from international demand. To share some additional color, commercial aerospace sales were up on a sequential basis. The Boeing seven eighty seven, the seven thirty seven MAX, and the Airbus A320neo all increased sequentially as did other commercial aerospace. The A350 sales were lower as anticipated due to channel destocking. In Defense Base and Other, sales totaled $197,000,000 up 7.6% in constant currency in the same period in 2024.

Growth was driven by the TA-fifty three ks, two international fighter programs, and a strong quarter for space including launchers, rocket motors, and satellites. Conversely, the B-twenty two Osprey continues to weaken as expected as that program comes to the end of its production line. However, the overall continued growth in defense underscores capabilities and value Hexcel lightweight materials brings to the military market. Within with lower than expected sales volume in our commercial business, we see 2025 as the year where we need to remain focused on the fundamentals of our operations and controlling costs as we navigate reductions in near term production for commercial aerospace programs, notably the A350, before the production rates continue to increase in the second half of twenty twenty five. Our gross margin of 22.8% for Q2, down from 25.3% in 2024, was negatively impacted by lower operating leverage from the lower sales, combined with actions that we are taking to reduce inventory levels.

And then margins also were impacted by this lower overhead absorption. In addition, we are now beginning to feel the impact of tariffs. However, production rates increase in the 2025 and into 2026. The increased volume will drive operating leverage and expanded margin. While production rate increases for original equipment and commercial aerospace have experienced delays in 2025, the commercial aerospace industry outlook and confidence levels appear to be getting stronger.

Given this backdrop, we continue to remain extremely vigilant on the internal elements of our business that we can control, such as on time delivery. We were pleased to receive a supplier award for best performer from Airbus this quarter, recognizing Hexcel for our outstanding delivery and quality. We continue to push pricing and recover cost inflation impacts from contracts, when they renew. About 15% of our contracts by number come up for renewal each year, and historically, the average life of our contracts has been about seven years. We have worked hard over the last few years on all our contract renewals to get pricing to offset recent material, energy and labor cost pressures, and we will continue to do so.

We are also introducing more escalation and pass through clauses for our sales contracts whenever we can. We will continue to seek price increases to offset the inflation we have countered over the last several years as our contracts come to the end of their terms. As we have mentioned in recent quarterly calls, we are managing headcount very tightly and will only add people when the demonstrated production rate clearly justify it. Specifically, as we stated in our first quarter earnings call, we expect that our headcount at the 2025 will be no higher than the headcount we ended with in 2024. This will be more than 400 heads short below our original plan for 2025.

As of June 30, our headcount was below fiscal year end 2024 level and decreased sequentially from the end of the first quarter. Our strong focus and operational excellence in general cost control remains as robust as ever as we continually work to drive efficiency and productivity. We also continue to move forward on our future factory efforts, which will see significant cost per unit improvements over the next several years, in part through the adoption of more automation, digitization, robotics technology, and the incorporation of artificial intelligence at our production site. In relation to continued efforts to optimize our production efficiency and overall facility footprint, we have now completed the legal process required in Belgium and have announced the closure of our engineered product facility in that country. Production stopped at the June and the majority of our employees have departed, leaving a small residual team to decommission the site and prepare it for sale.

We took a restructuring charge of $24,000,000 in the second quarter relating to severance and associated costs for the Belgium site. This Belgium site was operating as part of Hexcel for decades. But over time, the cost structure became untenable. While we are incurring near term costs to close the site, there will be a longer term reduction in structural costs within the engineered product segment of our business from this action. Please also note the production and sales from this plant have been transferred to other existing Hexcel sites, largely to our facility in Morocco, but also to our plant in Pottsville, Pennsylvania.

So there is no impact to our top line. The previously announced divestiture of our Australian glass fiber prepreg and recreation business is continuing, and we plan to provide an update later this year. We also recently divested our additive manufacturing business in Hartford, Connecticut as part of our overall streamlining of non core activities so we can focus on the upcoming production rate increases in commercial and military aerospace. Hexcel is well positioned on all fronts to meet the opportunities that lie ahead. We have an unrivaled product portfolio of advanced lightweight composite materials.

We have world leading technology and intellectual property positions. We have world class production facilities across The US and Europe, and we have the right team to drive growth. As build rates increase, we are well positioned to drive EBITDA and free cash flow while delivering strong returns to our shareholders. OEM build rates increase, and they will be a part of our growth in the next few years. Indeed, once Airbus and Boeing hit their publicly announced peak build rates across all their programs, XL will see an additional $500,000,000 in annual revenue.

That is without winning another contractor program. On top of this organic growth, we also believe there is a pace a place for targeted and disciplined m and a. We continue to be vigilant for appropriately priced assets that would provide synergistic benefits to Hexcel and complement what we do today in the sphere of advanced material science technology. Today, we have not found any actionable assets at the right prices, but we continue to look and evaluate potential opportunities. In the meantime, we have continued our periodic repurchase of Hexcel stock.

And indeed, we bought back another $50,000,000 of shares in the second quarter. This now brings our repurchases to $100,000,000 for the year and $350,000,000 or almost 6% of our outstanding stock in the last eighteen months. With that, let me turn it over

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: to Patrick to provide more details on the numbers. Patrick? Thank you, Tom. As a reminder, regarding foreign exchange exposure, Hexcel benefits from a strong dollar. We continue to hedge foreign exchange exposure over a ten quarter time horizon.

The year over year sales comparisons I will provide are in constant currency, which thereby remove the foreign exchange impact of sales. The commercial aerospace market reported approximately 60% of total second quarter sales in 2025 to $489,900,000 Second quarter Commercial Aerospace sales of $293,000,000 decreased 8.9 compared to the second quarter of twenty twenty four. We experienced lower sales year over year with each of the four major commercial aerospace programs, including the Airbus A350 and A320 and the Boeing seven eighty seven and seven thirty seven MAX. As the overall aerospace supply chain continues to experience challenges ramping as quickly as the market demand supports, A350 sales declined year over year and sequentially as expected on channel destocking as Airbus has faced supply challenges causing delays in the rate ramp. As Tom mentioned, seven eighty seven, A320neo and seven thirty seven MAX all increased sequentially.

Sales for other commercial aerospace in the second quarter increased 5.1% year over year led by international demand. Defense, Space and Other represented approximately 40% of second quarter sales and totaled $196,800,000 increasing 7.6% from the same period in 2024. For Rotorcraft, the CH-fifty three ks and Blackhawk programs grew year over year, partially offset by the sunsetting V22 and a softer quarter for Apache. The space market grew strongly year over year, including both from the traditional defense prime and private space companies. Growth was across multiple space applications, including launches, rocket motors and satellites.

Gross margin of 22.8% in the 2025 decreased from 25.3% in the 2024 as lower sales and inventory reduction actions negatively impacted operating leverage. Specifically, this softer gross margin reflects the impact of our underutilized carbon fiber assets and the initial impact of increased tariffs, which started in the second quarter. We expect upcoming production rate increases, especially in Commercial Aircraft, to create operating leverage and drive increased margins as we go through the year. As a percentage of sales, selling, general and administrative expenses and R and D expenses were 11.7% in the 2025 compared to 10.9% in the comparable prior year period. Upgrades to financial and manufacturing IT systems, combined with some additional professional fees, contributed to higher operating expenses as a percentage of sales.

The closure of the engineered products facility in Belgium drove the other operating expense of $24,200,000 in the second quarter of twenty twenty five. These costs consist primarily of severance expenses with the majority of cash outflows expected to occur in the second half of twenty twenty five. Let me reiterate what Tom said. There will be minimal impact to sales with the closing of this facility as production is transferred to other Hexcel sites. And longer term, this plant closure will help us reduce our engineered product cost structure as Belgium with a high cost market for the products being manufactured there.

Adjusted operating income in the second quarter was $54,200,000 or 11.1% of sales compared to $72,000,000 or 14.4% of sales in the comparable prior year period. The year over year impact of exchange rates in the second quarter to operating income was favorable by approximately 10 basis points. Now turning to our two segments. The Composite Materials segment represented 80% of total second quarter sales and generated an adjusted operating margin of 14.1%. This compares to an adjusted operating margin of 17.2% in the prior year period.

Products segment, which is comprised of our Structures and Engineered Core businesses, represented 20 of total sales and excluding the impact of the Belgian plant closure, generated an adjusted operating margin of 10.9%. This compares to an adjusted operating margin of 14.3% in the prior year period. Net cash used by operating activities in the first six months of twenty twenty five was $5,200,000 compared to net cash provided of $37,200,000 in the first six months of twenty twenty four. Working capital was a cash use of $124,500,000 in the first six months of twenty twenty five compared to a cash use of $118,300,000 in the first six months of twenty twenty four. Capital expenditures on an accrual basis were $31,800,000 in the first ’6 months of twenty twenty five compared to $41,100,000 in the comparable prior year period.

Free cash flow in the first six months of twenty twenty five was negative $46,600,000 which compares to negative $14,400,000 in the first six months of twenty twenty four. We typically use cash in the first half of the year and this year was no different. Adjusted EBITDA totaled $172,500,000 in the first six months of twenty twenty five compared to $2.00 $4,000,000 in 2024. We used $50,500,000 to repurchase stock during the second quarter. The remaining authorization under the share repurchase program as of 06/30/2025, was approximately $134,000,000 The Board of Directors declared a zero one seven dollars quarterly dividend yesterday.

The dividend is payable to stockholders of record as of August 8, with a payment date of August 15. We are reaffirming our 2025 guidance with the caveat that we are still reviewing the recent change in tax laws. Our initial assessment is that our cash taxes will be lower in 2025 than our book taxes due to the deductibility of past R and D costs with what is, in essence, a onetime catch up. I would also like to clarify that our guidance of an effective tax rate of 21 is the underlying ETR we are currently assuming for the third and fourth quarters of twenty twenty five. Therefore, given some discrete adjustments in the first six months of twenty twenty five, we expect the average adjusted ETR for the full year of 2025 to be lower than 21%.

And as I have just indicated, we will update our forward ETR guidance, if needed, once we have fully digested the impact of recent tax law changes. We continue to forecast the tariff impact of 3,000,000 to $4,000,000 per quarter. However, the tariff situation remains uncertain with more potential changes to come. Our regional sourcing helps us to insulate us from the impact of tariffs, and we will continue to work on mitigations and pass throughs, so that takes time. And finally, I would like to share a reminder of the typical third quarter sales seasonality that arises from European summer vacations.

With that, let me turn the call back to Tom.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Thanks, Patrick. Despite the challenging first half of the year and the near term softer than expected demand for the A350, fundamental outlook for HEXL remains robust. Backlog for new aircraft is at an all time high, and every new commercial and military aircraft program brings more demand for advanced lightweight composite materials than the older generation it replaces. And as defense budgets around the world continue to get stronger, this provides an additional tailwind for Hexcel. Given this landscape, we are extremely confident that with Hexcel’s unrivaled portfolio of technology and lightweight product offerings and given the production footprint we already have in place requiring minimal capacity increases over the next several years, there is a great opportunity for Hexcel to generate strong incremental margins, drive growing EBITDA and generate significant free cash flow for many years to come.

To repeat, we expect that we will generate over $1,000,000,000 of cash flow in the next four years. Ektaal has the technology, the lightweight product portfolio, customer relationships, the qualification and the team to deliver as commercial production rates fully recover and defense spending increases. We appreciate your engagement with us today. With that, we’re ready to take your questions.

Conference Operator: Thank you. Your first question comes from Ken Herbert of RBC Capital Markets. Your line is open.

Ken Herbert, Analyst, RBC Capital Markets: Hi. Good morning, Tom and Patrick.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Good morning, Ken.

Ken Herbert, Analyst, RBC Capital Markets: Tom, maybe or Patrick, just to start off, can you outline specifically what the assumption is on either build rates or delivery rates or sort of the growth in the second half for the a three fifty program?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Yes, Ken. Sure. So as we said, that’s a program that has has changed. Airbus announced back in November that they were bringing down their schedule. And then in February, they announced again another reduction in the schedule.

So we had built our plan around 84, and we dropped that to 68 in our in our last call. What we’re seeing now is is something in the in the low sixties for the full year. But what we do see is that we think that destocking should end in the third quarter. Airbus has said that they’re gonna get to seven aircraft per month in the September time frame. And so we’re expecting a a pretty strong fourth quarter, probably twenty twenty one units in the in the fourth quarter of of demand pull from us.

And so that’s how we see the year shaping out. It’s it’s lower than we originally thought, but we do see with Airbus planning to increase rates to seven in September that q four should be pretty strong as we get past the destocking. Great. That’s very helpful.

Ken Herbert, Analyst, RBC Capital Markets: And is there any reason to think that we shouldn’t see continued growth within the defense space and other portfolio in the back half of the year? I think the run rate’s been been very nice to start the year.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: It has been. It’s been probably a little bit higher than we expected, and I think it should continue. I mean, defense spending around the world on all programs is going up. So we’re very encouraged with the q two results and and extremely optimistic about the rest of the year.

Ken Herbert, Analyst, RBC Capital Markets: Great. Thanks, Tom.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Thanks, Ken.

Conference Operator: The next question comes from David Strauss of Barclays. Your line is open.

David Strauss, Analyst, Barclays: Thanks. Good morning.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Good morning.

Analyst, Barclays: Following up on Ken’s question there. With Tom, with destocking that you’ve seen know, the destocking on the

David Strauss, Analyst, Barclays: a three fifty you’ve seen

Analyst, Barclays: in q one, q two, what what rate were you effectively shipping at in the first half of the year?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: For the a three fifty?

David Strauss, Analyst, Barclays: Yeah.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, the the the rate it’s always a

Gautam Khanna, Analyst, TD Cowen: little

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: bit different because you you we’re we’re a little bit ahead of everybody by six, eight months just because of of the type of material we provide. But in in the first quarter, the rates were kind of in the in the lows low sixes, and then in the second quarter in the high five. But don’t forget, you know, those are the rates, and and what they actually ship can be different. And it also depends on whether they can shift. Sometimes, for example, they’ve talked about the fact that they have some shortages on laboratories or things like that.

So that can all impact it. But those are the kind of rates we saw. So low sixes in q one and

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: kinda high fives in q two. And the thing I No. That Sorry. Is is we we’ve got a disparity between what we’re shipping in The US and what we’re shipping in Europe. So the destocking is largely Europe, and so we were shipping at a lower rate in Europe, whereas we’re getting calls still at a relatively high rate in a higher rate in The U.

S. As the Spirit plant catches up.

Analyst, Barclays: Okay. Got it. So just to clarify, so those are the those aren’t the stated Airbus rates. Those are the rates you’re actually shipping at?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yeah. What Tom was talking about is what we’re shipping at, and and we’re shipping more in The US than we are in Europe.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Yeah. And and let me let me clarify. This is the destocking aspect because what the stated Airbus rates are could be one level, but what they’re pulling from us at because they’re destocking is another level. And and so the our results kind of reflect the lower number, which is the destocking. So Yep.

So our our results won’t reflect what Airbus is reporting as their shift rates because they are destocked.

Analyst, Barclays: Yeah. Perfect. That’s what I was getting at. Thank you. And then, Patrick, on on currency, so you’re still seeing, you know, you’re still seeing a bit of a tailwind given your hedging.

When would you expect the currency comparison to flip negative here given the weakening in the dollar that we’ve seen?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: We have continued to benefit and it really does kind of speak up for the merits of the currency hedging that we do. So it was a tailwind again. I think we will actually continue to see a net tailwind this year. If rates stay where they are, we’re going to see that flip or start to flip, I think, next year in 2026, David. Got it.

Thank you very much.

Conference Operator: Okay. The next question comes from Gautam Khanna with TD Cowen. Your line is open.

Gautam Khanna, Analyst, TD Cowen: Yes, thanks. Good morning, guys. I was wondering to follow-up on the prior few questions. Do you guys have any expect can you give us any framework for thinking how the recoupling to underlying rates on the A350 progresses in 2026? Do you think you’ll be at that 7% -ish rate that you implied for Q4 for much of 2026 irrespective of where Airbus is?

I’m just curious, like, you know, there’s a destocking and then there’s a decoupling. And I’m just wondering the pace of decoupling, if you will.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. So our sense is is that we’ll get through the destocking in q three and start to get closer in terms of that coupling that you mentioned in q four and through next year. So, yeah, Airbus looks like they’re gonna enter 2026 at seven on the a March, probably raise it to eight sometime during the course of the year. And we’d expect that we’ll be closely more and and more coupled with them throughout ’26.

Gautam Khanna, Analyst, TD Cowen: Gotcha. Okay. And then just on the other major programs, say, the July, could you update us on where you are and, you know, how you see that progressing into 2026?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. Well, you know, to be honest, the the first half year is probably a little soft for us on July just in terms of what they were pulling. But Boeing is getting up to rate seven, and they have plans to continue all the way up to to rate 10 and beyond. So, again, we’re expecting the back half of the year to be stronger on the eight seven. Boeing has been reporting very strong production rates on that.

So, you know, our our our our poll was probably a little softer in q one and q two, but production rates on that program look look very strong and are expected to to grow.

Gautam Khanna, Analyst, TD Cowen: And last one, I think you mentioned something on the pricing side in the in the prepared remarks. Is there any reset that you can point to with respect to a time? Is it like in 2026, you start to see kind of a reset on pricing or anything you can speak to on how pricing might change and when.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. Well, as as as I mentioned, our average contract length is about seven years. So we’re doing about 15 or 20% of the contract renewals every year. And when contracts come up, we always take the opportunity to reset the terms and also negotiate price to reflect some of the inflation that we’ve been seeing, make sure we’re getting a fair a fair return on our investment. But it’s it’s it’s, I’d say, an ongoing gradual process, about 15 or 20% of the contracts per year.

The one exception on that would be some of our Airbus contracts, our bigger Airbus contracts, including for the a three fifty, are set up till 2030. So that’s a a slightly longer term. Those contracts go back at least the a three fifty contract originally goes back to 02/2008. That was a very long term contract. Going forward, we we that’s not been the the case.

Our contracts, as I said, average about seven years now, and about 15 or 20% come up each year for renewal.

Gautam Khanna, Analyst, TD Cowen: Gotcha. Thanks so much. I appreciate it, guys.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Thanks, Scott.

Conference Operator: The next question comes from Myles Walton with Wolfe Research. Your line is open.

Myles Walton, Analyst, Wolfe Research: Thanks. Good morning. Tom, you mentioned the award from Airbus for the best supplier for schedule and quality. I’m just curious, how do you use that to your advantage? And what conditions on the ground would have to exist such that on your Airbus contracts in particular because they’re so onerous and so long dated, where you would say we’re your best supplier.

We’re not getting value for what we’re delivering, and we need to renegotiate.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, look, I think the key right now for commercial aerospace, for Boeing and Airbus, is to get the production rates back up. And to do that, they need the supply chain delivering and performing. And we’re very proud on on Airbus, as I mentioned, is that we received a war an award for best performer. This was in the materials category for our quality and delivery. And and that’s very important to support Airbus as they’re increasing the rates across all their programs.

And so we’re we’re gonna continue to do that. At the same time, we always wanna are are working with our our our customers, including Airbus, to to drive productivity. And so even though our contracts, in the case of Airbus, aren’t due to 2030, we’re constantly working productivity initiatives where we can jointly share the benefit. So the contracts do go through 2030, but that doesn’t mean we’re not working productivity to drive mutual benefit in the meantime.

Myles Walton, Analyst, Wolfe Research: Okay. And and just to circle the square on the a three fifty deliveries. So 2021 in the fourth quarter, you’re shipping probably something like 10 in the third quarter. Is there any risk internally for that kind of 50% upslope that you anticipate? Or is that something that’s not really a test of the system for you?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Not an issue. We’ve got plenty of capacity in place. We got a trained workforce. And that that’s one of the things. I mean, because the volumes have been a little bit lower than we expected, we’re we’re essentially overstaffed.

You know, we could have probably taken out 50 or a 100 people, but we didn’t because we know the rates are going up in the back half, and we’re gonna need those folks. So we didn’t wanna have to rehire and retrain them. But we are absolutely, we’ve got enough capacity and staffing to to meet the demands as they come up in q four twenty five, but also all through ’26.

Myles Walton, Analyst, Wolfe Research: Okay. And one last one, Patrick. The 24,000,000 in restructuring, how much of that is cash that you have to spend in the second half?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yeah. A large majority of it, 85%, 90% will end up as cash. The majority of that cash, would expect to move in the third quarter, Myles.

Michael Ciarmoli, Analyst, Truist Securities: Okay. Thank you.

Conference Operator: The next question comes from Michael Ciarmoli with Truist Securities. Your line is open.

Michael Ciarmoli, Analyst, Truist Securities: Hey, good morning guys. Thanks for taking the question. Just a further clarification on the A350. Does the full year guidance contemplate low sixties, or do you do you think you end up at at 68? And then just from a seasonality perspective, does three q look a lot weaker, kind of across the board than normal?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Q three does look weaker. We’ve got the destocking. As as Patrick mentioned, you’ve got the seasonal holidays that always take place in Europe. So q three does look look softer. Yes.

The the full year, we think, is kinda low to mid sixties overall. But as I said, we’re expecting a a fairly strong q four. Airbus is planning a rate break

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: to seven in

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: September, and, you know, and and the destocking should should really be behind us by that point. And so q four should be strong, and that leads into 2026.

David Strauss, Analyst, Barclays: Okay. Okay.

Michael Ciarmoli, Analyst, Truist Securities: And then just for clarification, the the tariff headwind, I mean, it it sounds like you’re trying to offset. You you’ve got some regional sourcing, but you kinda indicated you’re starting to feel it. How should we think about, just the earnings guidance? The the do we think the low end comes into play, or is that range doable if you you kinda get the full brunt of tariffs tariffs?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. Well, the tariffs, it it’s they’re changing frequently, and so we’re trying to keep up and and and and and figure out what what they are. As we said, the direct impact on us is about 3 or 4,000,000 a quarter. There’s three quarters. We said we’re at the low end of the range this quarter.

So we we anticipate, kinda given things in the outlook right now, maybe it’s $10,000,000, but we don’t know. So we didn’t include it in the guidance just because it could be smaller or larger. We just don’t know based on where the negotiations end up. So we’ve left it out. But you could you could probably extrapolate and say it could be up to 10,000,000.

You know, our our EPS target is a dollar 95 or a 195. And and so there could be some pressure in that brings us towards the lower end of the range if the full tariff impact is. But we just don’t know. And so we didn’t wanna build it into the into the guidance and then have to change it based on what we’ve learned. We’ll know more in the next few months.

It seems like some of the deals are coming through, and that will provide more clarity. But put it in right now, it just seemed to us to be a little bit premature, especially since it’s only 3 or $4,000,000 a quarter and we’re at the low end of the range.

Michael Ciarmoli, Analyst, Truist Securities: Got it. Got it. Helpful. Thanks, guys. Thanks, guys.

Thanks.

Conference Operator: The next question comes from Richard Safran with Seaport Research Partners.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation0: Tom, Patrick, Kurt, good morning. I just have one two part question for you guys on defense this morning. First, Tom, you touched on this a couple of times for 2025 this morning. But could you discuss a bit more about how the administration spending on defense and the increases you’ve been mentioning in European defense spending impact your longer term outlook? Given the increase in U.

S. And Europe, I just would have to think it’s infinitely better than when you started the year. And second, would you be willing to provide some comment on your view of the long term growth and margin potential margin potential for your defense business? Thanks. Great.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, there’s no doubt that the defense spending has increased. The the recent budget has a higher amount, and then there’s the the supplemental funds as well. So I think that is definitely driving the current performance and the outlook for the rest of the year. There’s there’s there’s no doubt about that. You were seeing it, you know, strength across the the board in some of our big programs like the c h 53 k where we do the whole material system or the f 35 where we provide all the carbon fiber for the material system.

And then some of the the space and the missiles are have also been strong. So we expect that to continue, if not accelerate, because the the underlying depend spending and the demand is so great. But we’re also seeing that in Europe. You know, we have a big work share on the Rafale program, which is the fighter jet from Dassault, and that was up a lot. And the demand for that is is up significantly.

Many countries are are turning to that aircraft as they go forward. So we expect that to continue throughout the year. I don’t know if it’ll be the same level of increase that we saw in q two, but we certainly expect to see strength. And as we translate in that into the long term, I think that’s a a key aspect. Right now, defense is about 35% of our total revenue.

We see see that as a potential big opportunity for growth organically and potentially inorganically as we go forward. So I think this long term trend in increased defense spending both in The US and in Europe is gonna benefit our defense growth in the future. And we see that probably as our top core organic growth opportunity is is defense both in The US and in Europe. By the way, it’s not just Europe. We also have some very good defense contacts in Turkey and India, and and we expect those to continue to grow as well.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation0: Well, thanks very much, Tom. Appreciate the color.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Thank you.

Conference Operator: The next question comes from Scott Duschel with Deutsche Bank. Your line is open.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation1: Hey, good morning. Patrick, to get to the midpoint of the EPS guide, I have to assume something like a 45% incremental operating margin in the back half. I guess, that math sound directionally right?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: And then if it is, can

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation1: you walk through what’s going to drive that type of operating leverage? Yes.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: We clearly need a step up in the second half. We’ve the seasonality sales effect in the Q3, but with cost and management, we will drive a solid Q3 as we can. And then as Tom has said, at least a couple of times this morning, we’re leaning into a strong fourth quarter as we exit the year as the build rates go up, as the wide bodies kind of move towards 7%, the 3.2 moves towards 60% and hopefully, we’re kind of getting aligned on the 38% on the MAX. So that should drive pretty strong leverage as we exit the year and deliver what we see as a positive fourth quarter. So yes, I agree roughly with your numbers.

As Tom said, sort of the 1.95% less the tariff impact is really where we’re expecting to finish the year.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation: Okay. And then Patrick,

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation1: can you give the latest split in cost of goods sold between energy, raw materials, direct labor, overhead and the like? And then has energy become a meaningfully larger share of that cost breakdown? Or has that been fairly stable as a percentage of your overall cost of goods sold?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yes. I mean, we’ve never shared the details of that, but materials continues to be the largest part of our COGS, followed by people cost, labor cost. I mean, energy is still single digit, I’ll say that much. I think we’ve indicated that before. It sets up with the European impact of the Ukraine war a few years ago now, and and it’s still at that level.

So it hasn’t certainly hasn’t materially changed in the last year or two, but it’s in that sort of mid just above mid single digit level.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation1: Okay. Thank you.

Conference Operator: The next question comes from Scott Micas of Melius Research. Your line is open.

David Strauss, Analyst, Barclays: Good morning, Tom and Patrick. Tom, to dig in a little bit on the pricing protections and the LTA negotiations, Historically, some suppliers have had a pass back productivity to Boeing and Airbus as part of their LTAs. And you mentioned that some of your Airbus contracts, you’re sharing the productivity benefits with them. So as you renegotiate these LTAs when they come due or you bid for new programs, are you making sure that you get to keep the productivity that you drive in your own four walls?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, it’s it’s a little bit of both. I mean, I would say as we as we get into renegotiations, we’re we’re trying to learn from the past. And so we’re we’re building in volume adjustments because certainly that was a a big issue from the pandemic. We’re also looking to ensure that there’s appropriate escalation protection for things like inflation in labor or material or if we were just talking energy or logistics and or or tariffs as we have learned. So so those are some of the ways that we’re looking at it.

The thing on productivity is that, you know, this is a tough industry, and and and you always need to be running fast to stand still. And our customers expect ongoing productivity. So while if we can get the buying protection and we can get escalation protection, we certainly have to be willing to work jointly with them to get productivity that we share. And that’s been a a hallmark of our contracts with with all of our big customers in the past, and I expect that will be in the future as well.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yeah. Because because you have to remember, Scott, most of the time with all our qualified products and processes, to make changes, we need the cooperation of our customers. Now if we can do it in house and it’s purely in house, then, yes, we would keep it. But the vast majority of the time, to speed up our lines, change our parameters, we need those signed off and and approved by the customer. So we do tend to work with them.

To Tom’s point, ultimately, it’s a competitive advantage if we can give them some benefit as well as clearly keep as much as we can for ourselves. So normally, we do have to collaborate.

David Strauss, Analyst, Barclays: Okay. And then thinking about build rates, we saw GE raise its commercial OE sales growth and reaffirmed the LEAP delivery guidance. Boeing’s production rates have been surprising to the upside. And you mentioned the A350 destocking to be over by the fourth quarter. Could we see a possibility maybe in early twenty twenty six where you start to see a restocking benefit actually on the July and 08/07 while destocking on the A 350 is entirely behind you?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, when you mean when you say restocking, you mean just, the the build rates going up?

David Strauss, Analyst, Barclays: Well, I mean, some of the the sub suppliers that you ship to, maybe a burn down excess inventory and need to rebuild higher levels of buffer inventory to support future higher production rates.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Oh, yeah. I mean, it remains to be seen. I I think the goal for everybody is to synchronize and get everybody on the same production rates as we go forward. We’re not quite there yet, but getting closer. So I I I don’t think so.

I think the goal for everybody in the supply chain is to get synchronized so that we’re all at the same rates, not with different parts of the chain building at different rates.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yeah. And and restocking is a very glad gradual process, Scott. It takes time. There might be a little bit of it, but it’s not like destocking, which is tough and abrupt and and significant. Restocking is very gradual over a period of time as the network has the supply chain build up the higher rate.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: But but I would say, you just see your point, is we are starting to see this inflection point with the rates going up in in a sustained way across all the major programs at Boeing and Airbus. And so that’s very positive. We’re we’re still in at a final pros here of the destocking on the a March, but it it looks very strong for q four as we’ve said and and into 2026. And it’s not just the March, the 03/20, the seven eight seven, the 737. It’s it’s been long recovery period, but we’re finally getting to the point where it’s going up.

David Strauss, Analyst, Barclays: Thanks for taking the questions.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Thanks.

Conference Operator: The next question comes from Sheila Kahyaoglu with Jefferies. Your line is open.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation2: Good morning, guys, and thank you. Tom Patrick, sorry, I’m going to

Conference Operator: ask you to do some math on

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation2: this because all this capacity and headcount had me thinking. So when we look at your headcount per aircraft, it’s actually flat versus twenty nineteen levels. Obviously, head count is down because revenues are down, but the actual number of aircraft people produce are the same. So it implies that you’re actually getting a net price decline of percent where other companies in the sector are probably up multiples of that. So I guess how do we think about when that fixes itself to get the margins back up, not only based on volume, but this contract renewal process, Tom, if that makes sense?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Yeah. Well, I think there’s two things going on. You know, one is just operating leverage because if you go back to 2019, we peaked in terms of our revenue and our production. We shipped a 112 a three fifties, and our revenue was $22,350,000,000.00. And and we had all the capacity in place to support that level of production.

Where we are now is is a much different place. I mean, obviously, last year, Airbus delivered 57 a three fifty, And so we’re utilizing only a portion of the capacity, you know, probably two thirds to three quarters. And so we’re not getting the operating leverage that we should get both in terms of headcount, but but overall. And that’s that’s that’s what’s impacting our margins. So I think as our margins our revenues and and build rates recover to where they were in 2019, you’ll see us get the operating leverage, and that’ll improve revenue per headcount, and it’ll also improve margin.

Now as we’ve said, because we’ve experienced some inflation in in labor and in material and in utilities, even when we get back to the previous levels of of revenue, we’re still gonna have some headwinds, couple 100 basis points of headwind on margin. That’s what we’re working to offset with our future factory initiative. And ultimately, as we get to the renewal period for our our contracts is is is to use price to help offset some of that as well. So that’s how I would I would lay it out.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation2: Yep. That makes sense. And then I guess maybe if I could ask as the destocking alleviates itself from the q two levels, what what program has the most operating leverage? And and then how do we think about the Belgian factory, payback?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Well, I mean, the destocking and upper I mean, it’s really an a three fifty story for us, primarily. It’s our biggest program. We we invested, significant amounts of money from 2010 to 2019 to support the industrialization to go up to 13 aircraft per month, and the rates have been far below that, as you know, since the pandemic. And so so that’s the biggest issue in terms of operating leverage, and I’d say the a three fifty has probably been the biggest issue in terms of destocking. Just to give you a some some quick math, it’s it’s not perfect.

But look at last year’s numbers. We we reported that our results for the a three fifty, we delivered about 72 shifts that’s in 24. Airbus only delivered 57. So it’s not an exact comparison, but that’s essentially what’s destocking right now.

Conference Operator: Got it. Thank you so much. Thanks. The next question comes from Gavin Parsons of UBS. Your line is open.

Michael Ciarmoli, Analyst, Truist Securities: Great. Thank you. Good morning.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Good morning, Gavin.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation3: Tom, pretty healthy pace of buybacks, but I thought in the prepared remarks you maybe sounded a little more front footed on M and A. So just wanted to know how you think about that trade off and how you’re contemplating size of maybe bolt ons for something more significant.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. M and a, as I said, we’re we’re we’re looking at it. We think it could be a a good complement to the organic growth that we’re gonna experience both from the recovery and build rates and the growth in defense spending, but we’re gonna be very disciplined. We’re gonna look for things that are strategic, that advance our advanced material science focus, have a heavy emphasis on aerospace and defense, and meet our return thresholds, which are are are quite high. But if we can’t find something that fits that criteria, we have been doing share buybacks and and we’ll continue that.

But that that’s how we’re thinking about it is we we think it could be a good complement if the right opportunity surfaces, but we’re gonna be very disciplined. And in the absence of that, we’ll continue to fund our productivity, our innovation, our organic growth, and then and then do continue to do share buybacks on a selected basis.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation3: Okay. And then it seems like Kinston is the main bottleneck on the a two fifty. Wondered if you could share some insights on the improvement timeline given your familiarity with that facility and if you think that’s contingent upon the transaction closing.

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: And I think Airbus has pointed to that in the past, but they they could probably provide more insight onto it. One thing they’ve said is that once the deal closes and they take full control of that operation, they’ll be able to drive more productivity. And I I think that’s probably the case.

Michael Ciarmoli, Analyst, Truist Securities: Thank you.

Conference Operator: The next question comes from Ron Epstein of Bank of America. Your line is open.

Ken Herbert, Analyst, RBC Capital Markets: Hi, guys. This is Alex Preston on for Ron today. Good morning.

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Good I

Ken Herbert, Analyst, RBC Capital Markets: was wondering, we talked a little bit about the direct impact of tariffs. Maybe if you’re considering or you’re seeing any impact indirectly on I’m thinking especially like Airbus demand in The U. S. And sort of maybe how you’re thinking about that

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: in the early stages here. Well, as we’ve said in the past, that’s our bigger concern. It’s not the direct impact of tariffs on us, but if there’s any indirect impact that could in impact build rates for Airbus or Boeing. At this point, it doesn’t look like that will be the case, but we we need to wait and see. Obviously, there there is no deal yet with the European Union.

We’ll have to wait and see what that is and then what the treatment is of aerospace trade that goes back and forth. And one thing I’ll say is, over the years, aerospace has been a great industry for The US. It’s it’s probably the biggest net importer for an industrial industries with over a $120,000,000,000 of of net exports. And it’s relied on zero tariffs, and and that served the industry well. So we’ll see where we end up.

But at at this point, it’s it’s it’s hard to say. And for us, as I said, the direct impact of tariffs is relatively minimal, 3 or $4,000,000 a quarter. The indirect could be bigger, but we don’t know what that could be yet.

Michael Ciarmoli, Analyst, Truist Securities: Got it. Thanks for the help.

Conference Operator: The next question comes from Christine Lewog of Morgan Stanley. Your line is open.

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation4: Hey, good morning everyone. Maybe I’ll kick off with a currency question. I mean, can you remind us your mismatch with your European business? How much of the European footprint are actually sold in dollars? And, you know, also as a you know, if could remind us regarding your hedging policy, how much are you hedged for this year and next year?

And if we see the dollar be weaker for longer, how we should expect that to to result in your margin?

Patrick Winterlich, Executive Vice President and Chief Financial Officer, Hexcel Corporation: Yeah. So we we enter a year roughly 75% hedged. So if I look at 2025 for the the bank half of ’25, we we we are gonna be hedged more than that at this point with with just those two quarters remaining. So we’re probably 80%, 85% hedged, if not 90% now through the end of twenty twenty five. We’re building up our hedge profile for 2026.

And by the end of this year, as I said, we I would expect to enter 2026 around 75% hedged. We the vast majority of our sales in Europe are in dollars. And with the decline of the wind energy business, that was actually a source of euros. That has now gone away. So if anything, our need to sell dollars to cover our European cost base in euros and pounds has actually grown a little bit, not massively, but but it’s grown a bit.

But our hedging policy remains the same. It’s very disciplined over 10 quarters, and we layer it in each quarter as we move forward. In terms of putting a magnitude on things, yes, I mean, ultimately, if the dollar stays weaker, that will be a marginal headwind, certainly to where we are today, but I’m not going to speculate on to the size of that at this juncture.

Conference Operator: Great. Thank you. And, you

Curt Goddard, Vice President, Investor Relations, Hexcel Corporation4: know, if I could follow-up on the contract negotiations. I mean, Tom, you know, hearing from your tone, it sounds like you’re you’re a bit more conservative or maybe more balanced regarding these contract negotiations with your customers as these contracts roll off. But when we’re talking to other industry players and other suppliers, they seem to be a lot more optimistic that there’s significant pricing increases for these contracts as the OEMs really want to ramp. I guess I wanna understand, you know, when you’re doing these contract negotiations, are there offsets that you have to factor in? Like, why can’t you get more pricing through when it seems like a lot of your peers are getting that pricing?

And, ultimately, you know, the OEMs can’t really change out their material input at this point, and, you know, they’re pretty you you’ve got that that strategic advantage. So why can’t you get more pricing?

Tom Gentile, Chairman, CEO and President, Hexcel Corporation: Right. Well, as you go into any contract negotiation, your goal is always to maximize the value of the contract. But, of course, you have to negotiate that with the other party. And so there’s there’s trade offs to be made. But our goal is always to make sure that we get a fair price that reflects the value we provide and the and the and the huge investment that we’ve made And also takes into account the cost increases that we’ve seen over the last years in in labor and material and utilities and logistics.

So the goal is always to maximize price, and and you take into some account other considerations. So for example, this is a long cycle business, and there are only a few players in it. And the programs come up only once every few decades. And so we’re always also trying to get on the the next program. And the next program, of course, is gonna be the narrow body, and that’s gonna be a huge program.

So that’s another trade off that you factor in. But, again, our goal, Christine, I can assure you, is always to maximize price in the contract negotiations subject to where our our our counterparties will let us go.

Conference Operator: Thank you, Tom, and good luck.

David Strauss, Analyst, Barclays: Thanks.

Conference Operator: That is all the time we have for questions. This concludes today’s conference call. We thank you for joining. You may now disconnect.

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