Hexcel Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the provided text does not give standalone fourth-quarter financial results.
Business context
Hexcel manufactures advanced composite materials and engineered composite products for commercial aerospace, space and defense, and industrial markets. Its reportable segments are Composite Materials and Engineered Products. Commercial aerospace represented half of 2021 sales, leaving results highly exposed to aircraft production rates and Airbus and Boeing demand.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $1,324.7 million | $1,502.4 million |
| Gross margin | $250.1 million; 18.9% | $239.7 million; 16.0% |
| Operating income | $51.8 million; 3.9% of sales | $14.1 million; 0.9% of sales |
| Net income | $16.1 million; diluted EPS $0.19 | $31.7 million; diluted EPS $0.38 |
| Cash from operations | $151.7 million | $264.3 million |
| Capital expenditures | $27.9 million | $50.6 million |
| Free cash flow (non-GAAP) | $123.8 million | $213.7 million |
- Sales declined 11.8% year over year (12.6% in constant currency). Gross margin improved on favorable product mix and cost reductions, while lower restructuring costs also supported higher operating income.
- Net income fell despite the operating-income improvement. 2020 included a $61.0 million income-tax benefit; 2021 recorded $5.9 million of tax expense. Interest expense was $38.3 million in 2021 versus $41.8 million in 2020.
- Management reported adjusted operating income of $70.0 million in 2021 versus $72.0 million in 2020, and adjusted net income of $23.2 million versus $20.6 million. These are non-GAAP measures and exclude specified items.
- Cash and equivalents were $127.7 million at year-end, up from $103.3 million. Total debt was $823.3 million, down from $926.4 million; debt net of cash was $695.6 million. The company reported $625 million of undrawn availability under its revolving facility and compliance with debt covenants at year-end.
- Debt includes $125 million drawn under a facility maturing in 2024, $300 million of senior notes due 2025, and $400 million due 2027. The filing states there are no significant required debt repayments before 2024.
Markets, segments and changes
- Commercial Aerospace sales fell 18.7% to $668.2 million, reflecting reduced aircraft build rates and customer and supply-chain inventory destocking. Sales improved in the second half, led by narrowbody demand.
- Space & Defense sales declined 3.0% to $434.9 million: lower space sales were partly offset by stronger F-35 sales. Industrial sales declined 4.3% to $221.6 million, including a 35.6% drop in wind-energy sales, partly offset by automotive and recreation growth.
- Composite Materials sales were $1,019.4 million, down 14.0%; Engineered Products sales were $305.3 million, down 3.5%.
- Airbus and its subcontractors accounted for approximately 33% of 2021 sales; Boeing and its subcontractors accounted for approximately 16%. Together, the two customer groups represented about 49% of sales.
- Effective January 1, 2022, Hexcel stopped purchasing semi-finished components from its Malaysian joint venture after related assembly work transferred within Boeing’s supply chain. Hexcel’s 50% share of the joint venture’s net income continues.
Outlook, risks and unusual items
- The filing gives no specific quantified 2022 revenue or earnings guidance. Management reported signs of commercial-aerospace recovery in 2021, including increased domestic air travel and the end of supply-chain destocking, but aircraft production remained below 2019 peak levels. The future effect of COVID-19 could not be reasonably estimated.
- Key risks include renewed or prolonged disruption to air travel and aircraft production; further delays affecting Boeing 737 MAX or 787 production; dependence on Airbus and Boeing; raw-material shortages, transportation disruption and cost inflation; labor availability; and foreign-exchange, cybersecurity, environmental and regulatory exposures.
- Restructuring charges were $18.8 million in 2021, primarily severance and asset impairments, with $9.0 million of anticipated future cash payments at year-end. Other income included $10.5 million received under the Aviation Manufacturing Jobs Protection program; the company expected to receive the balance of an approved award of up to $20.9 million in 2022.
- The credit-facility amendment substituted a minimum $250 million liquidity requirement for the maximum leverage covenant through March 31, 2022, and restricted dividends and repurchases during that period, subject to exceptions. Hexcel announced in January 2022 that it would reinstate its quarterly dividend.
- Environmental proceedings include the Lower Passaic River cleanup matter. Hexcel accrued $2.1 million for that site; it cautioned that the ultimate responsibility remains uncertain. It reported that currently pending legal proceedings were not expected to have a material adverse impact, after considering insurance and accrued amounts.
Important facts for investors to verify
- Whether commercial aircraft production and customer ordering recover sufficiently to lift sales, margins and cash generation.
- Progress on raw-material availability, supply-chain costs and wind-energy demand, and whether cost reductions are sustainable.
- Debt-facility terms after March 31, 2022, covenant headroom, refinancing needs and the timing of the 2024 facility maturity.
- Receipt and accounting treatment of the remaining AMJP funds, and the sustainability of the reinstated dividend under facility restrictions and cash-flow needs.
- Potential changes to tax-asset realizability, uncertain tax positions and environmental remediation exposure.