HXL Q1 Earnings Call: Guidance Cut as Commercial Aerospace Demand Softens

Aerospace and defense company Hexcel (NYSE:HXL) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 3.3% year on year to $456.5 million. The company’s full-year revenue guidance of $1.92 billion at the midpoint came in 3.4% below analysts’ estimates. Its non-GAAP profit of $0.37 per share was 12.4% below analysts’ consensus estimates.

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StockStory’s Take

Hexcel’s first quarter results were impacted by lower than expected demand from key commercial aerospace customers, especially Airbus and Boeing, leading to reduced sales and margins. Management cited delays in production rate increases for major aircraft programs, particularly the Airbus A350 and Boeing 787, as the main reasons behind the revenue decline. CEO Tom Gentile noted that “2025 is turning out to be another year in which production rate increases for commercial aircraft will not meet initial expectations due to ongoing supply chain disruption.”

For the remainder of the year, Hexcel’s guidance reflects a more cautious outlook, with significant reductions in both expected revenue and adjusted EPS. The company attributed this to revised demand forecasts from major customers, especially Airbus, and ongoing uncertainties tied to tariffs and supply chain issues. Management emphasized ongoing cost control and operational efficiency as priorities, with Gentile stating, “We are pivoting and managing the business for the realities of today.”

Key Insights from Management’s Remarks

Management discussed several operational and market factors that shaped first quarter results and the company’s outlook for the year.

• Airbus A350 Production Cuts: Lower demand for A350 materials was the main driver of reduced sales, as Airbus revised its production forecast for 2025, resulting in Hexcel planning to deliver 68 shipsets instead of the previously anticipated 84.
• Defense & Space Growth: The defense and space segment saw modest year-over-year growth, with increased sales to U.S. and European military programs such as the CH-53K and Blackhawk helicopters, as well as classified and space contracts.
• Operational Disruptions: A power outage at the Decatur, Alabama facility disrupted carbon fiber precursor production, leading to extra costs and contributing to lower margins in the quarter. The plant has since resumed normal operations.
• Cost Control Measures: Hexcel maintained a reduced headcount, running about 300 staff below plan, and is deferring capital expenditures across multiple projects. Management stressed a focus on operational efficiency through Lean and Six Sigma initiatives.
• Minimal Direct Tariff Exposure: Management indicated that only about 1% of procurement is from countries newly targeted by tariffs, suggesting limited direct exposure, but acknowledged uncertainty about indirect effects on the broader aerospace supply chain.

Drivers of Future Performance

Looking ahead, Hexcel’s guidance for the year is driven by ongoing production challenges in commercial aerospace, efforts to manage costs, and uncertainty surrounding tariffs and customer demand.

• Commercial Aerospace Uncertainty: Reduced build rates for programs like the Airbus A350 and A320, along with Boeing 787 delays, will limit sales growth and weigh on operating margins for the remainder of 2025.
• Defense Segment Stability: Management expects continued stability in defense and space demand, with opportunities for expansion as U.S. and European governments increase military spending and Hexcel leverages its vertically integrated U.S. and European operations.
• Tariffs and Supply Chain Risks: New U.S. tariffs are expected to have a small direct impact, but management noted that indirect effects on the aerospace supply chain could introduce additional risks to production rates and margins.

Top Analyst Questions

• Sheila Kahyaoglu (Jefferies): Asked about the direct and indirect impact of new tariffs on profitability. Management estimated direct costs of $3–4 million per quarter, mostly offsettable by productivity, but emphasized the uncertainty of broader supply chain effects.
• Michael Ciarmoli (Truist): Inquired about the ability to offset tariff costs through pricing. Management explained that some contracts pass costs through to buyers, especially for Europe-sourced goods, but major aerospace contracts are generally fixed-price.
• John McNulty (BMO Capital Markets): Questioned the more aggressive approach to headcount management and the ability to ramp up quickly when demand improves. Management stated they are aligning staffing with current production but have sufficient inventory and capital capacity to respond to future increases.
• Ken Herbert (RBC Capital Markets): Probed about inventory levels at Airbus and the risk of further destocking. Management believes the current plan accounts for some destocking and is confident capacity will support future production ramps.
• Scott Mikus (Melius Research): Asked about opportunities to reprice long-term agreements and respond to inflation. Management indicated pricing can be renegotiated upon contract expiration, but the largest program (A350) is locked until 2030, with productivity improvements as the primary adjustment mechanism.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be monitoring (1) Airbus and Boeing production rate developments, particularly for the A350 and 787 programs; (2) whether Hexcel’s cost control efforts, including reduced headcount and capital expenditures, lead to margin stabilization; and (3) progress on the divestiture of non-core assets, such as the Austria facility, which could further streamline operations. The evolution of U.S. and European defense spending and any indirect impacts from new tariffs will also be key factors.

Hexcel currently trades at a forward P/E ratio of 22.7×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.

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