Composite materials manufacturer Hexcel Corp. (HXL) on Monday reported a 37% year-over-year drop in profit for the second quarter, hurt by a 22.9% drop in quarterly sales. Adjusted earnings per share for the quarter declined 14.3%, and missed analysts' expectations by a penny. The company also noted that it expects the third quarter to be the low point of the year.
The Stamford, Connecticut-based company reported net income of $16.8 million $0.17 per share for the second quarter, 37% lower than $26.7 million or $0.27 per share in the prior-year quarter.
Excluding special items, adjusted net income for the quarter declined to $17.9 million $0.18 per share from $20.3 million $0.21 per share in the year-ago quarter. On average, 10 analysts polled by Thomson Reuters expected the company to earn $0.19 per share for the second quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter declined 22.9% to $277.3 million from $359.5 million in the same quarter last year, and missed nine Wall Street analysts' consensus estimate of $301.69 million.
Segment-wise, commercial aerospace sales declined 30.6% or 28.1% in constant currency, to $137.8 million, industrial sales dropped 24.5% or 15.6% in constant currency, to $64.8 million, and space & defense sales edged down 0.4% or increased 2.8% in constant currency, to $74.7 million from last year.
Operating income for the second quarter grew 1.4% to $29.7 million from $29.3 million in the prior-year quarter. Adjusted operating income was 31.4 million, down 17.6% from the year-ago quarter's $38.1 million. Gross margin increased 160 basis points to 22.8% from last year's 21.2%.
In a statement, chairman and chief executive officer, David Bergs said, "While we have limited ability to influence short term sales, we are focused on what we can control: our own cost structure, operational efficiency and cash flow. This quarter we continued to reduce head count, controllable costs, capital expenditures and inventories. We are particularly pleased with our cash performance this quarter."
For the first six months, Hexcel reported net income of $40.2 million or $0.41 per share, 19.5% lower than $49.9 million or $0.51 per share in the prior-year period. Excluding special items, adjusted net income for the period declined to $41.3 million $0.42 per share from $42.7 million $0.44 per share in the year-ago period.
Net sales for the year-to-date period decreased to $584.6 million from $704.0 million in the same period last year.
Looking ahead, Hexcel noted that it expects the third quarter to be the low point of the year as reduced commercial aerospace and wind demand combine with the normal summer seasonal slowdown. Therefore, the company is aggressively reducing plant schedules to better match near term demand and improve cash flows, and are now targeting over $40 million of free cash flow for the year.
"While we expect further weakness in regional and business aircraft sales, we are hopeful that thawing in credit markets, renewable energy policy and new aircraft program progress may begin to offset market softness in 2010," Berges added.
Last month, KeyBanc Capital downgraded Hexcel shares to 'Hold' from 'Buy'. The brokerage also lowered its 2009 EPS estimate to $0.77 from $0.80. Credit Suisse also lowered Hexcel's 2009 estimate to 0.78 from 0.79, and 2010 estimate to 0.76 from 0.84.
HXL closed Monday's regular trading session at $9.73, down $0.38 or 3.76% on a volume of 1.45 million shares, higher than the three-month average volume of 1.34 million shares.
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