Stock Story -
Aerospace and defense company Hexcel (NYSE:HXL) fell short of the market’s revenue expectations in Q4 CY2024 as sales rose 3.6% year on year to $473.8 million. The company’s full-year revenue guidance of $2 billion at the midpoint came in 0.7% below analysts’ estimates. Its non-GAAP profit of $0.52 per share was in line with analysts’ consensus estimates.
Is now the time to buy Hexcel? Find out by reading the original article on StockStory, it’s free.
Hexcel (HXL) Q4 CY2024 Highlights:
- Revenue: $473.8 million vs analyst estimates of $476.9 million (3.6% year-on-year growth, 0.7% miss)
- Adjusted EPS: $0.52 vs analyst estimates of $0.52 (in line)
- Adjusted EBITDA: $62.08 million vs analyst estimates of $92.78 million (13.1% margin, 33.1% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $2 billion at the midpoint, missing analyst estimates by 0.7% and implying 5.1% growth (vs 6.4% in FY2024)
- Adjusted EPS guidance for the upcoming financial year 2025 is $2.15 at the midpoint, missing analyst estimates by 7.2%
- Operating Margin: 1.9%, down from 10.4% in the same quarter last year
- Free Cash Flow Margin: 30.4%, down from 31.7% in the same quarter last year
- Market Capitalization: $5.55 billion
Company OverviewFounded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.
Aerospace
Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Hexcel’s demand was weak over the last five years as its sales fell at a 4.2% annual rate. This fell short of our benchmarks and signals it’s a lower quality business.Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Hexcel’s annualized revenue growth of 9.8% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Hexcel also breaks out the revenue for its most important segments, Commercial aerospace and Space & defense, which are 58.7% and 34.5% of revenue. Over the last two years, Hexcel’s Commercial aerospace revenue (customers like Airbus, Boeing (NYSE:BA)) averaged 14.9% year-on-year growth while its Space & defense revenue (government customers) averaged 10.8% growth.
This quarter, Hexcel’s revenue grew by 3.6% year on year to $473.8 million, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 6.7% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (NASDAQ:MSFT) to Alphabet (NASDAQ:GOOGL) (GOOG), Coca-Cola (NYSE:KO) to Monster Beverage (NASDAQ:MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified .
Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.Hexcel was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.9% was weak for an industrials business.
On the plus side, Hexcel’s operating margin rose by 8.8 percentage points over the last five years.
In Q4, Hexcel generated an operating profit margin of 1.9%, down 8.5 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.Sadly for Hexcel, its EPS declined by more than its revenue over the last five years, dropping 10.5% annually. However, its operating margin actually expanded during this timeframe, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Hexcel, its two-year annual EPS growth of 25.9% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.
In Q4, Hexcel reported EPS at $0.52, up from $0.43 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Hexcel’s full-year EPS of $2.03 to grow 16.6%.