Hexcel Margins Widen as Aerospace Rebound Broadens
Hexcel posted 8.0% sales growth and raised its full-year profit outlook as commercial aerospane demand overtook lingering destocking.
Hexcel (HXL), the advanced composites maker that supplies structural materials to Airbus and Boeing programs, reported second-quarter sales of $529.3 million, up 8.0% from a year earlier. The increase followed 9.9% growth in the first quarter and came after three straight quarters of flat-to-negative sales comparisons in late 2024, when aircraft manufacturers were still working down excess composite inventory.
That inventory overhang has now cleared the system. Commercial Aerospace sales rose 18.3% year over year, the second consecutive quarter of high-teens growth after a 7.6% gain in the fourth quarter of 2024 and a 7.3% decline in the third. The shift was due to destocking on the A350 and 787 programs giving way to orders tied more directly to production rates. The segment's share of total sales climbed to 65.5%, from 59.8% a year earlier, as Defense, Space & Other sales fell 7.2%, a decline linked to its earlier divestiture of an Austrian industrial unit rather than to underlying defense demand.
Profitability moved in step with the volume recovery. Adjusted operating margin reached 13.9% in the quarter, up from 11.1% a year earlier and the fourth straight quarter of margin expansion, following 9.8% in the third quarter of 2024, 13.3% in the fourth and 13.5% in the first quarter of 2025. Gross margin was 26.1%, versus 22.8% a year ago, extending a roughly 400-to-450-basis-point year-over-year gain that has now held for two straight quarters after gross margin had compressed in the third quarter of 2024. Adjusted diluted earnings per share came to $0.66, up 32.0% from $0.50, though the pace of EPS growth slowed from the first quarter's 59.5% gain as comparisons against 2024 grew less favorable.
Hexcel raised its full-year 2025 sales guidance to a range of $2.025 billion to $2.125 billion, from $2.0 billion to $2.1 billion set at year-end 2024, and lifted its adjusted earnings guidance to $2.30 to $2.40 a share, from $2.10 to $2.30. The increase marks the second consecutive upward revision following a guidance cut tied to tariffs in the third quarter of 2024, a reversal attributed to the acceleration in commercial aerospace demand.
Restructuring costs, which had weighed on results a year earlier, largely receded. The company recorded $1.0 million in restructuring and other operating expense tied to the closure of its Leicester, UK facility, down from $24.2 million in the prior-year quarter tied to the shutdown of its Welkenraedt, Belgium plant.
Cash generation also turned positive. First-half operating cash flow was $96.7 million, versus negative $5.2 million in the first half of 2024, and free cash flow was $51.8 million, compared with negative $46.6 million a year earlier. Hexcel had guided to more than $195 million of free cash flow for the full year at the time of its fourth-quarter 2024 report.
The company issued $400 million of 4.9% senior notes due 2031 to redeem existing 3.95% notes due 2027, and it repurchased no shares during the quarter, compared with $50 million bought back a year earlier and a $350 million accelerated share repurchase completed in the third quarter of 2024. Total debt net of cash stood at $897.2 million, up from $750.5 million a year earlier but down from $922.0 million at the end of 2024, as the company intends to apply cash generation toward paying down the debt taken on for last year's buyback.