Q1 2024 Hexcel Corp Earnings Call
Thank you for standing by my name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to Hexcel first quarter 'twenty 'twenty four earnings conference call.
Krista: Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to Hexcel's first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Krista: All lines have been placed on mute to prevent any background noise.
Krista: After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Patrick Winterlich, Chief Financial Officer. Patrick, you may begin your presentation.
Krista: After the Speakers' remarks, there'll be a question and answer session. If you'd like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star one.
Speaker Change: I would now like the turn the conference over to Patrick Winter Lynch, Chief Financial Officer, Patrick You May begin your conference.
Speaker Change: Thanks, Chris.
Speaker Change: Good morning, everyone. Welcome to Hexcel Corporation's first quarter 2024 earnings conference call before beginning let me cover the full amount of piece I want to remind everyone about the safe harbor provisions related to any forward looking statements. We make during the course of this call.
Patrick Joseph Winterlich: Good morning everyone, welcome to Hexcel Corporation's first quarter of 2024 earnings conference call. Before beginning, let me cover the formalities.
Patrick Joseph Winterlich: I want to remind everyone about the safe harbor provisions related to any forward-looking statements we make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Security Ditigation Reform Act of 1995 because they involve estimates, assumptions, judgments, and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today.
Speaker Change: Certain statements contained in this call may constitute forward looking statements within the meaning of the private securities.
Speaker Change: And reform Act of 1995 they involve.
Speaker Change: All estimates assumptions judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward looking statements today.
Patrick Joseph Winterlich: Such factors are detailed in the company's SEC filings and last night's news release. A replay of this call will be available on the Investor Relations page of our website. Lastly, this call is being recorded by Hexcel Corporation under its copyrighted material. It cannot be recorded or rebroadcast without our express permission.
Speaker Change: There's a detailed in the company's SEC filings and last Night's news release.
Speaker Change: A replay of this call will be available on the Investor Relations page of our website.
Speaker Change: Lastly, this call is being recorded by itself Corporation and is copyrighted material it cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request.
Patrick Joseph Winterlich: Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO, and President, and Kurt Goddard, our Vice President of Investor Relations. The purpose of the call is to review our first quarter 2024 results, detailed in our news release issued yesterday. Now, let me turn the call over to Nick.
Speaker Change: With me today, Onyx tonnage, our chairman CEO, and President and Kevin Goddard, Vice President of Investor Relations and perhaps in the call is to review our first quarter 2024 results detailed and unusually issued yesterday.
Speaker Change: Now, let me turn the call over to Nick.
Nick: Thanks, Patrick.
Nick L. Stanage: Good morning, everyone, and thank you for joining us today as we share our 2024 first quarter results. Hexcel's upward trajectory continued as we began the year with solid performance that includes year-over-year sales growth in both commercial aerospace and space and defense as demand continues to increase. Additionally, we were pleased to read reports that in February, the airline industry achieved a full recovery in overall global passenger traffic, and both domestic and international air travel has now surpassed 2019 levels.
Morning, everyone and thank you for joining us today as we share our 2024 first quarter results.
Nick: Hexcel upward trajectory continued as we began the year with solid performance that includes year over year sales growth in both commercial aerospace and space and defense as demand continues to increase.
Nick: Additionally, we were pleased to read reports that in February the airline industry achieved full recovery and overall global passenger traffic and both domestic and international Air travel has now surpassed 2019 levels.
Nick L. Stanage: This is terrific news and demonstrates the resiliency of the industry and the strong desire for air travel. While commercial aerospace sales grew year over year, posting the highest level of sales since Q1 2020, I would like to begin by referencing our commercial aerospace sequential improvement from the fourth quarter of 2023. With international air traffic now above 2019 levels, widebody production continues to ramp up, and we have benefited from sequential growth in all of our widebody programs.
Nick: This is terrific news and demonstrates the resiliency of the industry and a strong desire for air travel.
Nick: While commercial aerospace sales grew year over year, posting the highest level of sales since Q1, 2020, I would like to begin by referencing our commercial aerospace sequential improvement from the fourth quarter of 2023.
Nick: With international Air traffic now above 2019 levels widebody production continues to ramp and we benefited from sequential growth in all of our wide body programs.
Nick L. Stanage: This is an encouraging data point illustrating how the wide body supply chain has been ramping relatively steadily and smoothly. Furthermore, our total narrowbody sales in the first quarter of 2024 also increased sequentially. As you will recall, our narrow body sales softened in the second half of 2023. There are certainly challenges remaining within the overall narrow body supply chain, and we expect continued volatility in the first half of 2024. However, sequential improvement is encouraged.
Nick: This is an encouraging data point illustrating how the wide body supply chain has been ramping relatively steadily and smoothly.
Further our total narrow body sales in the first quarter of 2024 also increased sequentially.
Nick: As you will recall, our narrow body sales softened in the second half of 2023.
Nick: There are certainly challenges remaining within the overall narrow body supply chain and we expect continued choppiness in the first half of 2024.
Nick: However, the sequential improvement is encouraging.
Speaker Change: Let me highlight some of the results and Patrick will then provide more details.
Nick L. Stanage: Let me highlight some of the results, and Patrick will then provide more detail. First quarter sales of more than $472 million were 3% higher than Q1 2023. Adjusted diluted EPS in the first quarter was 44 cents down year over year, yet up sequentially.
Speaker Change: First quarter sales of more than $472 million were 3% higher than Q1 2023.
Speaker Change: Adjusted diluted EPS in the first quarter was <unk> 44 cents down year over year, yet up sequentially.
Speaker Change: A number of specific items in the first quarter of 2023 drove the particularly strong results last year.
Nick L. Stanage: A number of specific items in the first quarter of 2023 drove the particularly strong results last year. Our gross margin and adjusted operating income have been trending upward since the middle of last year, and we are very encouraged by this robust performance as our volume leverage continues as expected. Turning to our three markets,
Speaker Change: Our gross margin and adjusted operating income have been trending upward since the middle of last year and we are very encouraged by this robust performance as our volume leverage continues as expected.
Speaker Change: Turning to our three markets.
Nick L. Stanage: In commercial aerospace, first quarter sales of almost $300 million represented an increase of 5% in constant currency on increasing wide-body sales, with significant growth on the Boeing 787 platform. We were especially pleased to see Korean Air and Japan Airlines placing orders for 75 new aircraft, including 64 composite-rich widebodies, where Hexcel has significant contact. Other commercial aerospace sales decreased 6% for the first quarter of 2024 compared to the first quarter of 23, on the basis of softer overall business jet sales.
Speaker Change: In commercial aerospace first quarter sales of almost $300 million represented an increase of 5% in constant currency on increasing wide body sales with significant growth in the Boeing 77 platform.
Speaker Change: We were especially pleased to see Korean air and Japan Airlines, placing orders for 75 new aircraft.
Speaker Change: <unk> 64 composite rich wide bodies, where hexcel has significant content.
Speaker Change: Other commercial aerospace sales decreased 6% for the first quarter of 2024 compared to the first quarter of 'twenty three on softer overall business, Jeff sales, although it should be noted sales to our largest business jet customer Gulfstream did increase year over year.
Nick L. Stanage: Although it should be noted, sales to our largest business jet customer goal stream did increase year over year. Based on the secular growth with composite adoption for large cabin business jets, we expect overall 2024 business jet sales to exceed 2023. We also would like to highlight and congratulate Gulfstream on the recent FAA certification of the G700.
Speaker Change: Based on the secular growth with composite adoption for large cabin business Jets, we expect overall 2024 business jet sales to exceed 2023.
Speaker Change: We also would like to highlight and congratulate Gulfstream on the recent FAA certification of the G 700.
Nick L. Stanage: It is a high-performance, next-generation, large-cabin business jet, and we are proud that Hexcel composites are utilized. Now for a few additional aerospace highlights. We had another successful JEC World Composites show in Paris, where we met with dozens of customers and launched a significant new innovation. Hexto IN9-24K carbon fiber is our newest intermediate modulus fiber, and it provides significant improvements in tensile strength over our baseline IM7 fiber, which is already a major component in commercial aircraft engine fan blades and other aerospace applications.
Speaker Change: It is a high performing next generation large cabin business jet and we're proud that hexcel composites are utilized.
Speaker Change: Now for a few additional aerospace highlights.
Speaker Change: We had another successful J P. C walk composite show in Paris, where we met with dozens of customers and launched a significant new innovation.
Speaker Change: Ex toe I am 924, K carbon fiber is our newest intermediate modulus fiber and it provides significant improvements in tensile strength overall baseline I am 70, fiver, which already is a major component in commercial aircraft engine fan blades.
Speaker Change: Other aerospace applications.
Speaker Change: I am 924, K offers our customers a high performance carbon fiber solution for high rate manufacturing and it is particularly suited for primary and secondary in aerospace structures.
Nick L. Stanage: IM-924K offers our customers a high-performance carbon fiber solution for high-rate manufacturing, and it is particularly suited for primary and secondary aerospace structures. The combination of the fiber's high performance and composite tensile strength, as well as the increased fiber production throughput and productivity provided by a 24k toe size, provides a strong value proposition when compared to other commercially available IM fibers. And I especially want to congratulate our team on being recognized last month by Northrop Grumman during their Supplier Excellence Awards event. Only about one half of 1% of suppliers receive this recognition each year.
Speaker Change: The combination of the fibers high performance and composite tensile strength as well as the increased fiber production throughput and productivity provided by a 24 K full size provides a strong value proposition when compared to other commercially available I am fibers.
Speaker Change: And I, especially want to congratulate our team on being recognized last month by Northrop Grumman during their supplier Excellence Awards event.
Speaker Change: Only about one half of 1% of suppliers received this recognition each year. So it was quite an honor for us to be among this prestigious group.
Nick L. Stanage: So it was quite an honor for us to be among this prestigious group. Northrop Grumman's recognition validates our relentless focus on execution and delivering quality products on time. Moving to space and defense, sales of $139 million increased 10% in constant currency for the quarter as compared to the first quarter of 2023. The sales increase was led by sixth-wing aircraft programs, including the Lockheed Martin F-35 and Airbus A400M, as well as various classified programs.
Speaker Change: Northrop Grumman's recognition validates our relentless focus on execution and delivering quality products on time.
Speaker Change: Now moving to space and defense.
Speaker Change: Sales of $139 million increased 10% in constant currency for the quarter as compared to the first quarter of 2023.
Speaker Change: The sales increase was led by fixed wing aircraft programs, including the Lockheed Martin F 35, and Airbus eight 400 down as well as various class classified programs.
Nick L. Stanage: Hexcel has great global positions in space and defense, and we remain confident in our 2024 outlook. Industrial sales of about $34 million represented a decline of more than 28% in constant currency year over year. Our industrial business now represents about 7% of total sales. Sales were soft in the first quarter as global consumers pulled back on spending and a few of our customers worked through some production issues on their end.
Speaker Change: <unk> has great global positions in space and defense and we remain confident in our 2020 for outlook.
Speaker Change: Industrial sales of about $34 million, representing a decline of more than 28% in constant currency year over year.
Speaker Change: Our industrial business now represents about 7% of total sales.
Sales were soft in the first quarter of global consumers pulled back on spending and a few of our customers work through some production issues on their end.
Nick L. Stanage: Industrial remains an attractive market where we are pursuing multiple value-adding technology opportunities, and quote activity remains strong in a number of sub-markets, including automotive, EVs, and energy. Our cash performance remains strong, and we continue to return cash to our stockholders. During the first quarter, we repurchased $101 million of stock, and we paid a $0.15 per share quarterly dividend.
Speaker Change: Industrial remains an attractive market, where we are pursuing multiple value, adding technology opportunities and quote activity remained strong in a number of sub markets, including automotive EV and energy.
Speaker Change: Our cash performance remains strong and we continue to return cash to our stockholders.
Speaker Change: During the first quarter, we repurchased $101 million of stock and we paid a <unk> 15 per share quarterly dividend.
Speaker Change: During our Investor day, we highlighted the roadmap for multiyear growth.
Patrick Joseph Winterlich: During our investor day, we highlighted the roadmap for multi-year growth. This included cyclical growth from production rate ramps by our customers that is supported by extensive aircraft backlogs and secular growth from our composite lightweight value proposition. This growing top line will drive margin expansion from higher capacity utilization supported by our continued focus on execution and enhancing productivity. This all leads to strong forecasted cash generation with more than $1.5 billion of adjusted EBITDA forecasted for the three-year time frame from 2024 to 2026.
Speaker Change: This included cyclical growth from production rate ramps by our customers that are supported by extensive aircraft backlogs and secular growth by our composite lightweight value proposition.
Speaker Change: This ruling topline will drive margin expansion from higher capacity utilization supported by our continued focus on execution and enhancing productivity.
Speaker Change: This all leads to strong forecasted cash generation with more than one $5 billion of adjusted EBITDA forecasted for the three year timeframe.
Speaker Change: 24 to 2026.
Speaker Change: We remain committed to delivering our full year 2024, and our midterm guidance as our hexcel team drives growth margin expansion and cash generation.
Patrick Joseph Winterlich: We remain committed to delivering our full year 2024 and our midterm guidance as our Hexcel team drives growth, margin expansion, and cash generation. As an organization, we'll continue to prioritize innovation and advancing our technology. We will continue to focus on growth markets where there is tremendous pull for the specialized lightweight materials that only Hexcel can provide. No words describe who we are at Hexcel or who we will be going forward. Now, let me turn it over to Patrick to provide more details on the numbers.
Speaker Change: As an organization, we will continue to prioritize innovation and advancing our technologies.
Speaker Change: We will continue to focus on growth markets, where there is tremendous pull for the specialized lightweight materials that only <unk> can provide.
Speaker Change: Stronger lighter more durable.
Speaker Change: Collaborative customer focused.
Speaker Change: No words, better describe who we are at XL or who we will be going forward.
Speaker Change: Now, let me turn it over to Patrick to provide more details on the numbers.
Patrick: Thank you Nick as a reminder, regarding foreign exchange exposure.
Patrick Joseph Winterlich: Thank you, Nick. As a reminder regarding foreign exchange exposure, and as I explained in detail during our fourth quarter 2023 earnings call, Hexcel benefits from a strong dollar. We continue to hedge foreign exchange exposure over a 10 quarter time horizon. The year over year sales comparisons I will provide are in constant currency, which thereby removes the foreign exchange impact on sales. While I am going to provide my typical year-over-year comparison of financial results, I want to begin by highlighting the sequential improvement over the last three quarters in total sales and margins.
Patrick: As I explained in detail during our fourth quarter 2023 earnings call <unk> benefits from a strong dollar we continue to hedge foreign exchange exposure over a 10 quarter time horizon the year over year sales comparisons I will provide or in constant currency.
Patrick: <unk> removes the foreign exchange impact to sales.
Speaker Change: Well I am going to provide in mind typical year over year comparison of financial results I want to begin by highlighting the sequential improvement over the last three quarters and total sales and margins.
Patrick Joseph Winterlich: Beginning with sales, both total wide-body sales and total narrow-body sales increased sequentially as the overall aerospace supply chain expanded outwards to meet the tremendous demand for new fuel-efficient commercial aircraft, and importantly, margins expanded sequentially on higher operating leverage. We continue to expect further progress as we move through 2024, as we utilize more of our existing assets, volume leverage continues to improve, and as the wide-body ramp continues and the narrow-body aerospace supply chain stabilizes and strengthens.
Speaker Change: <unk> sales both in terms of the wide body sales in total narrow body sales increased sequentially as the overall aerospace supply chain expand output to meet the tremendous demand for you fuel efficient commercial aircrafts.
Speaker Change: And importantly margins expanded sequentially on higher operating leverage.
Speaker Change: Continue to expect further progress as we move through 2024, as we utilize more of our existing assets volume leverage continues to improve.
Speaker Change: As the wide body ramp continues and the narrow body aerospace define same stabilizes and strengthens.
Speaker Change: Turning to our three markets commercial aerospace represented approximately 63% of total first quarter 2020 for sales.
Patrick Joseph Winterlich: Turning to our three markets, commercial aerospace represented approximately 63% of total first quarter 2024 sales. First quarter commercial aerospace sales of $299.3 million increased 5.2% compared to the first quarter of 2023, led by growth in widebodies, particularly the Boeing 787 program. The other commercial aerospace category decreased 6.3% on lower overall business jet sales year-over-year.
Speaker Change: First quarter commercial aerospace sales of $299 3 million.
Speaker Change: Increased five 2%.
Speaker Change: To the first quarter of 2023 led by growth in wide bodies, particularly the Boeing 787 program.
Speaker Change: The other commercial aerospace category increased six 3% on lower overall business jet sales year over year. We continue to expect full year 2024 business jet sales to be higher in 2023.
Patrick Joseph Winterlich: We continue to expect full-year 2024 business jet sales to be higher than 2023. Space and Defense represented approximately 30% of first quarter sales and totaled $139.1 million, increasing 10% from the same period in 2023. The Lockheed F-35, the Airbus A400M, and other fixed-wing platforms grew strongly, along with classified programs. Industrial comprised approximately 7% of first quarter 2024 sales and totaled $33.9 million, increasing 28.5% compared to the first quarter of 2023. Sales softened across most of our industrial sub-markets.
Speaker Change: Space and defense represented approximately 30% of first quarter sales and totaled $139 1 million, increasing 10% from the same period in 2023.
Speaker Change: Lockheed F 30, fives, the Airbus <unk> hundred <unk> and other fixed wing platforms grew strongly along with classified programs.
Speaker Change: Industrial comprised approximately 7% of first quarter 2024 sales.
Speaker Change: Total SaaS and $3 9 million, increasing 28, 5%.
Speaker Change: Compared to the first quarter of 2023.
Speaker Change: Sales softened across most of our industrial sub market.
Speaker Change: Gross margin improved again and was 25% for the first quarter of 2024.
Patrick Joseph Winterlich: Gross margin improved again and was 25% for the first quarter of 2024. The first quarter of 2023 was exceptionally strong, with a growth margin of 27.9%. As I explained last year, Q123 benefitted from particularly favourable absorption and a favourable sales... Also, the cost base in the first quarter last year was lower, as beginning in the second quarter of 2023, we undertook a deliberate build.., of overhead infrastructure, including labour hiring and training, to prepare for strong customer production ramps and ensure Hexcel would always be ready to meet our customer demands, sequentially from the fourth quarter of 2023, gross margin improved 250 basis points on higher operating leverage.
Speaker Change: The first quarter of 2023 was exceptionally strong with gross margin of 27, 9%.
Speaker Change: I've explained last year Q1, 'twenty three benefited from particularly favorable absorption and unfavorable sales mix all side of the cost base in the first quarter last year was lower as beginning in the second quarter of 2023, we undertook a deliberate bells.
Speaker Change: Go head infrastructure, including labor hiring and training to prevent prepare for strong customer production ramps.
Speaker Change: Thanks, Al will always be ready to meet our customers demand.
Speaker Change: Sequentially from the fourth quarter of 2023 gross margin improved 250 basis points on higher operating leverage.
Speaker Change: As a percentage of sales selling general and administrative expenses and R&D expenses were 13, 6% in the first quarter compared to 14, 1% in the first quarter of 2023. This.
Patrick Joseph Winterlich: As a percentage of sales, selling, general, and administrative expenses and R&D expenses were 13.6% in the first quarter, compared to 14.1% in the first quarter of 2023. This year-over-year improvement in operating expenses as a percentage of sales illustrates our tight control as we target operating expenses to grow at a fraction of our sales growth. The adjusted operating income in the first quarter was $54.1 million, or 11.5% of sales, compared to $63 million, or 13.8% of sales, in the comparable prior year period.
Speaker Change: This year over year improvement in operating expenses as a percentage of sales illustrates our tight control as we target operating expenses to grow at a fraction of our sales growth.
Speaker Change: Adjusted operating income in the first quarter was $54 1 million or 11, 5% of sales compared to $63 million or 13, 8% of sales in the comparable prior year period.
Patrick Joseph Winterlich: The year-over-year impact of exchange rates in the first quarter on adjusted operating income was favourable by approximately 30 basis points. Sequentially, the adjusted operating income margin improved by 80 basis points on higher operating leverage, partially offset by the stock-based compensation charge taken in the first quarter, as is typical each year. Now turning to our two segments.
Speaker Change: The year over year impact of exchange rates in the first quarter to adjusted operating income was favorable by approximately 30 basis points.
Speaker Change: Sequentially. The adjusted operating income margin improved by 80 basis points on higher operating leverage partially offset by the stock based compensation charge taken in the first quarter as is typical each year.
Speaker Change: Now turning to our two segments.
Patrick Joseph Winterlich: The composite material segment represented 80% of total sales and generated an operating margin of 15.8%. The operating margin in the comparable prior year period was 18.4%. The engineered product segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated a 13.9% operating margin as compared to 14.9% in the comparable prior year period.
Speaker Change: <unk> materials segment represented 80% of total sales and generated an operating margin of 15, 8%.
Speaker Change: The operating margin in the comparable prior year period was 18, 4%.
Speaker Change: An important segment, which is comprised of our structures and engineered core businesses.
Speaker Change: Presenting 20% total sales and generated a 13, 9% operating margin as compared to 14, 9% in the comparable prior year period.
Speaker Change: Net cash used in operating activities was $7 million in the first quarter of 2024, which compared to a net cash use of $23 4 million in the first quarter of 2023.
Patrick Joseph Winterlich: Net cash used in operating activities was $7 million in the first quarter of 2024, which compared to a net cash use of $23.4 million in the first quarter of 2023. Working capital with a cash use of $84.5 million in the first quarter of 2024. For the comparable prior year period, working capital increased $104 million. We remain focused on tightly managing our working capital.
Speaker Change: Working capital was a cash use of $84 5 million in the first quarter 2024 for the comparable prior year period, working capital increased $104 million.
Speaker Change: We remain focused on tightly managing our working capital.
Patrick Joseph Winterlich: Capital expenditures on an accrual basis were $18.6 million during the first quarter of 2024 compared to $16.8 million in the comparable prior period. Free cash flow during the first quarter was negative $35.7 million, which compared to negative $41.5 million in the first quarter of 2023. It is normal for the business to use cash in the first quarter of the year. The Board of Directors declared a $0.15 quarterly dividend yesterday. The dividend is payable to stockholders of record as of May 3rd, with a payment date of May 10th.
Speaker Change: Capital expenditures on an accrual basis were $18 6 million during.
Speaker Change: During the first quarter of 2024 compared to $16 $8 million in the comparable prior year period.
Speaker Change: Free cash flow during the first quarter was negative $35 7 million, which compares to negative 41 $5 million.
Speaker Change: First quarter 2023.
It is normal for the business to use cash in the first quarter of the year.
Speaker Change: The board of directors declared a <unk> 15 quarterly dividend yesterday.
Speaker Change: <unk> payable to stockholders of record as of May <unk>.
Speaker Change: The payment date of May 10.
Speaker Change: We repurchased $107 million of common stock during the first quarter.
Patrick Joseph Winterlich: We repurchased $100.7 million of common stock during the first quarter. The remaining authorization under the share repurchase program on March 31st 2024 was $386.4 million. The share repurchase authorization was increased by $300 million in February, recognizing the strong future cash generation profile of the company.
Speaker Change: The remaining authorization under the share repurchase program on March.
Speaker Change: 2024 was $386 4 million.
Speaker Change: The share repurchase authorization was increased by $300 million.
In February recognizing the strong future cash generation profile of the company.
Patrick Joseph Winterlich: With that, and for the final time, on behalf of myself and all my Hexcel colleagues, I want to take the opportunity to express our enormous gratitude and thanks to Nick for leading Hexcel so successfully as CEO for well over a decade. I also want to thank him for all his guidance and friendship and for the great honor of sharing these Hexcel Earnings Calls for the last seven years. It has been a privilege. And so, having just gone off script and, hopefully, not thrown him too much, let me turn the call back to Nick.
Speaker Change: With that and for the final time on behalf of myself and all my Hex Alkylate I want to take the opportunity to express our enormous gratitude and thanks to the.
Speaker Change: The leading <unk> successfully as CEO for well over a decade.
Speaker Change: I also want to thank Nick for OLED guidance and friendship and for the greater amount of sharing the tax earnings calls for the last seven years. It has been a privilege.
Speaker Change: So having just gone off script and hopefully not driving him two months, let me turn the call back today.
Nick: Thanks, Patrick.
Patrick: Near the end of my final call as CEO and president on textile and transitioned to executive Chairman I'd like to take a few minutes to reflect.
Nick L. Stanage: As I'm near the end of my final call as CEO and President of Hexcel and transition to Executive Chairman, I'd like to take a few minutes to reflect. My decision to retire is something I have personally been contemplating for some time. As I thought about my upcoming 65th birthday, I began more specific discussions with our board about my potential retirement. Our board is continually engaged in management succession preparation, and I wanted to ensure that we had a robust, comprehensive strategy and a thorough and exhaustive search process to identify the best person to lead Hexcel forward. I told the board that I would be flexible. I would stay longer if the search dictated it, or I could step aside sooner if the time was right.
Patrick: My decision to retire is something I have personally been contemplating for some time.
As I thought about my upcoming 65th birthday, I began more specific discussions with our board on my potential retirement.
Patrick: Our board is continually engage in management succession preparation and I wanted to ensure that we had a robust comprehensive strategy and a thorough and exhaustive search process to identify the best person to lead <unk> forward.
Patrick: I told the board that I would be flexible.
Patrick: I would state longer if the search dictated it.
Patrick: Or I could step aside sooner if the time was right.
Patrick: I would tell you today without hesitation that.
Nick L. Stanage: I tell you today without hesitation that I believe Tom Gentile is the ideal choice to be the next CEO and president of Hexcel. The more I have talked and worked with Tom, the more excited I've become about the future of Hexcel. Already, we have shared with him a mountain of data and details about our people, our products, our processes, and, most importantly, our one Hexcel culture. I look forward to helping Tom focus on our priorities and supporting him in every way that I can in the months ahead. I would also like to share some perspective from the board on our transition.
Patrick: But I believe Tom Gen. Chile is the ideal choice to be the next CEO and president of <unk> cel.
Patrick: The more I have talked and worked with Tom the more excited I become about the future of <unk> cel.
Patrick: Already we have shared with him a mountain of data and details about our people our products our processes and most importantly, our one heck cell culture.
Patrick: I look forward to helping Tom focus on our priorities and supporting him in every way that I can in the months ahead.
Speaker Change: I would also like to share some perspective from the board on our transition.
Speaker Change: Following an extremely thorough search and recruitment process and clothing extensive reference checks throughout the industry.
Nick L. Stanage: Following an extremely thorough search and recruitment process, including extensive reference checks throughout the industry, the Hexcel board firmly believes Tom is the right choice for Hexcel for many reasons. Tom has fantastic aerospace industry knowledge and understanding, as well as strong customer relationships. Very importantly, Tom has been one of the largest buyers of composite materials for many years. He understands how they are used, what developments are needed for the future, and what is required from composites for the next generation of commercial aircraft and space and defense applications.
<unk> Board firmly believe Tom is the right choice for Hep sell for many reasons.
Speaker Change: Tom has fantastic aerospace industry knowledge and understanding with strong customer relationships.
Speaker Change: Importantly, Tom has been one of the largest buyers of composite materials for many years. He understands how they are used.
Speaker Change: Developments are needed for the future and what is required from composites for the next generation of commercial aircraft and space and defense applications.
Nick L. Stanage: Tom has extensive experience of factory floor transformation through implementing manufacturing execution systems and lean production processes to drive operational excellence, quality, and productivity. Tom brings all this knowledge, and, in addition, and most critically, the board believes Tom is an excellent cultural fit for Hexcel. This last point cannot be overstated.
Speaker Change: Tom has extensive experience of factory floor transformation through implementing manufacturing execution systems, and lean production processes to drive operational excellence quality and productivity.
Speaker Change: Tom brings all of this knowledge and in addition, the most critically the board believe Tom is.
Speaker Change: Excellent cultural fit for hexcel.
Speaker Change: This last point cannot be overstated.
Nick L. Stanage: Hexcel could be described as a high-performance material science machine, driving innovation and delivering operational excellence for our customers. Our quality, on-time delivery, and value propositions are our top priority. Tom is taking over a fantastic business with a fantastic team. Not disrupting this strong momentum is crucial, and Tom is bringing a unique skill set and operating philosophy that is ideally suited to executing in the near term while positioning and growing Hexcel over the longer term.
Speaker Change: <unk> could be described as a high performing materials science machine driving innovation and delivering operational excellence for our customers our quality on time delivery and value propositions are our top priority.
Speaker Change: Tom is taking over a fantastic business with a fantastic team.
Speaker Change: Not disrupting the strong momentum is crucial and Tom is bringing a unique skill set and operating philosophy that is ideally suited for executing in the near term, while positioning and growing hair cell over the longer term.
Speaker Change: Initially Tom will focus on execution to deliver <unk> 2024, and medium term guidance.
Nick L. Stanage: Initially, Tom will focus on execution to deliver Hexcel's 2024 and medium-term guidance. He and the Hexcel leadership team will continue to drive flawless execution that starts with safety for our team. Continuous improvement of productivity and efficiencies and maintaining our constant and laser focus on quality and on-time delivery to our customers. And Tom will continue to position Hexcel within the industry and with our customers for next generation platforms as we pursue and benefit from the strong secular growth of lightweight composites. Tom is completely aligned with the strategy that we outlined at our Investor Day in February.
Speaker Change: Ian the Hexcel leadership team will continue to drive flawless execution.
Starts with safety for our team.
Speaker Change: Continuous improvement of productivity and efficiency.
Speaker Change: And maintaining our constant and laser laser focus on quality and on time delivery to our customers.
Speaker Change: And Tom will continue to position hexcel within the industry and with our customers for next generation platforms, as we pursue and benefit from strong secular growth of lightweight composites.
Speaker Change: Tom was completely aligned on the strategy that we outlined at our Investor day in February.
Nick L. Stanage: While I look forward to spending more time with my family, I cannot tell you how much I will miss my Hexcel family. I have grown to love this company and all that we have built together. Tom is inheriting an awesome team and a growing business with the brightest future ever. I am so proud to have had the honor of working with the most talented team I have ever known. I also want to sincerely thank all of you, the stockholders, and the analysts that cover Hexcel.
Speaker Change: While I look forward to spending more time with my family.
Speaker Change: I cannot tell you how much I will Miss my heartfelt family.
Speaker Change: I have grown to love this company and all of that we have built together.
Speaker Change: Tom was inheriting an awesome team and a growing business with the brightest future ever.
Speaker Change: I am so proud to have had the honor of working with the most talented team I have ever known.
Speaker Change: I also want to sincerely. Thank all of you are.
Speaker Change: Our stockholders and the analysts that cover hexcel.
Nick L. Stanage: You've all been fantastic. You have challenged me over the years, and I'm grateful for that, because you've made me a better leader and you've made Hexcel a better company. Thank you for following Hexcel. Thank you for your questions, your coverage, and your kind words. I trust you all will support Tom as you have supported me over the past 14 years as Hexcel continues to generate strong shareholder value for a fifth. We're ready to take questions now. Thank you.
Speaker Change: <unk> all been fantastic.
Speaker Change: The challenge me over the years and I'm grateful for that.
Speaker Change: Because you've made me a better leader and you've made hexcel a better company.
Speaker Change: Thank you for following hexcel.
Thank you for your questions your coverage and your kind words.
Speaker Change: I Trust you all will support Tom as you have supported me over the past 14 years as textile continues to generate strong shareholder value.
Speaker Change: Christopher.
Speaker Change: We're ready to take questions now thank you.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and you are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Also, please limit yourself to one question and a single follow-up. Your first question comes from John McNulty from BMO Capital Markets. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: You are called upon to ask your question and you are listening via loud speakers on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Please limit yourself to one question and a single follow up.
Speaker Change: First question comes from John Mcnulty Mcnulty from BMO capital markets. Please go ahead.
John Patrick McNulty: Yeah, good morning, and Nick, let me start off by just thanking you for all your help over the years. It's been a pleasure to see where you've taken the company, and good luck going forward. So I just wanted to dig into the commercial business a bit. So you're looking for mid-teens growth as you kind of look out through the year. You're off to an okay start, but admittedly, it looks like there's still a lot of heavy lifting ahead.
John Patrick McNulty: Yes, good morning, and and Nick Let me start off by just thanking you for all your help over the years, it's been a pleasure to see where you've taken the company.
Speaker Change: And good luck going forward.
John Patrick McNulty: So I just wanted to dig into the commercial business a bit so youre looking for mid teens.
John Patrick McNulty: Growth as you kind of look out through the year you are off to an okay start but admittedly there is it looks like there's still a lot of heavy lifting ahead. So I guess can you help us to think about the biggest drivers and how you would prioritize what's going to get you to that mid teens growth is it is it the confidence in the in the wide body ramps.
John Patrick McNulty: So I guess, can you help us to think about the biggest drivers and how you would prioritize what's going to get you to that mid-teens growth? Is it confidence in the wide body ramps at this point, or is it narrow body kind of getting back on track and getting through some of the issues that it's been struggling with over the last couple of quarters?
John Patrick McNulty: At this point or is it narrow body kind of getting back on track and getting through some of the some of the issues that it has been struggling with over the last couple of quarters.
Speaker Change: Yes, John well first thanks for your kind comments.
Nick L. Stanage: Yeah, John. Well, first, thanks for your kind comments. I'd say, John, it's a combination.
Speaker Change: I'd say, John it's a combination.
Nick L. Stanage: Clearly, the supply chain and the narrow body is continuing to be challenged in various areas. We've seen nice progressive performance and growth with Airbus. We know the challenges with Boeing, but even there, it's been steady over the last several quarters. So, our confidence level that the supply chain will continue to improve and stabilize continues to be strong, recognizing that it's not going to be perfect as we go forward. I'd say wide bodies, clearly, if you look at our performance on both the 8.7 and the 8.350 over the last multiple quarters, it has just progressively grown very steadily at a nice, One of the things that we're looking at in the workforce, is the ability to hire, to train, to retain, I think that's indicative of what the whole industry is seeing, and that in turn provides stability, it provides better efficiency, and it gives us confidence So overall, again, we're rolling up our updated forecast, we're getting very good signals and indications on the poll, not only to support the existing demand, but strong poll on new opportunities that could provide incremental benefits over the midterm, simply because of light weighting and the importance of efficiency to drive performance and sustainability over the long haul.
Speaker Change: Clearly the supply chain in the narrow body.
Speaker Change: Continuing to be challenged in various areas.
Speaker Change: You've seen nice progressive performance and growth with Airbus.
Speaker Change: We know the challenges with Boeing but even there it's been steady over the last several quarters. So our confidence level that the supply chain will continue to improve and stabilize.
Speaker Change: <unk> to be strong recognizing that it's not going to be perfect. As we go forward.
Speaker Change: Say wide bodies clearly if you look at.
Speaker Change: Our performance on both.
Speaker Change: The 87 and the <unk> hundred 50 over the last multiple quarters. It is just progressively grown very steadily at a nice steady rate and a manageable rate. So I'd say overall some of the things we're seeing within our workforce with.
Speaker Change: Respect to the ability to hire the ability to train the ability to retain.
Speaker Change: I think thats indicative of what the whole industry is seeing and that in turn provide stability. It provides better efficiency and it gives both confidence that things are going in the right direction. So overall again, we're rolling off our updated forecasts.
Speaker Change: We're getting very good signals and indications on the poll.
Speaker Change: Not only to support the existing demand plus strong pull on new opportunities that could provide incremental benefits over the mid term.
Speaker Change: Simply because of light weighting and the importance of efficiency to drive performance and sustainability over the long haul.
Speaker Change: Got it okay.
Nick L. Stanage: I got it. Okay, no, that's, that's, that's hugely helpful. And then maybe just as a follow-up, on space and defense, you had a really strong start to the year, I guess. How do you see the potential for upside relative to the guide, just considering you do have the CH-53K still ramping and you do have, you know, admittedly, a lot of conflict where there may be some really solid demand pull from the military side? So I guess, can you help us to think about the potential for upside relative to your, your own out?
Speaker Change: That's hugely helpful. And then maybe just as the follow up.
Speaker Change: On space and defense.
Speaker Change: You had a really strong start to the year I guess, how do you see the potential for upside relative to the guide just considering you do have the CH 53, K still ramping and you do have admittedly a lot of conflict, where there may be some really solid demand pull from the military side. So I guess can you help us to think about the potential for upside relative.
Speaker Change: To your to your outlook.
Speaker Change: Yes, John So where we are.
Nick L. Stanage: Yeah, John, so we're encouraged by how we started the year for sure. And again, we're working on such a diverse set of platforms, if you look globally, with certain platforms going down or being stable, and many other platforms growing. You know, if you look at the CH-53K, the Rafael, the KC-390, our strong position in global rotorcrafts, the V-280 is going to ramp up down the road, and very strong performance this quarter on the F-35. Lots of momentum, lots of energy there.
Speaker Change: <unk> by how we start of the year for sure.
Speaker Change: And again we're.
Speaker Change: Working and on such a diverse set of platforms. If you look globally with certain.
Speaker Change: Platforms going down or being stable and many other platforms growing if you look at the CH 50, <unk> K the Raphael the KC 390.
Our strong position in global Rotorcraft.
Speaker Change: <unk> is going to ramp up down the road.
Speaker Change: And very strong performance this quarter on the <unk>.
Speaker Change: 35 lots of momentum lots of energy there and we.
Nick L. Stanage: And, you know, we'll have to get through another quarter before we really want to talk about tweaking our guidance, but it would be a good thing if we had the opportunity to give some indication that it could be higher than we had even expected. And, again, if we look around the global situation and what's going on, as sad as it is, it does tend to stimulate investment in defense systems and deterrence. So, with that backdrop, I'm optimistic, and I think our position puts us in a great position for us to continue to perform and potentially exceed our top-line estimates.
Speaker Change: We will have to get through another quarter before we really want to talk about tweaking our guidance, but.
Speaker Change: It would be a good thing if we have the opportunity to give some indication that it could be higher than we had even expected and again, if we look around the global situation and what's going on.
Speaker Change: As sad as it is it does tend to stimulate investment in defense systems and determined so.
I think with that backdrop, I am optimistic and I think our position puts us in a great position for us to continue to perform and potentially exceed our top line estimates.
Speaker Change: Got it thanks, very much Nick and again best wishes to you.
John Patrick McNulty: Got it. Thanks very much, Nick. And again, best of wishes to you.
Nick: Thank you John.
Nick: Your next question comes from Matt Akers from Wells Fargo. Please go ahead.
Matthew Carl Akers: Your next question comes from Matt Akers from Wells Fargo. Please go ahead.
Nick L. Stanage: Yeah, hey guys, good morning, and best of luck, Nick. Could you talk a little bit about the destocking? I think last quarter you had said kind of expect a little bit of pressure from that in the first half. Are we mostly through that at this point?
Matthew Carl Akers: Yeah, Hey, guys good morning, and best of luck Nick.
Matthew Carl Akers: Could you talk a little bit about the Destocking I think last quarter you had said.
Matthew Carl Akers: Kind of expect a little bit of pressure from that in the first half are we mostly through that at this point.
Nick: Yeah, I don't think there was destocking in the first quarter actually if anything there might have been a little bit of restocking, especially on the wide bodies because the rates have steadily grown.
Nick L. Stanage: Yeah, I don't think there was any destocking in the first quarter. Actually, if anything, there might have been a little bit of restocking, especially on the widebodies, because the rates have steadily grown. I think if you look at the orders, the way the backlog has built up, the way Boeing and Airbus are looking at increasing their rates to 10 in the near-term years ahead, I think that gives confidence, and the supply chain probably was a little tight in certain areas.
Nick: If you look at the orders.
Nick: The backlog is built up the way Boeing and Airbus.
Nick: We are looking at increasing their rates.
Nick: 10.
Nick: In the near term years ahead, I think that gives us confidence and the supply chain, probably was a little tight in certain areas.
Nick L. Stanage: The issues around the max and again, we've seen very level and steady performance for several quarters now. So I don't expect there's a ton of destocking ahead. Again, maybe a little restocking once the market and the supply chain gain confidence and the OEs can get to the rates that they intend to and need to, to support the huge backlog.
Nick: The issues around the Max and again, we've seen very level and steady performance for several quarters now.
Nick: I don't expect Theres a ton of Destocking ahead.
Nick: Again, maybe a little restocking once the market and the supply chain gained confidence and.
Nick: And the Oes can get to the rates that they intend to and need to to support the huge backlog.
Speaker Change: Great. Thank you and I guess one for Patrick.
Patrick Joseph Winterlich: Great, thank you. And I guess one for Patrick, you know, the share repurchase, you guys stepped up quite a bit this quarter, but I guess the diluted shares for the quarter were actually up a little bit. Can you talk about that with their additional dilution? Or is that just kind of timing of when that flowed through? Now that's just timing,
Speaker Change: Share repurchase you guys stepped up quite a bit this quarter, but.
Patrick: Diluted shares for the quarter were actually up a little bit can you just talk about that with the additional dilution or is that just kind of timing of when that flow through.
Patrick: Yes, no thats, just timing, reflecting the normal Q1 stock comp, where we get in stock issues that the stock buyback the packages of the $100 million that that in fact, we're already come in over time, it will start to be seen in the second quarter, but you have to average it and so we really got very little if you like EPS benefit from.
Patrick Joseph Winterlich: That's just timing reflecting the normal Q1 stock comp where we get stock issues. The stock buyback, the purchase of the 100 million, that effect will really come in over time. It will start to be seen in the second quarter, but you have to average it in. So we really got very little, if you like, EPF benefit from that in the first quarter. And that will impact, that beneficial impact will come as we move through the year. So everything in line with expected, and yes, 101 million buyback in Q1.
Patrick: In the first quarter and that will impact that beneficial impacts will come as we move through the year. So everything in line with expected and yes $101 million buyback in Q1.
Speaker Change: Great. Thank you.
Bert William Subin: Your next question comes from Bert Subin from Stiefel. Please go ahead. Hey, good morning.
Speaker Change: Your next question comes from Bert Zubin from Stifel. Please go ahead.
Bert William Subin: Hi, good morning.
Bert William Subin: Hey, good morning, and congratulations on your retirement, Nick. Thanks, folks.
Bert William Subin: Congratulations on your retirement next.
Bert William Subin: Thanks Bert.
Bert William Subin: Maybe just to follow up on the first question on the commercial aerospace side. It sounds like from your comments, Nick you expect some choppiness and so maybe the second quarter as potentially stronger on a year over year basis, probably not meaningfully.
Nick L. Stanage: Maybe just to follow up on the first question on the commercial aerospace side, it sounds like from your comments, Nick, you expect some choppiness, and so maybe the second quarter is potentially stronger on a year-over-year basis, but probably not meaningfully. So, based on maintaining the up-mid-teens guide, just for the segments, that would imply, I guess, 20% plus back cap growth. I'm just curious what your visibility is, and if you could give any commentary on sort of what your expectation is for the A350. I know you made some comments about seeing some improvement on the 87. I'm curious if that's translating to an airbus.
Bert William Subin: Based on maintaining the up mid teens guide just for the segments that would imply I guess, 20% blocks back half growth.
Speaker Change: I'm just curious what your visibility is and if you could give any commentary on sort of what's your expectation is on the <unk> hundred 50, I know you made some comments about seeing some improvement on the 87 I'm curious if that's translating through to Airbus.
Speaker Change: Yes, so again.
Nick L. Stanage: Yeah, so, again, the indications we're seeing, and again, we've got great customer relationships. We work very closely with them. Remember, many of our materials require going in freezers, which have limited space.
Speaker Change: The indications we are seeing and again, we've got great customer relationships, we've worked very closely with them.
Speaker Change: Remember many of our materials require to go in freezing switch has limited space. So we have pretty good insight on how much inventory our customers on the supply chain are selling on although not perfect.
Nick L. Stanage: So we have pretty good insight into how much inventory our customers and the supply chain are sitting on. Although not perfect, we do work with them very closely. And again, I think our customers are trying to provide as much visibility and lead time to ensure that the supply chain is ready when they want to ramp up and as they want to ramp up going forward. So I'd say our visibility and our communications have never been better with our customers.
Speaker Change: We do work with them very closely and again I think our customers are trying to provide as much visibility and lead time to ensure that the supply chain's ready.
Speaker Change: When they want to ramp up and as they want to ramp up going forward. So I'd say, our visibility and our communications have never been better with our customers now bolstering flowed from tweak based on their supply chain, but we build that and again I think we've got very good <unk>.
Nick L. Stanage: Now, those include some tweaks based on their supply chain, but we build that in and again, I think we've got very good visibility up to this point for 2024. I'd say on the A350, I'm very encouraged with the Dash 1000 and the orders coming in. I'm very encouraged by the upcoming A350 Freighter, where we have great ship set content. And I'm very encouraged by the backlog and the orders that are coming in.
Speaker Change: The ability of <unk> to this point for 2024, I'd say on the <unk> hundred 50, I'm very encouraged with the dash 1000, and the orders coming in I'm very encouraged with the upcoming <unk> hundred 50 freighter, where we have great chipset content and I'm very encouraged.
Speaker Change: <unk> by the backlog and the orders that are coming in I think from our perspective.
Nick L. Stanage: I think from our perspective, we see with international travel picking up and getting back to pre-pandemic days and higher, we see the pull for widebodies accelerating simply because of replacements, simply because of the number of seats required. So we believe our visibility is very good. We work very closely with Airbus. And again, I mentioned this before, but if you look at our quarterly progression and the smooth growth that we've seen gives us confidence that it's going to continue to deliver to Airbus' 10 per month target in the 2026 timeframe.
We see with the international travel picking up and getting back to pre pandemic days and higher.
Speaker Change: We see the pull for our wide bodies accelerating simply because of replacement simply because of the number of seats required.
We believe our visibility is very good we work very closely with Airbus and again I've mentioned this before but if you look at our quarterly progression and the smooth growth that we've seen.
Speaker Change: <unk> gives us confidence that it's going to continue to.
Speaker Change: To deliver to Airbus was 10 per month in the 2026 timeframe.
Patrick Joseph Winterlich: Got it. Okay, thanks for that, Nick. And just to follow up for you, Patrick, on the margin side, last quarter, you said you expected 13.5 to 14% operating margins for the year. It seems like we got off to a, you know, a fine start in the first quarter. Curious if that, you know, that range remains intact. And as we think about 14%, what would need to happen to get us there just to be on the higher end of the revenue guide? Yeah, no. I mean, I mean, we've held.
Speaker Change: Got it okay. Thanks for that Nick and just a follow up for you Patrick on the on the margin side.
Patrick: Last quarter, you said, you expected 13, 5% to 14% operating margins for the year. It seems like off to a fine start in the first quarter.
Patrick: <unk> of that is that.
Patrick: That range remains intact.
Patrick: As we think about 14% what would need to happen to get us there just to be on the higher end of the revenue guide.
Patrick: Yes.
Patrick: We've held our guidance, we've reaffirmed our guidance for 2024 and so my position is the same I mean Q1 is always down a little bit because of the extra stock comp cost that we take but when you adjust that out in further volume leverage.
Patrick Joseph Winterlich: Yeah, no, I mean, we've held our guidance, and we've reaffirmed our guidance for 2024, and so my position is the same. I mean, Q1 is always down a little bit because of the extra stock comp costs that we take, but when you adjust that out and the further volume leverage and growth come as we move through the year, I'm confident in the 13.5-14, and we're obviously going to push that as strongly as we can.
Patrick: And growth comes as we move through the year I'm confident in the 13 half 14, we're obviously going to push that as strongly as we have but as I say I mean, essentially we're holding guidance.
Patrick: 10 to 30 bps.
Patrick: So that's our target.
Patrick: You back into.
Patrick: Our margin range as you described.
Patrick Joseph Winterlich: But as I say, I mean, essentially, we're holding guidance, the 210-230 EPS, so that's our target, and yes, you back into a margin range as you describe, and we're confident in achieving that as we stand here today.
Patrick: We're confident in achieving that as we stand here today.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Louis Raffetto from Wolfe Research. Please go ahead.
Louis Raffetto: Hey, good morning, Congrats Nick.
Nick: Thanks Louis.
Louis Raffetto: Maybe just to follow up on Matt's question there.
Unknown Executive: Your next question comes from the line of Lewis Raffetto from Wolfe Research. Please go ahead. Hey, good morning. I'll say congrats, Nick.
Speaker Change: Back out the.
Louis Raffetto: The comp in the first quarter.
Louis Raffetto: Margins look like Theyre going to be sort of flattish the rest of the year, even on the higher sales that you kind of expect as the year goes on.
Unknown Executive: Your next question comes from the line of Lewis Raffetto from Wolf Research. Please go ahead. Hey, good morning. I'll see you later.
Louis Raffetto: So just because there was there anything in <unk> that.
Louis Raffetto: <unk> was mixed beneficial or anything just we should be thinking about as we think about the next couple of quarters.
Patrick Joseph Winterlich: No, I mean, other than the stock comp and banking that out, Q1 was actually a particularly clean month, a clean quarter. There was really very little oddball. It was good, steady progress, a good normal, if you like, mix of aerospace, space, and defense business. Industrial was a little bit weaker in the mix at 7% of total sales.
Louis Raffetto: No.
Louis Raffetto: Other than the stock comp and banking that out.
Louis Raffetto: Q1 was actually a particularly clean month clean.
Louis Raffetto: Clean quarter, there was really very large bullet was good steady progress at good normal if you like mix of aerospace space and defense business <unk>.
Louis Raffetto: Industrial was a little bit weaker in the mix of 7% of total sales, but margin wise nothing material nothing odd ratings call outs.
Patrick Joseph Winterlich: But margin-wise, nothing peculiar, really nothing odd to call out. A good positive start as far as we're concerned. And, as I called out, sort of three quarters in a row now where we've got good sequential positive momentum.
A good positive sign as far as we're concerned and as I called out sort of three quarters in a row now where we've got good sequential.
Louis Raffetto: Positive momentum.
Speaker Change: Yeah, absolutely alright, thank you very much.
Sheila Karin Kahyaoglu: Absolutely. All right. Thank you very much. Your next question comes from the line of Sheila Kahyaoglu from Jeffreys. Please go ahead. Good morning, Nick, Patrick, and Kurt.
Speaker Change: Your next question comes from the line of Sheila <unk> from Jefferies. Please go ahead.
Sheila: Good morning, welcome, Patrick and Kurt and Matt Congratulations on your retirement wishing you all the best and thank you for everything.
Sheila Karin Kahyaoglu: Your next question comes from the line of Sheila Kahyaoglu from Jeffreys. Please go ahead. Good morning, Nick and Patrick.
Patrick Joseph Winterlich: Yeah, hi, Sheila. I mean, we're going to stay very focused on it. And in terms of inventory levels, talking about raw materials, and finished goods, as I've called out before, the key metric for me is the relative days on hand. We're trying to improve that. And we look at our level of sales.
Sheila: I just wanted to start off Patrick for you just given working capital.
Sheila: How do you think about managing your working capital the puts and takes just as you see.
Sheila: Supply chain issues, whether on narrow bodies are wide bodies, how do you kind of think about that.
Sheila: Our purchasing whether it's inventory or were delivering product to our customers.
Patrick Joseph Winterlich: And we try to improve the sort of the relative days of inventory we have. We're not going to build inventory, if that is your question. We're not going to sit on extra raw materials or finished goods as buffers or build up. That is not our intention. Quite the opposite.
Patrick: Yes, Hi, Sheila.
Sheila: We're going to stay very focused on that.
Sheila: In terms of inventory levels talking about raw materials finished goods.
Sheila: I called that before.
Sheila: As a key metric for me is the relative days on hand were trying to improve that but we look at our level of sales.
Sheila: And we are trying to improve the residence in sort of the relative days of inventory we have.
Sheila: Two that we are not going to build inventory. If this is your question, we're not going to sit on extra enrollment aerials or finished goods as buffers or build out that is not our intention to find the answer and we want to be more efficient we're going to react quickly we have the capacity to meet the ramps we are not the bottleneck in the aerospace supply.
Patrick Joseph Winterlich: We want to be more efficient. We're going to react quickly. We have the capacity to meet the ramps. We are not the bottleneck in the aerospace supply chain, as we've called out several times. We're ready to support Airbus and Boeing with their ramp-ups, and we're going to work very, very closely, as Nick outlined earlier. In terms of inventory, we're going to manage it tightly and, if anything, try to continue to improve the day.
Sheila: Im saying as we've called out several times, we are ready to support.
Sheila: Airbus and Boeing with their ramp ups and we're going to work very very closely as Nick outlined earlier. So in terms of inventory, we're going to manage it tightly and if anything trying to continue to improve the day, we will manage our receivables historically, we've done a great job, we're going to continue to do that.
Patrick Joseph Winterlich: We'll manage our receivables. Historically, we've done a great job. We're going to continue to do that. And we're going to try and extend and manage our payables as productively as we can. We do see a little bit of scope to increase our days of payables. I think, historically, we've been very low. So we're focused across the board on working capital management to optimize our cash position
And we're going to try and extend and manage our payables.
Sheila: Quickly as we can we do see a little bit of scope to incur.
Sheila: We increased our days of payables I think historically, we've been very low.
Sheila: So we're focused across the board on working capital management to optimize our cash position.
Speaker Change: Great. Thank you for the color.
Speaker Change: Thanks Sheila.
Gavin Eric Parsons: Your next question comes from the line of Gavin Parsons from UBS. Please go ahead. Thanks, morning.
Speaker Change: Your next question comes from the line of Gavin Parsons from UBS. Please go ahead.
Nick L. Stanage: Thanks, morning, and Nick, congrats on retirement. Thanks, Gavin. The Industrial Revenue Guide for the year implies a pretty significant sequential ramp-up throughout the year. Can you talk about what gives you visibility into that, or if there's some risk to the guide?
Gavin Eric Parsons: Thanks, Good morning, and Nick Congrats on retirement.
Gavin Eric Parsons: Thanks, Kevin.
Gavin Eric Parsons: The industrial revenue guide for the year implies a pretty significant sequential ramp up throughout the year can you talk about what gives you visibility into that or if there's some risk to the guide.
Nick L. Stanage: So, industrial is a challenge, certainly in the European market, which makes up a big portion of our industrial business, with some of our customers backing off, taking a little bit of a pause. Automotive, some of the premium automotive suppliers, the high-end vehicles slow down a little bit. The pull for our materials in recreation and sporting, simply because of some of the economic pressures, hit Q1 especially hard. Now, we do expect recovery there, but there's probably pressure on our industrial output to be low single-digit, to kind of flat.
Speaker Change: So industrial is challenged certainly in the European market, which makes up.
Kevin Goddard: A big portion of our industrial business with some of our customers backing off taking a little bit of pause.
Kevin Goddard: Automotive some of the premium.
Kevin Goddard: Automotive suppliers, the high end vehicles slowed down a little bit the pull for our materials.
Kevin Goddard: Rack and sporting simply because of some of the economic pressures.
Kevin Goddard: Hit Q1, especially hard now we do expect recovery there.
Kevin Goddard: But theres probably pressure on our industrial to be low single digit to kind of flat.
Nick L. Stanage: But, having said that, I would tell you the order activity and the engagement with our customers, and the pull for our materials, some of which are short-term pulls because it's a much quicker cycle, is strong, very strong. So, we're not giving up on industrial, but we certainly recognize that there's a little bit of a hole after Q1 that we've got to work through.
Kevin Goddard: But having said that I would tell you the order activity and the engagement with our customers and the and the pull for our materials some of which are short term Paul because it's a much quicker cycle.
Kevin Goddard: Is strong very strong so we're not giving up on industrial but we certainly recognize that there is a little bit of hole. After after Q1 that we've got to work.
Speaker Change: Okay. That's helpful detail and then maybe just on the margin implications of all that I think you said industrial is margin dilutive.
Patrick Joseph Winterlich: That's helpful detail. Maybe just on the margin implications of all that. I think you said industrial is margin dilutive. But I would imagine that the level of revenue decline you had in the first quarter probably has some, you know, excess capacity in there. So what are the margin implications of the big industrial step down in the quarter? Was that largely dilutive?
Speaker Change: But I would imagine that the the level of revenue decline you had in the first quarter probably has some <unk>.
Speaker Change: Excess capacity in there so what are the margin implications of.
Speaker Change: The big industrial stepped down in the quarter was that largely dilutive.
Speaker Change: Yes.
Patrick Joseph Winterlich: Yes, so hi, Gavin. I mean, the wind margin and the wind sort of decline in sales is going to be positive over time. I mean, that part of the industrial business has become weaker over several years, but that decline has now been for the last five, six years, and so that has helped us. I think at this point, the differentiation between industrial and aerospace is still there. The industrial is lower, but it's probably less pronounced because a lot of the industrial we're doing are sophisticated woven fabrics, non-crimped fabrics, utilizing carbon fibers.
Speaker Change: Hi, Kevin I mean, the wind market and the wins sort.
Speaker Change: A decline in sales is going to be a positive over time, I mean that part of the industrial business over several years have become weaker.
Speaker Change: Decline has now been in the last five six years and so that has helped US I think at this point the differentiation between industrial and aerospace is still there industrial is lower but it's probably less pronounced because a lot of the industrial we're doing.
Speaker Change: Our sophisticated woven fabrics non creams fabrics utilizing carbon fibers, so and down <unk>, 7% of sales that mix impact is becoming less so there's a small margin impact of beneficial dilution margin impact, but I wouldn't overplay it Kevin.
Patrick Joseph Winterlich: So, and down at 7% of sales, that mix impact is becoming less. So, there's a small margin impact, beneficial dilution margin impact, but I wouldn't overplay it, Gavin. I think wind helped us, and pulling out that low, or losing, if you like, that low margin wind business has happened, has not been a bad thing, but the remaining industrial, there's actually more opportunity for margin, albeit it's not at aerospace or space and defense levels.
Speaker Change: Wins helped us.
Speaker Change: Pulling out of that low.
Speaker Change: Losing a few lines that low margin wind business has happened.
Speaker Change: It has not been a bad thing, but the remaining industrial there's actually more opportunity on margin, albeit it's not aerospace space and defense sales.
Speaker Change: Understood. Okay final quick one do you have visibility to say gross margin in the first quarter is the low point for the year.
Patrick Joseph Winterlich: Okay, final quick one, do you have visibility to say gross margin in the first quarter will be the low point for the year? We're not going to guide by...
Speaker Change: We're not going to guide by quarters.
Patrick Joseph Winterlich: We're not going to guide by quarters. We're just going to drive our margins as strongly as we can. Gross margin, unlike adjusted operating income, is not impacted so much by the stock comp, but we will continue to drive that as strongly as we can.
Speaker Change: We are just going to drive our margins as strongly as we can.
Speaker Change: Gross margin underlying adjusted.
Speaker Change: Operating income is not impacted so much by the stock comp, but we will continue to drive that as strongly as we can.
Gautam J. Khanna: Your next question comes from the line of Gautam Khanna from TD Cowen. Please go ahead.
Speaker Change: Fair enough. Thank you.
Speaker Change: Thanks, Kevin.
Speaker Change: Your next question comes from the line of Guar, Tim Connor from TD Cowen. Please go ahead.
Gautam J. Khanna: Hi, good morning, and congratulations, Nick. Thanks, Calvin.
Tim Connor: Hi, good morning, and congratulations Nick.
Tim Connor: Thanks Scott.
Tim Connor: Hey, just wanted to ask your opinion on the Destocking that began in Q3 on the narrow body side and it seems to have resolved the <unk>.
Nick L. Stanage: I just wanted to ask your opinion on, you know, the de-stocking that began in Q3 on the narrow-body side and seems to have resolved in the first quarter. Is that pretty widespread among your intermediary customers, you know, on the 737 MAX, in particular? I imagine he's shipped to a number of different subcontract manufacturers. Are you seeing most of those now in alignment with one another? Or are you still seeing some folks going down, some folks going up? And just maybe, if you could just talk about what, looking back over the last six months, where did you see the biggest reductions and have those suppliers come to a bottom in terms of their
Tim Connor: First quarter.
Tim Connor: Is that pretty broad based among your intermediary customers on that.
Tim Connor: 737, Max in particular and in other words.
Tim Connor: I would imagine is shipped to a number of different subcontract manufacturers are you seen most of those now in alignment with one another.
Tim Connor: Are you still seeing some folks going down some folks going up.
Tim Connor: And just maybe if you could just talk about what looking back over the last six months, where did you see that.
The biggest reductions those suppliers come to a bottom in terms of their buying.
Nick L. Stanage: Clearly, we do ship to multiple providers for Boeing on the MAX, as we do with Airbus for the 320 and all our programs. It's a very complex supply chain, and, Just based on that, it's rare, if ever, that everybody is in complete alignment at the same time. Some parts take longer, some parts have a quicker lead time, or a shorter lead time, so it's never going to be completely balanced. Again, as I said before, if you look at the max and if you look at the rate where we've been shipping to over the last couple of quarters, so, from my perspective, I don't see a lot of destocking taking place.
Speaker Change: Woke up.
Speaker Change: Clearly, we do ship to multiple.
Speaker Change: Providers for Boeing on the Max as we deal with Airbus for the 320 and all of our programs, it's a very complex supply chain and <unk>.
Speaker Change: Based on that.
Speaker Change: It's rare if ever that everybody is in complete alignment at the same phase some parts takes longer some parts.
Speaker Change: I have a quicker lead times are shorter lead time, so it's never going to be completely balanced.
Speaker Change: Again as I said before if you look at the Max and if you look at the rate where we've been shifting to over the last couple of quarters. It's very consistent so from my perspective, I don't see a lot of.
Speaker Change: Destocking, taking place for that matter I don't see a lot of restocking take place, which gives us an indication that there is still choppiness. There is still some uncertainty on how and when Boeing will ramp.
Nick L. Stanage: For that matter, I don't see a lot of restocking taking place, which gives us an indication that there's still choppiness. There's still some uncertainty on how and when Boeing will ramp up and get up to the rates that they aspire to reach. So, all in all, I think the destocking is minimal from a negative standpoint as of today for Hexcel on the narrow bodies. If anything, it might be a little tailwind on the wide bodies simply because they're ramping up nicely.
Speaker Change: And get up to the rates that they are.
Speaker Change: Aspire to reach so all in all I think the Destocking is minimal from a negative standpoint as of today for hexcel on the narrow bodies, if anything it might be a little tailwind on the wide body is simply because they are ramping up nicely.
Nick L. Stanage: Gotcha. And then would you describe what happened in Q3 and Q4 as destocking or was it, you know, because back then you guys called out the lack of. You know, you were anticipating more growth than manifested. Was that destocking? Or was it something else? I'm just curious. If you haven't really seen much of a change. Well, I think
Speaker Change: Got you and then would you describe what happened in Q3 and Q4.
Speaker Change: Destocking or was.
Speaker Change: Because back then you guys called out the lack of.
Speaker Change: Yes.
Speaker Change: We're anticipating more growth and manifested was that destocking or was it something else I'm. Just curious if you haven't really seen much of a change.
Speaker Change: Well I would say.
Nick L. Stanage: Well, I think, I think it was a couple of things. We knew after we got through Q1 last year and into Q2 that we saw the growth rate on narrowbodies had slowed. So certainly, there was a little adjustment in the entire supply chain to deal with that. Keep in mind, there was a big ramp underway, and then all of a sudden, it looked like it couldn't materialize as planned.
Speaker Change: Thank you.
I think it was.
A couple of things we knew after we got through Q1 last year and the end of Q2 that we saw the growth rate on the narrow bodies had slowed.
Speaker Change: So certainly there was a little adjustment in the entire supply chain to deal with that keep in mind. There was a big ramp underway and then all of a sudden it looks like it could materialize as planned. So there was some lower rate impact as well.
Nick L. Stanage: So there was some lower rate impact, as well as a slowdown in the stocking. So whether you want to call that destocking or just a general slowdown a bit to better align with what the OEs were saying they were going to do in the second half of the year and the first part of 2024. So that's, from Hexcel's view and perspective, what we saw.
Speaker Change: As the slowdown on the on the stocking so whether you want to call that destocking or just a general slowdown a bit to better align with what the Oes were saying they were going to do in the second half of the year and the first part of 2024.
So that's that's from Hetzel view and perspective, what we saw.
Speaker Change: Thank you.
Speaker Change: Thank you.
Robert Michael Spingarn: Your next question comes from the line of Robert Spingarn from Melias Research. Please go ahead.
Speaker Change: Your next question comes from the line of Robert Springer from Melius Research. Please go ahead.
Robert Michael Spingarn: Good morning and congratulations, Nick. Thanks, Robert. At the risk of maybe beating a dead horse on this, I'm going to, I'm going to just take this from another angle. When you say the rates have been, for Max, relatively steady, could we quantify that? Have you been, these steadier rates that you've been shipping at, are we talking about the low 30s?
Robert Michael Spingarn: Good morning, and congrats Nick.
Robert Michael Spingarn: Thanks Robert.
Robert Michael Spingarn: At the risk of maybe beating a dead horse on this I'm going to.
Im going to just.
Robert Michael Spingarn: Take this from another angle when you say the rates have been from Max have been relatively steady could we quantify that have you been the steadier rates that you've been shipping app are we talking about low thirties.
Nick L. Stanage: We're talking about very low 30s here, Robert.
Robert Michael Spingarn: We're talking about very low thirty's, Robert Okay, very low Thirty's alright.
Nick L. Stanage: Okay, very low 30s. All right, that's certainly helpful.
Robert Michael Spingarn: Thats certainly helpful on the on the eight seven.
Nick L. Stanage: On the 8-7, you know, we've heard from one airline in particular that we really shouldn't expect above five per month for a while. And in the first quarter, they delivered only 13. So are you shipping a little bit below that five per month? Or are you? How should we think about that?
Robert Michael Spingarn: We've heard from one airline in particular that we really shouldnt expect above $5 per month for a while.
Robert Michael Spingarn: And.
Robert Michael Spingarn: In the first quarter. They delivered only 13. So are you shipping a little bit below that five months' are you.
Robert Michael Spingarn: How should we think about that.
Nick L. Stanage: So I really don't want to get too specific. I believe Boeing is reporting tomorrow, and they may show more detail, but I can tell you we're shipping above five.
Robert Michael Spingarn: So.
Robert Michael Spingarn: Really don't want to get too specific I believe Boeing is reporting tomorrow and they may.
Robert Michael Spingarn: They've made sure to more detail, but I can tell you were shipping above five.
Robert Michael Spingarn: Okay. Okay. And then, just quickly, for Patrick.
Speaker Change: Okay, Okay, and then just quickly for Patrick.
Patrick Joseph Winterlich: On just from a productivity perspective, you ended 23 with headcount at 80% of 19 levels. I think revenues were at 75%. And then this year at the midpoint, going up to 84% of 19. Should headcount track that, or at some point, will we see some optimization or some productivity where when you get back to 100% of 2019 sales, you're at something less on headcount?
Speaker Change: Just from a productivity perspective.
Speaker Change: You ended 23 with head count at 80% of 19 levels I think revenues were at 75% and then this year at the midpoint going up to 84% of 19 should head count track that or at some point.
Speaker Change: Will we see some optimization or some productivity, where when you get back to a 100% of 2019 sales youre at something less on head count.
Patrick Joseph Winterlich: Yeah, so good question. And I've devised a sort of headcount into your direct shop floor factory headcounts. And I think we called out that we've got a little bit ahead there. But essentially, over time, that's going to track the top line; it's going to go pro rata as sales grow. Now, we'll be as efficient and disciplined as we can, where we have the real opportunities for indirect labor, where we took a lot of people out in the pandemic, and the fixed cost benefit that we called out at the time.
Speaker Change: Yes, so it's a good question and I divide sort of head count and so your direct Shopfloor factory head counts and I think we called out we got a little bit ahead, there, but essentially over time, that's going to track the top line's going to go pro rata as sales grow and that will be the efficient and disciplined as we can.
Speaker Change: Where we have the right opportunities on the indirect labor, where we took a lot of people out in the pandemic.
Speaker Change: Of the fixed cost benefit that we called out at the time and our objective is to do exactly what you're saying Rob that when we get back to the 235 to four failure, we should be more efficient more productive and so the total head count at that point should be less than it was which was just under 7000.
Patrick Joseph Winterlich: And our objective is to do exactly what you're saying, Rob, that when we get back to the 2.35, 2.4 billion, we should be more efficient, more productive. And so the total headcount at that point should be less than it was, which was just under 7000. In 2019, we should have a bit less when we get to that revenue level next time.
Speaker Change: In 2019, we should have a bit less.
Speaker Change: When we get to that revenue level next time round.
Speaker Change: Any way to quantify what that would be.
Robert Michael Spingarn: Any way to quantify what that would be? I don't think we want to put a number on it, but obviously, we're going to drive that productivity efficiencies as strongly as we can. Okay, thanks so much. Good luck, Nick.
Speaker Change: I don't think we want to put a number on it but obviously, we're going to drive that productivity efficiencies as strongly as we can.
Speaker Change: Thanks, So much good luck next.
Speaker Change: Thanks, Rob.
Noah Poponak: Your next question comes from the line of Noah Poponak from Goldman Sachs; please go ahead.
Your next question comes from the line of Noah <unk> from Goldman Sachs. Please go ahead.
Noah Poponak: Hey, good morning, everyone. And congrats. Thanks, Noah.
Noah: Hey, good morning, everyone and congrats good morning all.
Noah: Thanks, Paul.
Nick L. Stanage: So, um, Boeing has declared that they're doing these quality stand-downs whereby they're much less focused on the monthly delivery numbers and instead very focused on fixing the product quality. And I guess, you know, the key question, or at least for now, is, Is that a three to six month process and then they can move forward with the ramp, or is that not? Does it take multiples of three to six months?
Noah: So.
Noah: Boeing has declared that they are doing these quality stand downs.
Noah: Goodbye.
Noah: They are much less focused on the monthly delivery numbers instead very focused on fixing the product quality.
Noah: And I guess.
The key question or at least for now is.
Noah: Is that a three to six month process and then they can move forward with the ramp or is that a.
Noah: Does it take multiples of three to six months.
Nick L. Stanage: I know that these questions can often be answered by, you know, you got to ask Boeing, but just as a key supplier and how much this will impact your forward. What's your sense there? Is it a, you know, is it a half year for them to get to where they need to be to be able to continue to ramp up? Or do they even know? And is there a risk it could take much longer?
Noah: I know that these questions can often be answered by you got asked Boeing but.
Noah: As a key supplier and how much this will impact your forward.
Noah: What's your sense there.
Is it a half a year for them to get to where they need to be to be able to continue to ramp or do they even know.
Noah: Is there a risk it can take much longer.
Noah: Yes.
Nick L. Stanage: Having worked with Boeing for many years at Hexcel and other companies, I have the utmost respect for the talent, their processes, their capabilities, and it's very unfortunate what's happened and what they're going through, but it is making them stronger, much stronger from a continuous improvement in productivity, on throughput, on safety, on all the elements. So I'm a huge believer that what they're going through right now is going to pay great dividends down the road.
Having worked with Boeing for many years at Hexcel and other companies I have the utmost respect for the talent their processes their capabilities.
And it's very unfortunate on what's happened and what they're going through but it is making them stronger much stronger from a continuous improvement on productivity throughput.
Noah: Safety on all of the elements. So I'm a huge believer that what they are going through right. Now is just going to pay great dividends down the road now.
Nick L. Stanage: Are they making progress daily? I have no doubt they're making significant strides every single day. But with a changing workforce and new people and training and different processes, remember that what they do is quite different from our continuous flow 724 processing material line.
Noah: Are they making progress daily I have no doubt they are making significant strides every single day, but with a changing workforce in new people and training and different processes remember what they do is quite different from our continuous flow 724.
Noah: Processing material lines.
Nick L. Stanage: Regardless, I'm sure they're well on track, and I'm really not going to be the one to talk about their timing and how quickly they're going to be able to ramp up and improve their productivity and efficiency. Personally, I'm optimistic about what I see. I'm optimistic about the poll. I'm optimistic about the communications and the alignment we have with Bones.
Noah: Regardless I'm sure they are well on track and I'm really not going to be the one to talk about their timing and and how quickly they are going to be able to ramp up and improve their productivity and efficiency.
Noah: Personally I am optimistic on what I see I'm optimistic on the Paul Im optimistic on the communication and the <unk>.
Noah: Alignment, we have with Boeing.
Nick L. Stanage: Okay, Nick, that's super helpful. I appreciate that.
Speaker Change: Okay. Nick that's Super helpful. I appreciate that yes, I mean, I guess the pool alone.
Noah Poponak: Yeah, I mean, I guess the pool alone is in the low 30s. You know, GE just a few hours ago had similar comments on the engine. I would guess that Boeing would not keep pulling if they thought this was a much longer process, but is there just a risk that they didn't know and they're going to learn it's a longer process? And then that puts, you know, a divot in the middle of your year in 2024 or something.
Nick: Being in the low thirties.
Nick: Just a few hours ago had similar comments on the engines.
I would guess that Boeing would not keep pulling if they thought this was a much longer process, but is there just a risk that.
Nick: They didn't know and they're going to learn it is a longer process and then that puts.
Nick:
Nick: In the middle of your year in 2024 at some point.
Nick L. Stanage: Yeah, you know, we're obviously going to be on the call tomorrow listening. We're obviously going to speak very close to Boeing. They're very transparent about what they're looking at and what their plans are for the near term and the mid term. So I think we'll know as soon as they know what they're going to do. And I think your perspective on if they're pulling at 30, they must have confidence, which I think that's a very good assumption.
Nick: Yes.
Nick: We're obviously going to be on the call Tomorrow listening, we're obviously going to stay very close to Boeing.
Nick: Theyre very transparent.
Nick: <unk>.
Nick: What they are looking at and what their plans are for the near term and the mid term so.
Nick: I think we'll know as soon as they know what theyre going to do and I think your.
Nick: Perspective on as they are pulling at 30, they must have confidence, which I think that's a very good assumption.
Patrick Joseph Winterlich: Okay. And Patrick, just one more on the margins.
Okay.
Speaker Change: And Patrick just one more on the margins I think you had last quarter talked about the back half better than the first half.
Noah Poponak: I think you talked about the back half better than the first half last quarter. And that was driven by, you know, the pace of volume and your investments and some costs. You normally have the three cue seasonality, so that was going to look kind of different than a normal year. This first quarter, it looks better than, you know, it's better than consensus, maybe a little better than you had. I guess just does the year now look a little more even? Quarter-to-quarter through the year, back half versus first half, more so than you previously thought.
Speaker Change: And that was driven by the pace of volume and your investments on some costs you normally have the <unk> seasonality so that was going to look.
Speaker Change: Different than a normal year.
Speaker Change: This first quarter it looks better than it was better than consensus it was maybe a little better than you had.
Speaker Change: Just as the year now look a little more even.
Speaker Change: Quarter to quarter through the year back half versus first half than you previously thought.
Patrick Joseph Winterlich: Well, I mean, again, with the provider of this dot-com impact in Q1, Yeah, I mean, we're still confident we're going to see an improvement. Is it slightly flatter than we said before?
Speaker Change: Well I mean again with the proviso of the stock comp impact on Q1.
Speaker Change: Yes.
Speaker Change: We're confident we're going to see an improvement is it slightly faster than we said before I don't think we're going to get into that kind of quarter by quarter analysis, we see more steady margin progress volume leverage driving steady margin progress as we go through the year, we're standing by our annual guidance.
Patrick Joseph Winterlich: I don't think we're going to get into that kind of quarter by quarter analysis. We see much steady margin progress, volume leverage, driving steady margin progress as we go through the year. We're standing by our annual guidance. You can kind of back into that, as I know you do well, Noah. Yeah, we're positive, and we still see a strong second half of 24. Your next question comes from David Strauss from Barclays. Please go ahead.
Speaker Change: You can kind of back into that as I know you do well no and.
Speaker Change: Yes.
Speaker Change: The test and we see a strong second half of 'twenty wholesale.
Speaker Change: Your next question comes from David Strauss from Barclays. Please go ahead.
David Egon Strauss: Hi, good morning.
Speaker Change: Hi, Good morning. This is Josh <unk> on for David Thanks for taking the question.
Patrick Joseph Winterlich: Yeah, I mean, as you know, Josh, we're not going to give out an incremental target. We backed off that some time ago.
Josh: No the guidance this year implies like mid 20% Incrementals just wanted to ask kind of what that is.
Patrick Joseph Winterlich: Depending on growth from quarter to quarter, it just becomes a minefield because you can't just have consistent incrementals. We're always going to take any incremental sales we have, any upside, and try and leverage it as strongly as we can. Our goal is clearly to drive our operating, I just said operating income margin to the mid-teens, and then beyond the mid-teens, back to the 17-18% where we were before, and ultimately look to go beyond that. But the target right now is getting back to the mid-teens and pushing as hard as we can. And within that, whenever we get the opportunity, we will drive incremental changes as strongly as we can.
Josh: Sustainable Incrementals could be could look like going forward in the medium term. Thanks.
Speaker Change: Yes, I mean as you know Josh.
Speaker Change: We're not going to give out an incremental target, we backed off that some time ago, depending on growth and quarter to quarter. It just becomes a mining sales because you constantly have consistent incrementals were always going to take any incremental sales, we have any upside and try and leverages as strongly as we can.
Speaker Change: Our goal is clearly to drive our operating adjusted operating income margin to mid teens, and then beyond maintain back to the 2017, 19%, where we were before and ultimately look to go beyond that but the target right now is getting back to the mid teens.
Speaker Change: And pushing as hard as we can and within that whenever we get the opportunity we will drive incrementals as strongly as we can.
Peter John Skibitski: Our last question today comes from the line of Pete Skibitski from Olympic Global. Olympic Global, please go ahead.
Speaker Change: Our last question today comes from the line of Pete Kubicki from Alembic Global Global. Please go ahead.
Peter John Skibitski: Yeah, thank you, and good morning everyone. Best of luck, Nick. You went out on a nice quarter. That's good. Thanks. Thanks, Pete. Only question for me, just on space and defense after, you know, the nice quarter there following a strong 2023, can you remind us of your split in space and defense between the U.S. and Europe? I can't remember which geography was bigger for you. And are you seeing outside growth in Europe right now just because of the threat level over there and so many of the NATO nations increasing their defense budgets? That's it for me. Yeah, hi, Pete. I mean, we have.
Unknown Executive: Yes, Thank you and good morning, everyone and best of luck, Nick you went out on a nice quarter. That's good. Thanks. Thanks Pete.
Unknown Executive: The only question for me just on space and defense after the nice quarter. There. Following a strong 2023 can you remind us your split in space and defense between the U S and Europe.
Unknown Executive: I remember, which geography was bigger for you and are you seeing outsized growth in Europe right now just because of the threat level over there and so many of the NATO nations increasing their defense budgets. That's it for me.
Patrick Joseph Winterlich: Yeah, hi Pete. I mean, we have seen a little bit of a realignment over the last 12-18 months. I mean, the U.S. is by far the biggest. It's still 70 percent, perhaps a little bit more. But Europe has grown. It used to be sort of 20 percent, a little bit under. It's now well over that, pushing towards more of a 70-30 or around that bracket. So the U.S. is definitely the biggest, it's the strongest, and I would expect that to continue.
Speaker Change: Hi, Pete.
Speaker Change: <unk> seen a little bit of a realignment over the last 12 to 18 months I mean, the U S is by far the biggest states still 70%.
Unknown Executive: <unk> has a little bit more of that Europe has grown.
Unknown Executive: To be sort of 20% a little bit under is now well over that.
Unknown Executive: Pushing towards more 70 30.
Unknown Executive: Round that bracket. So the U S is definitely the biggest is the strongest and I would expect that to continue but Europe.
Patrick Joseph Winterlich: But Europe, exactly to the point you're making with the geopolitical situation, budgets have got stronger, more of the governments in Europe have put more money into the military, and we've seen that boost a bit. So 70-30, very broadly.
Unknown Executive: Exactly to the point, you're making with the geopolitical situation budgets have got stronger more of the governments in Europe have put more money into the military and we are seeing that boost the beds.
Unknown Executive: <unk> therapy very broadly.
Operator: That does conclude our question and answer session. And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: Thanks, so much.
Speaker Change: Sure.
Speaker Change: That does conclude our question and answer session and with that that does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.