Q3 2026 Hexcel Corp Earnings Call

October 22, 2026

Operator 2: Hello, everyone. Thank you for joining us, and welcome to the Hexcel Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Kurt Goddard, Vice President, Investor Relations. Kurt, please go ahead.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Hexcel Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Kurt Goddard, Vice President, Investor Relations. Kurt, please go ahead.

Speaker #2: everyone. Thank you for joining us, and welcome to the HEXCEL Q3 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. question, please press star 1 to raise your hand.

Speaker #2: If you would like to withdraw your question, please press star 1 again. I will now hand the conference over to Kurt Goddard, Vice President, Investor Relations.

Speaker #2: Kurt, please go ahead.

Kurt Goddard: Hello, everyone. Welcome to Hexcel Corporation's third quarter earnings conference call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Such factors are detailed in the company's SEC filings and earnings release. We will be referencing a supporting presentation today that is available on the webcast. In the earnings release and in today's webcast and the supporting presentation, we reference non-GAAP financial measures.

Speaker #3: Hello everyone. Welcome to HEXCEL Corporation's Q3 earnings conference call. Before beginning, let me cover the formalities. I would like to remind everyone about the safe harbor provisions related to any forward-looking statements we may make during this call.

Speaker #3: Certain statements contained in this call may constitute forward-looking statements within the meaning of the private securities litigation reform act of 1995. 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 #3: Such factors are detailed in the company's SEC filings and earnings release. We will be referencing a supporting presentation today that is available on the webcast.

Speaker #3: In the earnings release, and in today's webcast and supporting presentation, we reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the presentation.

Kurt Goddard: Reconciliations to the most directly comparable GAAP measures are provided in the earnings release and in the appendix to the presentation. 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 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. With me today are Tom Gentile, our Chairman, CEO, and President, and Jamie Coogan, our Chief Financial Officer. The purpose of the call is to review our third quarter 2026 results detailed in our news release issued yesterday. Now let me turn the call over to Tom. Tom?

Speaker #3: 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 and is copyrighted material.

Speaker #3: It cannot be recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO, and President, and Jamie Coogan, our Chief Financial Officer.

Speaker #3: The purpose of the call is to review our Q3 2026 results, detailed in our news release issued yesterday. Now, let me turn the call over to Tom.

Speaker #3: Tom?

Tom Gentile: Thanks, Kurt. Hello, everyone, and thank you for joining us today for Hexcel's Q3 2026 earnings call. Beginning with slide 4 of the slide deck. Increasing customer demand across commercial aerospace, defense, and space continues to provide a strong long-term outlook for the advanced lightweight material Hexcel provides. As commercial aircraft production rates recover and we work to capture defense and space growth, our focus is on executing the ramp to deliver for customers and capture the significant growth opportunities ahead. As discussed on our previous earnings call, Q3 results reflected the typical seasonality we experience during the summer months with extended European holidays. With a strong demand outlook in Q4 and 2027, we continue to return idle manufacturing lines to production and to recruit new employees to meet the higher production rates.

Speaker #4: Thanks, Kurt. Hello everyone, and thank you for joining us today for HEXCEL's Q3 2026 earnings call. Beginning with slide 4 of the slide deck, increasing customer demand across commercial aerospace, defense and space continues to provide a strong, long-term outlook for the advanced lightweight material HEXCEL provides.

Speaker #4: As commercial aircraft production rates recover, and we work to capture defense and space growth, our focus is on executing the ramp to deliver for customers and capture the significant growth opportunities ahead.

Speaker #4: As discussed in our previous earnings call, Q3 results reflected the typical seasonality we experienced during the summer months, with extended European holidays. With a strong demand outlook in Q4 in 2027, we continue to return idle manufacturing lines to production and to recruit new employees to meet the higher production rates.

Tom Gentile: While restarting production lines and hiring new workers to support the production rate ramp pressures margins in the short term, it positions Hexcel to benefit from greater operating leverage in future periods. Hexcel has a compelling value proposition with a broad and differentiated portfolio of advanced lightweight composite material solutions, decades of technical expertise, vertically integrated capabilities at scale, and long-standing relationships with leading aerospace and defense manufacturers. We are also building relationships with new market entrants, including defense tech, space and commercial aerospace companies. These strengths position us well as customers increase production and introduce new platforms that drive demand for Hexcel's lightweight, high-performance materials. In Q3, referring to slide 5, Hexcel generated sales of $496 million, up 9% from the same period last year.

Speaker #4: While restarting production lines and hiring new workers to support the production rate ramp pressures margins in the short term, it positions Hexcel to benefit from greater operating leverage in future periods.

Speaker #4: HEXCEL has a compelling value proposition with a broad and differentiated portfolio of advanced lightweight composite material solutions, decades of technical expertise, vertically integrated capabilities at scale, and longstanding relationships with leading aerospace and defense manufacturers.

Speaker #4: We are also building relationships with new market entrants, including defense tech, space and commercial aerospace companies. These strengths position us well as customers' increased production and introduced new platforms that drive demand for HEXCEL's lightweight, high-performance materials.

Speaker #4: In the Q3, referring to slide 5, HEXCEL generated sales of $496 million up 9% from the same period last year, adjusted operating margin for 11% up from $9.8% compared to the Q3 in 2025, and adjusted diluted earnings per share of $0.50 compared with $0.37 in the Q3 of last year.

Tom Gentile: Adjusted operating margins were 11%, up from 9.8% compared to Q3 in 2025, and adjusted diluted earnings per share of $0.50 compared with $0.37 in Q3 of last year. Turning to slide 6. Commercial aerospace sales were $330 million for the quarter, up 21% year-over-year. Volumes increased across all our major commercial platforms, including the Airbus A350, the A320neo, the Boeing 787, and the 737 MAX. As we have pointed out previously, Hexcel is an upstream materials supplier and generally ships several months ahead of final aircraft assembly. We manage the business based on production demand and purchase orders we receive, not reported OEM aircraft deliveries. The demand signals we see continue to support the production ramp and our current hiring plans.

Speaker #4: Turning to slide 6, commercial aerospace sales were $330 million for the quarter, up 21% year over year. Volumes increased across all our major commercial platforms, including the Airbus A350, the A320neo, the Boeing 787, and the 737 MAX.

Speaker #4: As we have pointed out previously, Hexcel is an upstream materials supplier and generally ships several months ahead of final aircraft assembly. We manage the business based on production demand and purchase orders we receive, not reported OEM aircraft deliveries.

Speaker #4: The demand signals we see continue to support the production ramp and our current hiring plans. Consequently, we are reaffirming our financial guidance for 2026, with revenues between $2.025 billion and $2.15 billion diluted EPS of $2.30 to $2.40 and free cash flow greater than $195 million.

Tom Gentile: Consequently, we are reaffirming our financial guidance for 2026, with revenues between $2.025 billion and $2.15 billion, diluted EPS of $2.30 to $2.40, and free cash flow greater than $195 million. Specifically on the A350, purchase orders received through year-end 2026 support our guidance of at least 80 ship sets. Looking into 2027, current demand signals indicate around 100 A350 ship sets. As we prepare for that step-up in production, we will do so with a focus on maintaining the safety, quality, and delivery performance our customers expect. Turning to defense and space and other on slide 7. Sales for this market were $166 million for the quarter. The year-over-year decline primarily reflects the previously disclosed divestiture of our non-core industrial business in Austria and closure of non-core industrial operations at our Leicester, UK, facility.

Speaker #4: Specifically on the A350, purchase orders received through year-end 2026 support our guidance of at least 80 ship sets. Looking into 2027, current demand signals indicate around 100 A350 ship sets.

Speaker #4: As we prepare for that step-up in production, we will do so with a focus on maintaining the safety, quality, and delivery performance our customers expect.

Speaker #4: Turning to defense and space and other, on slide 7, sales for this market were $166 million, for the quarter, the year-over-year decline primarily reflects the previously disclosed divestiture of our non-core industrial business in Austria, and closure of non-core industrial operations at our Leicester UK facility.

Tom Gentile: These actions streamlined our footprint and increased our focus on niche industrial markets that value Hexcel's high-performance aerospace-grade composite materials. Sales in defense and space were also impacted by temporary softness in space launchers and rocket motors in the US market, a slow quarter for the F-35 program from timing and customer schedule shifts, and a slower quarter for the Rafale from summer sales seasonality. The defense and space market is a strategic priority for organic growth with its compelling long-term potential. Government budgeting, procurement, and program funding can take time to translate into production and ultimately sales, particularly for companies further back in the supply chain, such as Hexcel. We have strong positions across rotorcraft, fixed wing, and other programs with traditional defense primes, many of which are expected to be in service for decades. Also, we are expanding our work with new aerospace and defense entrants.

Speaker #4: These actions streamlined our footprint and increased our focus on niche industrial markets that value Hexcel's high-performance, aerospace-grade composite materials. Sales in defense and space were also impacted by temporary softness in space launchers and rocket motors in the U.S. market, a slow quarter for the F-35 program due to timing and customer schedule shifts, and a slower quarter for the Rafale from summer sales seasonality.

Speaker #4: The defense and space market is a strategic priority for organic growth, with its compelling, long-term potential. Government budgeting, procurement, and program funding can take time to translate into production and ultimately sales, particularly for companies further back in the supply chain such as HEXCEL.

Speaker #4: We have strong positions across rotorcraft, fixed wing, and other programs with traditional defense primes, many of which are expected to be in service for decades.

Speaker #4: Also, we are expanding our work with new aerospace and defense entrants. HEXCEL's advanced lightweight materials provide the high-performance required for defense and space platforms, and we are confident in long-term demand in this market.

Tom Gentile: Hexcel's advanced lightweight materials provide the high performance required for defense and space platforms, and we are confident in long-term demand in this market. Taken together, these demand trends across our portfolio support a promising growth trend. As Airbus and Boeing reach their publicly announced peak production rates, we expect approximately $500 million in incremental commercial aerospace sales annually from our existing contracts compared to fiscal year 2025 sales. We also see approximately $200 million in additional growth opportunities across defense and space, regional and business jets. As these higher volumes move through our existing capacity, we will realize better fixed cost absorption that will generate greater operating leverage. Combined with pricing increases as contracts renew, productivity improvements, and disciplined cost control, the production ramp provides a path to approximately 18% adjusted operating margins before the end of the decade.

Speaker #4: Taken together, these demand trends across our portfolio support a promising growth trend. As Airbus and Boeing reach their publicly announced peak production rates, we expect approximately $500 million in incremental commercial aerospace sales annually from our existing contracts compared to fiscal year 2025 sales.

Speaker #4: We also see approximately $200 million of additional growth opportunities across defense and space, regional, and business shifts. As these higher volumes move through our existing capacity, we will realize better fixed-cost absorption, which will generate greater operating leverage.

Speaker #4: Combined with pricing increases as contracts renew, productivity improvements, and disciplined cost control, the production ramp provides a path to approximately 18% adjusted operating margins before the end of the decade.

Tom Gentile: We also see potential upside beyond that 18% as we focus more aggressively on pricing that reflects the value we deliver and the barriers to entry that exist to produce lightweight aerospace-grade carbon fiber composites. I have asked Jamie to take the lead on driving a multiyear margin expansion initiative, which we will describe in more detail on future calls. Looking at capital allocation, our cash generation profile allows us to invest in the business while maintaining a strong balance sheet. Barring the increase in debt from our accelerated share repurchase last October, we are on track to return our leverage to our targeted range of 1.5 to 2 times net debt to adjusted EBITDA by the end of 2026.

Speaker #4: We also see potential upside beyond that 18% as we focus more aggressively on pricing that reflects the value we deliver and the barriers to entry that exist to produce lightweight, aerospace-grade carbon fiber composite.

Speaker #4: I have asked Jamie to take the lead on driving a multi-year margin expansion initiative, which we will describe in more detail on future calls.

Speaker #4: Looking at capital allocation, our past generation profile allows us to invest in the business while maintaining a strong balance sheet. Following the increase in debt from our accelerated share repurchase last October, we are on track to leverage to return our leverage to our targeted range of $1.5 to 2 times net debt-to adjusted EBITDA by the end of 2026.

Tom Gentile: Reflecting confidence in Hexcel's growth and cash generation potential, our board has increased the share repurchase authorization to $750 million from the $381 million remaining as of 30 September of this year. We will evaluate share repurchases once we return to our targeted leverage range sometime during Q4 of 2026. Also, as we announced last night, the board has declared a quarterly dividend of $0.18 per share. On slide 8, turning to innovation, our team recently attended CAMX, the largest composite and advanced materials show in North America. We engaged with customers, suppliers, and industry partners at the event, demonstrating how Hexcel's advanced materials and vertically integrated operations support growing demand for commercial aerospace, defense, and space platforms. At CAMX, we announced three advances across our honeycomb and prepreg portfolio.

Speaker #4: Reflecting confidence in HEXCEL's growth and cash generation potential, our board has increased the share repurchase authorization to $750 million, from the $381 million remaining as of September 30 of this year.

Speaker #4: We will evaluate share repurchases once we return to our targeted leverage range, sometime during Q4 of 2026. Also, as we announced last night, the board has declared a quarterly dividend of $0.18 per share.

Speaker #4: On slide 8, turning to innovation, our team recently attended CAMEX, the largest composite and advanced materials show in North America. We engaged with customers, suppliers, and industry partners at the event, demonstrating how HEXCEL's advanced materials and vertically integrated operations support growing demand for commercial aerospace defense and space platforms.

Speaker #4: At CAMEX, we announced three advances across our Honeycomb and Prepreg portfolio. The announcements highlighted how Hexcel innovation enables customers to build next-generation platforms that are lighter and stronger, and can be manufactured faster at higher rates.

Tom Gentile: The announcements highlighted how Hexcel innovation enables customers to build next-generation platforms that are lighter and stronger and can be manufactured faster at higher rates. This focus on material and manufacturing innovation supports broader adoption of Hexcel advanced composites and positions us to secure positions on future aerospace and space platforms. The lower image you see on slide 8 is an aerospace honeycomb that we recently qualified with an aerospace database called NCAMP, which is part of NIAR at Wichita State University, which enables engineers at our customers and prospective customers to evaluate design-ready products. This is one example of how we are supporting new A&D entrants as we streamline the process for evaluating and adopting our composite solutions.

Speaker #4: This focus on material and manufacturing innovation supports broader adoption of Hexcel advanced composites and positions us to secure opportunities on future aerospace and space platforms.

Speaker #4: The lower image you see on slide 8 is an aerospace honeycomb that we recently qualified with an aerospace database called NCAMP, which is part of NIARA, to which— to State University, which enables engineers at our customers and prospective customers to evaluate design-ready products.

Speaker #4: This is one example of how we are supporting new A&D entrants as we streamline the process for evaluating and adopting our composite solutions. To summarize before I turn the call over to Jamie, the third quarter reflected normal summer seasonality, the restart of idle production lines, and our accelerated hiring to meet rising customer demand.

Tom Gentile: To summarize before I turn the call over to Jamie, the Q3 reflected normal summer seasonality, the restart of idle production lines, and our accelerated hiring to meet rising customer demand. At the same time, commercial aerospace sales volumes continued to increase with a 21% increase. The production rate recovery is taking hold, and we are continuing to focus on execution to meet the rate ramps. Our differentiated portfolio, technical expertise, strong global reputation, and deep customer relationships, combined with our global manufacturing footprint, positions us well to capture growth, improve operating leverage, and generate cash going forward. This supports our confidence in Hexcel's long-term outlook and reinforces our 2026 financial guidance. With that, I'll turn the call over to Jamie to discuss the Q3 financial results in more detail. Jamie?

Speaker #4: At the same time, commercial aerospace sales volumes continued to increase from the 21% increase. The production rate recovery is taking hold, and we are continuing to focus on execution to meet the rate ramps.

Speaker #4: Our differentiated portfolio, technical expertise, strong global reputation, and deep customer relationships, combined with our global manufacturing footprint, position us well to capture growth, improve operating leverage, and generate cash going forward.

Speaker #4: This supports our confidence in Hexcel's long-term outlook and reinforces our 2026 financial guidance. With that, I'll turn the call over to Jamie to discuss the third quarter financial results in more detail.

Speaker #4: Jamie?

Jamie Coogan: Thank you, Tom. I've now been with Hexcel about 6 months, and as you heard Tom comment, the key priority and focus for me is margin expansion. I'm working very closely with our global team to improve price realization while tightly managing our costs and continuous improvement efforts to expand our operating margins. While it's too soon to provide specific details and actions of these initiatives, we continue to see the benefits of price in our margins during 2026. Now turning to our financial results for the period, starting with slide 9. Q3 2026 sales of $496 million grew 8.8%. Strong commercial aerospace growth was partially offset by lower defense, space, and other sales. By market, commercial aerospace sales for the Q3 of 2026 were $330 million, an increase of 21% compared to the Q3 of 2025. Commercial aerospace comprised approximately 67% of the total quarterly sales.

Speaker #3: Thank you, Tom. I've now been with HEXCEL about six months, and as you heard Tom comment, the key priority and focus for me is margin expansion.

Speaker #3: I'm working very closely with our global team to improve price realization, while tightly managing our costs and continuous improvement efforts to expand our operating margins.

Speaker #3: While it is too soon to provide specific details and actions of these initiatives, we continue to see the benefits of pricing in our margins during 2026.

Speaker #3: Now turning to our financial results for the period, starting with slide 9. Third quarter 2026 sales of $496 million grew 8.8%. Strong commercial aerospace growth was partially offset by lower defense, space, and other sales.

Speaker #3: By market, commercial aerospace sales for the third quarter of 2026 were $330 million. An increase of 21% compared to the third quarter of 2025.

Speaker #3: Commercial aerospace comprised approximately 67% of the total quarterly sales. All four of our primary platforms grew year over year, including A350, 787, A320neo, and 737max, as Airbus and Boeing continue to ramp their aircraft production.

Jamie Coogan: All four of our primary platforms grew year over year, including A350, 787, A320neo, and 737 MAX, as Airbus and Boeing continue to ramp their aircraft production. Sales for other commercial aerospace in the Q3 increased 1% year over year. Defense, space, and other Q3 sales of $166 million represented approximately 33% of total sales. Q3 sales decreased 9% on lower space volume, the two fighters programs that Tom described, and the absence of sales from the industrial businesses we exited in 2025 and 2026. Lower space volume was largely attributable to lower launchers and rocket motors, which are going through a temporary soft spot due to some unique industry dynamics here in the US.

Speaker #3: Sales for other commercial aerospace in the third quarter increased 1% year over year. Defense space and other third-quarter sales of $166 million represented approximately 33% of total sales.

Speaker #3: Third-quarter sales decreased 9% on lower space volume, the 2 fighter programs that Tom described, and the absence of sales from the industrial businesses we exited in 2025 and 2026.

Speaker #3: Lower space volume was largely attributable to lower launchers and rocket motors, which are going through a temporary soft spot due to some unique industry dynamics here in the U.S.

Jamie Coogan: As a reminder, we have exited non-core industrial markets through the divestment of the Austrian industrial business on 30 September 2025, and the winding down of the industrial business at our Leicester, UK site earlier this year. Our industrial business is now solely focused on niche industrial opportunities that demand high performance of aerospace-grade composite solutions. Gross margin of 23.3% in Q3 2026 increased from 21.9% in Q3 2025 on improved operating leverage and price realization. The use of hedges and procurement contracts continues to mute the near-term impact of higher oil prices. If oil remains elevated, the impact to energy and AN costs will be layered into our business over time.

Speaker #3: As a reminder, we have exited non-core industrial markets through the development of the Austrian industrial business on September 30, 2025, and the winding down of the industrial business at our Leicester, UK site earlier this year.

Speaker #3: Our industrial business is now solely focused on niche industrial opportunities that demand high performance of aerospace-grade composite solutions. Gross margin of 23.3% in the third quarter of 2026 increased from 21.9% in the third quarter of 2025 on improved operating leverage and price realization.

Speaker #3: The use of hedges and procurement contracts continues to mute the near-term impact of higher oil prices. If oil remains elevated, the impact to energy and cost will be layered into our business over time.

Jamie Coogan: I would also like to remind listeners that Hexcel is vertically integrated with value added all along the production process, and that we have a broad product line in addition to carbon fiber. AN is not a significant driver of our cost base at only low single digits as a percentage of sales. Of course, the flip side of elevated oil prices is that higher energy costs further drive the value proposition for lightweight Hexcel composites to support aircraft fuel efficiency. As a percentage of sales, SG&A expenses were 9% in Q3 2026, unchanged from the comparable prior year period. R&D expenses were 3.3% in Q3 2026, compared to 3.1% in Q3 2025, as we continue to drive innovation to position Hexcel to win work packages on next-generation platforms, including the next gen single-aisle aircraft under development.

Speaker #3: I would also like to remind listeners that HEXCEL is vertically integrated, with value added all along the production process, and that we have a broad product line in addition to carbon fiber.

Speaker #3: AN is not a significant driver of our cost base at only low single digits as a percentage of sales. And of course, the flip side of elevated oil prices is that higher energy costs further drive the value proposition for lightweight HEXCEL composites to support aircraft fuel efficiency.

Speaker #3: As a percentage of sales, selling general and administrative expenses were 9% in the third quarter of 2026, unchanged from the comparable prior year period.

Speaker #3: R&D expenses were 3.3% in the third quarter of 2026 compared to 3.1% in the third quarter of 2025, as we continue to drive innovation to position HEXCEL to win work packages on next-generation platforms, including the next-gen single-aisle aircraft under development.

Jamie Coogan: Foreign exchange remains a headwind year-over-year due to the weaker dollar. Q3 2026 operating margin was negatively impacted by approximately 30 basis points due to foreign exchange. Adjusted operating income in Q3 was $54 million, or 11% of sales, compared to $45 million or 9.8% of sales in the comparable prior year period. Adjusted EBITDA totaled $304 million or 19.9% of sales for the nine months ended 30 September 2026. This compares to $249 million or 17.8% of sales for the nine months ended 30 September 2025. As a reference, trailing 12 months adjusted EBITDA through 30 September 2026 was $401 million. Adjusted EPS of $0.50 increased 35% from the comparable prior year period on volume and price and was also supported by a lower tax rate.

Speaker #3: Foreign exchange remains a headwind year over year due to the weaker dollar. Third quarter 2026 operating margin was negatively impacted, by approximately 30 basis points due to foreign exchange.

Speaker #3: Adjusted operating income in the third quarter was $54 million, or 11% of sales, compared to $45 million, or 9.8% of sales in the comparable prior year period.

Speaker #3: Adjusted EBITDA totaled $304 million, or 19.9% of sales, for the nine-month period ended September 30, 2026. This compares to $249 million, or 17.8% of sales, for the nine-month period ended September 30, 2025.

Speaker #3: And as a reference, trailing twelve months adjusted EBITDA through September 30, 2026, was $401 million. Adjusted EPS of $0.50 increased 35% from the comparable prior year period on volume and price, and was also supported by a lower tax rate.

Jamie Coogan: Q3 tax rate largely benefited from the implementation of tax planning strategies in the quarter, resulting in a true-up to our rate for the full year. Of course, a lower tax rate leads to lower cash taxes. Now turning to our segments. Per slide 10, the Composite Materials segment represented 79% of total Q3 sales and generated an adjusted operating margin of 14.6%. This compares to an adjusted operating margin of 11.2% in the prior year period. The Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 21% of total sales and generated an adjusted operating margin of 11.8%. This compares to an adjusted operating margin of 15.5% in the prior year period.

Speaker #3: Third-quarter tax rate largely benefited from the implementation of tax planning strategies in the quarter resulting in a true-up to our quarter for the full year.

Speaker #3: Sorry, a true-up to our rate for the full year. And, of course, a lower tax rate leads to lower cash taxes. Now, turning to our segments—per slide 10—the Composite Materials segment represented 79% of total third-quarter sales and generated an adjusted operating margin of 14.6%.

Speaker #3: This compares to an adjusted operating margin of 11.2% in the prior year period. The Engineered Products segment, which is comprised of our Structures and Engineered Core businesses, represented 21% of total sales and generated an adjusted operating margin of 11.8%.

Speaker #3: This compares to an adjusted operating margin of 15.5% in the prior year period. Net cash provided by operating activities in the first nine months of 2026 was $171 million, compared to $105 million in the first nine months of 2025.

Jamie Coogan: Net cash provided by operating activities in the first 9 months of 2026 was $171 million, compared to $105 million in the first 9 months of 2025. Working capital was a cash use of $78 million in the first 9 months of 2026, compared to a cash use of $64 million in the first 9 months of 2025. Capital expenditures on an accrual basis for the first 9 months of 2026 were $61 million, compared to $50 million in the comparable prior year period. Now turning to slide 11. Free cash flow in the 9 months ended 30 September 2026 was $103 million, compared to $50 million in the 9 months ended 30 September 2025. Leverage, defined as net debt to last 12 months adjusted EBITDA, was about 2.1 times at 30 September 2026, which compares favorably to the year-end 2025 leverage of just under 2.7 times.

Speaker #3: Working capital was a cash use of $78 million in the first nine months of 2026, compared to a cash use of $64 million in the first nine months of 2025.

Speaker #3: Capital expenditures on an accrual basis for the first nine months of 2026 were $61 million, compared to $50 million in the comparable prior year period.

Speaker #3: Now turning to slide 11, free cash flow in the nine-months end of September 30, 2026 was $103 million, compared to $50 million in the nine-months end of September 30, 2025.

Speaker #3: Leverage, defined as net debt to last 12 months adjusted EBITDA, was about 2.1 times at September 30, 2026, which compares favorably to the year-end 2025 leverage of just under 2.7 times.

Jamie Coogan: We are on track to return to our target leverage ratio of 1.5 to 2 times during the Q4 of 2026. The company did not repurchase any shares of common stock in the Q3 of 2026, with the remaining authorization under our program as of 30 September 2026 totaling $381 million. As Tom noted earlier, yesterday the Board of Directors increased our share repurchase authorization to $750 million, and we will look to recommence our share repurchase activity once we have reached our target leverage level. In addition, yesterday the Board of Directors declared an $0.18 quarterly dividend. The dividend is payable to stockholders of record as of 2 November with a payment date of 9 November. Finally, on slide 12, as Tom highlighted, our 2026 financial guidance is reaffirmed and unchanged. With that, let me turn the call back to Tom.

Speaker #3: We are on track to return to our target leverage ratio of 1.5 to 2.0 times during the fourth quarter of 2026. The company did not repurchase any shares of common stock in the third quarter of 2026, with the remaining authorization under our program as of September 30, 2026, totaling $381 million.

Speaker #3: As Tom noted earlier, yesterday the Board of Directors increased our share repurchase authorization to $750 million. We will look to recommence our share repurchase activities once we've reached our target leverage levels.

Speaker #3: In addition, yesterday, the Board of Directors declared a $0.18 quarterly dividend. The dividend is payable to stockholders of record as of November 2, with a payment date of November 9.

Speaker #3: Finally, on slide 12, as Tom highlighted, our 2026 financial guidance is reaffirmed and unchanged. With that, let me turn the call back to Tom.

Tom Gentile: Thanks, Jamie. Let me close with a few key takeaways from the quarter on page 13. Customer demand continues to increase, and we are restarting idle lines early and investing now in hiring people to prepare Hexcel for higher production levels in 2027 and beyond. These hiring and training costs do impact near-term margins, but they position us to execute the production ramp and deliver for our customers. As higher volumes move through our existing capacity, we will benefit from improved cost absorption and operating leverage. Importantly, we are maintaining our fiscal guidance in 2026. We see the production rate ramp up continuing into 2027 with very strong demand. Our initial outlook on the A350, our largest program, is that we will deliver around 100 ship sets in 2027, approximately a 25% increase over 2026.

Speaker #2: Thanks, Jamie. Let me close with a few key takeaways from the quarter on page 13. Customer demand continues to increase, and we are restarting idle lines early and investing now in hiring people to prepare Hexcel for higher production levels in 2027 and beyond.

Speaker #2: These hiring and training costs do impact near-term margins, but they position us to execute the production ramp and deliver for our customers. As higher volumes move through our existing capacity, we will benefit from improved cost absorption and operating leverage.

Speaker #2: Importantly, we are maintaining our fiscal guidance in 2026. We see the production rate ramp up continuing into 2027, with very strong demand. Our initial outlook on the A350, our largest program, is that we will deliver around 100 chip sets in 2027, approximately a 25% increase over 2026.

Tom Gentile: We also remain on track to achieve our target leverage of less than 2 times net debt to EBITDA, and our board of directors has approved an increase in our share repurchase authorization to $750 million. As the OEMs reach their target levels of production for each program, we have a clear path to return our margins to the pre-pandemic level of 18%, with upside based on the price realization that we are now seeing in the market. With our differentiated portfolio, technical capabilities, and strong customer positions, we are confident in Hexcel's ability to convert this growth into stronger margins, cash generation, and long-term value for our stockholders. With that, Hillary, we are now ready to take questions.

Speaker #2: We also remain on track to achieve our target leverage of less than 2 times net debt to EBITDA and our board of directors has approved an increase in our share repurchase authorization to $750 million.

Speaker #2: As the OEMs reach their target levels of production for each program, we have a clear path to return our margins to the pre-pandemic level of 18%, with upside based on the price realization that we are now seeing in the market.

Speaker #2: With our differentiated portfolio, technical capabilities, and strong customer positions, we are confident in Hexcel's ability to convert this growth into stronger margins, cash generation, and long-term value for our stockholders.

Speaker #2: With that, Hillary, we are now ready to take questions.

Operator 2: Thank you. We will now begin the question and answer session. For the courtesy of others who would like to ask a question, please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Michael Ciarmoli from Guggenheim Securities. Your line is open. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. For the courtesy of others who would like to ask a question, please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Michael Ciarmoli from Guggenheim Securities. Your line is open. Please go ahead.

Speaker #1: Thank you. We will now begin the question-and-answer session. For the courtesy of others who would like to ask a question, please limit yourself to one question and one follow-up.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, please press *1 again.

Speaker #1: We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Speaker #1: Please stand by while we compile the Q&A roster. Your first question comes from Michael Termolli from Guggenheim Securities. Your line is open.

Speaker #1: Please go ahead.

Michael Ciarmoli: Hey, morning guys. Thanks for taking the question. Tom or Jamie, just on the A350, the 25% increase next year, you guys have obviously been producing ahead of what Airbus has been delivering. It sounds like you are pretty confident in the line of sight there. Is there any risk of sort of a destock situation or that you would be slowed down at all? Then I guess just tying in with the ramp on the A350, that is your biggest program, kind of points to incremental revenue of almost $100 million. It is the most margin-rich content. So should we expect any disproportionately higher margin expansion next year on maybe better incrementals as that program ramps? Thanks.

Speaker #4: Hey, morning, guys. Thanks for taking the question. Tom or Jamie, just on the A350—the 25% increase next year—you guys have obviously been producing ahead of what Airbus has been delivering.

Speaker #4: It sounds like you're pretty confident in the line of sight there. Is there any risk of sort of a destock situation, or that you would be slowed down at all?

Speaker #4: And then, I guess, just tying in with the ramp on the A350—I mean, that's your biggest program—it kind of points to incremental revenue of almost $100 million.

Speaker #4: It's the most margin-rich content. So, should we expect any disproportionately higher margin expansion next year on maybe better incrementals as that program ramps? Thanks.

Tom Gentile: Right. So obviously the A350, this year so far, through September, had delivered 38 units. We have been calling 80 units all year in terms of our guidance. We feel confident in that because we have firm purchase orders now that go right through the end of the year. As we stated, we are a material supplier, so we are well upstream, at least 6 months ahead of Airbus. So the material we are delivering today is not for deliveries today, obviously, it is for deliveries next June and July. So, that is one thing, is that we still see a very high probability that 80 is the right number for this year. The reason we are saying 100 for next year is really we are triangulating a number of different signals.

Speaker #2: Right. So, obviously, the A350 this year, so far through September, had delivered 38 units. We've been calling 80 units all year in terms of our guidance.

Speaker #2: And we feel confident in that because we have firm purchase orders now that go right through the end of the year. And as we stated, we are a material supplier, so we're well upstream—at least six months ahead of Airbus.

Speaker #2: So the material we're delivering today is not for deliveries today, obviously, it's for deliveries next June and July. So that's one thing is that we still see very high probability that 80 is the right number for this year.

Speaker #2: And the reason we're saying 100 for next year is really we're triangulating a number of different signals. First of all, Airbus has publicly stated they're still on track to have 12 aircraft per month by 2028.

Tom Gentile: First of all, Airbus has publicly stated they are still on track to have 12 aircraft per month by 2028, and that next year is going to be right in line with that. The other thing is we have their skyline. They give us the long-term schedule that goes out 2 or 3 years, and that is consistent with the 100 deliveries next year. In addition, we do supplier surveys of all the 15 or so sites around the world that take A350 material, and we ask them what are they seeing in terms of their outlook and their near-term demand, and they are also confirming that 100 next year is a good number. Also, some of the initial purchase orders that we already have in place for next January and February reinforce that number.

Speaker #2: And that next year is going to be right in line with that. The other thing is, we have their Skyline. They give us the long-term schedule that goes out two or three years.

Speaker #2: And that's consistent with the 100 deliveries next year. In addition, we do supplier surveys of all the 15 or so sites around the world that take A350 material.

Speaker #2: And we ask them what they are seeing in terms of their outlook and their near-term demand, and they are also confirming that 100 next year is a good number.

Speaker #2: And then also, some of the initial purchase orders that we already have in place for next January and February reinforce that number. So we feel confident that 100 is a good number and that we will not see de-stocking next year. And, of course, 2028 is even going to be higher.

Tom Gentile: We feel confident that 100 is a good number and that we will not see destocking next year. 2028 is even going to be higher. We will not get into those numbers just yet, but we see a steady increase as Airbus proceeds towards 12 aircraft per month in 2028, which is their target. In terms of margin expansion on the A350, as it expands, it obviously helps us in terms of our fixed cost absorption and getting more operating leverage, and that will have a positive impact on margins, yes.

Speaker #2: We won't get into those numbers just yet, but we see a steady increase as Airbus proceeds toward 12 aircraft per month in 2028, which is their target.

Speaker #2: Now, in terms of margin expansion on the A350, as it expands, it obviously helps us in terms of our fixed cost absorption and getting more operating leverage.

Speaker #2: And so that will have a positive impact on margins, yes.

Michael Ciarmoli: Okay, great. Thanks, guys. I will jump back in the queue.

Speaker #4: Great. Thanks, guys. I'll jump back in the queue.

Tom Gentile: Okay, thanks, Michael.

Operator 2: Thank you. Your next question comes from the line of Gavin Parsons from UBS. Your line is open. Please go ahead.

Operator: Thank you. Your next question comes from the line of Gavin Parsons from UBS. Your line is open. Please go ahead.

Speaker #2: Okay. Thanks, Mike.

Speaker #3: Thank you.

Speaker #1: Your next question comes from the line of Gavin Parsons from UBS. Your line is open. Please go ahead.

Gavin Parsons: Hey, thank you. Good morning.

Speaker #4: Hey, thank you. Morning.

Tom Gentile: Good morning.

Speaker #3: Good morning.

Gavin Parsons: Is it possible to quantify the magnitude of the accelerated investment of growth this year? Then specifically looking at corporate, I think that lines up $17 million year to date. Just what you are assuming for corporate expense this year, and what is a good run rate level? Thank you.

Speaker #4: Is it possible to quantify the magnitude of the accelerated investment of growth this year and then specifically looking at corporate? I think that lines up 17 million dollars year to date.

Speaker #4: So, just what you’re assuming for corporate expense this year, and what’s a good run rate level? Thank you.

Tom Gentile: Well, one way to quantify the investment we are making, I think, a good surrogate would be headcount. We have to hire new heads to support the line. So, between last year and this year, we have moved forward 3 of our carbon fiber lines and started them up early. Obviously we have to hire to support that, but we also have to support all of our other products, our engineered core, our structures, and so forth. At the beginning of this year, we said that we were going to hire 400 people over the course of the year. Well, as of the end of September, we had hired about 525, so we were already well ahead of the pace. By the end of the year, we will probably hire another couple hundred more to support all the production that we see next year.

Speaker #2: Right. Well, one way to quantify the investment we're making—I think a good surrogate would be headcount. We have to hire new heads to support the line.

Speaker #2: So between last year and this year, we've moved forward 3 of our carbon fiber lines. And started them up early. And obviously, we have to hire to support that.

Speaker #2: But we also have to support all of our other products, our engineered core, our structures, and so forth. And so at the beginning of this year, we said that we were going to hire 400 people over the course of the year.

Speaker #2: Well, as of the end of September, we'd hired about 525. So we were already well ahead of the pace. And by the end of the year, we'll probably hire another couple hundred more.

Speaker #2: To support all the production that we see next year. So that gives you some indication of the level of investment that we're making. And in terms of corporate expense, the SG&A, as Jamie said, was about 9% of sales, which was consistent with where it was last year.

Tom Gentile: So that gives you some indication of the level of investment that we are making. In terms of corporate expense, the SG&A, as Jamie said, was about 9% of sales, which was consistent with where it is last year. As our production goes up and our revenues increase, we do not expect that corporate costs are going to go up at the same level. We are targeting to get back to our 6.5% to 7% SG&A as a percent of total sales as we get up to the full rates of production.

Speaker #2: As our production goes up and our revenues increase, we don't expect that corporate costs are going to go up at the same level. And so, we're targeting to get back to our 6.5% to 7% SG&A as a percent of total sales as we get up to the full rates of production.

Gavin Parsons: Got it. Thank you.

Speaker #4: Got it. Thank you.

Tom Gentile: You are welcome.

Speaker #2: Okay. Welcome.

Operator 2: Your next question comes from the line of Scott Mikus from Melius Research. Your line is open.

Operator: Your next question comes from the line of Scott Mikus from Melius Research. Your line is open.

Speaker #1: Your next question comes from the line of Scott Mikus from Melias Research. Your line is open. Go ahead.

Scott Mikus: Morning, Tom.

Scott Mikus: Please go ahead.

Operator: Please go ahead.

Tom Gentile: Morning, Scott.

Scott Mikus: Morning, Tom. Toray has signaled that it wants to get onto the A350 program eventually. Just curious how you are thinking about that when it comes to pricing as that LTA comes due in 2030, but also the capital investments you would need to make on that program, because it seems like Airbus is going to take the production rate above 12 per month, maybe into the mid-teens at some point. Does it make sense to invest more in CapEx if Airbus is potentially going to shift some share to Toray?

Speaker #2: Good morning, Scott.

Speaker #4: Good morning, Tom. Good morning. Tom, Tori is signaling that it wants to get onto the A350 program eventually. Just curious how you're thinking about that when it comes to pricing.

Speaker #4: Is that LTA comes due in 2030, but also the capital investments you would need to make on that program, because it seems like Airbus is going to take the production rate above 12 per month.

Speaker #4: Maybe into the mid-teens at some point. So, does it make sense to invest more in CapEx if Airbus is potentially going to shift some share to Tori?

Tom Gentile: Well, Scott, what I would say is material systems are very complex. They require a lot of validation of the material system itself and certification into the airplane. Those things take years. Then you would have to industrialize it. I think it is very difficult to change a material system, certainly for any primary or secondary structure. So that is one thing to take into account. In terms of capital investments, we are capitalized sufficiently with the production lines that we have in place to achieve the 12 aircraft per month that Airbus has indicated by 2028. If they go above that would require probably another carbon fiber line in the early 2030s. We would be in discussions with Airbus well in advance. It is probably about a 3-year lead time or something like that, and we would be in discussions with them well in advance of that.

Speaker #2: Well, Scott, what I would say is material systems are very complex. They require a lot of validation of the material system itself and certification into the airplane.

Speaker #2: Those things take years. Then you would have to industrialize it. I think it's very difficult to change a material system. Certainly for any primary or secondary structure.

Speaker #2: So that's one thing to take into account. In terms of capital investments, we are capitalized sufficiently with the production lines that we have in place.

Speaker #2: To achieve the 12 aircraft per month that Airbus has indicated by 2028. If they go above that, that would probably require another carbon fiber line.

Speaker #2: In the early 2030s. And so, we would be in discussions with Airbus well in advance. It's probably about a three-year lead time for something like that.

Speaker #2: And we would be in discussions with them well in advance of that. So that's the way I would say it is. We don't need any production to achieve the target production levels that they have right now, which is 12 aircraft per month by 2028.

Tom Gentile: So that is the way I would say it, is we do not need any production to achieve the target production levels that they have right now, which is 12 aircraft per month by 2028. If they go above that in the early 2030s, we would talk with them about that at that time.

Speaker #2: If they go above that in the early 2030s, we would talk with them about that at that time.

Scott Mikus: Okay. Got it. Thank you.

Speaker #4: Okay. Got it. Thank you.

Tom Gentile: Got it. Thanks.

Speaker #3: Got it. Thanks.

Operator 2: Your next question comes from the line of Richard Safran from Seaport Research Partners. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Richard Safran from Seaport Research Partners. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Richard Saffron from Seaport Research Partners. Your line is open. Please go ahead.

Richard Safran: Thanks. Good morning. I wanted to ask you guys about rotorcraft. There is a bit of concern out there. Army aviation budgets are under some pressure in the fiscal 2027 request. I want to know what, if anything, does that mean for Hexcel next year? Part two of that question is that, you have mentioned CH-53K, UH-60, and more recently, the MV-75. I just wanted to know what you are baking into your outlook here. Thank you.

Speaker #5: Thanks. Good morning. So, I wanted to ask you guys about rotorcraft. It's a bit of concern out there. Army aviation budgets are under some pressure in the Fiscal '27 request.

Speaker #5: So, I want to know if you could go into what, if anything, that means for Excel next year. And part two of that question is, you've mentioned CH-53K, UH-60, and more recently, the V-75.

Speaker #5: I just wanted to know what you're baking into your outlook here. Thank you.

Tom Gentile: Well, rotorcraft is a very big product segment for us, and as you indicated, the CH-53K is our biggest program. We have about $2.5 million to $3.5 million per ship set on the CH-53K. We have the whole material system, all the carbon fiber, all the resin, plus some of the structures as well. That aircraft, of course, is for the Marines, not the Army. That is one thing about it. It has got a program of record of 200 units, and we are on track. I think Sikorsky has indicated they want to get up to about 24 per year, and they are on pace to achieve that. That is going to be a good program for us for a long period of time.

Speaker #2: Right. Well, rotorcraft is a very big product segment for us. And as you indicated, the CH-53K is our biggest program. So we have about $2.5 to $3.5 million per ship set on the CH-53K.

Speaker #2: We have the whole material system, all the carbon fiber, all the resin, plus some of the structures as well. That aircraft, of course, is for the Marines, not the Army.

Speaker #2: And so that's one thing about it. It's got a program of record of 200 units, and we are on track. I think it's, of course, he's indicated they want to get up to about 24 per year.

Speaker #2: And they're on pace to achieve that. So that's going to be a good program for us for a long period of time. And in addition to the 200 sales program of record, they've also done some foreign military sales.

Tom Gentile: In addition to the 200 sales program of record, they have also done some foreign military sales, initially to Israel, about 15 or 16 units, and then possibly more in the future. That is in terms of rotorcraft, that is the Marines. On the Army, we still have a huge position with the Black Hawk. We do the spars. Our ship set value that we have talked about is between $200,000 and $500,000 per ship set. The Black Hawk, there are about 3,000 units in the US, and then there are a lot of units overseas. That program is likely to go for a very long time into the future. They already have firm orders through 2032. Not only do we do new production, but because we do the spars on the blade for the Black Hawk, there is a lot of aftermarket, too.

Speaker #2: Initially to Israel, about 15 or 16 units, and then possibly more in the future. So that's in terms of rotorcraft—that's the Marines. On the Army side, we still have a huge position with the Black Hawk.

Speaker #2: We do the SPARs. Our ship set value that we've talked about is between $200,000 and $500,000 per ship set. And the Black Hawk—there's about 3,000 units in the U.S., and then there's a lot of units overseas.

Speaker #2: That program is likely to go for a very long time into the future. They already have firm orders through 2032. And not only do we do new production, but because we do the SPARs on the blades for the Black Hawk, there's a lot of aftermarket too.

Tom Gentile: As it gets a lot of utilization, we will see that. We see the Black Hawk as a very good program many years into the future. Sikorsky is upgrading the engines on it. They are also putting in place autonomy, so it is going to be a very capable aircraft. You mentioned the MV-75 that Textron is building. That is also going to be a great aircraft, but that is still several years out in terms of when it enters into service. We have been talking to Textron about material packages on that. We see it is going to be a great program, but again, it is a few years out, so it does not impact us in the next few years. Other Army helicopters, like the CH-47, are mostly metallic, so we have some ship set content on them, but it is not material.

Speaker #2: And so, as it gets a lot of utilization, we'll see that. And so, we see the Black Hawk as a very good program, many years into the future.

Speaker #2: Sikorsky is upgrading the engines on it. They're also putting in place autonomy, so it's going to be a very capable aircraft. You mentioned the MB-75 that Textron is building.

Speaker #2: That is also going to be a great aircraft. But that's still several years out in terms of when it enters into service. We have been talking to Textron about material packages on that.

Speaker #2: We see it's going to be a great program. But again, it's a few years out, so it doesn't impact us in the next few years.

Speaker #2: Other Army helicopters like the CH-47 are mostly metallic. And so we have some ship set content on them, but it's not material. The other thing about rotorcraft is we do a lot with Airbus.

Tom Gentile: The other thing about rotorcraft is we do a lot with Airbus. We do a lot with Turkey and TAI. We do a lot with HAL in India. Our rotorcraft exposure is much broader than just Army aircraft. As I said, it includes the CH-53K. It includes Airbus and TAI and HAL. Then we still have a very strong position on the Black Hawk. Then we will have a good position in the future on the MV-75.

Speaker #2: We do a lot with Turkey and TAI. We do a lot with HAL in India. And so our rotorcraft exposure is much broader than just Army aircraft.

Speaker #2: As I said, it includes the CH-53K, it includes Airbus and TAI and HAL. And then we still have a very strong position on the Black Hawk and then we'll have a good position in the future on the MB-75.

Richard Safran: Thank you very much.

Speaker #5: Thank you very much.

Tom Gentile: You are welcome.

Speaker #2: You're welcome.

Operator 2: Your next question comes from the line of David Strauss from Wells Fargo. Your line is open. Please go ahead.

Operator: Your next question comes from the line of David Strauss from Wells Fargo. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of David Stroud from Wells Fargo. Your line is open. Please go ahead.

David Strauss: Thanks. Morning.

Speaker #4: Thanks, Maury.

Tom Gentile: Morning.

David Strauss: Tom, on the A350 and your forecast to get to 100 in 2027, I would have thought if Airbus is actually going to get to 12 a month in 2028, that you would actually, given your lead times, that we would be looking at actually more than 100 ship sets in 2027.

Speaker #2: Maury.

Speaker #4: Tom, on the A350 and your forecast to get to 100 in 27. I would have thought if Airbus is actually going to get to 28 or, sorry, 12 a month in 2028, that you would actually given your lead times that we would be looking at actually more than 100 ship sets in 2027.

Tom Gentile: Well, what I would say is we've looked at it, and that's the number that we think is consistent with that target. It will go up a little bit more in 2028. When they say they're going to get to 12 aircraft per month in 2028, it won't be on a full year run rate. You probably won't see that until 2029. So if you think about 132 in 2029, which is 12 aircraft per month for Airbus, with the one month off in August, we see the run rate in 2027, 2028, and then feeding into 132 in 2029 as consistent. So 100 next year is right in line with that outlook.

Speaker #2: Well, what I would say is we've looked at it and that's the number that we think is consistent with that target. And it'll go up a little bit more in 2028.

Speaker #2: When they say they're going to get to 12 aircraft per month in 2028, it won't be on a full-year run rate. You probably won't see that until 2029.

Speaker #2: So if you think about 132 in 2029, which is 12 aircraft per month for Airbus, with the one-month off in August, we see the run rate in 27, 28, and then feeding into 132 in 29 as consistent.

Speaker #2: So, 100 next year is right in line with that outlook.

David Strauss: Okay. A quick follow-up. I do not know if you wanted to offer any comments, as we are looking at 2027. Consensus right now is for low double-digit revenue growth, and I think somewhere kind of in the low 30% incremental margins. Is that a reasonable framework to think about for 2027 at this point?

Speaker #4: Okay. And a quick follow-up. I don't know if you wanted to offer any comments as we're looking at 2027. Consensus right now is for low double-digit revenue growth.

Speaker #4: And I think somewhere kind of in the low 30% incremental margins. Is that a reasonable framework to think about for 2027 at this point?

Tom Gentile: Yeah, Jamie, why do you take that?

Speaker #2: Yeah. Jimmy, why don't you?

Jamie Coogan: Yeah. I think, as we are going through right now, pulling together our expected performance for 2027, we wanted to make sure we talked about our expectations around A350. As you said, we will have more information on our full-year outlook and expectations across the portfolio of products once we issue results at the end of the year for 2026. More to come on that. Generally speaking, we expect revenue growth into the next year. We expect that to result in some higher absorption of the fixed cost base over that period of time, and we are going to see some of the near-term headwinds that we have today will result in some favorable performance as we move through next year.

Speaker #3: Yeah. So I think we're going through right now, pulling together our expected performance for 2027. We wanted to make sure we talked about our expectations around A350.

Speaker #3: And he said, so we'll have more information on our full-year outlook and expectations across the portfolio of products. When we issue our results for 2020, we issue our results at the end of the year for 2026.

Speaker #3: So more to come on that. But generally speaking, we expect revenue growth into the next year. We expect that to result in some higher absorption of the fixed cost base over that period of time.

Speaker #3: And we're going to see some of the near-term headwinds that we have today will result in some favorable performance as we move through next year.

Jamie Coogan: We have to remind folks that some of the hiring that we have done here in the H2 2026 is going to continue to provide a little bit of headwind going into the first part of the year, given that there is some training and inefficiencies that come with onboarding the number of folks that we are bringing on board.

Speaker #3: But we have to remind folks that some of the hiring that we've done here in the second half of 2026 is going to continue to provide a little bit of headwinds going into the first part of the year, given that there's some training and inefficiencies that come with onboarding the number of folks that we're bringing on board.

David Strauss: All right. Thanks very much.

Speaker #4: All right. Thanks very much.

Jamie Coogan: Yes.

Speaker #3: Yep.

Operator 2: Your next question comes from the line of Jason Holcomb from Morgan Stanley. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Jason Holcomb from Morgan Stanley. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Jason Holcomb from Morgan Stanley. Your line is open. Please go ahead.

Jason Holcomb: Hi, Tom. Hi, Jamie.

Speaker #4: Hi, Dom. Hi, Tom. Hi, Jimmy.

Jamie Coogan: Hey, Jason.

Speaker #2: Hey, Jason.

Speaker #4: Can you talk more about what you're seeing for demand in 4Q and 2027 that is driving the pull forward in hiring and the new lines coming on?

Jason Holcomb: Can you talk more about what you are seeing for demand in Q4 and 2027 that is driving the pull forward in hiring and the new lines coming on? Is it primarily the higher commercial rates? Is it a greater pull from maybe defense and space? Any additional details you can share would be great. Thanks.

Speaker #4: Is it primarily the higher commercial rates? Is it a greater pull from maybe defense and space? I mean, any additional details you can share would be great.

Speaker #4: Thanks.

Tom Gentile: Well, on the commercial programs, let us just go through them. A350, in the last quarter, they were at about 7 per month, and we expect that to continue into the Q4, maybe pick up a little bit, as Airbus pushes for their year-end. I explained the outlook for 2027 based on the different triangulations that we do. On the A320, Airbus is running about 55. That probably will step up. Airbus is still saying they are going to get to 870 deliveries for the full year. They are pushing hard in Q4. They said that everything they need to produce those aircraft is already in their final assembly line, in Toulouse and Hamburg, in Tianjin and Mobile. I think they have good confidence in that.

Speaker #2: Yeah. Well, on the commercial programs, let's just go through them. A350, in the last quarter, they were at about seven per month. And we expect that to continue into the fourth quarter, maybe tick up a little bit, as Airbus pushes for their year-end.

Speaker #2: And I explained the outlook for 2027 based on the different triangulations that we do. On the 320, Airbus is running about 55. That probably will step up.

Speaker #2: Airbus is still saying they're going to get to 870 deliveries for the full year. So they're pushing hard in Q4. And they said that everything they need to produce those aircraft is already in their final assembly line.

Speaker #2: In Toulouse and Hamburg and Tianjin and Mobile. So I think they have good confidence in that. In Airbus, we actually saw a pull of 10 on the 787 in the last quarter.

Tom Gentile: In Airbus, we actually saw a pull of 10 on the 787 in the last quarter, and we have been calling 90 to 100 for the year, and they are on track for that, maybe even a little bit above. On the 737, they have been pulling at about 41 for us. We are estimating it is 500 for the year, and they seem to be on track for that, maybe even a little bit higher. On all the commercial programs, we see Q4 continuing in the same trend with some strong upside. Boeing and Airbus always close the year strong, and we do not expect this year to be any different. We also expect Q4 to be a little bit better on defense and space. As we said, our fighter programs had off quarters.

Speaker #2: And we've been calling 90 to 100 for the year, and they're on track for that, maybe even a little bit above. And on the 737, they've been pulling at about 41 for us.

Speaker #2: We're estimating at 500 for the year, and they seem to be on track for that, maybe even a little bit higher. So on all the commercial programs, we see fourth quarter continuing in the same trend with some strong upside.

Speaker #2: Boeing and Airbus always close the year strong, and we don't expect this year to be any different. And then we also expect Q4 to be a little bit better on defense and space.

Speaker #2: As we said, our fighter programs had off quarters. F-35 was kind of soft, but you just saw the big deal this morning on Lockheed.

Tom Gentile: F-35 was kind of soft, but you just saw the big deal this morning on Lockheed, 10 years at 156 aircraft a year. We are not worried about the F-35 being soft in a quarter. That is just some choppiness, and that is not going to continue. We have got great confidence in defense and space continuing to increase. What we saw, as I mentioned in my comments, on space, for example, is launchers were pretty slow. Launchers seem this year to be a little bit lower than they were last year. SpaceX has been the dominant player on that. They do not use much composite today on their launching systems. We have some content, but not a lot. The other launchers have been slower this year as they regroup from some issues that they had.

Speaker #2: 10 years, at 156 aircraft a year. So we're not worried about the F-35 being soft in a quarter. That's just some choppiness, and that's not going to continue.

Speaker #2: So we have got great confidence in defense and space continuing to increase. What we saw, as I mentioned in my comments, on space, for example, is launchers were pretty slow.

Speaker #2: Launchers seemed this year to be a little bit lower than they were last year. SpaceX has been the dominant player on that. They don't use much composite.

Speaker #2: Today, on their launching systems, we have some content, but not a lot. And the other launchers have been slower this year, as they regroup from some issues that they had.

Tom Gentile: And so we expect that to start to pick up, if not Q4, then into 2027.

Speaker #2: And so, we expect that to start to pick up—if not in the fourth quarter, then into 2027.

Jason Holcomb: Thank you. Appreciate it.

Speaker #4: Thank you. Appreciate it.

Tom Gentile: Welcome.

Speaker #2: Welcome.

Jamie Coogan: Yep.

Operator 2: Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Noah Poponak from Goldman Sachs. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Noah Papanoff from Goldman Sachs. Your line is open. Please go ahead.

Noah Poponak: Hey, guys. Good morning. Just to follow up right there, the full-year revenue range implies that Q4 growth would be pretty strong and an acceleration from what you have seen earlier in the year. So I guess, what is the split of, I guess, defense and commercial in that? Or to what extent does that count on the defense slippage coming right back in Q4 versus moving into next year? And then a second question I had, Jamie, you stated that your focus highest priority is margin expansion. Can you talk about where you think margins can go long term? And can you maybe, I do not know if it is possible to quantify how much more spending you guys see in the near term related to the investments you have described.

Speaker #5: Hey, guys. Good morning. Just to follow up right there, the full-year revenue range implies that 4Q growth would be pretty strong. And an acceleration from what you've seen earlier in the year.

Speaker #5: So, I guess, what's the split of, I guess, defense and commercial in that? Or to what extent does that count on the defense slippage coming right back in the fourth quarter versus moving into next year?

Speaker #5: And then a second question I had, Jamie, you stated that your biggest focus, highest priority is margin expansion. Can you talk about where you think margins can go long-term?

Speaker #5: And can you maybe I don't know if it's possible to quantify how much more spending you guys see in the near term related to the investments you've described?

Tom Gentile: Well, let me take the first part of that, which is the 2026 growth story. Q4, we see it stronger, obviously sequentially, to close the year. We are still targeting at least mid-range of our guidance and possibly slightly above that. The split between commercial and defense is going to be our normal 65/35 split. So, nothing extraordinary about that. On margins, what I would say is Jamie's come in, brought some new perspectives, and I've asked him to take this lead on driving a very comprehensive margin improvement story. Maybe, Jamie, you could talk a little bit about that

Speaker #2: Okay, well, let me take the first part of that, which is the 2026 growth story. For Q4, we see it stronger, obviously sequentially, to close the year.

Speaker #2: We are still targeting at least mid-range of our guidance and possibly slightly above that. And it really, the split between commercial and defense is going to be our kind of normal 65, 35 split.

Speaker #2: So nothing extraordinary about that. And on margins, what I would say is, Jamie's come in, brought some new perspectives. And I've asked him to take this lead on driving a very comprehensive margin improvement story.

Speaker #2: And maybe, Jamie, you could talk a little bit about that. Where do you see the opportunity?

Jamie Coogan: Yeah

Tom Gentile: and where you see the opportunity.

Jamie Coogan: Yeah, absolutely. So we talked about historically, we had about a 200 basis point gap from our prior peak margin rate, just given some cost inflation and other pressures that we've seen across the supply chain. Our objective in undertaking the margin expansion initiative is to close that gap. As we talk about getting back to our prior peak rates, it would be about 200 basis points lower, and then at our higher revenue levels, we could hone in on about 18% overall EBIT margins for the business. The opportunity here would be for us to drive above that 18%, to close that 200 basis point gap, and we can see the opportunity to approach somewhere closer to 20% given the initiatives that we're going to put in place to be able to do that.

Speaker #3: Yeah, absolutely. And so we've talked about historically, we had about a 200-basis-point point gap from our prior peak margin rate, which has given some cost inflation and other pressures that we've seen across the supply chain.

Speaker #3: Our objective in undertaking these margin expansion initiatives is to close that gap. And so as we've talked about getting back to our prior peak rates, it would be about 200 basis points lower.

Speaker #3: And then, at our higher revenue levels, we could hone in on about 18% overall EBIT margins for the business. The opportunity here would be for us to drive above that 18%, to close that 200 basis-point gap. We could see the opportunity to approach somewhere closer to 20%, given the initiatives that we're going to put in place to be able to do that.

Jamie Coogan: It's a combination of factors, so there's going to be some level of SG&A efficiency that we undertake. There's some level of continuous improvement initiatives to improve our yields and efficiencies and our production processes. I think most importantly, it's price realization on our LTA renegotiations and making sure that we capture value for the product and technologies we're providing to our customers.

Speaker #3: It's a combination of factors. So there's going to be some level of G&A efficiency that we undertake. There's some level of continuous improvement initiatives to improve our yields and efficiencies and our production processes.

Speaker #3: But I think most importantly, it's price realization on our LTA renegotiations and making sure that we capture value for the product and technologies we're providing to our customers.

Tom Gentile: Yeah. Then, Noah, you asked about spending CapEx to hit the near-term production ramp. We said about $100 million. It is going to be in that range of the next few years, possibly a little bit higher, because don't forget, before the pandemic, we started a couple lines in Decatur, Alabama, a new carbon line and a new PAN line, our precursor. We are going to pull those forward, and so there will be a little bit of spending over the next few years, but it is still going to be in the range of $100 million to $125 million as we go forward. We do not need to do any significant capital expenditure until the early 2030s if rates go up on the A350 or when we start to contemplate the next generation single aisle. But for the near term, it is going to be in the range that we have described.

Speaker #2: Yep. And then I know you asked about spending capex to hit the near-term production ramp. And we've said about 100 million. It's going to be in that range of the next few years, possibly a little bit higher because don't forget, before the pandemic, we started a couple of lines in Decatur, Alabama, a new carbon line and a new pan line, our precursor.

Speaker #2: We're going to pull those forward. And so there'll be a little bit of spending over the next few years. But it's still going to be in the range of the 100, 125 million as we go forward.

Speaker #2: We don't need to do any significant capital expenditure until the early 2030s if rates go up on the A350 or when we start to contemplate the next generation single aisle.

Speaker #2: But, for the near term, it's going to be in the range that we've described.

Noah Poponak: Tom, just on P&L spending, so in the quarter, the discussion of incremental spending related to hiring and other drivers of forward growth, and then you guys have discussed maybe there is a little bit more of that in the near term that maybe pressures what the incremental would otherwise be. Can you quantify over the next few quarters, how long do you have to do that, and what does it do to the incremental or the year-over-year change, or what is it in absolute dollars? Any framing you can help with for modeling the near-term margins?

Speaker #5: And Tom, just on P&L spending, so in the quarter, the discussion of incremental spending related to hiring and other drivers of forward growth, and then you guys have discussed maybe there's a little bit more of that in the near term that may be pressures what the incremental would otherwise be.

Speaker #5: Can you quantify, over the next few quarters, how long you have to do that? And what does it do to the incremental or the year-over-year change?

Speaker #5: Or what is it in absolute dollars? Any framing you can help with for modeling the nearer-term margins?

Tom Gentile: Well, as we have said for this year, we are holding to our guidance, and so that gets us to about 13% for the full year in terms of operating margin. In terms of incrementals, we have always said mid-30s, mid to high 30s, and it is

Speaker #2: Right, right. Well, as we said, for this year we're holding to our guidance, and so that gets us to about 13% for the full year in terms of operating margin.

Speaker #2: And in terms of incrementals, we've always said mid-30s, mid to high-30s. And it's going to end up in that range. And then going into next year, we expect with continued operating leverage as these hires come on board, that will also support the margin.

Jamie Coogan: High 30s.

Tom Gentile: going to end up in that range. Then going into next year, we expect with continued operating leverage as these hires come on board, that will also support the margin. As Jamie Coogan said, we have a clear path to the 18%, but we are going to be looking at higher, potentially up to 20% as we go forward. It will be a straight line from 2027 as the volume comes in.

Speaker #2: And as Jamie said, we've got a clear path to the 18%, but we're going to be looking at higher, potentially up to 20%, as we go forward.

Speaker #2: And it'll be a straight line from 2027 as the buying comes in.

Noah Poponak: Thank you.

Speaker #5: Thank you.

Operator 2: Your next question comes from the line of Ken Herbert from RBC. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Ken Herbert from RBC. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Ken Herbert from RBC. Your line is open. Please go ahead.

Tom Gentile: Hello, Ken.

Speaker #2: Hello, Ken.

Operator 2: A reminder to unmute yourself locally on your device if you would like to ask a question. I will move forward to the next question in queue. Ken, please rejoin the queue if you would like to ask a question. Your next question comes from the line of Ronald Epstein from Bank of America. Your line is open. Please go ahead.

Operator: A reminder to unmute yourself locally on your device if you would like to ask a question. I will move forward to the next question in queue. Ken, please rejoin the queue if you would like to ask a question. Your next question comes from the line of Ronald Epstein from Bank of America. Your line is open. Please go ahead.

Speaker #1: A reminder to unmute yourself locally on your device if you'd like to ask a question. I will move forward to the next question in the queue.

Speaker #1: Ken, please rejoin the queue if you would like to ask a question. Your next question comes from the line of Ronald Epstein from Bank of America.

Speaker #1: Your line is open. Please go ahead.

Ronald Epstein: Yeah. Hey. Good morning, guys.

Speaker #4: Yeah. Hey, good morning, guys. I was wondering if you could speak to we've got two new awards out there for sixth-gen fighters. At Boeing, in what kind of opportunity does that present for you guys?

Tom Gentile: Good morning.

Jamie Coogan: Morning.

Ronald Epstein: I was wondering if you could speak to. We have two new awards out there for six-gen fighters at Boeing, and what kind of opportunity does that present for you guys? Because I would imagine those things must be because they are E-glass and advanced materials.

Speaker #4: Because I would imagine those things must be because their eyeballs and advanced materials.

Tom Gentile: Right. Both of those are the sixth generation NGAD for the Air Force and the Navy. Boeing won both of them, so congratulations to them. Those were very intense competitions over many years. Those programs, because there is low observability and they are trying to increase range, there is a huge incentive for them to use lightweight materials like carbon fiber composite. We certainly will be working with Boeing to position for that. They developed as demonstrators using existing material systems that the military has used for many years. If you go back many years to the F-18 and the F-22 and the B-2 and then the F-35, that material system has always been Hexcel carbon fiber, and then using resin from Syensqo. That material system was part of the demonstrators.

Speaker #2: Right. Both of those are the sixth-generation NGAD for the Air Force and the Navy. Boeing, won both of them. So congratulations to them. Those were very intense competitions over many years.

Speaker #2: Those programs because there's low observability and they're trying to increase range, there's a huge incentive for them to use lightweight materials like carbon fiber composite.

Speaker #2: And so, we certainly will be working with Boeing to position for that. They developed these demonstrators using existing material systems that the military has used for many years.

Speaker #2: And if you go back many years to the F-18 and the F-22 and the B-2 and then the F-35, that material system has always been textile carbon fiber.

Speaker #2: And then using resin from Science Co. And so those that material system was part of the demonstrators. And so as they go into production, that's something that we will be talking to Boeing about as they finalize the those programs.

Tom Gentile: As they go into production, that is something that we will be talking to Boeing about as they finalize those programs. It does represent good opportunity. Sixth-generation fighters are going to depend on range, and they are going to depend on low observability, and those are two things that lightweight composite material really excels at, because it is five times stronger than aluminum and 30% lighter. It does help increase range and reduce fuel consumption. It also enables architectures that promote low observability.

Speaker #2: But it does represent good opportunity. Sixth-generation fighters are going to depend on range, and they're going to depend on low observability. And those are two things that lightweight composite material really excels at because it's five times stronger than aluminum and 30% lighter.

Speaker #2: And so, it does help increase range and reduce fuel consumption. It also enables architectures that promote low observability.

Ronald Epstein: Got it. Then in the press release and in the presentation, you guys mentioned that there was a little bit of softness with launches and rocket motors, which seems a little counterintuitive with what is going on. Just curious if that is a timing thing or what is going on there?

Speaker #4: Got it. Got it. And then in the press release and in the presentation, you guys mentioned that there was a little bit of softness with launchers and rocket motors, which seems a little counterintuitive with what's going on.

Speaker #4: Just curious, the timing thing or what's going on there?

Tom Gentile: Well, timing, as I was saying, launches this year look a little bit lighter than last year, and most of them are SpaceX. SpaceX has been pretty public about not using composite yet in their launch vehicles. Some of the other launchers that use a lot of carbon fiber composite have not had as many launches this year, if you look at the numbers. We have bigger ship-sets on some of those other folks. For various reasons that have been well-documented in the press, they are in a pause. That will start to pick up as they resolve the issues that they encounter.

Speaker #2: Well, timing, as I was saying, launches, this year look a little bit lighter than last year and most of them are SpaceX. And SpaceX has been pretty public about not using composite yet.

Speaker #2: In their launch vehicles. And so some of the other launchers that use a lot of carbon fiber composite haven't had as many launches this year, if you look at the numbers.

Speaker #2: And so we have bigger ship sets on some of those other folks. And for various reasons, that have been well documented in the press, they are in a pause.

Speaker #2: And so that will start to pick up as they resolve the issues that they encounter.

Ronald Epstein: Got it. Thank you.

Speaker #4: Got it. Got it. Thank you.

Tom Gentile: Okay, thanks.

Speaker #2: Okay. Thanks.

Operator 2: Your next question comes from the line of Pete Skibitski from Alembic Global. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Pete Skibitski from Alembic Global. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Pete Skibitzky from Allenbeck Global. Your line is open. Please go ahead.

Pete Skibitski: Hey, good morning, guys.

Speaker #5: Hey, good morning, guys.

Tom Gentile: Morning.

Speaker #2: Morning.

Pete Skibitski: Hey, Tom, you alluded earlier to the new Lockheed F-35 contract, the 10-year. Just curious, I do not know if they let suppliers in yet, in terms of the terms and conditions as they were working the contract with the Pentagon, or if it was brand new to you today. But I was just wondering conceptually how you think about the impact to Hexcel from that level of visibility on that program.

Speaker #5: Hey, hey, Tom, you alluded earlier to the new Lockheed F-35 contract. The 10-year. Just curious, I don't know if they let suppliers in yet, kind of in terms of the terms and conditions as they were working the contract with the Pentagon or if it was brand new to you today.

Speaker #5: But I was just wondering, conceptually, how you think about the impact of Hacksell from that level of visibility on that program.

Tom Gentile: Oh, yeah. We do not know yet. I literally just read it before I came onto this call, in the trade press. A 10-year deal that is looking at 156 aircraft per year, so it goes out quite a long way. Do not know what the conditions are and how those will flow down. I assume they will be pretty typical. The program is already been in existence for a long time. But I thought it was just encouraging is that there is a huge demand signal, it is multi-year, and that program is going to extend many years into the future, which is good for us because we have a significant position on it. But it is great, I think, for our defense forces and our war fighters, because that is a very capable aircraft, all three versions of it. So that was great news to read this morning.

Speaker #2: Oh, yeah. We don't know yet. I mean, I literally just read it before I came onto this call in the trade press. 10-year deal, that is looking at 156 aircraft per year.

Speaker #2: So it goes out quite a long way. Don't know what the conditions are and how those will flow down. I assume there'll be pretty typical.

Speaker #2: The program's already been in existence for a long time. But I thought it was just encouraging is that there is a huge demand signal.

Speaker #2: It's multi-year. And that program is going to extend many years into the future, which is good for us because we have a significant position on it.

Speaker #2: But it's great, I think, for our defense forces and our war fighters because that's a very capable aircraft all three versions of it. So that was great news to read this morning.

Pete Skibitski: Okay, great. Just one follow-up from me, notwithstanding your prior comments about production rates on the commercial side, but you had Airbus strikes in Spain over the quarter or so, and then obviously some riot issues in France. Have you noticed any incremental changes to demand pull that you thought might be a result of the strikes that will be, now that they are settled, that they will accelerate now that they are complete? Would the riots, do you think, impact either your supply chain or your French facilities at all, do you think?

Speaker #5: Okay, great. Just one follow-up for me, notwithstanding your prior comments about production rates on the commercial side, but you had the Airbus strikes in Spain.

Speaker #5: Over the quarter or so and then obviously some riot issues in France. Have you noticed any incremental changes to demand pull that you thought might be a result of the strikes that'll be now that they're settled, that they would kind of accelerate now that they're complete and then would the riots, do you think, impact either your supply chain or your French facilities at all, do you think?

Tom Gentile: Great. Regarding Spain, as you said, they did resolve the labor issues, and we did not see any impact at all on production or pull. Similar with the situation in France, we have not seen any impact as a result of that. We obviously will monitor it, and we read about it in the press. We talk to Airbus very frequently, but so far we have not seen any impact from those issues.

Speaker #2: Right. Regarding Spain, as you said, they did resolve the labor issues. And we didn't see any impact at all on production or pull. And similarly with the situation in France, we haven't seen any impact as a result of that.

Speaker #2: We obviously will monitor it and we read about it in the press. We talked to Airbus very frequently. But so far, we have not seen any impact from those issues.

Pete Skibitski: Okay, great. Thank you.

Speaker #5: Okay. Great. Thank you.

Tom Gentile: You're welcome.

Speaker #2: You're welcome.

Operator 2: Your next question comes from the line of Gautam Khanna from Cowen. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Gautam Khanna from Cowen. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Guatemcana from Cohen. Your line is open. Please go ahead.

Gautam Khanna: Yes, thanks. Good morning. I was wondering, just to follow up on an earlier question, on the A350 inventory that's in the channel, if you could describe maybe how aligned the various customers that you ship to are in terms of how much they're pulling from Hexcel. Maybe if you could give us an update, through Q3, how many ship-set equivalents you think you've actually moved into the channel. Just, again, the fundamental question is really around confidence that what happened last year doesn't happen maybe early next year where you're shifting ahead and then they just pull back or keep you flatter for longer. What gives you that conviction?

Speaker #4: Yes. Thanks. Good morning. I was wondering just to follow up on earlier question. On the A350, inventory that's in the channel, if you could describe maybe how aligned the various customers that you ship to are in terms of how much they're pulling from Hacksell and maybe if you could give us an update, like through Q3, how many ships that equivalents you think you've actually moved into the channel?

Speaker #4: And just again, fundamental question is really around confidence that what happened last year doesn't happen maybe early next year where you're shipping ahead and then they just kind of pull back or keep you flatter for longer.

Speaker #4: What gives you that conviction? Thank you.

Tom Gentile: Right.

Gautam Khanna: Thank you.

Tom Gentile: Well, as I said, last quarter they pulled at about 7, so that would be 21. So we have had probably about the equivalent of 60, 65 already pulled for the year, which leaves them with another 20 or so for the last quarter, which is very achievable at a rate of 7. So we see them perfectly in line with what we have called in our guidance. We talked to Airbus, we talked to all of the locations. As I said, there is about 15. Some of them are part of Airbus, like Airbus Atlantic, now Kinston, or Northrop in Salt Lake City, or Airbus Aerostructures in Germany. So a lot of different locations that are getting material. We talk to them and we talk about their outlook, and that is why we have confidence in the Q4 outlook.

Speaker #2: Well, so as I said last quarter, they pulled at about 7. So that would be 21. So we've had probably about the equivalent of 60, 65 already pulled for the year, which leaves them with another 20 or so for the last quarter, which is very achievable at a rate of 7.

Speaker #2: So we see them perfectly in line with what we have called in our guidance. And we talked to Airbus. We talked to all of the locations.

Speaker #2: And I said there were about 15. Some of them are part of Airbus, like Airbus Atlantic, now Kingston, or Northrop in Salt Lake City.

Speaker #2: Or Airbus Aerostructures in Germany. So a lot of different locations that are getting material. We talked to them and we talk about their outlook.

Speaker #2: And that's why we have confidence in the fourth quarter outlook. In terms of inventory in the channel, one of the things that Airbus has said is that it's interiors and seats that have been one of the drawbacks.

Tom Gentile: In terms of inventory in the channel, one of the things that Airbus has said is that it is in interiors and seats that has been one of the drawbacks. Well, you can build a plane without interiors and seats, and then when they come, you can finish the airplane off and deliver it. So there is no doubt some of that is happening. But as we said, we are not too concerned about destocking in 2027 because we see this demand signal of 100 units next year, an increase from this year. So we see strong demand pull throughout the year to date, as I said, in the 60 to 65. Strong demand signals with firm purchase orders for Q4, and then equally strong demand signals going into 2027.

Speaker #2: Well, you can build a plane without interiors and seats, and then when they come, you can finish the airplane off and deliver it. And so, there's no doubt some of that that's happening.

Speaker #2: But as we said, we're not too concerned about destocking in 2027 because we see this demand signal of 100 units next year, an increase from this year.

Speaker #2: So we see strong demand pull throughout the year, year to date. As I said, in the 60 to 65, strong demand signals with firm purchase orders for Q4.

Speaker #2: And then, equally strong demand signals going into 2027.

Gautam Khanna: I guess what I am asking though is how does that differ than how you felt a year ago? Because if you remember, there was a similar dynamic. Was there just not the same demand signals in late 2025 for 2026? What makes it different?

Speaker #4: I guess what I'm asking is, how does that differ than how you felt a year ago? Because if you remember, there was a similar dynamic.

Speaker #4: Was there just not the same demand signals in late '25 or 2026? Yeah. What makes you think different?

Tom Gentile: Well, the demand signals in 2025 were the exact opposite. When we were in the middle of 2024, there was indications that 2025 might have 98 units, and then it dropped to 94. We built our plan at 84, and eventually they delivered 57. So it kind of dropped throughout the year, and we could see that. We reflected it. If you recall, we actually dropped our guidance twice in 2025. This year, we have seen the opposite. We have seen the demand signals continue to strengthen and go up as we have gone throughout the year, which is why we pulled the trigger on all the hiring and the startup of the lines, because we are seeing the demand and we are leaning into it. That is the big difference is last year was the other way.

Speaker #2: Demand signals in 2025 were the exact opposite. When we were in the middle 2024, there was indications that 25 might have 98 units. And then it dropped to 94.

Speaker #2: We built our plan at 84. And eventually, they delivered 57. So it kind of dropped throughout the year. And we could see that. And we reflected it.

Speaker #2: If you recall, we actually dropped our guidance twice in 2025. This year, we've seen the opposite. We've seen the demand signals continue to strengthen and go up as we've gone throughout the year, which is why we pulled the trigger on all the hiring and the startup of the lines.

Speaker #2: Because we're seeing the demand, and we're leaning into it. That's the big difference—last year was the other way. This year, it's all positive.

Tom Gentile: This year it is all positive and growing and the production rates have been increasing exactly in line with their public statements.

Speaker #2: And growing. And the production rates have been increasing exactly in line with their public statements.

Gautam Khanna: Thanks a lot. I appreciate it.

Speaker #4: Thanks a lot. I appreciate it.

Tom Gentile: Welcome.

Speaker #2: You're welcome.

Operator 2: Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Myles Walton with Wolfe Research. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Miles Walton with Wolf Research. Your line is open. Please go ahead.

Myles Walton: Thanks. Good morning.

Tom Gentile: Morning.

Speaker #4: Thanks. Good morning. Give me one question or one clarification and one question. On the clarification, Jamie, what is the tax rate implied in the new EPS guidance that's been reiterated?

Myles Walton: I have one clarification and one question. On the clarification, Jamie, what is the tax rate implied in the new EPS guidance that is been reiterated? Is it 16% or 17%? Then a question for Tom. Can you just comment on the China carbon fiber for aerospace applications? I know one of the larger firms there opened a T1100 IM10 type grade product line this summer starting low quantities. I am just curious if you think that they are a future competitor with you on, say, an Airbus platform. Thanks.

Speaker #4: Is it 15, 17 percent? And then a question for Tom: Can you just comment on the China carbon fiber for aerospace applications? I know one of the larger firms there opened a T1100/IM10-type grade product line this summer, starting with low quantities.

Speaker #4: But I'm just curious, if you think that there are future competitor with you on, say, an Airbus platform? Thanks.

Jamie Coogan: Yeah. On the tax rate assumption, so kind of in that 17% to 18% range for the Q4 timeframe. We do expect the tax rate for the full year to be sort of maybe slightly north of 16% for the full year period, but modestly higher here in the Q4 as we close the year out within that range.

Speaker #2: Yeah. So on the tax rate, assumption. So it's kind of in that 17, 18 percent range for the fourth quarter timeframe. We do expect that tax rate for the full year to be sort of maybe slightly north of 16 percent for the full year period.

Speaker #2: But modestly higher here in the fourth quarter as we close the year out within that range. Good. And then regarding China—yeah, at JEC, there was one of the Chinese companies that did indicate they had a version of T1100, what we call IM10 or 11, that they were making.

Tom Gentile: Good. Then regarding China, yeah, at JEC, there was one of the Chinese companies that did indicate they had a version of T1100, what we call IM10 or 11, that they were making. We do not know yet how far along they are in terms of getting it qualified. It is not on any programs today, so there is still probably work for them to do to finalize it, qualify it, then be able to industrialize it for aerospace programs and then get it put onto a program. It is not realistically a competitor on current generation programs with Airbus or Boeing. Next generation, depending on how far out it is, perhaps they could compete. There are some geopolitical issues that people would probably want to take into account as well. But we watch it carefully. They are capable in China, so we do not certainly disregard them, and they have great resources.

Speaker #2: So we don't know yet how far along they are in terms of getting it qualified. It's not on any programs today. So there's still probably work for them to do to finalize it, qualify it, and then be able to industrialize it for aerospace programs.

Speaker #2: And then get it put onto a program. It's not realistically a competitor. On current generation programs, with Airbus or Boeing, next generation, depending on how far out it is, perhaps they could compete.

Speaker #2: There are some geopolitical issues that people would probably want to take into account as well. But we watch it carefully. They're capable in China.

Speaker #2: So we don't, certainly, disregard them. And they have great resources. But at this point, I think it's still a bit early for them to be a competitor, certainly on current-generation products.

Tom Gentile: But at this point, I think it's still a bit early for them to be a competitor, certainly on current generation products. Maybe for the next generation, but we'll see.

Speaker #2: Maybe for the next generation, but we'll see.

Myles Walton: Okay. Thank you.

Speaker #4: Okay. Thank you.

Tom Gentile: You're welcome.

Speaker #2: You're welcome.

Operator 2: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open. Please go ahead.

Speaker #1: Your next question comes from the line of Sheila Kayaoglu from Jefferies. Your line is open. Please go ahead.

Sheila Kahyaoglu: Good morning, Tom, Jamie. Thank you so much.

Speaker #5: Good morning, Tom. Jamie, thank you so much. So I wanted to ask on margins. Morning. You've hired about 525 people. Your to date, you're going to do more assuming that number gets up to 700 or so.

Tom Gentile: Michael.

Sheila Kahyaoglu: I wanted to ask on margins. You have hired about 525 people year to date. You are going to do more. Assuming that number gets up to 700 or so, do we think about your excess cost base being about $50 million this year and how that translates into 2027? Just as we think about the higher COGS costs, I know you have a hedging plan and procurement contracts that kind of spread that cost. How do you, I guess, see those two items, both labor and raw material inputs factoring into margins in 2027?

Speaker #5: Do we think about your excess cost base being about $50 million this year? And how that translates into 2027? And just as we think about the higher COGS costs, I know you have a hedging plan and procurement contracts that kind of spread that cost.

Speaker #5: How do you, I guess, see those two items both labor and raw material inputs factoring into margins in '27?

Jamie Coogan: Yeah. As we think about that, there is a bit of a rolling cadence there. So we add the heads, the heads come on board, there is a bit of an inefficiency training, start costs that occur, the volume fills in, and we get the absorption benefit from the efficiency as we bring those individuals on board. As we hire, one of the dynamics here in Q3 was we had lower volume given the seasonality, and we were hiring to support. So that put a little bit of incremental pressure on margin in the Q3 timeframe, which we did not see last year because, as Tom noted, we saw a falling demand environment in the H2 of last year, whereas today we see a rising demand environment coming into this Q3 of this period.

Speaker #2: Yeah. So as we think about that, there's a bit of a rolling cadence there. So we add the heads. The heads come on board.

Speaker #2: There's a bit of an inefficiency training. Start costs that occur. The volume fills in. And we get the absorption benefit from the efficiency as we bring those individuals on board.

Speaker #2: And so as we hire, right, so one of the dynamics here in the third quarter was we had lower volume given the seasonality. And we were hiring to support, right?

Speaker #2: So, that put a little bit of incremental pressure on margin in the third quarter timeframe, which we didn't see last year because, as Tom noted, we saw a falling demand environment in the back half of last year. Whereas today, we see a rising demand environment coming into this third quarter of this period.

Jamie Coogan: We expect that trend to continue a little bit into Q4 here as we do the hiring. We have that baked into our expectations for the 2026 timeframe. As it relates to 2027, we would expect maybe a little bit of H1 inefficiency from the hiring we did in Q4 and Q3 timeframe until they get fully up to speed. But then again, as we move through the course of the year, we would gain efficiencies and the absorption on the higher volume and see margins improve.

Speaker #2: So we expect that trend to continue a little bit into the fourth quarter here as we do the hiring. We have that baked into our expectations for the 2026 timeframe.

Speaker #2: As it relates to '27, we would expect maybe a little bit of first-half inefficiency from the hiring we did in the fourth-quarter and third-quarter timeframe, until they get fully up to speed.

Speaker #2: But then again, as we move through the course of the year, we would gain efficiencies and the absorption on the higher volume and see margins improve.

Tom Gentile: Right. As we said, our target as we get up to the full rates of production is we see a path to the 18% margin, but with better price realization, we think that could go as high as 20% by the end of the decade. You also asked about hedging and cost of goods sold. As Jamie mentioned, oil prices are going up. Acrylonitrile is a petroleum derivative, but we do hedge that. We hedge propylene, which is also a byproduct of petroleum as a surrogate. That is an eight-quarter hedge, so we are cushioned from some of the high spikes that we have seen in oil pricing and what the impact would be on acrylonitrile. As Jamie also said, acrylonitrile, while it is the core basis of carbon fiber, it is only single digits in terms of cost for us in terms of revenue.

Speaker #3: Right. And as we said, our target as we get up to the full rate to production is we see a path to the 18% margin.

Speaker #3: But with better price realization, we think that could go as high as 20% by the end of the decade.

Speaker #2: Now, you also asked about hedging and cost of goods sold. As Jamie mentioned, oil prices are going up. Acrylonitrile is a petroleum derivative, but we do hedge that.

Speaker #2: We hedge propylene, which is also a byproduct of petroleum as a surrogate. And that's an eight-quarter hedge. So we are cushioned from some of the high spikes that we've seen in oil pricing and what the impact could be on acrylonitrile.

Speaker #2: But as Jamie also said, acrylonitrile, while it's the core basis of carbon fiber, it's only single digits in terms of cost for us in terms of revenue.

Tom Gentile: So there is all the value added that comes afterwards, which makes up our product. Acrylonitrile is a relatively small purchase for us.

Speaker #2: So there's all the value added that comes afterwards, which makes up our product. Acrylonitrile is a relatively small purchase for us.

Jamie Coogan: The variability we would see is going to be relatively small because of the mitigation programs we put in place.

Speaker #3: And the variability we would see is going to be relatively small because of the mitigation programs we put in place.

Sheila Kahyaoglu: Okay. Thank you so much.

Speaker #5: Okay. Thank you so much.

Tom Gentile: Yep. Thanks.

Speaker #2: Yep. Thanks.

Operator 2: Thank you for your questions. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Operator: Thank you for your questions. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Speaker #1: Thank you for your questions. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.