What is Hexcel's capacity to support A350 production rates beyond 12 per month, and when would new capacity be needed?

Hexcel was capacitized to support 13 A350 aircraft per month in 2018-2019, and that capacity is still available. While A350-1000s and freighters require more material, productivity offsets this. Rates above 13 per month would require new capacity with a 3-year lead time, but Hexcel is committed to supporting Airbus. “if you go back to the 2018, 2019 time frame, we were capacitized to support 13 aircraft per month for the A350 program. And obviously, that capacity is still there. and we can grow into that.”

What are the specific drivers behind the implied lower EPS and margin deceleration in the second half of 2026?

The second half will be impacted by Q3 seasonality (lower sales due to European holidays), higher employee costs from increased hiring to support 2027 production rates, the accelerated restart of a carbon fiber line, and some conservatism regarding potential oil price impacts. “We're trying to be thoughtful as we think about back half performance and positioning the business to be able to execute on the sort of expected increase in rates as we move into 2027. And so we put our hiring plans together here. We're looking to pull that line in. That is going to be sort of a bigger driver of the overall sort of margin headwind.”

What is the status of hiring, where is the carbon fiber line being restarted, and what are the expectations for future incremental margins?

Hexcel has hired 300 of the 400 planned employees for FY26 and will add more. The carbon fiber line being restarted is in Salt Lake City, one of the four previously idled lines. Incremental margins are expected to be in the 30-35% range, driven by operating leverage as production rates increase. “Well, we had kind of 400 for the year originally. We've already hired 300 of those as of right now. And we'll complete the 400 in the back half of the year and we'll add to that because we do see the demand picking up, and we want to make sure we're ready for it.”

HXL

Hexcel (HXL) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Jul 30, 2026

Source: earnings call transcript

Executive summary

Hexcel Q2 FY26 — Strong Commercial Aerospace Recovery Drives Increased Guidance and Margin Expansion

Hexcel delivered a strong second quarter, propelled by robust commercial aerospace demand and increasing production rates, particularly for the A350 and 737 MAX programs. The company raised its full-year sales and adjusted EPS guidance, reflecting improved operating leverage and the strategic decision to accelerate capacity restarts. Management remains committed to debt reduction and achieving an 18% adjusted operating margin by the end of the decade.

Highlights

Sales of $529 million, up 8% year-over-year.
Adjusted earnings per share of $0.66.
Adjusted operating margins improved to 13.9% from 11.1% in Q2 FY25.
Full-year sales guidance raised to $2.025 billion-$2.125 billion (from $2.0 billion-$2.1 billion).
Full-year adjusted EPS guidance raised to $2.30-$2.40 (from $2.10-$2.30).

Concerns

Defense, Space & Other sales decreased 7% year-over-year, primarily due to industrial divestitures and restructuring.
Q2 FY26 operating margin was negatively impacted by approximately 90 basis points from foreign exchange.
Implied second half adjusted EPS is somewhat lower than the first half due to Q3 seasonality, higher hiring and start-up costs, and conservatism around oil prices.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Sales	$2.025 billion to $2.125 billion high materiality	FY26	High
Full-year 2026 Adjusted EPS	$2.30 to $2.40 high materiality	FY26	High
Full-year 2026 Free Cash Flow	greater than $195 million medium materiality	FY26	High
Full-year 2026 Capital Expenditures	less than $100 million medium materiality	FY26	High
A350 Shipsets	at least 80 aircraft high materiality	FY26	High
Net Debt to Adjusted EBITDA Leverage Ratio	1.5x to 2.0x high materiality	FY26	High
Adjusted Operating Margin	18% high materiality	Before end of the decade	High
Adjusted EBITDA Margin	approximately 25% medium materiality	Longer term	Medium
Incremental Annual Sales from Commercial Aerospace Peak Build Rates	$500 million high materiality	When OEMs achieve peak build rates	High
Incremental Sales from Defense & Space	$200 million medium materiality	Before the end of the decade	Medium
Tax Rate	20% low materiality	H2 FY26	Medium
Cash Conversion	exceed 100% medium materiality	FY26 and thereafter	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Commercial Aerospace Growth driven by rising volumes on A350 and 787 programs, as well as narrow-body sales (737 MAX, A320, A220). Other commercial aerospace (regional jets) increased 3.7% YoY. Comprised approximately 66% of total quarterly sales.	$346.6 million	18.3%	—	—
Defense, Space & Other Sales decrease primarily due to lower industrial volume following divestiture of Austrian business and restructuring of Leicester UK industrial business. Defense & Space only sales were unchanged year-over-year. Comprised approximately 34% of total sales.	$182.7 million	-7%	—	—
Composite Materials Adjusted operating margin for the segment, compared to 14.1% in the prior year period. Represented 80% of total second quarter sales.	—	—	—	16.8%
Engineered Products Adjusted operating margin for the segment, compared to 10.9% in the prior year period. Represented 20% of total second quarter sales. Includes structures and engineered core businesses.	—	—	—	15%

Orderbook & backlog

Commercial Aircraft Backlog (Industry) more than 18,000 units Q2 FY26

According to data from IATA.

Unmet Commercial Aircraft Demand (Industry) more than 5,000 aircraft Q2 FY26

Estimated due to post-pandemic supply-demand imbalance.

Product announcements

Product	Type	Timeline
Hexcel Application Center	milestone	May 2026
D328eco	launch	June 2026
HexPly M91 carbon fiber reinforced epoxy prepreg system	milestone	July 2026

Deals & partnerships

Deutsche Aircraft Long-term industrial partnership and supply agreement for advanced composite solutions for the D328eco regional turboprop. long-term

Announced in June, this partnership supports the next-generation regional turboprop.

Boeing New and extended long-term agreements reinforcing collaboration across commercial, defense, and space programs.

Announced during the Farnborough International Air Show, these are normal renewals for extensive long-term agreements.

Industrial business in Austria Divestiture of industrial business.

Completed on September 30, 2025, contributing to lower industrial sales in Q2 FY26.

Industrial business in Leicester, U.K. Winding down of industrial operations.

Ceased industrial operations effective June 30. The site will continue to work on aerospace R&D projects.

Capital programs

Carbon Fiber Line Restart (Salt Lake City) underway

Benefit:Increased carbon fiber production capacity

Accelerating the restart of an additional carbon fiber line, previously planned for 2027, to meet increasing demand in H2 FY26 and 2027. This is one of four lines idled during the pandemic, with two already brought back online.

Risks & headwinds

Middle East Conflict current

minimal impact on business to date

Mitigation:monitoring developments closely, regular contact with customers and suppliers, hedging strategy and disciplined approach to managing key cost inputs.

Foreign Exchange Volatility Q2 FY26

negative impact of approximately 90 basis points on Q2 FY26 operating margin

Mitigation:hedging programs in place to moderate volatility; stronger dollar would provide benefit.

Oil Price Volatility later in the year

if oil prices remain elevated, impact to energy and acrylonitrile (AN) costs will be layered into the business over time

Mitigation:purposeful strategy of reducing volatility of input prices through hedging and procurement contracts has generally insulated the business in Q2 FY26.

Q3 Seasonality Q3 FY26

seasonally lower third quarter sales impact operating leverage and margin

Mitigation:factored into revised 2026 guidance.

Increased Hiring and Start-up Costs H2 FY26

higher employee costs, including more hiring in the back half of this year; expenditures related to restarting one carbon fiber line

Mitigation:factored into revised 2026 guidance; necessary to support production rate increases in 2027.

Defense & Space Market Choppiness quarter-to-quarter

sales decreased 7% in Q2 FY26 (primarily due to industrial portfolio pruning); Defense & Space only sales unchanged YoY

Mitigation:management notes this market can be choppy due to low-volume platforms and production timing; remains a significant priority for organic growth.

What to watch in Q3 FY26

A350 Production Rate

Next quarter / H2 FY26

Current between 8 and 9 aircraft per month

Target Potential upside to 80 aircraft guide, stepping up further

Why it matters

The A350 is Hexcel's largest program, and its production rate is a key driver for commercial aerospace revenue and operating leverage.

On the A350 program specifically, we continue to see demand signals that support our outlook of 50 -- or excuse me, 80 shipsets in 2026. While there can be a perceived disconnect at times between our order profile and current OEM deliveries, our demand is tied to production activity in the supply chain, and we remain confident in our 2026 A350 guidance of at least 80 aircraft.

Find out whether HXL delivers this. Inve re-checks your case every morning.

Q&A highlights

Is the 18% EBIT margin target aligned with the $500M commercial and $200M defense revenue targets, and how will cost inflation be offset?

The 18% EBIT margin target is directly aligned with achieving the stated revenue targets from peak production rates. Cost inflation will be offset through continuous productivity initiatives, digitization improvements, and price realization during contract renegotiations.

“So that's exactly right, Gavin, is we are targeting the 18% in line with getting up to the target production rate. So that's the $500 million on commercial and then the $200 million on Defense and Space and other.”

asked by Gavin Parsons · answered by Thomas Gentile

2 min read 6 chapters

Detailed narrative

Commercial Aerospace Market Strength

The commercial aerospace market demonstrated strong fundamentals, with an industry backlog exceeding 18,000 units and an estimated unmet demand of over 5,000 aircraft. Hexcel's sales in this market increased 18.3% year-over-year to $346.6 million, driven by rising volumes on the A350 and 787 programs, as well as narrow-body aircraft like the 737 MAX, A320, and A220.

The company anticipates $500 million in incremental annual sales from existing contracts once OEMs reach peak build rates.

Defense & Space Strategic Focus

Despite a 7% year-over-year sales decrease in the Defense, Space & Other market to $182.7 million, primarily due to industrial portfolio pruning, Defense & Space remains a significant priority for Hexcel. The company holds positions on most current military programs and is actively engaging new entrants in the burgeoning space market.

Hexcel expects to achieve approximately $200 million in incremental sales from this market before the end of the decade, leveraging its vertically integrated global footprint and advanced composite materials.

Operating Leverage and Margin Expansion

Hexcel's operating leverage strengthened significantly, with gross margin improving to 26.1% from 22.8% in the prior year, and adjusted operating margin reaching 13.9% compared to 11.1% in Q2 FY25. This improvement is attributed to higher sales volume, improved cost absorption, and strong execution.

The company is targeting an 18% adjusted operating margin and a 25% adjusted EBITDA margin by the end of the decade as production rates continue to increase.

Capacity and Hiring Acceleration

To meet anticipated demand, Hexcel is accelerating its hiring plans, having already brought on 300 of the 400 employees planned for FY26. Additionally, the company is pulling forward the restart of a carbon fiber line in Salt Lake City from FY27 to the second half of FY26.

This proactive approach aims to ensure readiness for expected production rate increases in 2027 and beyond, further enhancing utilization of existing assets and driving operating leverage.

Customer Recognition and Strategic Partnerships

Hexcel received notable customer recognition, including Embraer's Best Supplier of the Year, Airbus's Accredited Supplier Award, and IHI's Supplier of the Year. The company also announced the groundbreaking of a new Application Center at Wichita State University's NIAR, a long-term partnership with Deutsche Aircraft for the D328eco, and new/extended long-term agreements with Boeing.

Furthermore, Hexcel completed NCAMP qualification for its HexPly M91 carbon fiber system, broadening its market availability.

Capital Allocation and Debt Reduction

Hexcel's capital allocation priorities remain focused on debt reduction, aiming to return its net debt to adjusted EBITDA leverage ratio to 1.5x-2.0x during 2026 from 2.3x at June 30, 2026. The company remains committed to paying a quarterly dividend of $0.18 per share.

Share repurchases are paused until the leverage target is met, after which cash will be returned to stockholders in the absence of strategic inorganic opportunities meeting strict return criteria.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.