Hexcel Earnings Call Nuggets: Lighter Margins and A350 Growth

Hexcel Corporation (NYSE:HXL) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Lighter Margins

John McNulty – Credit Suisse First Boston: Just a couple of quick questions. So, with regard to the margins, when we look at the Composite Materials segment or even the Engineered Products segment operating margins, despite the decent growth that we saw this quarter and actually through the year, your margins are lighter than they’ve been in over a year in each of the divisions. So, can you walk us through maybe some of the puts and takes on that? I know you highlighted R&D was up. Was that the bulk of the difference or were there other things that we should be thinking about?

Wayne C. Pensky – SVP and CFO: John, if you look at Composite Materials we were 17.3% for the quarter and that did – all the increase in R&D spending happened in that segment. If you actually go back before the fourth quarter of 2011, we actually only had two other quarters in our history where we were above 17%. So the bar has been raised and we obviously acknowledge that. But in general, I wouldn’t say anything unusual in the quarter other than the R&D spending. With respect to Engineered Products, we are at 13.6% which is just little bit lower than our targets 14% to 16%. And we did hit it for the year at 14.5%. It’s much more labor intensive in that segment than material segment and they do have learning curve on new programs and sometimes they have one time catch-ups with the customers. So, it bounces around a little bit more than Composite Materials, but nothing more in particular.

John McNulty – Credit Suisse First Boston: And then on the Space and Defense business clearly came in better than what we were expecting and I think you called out the rotorcrafts being particularly strong and maybe some timing issues in terms of deliveries between India and China, can you quantify what that was and is that something that you pulled from the first quarter of 2013 or is this something more that was supposed to go out in the third quarter and actually just got pushed out a quarter instead?