The Boeing Company (BA), Hexcel Corporation (HXL): Lighter Airplanes Are No Dream

Page 1 of 2

The Boeing Company (NYSE:BA)Airplanes paid off for Hexcel Corporation (NYSE:HXL) this quarter. This company produces lightweight composite airplane parts for both The Boeing Company (NYSE:BA) and Airbus. Hexcel makes composite helicopter blades and wind turbine blades as well. Hexcel’s achieved solid results in the airplane business, and the company’s composites and carbon fiber products could also find uses in other industries.

Financial Results

In general, the first quarter of 2013 went well for Hexcel Corporation (NYSE:HXL). The company earned 43 cents per share, which resulted in 10.1% higher income. The Fool listed an average earnings estimate of 41 cents per share, so this was an earnings beat. Hexcel also posted 4.1% overall sales growth for the quarter. This manufacturer reports separate results for each of its three main markets, and two of these markets turned in double digit growth. Hexcel’s commercial aerospace sales rose 11%, and its defense and space sales rose 13.1%.

Wind power didn’t do as well this quarter, although the company faced a tough comparison with 2012 here. Hexcel’s industrial operations reported 29.2% lower sales because of weaker demand for wind turbines. Commercial aerospace makes up Hexcel’s largest market, but the wind power business does impact the company’s results. The industrial market provided 18% of Hexcel Corporation (NYSE:HXL)’s sales in 2012. This market shrank to 12% of total sales in the first quarter of 2013 as the manufacturer reported $51.6 million in industrial sales out of its $416.5 million total.


Hexcel Corporation (NYSE:HXL) benefits from the trend toward composite use in the airplane manufacturing industry. As the company’s 2012 annual report explains, airplane makers once primarily used metal to manufacture their planes. Newer airplane models can contain high percentages of composites. Hexcel pointed out that composites make up more than half of the weight of both the Boeing 787 Dreamliner and the Airbus A350.

These materials allow airplane makers to greatly reduce the weight of their planes and make different structural designs possible. With Hexcel’s help, airplanes can include more space for passengers and use less fuel. Higher composite ratios in planes also mean higher sales for Hexcel. A Hexcel press release explains that a plane that contains over 50% composite materials can provide $4 million in revenue for the company.

The Dreamliner

Hexcel’s sales could take off as its materials find uses in other products, but the company does depend on these innovative products working correctly. Lithium ion batteries also helped reduce the Dreamliner’s weight. Batteries in two planes overheated back in January, and the Dreamliners were taken out of service. Now The Boeing Company (NYSE:BA) has announced that it’s fixed the battery problems and the Dreamliners will soon return.

The BBC reported that the battery problem has cost The Boeing Company (NYSE:BA) about $600 million. This expense comes out to around 15% of The Boeing Company (NYSE:BA)’s $3.9 billion annual income. At The Boeing Company (NYSE:BA)’s PEG ratio of 0.97, bad short term results because of battery related expenses could create a buying opportunity. Airlines could still replace their old fleets with Dreamliners in the future. Boeing looks like it has a long term winner with this airplane, which means a steady source of sales for Hexcel as well.

Page 1 of 2