Hexa Corporation's earnings call for Q4 and full year 2025 is announced, with a reminder of forward-looking statements' risks. The call will feature financial updates from the CEO and CFO, followed by a Q&A session, with replay available on the company's website.

The dialogue highlights the industry's confidence in Xcel's capability to address the growing demand for commercial aircraft, despite a significant delivery shortfall. It underscores the shift towards more fuel-efficient and lightweight materials, positioning Xcel as a key player in supporting commercial and defense needs. Despite challenges faced in 2025, a positive trend in commercial orders is anticipated for 2026, with major programs like the A350 and A320 leading the recovery. The transition to higher production rates, including Boeing's move to 800 aircraft per month, and increased engine production capacity, signals a promising outlook for the sector.

Despite initial setbacks from reduced build rates and destocking, the company anticipates full recovery to pre-pandemic production levels by 2026, leveraging sole source contracts and long-term agreements. Enhanced sales from defense, space, and regional jets are forecasted to add over $200 million in additional revenue, driving operating leverage and margin expansion. The company's strategic investments, including a $350 million accelerated share repurchase program, reflect confidence in future growth and execution capabilities. Defense and space market opportunities are bolstered by increasing global defense budgets and demand for advanced materials, positioning the company for long-term success in both commercial and defense sectors.

The company faced headwinds from scheduled changes and OEM destocking, emphasizing operational discipline and cost control. Actions included exiting non-core markets, streamlining operations, and investing in productivity enhancements. Leadership additions and a focus on financial management were highlighted, alongside guidance for future sales, adjusted EPS, and free cash flow, reflecting confidence in long-term growth.

The company reports a robust fourth quarter with year-over-year sales growth driven by commercial aerospace, despite divestments and foreign exchange impacts. Adjusted operating margins expand, and full-year guidance is met. Defense and space sales remain strong, particularly in NATO-aligned countries. Cash flow and free cash flow are impacted by working capital movements, with a commitment to maintaining disciplined leverage policy. A quarterly dividend increase is announced, reflecting financial health and future growth potential.

The dialogue outlines the expected financial performance for 2026, highlighting the impact of foreign exchange due to a weaker dollar, projections for cash conversion exceeding expectations, and seasonal trends affecting operating expenses and sales. It also discusses strategies for deleveraging, interest expense reduction, and an anticipated effective tax rate, positioning the company for future growth in commercial aircraft production, defense, and space sectors.

A discussion on the revenue growth projection, emphasizing the commercial aerospace segment's contribution, particularly the A 350 program. The analysis includes assumptions based on purchase orders, bottom-up demand forecasts, and operational adjustments, highlighting confidence in meeting production targets despite supply chain challenges.

Discussion focused on incremental margins in the composite materials segment, highlighting mid-30s margins with potential upside linked to higher production rates. Emphasized operating leverage as a key driver for margin improvement, particularly as production returns to pre-pandemic levels. Adjusted operating margin for the fourth quarter was noted at 5%, with specifics available upon request.

The dialogue discusses strategies for managing fixed and variable costs, including a hiring freeze, allowing attrition, and only starting to hire again when there is evidence of increasing rates. The company has reduced headcount and is cautious about increasing it until mid-year, demonstrating a proactive approach to cost management in response to revenue changes.

Boeing aims to lead Airbus in production rates, emphasizing timely and quality deliveries. The company is investing in additional carbon fiber lines to meet forecasted demand increases, avoiding past issues of production delays.

Discussion revolves around projected incremental margins, emphasizing operating leverage post-pandemic undercapacity. Future capital allocation priorities, including debt reduction and potential buybacks, are outlined, with a focus on achieving desired leverage levels swiftly.

The dialogue outlines a strategic plan focusing on achieving a leverage ratio below two by year-end, with subsequent intentions to pursue further share repurchases once the target is met, indicating a commitment to financial health and shareholder value enhancement.

Discussion revolves around the impact of production rate targets exceeding expectations for Boeing and Airbus on incremental margins, incorporating mothball costs and ERP implementation expenses into financial guidance. Closing facilities in Austria and Leicester, along with ERP implementation progress, are noted as factors influencing operating income, with ongoing costs anticipated into 2027.

The focus is on strong cost discipline and streamlining facilities, including closing and selling underperforming sites, to enhance productivity and margins. The full impact will be seen next year, with some benefits this year.

Revenue guidance for 2026 forecasts low to mid double-digit growth for commercial aero and low to mid single-digit growth for defense. The defense segment faces slight negative growth due to facility closures but expects low to mid double-digit growth independently. The company hedges raw material costs, particularly acrylic and nitrile, maintaining stable pricing. Incremental margin improvements are anticipated as production rates increase, aiming for script margins by the end of the decade, leveraging operating leverage and productivity initiatives.

Discussion on the significant rise in margins for composite materials, questioning whether non-normal factors influenced the 25% increase, with emphasis on solid cost control and compensation targets contributing to the result.

The dialogue discusses the significant financial adjustments from a reversed accrual, the absence of duplicate CEO-level expenses, and stringent cost controls. It also explores the potential benefits and cost implications of incorporating composite materials, particularly in aircraft wings, estimating the value increase per aircraft due to higher composite content.

The discussion revolves around a missed acquisition opportunity for Xcel, as they did not pursue Semen Composites, a company specializing in composite materials for the marine market, due to it not aligning with their core business sectors.

The dialogue discusses revenue assumptions for Boeing and Airbus, noting conservative estimates for Boeing due to destocking and Airbus slightly higher than consensus but still cautious based on detailed analysis.

The dialogue discusses the impact of a weaker dollar, projecting a higher FX headwind in Q4 compared to previous quarters. The speaker highlights that a 110 basis point headwind in Q4 included one-off effects from settling short-term non-USD balances, which are not expected to continue. A hedging program is in place to mitigate ongoing FX risks, already factored into the 2026 plan, indicating preparedness for potential profitability challenges.

The dialogue highlights advancements in aircraft production, focusing on out-of-autoclave technologies, automated fiber placement, reduced cure times for carbon fiber, enhanced non-destructive inspection, and resin application methods, all aimed at lowering costs and capital requirements. Collaboration with OEMs is emphasized to innovate across the entire production system.

A significant opportunity in defense production, especially for lightweight, durable carbon fiber composite systems, is highlighted. Strengthening the defense team is essential to address these growing markets, which are critical for enhancing range and strength in unmanned systems.

Discussed focusing on production rate ramps for operating leverage, emphasizing defense growth in multiple markets, and maintaining quality and safety in execution.