Hexcel Corp (HXL) 2015 Q1 法說會逐字稿

Good day and welcome to the Hexcel Corporation first-quarter 2015 earnings call. Today's conference is being recorded. Hosting today's conference are Mr. Wayne Pensky, Chief Financial Officer, and Mr. Nick Stanage, Chairman, Chief Executive Officer and President.

At this time, I'd like to turn the conference over to Mr. Penske. Please go ahead.

Great. Thanks. Good morning, everyone. Welcome to Hexcel Corporation's 2015 first-quarter earnings conference call on April 21, 2015.

Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of 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, including our 2014 10-K, our first-quarter 10-Q and last night's press release.

Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be re-recorded or rebroadcast without our express permission. Your participation on this call constitutes your consent to that request.

With me today are Nick Stanage, our Chairman, CEO and President, and Michael Bacal, our Investor Relations Manager.

The purpose of the call is to review our 2015 first-quarter results detailed in our press release issued yesterday. First, Nick will cover the markets, then I will cover some of the financial details, and I'll go back to Nick for some final comments before we take your questions.

Thanks, Wayne.

Good morning, everyone, and thank you for joining us today. As you have seen in last night's release, we delivered another strong quarter with record first-quarter sales of about $472 million, up just over 6% in constant currency from last year. Our operations continue to perform well, delivering first-quarter operating income of almost $83 million with margins of 17.5%, up 130 basis points from last year's period.

Our adjusted diluted EPS of $0.58 was 16% above the first quarter of last year. Overall, great conversion on our topline sales growth.

Please note -- our GAAP diluted EPS was $0.70, up 40% from last year's quarter. The difference between our adjusted and GAAP EPS is a $0.12 benefit from discrete tax items. Wayne will go over the details in a few minutes.

Nonetheless, excluding these discrete tax benefits, we again set a number of records this quarter, including sales, gross margin, operating income, and adjusted net income.

As an organization, we are very proud of our results, and we will continue to drive improvements in our operational and financial performance going forward.

Now let me turn to our markets. As usual, I will discuss year-over-year comparisons in constant currency. As you are aware, there was a significant strengthening of the dollar this quarter as compared to the euro and British pound. For example, if you compare the first quarter of 2015 versus 2014, the dollar on average was almost 18% stronger than the euro. This influences our results, and some of this impact is not intuitive. But the bottom line is, with a stronger dollar, our sales translate lower while our income increases, yielding higher margin percentages.

Our sales growth this quarter was led by an 8.3% increase in commercial aerospace revenues versus 2014, as Q1 sales totaled over $320 million. Total revenue from new Airbus and Boeing programs increased by over 25%, primarily driven by the A350. Airbus and Boeing legacy sales declined slightly as compared to the first quarter of 2014, but remained above the legacy sales run rate of last year's second half.

Sales to other commercial aerospace, which includes regional and business aircraft, were about 5% higher compared to last year's quarter and remained at about the same level we have seen over the past three quarters.

Space and defense sales were almost $89 million, down 3.6% from first quarter of last year. This quarter essentially saw the anticipated end of the C-17 sales, which accounted for most of the decline.

In industrial markets, sales for the first quarter were about $63 million, up almost 11% year over year. Wind energy sales were up about 15% compared to 2014, and the rest of industrial was up slightly year on year on a constant-currency basis.

Now let me turn the call over to Wayne to discuss some of the financial details.

Gross margin of $142 million for the quarter was 30.1% of sales as compared to 28% in the first-quarter 2014, a strong result for both quarters. If you adjust for currency effects, 2015's first quarter still delivered an impressive 29% gross margin.

For the quarter, selling, general and administrative expenses were about $47 million, up about 14% from 2014's period, with increased equity compensation costs being more than half the increase.

While we expect equity compensation costs to be higher for 2015 than 2014 in total, we expect the charges for the balance of the year to be lower than what we have recorded in 2014.

Research and technology costs of $12.5 million in the quarter were $1.1 million lower from the comparable 2014 period, which was the high spend for the year. We still expect 2015 R&D expense to be 8% to 10% higher than 2014 on a constant currency basis, as we continue to invest in technical innovations for new products and process improvements.

Our operating income as a percentage of sales was 17.5% this quarter. This is an increase of 130 basis points from 2014's 16.2% in last year's period. Exchange rates contributed 90 basis points to the increase.

With respect to our EPS for the quarter, exchange rates added about $0.01 to first-quarter's EPS. For the quarter, operating income leverage was about 25% on an incremental sales, if you adjust for the impact of exchange rates. This includes some $3.2 million in higher stock-compensation expense for the quarter.

Our composite materials segment reported an 8% increase in external sales for the quarter on a constant-currency basis, and the engineered products segment was essentially flat. For the quarter, the composite materials segment had an operating income margin of 23% as compared to 20.3% in 2014, and the engineered products margin was 14.1% in 2015 as compared to 15.5% in 2014.

Our composite materials segment is significantly more capital intensive than engineered products, but higher operating margins required to achieve the same returns on invested capital as engineered products.

Our effective tax rate for the quarter was 16%, down significantly from last year's effective rate of 31.3%. Our 2015 first-quarter rate included benefits of $11.6 million, primarily related to release of reserves for uncertain tax positions. This contributed approximately $0.12 to reported GAAP EPS this quarter, and there's no cash impact from the release of the reserves.

Excluding these benefits, our first-quarter effective tax rate would have been 30.4%, in line with our 30.5% expectation for the full year.

For the quarter, free cash flow has the use of $110 million compared to the use of $22 million in 2014, primarily reflecting higher capital expenditures, and our working-capital usage was particularly high this quarter, primarily due to timing.

Our working capital is seasonal, as accounts receivable and inventories tend to wind down at year-end, and wind up in the first quarter. Our accounts receivables was a $70 million use of cash for the quarter, as compared to $48 million for the first quarter of 2014.

Our days sales outstanding accounts receivable is usually about 50 days, as it was both at the end of the first quarter in 2015 and 2014.

In general, we do a great job of collecting our receivables, and we continue to maintain our past dues at low levels.

The cash used for receivables this quarter is higher than last year as a function of higher sales and that we ended 2014 with an unusually low accounts receivable balance, the result of timing of customer payments.

Cash payments for capital expenditures were $95 million in the quarter as compared to $55 million in the first quarter of 2014. On an accrual basis, our capital expenditures were $66.5 million for the quarter.

During the quarter, the Company did not repurchase any stock. We have $100 million remaining under our currently authorized share repurchase program.

As a reminder and a follow-up to Nick's comment, we do benefit from a strong dollar. When the dollar strengthens against the euro and the pound, our sales go down, and our income goes up. We are now about 80% hedged for the rest of the year. If rates held near current levels, that would be a benefit of about $0.04 for the year, which is included in our updated 2015 guidance.

Basically, every 5% movement is about $0.01 earnings for the rest of the year.

Finally, as previously announced, Hexcel's Board of Directors declared a $0.10 quarterly dividend payable to shareholders of record as of May 4, 2015, with a payment date of May 18.

Now, let me turn it back to Nick for some concluding thoughts on our guidance before we take your questions.

Thanks, Wayne.

Q1 was a great start to the year for Hexcel. Our continued strong operational performance, combined with an expected $0.04 benefit from exchange rates, leads us to increase our adjusted EPS guidance to $2.33 to $ 2.43 per share. It previously was $2.26 to $2.38.

On a constant-currency basis, our view of 2015's sales has not changed. We still expect growth in commercial aerospace with some gains in industrial markets that will lead our constant-currency sales higher. However, when you adjust for the impact of the strengthening dollar and the reduced translated values of euro-and pound-denominated sales, we now expect sales of between $1.86 billion and $1.94 billion. Previously it was $1.9 billion to $2.0 billion.

We expect between $260 million and $290 million for accrual-basis capital expenditures in 2015, and we also expect to generate between $10 million to $60 million of free cash flow, both unchanged from our January guidance.

We remain confident in our operational focus and continuous improvement mindset, while working to position the Company for the forecasted growth ahead as we support our customers by investing in technology, capacity expansion, manufacturing innovations, and our people.

We would now be happy to take your questions.

(Operator Instructions). Myles Walton, Deutsche Bank.

Thanks. Good morning.

Good morning.

I was hoping maybe just to clarify -- of the guidance raised in the $0.05 to $0.07 range, $0.04 of that was FX versus your original plan? Is that correct?

That's correct.

Okay, great. And then, so the other $0.01 to $0.03 was what you're seeing in the underlying better margin performance. It sounds like the overall topline picture didn't really change much in terms of your initial plan.

For the top line, constant currency remains unchanged, and we continue to focus on operational performance with a little tailwind on some input materials based on oil.

Okay. Great.

And then, on capital deployment, I know you didn't buy any stock in the first quarter. Should we expect that $100 million to kind of ratably proceed here over the remainder of the year, and it was probably more just light Q1 cash flow, cash management than anything else?

Well, we are always looking at our cash position and optimizing our structure, and we balance that between our investments, our cash outlay and timing. So we fully expect to proceed with our $100 million share buyback, and we will continue to report out at quarter-end on our performance there.

Okay. All right. I'll just leave this to two. Thanks, guys.

Thank you.

John McNulty, Credit Suisse.

Yes, good morning. Thanks for taking my questions.

A question on the wind business. You have seen now really robust growth over, now I guess it's five straight quarters. So when do you start to expect to see it kind of wind down a little bit? I know you had some tax credit issues in the industry that really -- it hurt 2013 and it got offset in 2014, but it does seem like you're continuing to kind of -- even after annualizing some of those issues, you seem to be posting some pretty strong numbers. So, how should we think about the outlook for that going forward?

So you're right, John. 2013 was very challenging, and then 2014 rebounded nicely. I would point out that first quarter of 2014 was fairly weak, which made the comparable this quarter pretty easy, and that won't be the case for the balance of the year.

Having said that, if you look at Vestas and their continued increasing backlog, which I believe is at about 7.5 GW, and if you base that on last year's installation rate of just about 6.5 GW, they're doing pretty well there, winning new farms.

So we feel good about it. I think the rate of growth will slow down a little bit, but we still expect the full year to come in at mid-single digits on industrial and wind included.

Great. And then, with regard to the FX benefits and the strong dollar, is that helping at all, or does it help at all in terms of your potential to reduce your CapEx spend where your dollars are just going that much farther? Because I know you didn't change the CapEx guidance, but I guess I'm wondering if the change in FX has any impact on that as we think about it going forward.

It certainly does. Obviously, we are buying in euro or British-pound-denominated costs. We continue to push that, and we'll continue to do that going forward, as well as continuing to drive increased productivity and throughput with the capital assets that we are continuing to put in play.

So, our performance in installing CapEx has been extremely good, and I just want to point out that the $260 million to $290 million of expected CapEx in 2015, the majority of that is growth based on programs that have been awarded. It's not a function at all on performance. Performance continues to improve.

Great. Thanks very much for the color.

Steven Cahall, Royal Bank of Canada.

Yes, thank you. Good morning. Just a first question is, if we think about the sales by market, so you've made the adjustment to the revenue guidance including FX, and I think you talked about about 400 bps coming off of the growth rates in terms of your translated revenue.

So if we're just thinking about reported revenue for the year, does most of that headwind fall on commercial aerospace, or, you know, how that -- maybe you can give some color on how it spreads across the way we think about the growth rates on a reported basis for those end markets?

Yes, Steve, the biggest impact is on the industrial. Our industrial market is probably 60%-plus in euros and pounds. So the biggest impact is there.

We still have an impact both in space and defense and commercial aerospace, but that impact in terms of percentage is much smaller.

I think when you look at our total revenue, about 20% of it is denominated in euros and British pounds.

And most of that is euros.

Okay, and then I was wondering -- because there is a lot of moving parts via FX, if you can give us a sense of what your incremental margin was in the quarter, vis-a-vis the 25% new target you've set out. (multiple speakers) on a clean basis.

So, FX-adjusted, for the quarter, we came in at 25%, and we expect to do 25% for the balance of the year.

Okay. That's great. Thank you.

Howard Rubel, Jefferies.

Thank you. A couple things. You know, I know auto is not the highest thing you're doing, but aerospace doesn't grow forever, and we are seeing expanded uses of composites.

Nick, where do you stand on broadening the portfolio a little bit organically?

Well, Howard, we have been in the automotive segment for many, many years and continue to pursue that. So, I would tell you we have multiple programs ongoing today where we are working with customers heavily focused on premium and high-end applications to provide differentiated technology where we can continue a sustaining advantage. So we're working that.

Now, it is a small base for us today, but it is a growing base.

I would also say what we are seeing is some of the technology that we're innovating for those segments, we are seeing potential application in our other markets, including commercial aero and space and defense.

So, I like the industrial space; I like the automotive, provided it's in an area where we can provide a sustainable competitive advantage and not get into the commodity area, but we are working it heavy.

Again, just a reminder, we reorganized our industrial team, and we have dedicated resources and assets that work this day to day.

No and I recognize aerospace great composites are not the same as sheet to steel, by any stretch of the imagination. So you want to continue to maintain that value. But is there anything that you can address in terms of, you've made some breakthroughs with some customers so that it moves up and becomes -- rivals wind in terms of its contribution?

So I'd say the programs we've won, it's a little early to declare yet because we're still in the development and qualification phase. I think in the near future we may highlight these.

I would point out that these in themselves will not be material drivers on top line. But when you look at the automotive side -- segment, it will be pretty robust percentage increases on that business.

That's very helpful. And then second, my understanding is, not all the composites have been awarded for the 777X yet, and I know you've worked very hard to try to improve your position versus the standard. How is that process going?

Well, you're right; we are continuing to work it hard with Boeing and other customers for aircraft structures, as well as engines and the cells. So I'd say it's going well. We continued to provide innovative solutions, and I remain confident that our 777X content will be higher than a 777, which as a reminder is $1 million today.

So, we feel good about where we are and look forward to growing.

And then last, I don't -- your answer to Myles' share repurchase question was not -- it was a little open-ended, and I've kind of pushed before on this, and maybe, too, you could provide a little more closure. Has there been some reason why you've been hesitant to complete the program? You've sort of stopped it for over six months now.

So, Howard, I never complain about you pushing, so remember that.

You know, we always look at the opportunities we have, and I wouldn't say we've delayed or we've rebalanced, but we have multiple levers to pull.

One, we continue to go after new business on the A320neo and the MAX. We continue to push hard on the 777X and the A330neo now, all of which will require increased investment based on the amount of content above current rates we win. That's first and foremost.

Second, you know our priority is looking at M&A, similar to what we did last year with 4 MAX, identifying bolt-on opportunities that can enhance our technology offering and allow us to provide our customers with a more innovative, more cost-effective -- a better solution for them to be successful in the marketplace. And then we look at a balance of returning to shareholders through stock buyback and/or dividends, as we initiated this year.

So we don't look at them independently. It's altogether based on what we're doing. And as you've seen, we had pretty high cash usage in Q1, which was expected. I'm happy to say we had high CapEx spend in the first quarter, and historically we've tended to start off the year slow and ramp up throughout the year. This year we are getting off to a faster start, which we need to given the drain on the resources and the amount of CapEx we have to go this year.

I think that's very fair. Thank you very much, Nick.

Noah Poponak, Goldman Sachs.

Good morning, everyone.

Is it accurate that stock-comp expense was up a little more than $3 million in the first quarter year over year and then will decline year over year each of the remaining three fiscal quarters of the year?

No, I wouldn't necessarily say the word each, but in total for the three fiscal quarters. I don't want to give a quarter-by-quarter view, but the last three quarters we expect to be lower than the last three quarters in 2014.

Okay. So, I guess having achieved the 25% incremental on a constant-currency basis despite that headwind, (laughter) does that just give you a little cushion in the full-year range, or is there another expense that picks up and goes against you compared to how it was for you in the first quarter?

So, Noah, again as a reminder, we upped our income leverage percentage to 25% in January. And keep in mind, we have depreciation stepping up this year based on the prior capital investments, and then we have big CapEx investments coming online sporadically as we grow.

So, remember, some of those carbon-fiber and precursor assembly lines take two to three years from the start of putting them in place to getting them qualified. And when they come online, they are not totally filled.

So when we look at the 25%, really that's kind of an all-in. We know there's a little bit of tailwind. We had some incremental cost on the comp in the first quarter this year. Last year we had it more towards the second half of the year. But overall we still feel good about 25% and delivering that.

Having said that, we are always pushing operational improvements, we are always pushing productivity, and we are not going to let up on the gas at 25%. So, rest assured, if there is more to be had -- and there will be -- we will go get it.

I understand.

On the aerospace topline, why was the legacy Boeing and Airbus revenue down year over year in the quarter?

Yes, it was only down a couple percent. It was actually above the run rate of the second half of 2014. I wouldn't read too much into it. I mean, if you look at the individual bill rates, not much was happening. I think it's more just timing of the shipments.

Well, there is no rational because build rates are creeping up as you know (multiple speakers) roughly two per year --

That's why I'm asking.

-- so it's simply timing.

Okay. Yes, I just wanted to make sure there wasn't anything abnormal down there.

No, no.

Okay.

And then finally, in defense, I guess rotorcraft was going against you in the back half of last year; you didn't call it out in the release. It sounds like perhaps that has bottomed. C-17 sounds like it's now just out of the numbers.

I guess are those both accurate? And perhaps if you could just maybe give us a broader update on, as you look at the rest of this year and into 2016, which programs remain or become a headwind, and which programs top two or three start to have an even faster growth rate for you than they've had so far?

Yes, so again, just as a reminder, remember we have over 100 active programs. And some of those programs are small. So quarter-over-quarter timing and build rates, order rates tend to be a little lumpy. So don't read too much into quarter over quarter.

C-17 is going to be about a $12 million or $13 million headwind this year versus 2014, and that's basically the fact that production has wound down. What's going to offset that is basically the JSF, the A400M. When they get to rate will certainly be two of our biggest programs in the segment.

The V22 is holding strong. We are expecting 2015 sales to be comparable to last year's sales.

So, in the rotorcraft overall -- again, this is many programs both in military and commercial; a reminder, commercial is about 15% of that -- it was down slightly this quarter. And again, we expect that to be fairly flat overall for the balance of the year.

And that C-17 piece, how much of that occurred in the quarter out of what you expect for the full year?

So, Noah, I'd say it this way -- if you look -- you know, the first quarter of last year was the highest, but the last three fiscal quarters were still relatively strong. This quarter was the first big drop off. So --.

Yes, and that's pretty significant.

It is. But -- so you'll see that drop off for the next three fiscal quarters as well on a year-over-year comparison.

Okay. Got it. Okay. Thank you very much.

Gautam Khanna, Cowen and Company.

A follow-up on a couple questions that were asked. If you could first talk about any areas you might want to augment via M&A and how the pipeline for those types of assets currently looks?

Well, as we've said before, we have an active M&A group. It's not big, but we are looking at potential targets. Again, those targets are focused within our core space. Those targets are focused on technology, and those targets are focused on helping to augment our existing portfolio to offer more creative, advanced, technical solutions for our customers. You know, to really get into specifics wouldn't be appropriate for this call, but I can tell you, there's more than a few bolt-ons and various technologies that we continue to look at and continue to be interested in.

And that would include automotive, I take it -- would that be among the top areas you would want to augment?

You know, when we look at technology, we really do not define it, per se, to market. We look at technology to provide lighter weight, stronger, faster processing solutions. And for the team, I don't give direction that this needs to be focused on this market or that market. It needs to be focused on technology to allow us to win in the markets we participate in. And a lot of that technology flows between wind and industrial and automotive and space and defense and aero. It's transparent.

Okay. And switching gears, on the A350 program, I was hoping you could just give us a sense for where you think composite inventory lies. Are they sort of buying in line with underlying assemblies or ahead of it or behind it? If you can just talk about any sort of restock or destock phenomenon we might be seeing in future orders, if any.

Yes, so, as you can imagine, we have people working with Airbus every day, in their plants every day, working together to optimize our supply chain, and we have very good visibility and very good communications with Airbus.

So with respect to where they are with the production ramp-up and where we are with respect to delivering that, we look at that. We do sanity checks on that, and basically it's in-line; we haven't seen a decrease or an increase. We believe it's well aligned.

I'd also just remind everyone that Airbus plans to be at a build rate of five per month at the end of the year. Keeping in mind we ship about six months in advance of their build rates, you could expect that towards the middle of this year, or another quarter, we'll probably be right about at that rate.

Okay. And since we last spoke, the A330 rate officially is going down a little more. What will the impact on the revised guidance to the A330 be?

Well, the A330 towards next year is going to drop from nine to six per month, and again we have about $900,000 content per ship set. So, that's built into our forecast.

And that affects you guys later this year or in the middle of this year? When would you expect to feel some of that?

It will be late Q3, Q4.

Okay. Thank you very much.

Steve Levenson, Stifel Nicolaus.

Thanks. Good morning, everybody.

Can you give us an idea of what's going on in the market for out-of-autoclave materials versus traditional ones, and how the pricing is for you, and how the mix might be changing going forward?

Well, there's a lot of talk about out-of-autoclave, and specifically related to high-volume applications where autoclaves tend to be expensive, and they tend to be one of the bottlenecks in throughput. So, we certainly have multiple options on providing out-of-autoclave materials. I think the challenge and what we're certainly focused on are getting our out-of-autoclave material performance in line with the prepreg in-autoclave -- meaning, porosity and strength and mechanical performance as high as possible so that you're not faced with a knockdown in those designs.

So I certainly see out-of-autoclave as a technology that will have a place, and it has a place, and depending on how that evolves will determine how much growth it yields going forward on new programs.

Okeydoke. Thank you. Second, with the strength of the dollar, and your construction costs in France I assume are in euros, are you doing any advanced payments or hedging to cover your cost of construction there?

So, Steve, it's not -- not all the costs are in euros, but it's probably two-thirds. And then generally it's not something you can actually hedge, get proper hedge accounting, but we'll buy things as quickly as we can. But most of the big euro spending is next year; it's not this year.

So no real impact to depreciation anytime soon and maybe not at all? (laughter)

Well, actually, if you just look at depreciation expense by itself, it always gets crazy when you look at individual line items. You know, we expect to go out in the area of being about a $12 million increase in depreciation expense. When you look at it, at the new currency rates, it's probably about a $10 million increase right now. And that's mostly just FX.

Okay. Thank you very much.

Ron Epstein, Bank of America/Merrill Lynch.

Good morning, guys.

Just maybe a couple of quick questions. On the earnings conference call, you had mentioned that there was some supply chain disruptions on a couple of their engines, I think specifically it was on the GEnx. Has any of that affected you?

I guess I'll say no! (laughter)

It hasn't flowed up, and we didn't see a drop in our sales there, and our deliveries continue on pace based on the production build rates. So I have to say no.

Okay, okay. That's great. That's cool. And then just the M&A question has been asked a little bit, so I'm going to kind of get at it at a different angle. When you look at the landscape for -- in the carbon-fiber suppliers industry, do you think there's a case for consolidation?

I guess it depends on whose perspective. If I look at our portfolio, again I am very proud of the fact that we have the broadest portfolio with high-strength, intermediate modulus and high-modulus fiber with prepreg carbon fiber with honeycomb core and engineered products and Acousti-Cap, which is a proprietary sound-abating system that's used now in engines themselves.

Is there an opportunity there? Somebody might say there always is, but we certainly like the position we have today.

Okay, okay. And then one more kind of industry question if it's okay. On the 777X, it appears -- at least the press has reported -- that the center wing box is going to be aluminum. How do you guys read that, right? Is that backing away from an all-composite wing, and what's that mean for the industry?

I think it's risk mitigation, and basically Boeing has elected to limit the amount of new components on the 777X, mainly as risk mitigation as well as timing. I think the schedule calls for the 777X to go into production in the 2020 timeframe. So it really was not possible to do the whole plane in carbon fiber or to do a brand-new airplane. So they just pick their areas where they could see the biggest advantage, and that's what drove the selection of the materials and the trade-offs.

Yes, yes, interesting. Okay. Great. Thank you, guys.

(Operator Instructions) Ken Herbert, Canaccord.

Good morning. Wayne or Nick, I just wondered, can you sort of break out the growth on the new programs? Was all the 25% growth A350, or are you starting to see anything meaningful yet from, say, the A320neo?

Well, again, as a reminder, our growth on new programs was over 25%, and the new programs makes up about 30% of our commercial aerospace. Having said that, the A350 was definitely the biggest component, but we are seeing the A320neo ramp up as well. So it was heavily A350.

Okay. And just then, based on your comments, Nick, around Airbus coming out of the year at five months on the A350 and you probably start to see that, give or take midyear, is it fair to assume that we see a sequential or a nice step-up from sort of first-half to second-half in the A350? Is it a very meaningful step-up, or is it sort of blended across the quarters?

I think it's going to be fairly level and a progressive ramp between now and when they hit 10 per month in 2018. So you can just imagine the amount of suppliers and the complexity of the supply chain. It doesn't lend itself to make radical movements up or down, so they tend to keep them very planned and very, very consistent.

Okay. Great. Well, thank you very much.

Mike Sison, KeyBank.

Hey, guys, nice job for the year.

Thanks, Mike.

In terms of other commercial, you talked about regional business jets up about 5%; any particular platforms that are perking up for you as the year unfolds, or is it just generally delivery forecast is better this year than last year?

Yes, Mike, there really is not one or two or three programs that really make up the 5%; it's pretty much just general uptick based on demand and build rates.

Okay. Great. And then on the 777X, you talked about potentially getting a bigger position than your current position on the 777. Given risk remediation or thoughts there, would you be picking up opportunities in secondary or primary parts -- fiber composite, where do you think your best edge is to increase your content?

All the above!

All the above? (laughter)

Plus you didn't mention the cells and engines.

Got it. And then, last one on space and defense, when do you think you could turn the corner there in terms of constant currency growth over the next couple of quarters and any thoughts on the JSF? Is that something that could perk up for you as the year unfolds?

Yes, so Mike, you know, we've said we think space and defense is payable for the year, and I don't think you'll see a big pickup until you get out in the next year or two. Really the growth is going to be about the joint strike fighter -- is sort of the next big growth driver, as well as some of the various rotorcraft programs that are commonplace. But I think for the next coming -- for the next three fiscal quarters, our goal is to hold it flat. Our expectation, I should say, is to hold it flat.

Okay. Great. Thanks.

David Strauss, UBS.

Good morning. The CapEx spend this year, and looking out over the next couple of years, can you just maybe help us where you sit today from a capacity-utilization standpoint, maybe on carbon fiber and prepreg, and really identify the programs, I guess, over the near-term that the CapEx spending that's above the maintenance level is really targeted towards?

So, again, as a reminder, when we provided our 2020 vision back in January, we communicated that we expect to deliver $3 billion in sales and $4.50 of EPS. And to get there would take about $1.1 billion between 2015 and 2019.

We knew and we expected that to be front-end loaded in 2015, 2016 and maybe a little bit in 2017, and we are pretty much on that path.

With respect to capacity and where we stand, a couple of points to just remind everyone is our assets are fungible, so we are constantly balancing programs that are falling off versus the new programs that are growing, and putting that into the equation and capacity requirements for new CapEx.

Wayne, with respect to our capital investment, the majority of it -- probably all but $50 million range -- is based solely for growth.

Correct. That's $50 million per year for maintenance.

$50 million for maintenance, in that order of magnitude. The balance of it is growth for new programs that have been awarded.

And again, the last point I'd make, is keep in mind for the majority of our programs and products we are sole-sourced, which by definition mean we can never be short, which by definition means we are probably always just a little bit long, and that's the way the business operates.

So, David, I hope that answered your question.

Yes, it helps. I understand your capacity is fungible, but I guess your biggest ramp-up is on the A350. I guess could you help what level are you capacitized on A350 at this point? Can you accommodate 10 a month at this point on the A350?

I can tell you, we cannot. We are not ready. We are not in position. We have more investment to do this year and next year to get to the point, to be capacitized to do 10 per month.

I'd also point out that A350 is a big driver, but you have to keep in mind the LEAP, the neo, the MAX. There's pretty significant fiber requirements coming out of those, as well as the other new programs that we continue to win.

Yes, that's actually my follow-on question. Can you update us on your ship set content on the reengineered by programs, if there's been any change there?

So, if you're referring to the A320neo and the 737 MAX --

Right.

neo obviously is getting much closer, and again as a reminder, on both platforms, we have about $300,000 of content per ship set, and we have stated that we expect to grow that by 50%.

I would tell you that we remain confident in those assumptions, but at the same time, I would tell you that we are still working various positions, specifically on the 737, given that it is out a year and a half, two years beyond what the 320neo is.

So it's just a little bit early for us to declare exactly what our ship set content is for the neo and even a little more early on the 737. (multiple speakers) And I was just going to say, obviously on the 777X, we've already talked about and the A330neo, and any potential A380neo, it is obviously too early there as well.

Right, okay. And Wayne, is the share-count assumption still $98 million for the full year?

Yes, for now that's close enough.

Okay, thank you.

[Chris Kapsch], BB&T Capital Markets.

Yes, good morning. There's been a lot of discussion about currency, specifically the dollar's strength against the pound and the euro, but the dollar has also strengthened quite a bit against the yen. So my question is about the yen's weakness. A couple of players in the carbon-fiber industry, of course, are based in Japan, and I'm just wondering if the yen's weakness is affecting or improving the competitive positioning of a key competitor over there. Has that manifested itself in any change in competitive behavior from what you can glean, or do you just think this is really just not really an issue? It's just a trend being a sort of currency move that the industry has experienced in the past and will experience in the future? Thanks.

Chris, on the aerospace side, I would say it's really not too much of an impact. The businesses have all been wide -- you know, you are qualified at certain plants or a certain location, and you talk about our Japanese competitors. They have facilities in Europe and in the US, and the supplies is priced in dollars in their long-term agreements, or the currency has already been set. So, I don't see really an impact there.

On the industrial side, we are not a big player in that, and the market moves a lot more. I'm sure you've probably seen some impact there, but we are a buyer as opposed to a seller. So for us, if prices go down, it's probably a good thing. But I can't really comment on that one specifically.

Okay. And I just also wanted to clarify some of Nick's comments about the A320neo and the ramp there. So I believe you said you're starting to see some shipments. Is that consistent with the production ramp timing that you've expected prior? And then also, I mean, given that the shipments are ramping there, is there -- I know you don't want to -- you can't really nail down your ship set content for the neo -- it's what you just said, I believe -- but is there realistically an opportunity to still increase content there? Just elaborate or clarify those comments. Thanks.

Well, again, the A320neo, obviously completed first flight and is in the flight testing, qualification program with a schedule to enter into service at the end of this year.

Now, what that means is, the new pipeline is starting to fill, programs and applications have been defined. So the number of applications that are still subject and open to bidding and winning are definitely going down, but there are still some areas where we believe we can increase content. So that's why it's a little early to declare.

We have seen an increase in the demand on the neo components and material supply, but again it's off of a very small base, and it's not real material to the contribution on our new program growth at this time.

Okay. Thank you.

And we have no further questions over the phones at this time. This concludes our conference for today, and we thank you for your participation.

Great. Thank you.