Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

Hexcel Corporation is a global leader in advanced lightweight composites technology. We provide innovative, high-performance material solutions that are lighter, stronger, and tougher, shaping a world that moves farther, smarter, and more efficiently. Our broad and unrivaled product range includes carbon fiber, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, resins, engineered core, and composite structures for use in commercial aerospace, defense and space, and industrial applications.

We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Europe, Asia Pacific, India, and Africa.

We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, radio frequency/electromagnetic interference ("RF/EMI") and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality.

Recent growth in aircraft build rates has favorably impacted our business. We have, however, in the last several years been impacted by delays in aircraft production rates, related to, among other factors, global logistics, supply chain destocking and other supply chain constraints. Hexcel has also been negatively impacted by macroeconomic and geopolitical conditions, including inflationary pressures, tariffs, and global conflicts. While these challenges have had and may continue to have further negative impacts on our operations and financial results, we see indicators for a long-term positive outlook in commercial aircraft production and strong demand in the defense and space market as global defense budgets continue to increase as a result of an uncertain geopolitical environment and the development of new platforms. As a result of the Middle East conflict, we are actively monitoring the markets and are taking actions to mitigate near-term impact to our cost base. Currently, we have limited direct exposure, but a prolonged conflict is likely to precipitate cost and logistic pressures as well as inventory challenges.

Financial Overview

Results of Operations

Net Sales

The following table summarizes net sales to third-party customers by segment and end market for the quarters and nine months ended September 30, 2026 and 2025:

Sales by Segment

Composite Materials: Net sales of $390.3 million in the third quarter of 2026 increased by $27.1 million or 7.4% from the prior year quarter. Commercial Aerospace sales increased $44.5 million or 19.3% in the third quarter of 2026 as compared to the same quarter in the prior year. Defense, Space & Other net sales in the third quarter of 2026 decreased $17.4 million or 13.1% versus the prior year period. Net sales of $1,210.6 million for the first nine months of 2026 increased 7.9% compared to the same period last year led by higher Commercial Aerospace sales. The decrease in Defense, Space & Other net sales for both the third quarter and nine months of 2026 reflected the September 30, 2025 divestment of the Austrian-based industrial business and the closure of a non-core industrial business in Leicester, UK earlier this year.

Engineered Products: For the third quarter of 2026, net sales of $106.1 million increased $13.1 million or 14.1% as compared to the prior year quarter. Net sales of $316.6 million for the first nine months of 2026 increased 12.7% compared to the same period last year. The increase for both the third quarter and nine months ended September 30, 2026 over the respective periods in the prior year was driven by strong Commercial Aerospace sales.

Sales by Market

For the third quarter of 2026, Commercial Aerospace sales of $330.3 million increased 20.5% compared to the third quarter of 2025. Both widebodies, including the Airbus A350 and Boeing 787, and narrowbodies, including the Airbus A320 and Boeing MAX, grew year over year. Other Commercial Aerospace sales for the third quarter of 2026 increased 1.3% compared to the third quarter of 2025. Sales of $1,009.6 million increased 19.1% for the first nine months of 2026 compared to the first nine months of 2025, with growth led by the A350, 787 and MAX platforms. Other Commercial Aerospace increased 6.4% for the first nine months of 2026 compared to the same period in 2025 from higher regional jet sales.

Defense, Space & Other sales of $166.1 million in the third quarter of 2026 decreased 8.7% as compared to the third quarter of 2025. Sales of $517.6 million decreased 6.8% for the first nine months of 2026 as compared to the first nine months of 2025. The sales decrease for both the quarter and nine months ended September 30, 2026 reflected the September 30, 2025 divestment of the Austrian-based industrial business as well as softness in launchers and rocket motors.

Gross Margin

Gross margin for the third quarter of 2026 was 23.3% compared to 21.9% in the third quarter of 2025 and 25.4% and 22.4% for the first nine months of 2026 and 2025, respectively. The higher margins for both the third quarter and nine months of 2026 compared to the prior year periods was primarily due to higher sales leverage.

Operating Expenses

Selling, general and administrative expenses were higher for both the third quarter and the first nine months of 2026 as compared to the respective periods in 2025. The increase in selling, general and administrative expenses compared to the prior year periods was primarily driven by higher employee-related costs. Research and development expenses for the third quarter and first nine months of 2026 were higher than the comparable periods in 2025, primarily due to higher employee-related expenses and production qualification material costs.

Other operating income for the quarter ended September 30, 2026 reflected an adjustment to restructuring expenses related to the shutdown of industrial-oriented manufacturing at the Leicester, UK facility. For the third quarter of 2025, other operating expenses included a loss related to the divestiture of our Neumarkt, Austria plant, a non-income tax charge related to the net value of a foreign entity and restructuring charges primarily related to the previously announced closure of our facility in Belgium. Other operating expenses for the nine months ended September 30, 2026, included restructuring expenses related to the shutdown of industrial-oriented manufacturing at the Leicester, UK facility and non-recurring professional fees. The nine months ended September 30, 2025 also included restructuring charges related to the closure of the facility in Belgium and a loss for the divestiture of the Hartford, Connecticut business.

Operating Income

Operating income for the third quarters of 2026 and 2025 was $54.8 million and $36.0 million, respectively. Operating income for the first nine months of 2026 was $185.0 million compared to $110.2 million for the same period last year. Overall, operating income for both the third quarter and nine months of 2026 was favorably impacted by higher sales and improved margins as compared to prior year periods.

Interest Expense, Net

Interest expense for both the quarter and nine months ended September 30, 2026 was higher compared to the respective prior year periods as a result of higher average borrowings for the first nine months of 2026.

Provision for Income Taxes

Tax expense for the quarter ended September 30, 2026 was $4.1 million as compared to $6.2 million for the quarter ended September 30, 2025. Tax expense for the nine months ended September 30, 2026 was $23.8 million compared to $21.6 million for the comparative period in 2025. The nine months ended September 30, 2025 included discrete tax charges for valuation allowance related to the closure of our facility in Belgium.

Financial Condition

Liquidity: Cash on hand at September 30, 2026 was $77.8 million as compared to $71.0 million at December 31, 2025. As of September 30, 2026, total debt was $934.9 million as compared to $993.0 million at December 31, 2025.

Under the Facility, total borrowings at September 30, 2026 were $240.0 million, which approximated fair value. The Credit Agreement permits us to issue letters of credit up to an aggregate amount of $50.0 million. As of September 30, 2026, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $510.0 million. The weighted average interest rate for the Facility was 4.79% for the six months from entering into the Credit Agreement for the Facility in March 2026 through September 30, 2026.

Short-term liquidity requirements consist primarily of normal recurring operating expenses and working capital needs, capital expenditures, dividend payments, debt obligations and debt service requirements. We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of September 30, 2026, long-term liquidity requirements consisted primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until March 2031 when the Facility matures. For further information regarding debt, including our Facility, see Note 5, Debt, to the accompanying condensed consolidated financial statements of this Form 10-Q.

There were no repurchases of shares during the third quarter of 2026. The remaining authorization under the 2025 Share Repurchase Plan at September 30, 2026 was $380.6 million. On October 21, 2026, the Board approved an increase to the share repurchase authorization under the 2025 Share Repurchase Plan from the remaining $380.6 million to $750 million and additionally, declared a quarterly dividend of $0.18 per share payable to stockholders of record as of November 2, 2026, with a payment date of November 9, 2026.

Operating Activities: Net cash provided by operating activities for the first nine months of 2026 was $171.1 million compared to $105.0 million for the same period last year. Working capital was a cash use of $78.1 million for the first nine months of 2026 as compared to a use of $63.8 million in the same period in 2025 with the variance primarily attributable to higher accounts receivable and inventory balances, partially offset by higher payables and accruals.

Investing Activities: Net cash used for investing activities was $68.6 million and $57.8 million in the first nine months of 2026 and 2025, respectively. Capital expenditures for the first nine months of 2026 were $68.6 million as compared to $55.1 million for the same period last year. Payments related to the divestiture of the Neumarkt and Hartford facilities were $2.7 million in the first nine months of 2025.

Financing Activities: Net cash used for financing activities was $94.5 million for first nine months of 2026 compared to a net cash use of $85.5 million in the same period in 2025. Borrowings under the credit facility during the first nine months of 2026 and 2025 were $595.0 million and $160.0 million, respectively. Repayments were $650.0 million during the first nine months of 2026 compared to $100.0 million in the prior year period. Quarterly dividend payments to shareholders were $40.9 million during the first nine months of 2026 compared to $41.0 million in the prior year period. During the nine months ended September 30, 2025, repurchases of common stock totaled $100.9 million.

Financial Obligations and Commitments: The next significant scheduled debt maturity will not occur until 2031, when both the Facility and the 4.9% Senior Unsecured Notes mature. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.

Critical Accounting Estimates

Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.

We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "seek," "target," "would," "will" and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.

Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others and the revenues we may generate from an aircraft model or program; (b) expectations with regard to the impact of regulatory activity related to the Boeing 737 MAX on our revenues; (c) expectations with regard to raw material cost and availability, including any impact associated with quotas, duties, tariffs, taxes or other similar restrictions upon the import or export of materials or the Middle East conflict; (d) expectations of composite content on new commercial aircraft programs and our share of those requirements; (e) expectations regarding revenues from defense and space applications, including whether certain programs might be curtailed or discontinued, and government funding opportunities; (f) expectations regarding sales for industrial applications; (g) expectations regarding cash generation, working capital trends, and inventory levels; (h) expectations as to the level of research and development investment, capital expenditures, capacity, including the timing of completion of capacity expansions, and qualification of new products; (i) expectations regarding our ability to improve or maintain margins; (j) expectations regarding our ability to attract, motivate, and retain the workforce necessary to execute our business strategy; (k) projections regarding our tax rate or restructuring or alignment activities; (l) expectations with regard to the continued impact of macroeconomic factors or geopolitical issues or conflicts, including the Middle East conflict; (m) expectations regarding our strategic initiatives, including our sustainability goals and restructuring or alignment activities; (n) expectations with regard to the effectiveness of cybersecurity measures; (o) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations; (p) expectations relating to our share repurchase program and dividends; and (q) our expectations of financial results for 2026 and beyond.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control, that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the extent of the impact of macroeconomic factors or geopolitical issues or conflicts, including U.S. trade policy and retaliatory actions taken in response and the Middle East conflict; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to regulatory activity or public scrutiny impacting the Boeing 737 MAX; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; the availability and cost of raw materials, including the impact of supply disruptions, inflation, tariffs and the Middle East conflict; our ability to successfully implement or realize our strategic initiatives, including our sustainability goals and any restructuring or alignment activities in which we may engage; changes in sales mix; changes in current pricing due to cost levels; changes in aerospace build or delivery rates; any impact from a prolonged shutdown of the U.S. federal government; changes in government defense procurement or investment budgets; timely new product development or introduction; our ability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; our ability to execute future share repurchases or dividends and the source of funds used for such repurchases or dividends; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; uncertainty related to governmental actions and changes in political, social and economic conditions, including the effect of change in global trade policies, tariff rates, economic sanctions and embargoes; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the

effects of natural disasters or other severe weather events, which may be worsened by the impact of climate change, and other severe catastrophic events, including any public health crisis; and the unexpected outcome of legal matters or impact of changes in laws or regulations.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated, see the information under the caption "Risk Factors," which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. We caution you not to place undue reliance upon these forward-looking statements, which speak only as of the date they are made. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.