HXL

Good morning, and welcome to Hexcel's first quarter 2026 earnings call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question-and-answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Kurt Goddard, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Hello everyone, and welcome to Hexcel Corporation's first quarter earnings conference call. Before beginning, let me cover the formalities. I would like 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 and earnings release. A replay of this call will be available on the investor relations page of our website. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our express permission.

Your participation on this call constitutes your consent to that request. With me today are Tom Gentile, our Chairman, CEO, and President, and Mike Lenz, Interim Chief Financial Officer. The purpose of the call is to review our first quarter 2026 results, detailed in our news release issued yesterday. Now, let me turn the call over to Tom. Tom?

Thanks Kurt. Hello everyone, and thank you for joining us today for Hexcel's first quarter 2026 earnings call. Our first quarter results were in line with our expectations in terms of an improving commercial market with higher production levels and channel inventory levels normalizing following the destocking we experienced in 2025. The quarter reflects strong execution across the business in a very dynamic environment, which is creating the operating leverage we predicted as production rates continue to increase. Also, these results for the first quarter further demonstrate the long-term value Hexcel brings to our customers as a global leader in the development and manufacturing of advanced lightweight material solutions. Our market position benefits from our deep technical expertise, vertical integration at scale, and long-standing customer relationships.

With the uniquely broad portfolio of lightweight composite solutions, Hexcel is well-positioned for returning to growth as commercial aerospace production recovers back to pre-pandemic levels and higher. Before turning to our first quarter results in more detail, I want to briefly address the environment with the current situation in the Middle East. We are monitoring developments closely and remain in regular contact with our customers and suppliers as the situation evolves. Hexcel constantly maintains a focus on taking actions to protect our business from near-term cost volatility. While some of the inputs to our products are petroleum-based, most of what we buy is under long-term contracts. We also hedge propylene, a petroleum derivative, for eight quarters. These mechanisms mitigate much of the near-term impact from higher oil prices to our feedstocks, energy, and logistics costs as much as possible.

Our focus is on managing near-term impacts and maintaining flexibility in our operations, along with a disciplined approach to managing the business. Jet fuel is one of the largest operating costs for airlines, which reinforces the importance of efficiency and light-weighting. Recent consumer price index data shows that air prices for airfare have risen almost 15% year-over-year as airlines grapple with higher fuel costs. Newer aircraft deliver improved fuel efficiency, which in a higher-priced fuel environment, makes light-weighting even more critical. This renewed emphasis on fuel efficiency directly benefits Hexcel. Turning to our first quarter results. Hexcel achieved sales of $502 million, a 10% increase compared to the same period last year. Adjusted earnings per share were $0.59. Rising commercial aerospace demand drove earnings, which enhanced our operating leverage as we grow back into our existing capacity.

Gross margins also improved compared to last year. These results reflect improved capacity utilization and strong operating performance across our operations. In our Commercial Aerospace segment, sales were $334 million in the first quarter, an 18.8% increase from the same period in 2023. Sales increased across all four major programs, the Airbus A350, the A320, and the Boeing 787, and 737 MAX. Other Commercial Aerospace sales increased 15.6% over the same quarter in 2023 on the strength of regional and business jets. As we have discussed in prior quarters, the Commercial Aerospace recovery has taken longer than initially expected. In our previous call, we highlighted our growing confidence that a sustained increase for commercial production rates at the OEMs was taking hold. We continue to see that production rate ramp materialize.

Our first quarter results align with our expected outlook for growing commercial aerospace volumes entering 2026 and continuing over the next few years. Remember that as the materials provider, the various supply chain partners keep different levels of inventory, and there is also scrap and waste, so production rates we provide are approximate. Also, Hexcel is typically four-six months ahead of the OE aircraft assembly, so our assumptions are based on production, not OE deliveries. Here's how we see the outlook for the major commercial programs. First, the A320. Based on recent public announcements regarding A320 engine availability, we now expect our volumes on the A320 to be at the lower end of our guidance of low 700s for the year, rather than low-to-mid 700s. We remain confident in the overall catalyst for increased OEM production rates on the A320 to continue going forward.

On the A350 program, we are seeing increasing alignment between our production rates and the Airbus build rates, with channel destocking largely behind us. We remain confident in our outlook for 80 units in 2026, perhaps even with some upside. On Boeing programs, we see tangible evidence of progress in the ramp-up of both the 737 and the 787, which includes investments to expand manufacturing capacity in Charleston for the 787 and in Everett for the MAX. While we continue to lag the Boeing production rate for the MAX, the year-over-year first quarter sales growth was particularly noteworthy. Q1 was our best quarter on the MAX in years, with production at around 40 aircraft per month. Our forecast on the MAX for 2026 was mid-400s, and it looks like Boeing will exceed that. On the 787, our forecast was 90-100 units, and that continues to be our expectation.

As commercial production rates at the OEMs recover, we expect to see continuing, ongoing benefits to our operations from increased operating leverage. At the same time, we are taking a measured approach to bringing pack capacity online to ensure incremental costs are aligned with that sustained demand, and that the benefits of higher production rates are not diluted. Throughout this process, our priority remains on meeting increasing production requirements while maintaining the highest standards of safety and quality. On balance, we see the puts and takes for this year canceling each other out, and we are maintaining our full year guidance. Turning to the Defense, Space and Other segment, our first quarter sales of $169 million were impacted by the divestment of our Austrian facility, which led to a decrease in sales volume overall in the segment compared to the same quarter last year.

Looking at just defense and space, our sales increased low single digits compared to the same period last year. We saw an increase in our volume for our European fighter programs and for both U.S. and European military rotorcraft programs. This was offset by lower volumes for launchers and rocket motors in space. First quarter volumes for this segment also reflect the inherently uneven nature of defense program funding and spending, which can vary from quarter to quarter. We expect to see the impact of increased defense spending in areas such as missiles begin to impact us favorably later this year. As we have discussed in previous calls, the organic growth in the defense and space market is a strategic priority for Hexcel, and we remain confident in the long-term opportunity.

Defense spending trends for procurement of new platforms by the U.S. and Western-aligned countries continue to indicate increased multiyear defense spending, underscoring the durability and scale of the current rearmament cycle. This increased defense and space spending highlights opportunity for Hexcel, as our advanced composite materials enable greater range, increased payload, and enhanced performance characteristics, such as low observability for military and space platforms. All these are areas that differentiate Hexcel. In terms of our balance sheet, at the end of Q1, we refinanced our $750 million revolver, extending its maturity to 2031. This refinancing terminated our previous revolver that was set to mature in 2028. This action further reinforces our strong liquidity position.

As part of our ongoing work to streamline Hexcel's portfolio towards markets that value our high-performance aerospace carbon fiber, we remain on track with the transition of our Leicester, U.K. business from industrial applications to aerospace development. The restructuring costs from our transformation at Leicester impacted our results this quarter. To recap, our first quarter results reflected the forecasted rise in commercial volumes we anticipated and our expectations that operating leverage will be beneficial. Our operations typically use cash in the first quarter of the year. In this quarter, cash usage was low and noticeably favorable compared to past history. This gives us confidence in the 2026 full-year guidance that we provided in our previous earnings call, despite the macroeconomic challenges. While uncertainty in the global environment remains elevated, the market fundamentals support sustained demand for Hexcel's lightweight composite material across commercial, defense, and space markets.

With our broad product portfolio, market-leading position, and continued operational discipline, we are well positioned to navigate near-term uncertainty and deliver long-term value for our shareholders and other stakeholders. With that, I'll turn the call over to Mike to walk through the first quarter financial results in more detail. Mike?

Thank you Tom. Sales growth was strong in the first quarter of 2026 as commercial aerospace platforms ramped and the higher volume drove margin expansion from operating leverage. Total first quarter 2026 sales of $502 million increased 8.8% in constant currency, reflecting strong growth in the commercial aerospace market. This commercial aerospace growth was partially offset by lower defense, space, and other sales, following the divestment of the Austrian industrial business on September 30th, 2025. By market, commercial aerospace first quarter 2026 sales were $333 million, increasing 19% compared to the first quarter of 2025. Commercial aerospace comprised approximately 66% of the total quarterly sales. Sales increased for all four of the major platforms, including the Airbus A350 and A320 and the Boeing 787 and 737.

Sales growth of the two Boeing platforms was particularly strong, which was admittedly an easier year-over-year comparison as our first quarter 2025 sales to Boeing were light. Sales for other commercial aerospace in the first quarter increased 15.6% year-over-year, with strength in both business jets and regional jets. Defense, space, and other first quarter sales of $169 million represented approximately 34% of total sales. First quarter sales decreased 6.9% on lower industrial sales following the divestment of the Austrian industrial business last year. Year-over-year comparisons will be influenced through the third quarter of this year due to this previous divestment. Further, as we proceed with the ceasing industrial operations of our Leicester, U.K. site, as disclosed last quarter, that will add an additional decrement to year-over-year comparisons, as the Leicester site annual sales have been around $15 million annually.

In terms of the defense and space business, international military sales were strong in the fourth quarter, including the Rafale and Typhoon fighter aircraft, as well as European military helicopter programs. Domestically, the CH-53K and Black Hawk sales were strong in the quarter. Space sales were softer year-over-year for launchers and rocket motors. Gross margin of 26.9% for the first quarter of 2026 increased from 22.4% in the first quarter of 2025 on volume, mix, and price realization. Rising carbon fiber sales support asset utilization, which drives margin expansion from improved cost absorption. In addition, we had a non-recurring favorable effect from the timing of inventory utilized. As a percentage of sales, operating expenses, including selling, general, and administrative expenses, and R&D expenses, were 13.4% in the first quarter of 2026, compared to 12.5% in the comparable prior year period, with the increase primarily reflecting R&D expenses.

A portion of this was the timing of R&D activities as we continue to invest in innovation to secure a position on the next generation aircraft. Adjusted operating income in the first quarter was $68 million, or 13.5% of sales, compared to $45 million, or 9.9% of sales in the comparable prior year period. Foreign exchange has become a headwind as the impact of a weaker dollar is now being felt following a lag resulting from our hedging program. First quarter 2026 operating margin was negatively impacted by approximately 80 basis points from foreign exchange. In contrast, first quarter of 2025 had a favorable impact of approximately 60 basis points from foreign exchange. Now turning to our two segments. The composite materials segment represented 80% of total first quarter sales and generated an adjusted operating margin of 17.6%.

This compares to an adjusted operating margin of 14.2% in the prior year period. The Engineered Products segment, which is comprised of our structures and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 14.6%. This compares to an adjusted operating margin of 6.8% in the prior year period. Net cash provided by operating activities in the first quarter 2026 was $90 million, compared to a use of $29 million last year. Working capital was a cash use of $63 million, compared to a cash use of $98 million last year. Capital expenditures on an accrual basis were $18 million in the first quarter of 2026, compared to $17 million in the comparable prior year period. Free cash flow in the first quarter of 2026 was a use of $6 million, compared to a use of $55 million in the first quarter of 2025.

Q1 is historically a cash use quarter, but this year was less than typical as the timing considerations we highlighted regarding Q4 2025 cash flow normalized in Q1, in addition to the improved EBITDA results. Adjusted EBITDA totaled $107 million in the three months of 2026, compared to $85 million in the first three months of 2025, or an increase of 26%. We refinanced our $750 million indicated revolver at the end of March, extending the maturity to 2031 from 2028, with a slight improvement to pricing. There were no substantive changes to covenants, and this maturity extension enhances our medium-term liquidity and improves our debt maturity profile. Leverage, defined as net debt to last 12 months adjusted EBITDA, was 2.6x at March 31, 2026, and our leverage remains elevated following our revolver borrowing in October 2025 to finance an accelerated share repurchase.

We remain committed to a disciplined financial policy and to returning leverage to the targeted range of 1.5-2 times during 2026. The accelerated share repurchase concluded in early March with approximately 4.5 million shares repurchased, or almost 6% of our outstanding float. Since the beginning of 2024, we have returned over $800 million to stockholders through dividends and share repurchases. The company did not repurchase any shares of common stock in the first quarter of 2026, and the remaining authorization under the share repurchase program at quarter end was $381 million. The board of directors declared a $0.18 quarterly dividend yesterday, and the dividend is payable to stockholders of record as of May 4th, with a payment date of May 11th.

In closing, we had a solid first quarter and as Tom mentioned, we have reaffirmed our 2026 guidance, including adjusted EPS of $2.10-$2.30. Our expectation remains for a roughly even split between the first and second half of 2026.

Consistent with normalized historical seasonality. There remain a number of potential puts and takes, with uncertainty from the Middle East conflict and higher oil prices a potential headwind, whereas the possibility of faster customer rate ramp could become a tailwind as the year progresses. Before I turn it back to Tom, I want to state how much I've valued my time as CFO and the privilege of working with an exceptional team producing such differentiated products for our customers. With that, back to you Tom.

Thank you Mike. Before we open the call for questions, I want to thank Mike for his leadership and contributions as our Interim Chief Financial Officer. Mike stepped into this role at an important time for Hexcel, providing steady leadership while we conducted a search for Hexcel's next CFO. Mike worked with us to close out 2025, assisted with executing the accelerated share repurchase, built the plan for 2026, participated and led the finance sections in two board meetings, refinanced our revolver, and participated in two earnings calls. Quite a set of accomplishments for an Interim CFO. With the hiring of Jamie Coogan, who starts May 1st as Hexcel's next CFO, Mike will finish out his tenure and support Jamie in his transition into the new role. Mike came into this role and was not just a caretaker.

He brought new perspectives and helped us get better in a variety of financial areas. On behalf of the Hexcel board and the entire management team, I want to thank Mike for his commitment and the impact he made during his time with Hexcel. Thank you very much Mike. To close out, our first quarter performance reinforces our confidence in the direction of the business and Hexcel's value proposition. As commercial aerospace production continues to recover, we will benefit from improving operating leverage, supported by our disciplined approach to bring capacity back online, control costs, and focus on safety and quality. The long-term fundamentals across commercial defense and space remain strong, and Hexcel's differentiated portfolio, technical capabilities, and customer relationships position us well to deliver growth and value over the long term. With that Julianne, we'll take some questions.

Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. In the interest of time, we ask that you please limit yourselves to one question and one follow-up question. Thank you. Our first question will come from David Strauss from Wells Fargo. Please go ahead. Your line is open.

Thanks. Good morning.

Morning.

Tom, is there any change in your forecast? I think you had forecast commercial up low to mid double digits for the year. Is there any change there given the potential upside you're talking about on rates? Second question on the composite materials margin, it looks like the incrementals there were north of 40%. I think you're absorbing a decent kind of FX headwind. How did you get there this quarter and how you're thinking about incrementals from here? Thanks.

Great. In terms of the outlook on commercial, we're basically saying that we're going to hold to our guidance and our overall plan with some puts and takes. We do see a little bit of upside on the A350 from the 80, based on the Airbus master schedule, based on our bottoms-up forecasting, and based on the POs that we already have, the firm POs. We see upside on the 737, as I mentioned, and 787 is about flat, but we do see some pressure on the A320. As I said, our original forecast was 700-750, so low 700 to mid 700. Now we're saying it's going to be at the low end of that range because Airbus has highlighted that with the engine situation, they're expecting to deliver fewer A320s this year.

Net-net, we see basically a flat outcome for the year in terms of our plan, but substantially up from last year. Again, higher on A350, 737, flat on 787, and a little down on the A320. In terms of the margins, this quarter really benefited from a few things. One, we had strong volume performance. Secondly, we did get some price on a couple of contracts with customers that customers gave you in the normal course of events, and we were able to capture that. We also benefited, as Mike mentioned in his remarks, from inventory that was built last year and was on the books at a lower cost. When we sold it, we got the benefit from that. It was just a lot of operational discipline, holding the line on costs, driving productivity in the factories, and that helped improve our margins.

Overall, we were very pleased with that outcome.

All right. Thank you.

Thanks.

Our next question comes from Sheila Kahyaoglu from Jefferies. Please go ahead. Your line is open.

Good morning and thank you. Tom, thanks for all the color. Just given, clearly the volume incrementals are dropping through really nicely. Maybe on just the A350, where the mix can be particularly helpful, it sounds like you're feeling better about the destocking trend there, and it's only the A320 that's an issue. You mentioned favorable inventory sales timing in Q1. How does the A350 ultimately flow through to the top line and margin profile as we move through the year?

Right. What we see typically Sheila is, when our volume goes up, we get better operating leverage because we're using more of our capacity. That drives the operating leverage for improved margins. When I say capacity, we have 14 carbon fiber lines in Salt Lake City. We had four of those mothballed during most of the pandemic. We brought one on at the end of last year, we'll bring on another one this year. As we go through the year and rates increase, particularly on the A350, using that additional capacity will create more operating leverage for us. As we bring the next line on, that will create even further operating leverage. That's really the way it translates. The increased volume allows us to utilize more of the capacity. That absorbs more fixed costs and increases the operating leverage, which drives margins.

Got it.

As I mentioned on the increase, we expect to see the rates continue to increase. As Airbus has said, they're at seven, they're planning to go to eight. We may see nine before the end of the year, and that's why we feel comfortable right now with our outlook of 80 and maybe a little bit of upside to that as we go through the year.

Got it. Just the volume on Defense, when do you expect that to really accelerate given some of the opportunities you have in your portfolio and how we see the budget come through?

Right. Well, Defense is sometimes it's lumpy, like on space launchers and satellites. We do see lumpiness on that, and we saw that this quarter. For example, there was one program that we supplied, the Vulcan, which has been paused, and so that was a pretty good number last year. In the first quarter it was fairly negligible. That's an example of the lumpiness. We saw the same in Europe with some launch systems. On missiles, for example, we're at a very good rate right now, but that gets better and we start to see it really jump in the third and fourth quarter of this year because there have been a lot of new orders for missiles and that's starting to flow through. It hasn't flowed through yet. It'll flow through later in the year.

On some of the other programs that we're on, I would say they're still in the EMD phase, in terms of engineering, manufacturing, development, going into LRIP, low rate initial production. Over time, as those rates start to ramp up from low rate initial production into full rate production, we'll start to see the benefit of that. It's a slow build, but we are starting to see it, and it'll become more material in the third and fourth quarter this year.

Got it. Thank you.

Thanks Sheila.

Our next question comes from Scott Mikus from Melius Research. Please go ahead. Your line is open.

Morning Tom and Mike. Very nice numbers. Tom, if the numbers in my model are correct, I think the $281 million of commercial aero sales of composite materials is the highest for any quarter since the first quarter of 2020, which wasn't really impacted by COVID. Wide body production rates are still below pre-COVID levels. I'm just curious, was there a restocking benefit? Then on the pricing comments, was there any specific end market or program that was particularly strong from a pricing perspective?

Right. Okay. I'll do the first one. Yeah, commercial aero sales were high, and even though wide body production is still below where it was in 2019, and we expect it to be below for a couple of years, we are seeing the benefits of that increased production. We didn't see the restocking that we saw last year. We saw that our deliveries were more in line with the OEM production rates, and so that suggests to us that that's normalizing and we're not seeing the destocking. That's a positive. In terms of the pricing, it was not in any particular area. It was just several contracts that came up for renewal in the normal course of events. As I've said before, whenever that happens, we do try to align current market conditions with pricing on those contracts. We got the benefit of that in Q1.

We'll continue to see that on a regular basis as we go forward. Our contracts tend to be five-7seven years. Every year between 15%-20% of our contracts come up for renewal and we renegotiate them. We have been getting better prices to align with some of the inflation and the higher costs in labor, material, and utilities and logistics that we've seen in recent years.

Okay, great. You sounded upbeat on the A350 outlook for this year. Airbus has owned Kinston now for over five months. Based on your conversations with Airbus, is that facility no longer an issue when it comes to A350 production and mainly that ramp just comes down to business class seats and to a lesser extent, engines?

Well, I'll let them speak to the specifics of it, but certainly they now have full control of it and they're able to control their own destiny. They've been fairly optimistic in terms of their schedules, and what we look at is our bottoms up demand estimate, where we talk to every plant, including Kinston, and that's been very strong. We look at the firm POs. Our POs are generally firm five months out into the future. We're starting to see the POs already for September, which is post the August shutdown, and those are very strong as well. It's on the basis of that that we're optimistic on the outlook for the year.

Okay, thanks for taking the questions.

Thanks Scott.

Our next question comes from Myles Walton from Wolfe Research. Please go ahead. Your line is open.

Thanks. Mike, you mentioned guidance split roughly in half, first half versus second half. Were you referring to sales, EPS or both?

I was referring to EPS. That was in the context of the $2.10-$2.30. Yes.

Got it. That $0.10 or so decline that you're pointing to at the midpoint, is that mostly based on margins being lower within CM because of the lack of benefit from the inventory you had in the first quarter?

Well, okay. A couple of things as you think about margins and trajectory going forward. Certainly, that was a non-recurring benefit of relatively significant or I wouldn't have mentioned it. There are other considerations as we move through the year. Tom mentioned about lines coming back on, which is great because we're carrying the depreciation and get the leverage for that. But you'll also have some startup costs when you open up a new line and the phasing of hiring and that. There's always an ebb and flow along the way. As we look at the balance of everything, like Tom said.

Seems pretty good through September. We'll see what the Q4 comes in later down the road. We saw that as the right balance of conservatism as well as looking at the potential opportunity later in the year as well.

Okay. Tom, anything you want to comment on the M&A pipeline or outlook for inorganic growth?

Right. Well, right now Myles, our focus is really 100% on executing on the production ramp, then also making sure we're driving our R&D and innovation together on the next generation aircraft, and then focusing on organic growth in our core businesses and in defense in particular. As you know, we did the ASR last year in October, and we took $350 million out of our revolving credit facility, and we committed that we would pay that back and get our leverage down back below two. As Mike said, we're at 2.6-2.7 right now. Our goal is to get back under two by the end of this year. We're not really planning on any M&A until we get to that point.

In the future, the focus for M&A will be looking at things that are advanced material science and have an ROIC of 15% or greater. In the absence of that, we will continue to repurchase shares in the future, but not until we get back below two times our net debt to EBITDA leverage.

Thank you.

Thanks.

Our next question comes from Ken Herbert from RBC Capital Markets. Please go ahead. Your line is open.

Yeah. Hey Tom. Good morning. Nice results. I wanted to see if you can provide a little more detail as to how you're managing risk on specifically your European manufacturing footprint. I know you went through some of this detail on the call, and we've had a number of questions on this over the last month as we've seen greater volatility, obviously, in input costs. Can you just help framing the risk there and help with confidence that you won't see any sort of uptick or inflated risk as a result of what's happening with energy prices or other input costs globally, but in particular with your European footprint?

Great. A couple of things. First of all, most of what we buy for production in the U.S. and Europe comes from the U.S. and Europe, over 90%. We have that sort of natural edge. In Europe in particular, we do have a forward buying program on things like natural gas that give us a little bit more stability in the energy outlook. Now, of course, if things persist for a very long period of time, we'll see the impact of that in out years. For the next couple of years, we feel very confident with our hedging program and our forward buying program that will help mitigate some of those costs.

The fact that most of what we buy in for European production comes from Europe and not from outside of Europe or from some of the regions that are more impacted by the current events.

Yeah Ken as Tom said, we layer in sort of sequentially as you go out over several quarters, both the hedging of the propylene as well as the pre-buy. In the near term, you're the most covered, as it were, and then that obviously fades off as you go out into later periods. Again, none of us have a precise crystal ball as to what exactly how events will unfold here over the next few months.

Right. In fairness, too, is most of our production of carbon fiber is in the U.S. We've got 14 lines in the U.S., two in Europe, one PAN line in Europe and seven in the U.S. Again, we tilt a little bit more toward U.S. production. Now, prepreg is mostly in Europe, which is near the Airbus plant, but the carbon fiber production is tilted toward the U.S.

Great. Thanks for that color. If I could Tom, you've mentioned a few times, again, spending to support next-generation aircraft. Do you have any updated thinking in your spending as to when we could hear about announcements from your customers? And not that you'd get in front of anything they might say, but is the timing accelerating? Has your timing on this changed at all as you think about next-generation clean sheet aircraft?

No, it hasn't changed. We're still consistent with what the OEMs have both declared publicly, which is that they wouldn't make a decision for another couple of years, maybe launch a program by the 2030 timeframe with an entry into service in the late 30s. Nothing has changed on that. There's a lot of discussions that are going on right now for all different parts of the aircraft, looking at not only what type of carbon fiber and resin system, but also what type of production process. We're deeply engaged in those discussions with both airframe OEMs, Airbus and Boeing, but also with the engine OEMs. Those discussions are continuing, and I expect that they'll stick to their timeframe that they've announced publicly.

Thank you.

Thanks.

Our next question comes from Gautam Khanna from TD Cowen. Please go ahead. Your line is open.

Hey thanks. Good morning guys.

Morning.

I wanted to ask you if you could quantify what you think your A350 shipment rate was in the first quarter, and maybe if you could give it for some of the other programs as well?

Okay. Just roughly, I'd say A350 was at about seven, a little bit underneath seven. 787 was a little bit above seven. Both of them are talking about going to eight later this year. Boeing is talking about going above that, and Airbus is the same for its A350. As I said, we think we could see nine before the end of the year. On the A320, we were just under 60-ish, so kind of in line with where Airbus is, but that's good. And as I said, we're usually ahead of the OEMs, and our production is a little bit more of an estimate because we're looking at the quantity of material, and we're also about 6 months ahead of them in terms of where they are. It's not deliveries that we're looking at so much as production.

On the MAX, as I said, we're in the 40 range, which is consistent with where Boeing has said they are. They've been tracking very nicely, and they're expecting to go to 47 later in the year, so we will be prepared for that. On the 787, as I said, we're a little bit ahead of seven, and they're tracking nicely to the 90-100 that they indicated last year. That still seems to be a good number. That's how we look at each of the rates.

Perfect. Thank you very much. Appreciate it.

You're welcome.

Our next question comes from Jordan Lyonnais from Bank of America. Please go ahead. Your line is open.

Hey, good morning. Thank you for taking the question. Last quarter, you guys talked about selective hiring for the A350 ramp up. Could you just give us a sense of where you are in the hiring? Two, how you're thinking about hiring for everything else that is also ramping up?

Right. Well, because our production is fungible across all of the programs, our hiring is kind of aggregate. I'll give you the overall. As we said, we were a little bit heavy last year in terms of staffing because we had expected higher rates. We hired people. They didn't come. We ended up hiring, but there was no point in obviously laying them off because we knew we had to hire them back this year and train them. We held onto that, and that impacted some of our margins last year. This year we expect to hire around 400 people, direct labor, to help support the production. Through March, we hired about 200, about half of them. Because we saw the rates going up a little bit, we were expecting to not start hiring in bulk until the middle of the year.

With the higher rates, we started a little bit earlier. We had about 200 in the first quarter. We expect 400 for the year to support the plan that we have in front of us.

Got it. Thank you so much.

Thanks.

Our last question will come from Scott Deuschle from Deutsche Bank. Please go ahead. Your line is open.

Hey, good morning. Mike or Tom, is this step up in R&D likely to continue over the rest of the year, or should it normalize back down from these levels?

Yeah. Hey Scott. A couple considerations at play here. Just broadly, our overall R&D headcount is actually down year-over-year. Remember, R&D spending involves other activities as well. We had a degree of an increase in Q1, just with the timing of certain activities related to that. As well as, if you start any fiscal year, you look at and revisit where your costs are flowing. There was a couple of items that were in the factory cost centers that we identified that are really dedicated and are related to R&D. There was a little bit of a bucket shift there. Nothing drastic or radical. I would just give you that context for that, Tom.

Yeah. Well, that's exactly right. When we are doing testing of new carbon fibers to increase tensile strength and modulus and compression, we have to produce batches of test material. Those batches historically just stayed in with the plant. Because they're picking up now and there's a little bit more material, we're allocating them more properly to R&D. You'll see some of that, and that's the bucket shift that Mike mentioned. In general, we are stepping up R&D to make sure that we have the right products in front of our customers as they make their decisions in the next generation product.

You will see a slightly elevated R&D as we go forward, some of it being the bucket shift and some of it just being, we are stepping it up to be right in line with where the OEMs are, both the airframers and the engine makers for the next generation aircraft.

Okay great. Tom, the high end of guidance implies the average EPS over the next three quarters is about in line or actually even slightly lower than the $0.59 you printed this quarter. I understand you had the inventory sale benefit, but unless that was really big, it would seem there'd be pressure to grow EPS off this first quarter base, given the build rate increases. Just curious if you could just clarify the puts and takes as you go into 2Q and beyond.

Yeah. As Mike said, we're going to be about half and half on EPS over the course of the year, the first half, second half. This was a strong start to the year. Obviously we're going to continue to drive forward on production rate efficiencies, holding the line on costs, driving productivity in the factories. We feel comfortable with the outlook. It's about balance, as I said, first half, second half. With all the uncertainty with regard to production rates and the trade and oil, we feel it's prudent right now to just hold the line and maintain guidance. We'll certainly try to drive productivity and improve on it. For right now, as we said, about half and half in the first half in the second.

Yeah. Scott as we mentioned, we're very well mitigating all of the various cost increases here in the near term, but not completely 100%. We're just being thoughtful about that. You see it, while everybody focuses on oil per se and those inputs, just as it is within the broader economy, a prolonged elevation of that type of situation, you see that in a lot of other things such as shipping costs and others. Again, it's just being prudent and balanced as we think about the full year. As I mentioned earlier, there's the phasing of these startup of the lines with startup costs and the, you got to bring the hiring on before you realize the business and the flow through of it. Again, just taking all those into consideration there, we felt this was the balanced outlook.

Like Tom said, hopefully we see some further acceleration, and that could lead to potential upside.

Understood. Thank you.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.