Working for customers it could not have served a year ago

Hexcel Corporation (HXL) — this company's answers

The model's full reasoning — Q4 2015 call → NOWe need to determine if management conveys a capability step-change with all three elements. Let's analyze the transcript. Key points: Management discusses various operational improvements, new facilities, acquisitions, etc. But we need a specific capability that the company can now do that it couldn't a year ago, and that real customers are already paying for, and it's early. Possible candidates: - New ERP system implementation completed. But that's internal, not necessarily a customer-facing capability. They say it will generate improved efficiencies, but not a new class of work. - New carbon fiber and pan line in France under construction, qualification next year. Not yet operational. - Formax acquisition completed. This is a new capability? They acquired Formax, which has unique reinforcement technology. But is it already paying? They completed acquisition in early January 2016, and this call is January 22, 2016. They say they expect to fully integrate. But do they have paying work? They say "Thanks to the Formax acquisition, we expect industrial market to be up 10% to 15% in 2015" (probably a typo, they mean 2016). But that's forecast, not current paying work. Also, Formax business is existing, but it's an acquisition, not a capability step-change from within. The question asks: "CAN NOW ACTUALLY DO SOMETHING that it COULD NOT DO ROUGHLY A YEAR AGO" - acquiring a company gives new capabilities, but is that a step-change? The acquisition gives them new technology and products. But is it already paying? They have the business, but they haven't integrated yet. They say "completed 100% acquisition of Formax in early January" - so it's new. But they haven't described specific paying customers exercising a new capability that they couldn't do before. Also, the acquisition is not a "capability" in the sense of doing something they couldn't do before; it's buying an existing business. - They mention automotive: Hexcel materials used to reinforce B-pillar of new BMW 7 series. This is a specific application. Is that a capability they couldn't do a year ago? They say "Our efforts for differentiating our materials for the premium automotive market are also bearing fruit." They developed a fully automated production system to make material assemblies. That could be a new capability.

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