Hexcel Corporation ($HXL)

Good morning, and welcome to Hexcel's First Quarter 2026 Earnings Call [Operator Instructions] 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. 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 fledweight material solutions. Our market position benefits from our deep technical expertise vertical integration at scale and outstanding 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 for near-term cost volatility. While some of the inputs to our products are petroleum-based, most of what we buy is under long-term contract. We also hedged propylene, a petroleum derivative for 8 quarters. These mechanisms mitigate much of the near-term impact from higher oil prices for our feedstock, 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 business. Jet fuel is one of the largest operating cost for airlines, which reinforces the importance of efficiency and lightweighting. 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 lightweighting even more critical. This renewed emphasis on fuel efficiency directly benefits Hexcel. Turning to our first quarter results. XLT 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 in the same period in 2025. Sales increased across all 4 major programs, the Airbus A350 and the A320 and the Boeing 787 and 737 MAX. Other commercial aerospace sales increased 15.6% over the same quarter in 2025 on the strength of regional and business jets. As we have discussed in prior quarters, 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 a 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 4 to 6 months ahead of the OE aircraft assembly so our assumptions are based on production, not OE delivered. 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 be at the lower end of our guidance of low 700 for the year rather than low to mid-70s. We remain confident in the overall catalyst for increased OEM production rates on the A320 to continue going forward. On 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 the 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 exceeds that. On the 787, our forecast was 900 units, and that continues to be our expectation. As commercial production rates at the OEM 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 capacity online to ensure incremental costs are aligned with that sustained demand and that the benefits of higher production rates are not dilutive. Throughout this process, our propriety 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 handling each other out, and we are maintaining our full year guidance. Turning to the Defense Base & 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 & 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 the 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 line countries continue to indicate increased multiyear defense spending. Underscoring the durability and scale of the current rearmament cycle. This increased defense and space set spending highlights the opportunity we have known as our advanced composite materials enable greater range, increased payloads 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 Lester U.K. business from industrial applications to aerospace development. The restructuring costs from our transformation at Lester 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, and 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, 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 ramp 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 30, 2025. By market, Commercial Aerospace first quarter [indiscernible] 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 4 of the major platforms, including the Airbus A350 and A320 and the Boeing 787 and 737. Sales growth for the 2 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 fines 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 Ocean industrial business last year. Year-over-year comparisons will be influenced through the third quarter of this year due to this previous divestment. And further, as we proceed with the ceasing industrial operations of our Western U.K. site as disclosed last quarter, that will add an additional decrement to year-over-year comparisons as the Lester site annual sales have been around $15 million annually. In terms of the Defense & Space business, international military sales were strong in the fourth quarter, including the Rafael and Typhoon fighter aircraft as well as European military helicopter program. Domestically, the CH-53 pay and Black Hawk sales were strong in the quarter. Base sales were softer year-over-year for launches and right Motors. Gross margin of 26.9% for the first quarter of 2026 increased from 22.4% in the first quarter of 2020 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 nonrecurring 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 2 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 '26 was $19 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 this year was less than typical as the timing considerations we highlighted regarding 4Q '25 cash flow normalized in Q1 in addition to the improved EBITDA results. Adjusted EBITDA totaled $107 million in the 3 months of 2026 compared to $85 million in the first 3 months of 2025 or an increase of 26%. We refinanced our $750 million syndicated revolver at the end of March, and a maturity through 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 improve 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 to 2x 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 2026 and the remaining authorization under the share repurchase program at quarter end was $381 million. The Board of Directors declared an $0.18 quarterly dividend yesterday, and the dividend payable to stockholders of record as of May 4, with a payment date of May 11. In closing, we had a solid first quarter. And as Tom mentioned, we have reaffirmed our 2026 guidance, including adjusted EPS of $2.10 to $2.30. Our expectation remains for a roughly 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 want to 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. And with that, back to you, Tom.

Thank you, Mike. And 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 with us to close out 2025, assisted with executing the accelerated share repurchase built the plan for 2026 and participated and led the finance sections and 2 Board meetings, refinanced our revolver and participated in 2 earnings calls. Quite a set of accomplishments for an interim CFO. With the hiring of Jamie Coogan, who starts May 1 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. Long-term fundamentals across commercial, defense and space remains strong. And Hexcel's differentiated portfolio, technical capabilities and customer relationships resisting us well to deliver growth and value over the long term. With that, Julian, we'll take some questions.

[Operator Instructions] Our first question will come from David Strauss from Wells Fargo.

Tom, is there any change in your 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? And then 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. What kind of -- how did you get there this quarter and how you're thinking about incrementals from here.

So in terms of the outlook on commercial, we're basically saying that we're going to pull to our guidance and our overall plan with some puts and takes. So 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. We see upside on the 737, as I mentioned, and 787is about flat. But we do see some pressure on the A320. As I said, our original forecast was 700 to 750 so low 700s, to mid-700. And 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. So net-net, we see basically a flat outcome for the year in terms of our plan, but substantially up from last year. So again, higher on A350 and 27%, flat on 87 and a little down on. 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 send 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 since when we sold it, we got the benefit from that. And then it was just a lot of operational discipline, holding the line on costs, driving productivity in the factories, and that helped improve our margins. And so overall, we were very pleased with that outcome.

Our next question comes from Sheila Kahyaoglu from Jefferies. .

Tom, maybe just given -- and clearly, the volume incrementals are dropping through really nicely. Maybe on just 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. So 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?

Great. Well, what we see, typically, Julie, is when our volume goes up, we get better operating leverage because we're using more of our capacity. And so that drives the operating leverage for improved margins. And when I say capacity, we have 14 carbon fiber lines in Salt Lake City. We had 4 of those mothballed during most of the pandemic. We brought 1 on at the end of last year. We'll bring on another 1 this year. And so as we go through the year and rates increase, particularly on the A350, using that additional capacity will create more operating leverage for us. And as we bring the next line on, that will create even further operating level and so that's really the way it translates. Increased volume allows us to utilize more of the capacity that absorbs more fixed cost and increases the operating leverage, which drives margin. And as I mentioned, we expect to see the rates continue to increase. As Airbus has said, they're at 7, they're planning to go to 8. We may see 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.

And then just volume on defense. I wouldn't 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. We saw that this quarter. For example, there was 1 program that we supply, the Vulcan, which has been paused. And so that was a pretty good number last year. And in the first quarter, it was fairly negligible. And so that's an example of the lumpiness. We saw the same in Europe with some launch systems. But 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. But it hasn't flowed through yet. It will flow through later in the year. And then 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. And so over time, as those rates start to ramp up from low rate initial production and the full rate production, we'll start to see the benefit of that. So it's a slow build, but we're starting to see it and it will become more material in the third and fourth quarter this year.

Next question comes from Scott Mikus from Melius Research. .

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. So I'm just curious, was there a restocking benefit? And 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. Yes, 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 rate and so that suggests to us that, that's normalizing, and we're not seeing the destocking. So 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. And as I've said before, whenever that happens, we do try to align current market conditions with pricing on those contracts. And we got the benefit of that in Q1 and so we'll continue to see that on a regular basis as we go forward. And our contracts tend to be 5 to 7 years. So every year between 15% and 20% of our contracts come up for renewal, and we renegotiate them, and we have been getting better prices to align with some of the inflation and the higher cost of labor materials and utilities and logistics that we've seen in recent years.

Great. And then you sounded upbeat on the A350 outlook for this year. Airbus is on Kinston now for over 5 months. Based on your conversations with Airbus, is that facility no longer 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. And then we look at the firm POs. Our POs are generally firm 5 months out into the future. So we're starting to see the POs already for September, which is post the August shutdown and those are very strong as well. So it's on the basis of that, that we're optimistic on the outlook for the year.

Next question comes from Myles Walton from Wolfe Research.

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 $210 million to $230 million, yes.

And so 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?

So a couple of things as you think about margins and trajectory going forward. Certainly, that was a nonrecurring 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 start-up costs when you open up a new line and the phasing of hiring in that. So there's always an ebb and flow along the way. So as we look at the balance of everything, like Tom said, seem 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.

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

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 to get 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 2. So as Mike said, we're at 2.6%, 2.7% right now. Our goal is to get back under 2 by the end of this year. And so we're not really planning on any M&A until we get to that point. But 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. And in the absence of that, we will continue to repurchase shares in the future. But not until we get back below 2x our net debt-to-EBITDA leverage.

Next question comes from Ken Herbert from RBC Capital Markets.

Nice results. I wanted to see if you can provide a little more detail as to how you're managing risk on specifically European 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 cost. Can you just help framing the risk that 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. So a couple of things. First of all, most of what we buy for production in the U.S. and Europe comes from U.S. and Europe, over 90%. So 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. But 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. And 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.

Ken, as Tom said, we layer in sequentially as you go out over several quarters, both the hedging of the propylene as well as the prebuy. So in the near term, you're the most covered as it were. And then that obviously fades off as you go out in the later period. But again, none of us have a precise crystal ball as to what exactly how events will unfold here over the next few months.

And in fares to is most of our production of carbon fiber is in the U.S. So we've got 14 lines in the U.S., 2 in Europe, 1 Paline in Europe in 7 in the U.S. So again, we tilted a little bit more towards U.S. production. Now preCrag is mostly in Europe, which is near the Airbus plants, but the carbon fiber production is tilted towards the U.S.

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 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 sort of next-generation pre-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 time frame with an entry of service in the late 30s. And so nothing has changed in that. But 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. And so we're deeply engaged in those discussions with both airframe OEMs, much in Boeing, but also with the engine OEM. And so those discussions are continuing, and I expect that they'll stick to their time frame that they've announced publicly.

Our next question comes from Gautam Khanna TD Cowen.

I wanted to ask you just if you could so 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. .

Just roughly, I'd say A350 was at about 7%, a little bit underneath 7. 787 was a little bit above 7%. Both of them are talking about going to in 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 9% 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. So it's not deliveries that we're looking at so much as production. On the math, 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. And on the 787, we were a little bit ahead of in and they're tracking nicely to the 90 to the 100 that they indicated last year that still seems to be a good number. So that's how we look at each of the rates.

Our next question comes from Jordan Lines from Bank of America. .

Last quarter, you guys talked about a selective hiring for the A350 ramp up. Could you just give us a sense of where you are in the hiring? And then 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. So I'll give you the overall. So, as we said, we were a little bit heavy last year in terms of staffing because we had expected higher rates. We hired people that didn't come. So, we ended up higher. But there was no point in, obviously, laying them off as we knew we had our hiring back this year in train. So we held on to 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. And through March, we hired about 200 about half of -- so we -- because we saw the rates going up a little bit, we were expecting to not start hiring in volt until the middle of the year. But with the higher rates, we started a little bit earlier. So 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.

Our last question will come from Scott Deuschle from Deutsche Bank.

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?

Scott. So a couple of considerations that play here. Just broadly, our overall R&D head count is actually down during year. But remember, R&D spending involves other activities as well. So 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 are your costs are flowing and there was a couple of items that were in the factory cost centers that we identified would be that are really dedicated and related to R&D. So there was a little bit of a bucket shift there, nothing drastic or radical. So I would just give you that context for that. .

Yes. Well, and that's -- that's exactly right. So 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. And those batches historically just stated it with the plant because they're picking up now, they're a little bit more material. We're allocating them more properly to R&D. So you'll see some of that. And that's the bucket shift that Mike mentioned. But 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 products. So 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. And then Tom, the high end of guidance implies the average EPS over the next 3 quarters is about in line or actually even slightly lower in the $0.59 you pen 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. And so was just curious if you could just clarify the puts and takes as you go into the...

Mike said, we're going to be half and half on EPS for 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. And so we feel comfortable with the outlook it's about balance, as I said, first half, second half. And with all the uncertainty with regard to production rates in the trade and oil, we feel it's prudent right now to just hold the line and maintain guidance, but we'll certainly try to drive productivity and improve on it. But right now, as we said, about half and half, half in the first half.

Yes. And Scott, the -- as we mentioned, we're very well mitigating all of the various cost increases here in the near term, but not completely 100%. So 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, but prolonged elevation of that type of situation. You can see that a lot of other things such as shipping costs and others. So again, just being prudent and balanced as we think about the full year. And as I mentioned earlier, there's the phasing of the startup of the lines with start-up costs and you got to bring the hiring on before you realize the business and the flow-through of it. So again, just taking all those into consideration there, we felt this was the balanced outlook. And like Tom said, hopefully, we see some further acceleration, and that could lead to potential upside.

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