Hexcel Corporation (HXL) Q1 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to this Hexcel First Quarter 2012 Earnings Conference Call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I will now turn the call over to Wayne Pensky, Chief Financial Officer. Please go ahead, sir.

Great. Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 2012 first quarter earnings conference call on April 24, 2012. Before beginning, let me cover the formalities. First, I want to remind everyone about the Safe Harbor provisions related to any forward-looking statements we may make during the course of this call. Certain statements contained in this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They involve estimates, assumptions, judgments and uncertainties caused by a variety of factors that could cause future actual results or outcomes to differ materially from our forward-looking statements today. Such factors are detailed in the company's SEC filings, including our 2011 10-K, our first quarter 10-Q and last night's press release. Lastly, this call is being recorded by Hexcel Corporation and is copyrighted material. It cannot be rerecorded or rebroadcast without our expressed permission. Your participation on this call constitutes your consent to that request. With me today are Dave Berges, Hexcel's Chairman and CEO; and Michael Bacal, our Communications and Investor Relations Manager. The purpose of the call is to review our 2012 first quarter results detailed in our press release issued yesterday. First, Dave will cover the markets, then I will cover some of the financial details before taking questions.

Thanks, Wayne. Good morning, everyone. We had a great quarter to get 2012 started on the right foot. First quarter sales were $400 million for the first time in the 65-year history of the company, up 22% from the same period in 2011. Our adjusted operating income of $60.6 million for the quarter was a 46% improvement over the first quarter of last year and adjusted diluted EPS of $0.39 was a 56% increase. Thanks to our good execution and strong conversion on the incremental sales, we managed to improve our adjusted operating margin to 15.1%, another record. And it was a 260-basis point improvement over last year's first quarter. Now let me cover the markets using constant dollars to describe sales trends. Commercial Aerospace sales of $242.3 million were up almost 24% in constant currency from last year, with growth in all areas of this market. Total revenues for new programs increased by more than 20% for the year versus the prior year and again, accounted for more than 25% of our total Commercial Aerospace sales. Year-over-year sales to legacy platforms at Boeing and Airbus were also up over 20% from the first quarter of 2011, primarily driven by the increases related to announced future build rates. Sales to Other Commercial Aerospace, which include regional and business aircraft, were up over 15% compared to the first quarter of last year, and showed modest sequential improvements from the fourth quarter. Space & Defense markets were $84.9 million of revenue, up 7% on constant currency basis versus the first quarter of last year. Growth in rotorcraft sales accounted for the entire increase, with particular strength in Europe and Asia. In Industrial markets, sales for the first quarter were $72.9 million, up about 37%. Wind sales were up dramatically over a particularly weak first quarter of 2011 comparison but also have grown sequentially for the last 5 quarters. We expect that we're now at a normalized run rate in Industrial for the balance of the year. Now let me turn it back to Wayne for some additional comments on the financials.

Thanks, Dave. So gross margin of $106 million for the first quarter was 26.6% of sales as compared to 25% in the first quarter of 2011 due to good leverage on the strong sales volume. Our operating income for the first quarter was $60.6 million or 15.1% of sales as compared with adjusted operating income of $41.5 million or 12.5% of sales in 2011. Selling, general, administrative and research and technology costs were about 10% higher in the quarter as compared to last year due to higher variable compensation expenses and the addition of infrastructure and related staffing to support our growth. Foreign exchange rates contributed almost 50 basis points to the higher gross margin and operating income percentages in the first quarter as compared to last year. Our operating income is around 80% hedge for the rest of the year, so for the rest of 2012, it takes about a 7.5% movement in the exchange rates to get just a $0.5 million change in our operating income for the quarter. Our interest expense for the first quarter was $3 million as compared to $4.2 million a year ago. The decrease primarily reflects the lower rates from the February 1, 2011 bond redemption. Effective tax rate for the first quarter was 32%, in line with our guidance and the same as last year's tax rate for the first quarter. Free cash flow on the first quarter was a use of $61 million as compared to a use of $19 million in the first quarter last year. We typically use cash in the first quarter due to seasonal working capital demands and variable compensation payments. This quarter's working capital use was $42 million, primarily driven by the increase in receivables resulting from the $45 million sequential sales growth. In addition to the working capital use, we used $83 million of cash for capital expenditures in the first quarter as compared to $36 million in last year's period. We are still targeting to stand between $250 million to $275 million for capital expansion this year. We expect free cash flow to be a modest use in the second quarter, followed by an offsetting source in the second half so that we will end the year around the same level as we ended the first quarter. That is we expect our free cash flow for the year to be in the range of a use of $50 million to $75 million. This use will be funded by our cash from operating activities and our existing credit facilities. With the strong start and our improved outlook for both sales and margins going forward, we are increasing our 2012 revenue guidance by $50 million to a range of $1.55 billion to $1.65 billion. And we are increasing our adjusted diluted earnings per share about 8% to a range of $1.45 to $1.55. We would now be happy to take your questions.

[Operator Instructions] We'll go first to John McNulty.

This is actually Alina Khaykin [ph] sitting in for John. Just a quick question. Can you comment on where your capacity utilization rates are currently and where do you see that going throughout the year?

Well, as I've said before, once we start adding capacity like we are right now, you're pretty much always at full utilization. So we just keep adding it with the growth and to the extent a new line is not started up yet, we might be at beyond 100%, working a lot of overtime. And when new capacity comes on, it moderates a little bit until it gets filled up. But I think as long as you see growth rates like this, we'll be saying we're fully utilized.

And we'll go next to Mehrotra, Amit.

Just want to spend one quick second on incremental margins. Obviously, they're really strong at 28%. But if I look at the midpoint of your guidance, it sort of implies the incremental margins for the full year, something like the low 20%, I think 21%. Other than some higher D&A, which I think you've noted $3 million or $8 million higher year-over-year, is there something there, in the remaining 3 quarters of '12 to drive down incremental's?

I would say a couple of things. First, the year-over-year leverage, I'd love to take credit for 28% but we always point out when FX has an impact. FX adjusted the leverage, it's more like 25%, which we feel great about. It's actually the third quarter in a row we've managed over 25%. I think if you do the math the way I did it at the midpoint of our sales with the guidance we've given, year-over-year, you'd get to about 24% EBIT leverage, which is more than what we've signed up for in the past, but that's what we're targeting. We do have some real tough comparison in the second half. We had a very strong third and fourth quarter that we have to replicate to be able to get up to those kind of leverage numbers.

Okay. And just one follow-up, can you just give us an update on the 787? The ending shipments were pretty flat sequentially for most of 2011. Did you see any pick up in the first quarter or do you expect to see some inflection point in the middle of this year?

Well, I get asked a lot about inflection point and I continue to say, for Hexcel, where we deliver so many Tier 2, Tier 3 suppliers on these programs, I don't think inflection point is a proper terminology. We do expect to see continued growth. I think the first quarter was not particularly up from the prior quarters, we're kind of comfortable with where we're running. We don't think we're way ahead, we don't think we're way behind. So, I sort of see steady growth along with everybody else.

And we'll go next to Richard Safran.

I guess, David, this may be for you. Things seem to be doing really well operationally, you're on a path, at least to where you will be generating free cash flow. I assume you must be thinking somewhat about M&A. Is that something you'd consider? And if so, what part of the portfolio you think you might want to add to that kind of thing?

Well, first, I'd have to say, our principal acquisition target is capacity. Internal, organic M&A, it's a wonderful position that we're in and that's really what our #1 focus is. I think to the extent we can find anything that has the kind of a sustainable competitive advantage in growth markets that we enjoy now, we'd be willing to look at it. We certainly have the capacity for it. But if you look back over the last 5 years, you'll see we worked hard to build this machine that we currently have and aren't too interested in diluting it, unless it can look like it's in a core market or a core bolt-on to what we're currently doing.

I guess as a follow-up, with Sitec looking like they're making an offer for Amica [ph] in Great Britain, is that something you might consider then as far as something that might be additive to you?

I'm not going to talk about any active M&A activity in the market place on the call, sorry.

And we'll go next to Howard Rubel.

So the only one that didn't do as well was Engineered Products. I think they were off a little bit even though volumes were up. Could you address what's next or -- on operational issue?

Sure. We've got a number of new programs underway. With a couple of our new products, specifically -- you've probably heard us talk about Acousti-Cap before, it's a new engine sound suppression, honeycomb core, that is drawing a lot of attention and we have a number of development programs underway with that product. We also have HexTOOL, which is a innovative approach to compete or replace in var and make lightweight composite tools. There is some new traction there in the last couple of quarters. So we've got a number of programs that are in the start-up phase and they should begin to contribute to both growth and earnings later in the year. We don't have any systemic problem there. It's actually a good news story that should -- we should get back to that 15%, 16% range by the end of the year.

So, yes. So, in a couple of cases, it might be situations where -- because people are building these large composite structures for aircraft, you've been able -- you have some really good examples of where you've been able to put HexTOOL to work. Maybe on 78 (sic) or A350 as examples?

We've got some good development programs underway that I'm not ready to specify.

Okay. And then just one follow-up item. Is that -- as you look at the -- as we look at the military business, it's a little bit stronger, frankly, than one would have guessed. Can you call out a couple of programs that are driving it?

Well, I continue to maintain that we can manage even -- or a single-digit upsales because of all the activity in rotorcraft and helicopter blades around the world. So it might be higher than one would imagine but not higher than I imagine. I do expect this kind of growth rate to continue despite everybody wringing their hands about what might happen to spending. In this particular quarter, we had a couple of delays that cleared for European and Asian customers, that we've pointed out in the fourth quarter of last year. I think last quarter it was actually down year-over-year, which does happen on occasion but not very often. So as we've said before, almost every helicopter maker around the world is looking at converting even existing programs to composite blades to increase lift capacity. It's the closest we get to an aftermarket not requiring a whole new aircraft but it's what's driving our growth in helping to offset any softness elsewhere.

And we'll go next to Rama Bondada.

Looking at industrials, could you just extrapolate on some of your comments that you were making? It was up 34%. I think you said that wind is kind of stabilized. Could you just give us some bit more color on what's going on in that end market?

Well, the big driver in this quarter is -- was wind, in part because of a release in comparison last year. There were 2 quarters of big slowdown. One was, 2 or 3 years ago in the first quarter and the other was last year in the first quarter. So it's up, a silly number that we didn't disclose. It was up sequentially though, which is more important. Vestas has a pretty strong backlog. I know a lot of people are concerned about their ability to deliver what they've guided towards and how they're doing in some respects. But for us, they've got a good backlog and to the extent they had delays last year, it's pushed that backlog into this year. It looks to me like we've got good solid demand that we can expect for, 4, 5, 6, 7 quarters, and then we have to wait and see what's going to happen with production tax credit and the economy in Europe, and so forth. But we feel real good about our current wind position. We think it will hold for the rest of the year. And if you take the current rates of Industrial as a whole, and flat line them through the whole year, you end up with something like a 17% or 18% growth rate for the year. So we sort of think that the right way to look at it until further notice is look at our Industrial sales in the quarter as the run rate for the year.

And then switching gears, can you just give us a quick update on the A350? Remind us where you sit on shipset content and also the status of the program. And what are your biggest concerns for the program at this phase?

We have only talked about our primary structural prepreg, which we've indicated is in the neighborhood of $3 million per airplane when it's learned out. So you start out higher than that as they have yield and development programs and initiatives. And as people get better and better, it starts to get to what we think are -- is the flyaway. Sales content, we target that as about $3 million so far. That can change over time but that's what we see today. As for the other content, we've got lots of different materials and products that we're working to get qualified and we haven't given any additional guidance on that. As a -- just sort of a way to think about things though, on the 787, where we do not have the primary structural prepreg, we have $1.5 million on the plane. Some of that is not going to happen on the A350. GE doesn't have an engine on the A350 for instance. But on the other hand, there are new products that we're trying to get qualified on the plane. So, that gives a little bit of color. When we get closer to flight time, we'll maybe give you a better guidance on it. And as for the program, I don't have anything to disclose that my customer hasn't a disclosed. We're happy with the progress. They're still targeting first flight early next year and we look forward to supporting that.

And we'll go next to Steve Levenson.

On the incremental margins, do you think there's a point where it runs out of gas? Is there a limit? And obviously, there's a limit but we -- let's start with a 2 or a 3.

I think it can certainly vary quarter by quarter. But if you do the math, we are now saying, we think we can do better than 20%, which is what we used to target. The limit of course is, I guess, theoretically, the limit is variable margin. And variable margin, obviously, is higher than gross margin. But as you bring new capacity in line, you just start to add some overhead costs. That variable margin is high enough that we do expect to continue to get good leverage. I kind of expect that gross margins leverage to diminish as were at capacity. And just get operating leverage up in the 24% range. But in fact, we have gotten a good gross margin leverage the last 3 quarters, I've been proven wrong by a very effective operations team in Hexcel.

Are you locking in gas supplies at all, given the low prices? Or do you think there's additional savings to get down the road?

Well we don't speculate in markets. We make pieces and parts and materials and sell them. So people who ask me if we're locking it in, I ask them, "Does that mean it's going up or going down?" And then you realize you're back to speculation. We do some prebuys to take care of seasonal issues and threats for weather and so forth. But in general, other than currency, we don't do any hedging.

Okidok. Last one, there's talk about a revision to the 777 that would include a composite wing and that the wing could be made in the United States as opposed to outside the country. Do you think you have a shot at getting content on there, adding market share?

I would say any new airplane or any redesigned airplane, we not only have a shot at getting more content on, we'll get more content on. If the question is, "Will it be a composite wing? And will it be Hexcel composites?" That's a little bit of a longer putt. Incumbency has got its advantages. You've got an aluminum incumbent and you've got a very good performing system provided by a competitor. So it's a bit of a hill to climb I would say but again, a new program will have lots of opportunity for us.

And we'll go next to Ken Herbert.

Just wanted to follow-up on the discussion around the new aircraft programs. Can you provide any more detail? You made some comments earlier, Dave, about the 787 and sort of the run rate. It sounds like then A380 was still pretty good in the quarter, but anything else you can specifically say on any of those -- the newer programs.

A380 was great in the program, at long last it's really ramping up to the rate that we expected a number of years ago. So it helped us a lot last year in the new program segment and it helped us a lot in the first quarter. I expect continued help throughout the year. 787 and 747-8 obviously are next. As I said, 787 didn't step up dramatically in the quarter but I do think we're at the right rate, I think we'll get a good lift as the year progresses. And A350 has got a significant run rate of making prototypes and making the early production parts and we'll certainly start to contribute in a significant way in 2 or 3 years. And I would think that 737 Max and A320 NEO will follow on after that.

That's helpful. And with the established or the legacy commercial aerospace programs, anything, I mean, it was a very good quarter from there as well, anything in particular that stuck out? Was it the 777 step-up that was a big driver there?

I don't think we have that fine a break. We have, since the 2008 pullbacks, started to try to track what we think the sales should be given what the line rates are on legacy or steady-state programs. And we're thinking that the legacy, in the first quarter, was a little bit stronger than we expected. So probably, some inventory build in anticipation of a line rate increase but it's not a way out of whack. So we'd expect continued growth in that, though I don't know that it would be over 20%.

Okay. That's helpful. And then finally, one question on the wind markets. I know obviously, it sounds like you've got good visibility through the rest of this year. There's a number of risks out into 2013 and without talking specifics in terms of numbers, Dave, just how do you handicap that market sort of post 2012? Obviously, the production tax credit, and a lot of the other puts and takes there, just what's your -- as you think about the business, what's your gut feeling about that business post 2012?

Well, there are some big swing items that we don't have a lot of control over. So I'd first say I'm no expert, I'd call it firmly cloudy, not partly cloudy. It's pretty confusing. In Europe, it's principally the economy and the need -- we need more demand for electricity to help drive it. They've got renewable energy targets but they're easily met if their economy is depressed. Secondarily, we have credit markets to be concerned with in Europe. There is that basic fundamental demand though for renewables and there is a fundamental interest in wind and other renewables in Europe. It's long driven the market. So I think long term, the basic growth mechanisms are there for Europe but it's a big question mark in the economy. In the U.S., production tax credit is a bit of a curve ball that throws off projections about every 2 or 3 years when Congress dances around whether or not to renew it. Likewise, natural gas is an aggressive competitor now that it's cleaner than coal. So I think there's not great optimism in the U.S. Mind you, Vestas' share in the U.S., while it's grown, is not a dominant position. So it's not an overwhelming worry on our part. China is another wildcard. They were growing at leaps and bounds. Not able to attach the turbines to the grid and having all sorts of quality problems with local suppliers, there seems to be a move towards quality, which is what's happened in Europe and then happened in the U.S. during the growth period. Something that I don't think we've talked about before though is that Canada and Latin America specifically Brazil, are doing very well and Vestas has good position with those. So at the end of the day, wind probably isn't going to grow like it used to grow but I don't think it's going away. I think it's got good long-term prospects.

And we'll go next to Noah Poponak.

Dave, when you were discussing earlier your belief that the Space & Defense segment can sustain positive growth, I'm wondering, were you saying that about 2012 or is that still a longer term, call it, 3- to 5-year view for the segment?

That's still my view. Wayne always wants me to be more conservative but until I see a few more cards -- we've been talking for 15 years what happens when peace breaks out, it hasn't happened yet.

Correct. So you're saying that's still your longer term view beyond, including beyond 2012?

At this stage, yeah, I mean we'll see what happens, with Congress and defense budgets. But remember, we've got the secular penetration story no matter what, I mean, joint Strike Fighter, say what you will, unless it's completely stopped, it has incremental growth. So it's not what it could have been, it's not what people thought 20 years ago, but it's up every year and A400M is, the engine is now shipping and A400M has got a composite wing and all these helicopters and rotor blades, I've got a number of secular penetration things that make the Hexcel story or the composite industry story different from electronic or boots or bullets.

Okay. Separate topic on -- question on the CapEx ramp. Historically, your CapEx has ramped through the year, first quarter to fourth quarter, even when it's been an above average annual number. In the first quarter, you're well above 1 quarter of the full year plan. Is that tracking to come in higher than you thought? Or is it costing more than you thought? Or is the shape just different this year?

No. I've often talked about it, I came from manufacturing and capital equipment programs early in my career and it just amazes everyone that it's always low at the beginning of the year and high at the end of the year. It's something about how we calendarize and budget in American corporations. What's happened different this time is that we launched the acceleration of our CapEx in August or September. We talked about it on the third quarter call. So we got started midyear last year and the historical pattern's probably won't repeat, we're ramping up pretty aggressively. We still think our guidance is right, we're not changing that.

Got it. And how long do you think that is the annual run rate of CapEx for the company?

It depends on what happens with programs. If we never win another program, maybe a couple of more years and then we'd probably be more like maintenance rates of $60 million or $70 million. If there's a new program that we'd win a significant position on it, we need to layer on more further out.

Okay. So there's scenarios where you're in this elevated 250 to 275 range for several more years.

You said several -- oh, scenarios, sure, yes. I mean, I don't think it's highly likely. No program has been announced, there speculation of some, but with the re-engining of the 737 and A320, it takes the probability of a big new, huge capital demand, down some.

Are you in that range for the next 2 years?

I think so, yes.

Okay. And then I just wanted to ask one other thing which is, on -- as the industry starts to gear up for A350, is the long lead aerospace supply chain doing anything differently as a lesson learned from 787? Given there were so many delays and we're now seeing that there's a lot of inventory already in the supply chain for many long lead items? Are suppliers trying to anticipate delays in that process to a greater degree? Or can you really not do that just because you have to continue to give the OE product as they want it?

Well I sure hope nobody is trying to second guess what is the schedule. I mean, we all have an internal schedule that we all need to meet for the program to be successful. And if anybody speculate and decide not to invest for a couple of years because Boeing was late, that'd be a bad position.

And we'll go next to Eric Hugel.

Hey, Wayne. Just a quick question on the corporate G&A, $17 million this quarter. I know Q1 typically tends to be sort of the high point. What's sort of a good run rate as we look forward into the rest of the year?

Yes. On the corporate G&A, the way we record our stock compensation expense, it runs probably $4 million, $5 million higher in the first quarter than the rest of the quarters. So that's probably the only item that's a little bit different.

Looking at -- I guess last quarter, you made some comments with regards to sort of that you thought that you would likely see some -- the second half or a good chance of the second half of your year would be stronger than your first half, and I guess, by looking at your guidance and sort of where first quarter came in, I guess the implication is that, I mean the implication would be the rest of the quarters are going to be in that $0.38 to $0.39, sort of what's changed? Is first quarter just well beyond your sort of expectations? And the rest of the year, sort of unchanged? Or you just sort of still given sort of some degree of conservatism to the unknowns here?

I think we always see a step down in the second half of at least margin, sometimes sales because of seasonality. Particularly in Europe, almost half of our sales in Europe, they've got a, much more of a, summer vacation kind of shutdown period in August. So we, historically, have the softening in second half, certainly of margins because of the leverage but sometimes sales. Last year, as I recall, we actually stayed flat in the third and fourth quarter and that's because of the growth. So I think we still had the same seasonal effects but because that the run rates of the days that were worked were going up, it reflected a flat full year. So when you see that -- if that's how you lay out the quarters for this year, given the guidance that we gave you, that would be one of the scenarios. The other would be that we have a, again, seasonally strong second quarter and lighter third and fourth.

Okay. And then just lastly, in terms of the 787, can you sort of discuss, I mean, is there a consistent sort of monthly, sort of number of shipsets that you're at? I know Boeing's targeting something like 5 a month by the end of the year. Are you shipping to that rate given sort of your lead times?

It's too hard to nail down with all of the suppliers that we have. But we think we're in the right place. We don't think were ahead, we don't think we're behind. So if there were a steady growth rate quarter by quarter, for the rest of the supply chain, you could probably apply that to us from where we are.

And we'll go next to Michael Lew.

With regard to the regional business, it was up about 15% for this quarter. Is this the type of a growth trajectory we should expect for the year?

I apologize for that. And I will say that don't really have a good understanding of that whole other aerospace market, it's so diverse. I mean there are 6 or 7 business jet manufacturers. There are regional jet makers, there are turboprop makers. Those that are seeing some strength of late are the big business jet makers like Dassault, like Embraer, like Gulfstream. Turboprop manufacturers like ATR in Europe is seeing a good order patterns. Those are all a little higher content than smaller aircraft. I think small regionals are still struggling. Small business jets are still struggling. We tend to participate on a per-airplane basis more with the large aircrafts. So I think that's the explanation for the growth. But again, we've had some wild swings from 2008 to 2009 and '10, and it's hard for me to handicap where it should be or what the trajectory should be.

I understand. Can you comment on the raw material prices? Like how do you see ACN prices trending in the near term?

Raw material, acrylonitrile.

Yes. Acrylonitrile. the reason why I asked is...

Michael, with respect to AN, it's been such a wild ride even this year, where January dropped down and started to pick back up at March. Everybody's got a different forecast on it. Remember for us, our price moves with the market, so we really don't have any great visibility or forecast for it. We've been told expect it to rise in the second quarter and drop down in the second half but whatever that's worth.

So acrylonitrile is an important input material for our carbon fiber, but our carbon fiber is a small portion of the total company. Most of the raw materials we have under contract, so it's predictable and we know what to expect from our carbon fiber and generally from our resin suppliers and other materials.

Also, can you provide us a status on USEC? Any updates there?

I don't have any particular news. I mean you could say they're still trying to get government funding and a lot of political action going on and an election year around it. But so far as we know, they haven't got the backing that they need to launch the program in full. And so we're monitoring it but we don't have anything new to report.

If they were able to procure funding, like how much incremental CapEx would that require above and beyond what you've talked about? I mean, as you are kind of running out or maxed out in terms of capacity right? Based on the current programs.

Well, the carbon fiber assets that we would use for USEC are fungible. So to the extent USEC demand is not in our headlights, it's out a couple of years, we're factoring that into our capital expansion. If USEC does not go forward, there might be a fiber line less that we'd need for a long-term program and if they do successfully get funding and we hope they do, then there'd be one fiber line more. So it's not in the 1.5 year window, I would say, in our CapEx.

And we'll go next to Ron Epstein.

Just a quick question for Wayne. When you think about margins in the quarter, how much of it is attributable to just better operating performance versus mix? Be it now that probably a little over 25% of your commercial revenues is the new programs?

Yes, I guess I wouldn't classify mix as being an important part of it. The difference, I think for us, is just -- we've talked a little bit about exchange rates that impact, and the rest is just doing a good job of leveraging the volume.

And we'll go next to Avinash Kant.

Two questions for me. The first one is that, could you talk a little bit about the FX adjusted incremental operating margin on a sequential basis?

Boy, again, pretty particular there. So Avinash, I think sequentially, we're up 24% and FX sequentially is not a big -- wouldn't be much different. So if you go from Q4 to Q1, the FX is pretty much the same.

Okay, good. And also, you talked of course a little bit on the win side about Vestas and how demand situation from there looks like. Have you seen newer adopters of your materials in larger wind turbines during the quarter? Or do you expect, anticipate more coming in in the year?

We work with all of the big wind turbine manufacturers as they are developing new blades. So the large blades have a higher probability of wanting some more structural performance out of their materials, so we are working on additional programs. But none of those are significant volume creators for 2012.

But could that help you in 2013?

Sure.

And we'll go next to David Strauss.

On the Commercial Aerospace growth on the legacy programs, the up more than 20%, can you give any color there? Because that's more than kind of the annual depth increases we're seeing out of Airbus and Boeing, it's going up on 37 (sic) ß and 777 and A320 going up about 10% per year right now?

Right. Well some of that of course can be mix. We have a lot more content on bigger aircraft. So you'd have to model all of that out carefully. But essentially, we point to higher inventories on the ramp up historically and a higher inventory purging on the way down. In 2009, where build rates didn't come down at all, as I recall, our sales dropped 15%. So there was an inventory correction that ran 3 or 4 quarters in 2009 and one would think that they owe us that and that we're building it back up at a higher pace than what build rates would suggest. This has happened, I think, 3 quarters now. So I'd expect over time that we'd start to look a lot more like what the build rate increase rates look like, if you mix adjust it.

Okay. That's helpful. Wayne, the D&A side, that's going to step up here in the second quarter?

Yes, I believe, not, I think it will steadily increase throughout the year.

Okay. And on the Defense & Space side, Dave, you talked about continuing to see, you think we'll continue to see growth there. What were you assuming for C-17 within that? And how meaningful was that, the forecast, depending on what happens there?

Well, C-17 is probably one of our top 5 programs. It's long been expected to be phased out. We see that it's got continued life from foreign military sales, albeit at a lower rate. So when we talk about continuing to eek out growth from these other contributors, we're assuming that there is an orderly ramp down on the C-17 in a couple of years and that we've got to cover that. Likewise, a step down in V-22 would be expected.

And we'll go next to Peter Cozzone.

In Space & Defense, and I'm sorry if I missed this, if you kind of alluded to it on the last question but, can you provide any additional comments on the contribution from new programs? JSF in the quarter, seemed like rotorcraft was the primary driver. But just trying to frame up the growth outlook for these new platforms over the next several quarters.

We don't actually break it out that way. So I don't know the answer and I'm not sure if we did, how I'd factor in helicopter blades that are being converted on old programs. So afraid I can't help you with that.

And this does conclude the Q&A portion of the call. Thank you, for your participation.

Thanks.

Thank you.