Good morning. My name is Emily and I will be your conference operator today. At this time, I would like to welcome everyone to the Hexcel Q1 2019 Earnings Call. Thank you. Patrick Winterlich, Chief Financial Officer.
You may begin your conference.
Thank you. Good morning, everyone. Welcome to Hexcel Corporation's 1st quarter 2019 earnings conference call. 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, judgment and uncertainties caused by a variety of factors that could cause future actual results or our comes to differ materially from our forward looking statements today. Such factors are detailed in the company's SEC filings and last night's news release. A replay of this call will be available on being recorded by Hexcel Corporation and is copyrighted material. It cannot be recorded or rebroadcast without our press permission.
Your participation on this call constitutes your consent to that request. With me today are Nick Stanage, our Chairman, CEO and President and Kirk Goddard, our Vice President of Investor Relations. The purpose of the call is to review our first quarter 2019 results detailed in our news release issued yesterday. Now, let me
with you. It was a terrific start to the year and one of the strongest quarters in our history, especially for sales and earnings per share. It builds on our momentum and strengthens our confidence as we reaffirm our full year 2019 guidance that we shared with you in January. First, let me highlight some of the results and Patrick will then provide more details on the numbers. Sales in the quarter were $610,000,000, up 12.9% year over year and up almost 15% in constant currency.
Diluted EPS was $0.84, which is an increase of 23.5 percent over the first quarter of 2018. We delivered 1st quarter operating income of $103,000,000, which is about 25% higher than last year and resulted in an operating income margin of 16.9% compared to 15.3 Let me talk about a few factors that helped us deliver these results to our shareholders this quarter. First, many of the headwinds that challenged us in 2018 are now behind us and we of our acquisitions and from some of our newest assets Yet none of these factors influenced our results the way our employees do. You have heard me say before how proud I am of our team and they continue to truly impress me when it comes to their commitment to operational excellence. Employee teams leverage each other's strengths to drive excellence Let me pause here to talk about something that is on everyone's mind and that is of course the tragic loss of 3 46 lives and 2 crashes involving the Boeing 737max program.
We extend our deepest sympathies to the families and friends of those who are grieving the loss of loved ones who are on board Lion Air Flight Six 10 and Ethiopian Airlines flight 302. These tragedies weigh heavily on us because we believe that nothing Like every other program supplier we are closely following the investigation and monitoring the news. We believe that it is clear that Boeing needs its entire supply base, including Hexcel to stay capable and align with them, and we intend to do just that. As you already know, we have about $400,000 for 7 37 MAX Chipset, which includes materials for engines, nacelles and structures that we sell to a broad Boeing suppliers are great customers of ours and we will continue to meet their requirements while staying flexible and agile to respond to any changes we are running a range of potential scenarios to make sure we are prepared to support the 7 37 MAX supply chain throughout this uncertain period as well as support the aircraft's return to service and anticipated ramp up. This is a complicated process as we are responding to multiple at a rate of 52 per month.
While on the other hand, Boeing has announced a temporary rate decrease to 42 planes per month starting now. As of today, we have seen very little if any impact from Boeing's announced rate reduction. We will continue to meet all demands for Boeing 737max Materials. And if there are any reductions in demand throughout the supply chain, we're confident that we will be able to repurpose the vast majority of our manufacturing and material capacities to take advantage of other After taking into account the potential impact we see at this point in time for the 7 37 MAX revenues in 2019, we have made no changes to our annual guidance based on the offsetting broader market strength we see before us. Now let me turn to our 3 primary which reflected an increase of Growth in the first quarter was particularly strong in the A320neo and Boeing 737max narrow body programs, and the Airbus A350 and Boeing 787 wide body programs continue to generate strong sales.
Sales for other commercial aerospace, which includes business and regional jets, continue to grow and were up 7% versus last year's Q1. In Space And Defense, we experienced a strong quarter with sales of $108,000,000 reflecting an increase of 19 Growth was driven primarily by the F-thirty 5 Joint Strike Fighter Program, along with continued strength in military rotorcraft. In addition, I'm pleased to report that this is and the business performed well and delivered excellent results for our first quarter of ownership. Finally, turning to Industrial, sales were $87,000,000 for Q1, which is an increase of 28.7% or 36.8% in constant currency. We continue to benefit from strong In fact, wind sales were up 78% in constant currency, which reflects not only a ramp up that began in late 2018, but also on increasing demand for composite materials for wind turbine blades.
A few highlights from the You may remember that about a year ago, we announced a strategic alliance with Arkema to develop thermoplastic composite solutions for the aerospace sector. And that alliance is moving along very well. Hexcel and our team are both leading innovators in the growing market for aerospace thermoplastics, and we are excited as we anticipate supplying products to customers for evaluation later this year. Next, congratulations to our teams in Kent, Washington, Pottsville, Pennsylvania and Salt Lake City, Utah, who were recognized recently by Sikorsky with supplier elite status for our 2018 performance in achieving best in class on time delivery, cost, and quality. This is another strong example of how our focus on operational excellence is positively impacting our customers.
Finally, I've already mentioned the acquisition of ARC Technologies, Yes, let me say a little more. As you will remember, we announced our intent to acquire the business in 2018 and then closed the deal in January. Our teams are continuing to work closely together to ensure a smooth integration without disrupting the business and I believe our Space And Defense results this quarter are evidence that the process is going well. In summary, we expect our results this year will demonstrate growth In commercial Aerospace, we expect high single digit growth, driven by the A350 at 10 per month, and in the Boeing 787, which ramps to 14 this year. We expect another year of strong growth for the A320neo and the new Boeing 777x is expected to begin to contribute to our 2019 growth as it approaches its entry into service in 2020.
And again, I want to reassure you that we will remain extremely vigilant and flexible in our response to developments around the Boeing 737max program. And we remain confident in our ability to address the potential challenges we see and to deliver on our 2019 financial guidance. We expect double digit sales growth in Space And Defense in 2019, driven by strong F-thirty 5 and military rotorcraft programs and with the addition of ARC Technologies products to our portfolio. And we anticipate double digit sales growth in the industrial market for 2019 supported by another year of strong double digit growth for wind energy. Let me say it again.
I couldn't be any prouder of our team and how they executed this quarter to deliver performance and value to shareholders. Excel has leading positions and secular penetration opportunities in a market with strong backlogs and solid growth. And we are achieving our objectives by staying disciplined by focusing on operational excellence, by investing in the future, and by continually delivering on our commitments to customers. Now, let me turn the call over to Patrick to discuss more of the quarter's financial details. Thank you, Nick.
First quarter 2019 sales totaled $610,000,000, an increase of 12.9% year over year. Our diluted EPS for the compared to the first quarter of 2018. Free cash flow for the first quarter was the use of $15,000,000 reflecting the working capital impact of sales growth and seasonal effects as we expected. This compares to free cash flow generated of $3,000,000 in first quarter of 2018. I will now provide a review of our markets and as usual these year over year comparisons are in constant currency.
As a reminder, currency movements influence our reported results and some of this impact may not be intuitive. The majority of our sales are denominated in dollars. However, our cost base is a mix of dollars, euros and British pounds as we have a significant manufacturing presence in Europe. As a result, when the dollar weakens against the euro and the British pound, our sales translate higher, but our costs also translate higher resulting in a net headwind to margins. Accordingly, we'd prefer a strong dollar to a weak dollar.
In terms of currency hedging, we employ a disciplined hedging strategy that layers in hedges over a 10 quarter horizon leading to a smoothing impact on currency rate fluctuations. Now turning to our first quarter market performance. Commercial Aerospace represented 68% of total first quarter sales, Commercial Aerospace sales of $416,000,000 increased 9.6% compared to the first quarter of 2018. Spacing Defense represented 18% of sales. For the first quarter, Space And Defense sales totaled $108,000,000, an increase of 21.8 percent from the same period in 2018.
Activity in the first quarter was broad based at Hexcel Material is on more than 100 different platforms. Note that the 2019 results included ARC Technologies which we acquired in early 2019. Industrial comprised 14% of first quarter 2019 sales Industrial revenues totaled $87,000,000, increasing 36.8% compared to the prior year period. The strength was driven by wind energy sales, which increased 78% year over year. We continue to forecast strong growth Winds Energy sales in 2019, although the magnitude of growth will lessen on a comparative year over year basis as the adoption of the latest generation wind turbines driving this growth became more significant during the second half of twenty eighteen.
On a consolidated basis, gross margin for compared to 26.4% in the first quarter of 2018. The year over year improvement reflects solid execution by the business supported by the benefits 2019 compared to the prior year period due to our continued capital investments combined with a one time act to accelerate depreciation on some obsolete tooling. Our $20,000,000 in 2019 or a quarterly step up of roughly $5,000,000. We continue to forecast this level of annual increase, excluding the one time action taken in the first quarter. For the first quarter, selling, general and administrative expenses increased 6.7% year over year.
We continue to leverage the benefits of growth as selling general and administrative expenses represented 8.1 percent of total sales for the first quarter of 2019 compared to 8.6 Research and technology expenses increased $1,100,000 or 8 percent year over year. We continue to invest in innovation that supports new technologies and products as well as enhancing existing processes, both for our internal operations and for our customers. For the first quarter, operating income increased 24.8 percent to $102,800,000 or 16.9 percent of sales as compared to $82,400,000 or 15.3 percent of sales for the first quarter of 2018. The year over year impact of exchange rates was favorable by approximately 50 basis points, due to our currency hedging program. The Composite Materials segment represented 83% of total sales and generated an operating income margin of 22.2% for the first quarter of 2019 as compared to a 19.6% margin in the prior year period.
The Engineered Products segment, which is comprised of our Structures And Engineered Core Businesses, represented 17% of total sales, and generated an operating income margin of 12 point compared to a 10.4% margin in the first quarter of 2018. Note, our recent acquisition ARC Technologies is being reported within the Engineered Products segment. While the operating margin is lower than the composite materials segment, Engineered Products requires a much lower level of investment generating strong returns on invested capital. The effective tax rate for the first quarter of 2019 was 22.7 rate of 24 in 2019 to support strong sales growth, leading to a use of cash in the first quarter and a negative free cash flow of $15,000,000. Accounts receivable represented the majority $5,000,000 during 2018 on an accrual basis.
Construction is continuing on schedule for the additional plan and carbon fiber lines at our Decatur Alabama facility, which we are adding to meet forecasted post-twenty 20 growth. We are continuing to target a gross debt to EBITDA leverage ratio of between 1.52 times At the end of the first quarter of 2019, our leverage ratio was 2.1x with the increase reflecting the financing the January 2019 acquisition of ARC Technologies. We expect to return to our target range of less than 2 times within the next couple of quarters. We repurchased approximately $11,000,000 common stock during the first quarter of 2019 and have $374,000,000 remaining under our share repurchase program. Our capital allocation priorities continue to be investing in organic growth followed by targeted and disciplined M and A and we remain committed to returning greater than 50 percent of our net income to shareholders through dividends and stock buybacks.
As Nick stated, our full year 2019 guidance is reaffirmed. We expect the first and second half of twenty nineteen to be relatively balanced relation to forecasted sales and adjusted diluted EPS, whereas forecasted free cash flow is expected to have the same profile as prior years with stronger free cash flow in the second
Thanks, Patrick. By staying aligned with customer demand, while keeping costs under control and operational excellence at the forefront, We delivered a strong first quarter and we are on track to deliver our full year guidance. We continue to benefit from aircraft program ramp ups continued secular adoption of advanced composites and strong demand, as well as from our internal efforts to work more efficiently, continuously improve our processes develop new and innovative products and position ourselves for growth. Our markets grow and drive innovation and operational excellence to achieve strong and sustainable financial results while continuing to create ongoing shareholder value. We'll respond to any headwinds, including the Boeing 737 Max with decisive actions to mitigate any negative impacts.
Finally, we look forward to having several of you join us next month for our Investor Day For those of you who are not joining us in person, we hope you'll join us via a webcast to hear several of our leadership perspectives on our innovation and growth will wrap up the day by outlining our growth expectations and providing our mid term guidance. Thank you again for your time today. Emily, we are ready to take questions now, so we'll turn it over to you.
Thank Your first question comes from the line of Gautam Khanna with Cowen and Company. Your line is open.
Yes, thanks. Good morning. Good morning, Gavin.
I was wondering if you could provide some, perspective on the 7 37 MAX supply chain that you supply into that Hexcel supplies into, just how diverse it is, how many different suppliers and What sort of close to delivery delivered close to ultimate aircraft delivery versus much longer lead time, any way to split it so we can maybe get a sense for any sort of risk down the road if there is any destock where it could surface?
Yes. So, certainly our supply chain on the 7 37 MAX is nothing like it is for the A350 50. But having said that, it's still multiple ship tos, not only to multiple Boeing sites, but Tier 1s and even further down the supply chain. What you have to keep in mind is we're shipping materials to support engines. And obviously, we know that's the LEAP and we've seen publicly what their intent is, at least for the time being on their production schedule.
We ship to plants at Boeing and others for nacelles, which basically follow the engine builds with respect to scheduling and the timing for assembly under the airframe. And then we ship to the airframe, to Boeing sites directly various matrix products and components, subassemblies, sub components, for the Max program. So as we came into the year, we were at about 52 per month And as everyone knows, the intent was to ramp during the year up to 57. The second accident happened and there was a grounding and the supply chain continue to operate. And as I mentioned, we have not seen any changes our demand signals.
We certainly expect some, specifically around the airframe. Those will adjust quicker from our perspective than engines and the cells and various areas that may have been a little bit behind So I think much of the supply base will use this time as a bit of a recovery, a bit of an opportunity to build some buffer stock in anticipation that the regulators will approve the fix, the changes, the training that are being proposed and reviewed. And ultimately, the grounding will lift and production and deliveries will start back up to some ramp rate yet to be determined. So that's about the best. Obviously, it's a moving investigation and everyone's monitoring it.
Certainly we are, And we're just going to stay current on it and make sure we're supplying to not only Boeing, but the tier ones based on their needs and what they plan to do relative to the Max supply chain.
That's helpful, Nick. As a follow-up, I was just wondering, you did mention there's stuff that's unique to the engine and nacell versus the airframe. Is there any ballpark split you can give us in terms of how much goes to engine related stuff versus airframe on the 7 37 MAX relative to the content you guys have described in the past?
Well, the engines in the cells I don't think we split it out, exactly, but we certainly have fibers and pre pregs going into engines in the cells. And we've got significant amount of core and acoustic cat going into missiles for the noise abatement. And then we also have our structures business providing secondary structures, interior components. Some of that business shifts directly to Boeing and to Boeing Winnipeg. So, it is mixed.
It's diversified. And again, those assets are very deployable and easy and can be changed over quickly if in fact we do see a signal that gives us the capacity to divert for other programs.
Okay. I appreciate it. Thanks guys.
You're welcome.
Our next question comes from the line of Mike Sison with KeyBanc. Your line is open.
Hey guys, nice start to the year. Nick, in terms of when can you maybe talk to us a little bit about, the backlogs that VESTS has and given how fast the market has grown. Can you maybe give us a thought on where you're at in capacity to support the growth there and how much it would cost to add more if you need to?
Yes. So, first thing, and we've said it before, but wind turbines are getting more efficient. They're getting more efficient because the technology has improved. Blades are getting longer. They're able to put the wind turbine farms in lower wind speed areas.
And the bottom line of all this is energy costs generated from wind turbines has come down significantly, which is driving part of that demand. If you look at over the course of 2018, Vestas turbine backlog, both in dollars and gigawatts, increased every single quarter. They ended the year at just short of 1,000,000,000 of backlog or 15.6 gigawatts, Mike. So obviously, there's continued interest in the wind farms Obviously, Vestas is well positioned, not just in the U. S, but outside the U.
S, where they generate almost 70 percent of their wind turbine sales. And we're well positioned with Vestas to continue, taking advantage of that growth and penetration.
Got it. And then just one quick one on the MAX, given that you supply 6 to 9 months ahead. If the supply chain does adjust, when should you feel it, I guess, if they actually, the whole supply chain does go down to 42?
Well, first thing I'd say, Mike, is, on the 7 37 MAX, the lead times are not that lengthy. They're shorter. And especially in our Kent, in our structures business, they're much shorter. So I would think within 4 to 8 weeks, if there is a further delay or a demand signal on taking rates down for whatever area, whether it's engines, nacelles or structures, we would see that relatively quickly and would adjust relatively quickly.
Your next question comes from the line of John McNulty with BMO Capital Markets. Your line is open.
With regard to what the max headwind that you've got, I guess obviously there were some offsets or some surprises relative to what you were expecting in 1Q to kind of help things go on. Can you kind of give us some color as to where those surprises were and how you're thinking about those respective businesses as they progress throughout the year?
Thanks for the question, John. I, I'd say there wasn't one in particular program that jumped out. It was pretty broad based. Obviously, wind, in our Industrial segment was strong, but we had forecasted that. Space And Defense may be a little stronger than we had originally anticipated.
ARC Technology continues to perform very well and quite honestly was stronger in Q1 than we had expected. And then just continued strength on commercial aero, continued opportunities and sampling on incremental opportunities relative to our fiber sales and thermoplastic opportunities. So, Again, it was pretty broad based and you're exactly right in our forecast and in our commitment and confidence in maintaining our guidance, we certainly have modeled in an impact, a negative impact on the 7 37 MAX. And based on what we see, that will be more than offset by the robust growth we're seeing in other aspects of the business.
But just to clarify John, we did not see a negative impact on the 7 37 in the first quarter.
Sure, sure. No, that's perfect. Thanks very much. And then I guess as a follow-up, we had fielded, I guess, a bunch of questions on some of the acrylonitrile outages and obviously you weathered them pretty well through the quarter. So I guess, can you remind us or at least give us some color as to whether you're seeing any supply issues there and also how you're hedged with that?
Cause I know you've got a relatively new hedge program in place as well.
John, we haven't seen any supply issues through our supplier has not been affected. We buy our acrylonitrile on a price formula related directly related to polypropylene. And I think as we've mentioned, as sort of a surrogate, we are hedging propylene over an 8 quarter period now, which is going to smooth out the pricing in front of us. So we don't expect variances to guidance because of AN. So really quite a good story on AN for us at the moment.
No supply and no surprising surprises.
Your next question comes from Ken Herbert with Canaccord. Your line is open.
Hi, good morning, Nick and Patrick.
Good morning, Kenny.
You had really nice incremental margins in the first quarter, by my estimate about 29%. And I know, Nick, you alluded to the fact that a lot of the headwinds you faced last year, whether it be on A and pricing or wind resins. And of course, the new facility ramp, you're no longer seeing this year. Is there anything in your assumptions that would imply sort of incremental margins step down from here? Anything else we should be thinking about in the 2nd, 3rd or even the 4th quarter that we should in mind that could potentially impact this aside from, obviously, max uncertainty and broader cycle issues?
Yes, Ken. So, again, there's one element that I want to make sure I emphasize and The headwinds you mentioned were all known and we've talked about them and most of them are behind us relative to raw material inputs and our startups and our sites. But our plants and our teams focus on productivity and leveraging sales volume through our facilities now has been fantastic. And to answer your question, I would expect to see that momentum to continue. With the strong top line growth, the position we're in with respect to our plants are up and running.
We are not dealing with startups today. We've got good coverage and protection on AN now with our hedging program that we implemented last year. I feel really good about where we stand today. Obviously, I can't predict the unknowns. Obviously there will be some negative headwind based on the 7 37 MAX program and how that plays out.
But overall, we're feeling very good.
Okay. That's great. And maybe at the risk of sort of putting words in your mouth, but it sounds like the strength you're seeing in the first quarter and through the year, I think, Nick, you just said more than offsets your current assumptions around MAC Is it fair to say that the lack of adjustment to the guidance for the full year just reflects the fact that obviously we're just 1 quarter in, but also there still could be some risk around the MAX? Or how are you thinking about the full year guidance now with what you've seen this quarter on the MAX?
Well, again, we feel really good about our guidance. It is just 1 quarter in and certainly with the Max hanging out there, I just wasn't ready. We weren't ready to to make a change at this point. Hopefully, next quarter, we'll have a different story for you and it'll be, along the same lines you saw this quarter.
Great. Well, thank you very much. Very nice quarter.
Your next question comes from Hunter Keay with Wolfe Research. Your line
is open.
Assess with the backdrop of this Max issue. And this is a complicated question, but basically PFS was marketed a take guaranteed volumes in exchange for a little bit of price. And here we are now with rate potentially not pulling up as fast as everyone thought would be the case, but you've signed these long term agreements with Boeing under this PFS umbrella. How should we think about how you guys have altered your supply chain in the context of PFS relative to this sort of MAC clause situation you had argued that's occurred since then? Thanks.
Well, a couple of points there. First, it's very rare that we have a guaranteed volume. Again, remember most of our materials are sole sourced. So when we win the program, we get the program sales depending on what the end customer demand is. So really there's no volume guarantees in here.
PFS, you could call at PFS, you could call it GE's name, you could call it UTC's name, you could call it Airbus Productivity and cost improvement we've been doing that forever. And I would expect we have to continue to do that forever. So our focus is to take cost out of our supply chain, to take cost out of our factories and share that so that we can, a, help our customers meet their objectives and B, make them competitive so that they sell more airplanes or wind turbines to their ultimate end customer. So with respect to our contracts with any of our customers and Boeing included, We're going to continue to drive productivity and we're going to continue to provide part of that productivity as price improvement for them to incentivize further secular penetration and growth. And I don't see that changing.
I don't see the max and what Boeing is going through changing that direction. And certainly it's not changing how we're operating our business or our focus on operational excellence.
Okay. Thanks, Nick. And then, can you talk about the A220 for a second? Obviously, just kind of dovetails with the prior comment you made about just constantly driving out costs but can you, 1st of all, high level remind me of your ships have content or overall exposure to 2 20 and just talk about if you're getting any pressure from Airbus to drive incremental cost, of late. Thanks a lot.
Appreciate it.
Hunter, just to be clear, you said the 220 or 320?
I'm talking about the 2 20. You have exposure to that program at some capacity, right?
Yes.
So we have not provided our shipset content on the program. Obviously, we're working with Airbus. We were working with Bombardier before, the deal with Airbus We're looking at multiple opportunities to increase our content. It's not insignificant today But combined with the low volume monthly, we just haven't declared that yet and we're optimistic that we're going to expand our position. So as you could imagine, Airbus is working on cost out and they're looking at some, broader scale opportunities on materials they have in their supply chain to help them achieve their overall objectives.
And as the plant and plane continues to grow and production start ramp up in the U. S. We think we'll have a nice incremental opportunity to share on the 220.
Great. Thank you.
Thank you, Honor.
Your next question comes from the line of Greg Konrad with Jefferies. Your line is open.
Ones. 1, this morning, Boeing announced that they were at the 14 month rate on 7 87. Just as we think about the quarters going forward, is it safe to assume you felt that impact in Q1 up from the 12 a month rate?
I can tell you, we saw some impact in Q1, but believe we're going to see much bigger impact as the year progresses. So we certainly expect quarter 2 and the second half to wrap up more significantly for us on the 14 rate.
Thanks. That's helpful. And then, I mean, you've called out the F-thirty 5, but also that space and defenses over 100 programs. And I think you're secondary on the F-thirty Five. Is there any way to maybe frame the size of that program and kind of where you are in the ramp given that the supply chain seems to be at many different rates?
So, I mean, the F-thirty 5 is a big program for us. And it's one of our top 3. V22 remains a very strong program and we're seeing good signals that that's going to continue. And the A400M, which is another one of our big ones, it's held steady. Okay, if you look at it sequentially or year over year.
To really get into more detail on the F-thirty 5, I'd really refer to Lockheed and, the information they provided in their call yesterday from Maryland or the day before, Obviously, a lot of interest in international demand. I know there's a concern on the, program with Turkey and there's concern on some of the potential declines in the U. S. Military. But overall, we see great strength there.
We're continuing to see demand signals from our supply chain that support JSF going up So I think there's a lot of, a lot of excitement that the JSF is going to continue to grow through the year and it's certainly on or ahead of our forecast.
Your next question comes from the line of Krishna Sinha with Vertical Research. Your line is open.
Hi, thanks guys. So you mentioned in your remarks that you have the ability to repurpose some capacity if indeed there is some max rate adjustments, but if that repurposing should occur, would that happen at the same sort of margin rate that you're getting on the MAX currently? Or will there be some puts and takes that you'll experience as you repurpose those lines just in regards to margins?
Well, specifically, we're very our opportunities with our carbon fiber are continuing to go up. Demand is quite honestly one of the reasons why our sales growth this year is so strong. So repurposing fiber assets for another, opportunity we have would be similar to max margins. It basically wouldn't be noticeable If you look at honeycombcore, again, it's another area where our Engineered core business is just growing significantly. Even faster than we're able to put in some assets.
So we would divert that honeycomb core very quickly, again, at comparable margins. And we've said it before. If you look in our aerospace business, the margins are comparable. Where you have differences are if you transition and look into our wind business. And I can tell you, none of these assets would be redeployed to support wind or, the wind turbine business.
So overall, from a fibers, from a engineered core, from a matrix, very quick and easy to sell business harder to backfill that and it would take a little longer. But it's just a portion of the max overall shipset value we sell.
Okay. Thank you. And then, you mentioned some of the other aerostructure suppliers having come to some sort of agreement on the MAX. With Boeing. Is there anything different about what you guys do that would preclude you from having a an agreement similar to say Spirit AeroSystems who's just going to continue delivering at 52 a month and seems like all the working capital impact or or anything would flow up to Boeing as opposed to staying with Spirit.
I mean, is there a reason why or why you couldn't have a similar agreement to that?
Well, I think it's a little bit different. I mean, if you think of our ship to locations, if you think of our diversity, in the materials and the types of products we're shipping to the multiple locations. We don't have an agreement similar to what and staying close to their tier 1s and basically when they drop orders fulfilling those orders. So if you think about it, we're providing the raw materials for the tier 1s or for Boeing to build their components and to ultimately support the final aircraft assembly.
Okay. That makes sense. Thank you.
You're welcome.
Your next question comes from the line of Ron Epstein with Bank of America Merrill Lynch. Your line is open.
It seems like the 7 37 MAX delays could delay Boeing's decision on the 7m7 middle of the market aircraft. So if that gets pushed to the right, there's also a chance that a possible A322 neos doesn't happen either in the near term. With these things get to the right, which means that possibly investments from you and CapEx from you would also get pushed to the right how should we think about uses of cash for you in the near and medium term? What will you do with cash that you're generating?
So a couple of comments. So relative to how the OEs will respond with respect to their next needs to be seen. And I certainly don't have a crystal ball where I can declare, when that's going to happen. What I can tell you is our efforts solutions, both to Boeing And Airbus has not slowed down one bit, and it will not. Because regardless of whether the plane is launched, a year from now or 2 years from now, we need to be there.
And as you know, these are long cycle programs, long development cycle programs. Having said that, our cash priorities, have not changed and that is incremental organic growth that we can find internally. And again, it remains very strong as we've talked about fiber pull, fiber demand as we look at our thermoplastic development that's going on and having the opportunity for even further secular penetration We'll invest in those, technologies and those assets to support programs when we win them. Second, we'll continue to be opportunistic and look at M And A targets that fit within our portfolio that expand solutions to our customers in our existing markets. And then last, we'll return to shareholders through dividends and share buyback.
So nothing new there. We just monitor it real time. And again, as you know, we had no capacity plans in or forecasted for the NMA, we would do that as we win content and as the program evolves.
Thank you for the color.
Your next question comes from the line of Myles Walton with UBS. Your line is open.
Good morning, Nick. Good morning, Patrick. This is Lou Raffetto on for Myles.
Good morning. Good morning, Lou.
So margins, I know you talked covered them briefly earlier, just composite materials, really strong engineered, a little less so. And I know that that business still has good return metrics, but just curious, were there any one time costs related to ARC in there? Because I thought ARC would be, I guess, accretive based on, EBITDA margins you guys had disclosed for them?
Yes. I mean, what I would say, Myles, is I would say it was a pretty good quarter, And you have to separate quarter 1 from the other 3 quarters of the year because we have a heavier burden in terms of our OpEx expenses rolling through Q1. So if you look at it sequentially, I completely get that it looks as if it's down, but if you look at it year over year, we actually had quite a nice up in Engineered Products. And for Q1 coming in sort of above 12% was actually a pretty good result for that segment. So I can't point to any one time costs.
What I would say is that as the year goes on, ARC will be sort of a strong performer within that segment and without the additional burden of the heavier Q1 OpEx, it should get stronger. And the range I've called out before sort of 12% to 14% I think is still valid and ARC if anything will nudge us towards up in that range.
Okay, great. Thank you. And then just one clarification on the one time action on the depreciation. Did that mostly fall into composite materials or is it spread
It relates to Composite Materials. Yes, it was just a good program that sort of reached its end as they do periodically and we accelerated some depreciation associated.
Your final question comes from the line of Chris Katch with Loop Capital. Your line is open.
Wanted to clarify the, in your formal comments, you in the reaffirmation of guidance, you said you're evaluating a number of scenarios. And then the Q and A, I think you said you did factor in a little downside on the 7 37 program. So I'm just wondering, So based on the current guidance, are you even though you haven't had demand signals that reduce your shift mentioned, tied to 7 37? Are you assuming in your guidance that there is some of that offset by other programs? Absolutely.
Okay. And then the, the, just from an order of magnitude, this was asked, but I don't know if you quantified it. On an order of magnitude, the content is skewed more towards engines in the sales versus airframe. And that sounds like the part of the supply chain that may keep going just to sort of catch up given there had been bottlenecks there. It sounds like just order of magnitude in terms of content per plane, is that engine that sells maybe 70% of your content, or can you quantify that at all?
Yes. I mean, as Nick laid out, Chris, we shipped we have engines themselves that clearly significant, but we also have airframe structures, secondary and tertiary things. We don't sort of specify specifically across the $400,000 shipset. But yes, I mean, we called out before when we went from the legacy 7 37 to the max, that was an increase of 100,000. And most of that 100,000 per ship set increase was engine in the cell driven as you would expect because it was a reengineering program.
So engines in the cells are clearly a significant portion of that overall ships at.
Okay. And if I could just one on the, the development efforts in peak and thermoplastics versus it's thermostat epoxy. This sounds like an intriguing secular story. And I'm just curious about, how nascent or how far along as the commercialization of these sorts of programs. My understanding is this helps avoid autoclave.
And therefore, presumably a lot more efficient to you that's much broader, including automotive? Thank you.
Well, thermoplastics have been around for many, many years and very big and prevalent in automotive. Our efforts today are focused primarily on Aerospace. And obviously, they're starting with smaller, simpler parts where you can avoid tooling. And to your point, you can basically improve throughput lower cost, and offer opportunities to displace additional metals. So that's really our focus.
We're, I'm very excited. I visited our site where we have our line running materials, is looking very good. And like I said, our relationship with our Kima It couldn't be going any better. We've got multiple development, focuses on the thermoplastic front in different material forms. And, we look forward to sharing more with you as we continue to penetrate and win more programs.
This concludes today's conference call. You may now disconnect.