Nick Stanage – President & Chief Executive Officer Wayne Pensky – Senior Vice President & Chief Financial Officer Michael Bacal – Manager, Communications and Investor Relations.

Gautam Khanna – Cowen & Company Miles Walton – Deutsche Bank Steve Levenson – Stifel Nicolaus [Stephen Chahal] – Royal Bank of Canada Michael Sison – KeyBanc Capital Markets John McNulty – Credit Suisse Noah Poponak – Goldman Sachs Chris Kapsch – Topeka Capital Markets Avinash Kant – D.A.

Davidson & Company Matt – UBS Securities Ken Herbert – Canaccord Genuity.

Good day, and welcome to the Hexcel Corporation Q3 2014 Earnings Call. Today’s conference is being recorded. Hosting today’s conference are Mr. Wayne Pensky, Chief Financial Officer; and Mr. Nick Stanage, Chairman, Chief Executive Officer and President. At this time I’d like to turn the conference over to Mr. Pensky. Please go ahead, sir..

Great, thank you. Good morning, everyone. Welcome to Hexcel Corporation’s Q3 2014 Earnings Conference Call on October 21, 2014. 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 2013 10(k), our Q3 10(q) and last night’s press release.

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 Nick Stanage, our Chairman, CEO and President, and Michael Bacal, our Communications and Investor Relations Manager. The purpose of the call is to review our Q3 2014 results detailed in our press release issued yesterday. First, Nick will cover the markets; then I will cover some of the financial details.

Then I’ll give it back to Nick for some final comments before we take your questions..

Thanks, Wayne. Good morning, everyone, and thank you for joining us today. As you have seen in last night’s release we delivered another strong quarter with sales of about $452 million, up 9.5% in constant currency from last year.

Our operations continue to perform well, delivering Q3 operating income of $79 million with margins of 17.5%, up 80 basis points from last year’s period. Our adjusted net income of $56 million was the highest in our history. Our diluted EPS of $0.57 was about 19% above Q3 last year. Overall continued great conversion on the top line sales growth.

For the first nine months of the year our sales were up nearly 10% in constant currency from last year’s period. Our nine-month adjusted operating profitability also grew nicely to 17%, up 70 basis points on the comparable 2013 period. Adjusted diluted EPS was up 16.5% for the first three quarters to $1.62.

As an organization we’re very proud of these results and that quarter after quarter we continue to raise our margins and our expectations. Now let me turn to our markets, and as usual I will discuss year-over-year comparisons in constant currency.

Our sales growth for this quarter was driven as expected by a 13% increase in Commercial Aerospace revenues over 2013, as Q3 sales totaled $296 million. Total revenues from new Airbus and Boeing programs increased by about 20% primarily driven by the A350 and 787 programs.

Sales for legacy platforms at Airbus and Boeing were up about 8% from last year’s Q3 and were about 5% lower than the run rate we saw in the first half of the year due to seasonality.

Sales to other Commercial Aerospace which includes regional and business aircraft were up over 10% compared to last year’s quarter and remained at about the same level we have seen over the past three quarters. Space and Defense revenues for the quarter were $88.5 million, down 6.3% versus last year; while nine-month 2014 sales are down 4.5%.

Rotorcraft sales led the decline, down about 15% as we began to see the expected decline in V22 sales. Additionally Rotorcraft sales were soft in the European and Asia-Pacific regions.

Lastly, we also saw that a modest amount of customer orders were shifted forward, which leads us to estimate Q4 sales in this market will be stronger than our Q3 results. We now expect Space and Defense sales for the full year to come in just slightly than our 2013 sales to this market.

In Industrial Markets, sales for Q3 were about $67 million, up almost 20% year-over-year. For the first three quarters of the year Industrial sales are also up almost 20% over last year’s period. Year-to-date sales increases were across the board, including Wind Energy which is up about 25% as compared to 2013.

Now let me turn the call over to Wayne for some additional comments on our financials..

Thanks, Nick. So gross margin of $122 million for the quarter was 27.0% of sales as compared to 27.2% in Q3 2013 – a strong showing for both quarters. There is nominal impact from exchange rates as compared to 2013.

For the nine months gross margin was $380 million or 27.5% of sales as compared to almost $341 million or 27.2% of sales in last year’s period. Exchange rates were a modest 15-basis point headwind for the first nine months.

Our selling, general and administrative costs for the quarter were $32.9 million or flat with last year as lower payroll-related spending in the quarter offset our investment in people and processes to support our growing business.

Research and technology costs of $10 million in the quarter were just lower than the comparable 2013 period and year-to-date is up 10.5% over last year. Our adjusted operating income as a percent of sales was a record 17.5% this quarter. This compares to 16.7% in last year’s period, and exchange rates had a nominal impact as compared to last year.

For the quarter and year-to-date operating income leverage was over 25% on incremental sales when adjusted for exchange rate impacts. We remain on track to hit our 23% target for the year. Our Composite Materials segment reported a 9.7% increase in sales for the quarter and the Engineered Products segment was up 9.3%.

Operating income margins for the quarter were 20.7% for Composite Materials and 15.3% for Engineered Products. Our Composite Materials segment is significantly more capital intensive than Engineered Products so it needs a much greater operating margin to achieve the same returns in invested capital as Engineered Products.

Our performance expectations are high and the year-to-date performances for both segments were in line with those expectations. Our effective tax rate for the quarter was 27.7%, down slightly from last year’s effective rate of 27.9%.

Both periods benefited from a favorable tax return to provision adjustments and the release of reserves for uncertain tax positions. Excluding these discrete benefits, our year-to-date effective rate was 30.8% which is the rate we expect for Q4, reflecting our best estimates for mix of income by country and state.

For the first nine months the free cash flow was a use of $3 million compared to a source of $63 million in 2013 as cash used for capital expenditures was $61 million more in the first nine months of 2014 as compared to the 2013 period.

Our free cash flow guidance is reduced slightly to $25 million to $50 million for the year, with accrued capital spending now looking like it’ll be towards the high end of our plan of $225 million to $250 million. During Q3 2014 the company invested $45.5 million and bought back nearly 1.2 million shares of common stock.

We have $100 million remaining under our currently authorized $150 million share repurchase program. Year-to-date we’ve now bought back $160 million. The impact on EPS from the buybacks versus our original 2014 guidance is about $0.04 on 2014 full-year earnings.

Remember, we do benefit from a strong dollar and while it was a bit of a headwind for the first half of the year it was essentially neutral for the quarter; and if rates hold at today’s level it’ll be a very slight tailwind for Q4.

If exchange rates stay where they are we expect to lose about $0.015 of earnings for the year versus our initial guidance. Finally, as previously announced in September we entered into a new $700 million senior revolving credit facility that matures in September, 2019.

The new facility provides for a modest improvement in interest costs, but more importantly it is unsecured which provides us with greater financial flexibility and capacity going forward. The elimination of security from our facility reflects our continued great performance and the investment-grade ratings we received from S&P earlier in the year.

Due to the refinancing we accelerated certain unamortized financing costs on the prior facility and incurred a pre-tax charge of $0.5 million in Q3. Now let me turn it back to Nick for some concluding thoughts and our guidance before we take your questions..

Thanks, Wayne. We have tightened our 2014 sales guidance and now expect sales of between $1.830 billion and $1.860 billion as lower expected Space and Defense sales should be offset by higher Industrial sales. We have raised our full-year adjusted EPS guidance to a new range of $2.10 to $2.16 from our prior range of $2.06 to $2.14.

To achieve the midpoint of our guidance we need to keep pace and exceed our 23% operating income leverage target. I want to remind you that we do operate in a modest seasonal business where second half revenues and margins are typically not as strong as those in the first half due to reduced customer activities during the summer and holidays.

Having said that, in Q3 we had our highest operating income percentage in history. We remain confident in our operational focus and continuous improvement mindset while working to position the company for the forecasted growth ahead as we support our customers by investing in technology, capacity expansion, manufacturing innovations and our people.

We’d now be happy to take your questions..

Thank you. (Operator instructions.) And we’ll take our first question from Gautam Khanna, Cowen & Company..

Thanks, good morning. .

Good morning..

I had two questions. First I was wondering if you’ve given any more specification on your expected CAPEX requirements. You mentioned last quarter that they might be a little bit higher, and if you could quantify what they will be in 2015; and perhaps if you could just give us a sense for how that changes your view of incremental margins at 23%.

Can you do better than that or is that still the right number as we look forward?.

So we’re in the process of developing our 2015 plan so it’s a bit premature to provide guidance on our specific CAPEX for 2015 or beyond. But we certainly expect to do that when we provide guidance later this year or early next.

With respect to our CAPEX plan this year, again, we constantly track and measure our customer schedules and delivery rates so that we make sure we align our building plan and our capacity with their requirements.

So we are continuing to be very aligned on the A350, the other growth programs with respect to LEAP fan blades and the whole host of other programs that we’ve run and that continue to drive CAPEX needs going forward. So it does not negatively impact our view and ability to deliver 23% incremental margin.

We’re always pushing that as far as we can and we’ll continue to do so going forward..

And if you wouldn’t mind just opining on kind of what you’re seeing in the defense market, the defense and space market. Previously you sort of expected it to grow over the forecast period to 2017 and I just wonder if what you’ve seen of late changes that view..

one, rate reductions in the V22, which I believe all of you are well aware of, have started to come down and are expected. Second we’ve seen some softness in the European and Asian helicopter markets as well as some customers adjusting inventories which was unexpected.

And then third we do have some customers pushing orders to the right in the US and we expect those to come back in in Q4 and Q1 next year. So right now we’re looking at flat to slightly below 2013 levels but we feel comfortable with where sales are forecasted to come in..

Okay, thank you..

And we’ll take our next question from Miles Walton, Deutsche Bank..

Thanks, good morning..

Good morning..

I was hoping you could maybe lay out for us what you expect as a corporate expense run rate, fluctuating a bit here in the quarter in the right direction and kind of what your look is for Q4..

Yeah, Miles, Q3 always tends to be a little bit low. I’d expect maybe Q4 would be a little bit higher but not terribly different..

In line with the first half?.

Remember the first half, probably the numbers you’re looking at include the $6 million in environmental charge so just make sure you pull that one out..

I’ve done that, okay. And then in terms of setting the expectations on the A350 I imagine you’ve shipped something close to 20 ship sets equivalent year-to-date.

Is that about the right level that we’re looking at from a run rate starting basis going forward as you commented that you’re aligned on the A350?.

Well the best way to think about the A350 is to start with what Airbus has said publicly, and that is that they will reach a build rate of three per month by the end of this year.

So remember, we’re shipping our materials about six months in advance to the 40 suppliers that are supporting the program so you can pretty much infer that we’re running at that rate.

They’ve also stated that they expect to be at the ten per eight by 2018, so if you just draw a line and back out the six months it gets you pretty close to a strong estimate on where we see the A350 build rate and growth over the next couple of years..

Okay. And then the last one from me you mentioned that the legacy aircraft run rate was down about 5% from the first half run rate.

What was the growth program in Q3 versus the run rate in the first half?.

So if you look at the legacy programs up 8%, about half of that was due to Boeing, the 737 increase rate. But I wouldn’t read too much into it because similar to last year there’s seasonality in there and we saw a drop off in Q3 last year as well..

So I meant the growth programs though – Q3 run rate versus the first half.

Was there a similar phenomenon?.

The short answer is no. I’d say the growth programs, generally the Q3 levels were consistent with the firs thalf..

Okay, great. Thanks guys..

Thank you. .

And we’ll take our next question from Steve Levenson with Stifel Nicolaus..

Thanks, good morning..

Good morning, Steve..

I’m just curious if you’re getting any pushback on anything with oil prices being down or if you think that’s just temporary and they’re still looking for weight reductions.

And if more weight reductions are being investigated where do you have opportunities? Does it displace other materials for additional content in programs coming up?.

So starting with oil, Steve, obviously it has an impact in our raw material input with acrylonitrile. And our contracts vary but for the most part we’re protected with respect to the contracts we have in place, and there are thresholds on the low side and the high side where adjustments are made.

So I don’t see anything in the near term impacting that. I would say as all of you are aware on cost reduction initiatives like PFS with Boeing and other programs we continue to work with our customers in finding ways to improve our supply chain, improve their supply chain; offer alternate materials and help them achieve their overall objectives.

With respect to your second part of your question on the opportunities for weight reduction, typically when a new platform gets launched there are some weight challenges and there are always opportunities to look at redesigning some parts, whether they’re currently metal and transforming them into composite; or even redesigning composite parts.

So we continue to work on those types of programs with A350, with 777X and others. But I’d say in the scheme of thing son the A350 it’s incrementally small amounts. 777X, it’s bigger since the launch date is a little further out..

Got it. Thank you very much..

Thanks, Steve..

(Operator instructions.) And we’ll take our next question from [Steven Chahal], Royal Bank of Canada..

Yeah, thank you for taking my question this morning..

Thank you, Stephen..

I was wondering if I could maybe revisit the cash flow questions. You talked about that it’s a little early on in your plan to give numbers. I certainly understand that.

I was wondering if you could just maybe give some directional comments – should we expect 2014 to be the trough in free cash flow? And when you think about free cash flow and where it maybe moves up off of the trough is it a gradual increase, is it step change – what are some of the qualitative things we can think about in this?.

Yeah, so Stephen, first when you’re thinking about free cash flow we expect earnings to continue to grow over the next several years, but we also for the next few years as the A350, the [Neo], the Max, the Joint Strike Fighter – as those ramp up in production that we’ll need to continue to spend CAPEX for the growth of those programs.

And so really it’ll just depend on how quick earnings from the current programs are there to offset the CAPEX required for the future growth. We’ve said we expect to be free cash flow positive every year but it’s not really until the CAPEX ramp I’ll say moderates that we’d expect to generate significant free cash flow.

Now just as a reminder, there’s nothing that makes us more happy than investing CAPEX for business that we’ve won so we’re happy to be doing this. And as we say we hope we never run out of CAPEX projects but I assume at some point we will..

Okay, that’s helpful. And then also maybe on the R&T side, when we look at this big revenue ramp up that we’ve got going from three a month to ten a month on A350.

Is it reasonable for us to expect R&T to kind of remain steady as a percentage of sales there which means you are able to spend more on it? Or does it start to tick down over time because of that significant revenue ramp up?.

So this year if you look at our R&T spend we had some lumpiness. We had a couple of key campaigns Q1, running new development programs in our plants – that drove a high number. Overall we think this year’s going to be close to 10% up.

We really are going to continue to spend what we need to spend, so although we look at the sales growth we do not put a leverage target on R&T. We basically align it with the opportunities out there in investing in new innovations both product-wise and processing-wise to win the next program, to drive productivity and to drive continuous improvement.

So again, we’ll provide more guidance on next year as we wrap up our plan and communicate our guidance..

[Stephen], the only thing I’d add is the R&T spend for the A350b is behind us so when we’re talking about going forward it’s for new programs – it’s not about the A350 anymore..

Great, thank you..

And we’ll take our next question from Michael Sison, KeyBanc..

Good morning, guys, nice quarter..

Thanks..

Good morning, Michael..

In terms of your 2017 plan, you talked about some confidence in getting there – can you remind us, that assumes you’ve won most of the new planes you need to win.

In addition is there any change in the mix between space and defense and industrial in getting to 2017?.

So we remain confident in our 2017 projections of $2.5 billion, Michael. The programs that impact 2017 for the most part have already been awarded and are on contract so it’s a matter of execution.

And again, looking at space and defense there may be some small puts and takes but we’re having very strong incremental sales growth on industrial which is more than offsetting that. So we still feel very good on our projections for 2017 sales growth..

Great.

And then in terms of the 777X you sort of mentioned that – any updates there in terms of timing for awards or maybe confidence? Or how do you feel about how you’re going after that platform?.

Well I can tell you we remain very confident. We’re continuing to work closely and aggressively with Boeing on aircraft materials, with GE on engine materials and with others on cell materials. So it’s still a bit early for us to declare incremental content.

Just as a reminder, we have about $1 million content on the 777 and I fully expect the 777x to have increased content..

Great. And one quick one on wind, it’s been a nice recovery this year. Oil’s come down quite a bit here.

Any thoughts or what are you hearing from your customers in terms of their backlog maybe heading into 2015?.

Well we do fill good about wind, especially after coming off of a tough 2013 after a record 2012. [Vestus’] backlog is strong – I believe it’s over 7.2 G and we’re well positioned with them, working on new programs as well as supporting the ongoing programs. So we still like wind; we like where the technology is going.

Blades are getting longer; the requirements for stiffer and lighter-weight materials are going up which provides us an opportunity for continued growth. So we still like wind, still like renewables..

Great, thanks guys..

Thank you..

And we’ll take our next question from John McNulty, Credit Suisse..

Good morning, thanks for taking my question. So a question with regards to the margins – you saw some pretty solid incrementals in Q3 and when I look at the mix, at least how we perceive it, your commercial aerospace sales at least relative to say the first half of the year were down a little bit.

Space and defense, which we also kind of view as a pretty high-margin platform is also kind of down.

So I guess how did you do that? What drove kind of the margin, the solid incremental margins that kept the kind of strength up relative to let’s say the first half even though the mix was probably working against you?.

Yeah, so John, if you think back to wind last year it was going through some tough times. They had to resize the business to the volume that they had and they did a great job of cutting back the costs. So when the wind volume came back this year the incrementals have been very good.

So while the wind absolute margin percent might be less than the rest of the business on an incremental basis it didn’t hurt us on the year-to-date basis..

I’d also add there’s three things to think about and they’re all interrelated – one is new technology to help us reduce our scrap, to improve throughput, to improve changeovers. There’s productivity, and there’s volume leverage whether you talk about supply chain or overall SG&A growth as compared to sales growth.

So you look at all three of those, we continue to work very hard to leverage our incremental sales to make sure it translates into improved margins..

And maybe tied to that do you think there are more levers to pull with regard to productivity and technology? I understand the operating leverage kicking in but the other two parts I guess, how should we be thinking about what they might contribute as we look to ’15 and ’16?.

Well I can tell you the direction I’m setting and what I look for, and that’s continuous improvement across the board – whether we’re talking about plant efficiencies or SG&A efficiencies or corporate efficiencies. So technology is constantly advancing and allowing us to get more out of our assets every day.

So I think this is a long-term continuous process that will continue to drive and continue to see strong results..

Great, thanks very much for the color..

Thank you, John..

And we’ll take our next question from Noah Poponak, Goldman Sachs..

Hey, good morning. .

Good morning..

I wanted to ask about CAPEX again, recognizing I’m not asking for a number for 2015 but is it the correct read that there’s a decent amount of pull-forward and elevated drivers to the 2014 CAPEX number such that even with new business wins and 2015 CAPEX being pretty elevated relative to all of history except for 2014, it should still be down pretty significantly from ’14 just because this ’14 number is setting up such an easy comparison? Or is this ’14 number kind of close to where it needs to be in ’15?.

So I think I got the question here. The first thing I’d say is our CAPEX spending continues to perform at or better than we’ve ever expected. Our on-time, on-budget and output per unit dollar invested has met or exceeded our programs across the board. So with respect to 2014 our range was $2.25 to $2.50 – we’re right there.

Now, we continue to make sure we’re aligned with the rate of ramp on the A350 which again we haven’t provided guidance, but I can assure you we have not installed all of the capacity to run the A350 at a 10 per month rate.

At the same time we do not have all the capacity to match up with the extremely aggressive growth rate on the LEAP engines and the LEAP fan blades and cases.

So we do not build capital in advance of needing that or in advance of winning programs – this is booked business that what we’re trying to do is measure as close as possible without being short to meet our customers’ schedules going forward.

So again, next year we’re going to continue to invest and I hope our number goes up because that means we’re being even more successful than what our prior guidance had been..

Okay, got it.

Is it possible to, even if just rough order of magnitude, size what percent of the Defense segment the V22 program is just so we can all understand the negative growth rate from that program that you have to overcome next year? And I guess that’s assuming that is still running close to peak, or perhaps you can tell us if that’s true or if it’s already come off, a little bit off of the peak?.

So we’ve always said the V22 as you know is our largest program and it’s been less than 15% of our total Space and Defense business. And it’s still less than 15%.

It’s approaching towards the 10% range and going lower but for this quarter it’s right, the A400M’s about ready to catch it so at some point it won’t be our largest program anymore – but will still be an important program for us..

Okay.

So if that ends the year at 10% and then it sounds like it needs to go closer to 5% next year, is that something you feel like the rest of the segment can overcome or not next year?.

I hate to answer this but we’ll give guidance later but in particular on individual programs it gets a little tough. But we talked about the rates being cut in half so let’s say at the outset if was 15.0%; it goes down to 7.5% of our Space and Defense numbers in real round numbers. But I think to predict the specific programs is a little bit tough..

Okay. Alright, thanks a lot..

Thank you..

(Operator instructions.) And we’ll take our next question from Chris Kapsch, Topeka Capital Markets..

Good morning. I have a follow-up on the CAPEX and cash flow discussion, and really more in the context of the company’s capital structure and its leverage ratios.

So it looks like just doing some back of the envelope math, that given the implied free cash flow for the balance of 2014 in Q4 – and even if you did spend as much as say $250 million in CAPEX next year – it looks like you basically could exhaust your existing share repurchase program and really still have a decrease in net debt.

And it looks like your leverage might finish 2015 less than 1x lever, call it 0.8x. So the question really is given obviously you’re still working on CAPEX programs looking forward and excited about the growth prospects, but also at this point in the cycle you’re probably thrilled being this sort of under-leveraged compared to maybe prior cycles.

So I’m just wondering what’s the thinking at the company of what the ideal capital structure looks like and leverage ratio at this point in the cycle given what’s pretty good visibility going forward from some key growth drivers from your key customers?.

Yeah, I think you said it well in that we’re pretty thrilled with where we are in respect to our balance sheet and the capacity we have looking forward.

I think our last twelve-month net debt to EBITDA was right around 1x and I haven’t done the math yet looking at next year but I can tell you 0.8x is well below the internal targets we set on optimizing our capital structure.

So it’s pretty simple and we’ve said it before but the first thing we do is we look at the growth opportunities we have such as the 777x and the Neo and the Max and try to optimize our position and differentiate our technology to grow organically. That’s what we’re looking at first and foremost.

With that we look at our product portfolio and gaps and opportunities on how we might strengthen our position with M&A activities. So our pipeline is active and we’re always looking at those opportunities and balancing them with our organic growth opportunities; and last but not least return to shareholders. So it’s not one or the other.

We’re constantly looking at our capital structure. We’re looking at our cash generation and our internal needs and then how we might return to shareholders and/or enhance our portfolio..

Gotcha. So the ratio that I mentioned, 0.8x based on what you said it sounds like there’s capacity for both incremental share repurchases and/or acquisition activity looking forward..

That’s a good assumption..

So then I just had a follow-up in the Space and Defense segment as well and obviously you called out a couple headwinds. But in the past you had mentioned strength from programs like the A400M could offset some of the anticipated weakness in say Rotorcraft. And I think that’s your second largest program.

I’m just wondering if that program still continues to grow and is it perhaps just not big enough to offset some of the sequential weakness you saw in some of these other programs including the V22 and other things that you called out..

Right. So Chris, we were originally thinking that as the V22 rates got cut in half and as the C-17, remember that goes away next year – between the A400M and the Joint Strike Fighter they would offset those too.

The A400M is doing well but I think the absolute growth rate number, the build rate for it now going forward is probably a little bit less than we would have thought in prior years. Now that’s not a 2014 issue but it’s probably a little bit less than we had expected. And then the Joint Strike Fighter is always a wild card.

I mean we’re looking for growth and if it hits the growth rates, the build rates that people expect then it’ll be fine. If it gets lower than that then it’s just the timing of how quickly it ramps up. So whether they really offset we’ll have to see..

Great, thanks a lot guys..

Thanks, Chris..

And we’ll take our next question from Avinash Kant, D. A. Davidson & Company..

Good morning, Nick and Wayne..

Good morning, Avinash..

the first one is that if I’m looking at the top end of your guidance for the full year and I’m talking just sequentially between Q3 and Q4, it looks like your operating margin guidance is down a little bit.

First, am I right in understanding it and second is that, with higher Commercial Aerospace why would that be the case?.

So if you’re talking about with respect to Q3 the answer is that’s correct. I mean we don’t expect to repeat the 17.5% again but we expect to get close. .

Would you have higher sales in Commercial Aerospace in Q4 versus Q3?.

Not so much. I’m sorry, the answer is probably a little bit, yes. But if you look at all our margins it really just depends on the actual mix of products that we happen to sell.

I mean Commercial Aerospace margins are good, Space and Defense margins are good, the Industrial margins outside of wind are strong – wind’s the only one that has a noticeably smaller margin but it has a much lower capital deploy and so you can get good returns.

And so it really just depends on the mix of products within that, but I don’t think it’s enough to make a large enough difference that you should notice..

Okay, so given the product mix and everything I would have expected that margins could actually stay there if the mix kind of looks like it’s favorable..

Yeah, historically our second half, particularly Q4 – remember, the last two weeks of December, it’s a pretty dead time and we generally run about a percent lower in Q4 than the other quarters..

Okay, and one other question on the expansion plan that you announced in France – maybe $250 million and of course the construction will begin in mid-2015.

Could you give us historically on projects like this what percentage of the CAPEX goes in the first year typically – what is land, building, and all that kind of stuff that goes upfront?.

So we are excited with the announcement to build our first precursor plant in Europe and our first carbon fiber plant in France.

We’ve been working on this growth initiative for over two years now to make sure we identify the optimum place for the location and put the fundamental plans in place to build the team, to work with the local officials and the government, to optimize our growth plans there.

With respect to planning and working with our supply chain on equipment design and ordering, that work is ongoing. Teams are in place and we’re hiring as we speak. Groundbreaking should be around summertime next year and probably take about two years to complete, and then we start qualification which will be nine months to twelve months.

So overall we expect to be up at full rate in 2018 with about 120 people producing a significant amount of our precursor and carbon fiber needs for the European market..

So Nick, did you spend any CAPEX this year towards this one?.

We did but it’s not a lot in the scheme of things. We’ll spend obviously more next year but we’re not going to go out and identify on the specific project the exact timing. You can do some math on some models. We’ve spent a negligible amount this year.

Real spending will start next year and we’ll complete in the 2017 timeframe so that we can start qualification..

Got it, thank you..

You’re welcome..

And we’ll take our next question from David Strauss with UBS..

Hey, good morning – it’s actually Matt on for David..

Good morning, Matt..

one, obviously wind is really strong but can you give any color on the other industrial end markets, how those are growing and maybe what the forecast is? And then the other, maybe I missed it but where do you think your share count ends up for the full year?.

With respect to the rest of Industrial outside of wind nothing in particular to point out – it’s all up a little bit but there’s no particular items to point out for you.

With respect to share count for the full year the expectation if we stay where we’re at right now, the share count for the full year is 99 million shares and for the quarter I think it’s just under 98 million..

Okay, thanks..

But that’s excluding any buybacks for Q4..

And we’ll take our next question from Ken Herbert, Canaccord..

Good morning. .

Good morning, Ken..

I just wanted to ask, Nick, you’ve talked about M&A now as a potential use of capital. Clearly you’ve got the buyback; you’ve got organic investments but you’ve got, it looks like some potential capacity or significant capacity.

As you talk about this and you talk about the pipeline being full can you just provide some more color on where you’d be looking in terms of markets, in terms of technologies? I mean obviously it’s not an area you’ve got much of a track record.

How would you approach this and if you really, what gets you, what you think is the most sort of accretive and how would you outline a strategy on that with any more detail? That’d be great..

So I guess I’d start by saying first thing, Ken, is we’re looking at technology and we’re looking at businesses and/or technologies within our core competency – so very close to if not in the composite space.

We’ve got very robust technology roadmaps and very strong positions where we’ve invested internally but there are some opportunities there where we can look at technology and/or customer qualifications and/or market access as bolt-ons that we’re looking at as we speak. So we are very disciplined.

As you mentioned we haven’t done an acquisition in many years. We’re going to be very disciplined and we’ve got a team, a cross-functional team that works this very aggressively and try hard. And it’s one of those things that it’s hard to give you guidance on until we actually do it and announce a deal.

So I can tell you I’m looking forward to announcing the first one..

Okay, that’s great.

Is it fair to say or is it a reach to say that as you look at something the benefits might be more on the cost side versus then maybe access to a new market or a new customer?.

I’d say the opposite – the benefits would tend to be on customer positions and technology. Obviously we’ll drive for cost efficiency but again, this is really technology positioning to win the next programs or enhance our current position to give us a better probability to win even more content going forward..

Okay, that’s helpful.

And then just finally within the other Aerospace, I know it’s coming off maybe some easier comps but are there any particular programs you’d highlight there as maybe you saw notable growth in, perhaps on the business jet side?.

Yeah, Ken, we’ve had basically four quarters in a row of about the same level of sales, but when you compare this quarter versus a year ago it was probably Gulfstream that was the difference when you get through it all..

Yeah, okay. Great, thank you very much..

Thank you, Ken..

And we’ll take our next question from Noah Poponak, Goldman Sachs..

Hey, I just wanted to ask two follow-ups on financial targets of yours.

So I just noticed reading in the press release the $2.5 billion for ’17 reads by the end of 2017, so I’m wondering is the target there to have $2.5 billion for the full year 2017 or is it to be run rating that number as you’re coming out of 2017?.

That was probably poorly written, Noah. I guess the good news is you at least didn’t ask about 2015 CAPEX again. [laughter].

[laughs] Come on, Wayne!.

[laughs] It’s meant to be $2.5 billion for the full year..

Okay.

And then on the margin target, the incremental margin target of 23% plus, I think that’s a total operating margin target – is that correct or is it a segment target?.

No, that’s correct. It’s for the total company..

Okay.

And should we think about you all driving towards something similar at the segment level or is there a reason why the segment number would be significantly different over the medium- to long-term?.

I’m not sure that it’ll be significantly different but you would expect the Composite Materials segment just to be higher. Remember, that’s the one where we have the carbon fiber which is by far the most capital intensive and they should have the highest margin percent, so that one will be a little bit higher..

On an absolute basis, not on an incremental basis..

I’d say both. [laughs] The answer is both..

Okay. So there’s potential for the segment incremental to be higher than the total incremental. .

Yeah, I’m saying that with probably not enough facts to base it on but that should be correct..

Okay, thanks a lot..

Okay..

And with there being no other questions this concludes today’s conference. Thank you for your participation..