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Patrick Winterlich

Thank you, Tom. As a reminder, regarding foreign exchange exposure, Hexcel benefits from a strong dollar. We continue to hedge foreign exchange exposure over a 10-quarter time horizon. The year-over-year comparisons I will provide are in constant currency, which thereby removes the foreign exchange impact for sales.
The commercial aerospace market represented approximately 61% of total first quarter 2025 sales of $456.5 million. First quarter of commercial aerospace sales of $280.1 million decreased 6.3% for the first quarter of 2024. The overall aerospace supply chain continues to recover in fits and starts, leading to delayed rate ramps across our commercial aerospace customers.
Boeing 787 sales declined meaningfully year over year. MAX sales remained low as excess inventory is consumed consistent with our expectations as we lag Boeing lamp rates. Airbus A350 sales declined modestly year over year or less than the equivalent of one half of one ship sales.
Sales for other commercial aerospace in the first quarter increased 7.1% year over year, led by strength from a few of our international customers. The newly designated market of defense, space, and other represented approximately 39% of first-quarter sales and totaled $176.4 million, increasing 2.7% from the same period in 2024. Within this market, defense and space grew 3.3% with growth both domestically and internationally.
For rotorcraft, the CH-53K and Black Hawk programs grew year over year, partially offset by declining V22 sales. A few space programs drove additional growth, as did an international fighter program.
Industrial increase in automotive tempered by lower wind and recreation sales. Much of our industrial business is with European customers, as illustrated by sales being down year over year from a weakening dollar, whereas on a constant currency basis, sales were nominally up.
Gross margin of 22.4% in the first quarter of 2025 deteriorates year over year from the negative impact of lower operating leverage, a vendor quality issue in our engineered product segments, as well as a generally unfavorable sales mix.
In addition, a rare power outage at our Alabama facility cost us between $2 million and $3 million. Tom said in his remarks that the case of plant operations were restored quickly.
Gross margins in the comparable prior-year period was 25%. As a percentage of sales, selling general and administrative expenses and R&D expenses were 12.5% in the first quarter of 2025 compared to 13.6% in the comparable prior-year period, with the year-over-year reduction primarily reflecting lower employee costs including lower stock-based compensation charges.
Adjusted operating income in the first quarter was $45.3 million or 9.9% of sales compared to $54.1 million or 11.5% of sales in the comparable prior-year period. The year-over-year impact of exchange rates in the first quarter to operating income was favorable by approximately 60 basis points.
Now turning to our two segments. The composite material segment represented 80% of total first-quarter sales, and adjusting for non-recurring charges generated an adjusted operating margin of 14.2%. This compares to an adjusted operating margin of 16% in the prior-year period.
The engineered product segment, which is comprised of our structured and engineered core businesses, represented 20% of total sales and generated an adjusted operating margin of 6.8%. This compares to an adjusted operating margin of 14.3% in the prior-year period. As previously mentioned, a vendor quality issue and poor sales mix impacts the engineer core segments this quarter.
Net cash used by operating activities in the first quarter of 2025 was $28.5 million compared to a use of $7 million in the first quarter of 2024. Working capital with a cash use of $97.7 million in the first quarter of 2025 compared to a cash use of $84.5 million in the first quarter of 2024.
Capital expenditures on an accrual basis were $17.1 million in the first quarter of 2025 compared to $18.6 million in the comparable prior-year period. Free cash flow in the first quarter of 2025 was negative $54.6 million, which compares to a negative $35.7 million in the first quarter of 2024. We typically see cash use in the first quarter of the year and this year was no different.
Adjusted EBITDA totaled $84.8 million in the first quarter of 2025 compared to $98.2 million in 2024. During the first quarter, we refinanced a $300 million fixed rate note that was maturing later this year. The transaction was significantly oversubscribed and we achieved good interest rate spread, demonstrating Hexcel's strong credit profile. We are pleased to have removed this refinancing as a potential risk.
Our net debt maturity is not until 2027. We used $50.4 million to repurchase stock during the first quarter. The remaining authorization under the share repurchase program as of March 31, 2025, was $184.5 million. The Board of Directors declared a $0.17 quarterly dividend yesterday. The dividend is payable to stockholders of record as of May 2 with a payment date of May 9.
Expanding on Tom's comments regarding the year and our guidance revision, 2025 is going to be another transition year for the commercial aerospace industry and for our commercial aerospace business. So in recognition of this, we are pivoting and managing the business for the realities of today. We are focusing on strong control of operating costs and tightly managing hits.
For the 2025 sales guidance, we reduced the midpoint by $85 million. Most of this sales reduction is attributable to Airbus cutting their 2025 demand for A350 materials. For 2025, we expect A350 sales to be lower than 2024, with the decrease to be particularly noticeable in the second and third quarters of 2025.
There was also a reduction in the A320 build rate for 2025 compared to our original assumptions. There are a few other areas of softness, including the Boeing 787 and automotive. Much of our automotive business is with European-based high-performance automotive manufacturers that import their automobiles into the US where any additional tariffs are likely to have a significant impact.
By market, 2025 commercial aerospace sales are now expected to be unchanged or flat compared to 2024, as are 2025 sales to defense, space, and other.
Lower sales negatively impact cost absorption, resulting in margin deterioration and the downward revision to adjusted EPS guidance. The midpoint of our EPS guidance is now $0.20 lower. Our operating footprint capacity supports peak announced build rates and some growth beyond. However, we will be very deliberate before adding any headcounts about where we ended 2024.
Free cash flow guidance is now expected to be around $190 million. Note also that our guidance excludes any further sales from Neumark, Austria -- from the Neumark, Austria facility, which we are continuing to work towards divesting. Sales for Austria were originally assumed to be approximately $40 million for the year.
And just to repeat, our guidance does not include the impact of any new tariffs announced after March 31, 2025, due to the fluid and uncertain nature of tariffs globally.
With that, let me turn the call back to Tom.

Tom Gentile

Thanks, Patrick. In my annual letter to shareholders, I outlined three key strategies for Hexcel this year: deliver, innovate, and grow that are central to what's navigating the current challenges and positioning Hexcel for the future.
We are focused on operational excellence, ensuring we meet production schedules, maintaining high quality, and upholding our commitment to the safety of our employees as we deliver on our commitments to our customers.
While we do this, we have been streamlining our footprint to position Hexcel for higher margins in the future. We are innovating through our investments in research and technology to develop new materials and processes that will drive the next generation of aerospace and defenses.
We will grow as build rates increase on existing programs to address historically high levels of backlogs and as we pursue opportunities in the medium term in markets including defense and space, regional business jets, and a vital aircraft. Longer-term growth will come from the next-generation narrow-body aircraft and propulsion that will incorporate increasingly more lightweight composite materials.
As the only US-owned maker of lightweight carbon fiber composite used extensively in all of the top commercial and military programs, Hexcel is well positioned to benefit from the continued recovery from the COVID-19 pandemic and the increase in production rates across all programs.
As we move forward, I'm confident in our team's ability to navigate the challenges and seize the opportunities ahead to deliver strong and meaningful cash flows over the coming years and to generate strong shareholder returns. We appreciate your continued engagement with us today.
Operator, we're now ready to take questions.

Question and Answer Session

Operator

(Operator Instructions) Sheila Kahyaoglu, Jefferies.

Sheila Kahyaoglu

Good morning, Tom, Patrick. Thank you so much. Popular topic today. So on tariffs, Tom, you talked about it a little bit, and Patrick, you noted $4 million per quarter. How do we think about your overall tariff impact, and what your base assumption would be if you were to include it into guidance on that $4 million?
And how do you think about profitability in Q1, 9.9% margins, they expand 200 or 250 basis points depending on whether you include tariffs on flattish sales in the next three quarters? So what drives that margin improvement?

Tom Gentile

Well, let me just start with the tariffs. As we said, as we've gone through and analyzed our total spend and just matched it to the tariffs currently in effect for each country, we came out with that impact of $3 million or $4 million per quarter.
As I mentioned in my prepared remarks, most of what we buy in the US is US source, and most of what we buy in Europe for production is sourced in Europe. So there's not a lot of cross-border flow. And as I also mentioned, the amount that we buy from China, Canada, and Mexico is only a little bit over 1%.
So the direct impact is fairly minimal. It's, as I said, $3 million or $4 million. And while that's a big number, that's a number that we can offset over the course of the year with our productivity improvement. But we didn't include it in our guidance because there's a lot of uncertainty as to what the final tariffs will be by country and also and probably more importantly, is what's the indirect impact of tariffs going to be on the rest of the aerospace supply chain and on production rates at the OEM.
That's something that we just can't determine at this point, and so we didn't want to try to guess. And so we've left that out of our guidance. The margin that you mentioned for first quarter was depressed, primarily because the revenue was lower than we expected and we didn't get the kind of operating leverage that we expected.
As you know, we peaked in production back in 2019. We have all the capital and equipment in place to support much higher levels of production, and we're only about 80% recovered back to those levels. So we're not getting the operating leverage we didn't get it in Q1, and that's why we saw the depressed operating income.

Sheila Kahyaoglu

Got it. Thank you very much.

Operator

Michael Ciarmoli, Truist.

Michael Ciarmoli

Hey, good afternoon, guys. Thanks for taking the question. Just to follow up on what Sheila was asking on the tariffs, lots of uncertainty. Do you have any levers to pull in terms of pricing as the potential offset versus, or in addition to productivity?

Tom Gentile

Well, what I would say, Mike, is that we have in our contracts and our [inco] terms, most of them, for example, out of Europe are ex-works, and so the buyer is responsible for the tariffs and so they would get passed on to the buyer in that case. In addition, we have a lot of contracts which are essentially pass through.
And so for some of our bigger items like and I trial or some of our paper for our core, contracts are set up so that we can pass through costs including tariffs. So that creates a little bit of a natural hedge for us and most of our aerospace contracts are fixed for the period of time that they're in effect and so that doesn't offer the contract opportunity for raising price.
But as I said, most of our income terms out of Europe are ex works and so the tariff is the responsibility of the buyer, and we can for some of our bigger commodities pass through the price, including tariffs to the customer.

Michael Ciarmoli

Okay, perfect. And then maybe on the flip side, is there an opportunity to potentially gain some domestic share if these tariffs are making composites from other global suppliers more expensive? I mean, is that kind of in the realm of your thought process right now?

Tom Gentile

It's a possibility, but of course, it depends on what the impact of the tariff is on those foreign sources, and at this point I would say it's still uncertain.

Michael Ciarmoli

Okay, got it. I'll jump back in the queue. Thanks, guys.

Operator

Myles Walton, Wolfe Research.

Unidentified Participant

Hey, good morning. You have [Leeder] on for Myles. You called out the lower production rates on the A350 as a driver, main driver of the revised guidance. I'm just curious, is this the rates flattening or are you actually seeing any destocking there?

Tom Gentile

Well, what we're seeing is in terms of what we're going to deliver is a reduction of about 16 units. So in January when we had our call for the fourth quarter, I mentioned that we built our plan around an assumption that we would deliver 84 ship sets of material to Airbus in 2025. What we're seeing right now is the demand for about 68 units. And so if you just take a look at the midpoint of our ships that amount, which is $4.5 million to $5 million and $0.16 times the $4.75 million is $76 million.
So our our our revenue guidance dropped from midpoints by $85 million and $0.76 million dollars of that is due just simply to the reduction that we've seen in the 350 production rate. As Patrick said, we've also seen a reduction in the A320 of about 30 units.
And again, if you look at the midpoint of what we said our ships that value is at $350,000.30 units is about $10 million. So just the A350 and the A320 reductions in what we're seeing as demand accounts for the $85 million drop in our in our revenue.

Unidentified Participant

I appreciate that color, Tom. And then maybe just follow up on the corporate expense, usually it's a lot higher than q!. I know you mentioned lower stock comp. I don't know if anything slipped out of the quarter or should we expect some sort of flattening? Any reason corporate expense will be up year over year in the back half now?

Patrick Winterlich

No, I mean, essentially, we had one or two credits come through and there is a stock comp difference between Nick and Tom because of Tom's tenure with the company, and so that will make a difference where Tom's costs are now going to be spread out. So it was two or three things, but the largest thing was really around the difference between Tom and Nick.
I mean, the other thing kind of also picking up on something Sheila said, Q1 is normally our softest margin quarter because we're taking those dotcom charges, which we did again this year, they were just a little bit lower, and that's what you're seeing in the lower corporate charges in 2025.

Unidentified Participant

Thank you, Patrick.

Operator

John McNulty, BMO Capital Markets.

John McNulty

Yeah, thanks for taking my question. Tom, historically, Hexcel has always been very conservative when it comes to kind of its staffing and whether it pars back for temporary changes in orders or production levels from the customers. It seems like you guys are taking a much more aggressive approach and admittedly, the A350's got a pretty significant cutback.
But I guess, is this a change in terms of how you think Hexcel should be managed as you go forward and where you're a little bit more nimble? And if not, how do you get comfortable that you can ramp up quickly enough when things start to get better?

Tom Gentile

I think we are taking a stronger line in terms of aligning our headcount with what we see current production at and how we see it evolving. So that is true. We're being a little bit more I'd say practical and realistic in terms of where we are. Now that said, we remain very well positioned to support our customers in terms of whatever production rates they determined that they can achieve.
We have higher levels of inventory. You can see that on our balance sheet. That gives us a bit of cushion. We also have all the capital in place, so that's not an issue, and we're not going to reduce headcount per se, but we're just not going to increase it. We've made a few reductions in Europe of contract labor. We made in one of our plants in the US, we made a small furlough, but for the most part, we're just not increasing and we're allowing attrition to take place.
So we're about running 300 heads below where the plan was, and we'll stay that way until we see evidence that production rates will increase. And again, with that high level of inventory, we have more than enough cushion to be able to respond to our customers.
One thing I want to make very clear, we're not trying to second guess our customers on their rates and their schedules. We are absolutely prepared to meet all of our customers and the production rates that they that they put out there. We're just managing our own cost base so that we are not getting ahead of them.

John McNulty

Got it. Fair enough. No, it makes sense. And then maybe just as a follow-up on the CapEx reduction. I mean, it looks like you're taking CapEx down by 10% or maybe even more than that. I guess, can you give us a little bit of color as to where that trimming is taking place?

Tom Gentile

It's in a whole variety of areas across dozens of projects, and the fact is, if you look at Hexcel between say 2008 when we won the A350 program up to 2018, we made massive investments to tool up for the A350 industrialization. Those investments are all behind us and we're still not using all that capacity.
So we don't have that sort of capital expenditure, and we had $100 million in the plan. Given that this year is soft, we've obviously sharpened the pencil and we've prioritized the projects. We pushed some things out and we were able to take $10 million out of the CapEx budget for the year.
But it was just through blocking and tackling on a wide variety of projects, nothing major or significant, but we also don't have any big capital expenditures in front of us for capacity because all of those were made in the past.

John McNulty

Got it. Thanks very much for the color.

Operator

Matt Akers, Wells Fargo.

Unidentified Participant

This is actually (inaudible) on for Matt this morning. So I'd get back to the guidance you talked about the reduction of ship sets on the Airbus side, but, could you speak to what you're seeing on the Boeing side, and what you're seeing in terms of production rates there?

Tom Gentile

Right. Well, on the Boeing side for 737, we said that we were planning and building our plan around an assumption that they would be in the low 30s. And that's about where we still are. We haven't seen a change in that. Boeing is doing very well on their production. They're getting up in rate. They still have that cap of 38 aircraft per month, and that'll be something really to watch during the course of the year is, are they able to get approval from the FDA to go above that?
But even if they get above it in the back half of the year, we still think the overall average for the course of the year will be in the low 30s, and so that hasn't changed.
On the 787, we built our plan around an assumption of about 84 units of delivery, so roughly 7 a month. What Boeing has said is that they are delaying the increase in their rate by three to six months. So that could impact 5 to 10 units over the course of the year, and our ships that value is $1 million to $2 million. So at $1.5 million, that could be another $7.5 to $15 million. But those are the assumptions that we have used in terms of constructing our plans.

Unidentified Participant

Okay, understood. And then I guess, on the F-47 and [GA] the FAXX, do you guys have any opportunity to supply those programs in the future?

Tom Gentile

Yes, we do have opportunities. It's still obviously very early. They've just been awarded, and so there have been no decisions made. But as you know, we are the supplier for the F-35 material and we provide the carbon fiber for that. And as Boeing and whoever wins the Navy NAT program decide on their material system, we will certainly have discussions with them to advocate that that our material system for lightweight composite material would be very suitable for those applications.
And as I mentioned before, and I think this is important in this context, is we're the only US owned maker of aerospace grade carbon fiber composites. And so with everything going on in the geopolitical environment today, having a source that is owned and controlled in the US certainly has its advantages.

Operator

Ken Herbert, RBC Capital Markets.

Ken Herbert

Yeah, hi, good morning, Tom and Patrick and Kurt. Maybe you wanted just to drill again deeper on the A350, if you are looking at, obviously a step down in about 16 units this year, what's your confidence level in terms of inventory at Airbus or other customer sites that couldn't face incremental headwind if the ramp at Airbus goes a little slower than expected,?
I guess how much inventory do you see in the channel at your customer on this program and how much of that does the revised guide imply is worked off this year?

Tom Gentile

Well, I think, and what we're seeing is that there is some inventory there and there's some destocking going on, which is why we built our plan where it is. So our plan and where we built it takes into account some level of destocking that will occur.
So we're confident. And the thing is Airbus just reiterated in their recent annual meeting report that they are still planning to get up to 12 aircraft per month in 2028. And so of course that means the ramp is going to be steeper now in these few years to that point, but they're confident that they're going to do it and we are certainly prepared to do it. So that creates enormous opportunity for us.
And I would just say on the basis of that, so we're going from last year they delivered 57 aircraft. They're going to get up to 12 aircraft per month in 2028, which is about 132 units, and that creates a lot of potential for Hexcel. And when you look at that in terms of our cash flow generation capability, we see and expect that we could deliver $1 billion in cash flow over the four-year period between 2025 and 2028 principally on the back of that A350 ramp.
So that's why we're really so optimistic about Hexcel's position is we're on that program. It's going to ramp up. It has been slower, frustratingly slow to ramp up, but they haven't changed their outlook for 2028. And so that gives us, as I said, $1 billion of cash flow over the next 4 years. And we see that as very compelling.

Ken Herbert

Yeah, thanks for that, Tom. And as you look obviously at that 2028 ramp, Airbus obviously hasn't been at those levels before on the A350. Is there incremental capacity you have to put in to support 12 a month assuming Airbus is eventually able to get there?

Tom Gentile

No, we're absolutely [capacitized] for that. In fact, a little bit more. That's where we capacitized in 2019. But if you go back to 2019, in fact, the A350 deliveries were about 111, which translates into Tenement. So the system has generated very high levels of production. Everybody does have the capacity, and it's really just a question of getting the supply chain stabilized and achieving it. But for Hexcel, we are absolutely capacitized to achieve those levels and even a little bit higher.

Patrick Winterlich

And remember, Ken, that we're completing a fiber line that we announced pre-pandemic and that will be online in the next two to three years, which will also give us additional capacity for other sort of military growth opportunities, business growth opportunities. So as Tom said, we will be comfortable on the capacity footprint for some years to come.

Operator

Gautam Khanna, TD Cowen.

Gautam Khanna

Yeah, thanks. Good morning, guys. I was wondering on the A350, given you ship well in advance the final assembly, what are you expecting by the end of this year you'll be shipping that for 2026? Like what do you think they're going to get to in terms of what they're going to buy at what rate per month later in the year?
I know you've said the impact's biggest in Q2 and Q3 on the negative side, but presumably it picks back up in Q4 in anticipation of higher rates?

Tom Gentile

The numbers are going to be higher for next year, but I certainly don't want to try to provide any guidance for 2026 at this point. We'll just say right now it'll be higher, and we will be prepared to support it.

Gautam Khanna

Okay, and I know you have a number of different ships on the A350, 40 suppliers or so, are they all coming down in rate or they all kind of -- or are you still seeing Hexcel --?

Tom Gentile

You can imagine 40 different supply plants are at different levels of production, but there are some plants that are actually behind and we see quite a bit of a higher rate at those and others maybe where they built ahead a little bit and so we're seeing a lower rate.
So it really is quite variable across the -- it's about 35 locations that we deliver to for the A350, but it's highly variable, but the average is what we are building our plan around, which is 68.

Operator

Scott Mikus, Melius Research.

Scott Mikus

Hey, Tom, Patrick. Quick question, you've been very good partner to Boeing and Airbus over the years. You've also had to absorb a big inflation headwind over the past several years in addition to just the chaotic aero ramp. And have you approached Boeing and Airbus about repricing some of these LTAs, particularly on the A350?

Tom Gentile

Right, well, we are under contract on all of our programs with our long-term agreements. And on the Boeing side, they tend to be a little shorter. And so when we see those expirations, we have been negotiating with Boeing on price to reflect the current market conditions, including inflation. And so we've been able to reach mutually satisfactory outcomes on that.
On the A350, which is our biggest program, that goes out to 2030 with Airbus. And the pricing is lacking and there's some variable due to volume, but what we do there is we put in place joint productivity programs where they have to invest engineering resources, we put our own engineering resources in, and then we split the savings.
And that's how we are able to drive productivity and improvements in those long-term contracts with Airbus. And as you said, it's very important to maintain strong relationships with our biggest customers. We want to support them. They're in a tough competitive situation.
At the same time, we are in discussions with them about long-term programs. We want to make sure that we secure positions on the long-range programs as well. So a combination of all those things, we do get price when contracts expire for the longer-term contracts like A350, we work on joint productivity improvement programs where we can both benefit through our investment.

Scott Mikus

Okay. And then Europe is trying to essentially rebuild its own indigenous defense industrial base if you can't sell that Austrian facility at a reasonable price, did you repurpose it to support growth on some of these European defense programs like the [Rafa]?

Tom Gentile

Not really, the facility in Austria is really aligned better to industrial production. It's a prepreg, so it really was very good for the wind market and the recreation market when those were bigger. It's not really tailored to aerospace grade carbon fiber and the production of carbon fiber. So no, it wouldn't help on the capacity.
We have sufficient capacity in Europe to support defense growth, and we would invest in more if the market would justify it. But that's an exciting opportunity for us. And because we are indigenous in Europe with production facilities and labor in Europe, we think we're well positioned to support any increase that the European defense firms decide to take.

Operator

Gavin Parsons, UBS.

Gavin Parsons

Hey, guys, good afternoon. On the cost out, like the headcount attrition sounds like that's more just kind of aligning with the new revenue guide for the year, maybe not driving incremental efficiency on a per head basis. Just want to ask about initiatives to actually improve per head efficiency and other opportunities to take cost out of non-labor areas?

Tom Gentile

Right, we are investing quite a bit in what we call our future factory initiative and continuous improvement. So we've got dozens of lean projects across the plants to drive efficiency and take cost out to improve unit cost, so that's really the mechanisms, basic blocking and tackling at the plant at very defined levels to take costs out to improve the short-term productivity.
Longer term, we're looking at digitization and automation and new ways of structuring our production flow that will take even additional costs out and reduce the capital that's required for production. But in the short term, it's just dozens of continuous improvement projects with lean and six sigma manufacturing that will take cost out and create efficiency.
There's just no shortcut to it. You just have to grind away at it.

Gavin Parsons

Got it. And just a clarification on the tariff impact, the $3 million to $4 million per quarter would be inclusive of reciprocals?

Patrick Winterlich

No, that would be the -- as Tom called out, that would really just be the direct impact that we can sort of sensibly estimate today. I mean, when you get into indirect impacts and reciprocal tariffs, then you're in another realm of assumption. So the $3 million to $4 million is our kind of ring-fencing, giving a magnitude around sort of the direct impact that we can see today.

Tom Gentile

I think that highlights how fluid the situation is. We don't know what the tariffs are going to be by individual country. We don't know if they will be reciprocal. So what we've done is analyzed what we know, the tariffs by country, what the direct impact is, and that's the $3 million or $4 million. Other things are speculative and will remain to be seen as the situation continues to evolve.

Patrick Winterlich

I mean, even the $3 to $4 million had some speculation in it because we don't know where the tariffs are going to settle, but it's a sensible ballpark.

Gavin Parsons

Thank you.

Operator

David Strauss, Barclays.

David Strauss

Thanks, good afternoon. We've obviously seen a pretty big weakening in the US dollar and I know that's a negative. I know you're hedged out, but Patrick, maybe give some color around how that could potentially impact as you look to hedge going forward?

Patrick Winterlich

Well, our hedging profile will continue as we've done for many years, and that's protecting us to a significant degree today. And I think in this quarter you saw what FX was actually a headwind for us given our -- our tailwind I should say, given our hedges that were in place.
Now obviously, if the dollar stays weak for any sort of extended period of time, ultimately our new hedges will reflect that weaker dollar position. And in 12 months' time, our average FX rate will be weaker. And so yeah, so we will manage it appropriately as we've done for many years, but certainly through 2025, given our previous hedging profile, we're in a good position.

David Strauss

Okay, and it looks like your updated guidance reflects 11.5% to 12%, I think margins for the full year. Is that right? (technical difficulty)
Okay, and how should we expect that to kind of ramp from here? Do we have the typical seasonal Q3 slowdown or lower margins?

Patrick Winterlich

Well, as we said, Q1 is often the weakest quarter of the year because of the stock comp charges that was mitigated this quarter by some slightly lower corporate expenses going through. We also highlighted that Q2 and Q3 are going to be the most significantly impacted by the reduced A350 sales and so the volume leverage.
And therefore, yes, I would expect the margin ultimately to get stronger as the year goes on. We know we have the European vacations which can impact Q3 anyway. So yes, we would expect a strong sort of improvement in margins as we come to the end of the year, and we see higher volumes going into '26.

David Strauss

All right. Thanks very much.

Operator

Scott Deuschle, Deutsche Bank.

Scott Deuschle

Patrick, sorry if I missed this, but did you lower your guidance assumptions on 787 at all to reflect the softer start there in the first quarter?

Patrick Winterlich

We do have slightly -- I mean, we called out the 350 and the 320. Those are really the driver of the $85 million and then what I would say is we have some puts and takes and so within the puts and takes, the 787 is down, whereas some of our defense business is up to offset it.
It's down a bit but not massively, and it's more than offset. So really as Tom called out, the 350 and the 320 explain the revenue guidance.

Tom Gentile

And the adjustment on 787 is really just due to the delay of 3 to 6 months that Boeing signals on the production.

Scott Deuschle

Okay. Is there current level of purchase order activity supporting that ramp back up on 787?

Patrick Winterlich

Well, we saw a softer Q1. Now, we'll obviously see what we do for the remainder of the year, but we're expecting them to kind of somewhere in the 70s for the full year, reflecting that push out that (inaudible).

Scott Deuschle

Okay. Thank you.

Operator

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.