Camp Hill, PA (May 9, 2013) Diversified global industrial company Harsco Corporation (NYSE: HSC) today reported first quarter 2013 diluted earnings per share from continuing operations of $0.09, compared with a U.S. GAAP (“GAAP”) loss of $0.36 in the first quarter of 2012. Excluding special items in the first quarter of 2012, adjusted diluted earnings per share from continuing operations were $0.07. There were no special items in the first quarter of 2013. (See Table 1 for a description of the special items and a reconciliation of GAAP and adjusted results).
Operating income from continuing operations was $26 million, compared with a GAAP operating loss from continuing operations of $13 million in the prior-year quarter. Excluding special items, adjusted operating income from continuing operations was $25 million in last year’s first quarter. Despite an unfavorable mix of equipment deliveries in Rail and challenging market conditions in Metals & Minerals and Infrastructure, the Company increased operating income margin 30 basis points to 3.6 percent in this year’s first quarter, primarily due to its prior restructuring and cost-reduction actions in its two largest businesses and operating income growth in the Industrial segment.
First Quarter Business Review
Harsco Metals & Minerals
Revenues were $337 million, compared with $360 million in the prior-year quarter. This decline was due principally to exiting certain underperforming contracts and lower steel production volumes, which were partially offset by new contracts. Foreign currency translation negatively impacted revenues by $9 million.
Operating income was $20 million, consistent with adjusted operating income of $20 million in the prior-year quarter. Operating margin increased 20 basis points to 5.9 percent in this year’s quarter. This performance primarily reflects the Company’s prior cost reduction actions, which were offset by lower steel production volumes.
Revenues were $216 million, compared with $238 million in the prior-year quarter. This decline was due principally to exiting certain countries and lower industrial maintenance activity in Europe, which were partially offset by improved equipment rental activity in certain geographies. Foreign currency translation negatively impacted revenues by $2 million.
Infrastructure’s operating loss was $12 million, compared with an adjusted operating loss of $18 million in the prior-year quarter. This year-over-year improvement reflects better equipment rental activity, benefits from prior cost reduction actions and the favorable operating income impact from exiting certain countries.
Revenues increased 5 percent to $72 million from $68 million in the first quarter of 2012. Operating income was $3 million, compared with $9 million in the first quarter of 2012. Operating margin was 4.7 percent, compared with 13.7 percent in the prior-year quarter.
Rail’s unusually low first quarter margin was primarily due to the mix of equipment deliveries. As Rail nears completion of its large, multi-year contract with the China Ministry of Railways, its production content in the quarter shifted to lower-margin components, consistent with the contract’s structure.
Revenues increased 5 percent to $90 million from $86 million in the prior-year quarter. Operating income rose 15 percent to $16 million from $14 million. Operating margin increased 160 basis points to 17.8 percent.
Industrial’s performance primarily reflects a favorable overall product mix, as well as improved demand for industrial boilers and air-cooled heat exchangers.
Free cash flow was a use of $38 million, compared with a use of $30 million in the prior-year period. This cash flow performance reflects higher net cash from operations; essentially unchanged capital expenditures; but lower non-core asset disposals compared with last year’s quarter. The Company’s cash flow has been strongest historically in the second half of the year.
Second Quarter Outlook
Metals & Minerals’ revenues and operating income in the second quarter are expected to be moderately lower than the prior-year quarter. This is due to expected year-over-year steel production declines at certain customers and the carry-over impact of exited contracts. These factors are expected to be partially offset by growth from higher-return contracts.
Infrastructure’s second quarter revenues and operating results are expected to be generally in line with the prior-year quarter. This reflects continued softness in commercial construction, particularly in Western Europe, partially offset by early-stage improvement in North America.
Rail’s second quarter revenues, operating income and operating margin are expected to grow from the prior-year quarter. This is principally due to equipment delivery timing and a favorable contracting services mix compared with the second quarter of 2012.
Industrial’s second quarter revenues and operating income are anticipated to be slightly below the prior-year quarter’s strong results. This business continues to see solid demand for its products, particularly air-cooled heat exchangers.
The Company expects its effective income tax rate to approximate 32 percent in the second quarter of 2013. This modest increase from historical levels is due to losses from operations in certain jurisdictions where tax benefits will not be able to be recognized, as well as the geographic mix of income. Going forward, there may be some variability in the reported GAAP tax rate from quarter to quarter depending on the actual geographic mix of earnings.
Based on the aforementioned factors, the Company expects diluted earnings per share from continuing operations in the second quarter to range from $0.30 to $0.35. The Company reported diluted earnings per share from continuing operations of $0.43, excluding special items, in the second quarter of 2012.
As previously announced, the Company will hold a conference call today at 10:00 a.m. Eastern Time to discuss its results and respond to questions from the investment community. The conference call will be broadcast live through the Harsco Corporation website at www.harsco.com. The Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company’s website.
The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 40780375. Listeners are advised to dial in at least five minutes prior to the call.
Replays of the webcast will be available via the Investor Relations section of the Harsco website. Audio replays are available until May 13 by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 40780375.
The nature of the Company's business and the many countries in which it operates subject it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about the Company’s outlook for the second quarter of 2013, management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, revenues, cash flows, earnings and Economic Value Added ("EVA®"). Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "plan" or other comparable terms.
Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements include, but are not limited to: (1) changes in the worldwide business environment in which the Company operates, including general economic conditions; (2) changes in currency exchange rates, interest rates, commodity and fuel costs and capital costs; (3) changes in the performance of stock and bond markets that could affect, among other things, the valuation of the assets in the Company's pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (7) the seasonal nature of the Company's business; (8) the Company's ability to successfully enter into new contracts and complete new acquisitions or joint ventures in the timeframe contemplated, or at all; (9) the integration of the Company's strategic acquisitions; (10) the amount and timing of repurchases of the Company's common stock, if any; (11) the prolonged recovery in global financial and credit markets and economic conditions generally, which could result in the Company's customers curtailing development projects, construction, production and capital expenditures, which, in turn, could reduce the demand for the Company's products and services and, accordingly, the Company's revenues, margins and profitability; (12) the outcome of any disputes with customers; (13) the financial condition of the Company's customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (14) the Company's ability to successfully implement and receive the expected benefits of cost-reduction and restructuring initiatives, including the achievement of expected cost savings in the expected time frame; (15) risk and uncertainty associated with intangible assets; and (16) other risk factors listed from time to time in the Company's SEC reports. A further discussion of these, along with other potential risk factors, can be found in the "Risk Factors" section of the Company’s Form 10-K for the year ended December 31, 2012. The Company cautions that these factors may not be exhaustive and that many of these factors are beyond the Company's ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. The Company undertakes no duty to update forward-looking statements except as may be required by law.
Harsco Corporation serves key industries that play a fundamental role in worldwide economic development, including steel and metals production, construction, railways and energy. Harsco’s common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index. Additional information can be found at www.harsco.com.