- Revenue Increased 10 Percent in Q1 Compared with the Prior-Year Quarter
- Q1 GAAP Operating Income Totaled $38 Million
- Operating Income Excluding Unusual Items Increased 14 Percent Compared with the Prior-Year Quarter to $42 Million
- GAAP Diluted Earnings per Share in Q1 of $0.26, While Adjusted Diluted Earnings per Share Excluding Unusual Items Increased 32 Percent to $0.29
- 2019 Adjusted Operating Income Guidance Increased to Between $207 Million to $222 Million; Compared with Prior Range of $200 Million to $220 Million
- Announces Strategic Transactions to Accelerate Portfolio Transformation to a Leading Provider of Environmental Solutions and Drive Growth with Acquisition of Clean Earth and Divestiture of Air-X-Changers
- Quarterly Conference Call Time Changed to 8:30 a.m. ET
CAMP HILL, PA - May 9, 2019 -- Harsco Corporation (NYSE: HSC) today reported first quarter 2019 results. On a U.S. GAAP ("GAAP") basis, first quarter of 2019 diluted earnings per share from continuing operations were $0.26, which included costs to implement Rail's productivity improvement initiative and professional fees incurred to support and execute the Company's growth strategy, partially offset by a non-cash foreign currency translation gain related to a previous site exit. Excluding these items, diluted earnings per share from continuing operations in the first quarter of 2019 were $0.29. These figures compare with first quarter of 2018 GAAP and adjusted diluted earnings per share from continuing operations of $0.22.
GAAP operating income from continuing operations for the first quarter of 2019 was $38 million. Excluding unusual items, operating income was $42 million, compared to the Company's previously provided guidance range of $36 million to $43 million.
“Harsco delivered a strong start to 2019, highlighting the solid operational foundation we have in place and supported by healthy demand across the end markets we serve. Revenues for the quarter increased 10 percent year-over-year driven by our Industrial and Rail performance. In our M&M segment, we continue to capitalize on the demand for differentiated and value-added environmental solutions, which is an area of investment and focus for Harsco to drive long-term growth. As a result of the positive momentum we are seeing in the business, we have increased our adjusted operating income guidance range,” said Chairman and CEO Nick Grasberger.
“Five years ago, we recognized the need to enhance our business model and begin adapting our portfolio to generate greater shareholder value. Today, we announced two strategic transactions that will accelerate our transformation to a global market leader of environmental solutions. These transactions align with our strategy to decrease complexity of the portfolio, focus on less cyclical industries and pursue higher growth businesses with strong margins. Harsco will continue to optimize its portfolio to better position the Company to compete and drive value for our customers and shareholders.”
Harsco Corporation—Selected First Quarter Results
($ in Millions, except per share amounts)
|Q1 2019||Q1 2018|
|Revenues||$ 447||$ 408|
|Operating income from continuing operations - GAAP||$ 38||$ 37|
|Operating margin from continuing operations - GAAP||8.6 %||9.0 %|
|Diluted EPS from continuing operations - GAAP||$ 0.26||$ 0.22|
|Return on invested capital (TTM) - excluding unusual items||16.2 %||12.5 %|
Consolidated First Quarter Operating Results
Total revenues were $447 million, an increase of 10 percent compared with the prior-year quarter as a result of higher revenues in the Company's Industrial and Rail segments. Revenues within the Company's Metals & Minerals segment, net of foreign currency impacts, were comparable to the prior-year quarter, as anticipated. Foreign currency translation negatively impacted first quarter 2019 revenues by approximately $18 million compared with the prior-year period.
GAAP operating income from continuing operations was $38 million, while operating income excluding unusual items was $42 million for the first quarter of 2019. These figures compare with GAAP and adjusted operating income of $37 million in the same quarter of last year. The improvement in GAAP and adjusted operating income relative to the prior-year quarter was again driven by the Company's Industrial and Rail segments.
The Company's GAAP and adjusted operating margins in the first quarter of 2019 were 8.6 percent and 9.3 percent, respectively.
Today, Harsco announced a series of strategic transactions that, upon closing, will accelerate the transformation of its portfolio into a leading provider of environmental solutions to the industries it serves. Harsco signed separate agreements to acquire Clean Earth, one of the nation’s leading specialty waste processing companies, and to sell its Air-X-Changers business. These transactions align with the Company’s strategy to decrease complexity of the portfolio, focus on less cyclical industries and pursue higher growth businesses with strong margins. Both transactions are expected to close in the next few months. See separate press releases on these transactions for further information.
First Quarter Business Review
Metals & Minerals
($ in Millions)
|Q1 2019||Q1 2018||% Change|
|Revenues||$ 261||$ 265||(1) %|
|Operating income - GAAP||$ 24||$ 28||(12) %|
|Operating margin - GAAP||9.4 %||10.5 %|
Revenues totaled $261 million, a slight decrease from the prior-year quarter as the impact of foreign currency translation offset benefits from higher service levels and the Altek Group acquisition. The segment's operating income in the first quarter of 2019 totaled $24 million, or $23 million when excluding unusual items in the period. These figures compare with GAAP and adjusted operating income of $28 million in the prior-year period. The change in adjusted operating earnings is attributable to higher general and administrative expenses to support the Company's growth strategy and the impact of foreign exchange translation as well as decreased contributions from certain Applied Products businesses, partly due to lower commodity prices. Lastly, the segment's operating margin was 9.4 percent and adjusted operating margin was 8.6 percent in the first quarter of 2019.
($ in Millions)
|Q1 2019||Q1 2018||% Change|
|Revenues||$ 117||$ 84||40 %|
|Operating income - GAAP||$ 17||$ 12||37 %|
|Operating margin - GAAP||14.5 %||14.9 %|
Revenues increased 40 percent to $117 million, principally due to increased demand for air-cooled heat exchangers and industrial grating as well as higher product prices. Operating income increased to $17 million from $12 million given the improvement in underlying demand, partially offset by higher compensation and selling expenses. Meanwhile, the segment's operating margin was 14.5 percent in the first quarter of 2019 compared with 14.9 percent in the same quarter last year, with the change attributable to product-sales mix.
($ in Millions)
|Q1 2019||Q1 2018||% Change|
|Revenues||$ 69||$ 60||15 %|
|Operating income - GAAP||$ 5||$ 2||176 %|
|Operating margin - GAAP||7.9 %||3.3 %|
Revenues increased 15 percent to $69 million, due to improved demand for original equipment from North American customers and higher after-market parts sales. The segment's operating income in the first quarter of 2019 totaled $5 million, or $8 million when excluding unusual items in the period. These figures compare with GAAP and adjusted operating income of $2 million in the prior-year quarter. Also, the segment's operating margin increased to 7.9 percent in the first quarter of 2019 (11.7 percent on adjusted basis), compared with 3.3 percent in the same quarter of 2018. The earnings and margin improvement relative to the prior-year quarter are attributable to the above factors as well as a more favorable product-sales mix.
Net cash provided by operating activities totaled $15 million in the first quarter of 2019, compared with net cash used by operating activities of $8 million in the prior-year period. Further, free cash flow was $(20) million in the first quarter of 2019, compared with $(35) million in the prior-year period. The improvement in free cash flow compared with the prior-year quarter is attributable to higher cash earnings and working capital improvements, partially offset by an increase in growth-related capital investments.
The Company’s full year and second quarter outlook below excludes the impact of the Clean Earth acquisition and Air-X-Changers divestiture, and the Company’s 2019 actual results will be dependent on the timing of the completion of each.
Harsco is raising 2019 guidance to reflect the Company's visibility given its strong backlog position and positive demand trends particularly in the Rail and Industrial segments, as compared with the guidance provided along with the Company's fourth quarter 2018 results.
Rail's backlog remains strong and the segment outlook is improved to reflect favorable demand trends. For the year, Rail's adjusted operating income is anticipated to be significantly higher than 2018 due to increased global demand for equipment, after-market parts and Protran Technology products as well as productivity initiatives. These benefits are expected to be only partially offset by lower contracting contributions, a less favorable product mix as well as R&D and administrative investments (costs) to support the segment's multi-year growth strategy.
Industrial earnings are also now expected to increase more than previously anticipated due to higher product demand. For the year, Industrial operating income is projected to increase significantly due to higher demand for heat exchangers, industrial grating and commercial boilers as well as product and market expansions, partially offset by a less favorable product mix and higher benefits and sales commission expenses.
The Company's outlook for the Metals & Minerals segment and Corporate spending are unchanged. For 2019, Metals & Minerals' adjusted operating income is expected to increase as higher customer steel output and mill services demand, new site ramp-ups, operational savings and the Altek Group integration are expect to be only partially offset by exited sites, investments to support growth initiatives and foreign exchange translation impacts. Lastly, Corporate spending is expected to increase compared with 2018 due to investments and professional fees.
Key consolidated highlights in the Outlook are included below.
Full Year 2019
- GAAP operating income for the full year is expected to range from $192 million to $207 million; compared with $192 million to $212 million previously and GAAP operating income of $191 million in 2018.
- Adjusted operating income for the full year is expected to range from $207 million to $222 million; compared with $200 million to $220 million previously and adjusted operating income of $187 million in 2018.
- GAAP diluted earnings per share from continuing operations for the full year are expected in the range of $1.15 to $1.33; compared with $1.22 to $1.40 previously and GAAP diluted earnings per share of $1.64 in 2018.
- Adjusted diluted earnings per share from continuing operations for the full year are expected in the range of $1.35 to $1.53; compared with $1.29 to $1.47 previously and adjusted diluted earnings per share of $1.31 in 2018.
- Free cash flow is expected in the range of $55 million to $70 million, versus $50 million to $70 million previously; as a result, free cash flow before growth capital is expected in the range of $135 million to $150 million compared with $104 million in 2018.
- Net interest expense is forecasted to range from $37 million to $39 million.
- Non-operating defined benefit pension expense of approximately $5 million.
- The effective tax rate, excluding any unusual items, is expected to range from 25 percent to 27 percent.
- Adjusted return on invested capital is expected to range from 16.0 percent to 17.0 percent; compared with 16.1 percent in 2018.
- GAAP and adjusted operating income of $41 million to $46 million and $53 million to $58 million, respectively; compared with GAAP operating income $54 million and adjusted operating income of $52 million in the prior-year quarter.
- GAAP and adjusted earnings per share from continuing operations of $0.23 to $0.29 and $0.35 to $0.40, respectively; compared with GAAP diluted earnings per share of $0.48 and adjusted diluted earnings per share of $0.36 in the prior-year quarter.
The Company will now hold its previously scheduled conference call today at 8:30 a.m. Eastern Time to discuss its results, strategic transactions 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 60531312. Listeners are advised to dial in at least five minutes prior to the call.
Replays will be available via the Harsco website and also by telephone through May 23, 2019 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.
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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, 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 management's confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," "likely," "estimate," "outlook," "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 equity 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, occupational health and safety, tax and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company's inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company's cybersecurity infrastructure; (8) 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; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company's business; (11) the Company's ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company's strategic acquisitions, including the acquisition of CEHI Acquisition Corporation and Subsidiaries ("Clean Earth"); (13) risks associated with the acquisition of Clean Earth and the sale of the Harsco Industrial Air-X-Changers business generally, such as the inability to obtain, or delays in obtaining, regulatory approval; (14) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreements entered into for the acquisition of Clean Earth and the sale of the Harsco Industrial Air-X-Changers business; (15) potential severe volatility in the capital markets and the impact on the cost of the Company to obtain debt financing as may be necessary to consummate the acquisition of Clean Earth; (16) failure to retain key management and employees of Clean Earth; (17) the amount and timing of repurchases of the Company's common stock, if any; (18) the outcome of any disputes with customers, contractors and subcontractors; (19) 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; (20) implementation of environmental remediation matters; (21) risk and uncertainty associated with intangible assets; and (22) 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 Part I, Item 1A, "Risk Factors," of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. 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 are fundamental to worldwide economic development, including steel and metals production, railways and energy. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com.
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