- Quarterly Revenues Increased 5 Percent Compared with the Prior-Year Quarter
- Q3 GAAP Operating Income of $34 Million, Including $4.6 Million Bad Debt Expense and an Anticipated Asset Sale Gain of $3.8 Million
- Q3 Operating Income Excluding the Bad Debt Expense was $39 Million, Exceeding Harsco's Guidance Range Due Mainly to Strong Performance in Metals & Minerals and Rail
- Full-Year GAAP Operating Income Expected to be Between $132 Million and $137 Million as Compared with Prior Range of $125 Million to $140 Million
- Full-Year Adjusted Operating Income Increased; Guidance Range is Between $137 Million and $142 Million as Compared with Prior Range of $125 Million to $140 Million
- 2017 Free Cash Flow Now Expected to be Between $85 Million and $95 Million as Compared with Previous Range of $80 Million to $95 Million
CAMP HILL, PA (November 8, 2017) - Harsco Corporation (NYSE:HSC) today reported third quarter 2017 results. On a U.S. GAAP ("GAAP") basis, third quarter 2017 diluted earnings per share from continuing operations were $0.16, which included a bad debt expense related to a Metals & Minerals customer that previously entered voluntary administration under Australian law that was not previously included in guidance. This GAAP figure also included an anticipated asset-sale gain of $3.8 million and a number of offsetting expense items, including severance and exit costs as well as professional fees, in the quarter. Excluding this unanticipated bad debt expense, diluted earnings per share from continuing operations in the third quarter of 2017 were $0.20. These figures compare with a GAAP diluted loss per share from continuing operations of $0.41 and diluted earnings per share from continuing operations of $0.14, excluding a non-cash loss related to the Company selling its interest in Brand Energy & Infrastructure Services, in the third quarter of 2016.
GAAP operating income from continuing operations for the third quarter of 2017 was $34 million. Excluding the unanticipated bad debt expense, operating income for the third quarter of 2017 was $39 million, which exceeded the guidance range of $30 million to $37 million previously provided by the Company.
“Each of Harsco’s businesses performed well in the third quarter and I am pleased that our quarterly financial results exceeded guidance,” said President and CEO Nick Grasberger. “Metals & Minerals and Rail results were better than anticipated due to favorable business fundamentals and product mix as well as strong operational execution. The underlying market trends and our internal performance in each of our segments are encouraging. As a result, we have raised the mid-point of our operating income outlook for the full year 2017. Looking ahead, we remain focused on initiatives to drive sustainable growth and operational excellence. We are confident that our actions will strengthen capital returns and create value for shareholders."
Harsco Corporation—Selected Third Quarter Results
($ in millions, except per share amounts)
|Q3 2017||Q3 2016|
|Revenues||$ 385||$ 368|
|Operating income from continuing operations - GAAP||$ 34||$ 29|
|Operating margin from continuing operations - GAAP||8.8 %||7.8 %|
|Diluted EPS from continuing operations||$ 0.16||$ (0.41)|
|Return on invested capital (TTM) - excluding unusual items||10.7 %||6.0 %|
Consolidated Third Quarter Operating Results
Total revenues were $385 million, an increase of 5 percent compared with the prior-year quarter as a result of higher revenues in the Company's Metals & Minerals and Industrial segments. Foreign currency translation positively impacted third quarter 2017 revenues by approximately $6 million compared with the prior-year quarter.
GAAP operating income from continuing operations for the third quarter of 2017 was $34 million, while operating income from continuing operations excluding the unanticipated bad debt expense was$39million in the third quarter of 2017. These figures compare with operating income of $29 million in the same quarter last year. Operating income in the Industrial and Metals & Minerals segments, excluding the bad debt expense in the third quarter of 2017, improved in comparison with the prior-year quarter, while operating income declined modestly in Rail.
The Company's operating margin was 8.8 percent on a reported basis and 10.0 percent excluding the bad debt expense versus an operating margin of 7.8 percent in the third quarter of 2016.
Third Quarter Business Review
Metals & Minerals
($ in millions)
|Q3 2017||Q3 2016||% Change|
|Revenues||$ 255||$ 248||3 %|
|Operating income - GAAP||$ 24||$ 24||1 %|
|Operating margin - GAAP||9.5 %||9.7 %|
|Customer liquid steel tons (millions)||36.9||34.9||6 %|
Revenues increased 3 percent to $255 million, as a result mainly of higher steel output and service levels as well as foreign exchange translation. Meanwhile, GAAP operating income in the third quarter of 2017 totaled $24 million and operating income excluding the bad debt expense totaled $29 million, compared with operating income of $24 million in the prior-year period. The 20 percent improvement in operating earnings, excluding the bad debt expense, is mainly attributable to increased underlying demand for mill services and higher contributions from certain Applied Products. The reported operating margin was consistent with the prior year, while the segment's operating margin excluding bad debt expense improved by 160 basis points to 11.3 percent versus last year’s third quarter.
($ in millions)
|Q3 2017||Q3 2016||% Change|
|Revenues||$ 78||$ 63||23 %|
|Operating income - GAAP||$ 13||$ 6||104 %|
|Operating margin - GAAP||16.4 %||10.0 %|
Revenues increased 23 percent to $78 million, principally due to increased demand for air-cooled heat exchangers from U.S. energy customers. Operating income increased to $13 million from $6 million in the prior-year quarter. This increase resulted from improved demand for heat exchangers and improved sales mix, as well as an approximate $4 million asset-sale gain realized from monetizing a grating-fencing facility in Queretaro, Mexico. This property sale had been previously anticipated within annual and quarterly guidance. Finally, the segment’s operating margin increased to 16.4 percent including the asset-sale gain (11.6 percent excluding the gain), from 10.0 percent in the comparable quarter last year.
($ in millions)
|Q3 2017||Q3 2016||% Change|
|Revenues||$ 51||$ 57||(10) %|
|Operating income - GAAP||$ 4||$ 5||(10) %|
|Operating margin - GAAP||8.1 %||8.1 %|
Revenues decreased 10 percent to $51 million as lower equipment shipments offset higher after-market parts and contract services revenues compared with the prior-year quarter. Operating income totaled$4million in the third quarter of 2017, which represented a modest year-over-year decline as higher parts and services contributions and more favorable product-sales mix offset the impact of lower equipment demand. As a result, the segment's operating margin of 8.1 percent was consistent with the operating margin in the third quarter of 2016.Cash Flow
Net cash provided by operating activities totaled $36 million in the third quarter of 2017, compared with$76million in the prior-year period. Further, free cash flow was $22 million in the third quarter of 2017, compared with $60 million in the prior-year period. The year-over-year change in free cash flow reflects lower net cash from operating activities principally as a result of increased inventory to support large contracts and fewer customer advances in Rail, which had been anticipated.
The Company's 2017 Outlook range is updated to reflect recent performance and current expectations for the final quarter of 2017. For the full-year, adjusted operating income guidance for Metals & Minerals is increased to reflect higher service levels, a more favorable services mix, higher commodity prices and recent foreign exchange rates. As a result, it is anticipated that operational savings, new sites and services, higher customer steel output, and increased commodities prices will support an increase in adjusted operating income in Metals & Minerals for the year compared with 2016.
The outlooks for the remaining business segments are generally unchanged from previous guidance. For Industrial, higher demand for heat exchangers from U.S. energy customers is expected to drive an increase in operating income for the year. Meanwhile, third-quarter timing benefits in Rail are to reverse in the current quarter, and as a result, adjusted operating income in Rail is still expected to modestly decline from 2016 as higher international demand for equipment and parts as well as Protran technologies is anticipated to be fully offset by weaker demand in the North American market. Lastly, Corporate spending is projected to increase compared with 2016 largely as a result of higher pension and other benefit program costs as well as professional fees.
Key highlights in the Outlook are included below.
Full Year 2017
- GAAP operating income for the full year is expected to range from $132 million to $137 million; compared with GAAP operating income of $63 million in 2016.
- Adjusted operating income for the full year is expected to range from $137 million to $142 million; this compares with guidance of $125 million to $140 million previously and adjusted operating income of $116 million in 2016.
- Free cash flow is expected in the range of $85 million to $95 million, including net capital expenditures of between $85 million and $95 million; compared with free cash flow guidance of $80 million to$95million previously and $100 million in 2016.
- Net interest expense is forecasted to range from $46 million to $47 million.
- The effective tax rate is expected to range from 36 percent to 38 percent.
- GAAP earnings per share from continuing operations for the full year are expected in the range of $0.61 to $0.65; compared with GAAP loss per share of $1.07 in 2016.
- Adjusted earnings per share from continuing operations for the full year are currently expected in the range of $0.65 to $0.69; this compares with guidance of $0.55 to $0.69 previously and adjusted earnings per share of $0.48 per share in 2016.
- Adjusted return on invested capital is expected to range from 9.5 percent to 10.5 percent; compared with 6.9 percent in 2016.
- Adjusted operating income of $28 million to $33 million; compared with GAAP operating income of$24million and adjusted operating income of $28 million in the prior-year quarter.
- Adjusted earnings per share from continuing operations of $0.11 to $0.15; compared with a GAAP loss per share of $0.19 and adjusted earnings per share of $0.16 in the prior-year quarter.
The Company will hold a conference call today at 9:00 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 60474061. 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 November 22, 2017 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.
Forward-Looking StatementsThe 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," "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; (13) the amount and timing of repurchases of the Company's common stock, if any; (14) 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; (15) the outcome of any disputes with customers, contractors and subcontractors; (16) 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; (17) implementation of environmental remediation matters; (18) risk and uncertainty associated with intangible assets; and (19) 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, 2016. 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.
# # #