- Q3 GAAP Operating Income of $47 Million
- Adjusted Operating Income Excluding Unusual Items and Acquisition-Related Amortization Expense Totaled $57 Million and Adjusted Operating Margin Reached 13.5 Percent; Results Were Consistent with Guidance
- Repurchased 1.4 Million Harsco Shares for $26 Million in Q3; $19 Million Remaining Under Share Repurchase Program at Quarter End
- Company's Net Leverage Ratio Declined to 2.2x
- Successfully Integrated Clean Earth During Quarter and On Pace to Achieve Targeted Synergies
- Issued 2018-2019 Environmental, Social and Governance (ESG) Report Highlighting Company's Corporate Sustainability Initiatives and Accomplishments
- 2019 Adjusted Operating Income Now Expected to Increase Nearly 10% Year-over-Year at Guidance Midpoint; Full Year Range is Now $209 Million to $214 Million
CAMP HILL, PA (October 29, 2019) - Harsco Corporation (NYSE: HSC) today reported third quarter 2019 results. On a U.S. GAAP ("GAAP") basis, third quarter of 2019 diluted earnings per share from continuing operations were $0.22. Unusual items during the quarter included acquisition integration and strategy costs as well as further costs to implement Harsco Rail's productivity improvement initiative. Adjusted diluted earnings per share from continuing operations in the third quarter of 2019 were $0.36 excluding unusual items and acquisition-related amortization expense.
These figures compare with third quarter of 2018 GAAP diluted earnings per share from continuing operations of $0.29 and adjusted diluted earnings per share from continuing operations excluding acquisition-related amortization expense of $0.32.
GAAP operating income from continuing operations for the third quarter of 2019 was $47 million. Excluding unusual items and acquisition-related amortization expense, adjusted operating income was $57 million, compared to the Company's previously provided guidance range of $56 million to $61 million.
“Harsco had a solid third quarter, delivering financial results largely in line with our expectations, while at the same time successfully integrating Clean Earth and continuing our transformation to a single thesis environmental solutions company,” said Chairman and CEO Nick Grasberger. “The effectiveness of our growth and improvement initiatives, coupled with our portfolio transition, has allowed Harsco to maintain strong profitability and margins despite market headwinds in our Environmental segment.”
Mr. Grasberger continued, “Consistent with our focus on environmental solutions, Harsco released the Company’s most comprehensive environmental, social and governance report to date. The report outlines our accomplishments across these areas and showcases sustainability as an important foundation for our strategy. We expect to create long-term shareholder value as we continue to provide critical sustainable services and products to our customers and pursue higher-growth and less-cyclical businesses with attractive margins.”
Harsco Corporation—Selected Third Quarter Results
|($ in millions, except per share amounts)||Q3 2019||Q3 2018|
|Revenues||$ 423||$ 352|
|Operating income from continuing operations - GAAP||$ 47||$ 42|
|Operating margin from continuing operations - GAAP||11.0 %||11.9 %|
|Diluted EPS from continuing operations - GAAP||$ 0.22||$ 0.29|
|Return on invested capital (TTM) - excluding unusual items and including discontinued operations||12.5 %|
Note: Income statement details above and commentary below reflect that Harsco Industrial has been reclassified as Discontinued Operations. Also, adjusted operating income references below excludes unusual items and acquisition-related amortization expense.
Consolidated Third Quarter Operating Results
Total revenues from continuing operations were $423 million, an increase of 20 percent compared with the prior-year quarter given the acquisition of Clean Earth in the current year. Foreign currency translation negatively impacted third quarter 2019 revenues by approximately $9 million compared with the prior-year period. Note that 2018 figures account for the previous Harsco Industrial segment as discontinued operations.
GAAP operating income from continuing operations was $47 million and adjusted operating income was $57 million for the third quarter of 2019. These figures compare with GAAP operating income from continuing operations of $42 million and adjusted operating income of $44 million in the same quarter of last year.
Adjusted operating income in Environmental increased 8 percent relative to the prior-year quarter, despite macroeconomic challenges within the global steel industry and foreign exchange impacts, while Rail earnings declined as anticipated given the comparison to very strong results in the third quarter of 2018. The remainder of the change in adjusted operating income is attributable to the inclusion of Clean Earth.
The Company's GAAP and adjusted operating margins in the third quarter of 2019 were 11.0 percent and 13.5 percent, respectively.
Third Quarter Business Review
|($ in millions)||Q3 2019||Q3 2018||% Change|
|Revenues||$ 261||$ 269||(3) %|
|Operating income - GAAP||$ 33||$ 29||12 %|
|Operating margin - GAAP||12.6 %||10.9 %|
Revenues totaled $261 million, a modest decrease from the prior-year quarter due to the impact of foreign currency translation. On a constant currency basis, revenues were essentially unchanged. The segment's operating income and adjusted operating income totaled $33 million and $34 million, respectively, in the third quarter of 2019. These figures compare with GAAP operating income of $29 million and adjusted operating income of $32 million in the prior-year period. The increase in adjusted operating earnings is attributable to new site and applied products contributions and lower administrative spending, partially offset by site exits and the impact of foreign exchange. Lastly, the segment's operating margin was 12.6 percent and adjusted operating margin was 13.1 percent in the third quarter of 2019.
|($ in millions)||Q3 2019||Q3 2018||% Change|
|Revenues||$ 88||$ 71||23 %|
|Operating income - GAAP||$ 11||$ 4||173 %|
|Operating margin - GAAP||12.9 %||5.8 %|
Revenues totaled $88 million, representing an increase of 23 percent compared with the prior-year quarter. The improvement can be attributed to strong volume growth and pricing-mix benefits for contaminated and hazardous material processing as well as previously-completed acquisitions. Segment operating income in the third quarter of 2019 totaled $11 million, or $16 million when excluding unusual items and acquisition-related amortization expense. These figures compare favorably with $4 million and $8 million, respectively, in the prior-year period. Higher earnings in 2019 are the result of the above mentioned factors. Lastly, the segment's operating margin was 12.9 percent and adjusted operating margin was 18.7 percent in the third quarter of 2019.
|($ in millions)||Q3 2019||Q3 2018||% Change|
|Revenues||$ 75||$ 83||(10) %|
|Operating income - GAAP||$ 12||$ 19||(36) %|
|Operating margin - GAAP||16.2 %||23.0 %|
Revenues totaled $75 million, a decrease that had been anticipated compared with a strong third quarter of 2018. The segment's operating income in the third quarter of 2019 totaled $12 million, or $13 million when excluding unusual items in the period. These figures compare with GAAP and adjusted operating income of $19 million in the prior-year quarter. The change in earnings performance relative to the 2018 quarter is the result of volume and product mix changes for equipment and after-market parts, partially offset by manufacturing cost improvements. As a result, the segment's operating margin was 16.2 percent in the third quarter of 2019 (17.5 percent on adjusted basis), compared with 23.0 percent in the same quarter of 2018.
Net cash provided by operating activities totaled $45 million in the third quarter of 2019, compared with net cash provided by operating activities of $48 million in the prior-year period. Further, free cash flow was $5 million (before transaction expenses) in the third quarter of 2019, compared with $20 million in the prior-year period. The change in free cash flow compared with the prior-year quarter is principally attributable to growth-related capital spending.
The Company expects full-year revenues to grow mid-single digits and adjusted earnings to increase nearly 10 percent compared with 2018. This growth reflects continued strength in Rail and Clean Earth, where the Company's guidance is unchanged. This full year outlook is also updated to reflect external economic pressures within the Environmental segment, where performance for the balance of the year is expected to be impacted by lower underlying steel output and commodity prices as well as changes in foreign exchange rates.
Despite these challenges, adjusted earnings in Environmental during the second-half of the year are expected to increase relative to the comparable period of 2018. Prior growth investments as well as lower administrative costs are anticipated to support this growth. With this revised outlook, Environmental adjusted operating income for the full year is now expected to be similar to or slightly above 2018 adjusted earnings before considering foreign exchange impacts.
Summary guidance for Clean Earth, Rail and Corporate, as well as key consolidated highlights in the Outlook for full-year 2019 and Q4 2019, are as follows:
Clean Earth is expected to generate revenues of approximately $160 million in second-half of 2019 and adjusted operating income of $32 million to $35 million for this period. These ranges point to strong year-on-year growth for Clean Earth, where the positive business drivers include underlying organic growth, previous acquisitions, new waste-streams and lower operating costs. For Rail, 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.
Lastly, Corporate spending for 2019 is expected to range from $24 million to $25 million, also unchanged from the Company's second-quarter earnings report.
2019 Full Year Outlook
|2019 Outlook||2019 Prior||2018 Actual (as previously reported)|
|Projected Operating Income||$ 171 - 176 m||$ 181 - 191 m||$ 191 m|
|Adjusted Operating Income before Acquisition Amortization||$ 209 - 214 m||$ 215 - 225 m||$ 194 m|
|Projected Diluted Earnings Per Share||$ 0.86 - 0.92||$ 0.89 - 1.02||$ 1.64|
|Adjusted Diluted Earnings Per Share (before Acquisition Amortization)||$ 1.36 - 1.42||$ 1.38 - 1.51||$ 1.40|
|Free Cash Flow Before Growth Capital||$ 120 - 130 m||$ 125 - 135 m||$ 104 m|
|Free Cash Flow||$ 40 - 50 m||$ 55 - 65 m||$ 73 m|
|Adjusted Return on Invested Capital||12 - 13 %|
|Net Interest Expense||$ 43 - 44 m|
|Non-Operating Defined Benefit Pension Expense||$ 6 m|
|Effective Tax Rate, Excluding Any Unusual Items||25 - 27 %|
Note: 2019 Outlook includes Harsco Industrial for the first-half of 2019. Restated 2018 financial information to reflect Harsco Industrial as Discontinued Operations is included in the supporting schedules.
Q4 2019 Outlook
|Q4 2019||Q4 2018 (as previously reported)|
|Operating Income||$ 47 - 52 m||$ 44 m|
|Adjusted Operating Income before Acquisition Amortization||$ 53 - 58 m||$ 43 m|
|Diluted Earnings Per Share||$ 0.25 - 0.31||$ 0.55|
|Adjusted Diluted Earnings Per Share (before Acquisition Amortization)||$ 0.30 - 0.36||$ 0.36|
Note: Restated 2018 financial information to reflect Harsco Industrial as Discontinued Operations is included in the supporting schedules.
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 9057279. 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 12, 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 and amounts; (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) potential severe volatility in the capital markets; (14) failure to retain key management and employees; (15) the amount and timing of repurchases of the Company's common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) 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; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets; and (20) 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, together with those described in Item 1A, "Risk Factors," of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2019. 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 is a global market leader providing environmental solutions for industrial and specialty waste streams and innovative technologies for the rail sector. Based in Camp Hill, PA, the 11,000-employee company operates in more than 30 countries. 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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