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Harsco Beats in 3Q, Lowers Guidance

Zacks Equity Research

Harsco Corporation (HSC) posted adjusted diluted earnings per share of 39 cents from continuing operations in the third quarter of 2012 compared with 40 cents in the year-earlier quarter and 43 cents in the second quarter of 2012. The results surpassed the Zacks Consensus Estimate of 37 cents per share and management’s guidance range of 32 cents to 38 cents per share for the quarter.


Revenues in the quarter amounted to $756.8 million, decreasing approximately by 11.6% year over year and 1.8% sequentially. The sales in the quarter missed the Zacks Consensus Estimate of $772 million. The company’s revenue has declined by $32 million due to the closing of agreements in the Metals & Minerals segment and discontinuation of Infrastructure segment’s operations in various countries. The foreign currency translation also reduced the sales by $41 million in the quarter. The revenue was also adversely impacted by the weak metals and commercial construction market.

On a segmental basis, Metals & Minerals generated revenues of $344.9 million, down nearly by 13.9% from the year earlier quarter and 5.5% sequentially. The year-over-year drop in the segment’s sales was attributed to the closing of agreements in the Metals & Minerals segment, foreign currency translation, low volume owing to the clouded metal market and low international steel production.

Revenue from the Infrastructure segment was $229.3 million, down 18.8% from the year-earlier quarter and 2.3% sequentially, primarily owing to the discontinuation of Harsco’s operations in several countries and foreign currency translation, which has reduced the segment’s sales in the quarter by $16 million and $14 million, respectively. Additionally, the weak commercial construction markets and soft end-market for industrial maintenance services in the North America and Europe regions were also damaging the segment’s sales during the quarter.

The Rail segment generated revenues of $91.4 million, up 4.6% from the year-ago quarter and 14.8% sequentially. The annual hike was attributable to high equipment delivery in China.

Revenues from the Industrial segment were $91.2 million, up 6.5% year over year but decreased nearly by 0.3% sequentially. The segment’s sales were encouraged by the favorable mix of air-cooled heat exchangers and mounting market demand in grating business during the third quarter of 2012.

In terms of a business mix, Service revenues were $571.9 million, down from $682.9 million in the year-earlier quarter.  Product revenues improved to $184.9 million from $173.0 million in the year-earlier quarter.


Operating margin in the third quarter of 2012 came in at 6.7% compared to 6% in the year-ago quarter and 4.5% in the previous quarter. Effective tax rate (restructuring charges excluded) during the quarter came in at 29% versus 18% in the prior year quarter.

Balance Sheet and Cash Flow

Harsco ended the quarter with cash and cash equivalents of $113.7 million, down from $121.4 million at the end of the previous quarter. Net trade accounts receivable in the quarter were $619.4 million compared with $615.2 million in the previous quarter. As of September 30, 2012, long-term debt was recorded at $953.6 million, increasing from $949.6 million in the previous quarter.

In the third quarter of 2012, net cash provided by operating activities was recorded at $75.6 million compared with $123.2 million in the prior year quarter.


Management expects earnings per share in the fourth quarter of 2012 to be annually and sequentially low. The earnings per share from continuing operations (special items excluded) are expected to be in the range of 28 cents to 33 cents for the fourth quarter of 2012. Effective tax rate is projected to be around 29% for the upcoming quarter of 2012.

Management expects that owing to the clouded economic condition, the steel production would decrease. In the upcoming fourth quarter of 2012, the weak end markets are likely to negatively affect the company’s Infrastructure segment, offsetting the positive impact from the company’s cost effective initiatives.

Harsco anticipates that its Rail business will deliver a strong performance in the coming quarter on the backs of increased equipment delivery, while the company’s Industrial segment is likely to be adversely affected by decreased order trends.

Headquartered in Pennsylvania, Harsco Corporation is a diversified, multinational provider of market-leading industrial services and engineered products.  The company should always remain cautious of its peers in the industry it belongs to. Big players to take note of in this regard include ThermoGenesis Corp. (KOOL) and SPX Corporation (SPW).

The company currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. We also maintain a long-term ‘Neutral’ recommendation on the stock.

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