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Harsco Sells Infra Business to JV

Zacks Equity Research

Harsco Corporation (HSC) recently announced the sale of its Infrastructure division to its own joint venture (:JV) with private investment firm – Clayton, Dubilier & Rice. In lieu of the sale, Harsco will receive $300 million in cash and a 29% equity stake in the JV, valued at $225 million. The investment firm will also acquire Brand Energy & Infrastructure Services, Inc. from First Reserve. The two acquired businesses will continue to operate as Brand Energy & Infrastructure Services, offering specialized industrial services to the energy and infrastructure sectors.

The new entity, Brand Energy & Infrastructure Services’ proforma revenues for 2013 are estimated to be around $3 billion, with earnings before interest, taxes, depreciation and amortization (:EBITDA) margin in the low double-digits. Though the energy sector will be the major revenue driver for the new entity, there will be substantial revenue contributions from the maintenance work.

Harsco’s Infrastructure segment generated revenues of $251 million in the second quarter of 2013, increasing 7% year over year. Despite the increased revenues, the segment incurred an adjusted operating loss of $2 million. The sell-off of the business is in line with the company’s strategy of simplifying its business profile. Along with this, Harsco’s financial structure will be enhanced, which can be used for the company’s organic growth or for strategic acquisitions.

The transaction, subject to regulatory approvals, is expected to consummate before the end of 2013. Harsco reported weak results for the second quarter of 2013, with earnings per share of 30 cents missing the Zacks Consensus Estimate by 11.8%. Following the results, the Zacks Consensus Estimate for 2013 has dropped 22.5% in the last 60 days to 93 cents per share, reflecting an estimated year-over-year decline of 21.7%. For 2014, the Zacks Consensus Estimate declined 17.6% in the past 60 days to $1.31 per share, reflecting a year-over-year growth of 41.0%.

Harsco currently carries a Zacks Rank #5 (Strong Sell). Other stocks worth a look in the industrial services industry include AAON Inc. (AAON), CaesarStone Sdot-Yam Ltd. (CSTE) and Codexis, Inc. (CDXS). While AAON Inc. and CaesarStone carry a Zacks Rank #1 (Strong Buy), Codexis carries a Zacks Rank #2 (Buy).

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