* Second quarter sales up 24% to a record $946 million * Second quarter diluted EPS from continuing operations up 44% to a record $0.91 * Including discontinued operations, second quarter diluted EPS up 53% to a record $0.98 * Performance led by strong operating results from the Access Services and Minerals & Rail Technologies Groups * Company raises full-year 2007 EPS guidance from continuing operations from a range of $2.69 to $2.74 to a new range of $2.90 to $2.95
HARRISBURG, Pa., July 26, 2007 (PRIME NEWSWIRE) -- Worldwide industrial services company Harsco Corporation (NYSE:HSC) today reported record second quarter 2007 results from continuing operations.
Second quarter 2007 diluted EPS from continuing operations was a record $0.91, up 44 percent from $0.63 in the second quarter of 2006. Note that all per share and share amounts in this release reflect the 2-for-1 stock split effective March 27, 2007. Income from continuing operations was a record $77.0 million, compared with $53.2 million last year, an increase of 45 percent. Overall operating margins improved by 180 basis points to 14.4 percent from 12.6 percent in last year's comparable period. Second quarter sales totaled a record $946 million, up 24 percent from sales of $766 million in the same period last year. Foreign currency translation increased second quarter sales by $35 million and pre-tax operating income by $4.7 million.
For the first six months of 2007, sales, income from continuing operations, and diluted earnings per share were all records. Income from continuing operations was $122.5 million, or $1.45 per diluted share, compared with income from continuing operations of $85.8 million, or $1.02 per diluted share in the first six months of 2006, an increase in income of 43 percent and diluted EPS of 42 percent. Sales for the first six months of 2007 were $1.79 billion, an increase of 23 percent from $1.45 billion in the same period a year ago. Foreign currency translation increased first half sales by $72 million, and contributed $7.4 million to pre-tax operating income.
Commenting on the Company's results, Harsco Chairman and Chief Executive Officer Derek C. Hathaway said, "The diversification of the operating and geographic balance of the Company stood us in good stead for the quarter. The growing strength of our Access Services Segment and the strong contributions of our recent Excell Minerals acquisition and the overall Minerals & Rail Technologies Group were very encouraging.
"The evolving balance in the Company's portfolio of businesses is evident in the results for the second quarter. Income contribution from the Access Services Segment and Minerals & Rail Technologies Group was virtually equal and both exceeded that of the Mill Services Segment. The strategic thrust of the Company over the past several years has resulted in significant operating balance and speaks well for Harsco's future growth and stockholder value creation.
"It is our intention to further build on the successes of the first half of 2007 in the third and fourth quarters and beyond. We continue to carefully allocate our substantial operating cash flows to the best return-on-capital projects for our stockholders. We foresee sizable organic growth opportunities in all of our business groups and we will further pursue a prudent and disciplined value-adding bolt-on acquisition strategy. We will also continue to seek further global opportunities for growth to maintain the geographic balance that in recent years has provided us with significant operating success."
Outlook
Commenting on the Company's outlook, Harsco President, Chief Financial Officer and Treasurer Salvatore D. Fazzolari said, "Our positive outlook for the second half of 2007 is underpinned by continued strength in the majority of our end-markets and positive global economic conditions. Our performance should again be led by our Access Services business. Also, Excell Minerals should continue to be accretive to earnings, but at a somewhat reduced rate from the exceptional second quarter performance. The other businesses in the Minerals & Rail Technologies Group are expected to out-perform last year's second half. We also expect our Mill Services segment to show gradual year-over-year improvement in the second half of 2007.
As such, we are raising our full year 2007 guidance for EPS from continuing operations to a range of $2.90 to $2.95, from the previous range of $2.69 to $2.74 per diluted share. Using the mid-point of the updated guidance, this reflects an increase of approximately 32 percent over 2006's diluted EPS from continuing operations of $2.21.
For the third quarter of 2007, we are forecasting earnings from continuing operations in the range of $0.78 to $0.80 per diluted share, a 22 to 25 percent increase over the $0.64 in the third quarter of 2006."
Second Quarter Business Review
Access Services
Second quarter 2007 sales increased 34 percent to $361 million from $270 million last year. Organic sales growth contributed $54 million, or approximately 20 percent; acquisitions contributed $23 million, or 9 percent; and positive foreign currency translation contributed $14 million, or approximately 5 percent. Operating income increased by 35 percent to $49.3 million in the second quarter, up from $36.7 million in the comparable period last year. Positive foreign currency translation increased operating income by approximately $1.8 million in this year's second quarter. Operating margins increased by 10 basis points to 13.7 percent from 13.6 percent in the second quarter of last year.
Improved performance in the quarter was the result of continued strong end-market conditions in the global non-residential and infrastructure build markets. Particularly strong results were seen in the U.S., Poland, the Middle East, Holland, the U.K. and Southern Europe. Also contributing to the strong quarter was the Company's further investment in access services rental equipment, and continued high utilization rates.
The market outlook for the Access Services Segment is expected to remain positive for 2007 and beyond. Continuing strong global end-market demand, market share gains, increased capital expenditures for rental equipment and potential further geographic expansion reinforce the positive long-term outlook for this business.
Mill Services
Sales in the second quarter of 2007 increased by approximately 11 percent to $381 million from $344 million in last year's comparable quarter. Organic sales growth contributed $8 million, or approximately 2 percent; acquisitions contributed $9 million, or approximately 3 percent; and positive foreign currency translation contributed $20 million, or approximately 6 percent. Second quarter operating income decreased by $1.9 million, or by approximately 5 percent. Foreign currency translation contributed $2.3 million to operating income in the quarter. Operating margins decreased by approximately 160 basis points to 9.6 percent from 11.2 percent in the second quarter of 2006. Sequentially, operating margins in 2007's second quarter improved by some 60 basis points over this year's first quarter.
Second quarter performance was negatively impacted by a number of factors, including lower steel production in North America, which continues to be down year-over-year. Higher maintenance and other customer related costs also had a negative impact on results in the quarter. Poor weather in the U.K. caused severe flooding at a number of large mills serviced by the Company, causing them to lower production during the quarter. Further, the quarter included higher administrative costs due to enterprise-wide optimization initiatives for upgrading technology, personnel and facilities to better position the business for future growth.
The Company expects a gradual improvement in year-over-year performance from the Mill Services Segment in the second half of 2007. Excluding China, growth in global steel production is decelerating somewhat as steel mills adjust for currently higher inventory levels. This could have a positive influence on production in the latter part of 2007 and early 2008. In addition, new contract signings and start-ups are expected to have a positive impact on results in the second half of the year, as are the Company's business optimization initiatives.
Minerals & Rail Technologies, Services and Products ("All Other")
Sales of $204 million in the second quarter of 2007 were 34 percent higher than the $152 million in the same period last year. Organic sales growth contributed $10 million, or approximately 7 percent; the February 1, 2007 acquisition of Excell Minerals contributed $40 million, or approximately 26 percent; and positive foreign currency translation contributed approximately $2 million, or 1 percent. Operating income increased by 130 percent to $50.5 million, from $22.0 million in the second quarter of last year. Positive foreign currency translation increased operating income by approximately $0.5 million in the quarter. Operating margins were 24.7 percent, more than 10 percentage points higher than last year's second quarter's 14.5 percent. Included in this year's second quarter results was a $3.2 million pre-tax gain from the sale of property no longer required in the business. Without this gain, 2007 second quarter operating income would have been up by 115 percent and operating margins of 23.1 percent would have been some 860 basis points higher than last year.
The strong second quarter performance was led by a significant contribution by Excell Minerals and Harsco Track Technologies. Excell posted record volumes due to strong customer demand for its high-value recycled materials and favorable pricing of certain metals due to positive market conditions. Excell's major metals processing facilities operated at maximum capacity for the entire quarter, greatly enhancing operating leverage and margins. Harsco Track Technologies had higher year-over-year sales, operating income and margins in the second quarter of 2007. Additionally, three of the four remaining divisions within this group also reported higher operating earnings in the quarter and made a significant contribution to the record quarterly results.
The outlook for the Minerals & Rail Technologies, Services and Products Group remains positive. Second half performance is again expected to continue to be led by Excell Minerals and Harsco Track Technologies. While Excell is not expected to operate at the full capacity levels it did in the second quarter, and metal prices are not expected to remain at the high levels seen in the quarter, Excell is expected to be a positive contributor to third quarter and second half growth for this Group. Likewise, Harsco Track Technologies should continue to see improved year-over-year operating performance in 2007's remaining quarters. New contract bidding activity for both Excell and Harsco Track Technologies remains high, which adds confidence to the longer-term outlook as well. The remaining businesses within this group are also expected to continue to operate at their current high levels of operating efficiency.
Discontinued Operations
As previously reported, progress continues in the Company's efforts to divest its Gas Technologies business group. As such, results for Gas Technologies have been reclassified as discontinued operations.
Income from discontinued operations for the second quarter was $6.0 million after-tax, or $0.07 per share, compared with $0.7 million after-tax or $0.01 per share in 2006.
For the first six months of 2007, income from discontinued operations was $8.2 million after-tax, or $0.10 per share, compared with $2.3 million after-tax, or $0.03 per share in 2006. First half 2007 results included a pre-tax pension curtailment expense of $1.5 million.
Liquidity, Capital Resources and Other Matters
Net cash provided by operating activities for the second quarter of 2007 was a record $155 million, a 35 percent increase over the $114 million for the comparable period of last year. Net cash used by investing activities was $128 million, a 30 percent increase over the $98 million last year. The increased use of cash was due primarily to higher capital expenditures for organic growth, capital initiatives to improve operational efficiencies, and expenditures for a business acquired in the second quarter of 2007. Net cash provided by operating activities for the first six months of 2007 was a record $197 million, compared with $184 million in 2006, an increase of 7 percent.
During the first six months of 2007, the Company's total debt increased by $257 million to $1.3 billion as of June 30, 2007. The increase in debt was principally due to the acquisition of Excell Minerals on February 1, 2007, other smaller acquisitions, and higher growth-related capital expenditures. The debt-to-capital ratio decreased 220 basis points to 50.4 percent at the end of the second quarter of 2007, down from 52.6 percent at the end of the first quarter. The debt-to-capital ratio was 48.1 percent at December 31, 2006.
Consistent with the quarterly results, meaningful improvement in Economic Value Added (EVA(r)) continued to be achieved in the second quarter and first half of 2007.
Forward Looking Statements
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 the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. Forward-looking statements include information about management's confidence and strategies for performance; expectations for new and existing products, technologies, and opportunities; and expectations regarding growth, sales, cash flows, earnings, and EVA. These statements are identified by the use of such terms as "may," "could," "expect," "anticipate," "intend," "believe," or other comparable terms.
Risk factors and uncertainties which could affect results 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, certain commodity prices and costs, interest rates and capital costs; (3) changes in the performance of stock and bond markets, particularly in the United States and United Kingdom; (4) changes in governmental laws and regulations, including environmental, taxes and import tariff standards; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services, and technologies; (6) unforeseen business disruptions in one or more of the over 40 countries in which the Company operates due to political instability, civil disobedience, armed hostilities or other calamities; (7) the seasonal nature of the Company's business; (8) the successful integration of the Company's strategic acquisitions; and (9) other risk factors listed from time to time in the Company's SEC reports. 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.
Conference Call
As previously announced, the Company will hold a conference call today at 2:00 p.m. Eastern Time (ET) 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 call can also be accessed by telephone by dialing (800) 611-4920, or (706) 634-5923 from outside the United States and Canada. Enter Conference ID number 4171803. Listeners are advised to dial in at least five minutes prior to the call. Replays will be available via the Harsco website, or by telephone beginning approximately 5:00 pm ET today. The telephone replay dial-in number is (800) 642-1687, or (706) 645-9291 from outside the United States and Canada. Enter Conference ID number 4171803.
About Harsco
Harsco Corporation is one of the world's leading diversified industrial services companies, serving major customers in the global non-residential construction, steel and metals, energy and railway industries. The Company posted 2006 revenues of $3.4 billion and employs approximately 21,500 people worldwide. Harsco's common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index. Additional information can be found at www.harsco.com.
The Harsco Corporation logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=361
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, Three Months Ended Six Months Ended
except per share June 30 June 30
amounts) 2007 2006(a) 2007 2006(a)
---------------------------------------------------------------------
Revenues from
continuing
operations:
Service revenues $810,429 $636,393 $1,533,244 $1,209,024
Product revenues 135,720 129,629 252,931 239,063
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Total revenues 946,149 766,022 1,786,175 1,448,087
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Costs and expenses
from continuing
operations:
Cost of services
sold 585,677 457,133 1,124,215 879,957
Cost of products
sold 97,580 95,066 184,659 174,601
Selling, general
and administrative
expenses 127,313 115,053 255,068 227,303
Research and
development
expenses 734 694 1,727 1,251
Other (income)
expenses (1,003) 1,658 (1,916) 3,507
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Total costs and
expenses 810,301 669,604 1,563,753 1,286,619
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Operating income
from continuing
operations 135,848 96,418 222,422 161,468
Equity in income
of unconsolidated
entities, net 285 102 413 163
Interest income 1,173 888 2,212 1,749
Interest expense (20,540) (14,618) (39,116) (28,709)
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Income from
continuing
operations
before income
taxes and
minority
interest 116,766 82,790 185,931 134,671
Income tax expense (37,388) (27,542) (58,989) (44,527)
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Income from
continuing
operations
before minority
interest 79,378 55,248 126,942 90,144
Minority interest
in net income (2,335) (2,089) (4,459) (4,360)
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Income from
continuing
operations 77,043 53,159 122,483 85,784
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Discontinued
operations:
Income from
operations of
discontinued
business 8,959 969 14,378 3,286
Disposal costs of
discontinued
business (580) -- (2,878) --
Income tax expense (2,353) (254) (3,260) (944)
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Income from
discontinued
operations 6,026 715 8,240 2,342
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Net Income $ 83,069 $ 53,873(b) $ 130,723 $ 88,126
====================================================================
Average shares of
common stock
outstanding 84,145 83,922 84,097 83,784
Basic earnings per
common share:
Continuing
operations $ 0.92 $ 0.63 $ 1.46 $ 1.02
Discontinued
operations 0.07 0.01 0.10 0.03
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Basic earnings per
common share $ 0.99 $ 0.64 $ 1.55(b) $ 1.05
====================================================================
Diluted average
shares of common
stock outstanding 84,702 84,444 84,641 84,338
Diluted earnings
per common share:
Continuing
operations $ 0.91 $ 0.63 $ 1.45 $ 1.02
Discontinued
operations 0.07 0.01 0.10 0.03
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Diluted earnings
per common share $ 0.98 $ 0.64 $ 1.54(b) $ 1.04(b)
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(a) Reclassified for comparative purposes.
(b) Does not total due to rounding.
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30 December 31
(In thousands) 2007 2006
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ASSETS
Current assets:
Cash and cash equivalents $ 95,927 $ 101,260
Accounts receivable, net 812,557 753,168
Inventories 240,749 285,229
Other current assets 76,925 88,398
Assets held-for-sale 290,291 3,567
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Total current assets 1,516,449 1,231,622
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Property, plant and equipment, net 1,391,033 1,322,467
Goodwill, net 697,560 612,480
Intangible assets, net 190,102 88,164
Other assets 97,762 71,690
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Total assets $ 3,892,906 $ 3,326,423
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LIABILITIES
Current liabilities:
Short-term borrowings $ 412,327 $ 185,074
Current maturities of long-term debt 3,797 13,130
Accounts payable 288,847 287,006
Accrued compensation 85,376 95,028
Income taxes payable 45,700 61,967
Dividends payable 16,084 15,983
Insurance liabilities 43,051 40,810
Other current liabilities 243,740 211,777
Liabilities associated with assets
held-for-sale 57,618 --
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Total current liabilities 1,196,540 910,775
---------------------------------------------------------------------
Long-term debt 903,690 864,817
Deferred income taxes 153,725 103,592
Insurance liabilities 64,156 62,542
Retirement plan liabilities 176,356 189,457
Other liabilities 101,053 48,876
---------------------------------------------------------------------
Total liabilities 2,595,520 2,180,059
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STOCKHOLDERS' EQUITY
Common stock 138,316 85,614
Additional paid-in capital 119,558 166,494
Accumulated other comprehensive loss (124,441) (169,334)
Retained earnings 1,767,122 1,666,761
Treasury stock (603,169) (603,171)
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Total stockholders' equity 1,297,386 1,146,364
---------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 3,892,906 $ 3,326,423
=====================================================================
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
(In thousands) 2007 2006 2007 2006
---------------------------------------------------------------------
Cash flows from operating
activities:
Net income $ 83,069 $ 53,873 $ 130,723 $ 88,126
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation 67,778 60,973 132,787 119,388
Amortization 7,690 1,921 12,959 3,757
Equity in income of
unconsolidated
entities, net (285) (102) (414) (163)
Dividends or
distributions from
unconsolidated
entities 176 -- 176 --
Other, net (61) 3,386 (821) 5,722
Changes in assets and
liabilities, net of
acquisitions and
dispositions of
businesses:
Accounts receivable (49,633) (42,821) (93,118) (15,358)
Inventories (24,154) 13,660 (54,224) (13,950)
Accounts payable 25,157 678 11,215 (9,572)
Accrued interest
payable 9,437 8,389 15,057 13,098
Accrued compensation 14,525 7,247 (8,323) (7,296)
Other assets and
liabilities 21,210 7,263 50,579 556
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Net cash provided by
operating activities 154,909 114,467 196,596 184,308
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Cash flows from investing
activities:
Purchases of property,
plant and equipment (117,839) (99,866) (201,202) (166,807)
Net use of cash
associated with the
purchases of businesses (14,987) (3,199) (227,323) (935)
Proceeds from sale of
assets 6,261 4,564 10,773 5,889
Other investing
activities (1,453) 118 (1,845) 118
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Net cash used by
investing activities (128,018) (98,383) (419,597) (161,735)
--------------------------------------------------------------------
Cash flows from financing
activities:
Short-term borrowings,
net (27,961) (51,863) 220,926 (41,511)
Current maturities and
long-term debt:
Additions 171,692 146,340 466,480 206,181
Reductions (167,644) (114,237) (446,171) (206,722)
Cash dividends paid on
common stock (14,921) (13,624) (29,837) (27,204)
Common stock
issued-options 3,358 4,269 3,899 10,614
Other financing
activities (1,898) (1,203) (3,448) (3,469)
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Net cash provided
(used) by financing
activities (37,374) (30,318) 211,849 (62,111)
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Effect of exchange rate
changes on cash 4,379 3,652 5,819 6,879
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Net decrease in cash and
cash equivalents (6,104) (10,582) (5,333) (32,659)
Cash and cash equivalents
at beginning of period 102,031 98,852 101,260 120,929
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Cash and cash equivalents
at end of period $ 95,927 $ 88,270 $ 95,927 $ 88,270
====================================================================
HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
June 30, 2007 June 30, 2006
Operating Operating
Sales Income (loss) Sales Income (loss)
---------------------------------------------------------------------
Access Services
Segment $ 360,921 $ 49,305 $ 269,660 $ 36,652
Mill Services Segment 380,824 36,670 344,295 38,529
Minerals & Rail
Technologies,
Services and Products
("all other") Category 204,404 50,539 152,067 22,001
General Corporate -- (666) -- (764)
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Consolidated Totals $ 946,149 $135,848 $ 766,022 $ 96,418
=====================================================================
Six Months Ended Six Months Ended
June 30, 2007 June 30, 2006
Operating Operating
Sales Income (loss) Sales Income (loss)
---------------------------------------------------------------------
Access Services
Segment $ 677,130 $ 84,346 $ 495,454 $ 53,435
Mill Services Segment 741,594 68,978 670,530 72,109
Minerals & Rail
Technologies,
Services and Products
("all other") Category 367,451 69,918 282,103 37,439
General Corporate -- (820) -- (1,515)
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Consolidated Totals $1,786,175 $222,422 $1,448,087 $161,468
=====================================================================