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Harsco Focused on Improving Returns in Metals & Minerals Segment
02/24/2014 - Harsco Corp. reported fourth quarter 2013 results and offered an outlook for the remainder of 2014.
Excluding special items and results from the company's Infrastructure segment that was divested during the quarter, adjusted diluted earnings per share from continuing operations in the fourth quarter of 2013 were US$0.25 compared with US$0.32 in the fourth quarter of 2012. Adjusted operating income, excluding special items, Infrastructure segment results, and corporate costs, was US$39 million, in line with the company's guidance.
On a U.S. GAAP basis, fourth quarter 2013 diluted loss per share from continuing operations was US$0.31, which includes charges related to the Infrastructure transaction as well as charges for certain special items related to operations. This compares with GAAP diluted loss per share of US$3.27 in the fourth quarter of 2012, during which a US$3.29 per share non-cash goodwill impairment charge was recorded.
"During 2013 we took several important steps that we believe will help position Harsco to achieve long-term growth, enhance profitability and increase shareholder value," said Harsco president and CEO Patrick Decker. "In the fourth quarter our three operating units performed as expected and we achieved growth in both Metals & Minerals and Industrial. During the quarter we also completed the divestiture of our Infrastructure business, which delivered approximately US$300 million in net cash proceeds and provides Harsco investors with an ongoing 29% equity interest in a stronger, combined business.
"As we outlined at our December Investor Day, Harsco's 2014 agenda is focused on improving returns in Metals & Minerals; adding to our project pipeline in Rail; integrating our recent acquisition in Industrial; and building a leaner operating model. Our 2014 outlook includes double-digit growth in operating income from our three business segments as well as double-digit cash flow from operations. Our entire organization remains focused on achieving our goals and shaping a stronger future for Harsco. We look forward to executing on these objectives throughout 2014 and believe we are building the foundation necessary to achieve sustainable, top quartile returns for our shareholders."
Consolidated Fourth Quarter Operating Results
Total revenues declined to US$681 million, as modest revenue increases in the company's Metals & Minerals and Industrial segments were offset by expected declines in Rail deliveries compared with the strong prior-year quarter. Revenues in the Infrastructure segment also declined due to the timing of the Infrastructure transaction. Foreign currency translation negatively impacted revenues by approximately US$6 million in the quarter.
GAAP operating loss from continuing operations was US$3 million, compared with a loss of US$247 million in the prior-year quarter, which included the previously mentioned goodwill impairment charge. Excluding special items, adjusted operating income from continuing operations declined 30%, primarily as a result of lower Rail volumes compared with the prior year period, due to the completion of its large contract with the China Railway Corp. (formerly the China Ministry of Railways). Adjusted operating margin declined 140 basis points.
Harsco Corp.—Selected 2013 Results
Consolidated 2013 Results
GAAP diluted loss per share from continuing operations was US$2.80 for the full year 2013, compared with a loss of US$3.15 in 2012. Excluding special items, adjusted diluted earnings per share from continuing operations were US$0.82 in 2013, compared with US$1.19 in 2012.
Total revenues were US$2.9 billion in 2013, compared with US$3.0 billion in 2012. Revenues declined primarily due to a lower volume of equipment deliveries in Rail following the completion of its multi-year equipment order with China, and the timing of the Infrastructure transaction, which was completed at the end of November 2013. Foreign currency translation negatively impacted revenues by US$22 million in 2013. Industrial revenues increased 4%, led by favorable volumes in its air-cooled heat exchanger and industrial boiler businesses.
GAAP operating loss from continuing operations was US$135 million in 2013, compared with an operating loss from continuing operations of US$175 million in 2012. This performance primarily reflects changes in non-cash charges and transaction costs for the Infrastructure transaction in 2013 and non-repeated charges from 2012 for restructuring and Infrastructure goodwill impairment. Foreign currency translation favorably impacted operating income by US$3 million in 2013.
Fourth Quarter Business Review
Metals & Minerals
Revenues increased five% to US$350 million, primarily as a result of new contracts and volume-related increases in existing contracts. These factors were partially offset by the non-renewal of certain contracts. Foreign currency translation negatively impacted revenues by approximately US$3 million in the quarter.
Adjusted operating income declined 6% to US$17 million from US$18 million in the prior-year quarter. Adjusted operating margin decreased to 4.7% from last year's adjusted 5.2%. This performance primarily reflected the aforementioned factors and costs related to the Simplification initiative.
Rail
Revenues declined 38% to US$70 million, primarily due to the expected lower volume of equipment deliveries and contract services compared with the prior year period, which included the segment's large order from the China Railway Corp.
Adjusted operating income and operating margin also declined as a result of the lower volume of equipment deliveries and contract services compared with the prior period. Results also included a non-cash asset impairment charge related to certain equipment used in providing contract services.
Industrial
Revenues increased three% to US$86 million, primarily due to volume increases in the air-cooled heat exchanger and industrial boiler product lines. Operating income and margin were essentially flat for the quarter compared with the same period last year.
Infrastructure
Results for Infrastructure compared with the same quarter in the prior year were impacted by the timing of the Infrastructure transaction. As a result, revenues declined 25% to US$176 million. Adjusted operating loss and operating margins were relatively flat for the quarter compared with the same quarter last year.
2014 Outlook
The company expects 2014 operating income from its three business segments to increase at a low double-digit rate compared with the 2013 level (excluding special items in both periods). Remaining corporate costs previously allocated to the divested Infrastructure segment are expected to largely offset this increase. In addition, the company is providing the following guidance for 2014:
On a U.S. GAAP basis, fourth quarter 2013 diluted loss per share from continuing operations was US$0.31, which includes charges related to the Infrastructure transaction as well as charges for certain special items related to operations. This compares with GAAP diluted loss per share of US$3.27 in the fourth quarter of 2012, during which a US$3.29 per share non-cash goodwill impairment charge was recorded.
"During 2013 we took several important steps that we believe will help position Harsco to achieve long-term growth, enhance profitability and increase shareholder value," said Harsco president and CEO Patrick Decker. "In the fourth quarter our three operating units performed as expected and we achieved growth in both Metals & Minerals and Industrial. During the quarter we also completed the divestiture of our Infrastructure business, which delivered approximately US$300 million in net cash proceeds and provides Harsco investors with an ongoing 29% equity interest in a stronger, combined business.
"As we outlined at our December Investor Day, Harsco's 2014 agenda is focused on improving returns in Metals & Minerals; adding to our project pipeline in Rail; integrating our recent acquisition in Industrial; and building a leaner operating model. Our 2014 outlook includes double-digit growth in operating income from our three business segments as well as double-digit cash flow from operations. Our entire organization remains focused on achieving our goals and shaping a stronger future for Harsco. We look forward to executing on these objectives throughout 2014 and believe we are building the foundation necessary to achieve sustainable, top quartile returns for our shareholders."
Consolidated Fourth Quarter Operating Results
Total revenues declined to US$681 million, as modest revenue increases in the company's Metals & Minerals and Industrial segments were offset by expected declines in Rail deliveries compared with the strong prior-year quarter. Revenues in the Infrastructure segment also declined due to the timing of the Infrastructure transaction. Foreign currency translation negatively impacted revenues by approximately US$6 million in the quarter.
GAAP operating loss from continuing operations was US$3 million, compared with a loss of US$247 million in the prior-year quarter, which included the previously mentioned goodwill impairment charge. Excluding special items, adjusted operating income from continuing operations declined 30%, primarily as a result of lower Rail volumes compared with the prior year period, due to the completion of its large contract with the China Railway Corp. (formerly the China Ministry of Railways). Adjusted operating margin declined 140 basis points.
Harsco Corp.—Selected 2013 Results
| (US$ in millions, except per share amounts) | |||
| 2013 | 2012 | % Change | |
| Revenues | US$ 2,897 | US$ 3,046 | (5%) |
| Operating income (loss) from continuing operations--GAAP | US$ (135) | US$ (175) | nmf |
| Operating margin from continuing operations--GAAP | nmf | nmf | |
| Diluted EPS (loss) from continuing operations--GAAP | US$ (2.80) | US$ (3.15) | nmf |
| Special items per diluted share | US$ 3.62 | US$ 4.34 | |
| Adjusted operating income--excluding special items | US$ 151 | US$ 184 | (18%) |
| Adjusted operating margin--excluding special items | 5.2% | 6.0% | |
| Diluted EPS from continuing operations--excluding special items | US$ 0.82 | US$ 1.19 | (31%) |
| Return on invested capital (ttm)--excluding special items | 6.2% | 6.0% | |
| nmf = not meaningful | |||
Consolidated 2013 Results
GAAP diluted loss per share from continuing operations was US$2.80 for the full year 2013, compared with a loss of US$3.15 in 2012. Excluding special items, adjusted diluted earnings per share from continuing operations were US$0.82 in 2013, compared with US$1.19 in 2012.
Total revenues were US$2.9 billion in 2013, compared with US$3.0 billion in 2012. Revenues declined primarily due to a lower volume of equipment deliveries in Rail following the completion of its multi-year equipment order with China, and the timing of the Infrastructure transaction, which was completed at the end of November 2013. Foreign currency translation negatively impacted revenues by US$22 million in 2013. Industrial revenues increased 4%, led by favorable volumes in its air-cooled heat exchanger and industrial boiler businesses.
GAAP operating loss from continuing operations was US$135 million in 2013, compared with an operating loss from continuing operations of US$175 million in 2012. This performance primarily reflects changes in non-cash charges and transaction costs for the Infrastructure transaction in 2013 and non-repeated charges from 2012 for restructuring and Infrastructure goodwill impairment. Foreign currency translation favorably impacted operating income by US$3 million in 2013.
Fourth Quarter Business Review
Metals & Minerals
| (US$ in millions) | |||
| Q4 13 | Q4 12 | % Change | |
| Revenues | US$ 350 | US$ 334 | 5% |
| Operating income--GAAP | US$ 14 | US$ 6 | nmf |
| Operating margin--GAAP | 4.0% | 1.8% | |
| Special items | US$ 3 | US$ 12 | |
| Adjusted operating income--excluding special items | US$ 17 | US$ 18 | (6%) |
| Adjusted operating margin--excluding special items | 4.7% | 5.2% | |
| Customer liquid steel tons (millions) | 41.9 | 38.6 | 9% |
| nmf -- not meaningful | |||
Revenues increased five% to US$350 million, primarily as a result of new contracts and volume-related increases in existing contracts. These factors were partially offset by the non-renewal of certain contracts. Foreign currency translation negatively impacted revenues by approximately US$3 million in the quarter.
Adjusted operating income declined 6% to US$17 million from US$18 million in the prior-year quarter. Adjusted operating margin decreased to 4.7% from last year's adjusted 5.2%. This performance primarily reflected the aforementioned factors and costs related to the Simplification initiative.
Rail
| (US$ in millions) | |||
| Q4 13 | Q4 12 | % Change | |
| Revenues | US$ 70 | US$ 113 | (38%) |
| Operating income--GAAP | US$ 1 | US$ 21 | nmf |
| Operating margin--GAAP | 1.1% | 18.4% | |
| Special items | US$ 9 | US$ -- | |
| Adjusted operating income--excluding special items | US$ 10 | US$ 21 | (53%) |
| Adjusted operating margin--excluding special items | 14.0% | 18.4% | |
| nmf -- not meaningful | |||
Revenues declined 38% to US$70 million, primarily due to the expected lower volume of equipment deliveries and contract services compared with the prior year period, which included the segment's large order from the China Railway Corp.
Adjusted operating income and operating margin also declined as a result of the lower volume of equipment deliveries and contract services compared with the prior period. Results also included a non-cash asset impairment charge related to certain equipment used in providing contract services.
Industrial
| (US$ in millions) | |||
| Q4 13 | Q4 12 | % Change | |
| Revenues | US$ 86 | US$ 84 | 3% |
| Operating income | US$ 13 | US$ 12 | 3% |
| Operating margin | 14.9% | 15.0% | |
Infrastructure
| (US$ in millions) | |||
| Q4 13 | Q4 12 | % Change | |
| Revenues | US$ 176 | US$ 235 | (25%) |
| Operating loss--GAAP | US$ (19) | US$ (285) | nmf |
| Operating margin--GAAP | nmf | nmf | |
| Special items | US$ 16 | US$ 282 | |
| Adjusted operating loss--excluding special items | US$ (3) | US$ (3) | 0% |
| Adjusted operating margin--excluding special items | (1.9%) | (1.2%) | |
| Rental equipment utilization rate | 60.2% | 59.6% | |
| nmf--not meaningful | |||
2014 Outlook
The company expects 2014 operating income from its three business segments to increase at a low double-digit rate compared with the 2013 level (excluding special items in both periods). Remaining corporate costs previously allocated to the divested Infrastructure segment are expected to largely offset this increase. In addition, the company is providing the following guidance for 2014:
- Operating income is expected to range from US$160 million to US$180 million.
- Free cash flow is expected to range from (US$15) million to US$15 million. Included in this projection is the expectation that capital spending in Metals & Minerals will remain high due to an unusually large number of attractive contract renewals. Cash flow from operations is expected to increase at a double-digit rate versus 2013.
- Interest expense is expected to range from US$43 million to US$47 million.
- Incremental, non-cash expense of US$10 million related to the accounting for the company's quarterly payments to its partner in the Brand Energy joint venture (change in the fair value of the company's unit adjustment liability).
- Tax rate is expected to range from 30% to 32%.
- Return on invested capital is expected to range from 7.5% to 8.0%.
