-- Fourth quarter diluted EPS from continuing operations up 35%
to a record $0.84
-- Fourth quarter sales up 26% to a record $711 million
-- Full-year diluted EPS from continuing operations up 29% to
a record $2.73
-- Full-year sales reach a record $2.5 billion, up 18%
-- Company posts record full year cash flow from operations
of $270 million
-- Debt-to-Capital ratio reduced to 40.6% from 44.1%
-- Company refines 2005 guidance for diluted EPS from
continuing operations to $3.05 to $3.15 from previous
$3.00 to $3.10
HARRISBURG, Pa., Jan. 31, 2005 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported record fourth quarter and full-year 2004 results from continuing operations.
Fourth quarter 2004 diluted EPS from continuing operations was a record $0.84, up 35 percent from $0.62 in the fourth quarter of 2003. Fourth quarter income from continuing operations was a record $35.0 million, compared with $25.7 million last year, an increase of 36 percent. Fourth quarter sales totaled $711 million, also a record, and up 26 percent from sales of $564 million in the same period last year. Positive foreign currency translation contributed $25 million to 2004's fourth quarter sales and $1.6 million to pre-tax income.
For the full year 2004, income from continuing operations was $113.5 million, or $2.73 diluted earnings per share, both records, compared with income from continuing operations of $87.0 million, or $2.12 per share in 2003, an increase in income and diluted EPS of 31 percent and 29 percent, respectively. Sales for the full year 2004 reached a record $2.5 billion, an increase of 18 percent from last year's sales of $2.1 billion. Positive foreign currency translation contributed approximately $109 million to sales in 2004 and $5.4 million to pre-tax income.
Income from discontinued operations in 2004 was $7.7 million after-tax, or $0.18 per diluted share, principally reflecting the previously reported favorable settlement of the Federal Excise Tax (FET) dispute, from which the Company received a cash payment refund of approximately $12.5 million in the fourth quarter of 2004. Income from discontinued operations in 2003 was $5.2 million, or $0.13 per diluted share, principally from the Company's reassessment of its litigation reserve in the FET matter, as previously reported. Including discontinued operations, full year 2004 net income was $121 million or $2.91 per diluted share, compared with net income of $92.2 million or $2.25 per diluted share in 2003.
Commenting on the Company's results, Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway said, "Our strong fourth quarter performance completed a year in which record operating results in sales, income, EPS and cash flows were achieved, reflecting the successful execution of our strategies for growing our Mill Services business, and improved operating results from other business units, particularly the positive contribution of our international Access Services business and the significant turnaround of our industrial grating business. We enter 2005 having established a clear platform for Harsco's continued growth, armed with a strong balance sheet, growing cash flows and broad-based market opportunities.
"Much of this growth will come from our own internal investments, augmented by targeted acquisitions, and funded by our historically strong operating cash flows. Harsco's growth and investment will be accomplished under our formal Economic Value Added (EVA(r)) discipline, which we successfully implemented three years ago. The EVA culture is pervasive throughout Harsco, creating a direct link to shareholder value by incorporating return and profit measures into a single metric and ensuring accountability for stockholder capital. This is evidenced not only by our record 2004 operating results but also by our significant EVA increases in each of the past two years."
Fourth Quarter Business Review
Mill Services
Sales in the fourth quarter increased by more than 20 percent to $274 million from $227 million in last year's fourth quarter. Organic growth was responsible for $33 million of the increase, or approximately 14 percent, while positive foreign currency translation contributed $14 million, or approximately 6 percent. Operating income for the quarter rose 33 percent to $30.4 million, up from $22.8 million in the same period last year. Positive foreign currency translation increased operating income by approximately $1.5 million. Operating margins improved by 110 basis points to 11.1 percent from 10.0 percent in the fourth quarter last year. Performance benefited from a combination of higher steel production at mills serviced, new contract signings, and the Company's six-sigma efficiency improvements and other ongoing cost reduction initiatives.
Entering 2005, the Company reaffirms its positive outlook for the Mill Services segment. Contract backlogs remain strong and additional new contract signings should add to this strength. The Company will continue to focus on growing this business and intends to dedicate a significant portion of its cash flows towards this strategic objective. Through its six-sigma and EVA initiatives, the Company also expects further incremental margin improvement in 2005 and beyond.
Access Services
Fourth quarter sales increased 19 percent to $189 million from $159 million last year. Organic sales growth contributed $20 million, or approximately 13 percent, and positive foreign currency translation increased sales by nearly $10 million, or approximately 6 percent. Operating income increased 21 percent to $13.3 million, from $11.0 million in the fourth quarter of 2003. Positive foreign currency translation contributed approximately $0.5 million to operating income in the quarter. Operating margins increased by 10 basis points to 7.0 percent from 6.9 percent in last year's fourth quarter.
The quarter's improved operating performance in this segment continued to be led by growth from international operations, with overall performance ahead of last year's fourth quarter in the Middle East, the United Kingdom, Eastern Europe, and Canada.
The outlook for the Access Services segment in 2005 continues to improve, with increased non-residential spending and industrial maintenance activity expected in the Company's major markets, continued development of newer markets in Eastern Europe and Australia, and further market penetration from new products.
Engineered Products and Services ("All Other")
Sales in the fourth quarter increased 60 percent to $154 million from $96 million last year. Operating income increased to $14.0 million, up 19 percent from $11.8 million in the fourth quarter of last year. Positive foreign currency translation in the quarter increased sales by approximately $0.7 million, and operating income by $0.2 million. Operating margins decreased to 9.1 percent from 12.3 percent in the prior year's fourth quarter, as increased commodity costs, particularly steel, led to higher cost of sales compared with last year.
The quarter's improved results were led by higher sales, income and margins from Harsco Track Technologies. As expected, HTT delivered a significant number of units in the quarter, principally to international customers. Also reporting improved sales, income and margins in the quarter was the Company's Reed Minerals business. Margins for IKG declined due to higher commodity costs. While the two other businesses in this group, Patterson-Kelley and Air-X-Changers, reported higher sales in the quarter, income was down for each as higher costs resulted in lower margins.
The outlook for the Engineered Products and Services group in 2005 remains positive. Improved results should again be led by the Harsco Track Technologies unit as it further penetrates its domestic and international markets with additional equipment sales and contract services. The moderating commodity costs expected in 2005 compared with 2004 should positively affect margins for this group.
Gas Technologies
Sales in the fourth quarter were up 15 percent to $94 million from $82 million last year. Operating income of $3.6 million was down 23 percent from last year's $4.7 million. Operating margins declined from 5.7 percent in the fourth quarter of 2003 to 3.8 percent in this year's fourth quarter. The effect of foreign currency translation was not material. As expected, income and margins were negatively impacted in the quarter by higher commodity costs, particularly steel, compared with last year's fourth quarter.
Looking ahead to 2005, the outlook for the Gas Technologies segment is positive. Product backlogs continue to improve, commodity costs are expected to moderate, international operations continue to perform well, and future benefits are expected from new product introductions. Measurable improvements in sales, income and margins are expected in 2005, particularly after the first quarter. Results for the first quarter are expected to be down in comparison with the first quarter of 2004, when results were favorably affected by accelerated purchasing of propane tanks by customers, in advance of anticipated price increases resulting from higher steel costs.
Liquidity, Capital Resources and Other Matters
Net cash provided by operating activities for the full year 2004 was a record $270 million, compared with $263 million in 2003. Cash used by investing activities was $210 million, compared with $145 million in the prior year, primarily due to increased capital expenditures for organic growth.
On a cash flow basis, debt was reduced by approximately $22 million in 2004, but due to the strengthening of major currencies against the U.S. dollar, particularly the British pound sterling and the euro, the translated balance sheet reflects a $12 million increase in debt, to $626 million. The Company's debt-to-capital ratio declined by 350 basis points to 40.6 percent in 2004, a continued improvement from the 44.1 percent at the end of 2003 and 49.8 percent at the end of 2002.
The effective income tax rate from continuing operations for the fourth quarter and full year 2004 was 26.4 percent and 28.6 percent, respectively, compared with 30.9 percent and 30.7 percent in the corresponding periods last year. The decrease in the 2004 fourth quarter tax rate is due primarily to a one-time benefit of approximately $1.5 million, or $.04 per diluted share, resulting from The American Job Creation Act of 2004, signed by President Bush in October 2004. The Act includes foreign tax credit relief for certain dividends paid by joint venture entities. The Company estimates that its effective tax rate from continuing operations in 2005 will be approximately 31 percent.
The success of the Company-wide EVA financial and operational initiative was clearly evident during 2004 with the achievement of a substantial improvement in EVA, including improvements from six of the Company's nine operating units over the prior year. Further improvements in EVA are expected in 2005 and beyond.
Outlook
Underpinned by its global industrial services businesses, the Company expects continued growth into 2005 and beyond. The overall outlook for each of the Company's business units is encouraging. Supported by strong levels of cash flow, the Company expects to make further growth investments in new long-term, high renewal-rate services contracts for the Mill Services business and for growth in the Access Services and Track Technologies rail services businesses. The Company will also continue to give consideration to sensible bolt-on acquisitions to further enhance its industrial services growth and increase EVA.
Based on foreign currency exchange rates as of mid-January 2005, the Company is refining its 2005 guidance for diluted EPS from continuing operations to $3.05 - $3.15 from the previous guidance given in early December of $3.00 - $3.10 per diluted share. This reflects an increase of 12-15 percent over 2004's diluted EPS from continuing operations of $2.73. Any further significant weakening or strengthening of the U.S. dollar against the foreign currencies of the countries in which the Company does business could have a further effect on 2005 results.
With regard to the first quarter of 2005, the Company expects its earnings from continuing operations to be in the range of $0.45 - $0.49 per diluted share, an increase of approximately 10-20 percent compared with $0.41 per diluted share in the first quarter of last year. The first quarter is historically the slowest quarter of the year for the Company due to seasonal factors and the impact that severe weather can have on a number of its operations.
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, 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 taxes and import tariffs; (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; and (7) 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. 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 2750845.
About Harsco
Harsco Corporation is a diversified, worldwide industrial services and engineered products company. Harsco's market-leading businesses provide mill services, access services, gas containment and control technologies, and engineered products and services to customers worldwide. The company employs 18,000 people in more than 40 countries of operation. Additional information about Harsco can be found at www.harsco.com.
The Harsco Corporation logo is available at: http://media.primezone.com/prs/single/?pkgid=361
Harsco Corporation
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
(In thousands,
except per share
amounts) 2004 2003 2004 2003
--------------------------------------------------------------------
Revenues from continuing operations:
Service
sales $ 477,596 $ 395,269 $ 1,764,159 $ 1,493,942
Product sales 233,325 168,700 737,900 624,574
------------------- --------- ---------- ----------- -----------
Total revenues 710,921 563,969 2,502,059 2,118,516
------------------- --------- ---------- ----------- -----------
Costs and expenses
from continuing
operations:
Cost of
services
sold 356,236 292,656 1,313,075 1,104,873
Cost of
products
sold 192,537 132,216 603,309 499,500
Selling,
general
and
administrative
expenses 100,332 86,464 368,385 329,983
Research and
development
expenses 608 946 2,579 3,313
Other
expenses 382 2,447 4,862 6,955
------------------- --------- ---------- ----------- -----------
Total costs
and expenses 650,095 514,729 2,292,210 1,944,624
------------------- --------- ---------- ----------- -----------
Operating income
from continuing
operations 60,826 49,240 209,849 173,892
Equity in income/
(loss) of
unconsolidated
entities, net (81) 50 128 321
Interest income 663 644 2,319 2,202
Interest expense (10,645) (9,716) (41,057) (40,513)
------------------- --------- ---------- ----------- -----------
Income from continuing
operations before
income taxes
and minority
interest 50,763 40,218 171,239 135,902
Income tax
expense (13,418) (12,442) (49,034) (41,708)
------------------- --------- ---------- ----------- -----------
Income from continuing
operations before
minority
interest 37,345 27,776 122,205 94,194
Minority
interest in
net income (2,316) (2,076) (8,665) (7,195)
------------------- --------- ---------- ----------- -----------
Income from
continuing
operations 35,029 25,700 113,540 86,999
------------------- --------- ---------- ----------- -----------
Discontinued
operations:
Loss from
operations of
discontinued
business (183) (252) (801) (668)
Gain/(loss) on
disposal of
discontinued
business 23 131 (102) 765
Income related
to discontinued
defense
business 96 -- 12,849 8,030
Income tax
(expense)
/benefit 23 44 (4,275) (2,909)
---------------------------------------------------------------------
Income (loss)
from
discontinued
operations (41) (77) 7,671 5,218
---------------------------------------------------------------------
Net Income $ 34,988 $ 25,623 $ 121,211 $ 92,217
=====================================================================
Average shares of
common stock
outstanding 41,331 40,848 41,129 40,690
Basic earnings per common
share:
Continuing
operations $ 0.85 $ 0.63 $ 2.76 $ 2.14
Discontinued
operations -- -- 0.19 0.13
---------------------------------------------------------------------
Basic earnings
per common
share $ 0.85 $ 0.63 $ 2.95 $ 2.27
=====================================================================
Diluted average
shares of
common stock
outstanding 41,814 41,258 41,598 40,973
Diluted earnings per
common share:
Continuing
operations $ 0.84 $ 0.62 $ 2.73 $ 2.12
Discontinued
operations -- -- 0.18 0.13
---------------------------------------------------------------------
Diluted earnings
per common
share $ 0.84 $ 0.62 $ 2.91 $ 2.25
=====================================================================
Harsco Corporation
CONSOLIDATED BALANCE SHEETS (Unaudited)
December 31 December 31
(In thousands) 2004 2003(a)
--------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 94,093 $ 80,210
Accounts receivable, net 555,191 446,875
Inventories 217,026 190,221
Other current assets 58,614 47,045
--------------------------------------------------------------------
Total current assets 924,924 764,351
---------------------------------------------------------------------
Property, plant and
equipment, net 932,298 865,443
Goodwill, net 433,125 407,846
Other assets 98,477 97,483
Assets held for sale 932 2,912
--------------------------------------------------------------------
Total assets $ 2,389,756 $ 2,138,035
====================================================================
LIABILITIES
Current liabilities:
Short-term borrowings $ 16,145 $ 14,854
Current maturities of
long-term debt 14,917 14,252
Accounts payable 220,322 188,430
Accrued compensation 63,776 46,034
Income taxes 40,227 45,116
Dividends payable 12,429 11,238
Other current liabilities 210,581 175,151
---------------------------------------------------------------------
Total current liabilities 578,397 495,075
---------------------------------------------------------------------
Long-term debt 594,747 584,425
Deferred income taxes 95,702 66,855
Insurance liabilities 53,960 47,897
Retirement plan liabilities 97,586 115,190
Other liabilities 54,483 50,707
Liabilities associated
with assets held for sale 691 898
---------------------------------------------------------------------
Total liabilities 1,475,566 1,361,047
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 84,889 84,197
Additional paid-in capital 139,532 120,070
Accumulated other
comprehensive expense (127,491) (169,427)
Retained earnings 1,420,637 1,345,787
Treasury stock (603,377) (603,639)
---------------------------------------------------------------------
Total shareholders'
equity 914,190 776,988
---------------------------------------------------------------------
Total liabilities
and shareholders'
equity $ 2,389,756 $ 2,138,035
=====================================================================
(a) As permitted by the Financial Accounting Standards Board
(FASB) Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," 2003 information has been
reclassified for comparative purposes.
Harsco Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
(In thousands) 2004 2003 2004 2003
-------------------------------------------------------------------
Cash flows from operating
activities:
Net income $ 34,988 $ 25,623 $ 121,211 $ 92,217
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation 48,466 43,728 181,914 167,161
Amortization 598 512 2,457 1,774
Equity in income
of unconsolidated
entities, net 81 (50) (128) (321)
Dividends or
distributions
from
unconsolidated
entities 44 48 589 1,383
Other, net 3,043 1,230 (2,781) (2,678)
Changes in assets
and liabilities,
net of
acquisitions
and dispositions
of businesses:
Accounts receivable (14,388) 32,426 (81,403) (21,211)
Inventories 31,801 1,073 (22,278) (2,078)
Accounts payable 5,600 11,755 22,310 5,834
Net receipts (disbursements)
related to discontinued
defense
business 12,500 (289) 12,280 (1,328)
Other assets and
liabilities (18,094) (7,682) 36,294 22,035
---------------------------------------------------------------------
Net cash provided
by operating
activities 104,639 108,374 270,465 262,788
---------------------------------------------------------------------
Cash flows from investing
activities:
Purchases of
property, plant
and equipment (50,351) (46,997) (204,235) (143,824)
Purchase of
businesses, net
of cash acquired (7,099) (188) (12,264) (23,718)
Proceeds from
sales of assets 3,333 8,576 6,897 22,794
Other investing
activities -- (43) -- (43)
---------------------------------------------------------------------
Net cash used
by investing
activities (54,117) (38,652) (209,602) (144,791)
---------------------------------------------------------------------
Cash flows from financing
activities:
Short-term
borrowings,
net (7,474) (5,935) (5,863) (20,013)
Current
maturities
and long-term
debt:
Additions 45,203 58,487 198,032 323,366
Reductions (93,142) (115,737) (214,551) (389,599)
Cash dividends
paid on common
stock (11,339) (10,718) (45,170) (42,688)
Common stock
issued-options 6,305 1,273 16,656 8,758
Other financing
activities (836) (1,165) (5,616) (5,325)
---------------------------------------------------------------------
Net cash used by
financing
activities (61,283) (73,795) (56,512) (125,501)
---------------------------------------------------------------------
Effect of exchange
rate changes on
cash 11,395 7,718 9,532 17,582
---------------------------------------------------------------------
Net increase in
cash and cash
equivalents 634 3,645 13,883 10,078
Cash and cash
equivalents at
beginning of period 93,459 76,565 80,210 70,132
---------------------------------------------------------------------
Cash and cash
equivalents at
end of period $ 94,093 $ 80,210 $ 94,093 $ 80,210
=====================================================================
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
Operating Operating
Income Income
Sales (a) (loss)(b) Sales(a) (loss)(b)
--------------------------------------------------------------------
Mill Services
Segment $273,964 $ 30,434 $226,913 $ 22,800
Access Services
Segment 189,218 13,297 158,992 11,027
Gas Technologies
Segment (c) 94,122 3,594 81,841 4,663
Engineered
Products and
Services
("all other")
Category (c) 153,617 14,021 96,223 11,792
General Corporate -- (520) -- (1,042)
---------------------------------------------------------------------
Consolidated Totals $710,921 $ 60,826 $563,969 $ 49,240
=====================================================================
Twelve Months Ended Twelve Months Ended
December 31, 2004 December 31, 2003
Operating Operating
Income Income
Sales(a) (loss)(b) Sales(a) (loss)(b)
---------------------------------------------------------------------
Mill Services
Segment $ 997,410 $ 105,490 $ 827,521 $ 85,874
Access Services
Segment 706,490 44,464 619,069 37,388
Gas Technologies
Segment (c) 339,086 14,393 293,965 14,544
Engineered Products
and Services
("all other")
Category (c) 459,073 47,029 377,961 36,474
General Corporate -- (1,527) -- (388)
---------------------------------------------------------------------
Consolidated Totals $2,502,059 $ 209,849 $2,118,516 $ 173,892
=====================================================================
(a) Sales from continuing operations.
(b) Operating income (loss) from continuing operations.
(c) Segment information for prior periods has been reclassified
to conform with the current presentation. Due to management
changes, effective January 1, 2004, the air-cooled heat
exchangers business, which was previously classified in the
Gas Technologies Segment, is classified in the Engineered
Products & Services ("all other") category.