-- Third quarter diluted EPS from continuing operations up 39 percent
to a record $1.32; sales up 26 percent to a record $876 million
-- Improvements led by Company's Access Services and Mill Services
Segments with 70 and 62 percent increases, respectively, in
operating income
-- Full-year sales from the Access Services Segment expected to
exceed $1 billion for the first time
-- Company raises its full-year 2006 guidance for diluted EPS from
continuing operations to $4.49 to $4.51, up from $4.32 to $4.42,
and remains confident in another year of double-digit earnings
growth in 2007
HARRISBURG, Pa., Oct. 26, 2006 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported record third quarter 2006 results from continuing operations.
Third quarter 2006 diluted EPS from continuing operations were $1.32, up 39 percent from $0.95 in the third quarter of 2005. Income from continuing operations was $55.8 million, compared with $40.0 million last year, also an increase of 39 percent. Overall operating margins improved by 140 basis points to 11.4 percent from 10.0 percent in last year's comparable period. Third quarter sales were up 26 percent to $876 million, from $697 million last year.
Commenting on the results, Harsco Chairman and Chief Executive Officer Derek C. Hathaway said, "Our achievement of another period of exceptional growth continues to validate our strategies for expanding our industrial services businesses on a global scale. We continue to build upon a solid foundation of organic growth complemented by a very deliberate and focused acquisition program. We also remain on course for another year of record cash flows, a strength of Harsco that will allow us to continue to seriously look at the growth investment opportunities available to us."
Third quarter performance benefited from the Company's November 21, 2005 acquisition of Huennebeck Group GmbH, and its December 29, 2005 acquisition of the Northern Hemisphere steel mill services operations of Brambles Industrial Services. Both acquisitions were accretive in the third quarter of 2006. In comparison with the third quarter of 2005, sales in the third quarter of 2006 were reduced somewhat as a result of the sale of the Company's U.K.-based Youngman manufacturing operation on October 1, 2005. Positive foreign currency translation contributed approximately $18 million to this year's third quarter sales and $1.0 million to pre-tax income.
For the first nine months of 2006, sales, income from continuing operations, and diluted earnings per share were all records. Income from continuing operations was $144.1 million, or $3.42 per diluted share, compared with income from continuing operations of $104.9 million, or $2.49 per diluted share in the first nine months of 2005, an increase in both income and diluted EPS of 37 percent. Including discontinued operations, diluted EPS were $3.41 for the first nine months of 2006. Sales for the first nine months of 2006 were $2.51 billion, an increase of 23 percent from $2.03 billion in the same period a year ago. Foreign currency translation increased sales in the first nine months by $5 million, and contributed $1.4 million to pre-tax income.
"Both the near and long-term outlooks for our markets remain favorable," said Mr. Hathaway. "Our broad international balance, with approximately 70 percent of our operating earnings generated outside the United States, shelters us from the vagaries of any one geographic sector or economy. We remain confident in our long-term market opportunities and see Harsco's growth continuing into 2007 and beyond."
Third Quarter Business Review
Mill Services
Sales in the third quarter of 2006 increased by 36 percent to $346 million from $255 million in last year's third quarter. Organic sales growth contributed $28 million, or approximately 11 percent; the December 29, 2005 acquisition of the Brambles Northern Hemisphere steel mill services operations contributed $55 million, or 22 percent; and positive foreign currency translation contributed $8 million, or approximately 3 percent. Third quarter operating income increased by 62 percent to $37.3 million, up from $23.1 million in the third quarter of last year. Foreign currency translation contributed $0.7 million to operating income in the quarter. Operating margins increased by approximately 170 basis points to 10.8 percent from 9.1 percent in the third quarter of 2005.
The strong year-over-year results for the third quarter continue to reflect new contract start-ups, favorable conditions in the global steel industry, the contribution of the Brambles Northern Hemisphere steel mill services acquisition, and benefits from the Company's Economic Value Added (EVA(r)) and process improvement efforts.
Both the near and long-term outlooks for this Segment remain favorable. Global steel production remains strong and the Company continues to add to its broad operational and geographic balance worldwide. Additional new contract signings and start-ups are expected in the coming quarters.
Access Services
Third quarter 2006 sales increased 43 percent to $279 million from $195 million last year. Organic sales growth contributed $26 million, or approximately 14 percent; the net effect of the November 21, 2005 acquisition of Huennebeck Group, the October 1, 2005 sale of the U.K.-based Youngman manufacturing business, and the July 20, 2006 acquisition of Cleton Industrial Services in Holland contributed $49 million, or 25 percent; and positive foreign currency translation contributed $8 million, or approximately 4 percent. Operating income increased by 70 percent to $35.4 million in the third quarter, up from $20.9 million in the comparable period last year. Included in this year's third quarter operating income is a $2.5 million pre-tax gain, or approximately $0.04 per share, from the sale of property no longer necessary to the business. Last year's third quarter benefited from a $1.6 million pre-tax gain from the disposal of assets. Positive foreign currency translation increased operating income by approximately $0.4 million in this year's quarter. Operating margins increased by approximately 200 basis points to 12.7 percent, up from 10.7 percent in the third quarter of 2005.
A solid contribution from the Huennebeck acquisition together with strong global market conditions, market share gains, and new product introductions underpinned the improved results.
The outlook for this Segment continues to be favorable. Industry forecasts for non-residential construction are projecting further spending increases in 2007 and beyond, and the Company sees additional growth opportunities from geographic expansion and market share gains. In addition, increased customer investment in industrial plant maintenance projects should further enhance results in the coming quarters and beyond.
Engineered Products and Services ("All Other")
Sales of $149 million in the third quarter of 2006 approximated those in the same period last year. However, operating income increased by 21 percent to $25.2 million, from $20.9 million in the third quarter of last year. Operating margins improved by 300 basis points to 17.0 percent, compared with 14.0 percent at this time last year. The effect of foreign currency translation was minimal.
Increased sales in the Reed Minerals, IKG Industries, Air-X-Changers and Patterson-Kelley business units offset a decline in sales at the Company's Harsco Track Technologies (HTT) railroad track maintenance business. The decline in sales for HTT was the result of product mix, reflecting an increase in better-margin contract services revenues but lower equipment sales due to timing of shipments. All five business units recorded higher operating income in the quarter due to improvements in operating efficiencies, as well as favorable market conditions.
The Company expects that fourth quarter 2006 results for this Group will be below those of the comparable period last year, as the timing of deliveries at HTT, the favorable spike last year from Hurricane Katrina rebuild activity, and increased commodity costs, particularly steel, are all expected to lower results for the quarter compared with last year. The longer-term outlook, however, remains positive. Increasing domestic and international requirements for railway track maintenance and construction are expected to strengthen demand for HTT's products and services, while growing energy needs are expected to continue to favorably affect the Company's Air-X-Changers and IKG businesses, and to a lesser extent Patterson-Kelley.
Gas Technologies
Sales in the third quarter of 2006 were up 5 percent to $103 million from $98 million last year. Particular strength was seen in the quarter from this Segment's cryogenic tank and composite cylinder product lines. Operating income of $2.2 million was down 56 percent from last year's $5.2 million. Operating margins were 2.2 percent compared with 5.3 percent in the third quarter of last year. Income in the third quarter of 2006 was negatively impacted by higher commodity costs and a non-cash $4.4 million pre-tax charge to exit an underperforming product line. Without this charge, operating income would have been $6.6 million or some 28 percent higher than the third quarter of 2005. Likewise, operating margins would have been 6.4 percent, compared with 5.3 percent last year. The effect of foreign currency translation was minimal.
The Company expects gradual improvement in the operating performance of this Segment. Although increased commodity costs will remain a factor in the fourth quarter, overall backlogs are substantially ahead of the comparable period last year and the Company's strategies to improve this Segment's results are starting to take hold.
Liquidity, Capital Resources and Other Matters
Net cash provided by operating activities for the third quarter of 2006 was $95 million, nearly even with the $98 million for the comparable period of last year, which was a record. During the third quarter of 2006, the Company made a $9 million discretionary cash contribution to its U.K. pension plan. Without this discretionary pension plan contribution, cash flow from operations would have increased by approximately 6 percent from the comparable quarter last year. Net cash used by investing activities was $95 million, a 36 percent increase over the $69 million last year. The increased use of cash was due primarily to increased capital investments and the previously-mentioned acquisition of Cleton Industrial Services in July. Net cash provided by operating activities for the first nine months of 2006 was a record $279 million compared with $233 million in 2005, an increase of approximately 20 percent.
The Company's total debt at September 30, 2006 was approximately $1.04 billion, up slightly from December 31, 2005 due to foreign currency translation. However, the Company's debt-to-capital ratio decreased by 290 basis points to 47.5 percent at the end of the third quarter of 2006, down from 50.4 percent at the end of 2005.
The Company experienced further improvement in Economic Value Added from each of its four operating groups in the third quarter and again expects to exceed its full-year EVA target for 2006. It remains a primary objective of the management and employees of the Company to create additional stockholder value each year, for which EVA continues to be an important financial and operational performance measure.
Outlook
In consideration of its strong third quarter results, the Company is raising its full-year 2006 guidance for diluted EPS from continuing operations to $4.49 - $4.51 from the previous range of $4.32 - $4.42 per diluted share. The midpoint of this guidance reflects an increase of 21 percent over 2005's diluted EPS from continuing operations of $3.73. In comparison, it should be noted that last year's results included a one-time $0.06 per share benefit under the American Jobs Creation Act as well as a one-time income tax benefit of $3.6 million, or $0.09 per diluted share, consistent with the Company's strategies for investing in growth at certain international locations. Without these one-time, $0.15 per share benefits, the midpoint of the Company's new guidance for 2006 reflects an increase in EPS of approximately 26 percent over the prior year.
For the fourth quarter of 2006, the Company is forecasting earnings from continuing operations in the range of $1.07 to $1.09 per share. This compares with earnings of $1.23 per share in the fourth quarter of last year, which included the one-time $0.15 per share benefits noted above. Without these one-time benefits from last year's fourth quarter, the Company expects that improved results from its Mill Services, Access Services, and Gas Technologies Segments should offset the comparative shortfall anticipated from its Engineered Products and Services Group.
With respect to the coming year, the Company remains confident in another year of double-digit earnings growth in 2007 and will provide further details at its Annual Analysts Conference to be held in New York City on December 8, 2006 and webcast over the Harsco website.
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. Enter Conference ID number 4754373. 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 4754373.
About Harsco
Harsco Corporation is a diversified, worldwide industrial services and products company with four market-leading business groups that provide mill services, access services, engineered products and services, and gas containment and control technologies to customers around the globe. The Company employs approximately 21,000 people in 45 countries of operation. 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.primezone.com/newsroom/prs/?pkgid=361
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
---------------------------------------------------------------------
Revenues from
continuing operations:
Service sales $650,522 $472,183 $1,859,546 $1,440,543
Product sales 225,401 225,286 651,446 593,134
---------------------------------------------------------------------
Total revenues 875,923 697,469 2,510,992 2,033,677
---------------------------------------------------------------------
Costs and expenses
from continuing
operations:
Cost of services sold 472,678 350,169 1,352,635 1,069,975
Cost of products sold 173,285 182,477 513,939 482,633
Selling, general and
administrative expenses 126,444 95,090 370,928 287,338
Research and development
expenses 732 620 2,142 1,991
Other (income) expenses 2,592 (502) 6,138 347
---------------------------------------------------------------------
Total costs and
expenses 775,731 627,854 2,245,782 1,842,284
---------------------------------------------------------------------
Operating income from
continuing operations 100,192 69,615 265,210 191,393
Equity in income (loss)
of unconsolidated
entities, net 92 (29) 255 92
Interest income 857 879 2,665 2,024
Interest expense (15,255) (9,921) (43,962) (30,783)
---------------------------------------------------------------------
Income from continuing
operations before
income taxes and
minority interest 85,886 60,544 224,168 162,726
Income tax expense (28,276) (18,624) (73,857) (51,380)
---------------------------------------------------------------------
Income from continuing
operations before
minority interest 57,610 41,920 150,311 111,346
Minority interest in
net income (1,795) (1,898) (6,189) (6,458)
---------------------------------------------------------------------
Income from continuing
operations 55,815 40,022 144,122 104,888
---------------------------------------------------------------------
Discontinued operations:
Loss from operations
of discontinued business (15) (111) (294) (452)
Gain on disposal of
discontinued business -- 66 -- 261
Income/(loss) related to
discontinued defense
business (7) (6) (18) 26
Income tax benefit 8 19 117 62
---------------------------------------------------------------------
Loss from discontinued
operations (14) (32) (195) (103)
---------------------------------------------------------------------
Net Income $ 55,801 $ 39,990 $ 143,927 $ 104,785
=====================================================================
Average shares of
common stock
outstanding 42,010 41,693 41,932 41,603
Basic earnings per
common share:
Continuing operations $ 1.33 $ 0.96 $ 3.44 $ 2.52
Discontinued operations -- -- -- --
---------------------------------------------------------------------
Basic earnings
per common share $ 1.33 $ 0.96 $ 3.43(a) $ 2.52
=====================================================================
Diluted average shares
of common stock
outstanding 42,252 42,112 42,197 42,046
Diluted earnings per
common share:
Continuing operations $ 1.32 $ 0.95 $ 3.42 $ 2.49
Discontinued operations -- -- -- --
---------------------------------------------------------------------
Diluted earnings
per common share $ 1.32 $ 0.95 $ 3.41(a) $ 2.49
=====================================================================
(a) Does not total due to rounding.
HARSCO CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30 December 31
(In thousands) 2006 2005(a)
---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 99,533 $ 120,929
Accounts receivable, net 754,808 666,252
Inventories, net 284,780 251,080
Other current assets 80,968 60,436
Assets held-for-sale 2,139 2,326
-------------------------------------------------------------------
Total current assets 1,222,228 1,101,023
-------------------------------------------------------------------
Property, plant and equipment, net 1,264,596 1,139,808
Goodwill, net 585,557 559,629
Intangible assets, net 80,699 78,839
Other assets 103,275 96,505
-------------------------------------------------------------------
Total assets $ 3,256,355 $ 2,975,804
===================================================================
LIABILITIES
Current liabilities:
Short-term borrowings $ 96,246 $ 97,963
Current maturities of long-term debt 12,352 6,066
Accounts payable 255,002 247,179
Accrued compensation 85,074 75,742
Income taxes payable 69,032 42,284
Dividends payable 13,654 13,580
Insurance liabilities 46,170 47,244
Other current liabilities 262,677 218,345
-------------------------------------------------------------------
Total current liabilities 840,207 748,403
-------------------------------------------------------------------
Long-term debt 935,145 905,859
Deferred income taxes 118,010 123,334
Insurance liabilities 59,557 55,049
Retirement plan liabilities 94,034 98,946
Other liabilities 54,410 50,319
-------------------------------------------------------------------
Total liabilities 2,101,363 1,981,910
-------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 85,608 85,322
Additional paid-in capital 165,334 152,899
Accumulated other comprehensive loss (121,975) (167,318)
Retained earnings 1,629,209 1,526,216
Treasury stock (603,184) (603,225)
-------------------------------------------------------------------
Total stockholders' equity 1,154,992 993,894
-------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 3,256,355 $ 2,975,804
===================================================================
(a) Reclassified for comparative purposes.
HARSCO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(In thousands) 2006 2005 2006 2005
---------------------------------------------------------------------
Cash flows from
operating activities:
Net income $ 55,801 $ 39,990 $ 143,927 $ 104,785
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation 61,513 47,844 180,901 145,307
Amortization 1,843 625 5,600 1,895
Equity in (income)
loss of unconsolidated
entities, net (92) 29 (255) (92)
Dividends or distribu-
tions from affiliates -- 60 -- 60
Other, net 3,410 (308) 9,132 4,270
Changes in assets and
liabilities, net of
acquisitions and dis-
positions of businesses:
Accounts receivable (40,095) (50,297) (55,452) (57,577)
Inventories (8,496) 6,416 (22,447) (43,060)
Accounts payable (980) (29) (10,552) 2,654
Accrued interest
payable 5,681 4,208 18,780 18,385
Accrued compensation 10,909 8,172 3,613 484
Other assets and
liabilities 5,134 41,382 5,689 55,468
---------------------------------------------------------------------
Net cash provided by
operating activities 94,628 98,092 278,936 232,579
---------------------------------------------------------------------
Cash flows from investing
activities:
Purchases of property,
plant and equipment (89,672) (73,470) (256,479) (209,247)
Net source (use) of cash
associated with the
purchases of businesses (10,486) 1,135 (11,421) (7,011)
Proceeds from sales
of assets 5,534 2,858 11,423 17,353
Other investing activities -- -- 118 --
---------------------------------------------------------------------
Net cash used by
investing activities (94,624) (69,477) (256,359) (198,905)
---------------------------------------------------------------------
Cash flows from financing
activities:
Short-term borrowings, net 29,715 (56,160) (11,796) (937)
Current maturities and
long-term debt:
Additions 44,181 78,420 250,362 147,482
Reductions (51,721) (27,605) (258,443) (120,956)
Cash dividends paid on
common stock (13,654) (12,496) (40,859) (37,407)
Common stock issued-options 641 2,265 11,255 8,336
Other financing activities (223) (29) (3,691) (3,532)
---------------------------------------------------------------------
Net cash provided (used)
by financing activities 8,939 (15,605) (53,172) (7,014)
---------------------------------------------------------------------
Effect of exchange rate
changes on cash 2,320 670 9,199 (7,522)
---------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 11,263 13,680 (21,396) 19,138
Cash and cash equivalents
at beginning of period 88,270 99,551 120,929 94,093
---------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 99,533 $113,231 $ 99,533 $ 113,231
=====================================================================
HARSCO CORPORATION
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
September 30, 2006 September 30, 2005
Operating Operating
Sales Income (loss) Sales Income (loss)
--------------------------------------------------------------------
Mill Services
Segment $ 345,864 $ 37,343 $ 254,857 $ 23,095
Access Services
Segment 278,627 35,447 195,353 20,867
Gas Technologies
Segment 102,633 2,249 98,010 5,168
Engineered Products
and Services
("all other")
Category 148,799 25,241 149,249 20,872
General Corporate -- (88) -- (387)
--------------------------------------------------------------------
Consolidated Totals $ 875,923 $ 100,192 $ 697,469 $ 69,615
====================================================================
Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
Operating Operating
Sales Income (loss) Sales Income (loss)
--------------------------------------------------------------------
Mill Services
Segment $1,016,394 $ 109,453 $ 794,778 $ 83,500
Access Services
Segment 774,081 88,882 585,527 51,486
Gas Technologies
Segment 289,616 5,799 270,178 10,896
Engineered Products
and Services
("all other")
Category 430,901 62,679 383,194 48,183
--------------------------------------------------------------------
General Corporate -- (1,603) -- (2,672)
--------------------------------------------------------------------
Consolidated
Totals $2,510,992 $ 265,210 $2,033,677 $ 191,393
====================================================================