HSC Harsco Corporation

Harsco Corporation (HSC) posted an EPS of 15 cents from continuing operations in the first quarter of fiscal 2011, compared with 10 cents  in the year-earlier quarter. The results surpassed the Zacks Consensus Estimate of 4 cents per share.

Based in Pennsylvania, Harsco Corporation is a diversified, multinational provider of market- leading industrial services and engineered products to a variety of industries that are fundamental to the world’s economic growth and progress. 

Revenues

Sales for the quarter came in at $779 million, up 5% from the year-earlier quarter, ahead of the Zacks Consensus Estimate of $709 million. The favorable movement in foreign currency exchange rates increased sales by $19 million in the first quarter of 2011 compared with the year-earlier quarter.  Revenues grew across all segments barring Harsco Rail.

On a segmental basis, Metals & Minerals generated revenues of $392 million, up 14% from the year-earlier quarter. Revenue from Infrastructure segment was $262 million, up 4% from the year-earlier quarter.

Rail segment generated revenues of $63 million, down 34% from the year-earlier quarter.  Revenues from Industrial segment were $63 million, up 21% from the year-earlier quarter.

In terms of business mix, Service revenues were $653 million, up 9% from the year-earlier quarter.  Product revenues came in at $125.5 million, down 12% from the year-earlier quarter.

Management stated that the company performed well in the midst of a fragile domestic economy and continued uncertainties in major global economies.

Margins

Harsco Corporation reported operating margins of 3.7%, compared with 3.8% in the year-earlier quarter. The margins were adversely affected by operating loss in Infrastructure and a decline in Rail margins, offset by higher margins in Metals & Minerals and Industrial.

Balance Sheet and Cash Flow

Harsco ended the quarter with cash and cash equivalents of $101.3 million, down from $124 million at the end of the previous quarter. As of March 31, 2011, total debt was $854.5 million, up from $849.7 million at the end of the previous quarter.

During the first quarter of fiscal 2011, the company generated cash from operating activities of $13 million and used $67 million for capital expenditures. There was a year-over-year increase of $37 million in capital expenditures due to contract wins, especially in the Metals & Minerals Segment.

Guidance

For FY11, Harsco expects EPS of $1.30-$1.40, up from the previous guidance of $1.25-$1.35.

Management projects an EPS of 34-39 cents from continuing operations in the second quarter of fiscal 2011. The company apprehends that economic uncertainties in the key end-markets and Harsco Rail will impede EPS growth.

We remain concerned about margins. Thus, we have a long-term Neutral recommendation on the stock and prefer to wait on the sidelines for revenue growth in the Rail segment and expansion of margins. Encouraged by the upgraded guidance, we have a Zacks #2 Rank , which translates into a short-term Buy rating.

 
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