HSC Harsco Corporation

Harsco Corporation (HSC) posted an EPS of 47 cents from continuing operations in the second quarter of fiscal 2011, compared with 40 cents in the year-earlier quarter, above management’s guidance range of 34 cents -39 cents and beating the Zacks Consensus Estimate of 36 cents per share.

Revenues

Sales for the quarter came in at $875 million, up 11% from the year-earlier quarter, ahead of the Zacks Consensus Estimate of $820 million. The favorable movement in foreign currency exchange rates increased sales by $62 million in the second quarter of 2011 compared with the year-earlier quarter. Revenues improved across all segments barring Harsco Rail.

On a segmental basis, Metals & Minerals generated revenues of $424 million, up 13% from the year-earlier quarter. Revenue from Infrastructure segment was $298 million, up 14% from the year-earlier quarter.

The Rail segment generated revenues of $78 million, down 10% from the year-earlier quarter. Revenues from the Industrial segment were $75 million, up 22% from the year-earlier quarter.

In terms of business mix, Service revenues were $723.5 million, up 13% from the year-earlier quarter.  Product revenues improved 2.3% from the year-earlier quarter to $151.8 million.

Margins

Harsco reported operating margins of 7.4%, compared with 7.8% in the year-earlier quarter; the decrease in margins is due to an operating loss in Infrastructure along with a decline in Industrial and Metals & Minerals margins.

Balance Sheet and Cash Flow

Harsco ended the quarter with cash and cash equivalents of $95.3 million, down $6 million from the end of the previous quarter. As of June 30, 2011, total debt was $855.5 million, up from $854.5 million at the end of the previous quarter.

During the second quarter of fiscal 2011, the company generated cash from operating activities of $53.8 million and used $99.6 million for capital expenditures. There was a year over year increase of $54.9 million in capital expenditure due to contract renewals and new contract signings, especially in the Metals & Minerals Segment.

Guidance

Based on the lower cost of sales benefit from Harsco Rail and an expectation of a lower effective tax rate, Harsco increased its fiscal 2011 EPS guidance to $1.35 – $1.45 from the previous guidance of $1.30-$1.40.

Management projects an EPS of 37-42 cents from continuing operations in the third quarter of fiscal 2011.

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. 

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.

However, we have a Zacks #4 Rank, which translates into a short-term Sell rating.

 
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