-- First quarter diluted EPS from continuing operations up 34%
to a record $0.55
-- First quarter sales up 15% to a record $640 million
-- First quarter actions include declaration of Company's 220th
consecutive cash dividend
-- Company refines its full-year 2005 guidance for diluted
EPS from continuing operations to $3.10 to $3.15 from
previous $3.05 to $3.15
HARRISBURG, Pa., April 21, 2005 (PRIMEZONE) -- Worldwide industrial services and products company Harsco Corporation (NYSE:HSC) today reported record diluted earnings per share (EPS) from continuing operations of $0.55 in the first quarter of 2005, an increase of 34 percent from $0.41 in the first quarter of 2004. Income from continuing operations was $23.1 million, compared with $16.9 million last year, an increase of 37 percent. Overall operating margins improved by 80 basis points to 7.4 percent in the first quarter 2005 from 6.6 percent in last year's comparable period. First quarter sales totaled $640 million, also a record, up 15 percent from sales of $556 million in the same period last year. Positive foreign currency translation contributed approximately $16 million to this year's first quarter sales and $1.3 million to pre-tax income.
Commenting on the Company's performance, Harsco Chairman, President and Chief Executive Officer Derek C. Hathaway said, "We are pleased with the growth of our operations in the first quarter of 2005. Led especially by strong performance from our Access Services and Engineered Products and Services businesses, three of our four major operating groups achieved solid growth in both sales and operating income to begin the year.
"Cash flow from operations, an important foundation of Harsco's growth strategy, grew again in the first quarter, underscoring our capacity for increased growth investment initiatives and consistent stockholder reward, as reflected in the declaration of our 220th consecutive cash dividend to Harsco stockholders.
"Through our continuing transformation as a leading global industrial services company, Harsco is demonstrating the broad operating and geographic balance that underpins our stated growth objectives. We expect the positive growth momentum that began in the latter part of 2003 to continue throughout 2005."
First Quarter Business Review
Mill Services
Sales in the first quarter increased nearly 14 percent to $269 million, up from $236 million in last year's first quarter. Organic growth was responsible for $22 million of the increase, or approximately 9 percent, while positive foreign currency translation contributed $10 million, or approximately 5 percent. Operating income for the quarter rose 7 percent to $27.0 million, up from $25.3 million in the first quarter of last year. Positive foreign currency translation increased operating income by approximately $1.2 million. Operating margins declined by 60 basis points to 10.1 percent from 10.7 percent in the same period last year, reflecting the impact of higher fuel costs, the timing of equipment maintenance costs at certain mill sites, and to a lesser degree the delayed start-up of a new contract at a major mill site. These impacts were somewhat offset by improved margins at certain other mill sites, reflecting higher volumes from customers, the addition of new contracts, as well as ongoing operating efficiencies.
The Company expects its Mill Services margins to improve in future quarters and for the full year as fuel escalation clauses at some mills become effective on the respective contract anniversary dates throughout 2005, maintenance costs become more normalized, and the full commissioning of a major contract start-up occurs by the middle of the year. Additionally, margins are also expected to improve due to ongoing Six Sigma operating efficiencies and new investments.
According to the International Iron and Steel Institute (IISI), global steel production for the first quarter of 2005 increased by 6.5 percent compared with this time last year. Excluding China, steel production has grown approximately 1 percent year-to-date. Any temporary production slowdown that may occur at certain mill sites is expected to be mitigated through further contract signings and by the breadth of the Company's Mill Services operations, which encompass approximately 160 mills in over 30 countries worldwide. Approximately 80 percent of the Company's Mill Services revenues are generated outside the United States.
Access Services
First quarter sales increased more than 16 percent to $184 million from $158 million last year. Organic sales growth contributed $21 million, or approximately 13 percent, while positive foreign currency translation increased sales by some $5 million, or approximately 3 percent. Sales from international operations grew by more than 17 percent, while North America sales were up some 13 percent. Operating income almost tripled to $9.4 million in the first quarter, up from $3.4 million last year. Positive foreign currency translation contributed just $0.1 million of this gain in operating income. International operations posted a 200 percent increase in income, while results from North America showed a 125 percent improvement. Operating margins increased by 290 basis points to 5.1 percent in the first quarter of 2005, the seasonally slowest quarter, from 2.2 percent in the comparable period last year.
The quarter's significantly improved operating performance reflects continued strong rental and sale activity in the Middle East and other international locations, as well as increased rental and sale volumes in North America, supported by an approximately 3 percent improvement in rental rates in the U.S. compared with the same period last year.
Despite some weather-related slowdowns in the U.S. non-residential construction market during the first quarter, the outlook for this segment remains positive for the remainder of 2005. In the Company's U.S. operations, rental equipment on the job is at its highest level since 2001. In addition, a strategic sourcing initiative taken jointly with the Company's international Access Services business is yielding meaningful product cost reductions in several key rental product lines, and several strategic alliances are being considered to further boost profitability.
The overall market outlook remains positive as well. Although industry sources have trimmed their forecasts for U.S. non-residential construction growth from 5 percent to 4 percent for the year in constant terms, due to the first quarter's severe weather conditions on the West Coast, the remainder of the year is forecasted to improve as previously predicted. Important to the Company's U.S. operations, new office building and hotel starts are still expected to see double-digit growth in 2005.
Engineered Products and Services ("All Other")
Sales in the first quarter increased 25 percent to $106 million from $85 million last year. Operating income increased to $9.0 million, up 47 percent from $6.2 million in the first quarter of last year. Positive foreign currency translation in the quarter increased sales and operating income by approximately $0.2 million. Operating margins improved to 8.5 percent, up some 120 basis points from 7.3 percent last year.
Four of the five operating units in this business group registered increased sales in the first quarter over last year, while all five units showed year-over-year improvements in operating income and margins.
The outlook for the Engineered Products and Services group remains positive for the remainder of 2005. Product backlogs remain strong and well ahead of last year's comparable period. In the railway Track Technologies unit, the year has started positively for repair part sales, while the Company's state-of-the-art rail track grinding activities are gaining wider acceptance. New order and contract services bidding activity remains strong. The IKG industrial grating products business is continuing the positive turnaround it began in the latter part of 2003, and the Air-X-Changers air cooled heat exchanger business anticipates continuing strong demand for its products for the balance of the year.
Gas Technologies
Sales in the first quarter were up 6 percent to $82 million from just under $78 million last year. Operating income of $2.1 million was down 32 percent from last year's $3.1 million and operating margins declined to 2.6 percent in the first quarter from 4.0 percent in the first quarter of last year. The effect of foreign currency translation was not material.
The cryogenics, cylinders and composite tank businesses all posted improved sales and income in the first quarter. This positive performance was more than offset by the propane and valve businesses. As expected, propane product line results were below the first quarter of 2004 due to the pre-buying that occurred in last year's first quarter in anticipation of future price increases. Decreased valve sales and higher operating costs also contributed to the lower performance in this year's first quarter.
Despite the lower first quarter results, full year 2005 performance is still expected to be ahead of 2004. Overall product backlogs at March 31, 2005 are above this time last year, as well as year-end December 31, 2004. Price increases are being initiated to cover rising commodity costs, while further market share gains are expected in several product lines. In addition, full-year results for the propane product line are expected to be only slightly below last year's record pace.
General Corporate
The effective income tax rate from continuing operations for the first quarter of 2005 was 32.3 percent, compared with 31.0 percent in the first quarter of last year. The Company estimates that its full-year effective tax rate for 2005 will be in the area of 32 percent. The increased tax rate in 2005 over 2004 is primarily the result of the expiration of several foreign tax holidays.
Liquidity, Capital Resources and Other Matters
Net cash provided by operating activities for the first quarter of 2005 was $48 million, a 49 percent increase over the $32 million for the comparable period last year. Net cash used by investing activities was $58 million, a 28 percent increase over the $45 million last year. The increased cash usage was due primarily to higher capital expenditures for organic growth initiatives.
During the first quarter, the Company's debt position was essentially unchanged from that of the previous year-end, and the Company's debt-to-capital ratio of 40.6 percent was the same as at year-end.
Further gains were made in the quarter in the Company's efforts to increase stockholder value, with improved Economic Value Added (EVA(r)) recorded in seven of the Company's nine operating units compared with the first quarter of last year.
Outlook
The improved results in the first quarter of 2005 provide a solid start toward the Company's stated objective of double-digit EPS growth from continuing operations. As such, the Company is fine-tuning its full year guidance for earnings from continuing operations to $3.10 to $3.15 per diluted share, from the previous range of $3.05 to $3.15 per diluted share. This guidance includes the effect of the change in the Company's outlook for its full year 2005 effective tax rate to 32 percent from the previously estimated 31 percent.
For the 2005 second quarter, the Company is forecasting earnings from continuing operations in the range of $0.81 to $0.85 per diluted share, an 8 to 13 percent increase over the $0.75 in the second quarter of 2004.
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 4670286.
About Harsco
Harsco Corporation is a diversified, global 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 18,500 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
March 31
(In thousands, except per share amounts) 2005 2004
-------------------------------------------------------------------
Revenues from continuing operations:
Service sales $469,573 $405,907
Product sales 170,488 150,366
------------------------------------------------------------------
Total revenues 640,061 556,273
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Costs and expenses from continuing
operations:
Cost of services sold 352,405 304,792
Cost of products sold 141,242 124,196
Selling, general and
administrative expenses 97,037 88,004
Research and development
expenses 659 705
Other expenses 1,442 1,620
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Total costs
and expenses 592,785 519,317
---------------------------------------------------------------------
Operating income from
continuing operations 47,276 36,956
Equity in income of
unconsolidated
entities, net 79 97
Interest income 577 714
Interest expense (10,443) (10,282)
---------------------------------------------------------------------
Income from continuing
operations before income
taxes and minority interest 37,489 27,485
Income tax expense (12,109) (8,527)
---------------------------------------------------------------------
Income from continuing
operations before
minority interest 25,380 18,958
Minority interest
in net income (2,327) (2,101)
---------------------------------------------------------------------
Income from continuing operations 23,053 16,857
---------------------------------------------------------------------
Discontinued operations:
Income/(loss) from
operations of discontinued
business (26) 10
Loss on disposal
of discontinued
business (9) (147)
Income related to
discontinued defense
business 38 224
Income tax expense (1) (20)
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Income from discontinued operations 2 67
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Net Income $23,055 $16,924
====================================================================
Average shares of common stock
outstanding 41,503 40,937
Basic earnings per common share:
Continuing operations $0.56 $0.41
Discontinued operations - -
--------------------------------------------------------------------
Basic earnings per common share $0.56 $0.41
====================================================================
Diluted average shares of common
stock outstanding 41,978 41,461
Diluted earnings per common share:
Continuing operations $0.55 $0.41
Discontinued operations - -
=====================================================================
Diluted earnings per common share $0.55 $0.41
=====================================================================
Harsco Corporation
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31 December 31
(In thousands) 2005 2004
--------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash
equivalents $78,405 $94,093
Accounts receivable,
net 535,649 555,191
Inventories 247,816 217,026
Other current assets 55,821 58,614
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Total current assets 917,691 924,924
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Property, plant and
equipment, net 923,888 932,298
Goodwill, net 425,272 433,125
Other assets 98,079 98,477
Assets held for sale 916 932
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Total assets $2,365,846 $2,389,756
====================================================================
LIABILITIES
Current liabilities:
Short-term borrowings $38,260 $16,145
Current maturities
of long-term debt 13,825 14,917
Accounts payable 217,431 220,322
Accrued compensation 48,905 63,776
Income taxes 38,990 40,227
Dividends payable 12,473 12,429
Other current liabilities 210,832 210,581
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Total current liabilities 580,716 578,397
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Long-term debt 570,921 594,747
Deferred income taxes 99,171 95,702
Insurance liabilities 56,041 53,960
Retirement plan
liabilities 96,057 97,586
Other liabilities 49,616 54,483
Liabilities associated
with assets held
for sale 657 691
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Total liabilities 1,453,179 1,475,566
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STOCKHOLDERS' EQUITY
Common stock 85,071 84,889
Additional paid-in capital 146,773 139,532
Accumulated other
comprehensive expense (145,513) (127,491)
Retained earnings 1,431,214 1,420,637
Treasury stock (603,357) (603,377)
Unearned stock-based
compensation (1,521) -
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Total stockholders'
equity 912,667 914,190
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Total liabilities
and stockholders'
equity $2,365,846 2,389,756
====================================================================
Harsco Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31
(In thousands) 2005 2004
--------------------------------------------------------------------
Cash flows from operating activities:
Net income $23,055 $16,924
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation 48,760 43,972
Amortization 660 552
Equity in income
of unconsolidated
entities, net (79) (97)
Dividends or distributions
from unconsolidated entities - 456
Other, net 3,818 3,122
Changes in assets and liabilities,
net of acquisitions and dispositions of
businesses:
Accounts receivable 9,129 (21,329)
Inventories (32,633) (15,590)
Accounts payable 593 (3,424)
Accrued interest payable 5,374 5,277
Accrued compensation (13,512) (3,565)
Other assets and liabilities 2,978 6,077
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Net cash provided
by operating activities 48,143 32,375
--------------------------------------------------------------------
Cash flows from
investing activities:
Purchases of
property, plant
and equipment (58,301) (46,539)
Purchase of
businesses, net
of cash acquired - (434)
Proceeds from
sale of assets 358 1,818
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Net cash used by
investing activities (57,943) (45,155)
--------------------------------------------------------------------
Cash flows from financing activities:
Short-term
borrowings, net 25,909 2,172
Current maturities and
long-term debt:
Additions 24,521 41,787
Reductions (41,752) (24,471)
Cash dividends paid on
common stock (12,434) (11,247)
Common stock
issued-options 4,410 3,493
Other financing
activities (2,343) (85)
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Net cash provided
(used) by financing
activities (1,689) 11,649
--------------------------------------------------------------------
Effect of exchange
rate changes on cash (4,199) (234)
--------------------------------------------------------------------
Net decrease in cash
and cash equivalents (15,688) (1,365)
Cash and cash
equivalents at
beginning of period 94,093 80,210
--------------------------------------------------------------------
Cash and cash
equivalents at
end of period $78,405 $78,845
====================================================================
Harsco Corporation
REVIEW OF OPERATIONS BY SEGMENT (Unaudited)
(In thousands)
Three Months Ended Three Months Ended
March 31, 2005 March 31, 2004
Operating Operating
Sales Income (loss) Sales Income (loss)
---------------------------------------------------------------------
Mill
Services
Segment $268,635 $27,001 $236,293 $25,250
Access
Services
Segment 183,577 9,366 157,807 3,400
Gas
Technologies
Segment 82,134 2,097 77,562 3,088
Engineered
Products and
Services
("all other")
Category 105,715 9,031 84,611 6,163
General
Corporate - (219) - (945)
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Consolidated
Totals $640,061 $47,276 $556,273 $36,956
=====================================================================