29.04.2010

Harsco Infrastructure struggles in the first quarter

Harsco Infrastructure –previously SGB, Patent Scaffold and Hünnebeck has reported lower sales and a loss for the first quarter

The company achieved revenues of $250.6 million down almost 12 percent on the same period last year. At the same time it recorded an operating loss of $19.3 million compared to a profit of $18.3 in the first quarter 2009.

The company says that non-residential construction spending continues to be at depressed levels in the U.S.A and most parts of Europe, significantly affecting both its pricing and utilisation rates. It also says that harsh weather conditions further contributed to the lower level of construction activity in the quarter.

It says that while conditions remain tough it expects a smaller loss in the second quarter and a return to profitability in the second half due principally to cost reductions, contribution from emerging markets expansion, seasonal factors and some expected improvement in overall non-residential construction activity as the year progresses.

The Company says that it is confident it will achieve its goal of at least $25 million of overall cost cuts, most of which will kick-in in the second half of the year.

The group as a whole fared better with revenues up 6.5 percent to $742.4 million, while pre-tax profits fell 25 percent to $28.2 million, due entirely to the losses at Harsco Infrastructure.

Harsco chief executive Salvatore D. Fazzolari said: “Our first quarter results were in line with our overall expectations. This included strong performance from Harsco Rail and Harsco Metals, with both reporting higher year-on-year sales, operating income and operating margins, but Harsco Infrastructure performed well below our expectations.”

“Harsco Infrastructure reported a loss for the quarter on reduced sales. We have yet to see a turnaround in non-residential end-market conditions in the major geographies we serve. Pricing deteriorated at a more rapid rate than we had expected, equipment utilisation rates declined to levels unseen in the past, and project postponements and deferrals by customers were much greater than we had anticipated. Results in the quarter were further negatively impacted by a very difficult winter.”

“Overall, our longer-term outlook remains positive. The uplift in results from Harsco Metals and Harsco Minerals is expected to continue throughout the year. Harsco Rail is expected to have another strong year in sales, income and margins comparable to its record year in 2009. Our Harsco Industrial businesses are expected to perform reasonably well but operating income will be negatively impacted by higher LIFO expense in 2010 compared with 2009.”

“Our major challenge for 2010 will continue to be Harsco Infrastructure. Non-residential construction markets, particularly in the U.S. and Europe, will continue to be challenging for the balance of the year. Non-residential construction is a late cycle business that usually follows GDP growth by about 12 months. We expect this business to incur a further operating loss in the second quarter, but at a somewhat reduced level from the first quarter. We do, however, expect sequential improvement and profitability in each quarter for the second half. We continue to reduce our branch structure, which will result in significant cost savings, but not until the second half of 2010. Further, we continue to develop this business in economies outside the U.S. and Europe that have greater prospects for both near-term and long-term growth.”

Harsco chief financial officer Stephen J. Schnoor added: “We remain pleased with the positive direction evidenced by results from Harsco Metals, Harsco Rail and Harsco Minerals & Harsco Industrial. However, overall company results in the near-term will continue to be adversely affected by very difficult end-market conditions within the Infrastructure business. Also, the resurgent U.S. dollar, particularly against the European currencies, along with higher oil prices could continue to have further negative impact on results on a sequential basis relative to the assumptions used to establish our initial guidance for 2010.”

Vertikal Comment

Harsco Infrastructure became a unified brand only a few months ago and remains an amalgam of different companies and even different businesses. Activities range from formwork to contract scaffolding, to powered access and mastclimbers rental to alloy towers and cabins.

Work is moving ahead to introduce profitable products and services from one market to others and if the company can get this to work it will have strong growth potential even in a post recessionary Europe.

There are also substantial cost savings to be had by rationalising the fleet and pooling its purchasing power.

The challenge will be to overcome fixed attitudes within the different businesses that were, where one thinks it is a formwork company, another a scaffolder and yet another a powered access business.

It also has a massive job to do to communicate what it is now able to offer as a single business, under a single brand name, to new and existing clients. The problem is that with the current focus on cost savings, promoting the new branding and abilities appears to be taking a back seat. The company has a lot of work to do.