27.10.2011

Higher sales and lower losses at Harsco Infrastructure

Scaffold and mast climbing company Harsco Infrastructure, the company that incorporates SGB, Hünnebeck and Patent scaffold, has reported improved revenues, but blames the UK for on-going weakness.

For the nine months to the end of September the division had revenues of $842.2 million over nine percent up on last year, while the operating loss was reduced from $46.5 million last year to $25.9 million this year.
In the third quarter revenues rose 11 percent to $282.3 million, while the operating loss was reduced from $13.6 million last year to $3.3 million this year.

The company says that its Infrastructure business continues to benefit from cost savings generated from “the successful implementation of its major restructuring plan announced at the end of 2010.” However it then adds that there was a significant further deterioration in the operating results in the UK due to the country’s worsening economic conditions.

It goes on to say that had it not been for the negative impact of the U.K, the Infrastructure business results would have been close to break-even in the third quarter. As a result of this and what it describes as a further decline in the U.K. market and a slowdown in the rest of Europe, it is “reviewing additional countermeasures and cost reduction actions to improve future results”.

Harsco also expects Infrastructure’s fourth quarter loss to be higher than both the second and the third quarters, due principally to U.K. market conditions and an expected seasonal slow-down in business activity in the fourth quarter, but still expects the quarter to be better than last year’s.

The group as a whole reported revenues for the nine months of $2.51 billion 10 percent up on 2010, while pre-tax profits came in at $109.5 million almost 24 percent better than at the same time last year.

Chief executive Salvatore Fazzolari said: “Results for the third quarter were within the range of our previous guidance and events generally unfolded as expected, except for end-market conditions in the U.K. for our Infrastructure business, which deteriorated more significantly than we anticipated. In addition, we incurred certain other headwinds in the third quarter, principally net exit costs of approximately $2.6 million in the Metals & Minerals business and higher LIFO costs in the Rail business, which lowered overall results for the third quarter.”

“Our balance sheet remains in the best shape it has been in more than a decade. There are no long-term debt maturities until late 2013 and over ninety percent of our debt has a fixed interest rate.”

“We are seeing a challenging macroeconomic environment across many of our key end-markets, particularly in Western Europe. In addition, we expect the sale of certain machines in our Rail business to shift from the fourth quarter of 2011 to the first quarter of 2012. Thus, it remains prudent for us to be cautious as we conclude the year. As such, we are adjusting our full-year guidance from $1.35 to $1.45 to a new range of $1.30 to $1.35 per share.

Vertikal Comment

There will be a number of companies in the UK contract scaffold and mast climber market that will scratch their heads when reading Harsco’s take on the state of the industry. Certainly some elements of the construction market are suffering badly, but conversely the industrial, energy and infrastructure markets are generally good.

Harsco need not be so apologetic over what is not a bad set of results, revenues are up by a tidy percentage – even in the Infrastructure business - and profitability has improved all round. It is odd then that a $3.5 billion multinational company is making so much out of the fact that a quarterly loss of $3.3 million in its infrastructure business would have been closer to break even if only the UK economy was not so bad?

As Finning found out with Hewden in the years before finally disposing of it, implementing a new restructuring plan before the last one has had time to really work and lambasting the business in public every other quarter, rarely produces positive results.

In the end Finning decided that its management team was simply not suited to the cut and thrust and local delegation required in a day to day rental business. Could this be the case here?