28.07.2009

Harsco dips 27%

Harsco infrastructure which comprises SGB, Hünnebeck and Patent scaffolding has reported first half revenues of $592.5 million, 27 percent lower than for the same period last year. Operating profits dipped 34 percent to $43.8 million.
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Looking at the second quarter and revenues were down 28 percent to $308.8 million, (Harsco says that 42 percent of this decline is currency related) while operating income fell 33 percent to $24.9 million.

The company says that several factors contributed to the lower performance, including: a stronger U.S. dollar, given that around 80 percent of the divisions earnings are in sterling, Euro or other currencies, cancelled and delayed construction projects, as well as lower export sales of equipment.

The SGB UK business is blamed for most of the non currency related fall in revenues and profits along with Eastern Europe and Scandinavia, while exports from Hünnebeck in Germany were also down. The divisions in the Middle East and Asia Pacific region, are said to have contributed solidly to the division’s second quarter performance.

Harsco says that it does not expect any improvement in the second half of 2009 and that it sees little or no “ near-term benefit from stimulus packages, particularly in the U.S.”

Harsco as a whole, which includes a metals and rail related business saw revenues for the six months fall 30 percent to $1.47 billion while pre tax profits dropped more than 63 percent to $77.9 million.

Harsco chief executive Salvatore D. Fazzolari said: “As we anticipated, our second quarter performance was sharply lower year-over-year due to the ongoing global financial and economic turbulence. Activity levels in the non-residential construction markets continued to deteriorate throughout the quarter due principally to the lack of credit and the protracted economic downturn, while global steel production stabilized at near historically low rates.”

“We continue to face three substantial headwinds that are having a significant adverse impact on our business. They are: a strong year-over-year U.S. dollar, which negatively impacts the translation of approximately 70 percent of our total revenues; the worst downturn in the history of the steel industry, where global production remains at near unprecedented low levels; and the continuing credit freeze, which is causing cancellation and deferral of non-residential construction activity. In addition, the originally expected benefits from stimulus packages have not yet materialized in many of our key markets.”

“As we enter the second half of the year, it appears that the strong dollar is starting to moderate and global steel production should show a slight improvement from the historical lows of the first half. However, we are not seeing any notable signs that the credit freeze throughout the world is improving, and we are not seeing any meaningful benefits from stimulus funds, as the deferral and cancellation of non-residential construction projects continues unabated with significant negative impact on construction markets. Thus, with the deterioration of our markets during the quarter and the continuation into the third quarter, it is difficult to see any short-term improvement in the Harsco Infrastructure business.”

“We remain confident that the benefits from our aggressive cost reduction countermeasures, our expansion in emerging markets and our strong market positions in industries that are fundamental to global growth are setting the foundation for future success.”

Vertikal Comment

In spite of the long list of reasons ….or excuses for the lower business levels and profitability, this is not such a bad performance, given the economic situation and the sectors in which the three companies operate. Especially when the currency exchange is eliminated.

The danger is that when groups such as this try to maintain the exceptionally high profit levels that we have become used to, through such a tough period they cripple the operational businesses in the process and then are slow to recover when the upturn comes.

Fact is that in the equipment business is going through a very tough part of its natural cycle, profits levels will be reduced, however it will not last forever.