Q4 GAAP Operating Income of $20 Million and Adjusted Operating Income of $31 Million; Both Consistent with Market Update Provided in January
Full Year GAAP Operating Income was $104 Million; Adjusted Operating Income Totaled $187 Million (Including Industrial in First Half), Translating to an Adjusted Operating Margin of 11 PercentSignificant Progress in 2019 on Strategic Business Transformation to Single-Thesis Environmental Solutions Company, Highlighted by Acquisition of Clean Earth, Re-Branding of Harsco Environmental and Sale of Industrial Businesses 2020 Adjusted EBITDA Expected to be Between $280 Million and $310 Million; Compares with $283 Million in 2019 on a Comparable Business (Proforma) BasisCAMP HILL, Pa., Feb. 21, 2020 (GLOBE NEWSWIRE) — Harsco Corporation (NYSE: HSC) today reported fourth quarter 2019 results. On a U.S. GAAP (“GAAP”) basis, fourth quarter of 2019 diluted earnings per share from continuing operations were $0.03, which included acquisition integration and strategic costs and other unusual items. Adjusted diluted earnings per share from continuing operations in the fourth quarter of 2019 were $0.12.These figures compare with fourth quarter of 2018 GAAP diluted earnings per share from continuing operations of $0.41 and adjusted diluted earnings per share from continuing operations of $0.21.“While our results for the fourth quarter were disappointing, 2019 marked a year of significant progress on our key strategic initiatives and our goal to transform Harsco into a single-thesis environmental solutions company,” said Chairman and CEO Nick Grasberger. “We increased investment in Environmental to support growth in our services and product portfolio, while realizing solid margins despite external market pressures. We positioned Rail to grow through product innovation and market penetration, leading to record backlog at year-end. We made significant strides on our transformation with the acquisition of Clean Earth, which has been a steady and strong performer. Also, we sold our Industrial businesses, providing additional financial flexibility and a focus on expanding our presence in higher growth, less cyclical areas. We enter 2020 as a markedly different company than we were last year, well-positioned to drive growth and value creation.”Mr. Grasberger continued, “The actions we are taking to improve performance in Rail are taking hold, Clean Earth’s momentum is set to continue, and we are cautiously optimistic on key end-markets. As a result, we expect that each of our business segments will deliver improved results in 2020. We are also focused on closing and integrating the ESOL acquisition. ESOL is a business we know well and presents a unique opportunity to accelerate our transformation to a leading, global environmental solutions company. While we made significant strides in 2019, we know we have more work to do. Our priorities for 2020 include improving Rail operations, delivering on our financial targets, strengthening our balance sheet and leveraging our strategic transformation to drive shareholder value.”Harsco Corporation—Selected Fourth Quarter Results
Consolidated Fourth Quarter Operating Results
Consolidated total revenues from continuing operations were $400 million, an increase of 21 percent compared with the prior-year quarter given the acquisition of Clean Earth in the current year. Foreign currency translation negatively impacted fourth quarter 2019 revenues by approximately $3 million compared with the prior-year period.GAAP operating income from continuing operations was $20 million and adjusted operating income was $31 million for the fourth quarter of 2019; both figures are consistent with the update provided by the Company in January. Also, these figures compare with GAAP operating income from continuing operations of $28 million and adjusted operating income of $27 million in the same quarter of last year.Adjusted operating income in Rail declined year-on-year principally due to the previously disclosed operational challenges following the consolidation of Rail’s North American manufacturing into a single facility in South Carolina. Environmental’s adjusted earnings also decreased modestly relative to the prior-year quarter. The remainder of the change in adjusted operating income compared with the fourth quarter of 2018 is attributable to lower Corporate spending and the inclusion of Clean Earth.The Company’s GAAP and adjusted operating margins in the fourth quarter of 2019 were 5.0 percent and 7.7 percent, respectively.Harsco Corporation—Selected 2019 ResultsConsolidated 2019 Operating Results
Consolidated total revenues were $1.5 billion in 2019, compared to $1.3 billion in 2018, with the increase attributable to revenue growth in Rail during the year and the acquisition of Clean Earth. Rail revenues benefited from higher equipment demand from domestic and international customers. Revenues in Environmental decreased modestly compared with 2018 but were unchanged on a constant currency basis. Foreign currency translation negatively impacted 2019 revenues by approximately $41 million compared with 2018.GAAP operating income from continuing operations was $104 million in 2019, while GAAP operating income from continuing operations in 2018 was $131 million. These figures are $148 million and $132 million, respectively, when excluding unusual items as well as acquisition related amortization in both periods. The improvement in adjusted results is due to the inclusion of Clean Earth.
On a GAAP basis, diluted earnings per share from continuing operations in 2019 was $0.35, including acquisition integration and strategic costs, debt financing expenses and an Environmental bad debt provision, among other unusual items. This figure compares with diluted earnings per share in 2018 of $1.20, including unusual items such as a non-cash adjustment to the Company’s deferred tax assets due to the impact of U.S. tax reform and expenses incurred to amend and re-price the Company’s credit facilities.Adjusted diluted earnings per share from continuing operations was $0.90 in 2019 compared with $0.94 in 2018.Fourth Quarter Business Review
EnvironmentalEnvironmental revenues totaled $243 million in the fourth quarter of 2019, compared with $262 million in the prior-year quarter. This change is attributable to lower services demand from steel customers, decreased sales of certain applied products and foreign currency translation impacts. The segment’s operating income and adjusted operating income totaled $27 million and $25 million, respectively, in the fourth quarter of 2019. These figures compare with GAAP operating income of $28 million and adjusted operating income of $27 million in the prior-year period. The change in adjusted operating earnings is attributable to the above factors, partially offset by lower administrative expenses. Environmental’s operating margin was 11.3 percent and adjusted operating margin was 10.4 percent in the fourth quarter of 2019.Clean EarthClean Earth revenues totaled $82 million, representing an increase of 22 percent compared with the prior-year quarter. The increase can be attributed to strong volume growth, particularly for contaminated and dredged material processing, as well as previously-completed acquisitions. Segment operating income and adjusted operating income in the fourth quarter of 2019 totaled $9 million, and $14 million, respectively. These figures compare favorably with $1 million and $5 million, respectively, in the prior-year period. Higher adjusted earnings were due to the above factors as well as a more favorable mix of revenues and back-end solutions. Clean Earth’s operating margin was 10.6 percent and adjusted operating margin was 17.4 percent in the fourth quarter of 2019.
Rail
Rail revenues totaled $75 million, an increase of 8 percent compared with the fourth quarter of 2018. The segment incurred an operating loss in the fourth quarter of 2019 of $3 million, which compares with operating income of $8 million in the prior-year quarter. These changes are attributable to lower after-market parts and Protran Technology sales and higher manufacturing costs due to operating challenges at Rail’s manufacturing facility in South Carolina, as well as lower contract services contributions. These impacts were partially offset by contributions from higher machine sales and lower administrative costs.Cash FlowNet cash used by operating activities totaled $50 million in the fourth quarter of 2019, including taxes paid on the gain from the sale of discontinued operations, compared with net cash provided by operating activities of $97 million in the prior-year period. Free cash flow was $28 million (before transaction expenses) in the fourth quarter of 2019, compared with $60 million in the prior-year period. The change in free cash flow compared with the prior-year quarter is attributable to changes in net cash from operating activities, including working capital at Rail due to its operational challenges.For the full-year, net cash provided by operating activities was nominal and free cash flow was $(32) million in 2019. These figures compare to $192 million and $73 million, respectively, in 2018. The full-year change in free cash flow reflects incremental growth capital spending in Environmental, as well as lower net cash from operating activities.2020 Outlook
The Company’s 2020 guidance anticipates that each of its three business segments will realize earnings improvement during the year. This outlook is supported by strong backlog positions that provide forward visibility in Rail and Clean Earth, anticipated benefits from the Company’s key business initiatives, a healthy pipeline of growth opportunities in all segments and stable-to-improving fundamentals in relevant end markets.Environmental adjusted EBITDA is expected to increase modestly. Higher services demand, benefits of services and product growth initiatives and cost improvement savings are anticipated to be only partially offset by the impacts of exited sites and higher SG&A spending.Clean Earth adjusted EBITDA is projected to increase due to underlying organic growth and benefits of permit modifications to process additional medical and household waste as well as synergies; partially offset by a less favorable mix of business. Also, Clean Earth’s adjusted EBITDA will be impacted by a $5 million allocation of Corporate costs (allocation was zero in H2 2019) and this outlook does not consider the acquisition of Stericycle’s ESOL business.Rail adjusted EBITDA is anticipated to be significantly higher compared with 2019, as a result of increased global demand for equipment and Protran Technology products, higher contracting contributions and manufacturing improvements. These benefits are expected to be only partially offset by a less favorable mix of after-market parts sales and higher R&D and SG&A spending.Lastly, Corporate spending is expected to range from $26 million to $29 million for the year.Key summary highlights in the Outlook are included below.Conference CallThe Company will hold a conference call today at 9:00 a.m. Eastern Time 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 Company will refer to a slide presentation that accompanies its formal remarks. The slide presentation will be available on the Company’s website.The call can also be accessed by telephone by dialing (800) 611-4920, or (973) 200-3957 for international callers. Enter Conference ID number 4896039. Listeners are advised to dial in at least five minutes prior to the call.Forward-Looking StatementsThe 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, the Company provides the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the results contemplated by forward-looking statements, including the expectations and assumptions expressed or implied herein. Forward-looking statements contained herein could include, among other things, statements about management’s confidence in and strategies for performance; expectations for new and existing products, technologies and opportunities; and expectations regarding growth, sales, cash flows, and earnings. Forward-looking statements can be identified by the use of such terms as “may,” “could,” “expect,” “anticipate,” “intend,” “believe,” “likely,” “estimate,” “outlook,” “plan” or other comparable terms.Factors that could cause actual results to differ, perhaps materially, from those implied by forward-looking statements 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, commodity and fuel costs and capital costs;(3) changes in the performance of equity and bond markets that could affect, among other things, the valuation of the assets in the Company’s pension plans and the accounting for pension assets, liabilities and expenses; (4) changes in governmental laws and regulations, including environmental, occupational health and safety, tax and import tariff standards and amounts; (5) market and competitive changes, including pricing pressures, market demand and acceptance for new products, services and technologies; (6) the Company’s inability or failure to protect its intellectual property rights from infringement in one or more of the many countries in which the Company operates; (7) failure to effectively prevent, detect or recover from breaches in the Company’s cybersecurity infrastructure; (8) unforeseen business disruptions in one or more of the many countries in which the Company operates due to political instability, civil disobedience, armed hostilities, public health issues or other calamities; (9) disruptions associated with labor disputes and increased operating costs associated with union organization; (10) the seasonal nature of the Company’s business; (11) the Company’s ability to successfully enter into new contracts and complete new acquisitions or strategic ventures in the time-frame contemplated, or at all; (12) the integration of the Company’s strategic acquisitions; (13) potential severe volatility in the capital markets and the impact on the cost to the Company to obtain debt financing; (14) failure to retain key management and employees; (15) the amount and timing of repurchases of the Company’s common stock, if any; (16) the outcome of any disputes with customers, contractors and subcontractors; (17) the financial condition of the Company’s customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; (18) implementation of environmental remediation matters; (19) risk and uncertainty associated with intangible assets; (20) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement entered into for the ESOL acquisition; and (21) other risk factors listed from time to time in the Company’s SEC reports. A further discussion of these, along with other potential risk factors, can be found in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, together with those described in Item 1A, “Risk Factors,” of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019. 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 except as may be required by law.
About HarscoHarsco Corporation is a global market leader providing environmental solutions for industrial and specialty waste streams and innovative technologies for the rail sector. Based in Camp Hill, PA, the 11,000-employee company operates in more than 30 countries. Harsco’s common stock is a component of the S&P SmallCap 600 Index and the Russell 2000 Index. Additional information can be found at www.harsco.com.
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