Harsco sees revenue increase in Q3

Harsco Corp., Camp Hill, Pennsylvania, announced its Q3 results on Nov. 3.

Here are some of the Q3 highlights:

• Revenues increased 14 percent from Q2 to $509 million, and they increased 20 percent from Q3 2019 due mainly to the company's acquisition of Stericycle's Environmental Solutions (ESOL) business
• Third quarter GAAP operating income of $5 million and GAAP diluted loss per share of 10 cents including planned integration expenditures from its acquisition of ESOL
• Q3 adjusted earnings per share of 8 cents
• Adjusted Q3 EBITDA of $59 million 
• Net cash provided by operating activities of $21 million and free cash flow increased to $18 million in Q3 as a result of capital spending discipline and working capital initiatives
• Q4 adjusted EBITDA anticipated to be between $58 million and $63 million; Q4 free cash flow expected to be between $20 million and $25 million

“Underlying market fundamentals within Harsco Environmental and Clean Earth steadily improved during the quarter and our businesses continued to execute well,” Harsco chairman and CEO Nick Grasberger says. “In recent months, we also have made strong progress on our key initiatives, including our focus on preserving financial flexibility and integrating ESOL. With respect to ESOL, during the third quarter we began executing on major improvement initiatives to strengthen operational and commercial performance, after spending our initial 100 days focused on foundation-building integration. We're confident these actions will enable us to achieve our long-term financial goals at ESOL.”

Grasberger adds: “Looking forward, while we expect business conditions to continue improving in the fourth quarter, our visibility remains limited and the economic environment remains fluid. In this context, we continue to focus on factors within our control, including the safety and well-being of our employees and operational excellence in all functions of our business, as well as ongoing cost and capital-spending management to preserve our financial flexibility. We believe these actions will position us to continue our progress towards becoming a single-thesis environmental solutions company and to capitalize on growth opportunities as the global economy recovers.” 

Consolidated Q3 operating results

Consolidated total revenues from continuing operations were $509 million, an increase of 20 percent compared with the prior-year quarter due to the acquisition of ESOL in April and higher revenues in the Rail segment. Foreign currency translation impacts on third quarter revenues were nominal compared with the prior-year period.

GAAP operating income from continuing operations was $5 million for the third quarter, compared with $47 million in the same quarter of last year. Meanwhile, adjusted EBITDA totaled $59 million in the third quarter versus $87 million in the third quarter of 2019. This EBITDA change is attributable to COVID-19 impacts in each business segment, partially offset by ESOL contributions following its acquisition earlier in 2020.

Environmental

Environmental revenues totaled $223 million in the third quarter, compared with $261 million in the prior-year quarter. The segment's GAAP operating income and adjusted EBITDA totaled $12 million and $40 million, respectively, in the third quarter. These figures compare with GAAP operating income of $33 million and adjusted EBITDA of $60 million in the prior-year period. The change in the segment's adjusted EBITDA relative to the prior-year quarter is principally attributable to lower demand for environmental services and applied products as a result of COVID-19. Adjusted EBITDA margin was 17.9 percent in the third quarter.

Clean Earth*

Clean Earth revenues totaled $194 million in the third quarter, compared with $88 million in the prior-year quarter. Segment operating income was $9 million and adjusted EBITDA totaled $20 million in the third quarter. These figures compare with $11 million and $19 million, respectively, in the prior-year period. The increase in revenues and adjusted EBITDA is attributable to the ESOL acquisition in the second quarter and higher contributions from dredged material processing, partially offset by lower demand for hazardous and contaminated materials services as a result of the COVID-19 pandemic.

Rail

Rail revenues increased 24 percent compared with the prior-year quarter to $93 million. This change reflects higher equipment sales including revenues from long-duration supply contracts. The segment's operating income and adjusted EBITDA totaled $4 million and $5 million, respectively, in the third quarter. These figures compare with operating income of $12 million and adjusted EBITDA of $14 million in the prior-year quarter. The EBITDA change year-on-year is attributable to a less favorable product mix and lower aftermarket parts and technology product volumes.

Cash flow

Net cash provided by operating activities totaled $21 million in the third quarter, compared with net cash provided by operating activities of $45 million in the prior-year period. Free cash flow was $18 million (before transaction expenses) in the third quarter, compared with $5 million in the prior-year period. The improvement in free cash flow compared with the prior-year quarter is attributable to changes in net cash from operating activities, including cash generated from working capital and lower capital expenditures.

Q4 outlook

The company says its underlying business conditions improved during the third quarter; however, the improvement realized was uneven and the pace of recovery varied within relevant end markets. Fundamental improvement was most apparent within Harsco Environmental and Clean Earth and the company says it expects these positive trends to continue in the fourth quarter. Meanwhile, its Rail segment has yet to see a positive inflection as customers, particularly in North America, continue to defer capital spending as a result of pandemic-related pressures within the freight and passenger rail market. In total, the company anticipates that its adjusted EBITDA in the fourth quarter will modestly improve, at the mid-point of guidance, versus the third quarter. Specifically, Harsco expects its Q4 EBITDA to be within a range of $58 million to $63 million. This outlook also assumes that corporate spending will be modestly higher in the fourth quarter compared with Q3 due to the timing of certain expenses.

Additionally, measures implemented earlier in 2020 to control costs remain in place and the company is mindful that further cost actions may be necessary if the pace of economic recovery slows, it says. The company is also maintaining its capital spending and working capital discipline to support positive free cash flow. These ongoing actions are expected to enable Harsco to generate free cash flow of $20 million to $25 million in the final quarter of the year, it says.

This outlook is subject to certain risks related to COVID-19 and other factors, and it assumes that any such factors will not alter the ongoing recovery in the fourth quarter.

*The 2019 financial information provided for Clean Earth does not include a corporate cost allocation and does not include ESOL.