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HARSCO CORPORATION REPORTS FOURTH QUARTER AND FULL-YEAR 2017 RESULTS
February 22, 2018

Q4 GAAP Operating Income of $38 Million; Each Business Segment Contributed to Results That Exceeded Guidance Range

Q4 Revenues Increased 26 Percent Compared with the Prior-Year Quarter

Net Cash Provided by Operating Activities Totaled $94 Million in Q4 and $177 Million for 2017

Free Cash Flow Totaled $63 Million in Q4 and $93 Million for the Full-Year; Company's Credit Agreement Net Leverage Ratio Declined as a Result to 1.9x at Year-End

2018 GAAP and Adjusted Operating Income Expected to Increase to be Between $150 Million to $170 Million; Free Cash Flow Anticipated Within a Range of $80 Million and $100 Million

2018 GAAP and Adjusted Diluted Earnings Per Share Expected Between $0.97 and $1.14

CAMP HILL, PA (February 22, 2018) - Harsco Corporation (NYSE:HSC) today reported fourth quarter and full-year 2017 results. On a U.S. GAAP ("GAAP") basis, fourth quarter 2017 diluted loss per share from continuing operations was $0.42, which included expenses incurred to reprice the Company's outstanding term loan as previously disclosed and a provisional non-cash adjustment to the Company's deferred tax assets due to the impact of U.S. tax reform. Excluding these items, diluted earnings per share from continuing operations in the fourth quarter of 2017 were $0.20. These figures compare with fourth quarter of 2016 GAAP diluted loss per share from continuing operations of $0.19 and diluted earnings per share from continuing operations of $0.16, excluding unusual items such as early extinguishment of debt costs and a forward loss provision in Rail.

GAAP operating income from continuing operations for the fourth quarter of 2017 was $38 million, which exceeded the guidance range of $28 million to $33 million previously provided by the Company.

“We finished the year with a strong fourth quarter, and I’m pleased with our achievements in the year,” said President and CEO Nick Grasberger. “Execution of our strategic objectives along with positive market momentum led to a very successful year for Harsco. We exceeded the operating targets established at the beginning of the year, with positive contributions from each operating business. We also continued to generate strong cash flow, realized a meaningful improvement in our ROIC and further strengthened our financial flexibility.”

“We expect that 2018 will be another year of positive momentum for Harsco, with each business again expected to see a year-over-year improvement in underlying performance. Our strategic priorities remain focused on portfolio growth and development as well as serving our customers and operational excellence. We announced a number of growth investments over the past year and I’m very enthusiastic about the pipeline of growth opportunities within our businesses. We remain confident that these opportunities and priorities, along with supportive markets, will further strengthen Harsco’s capital returns and create value for shareholders.”

Harsco Corporation—Selected Fourth Quarter Results

($ in millions, except per share amounts)

 

Q4 2017

 

Q4 2016

Revenues

 

$

455

 

 

$

360

 

Operating income from continuing operations - GAAP

 

$

38

 

 

$

24

 

Operating margin from continuing operations - GAAP

 

8.5

%

 

6.7

%

Diluted EPS from continuing operations

 

$

(0.42

)

 

$

(0.19

)

Return on invested capital (TTM) - excluding unusual items

 

11.5

%

 

6.9

%

Consolidated Fourth Quarter Operating Results

Total revenues were $455 million, an increase of 26 percent compared with the prior-year quarter as a result of higher revenues in each of the Company's segments. The fourth quarter of 2017 included revenues of approximately $42 million for a number of base vehicles and other related equipment under the Company's multi-year contracts with SBB, or the federal railway system in Switzerland.

GAAP operating income from continuing operations of $38 million during the fourth quarter of 2017 compares with GAAP operating income of $24 million and operating income of $28 million excluding the unusual items in the same quarter last year. Operating income in each of the Company's operating segments improved in comparison with the prior-year quarter.

The Company's operating margin was 8.5 percent versus a GAAP operating margin of 6.7 percent and adjusted operating margin of 7.8 percent in the fourth quarter of 2016.

 

Harsco Corporation—Selected 2017 Results

($ in millions, except per share amounts)

 

2017

 

2016

Revenues

 

$

1,607

 

 

$

1,451

 

Operating income/(loss) from continuing operations - GAAP

 

$

143

 

 

$

63

 

Operating margin from continuing operations - GAAP

 

8.9

%

 

4.4

%

Diluted EPS from continuing operations

 

$

0.09

 

 

$

(1.07

)

Return on invested capital (TTM) - excluding unusual items

 

11.5

%

 

6.9

%

Consolidated 2017 Results

Total revenues were $1.6 billion in 2017, compared with $1.5 billion in 2016, with each of the Company's segments realizing a growth in revenues during the year. Metals & Minerals' revenues were positively impacted by higher customer steel output, new contracts, higher commodity prices and foreign exchange rates. Improved demand for air-cooled heat exchangers from U.S. energy customers led to higher revenues in Industrial, while Rail revenues increased as a result of higher demand for equipment and after-market parts from international customers (including SBB) and Protran Technology products.

GAAP operating income from continuing operations was $143 million in 2017, while GAAP operating income from continuing operations in 2016 was $63 million. These figures are $147 million and $116 million, respectively, when excluding the unusual items in each of the periods. Financial performance in each segment improved compared with the previous year due mainly to the above factors as well as a more favorable mix of services and products in the Metals & Minerals and Industrial segments and operating efficiency improvements delivered through the course of the year. These benefits offset higher Corporate costs, resulting from increased pension and other benefit program costs as well as professional fees.

On a GAAP basis, diluted earnings per share from continuing operations in 2017 was $0.09, including the fourth quarter items noted above and a third-quarter bad debt expense related to a Metals & Minerals customer that previously entered voluntary administration under Australian law. The figure compares with a diluted loss per share in 2016 of $1.07, which included a site exit charge, Metals & Minerals Separation costs, debt refinancing costs and charges, a loss related to the sale of the Company's remaining interest in Brand Energy, and a forward loss provision related to the Company's railway maintenance equipment contracts with SBB.

Excluding unusual items, adjusted diluted earnings per share from continuing operations increased to $0.74 in 2017 from $0.48 in 2016.

Fourth Quarter Business Review

Metals & Minerals

($ in millions)

 

Q4 2017

 

Q4 2016

 

%Change

Revenues

 

$

250

 

 

$

235

 

 

6

%

Operating income - GAAP

 

$

22

 

 

$

20

 

 

13

%

Operating margin - GAAP

 

8.9

%

 

8.4

%

 

 

Customer liquid steel tons (millions)

 

37.4

 

 

34.5

 

 

8

%

 

Revenues increased 6 percent to $250 million, as a result of higher steel output and service levels as well as foreign exchange translation. Meanwhile, GAAP operating income in the fourth quarter of 2017 totaled $22 million compared with operating income of $20 million and operating income of $19 million after adjusting for the unusual items in the prior-year period. The improvement in operating earnings is attributable to higher underlying demand for mill services, which offset increased compensation expenses and professional fees. As a result, the segment's operating margin rose to 8.9 percent in the fourth quarter of 2017.

 

Industrial

($ in millions)

 

Q4 2017

 

Q4 2016

 

%Change

Revenues

 

$

82

 

 

$

56

 

 

46

%

Operating income - GAAP

 

$

10

 

 

$

3

 

 

nmf

Operating margin - GAAP

 

12.7

%

 

5.5

%

 

 

nmf=not meaningful

 

 

 

 

 

 

 

Revenues increased 46 percent to $82 million, due to increased demand within each of the three product businesses. Operating income increased to $10 million from $3 million in the prior-year quarter, as improved demand as well as a more favorable sales mix offset higher compensation and commission expenses. As a result, the segment’s operating margin increased to 12.7 percent from 5.5 percent in the comparable quarter last year.

 

Rail

($ in millions)

 

Q4 2017

 

Q4 2016

 

%Change

Revenues

 

$

123

 

 

$

70

 

 

77

%

Operating income - GAAP

 

$

14

 

 

$

5

 

 

184

%

Operating margin - GAAP

 

11.3

%

 

7.1

%

 

 

 

Revenues increased 77 percent to $123 million, mainly as a result of higher equipment sales. As noted above, the fourth quarter of 2017 included revenues of approximately $42 million from SBB (at zero margin). Operating income totaled $14 million in comparison with operating income of $5 million in the prior-year quarter. The 2016-quarter included a forward loss provision on the Company's contracts with SBB. Otherwise, the improvement in operating income is attributable to the demand trends noted above and a more favorable services mix, and these positive impacts offset lower contributions from after-market parts and additional compensation and administrative expenses. As a result, the segment's operating margin was 11.3 percent, or 17.2 percent excluding the SBB revenue, in the fourth quarter of 2017.

Cash Flow

Net cash provided by operating activities totaled $94 million in the fourth quarter of 2017, compared with $55 million in the prior-year period. Further, free cash flow was $63 million in the fourth quarter of 2017, compared with $38 million in the prior-year period. The year-over-year increase in free cash flow reflects higher net cash from operating activities principally as a result of the improvement in cash earnings and reduced inventories in Rail, offsetting the impact of higher capital investments in the quarter.

For the full-year, net cash provided by operating activities was $177 million and freecash flow was $93million. These figures compare to $160 million and $100 million respectively in 2016. This change in free cash flow reflects incremental growth capital spending in Metals & Minerals and modest working capital investments, partially offset by higher cash earnings.

 

2018 Outlook

The Company's 2018 guidance reflects an overall positive outlook across its services and products businesses. For Metals & Minerals, adjusted operating income is expected to increase modestly as higher customer steel output and commodity prices, new site ramp-ups, operational savings and improved profitability in certain Applied Products businesses are expect to be only partially offset by exited sites, less favorable services mix, investments to support growth initiatives and pension. Meanwhile, Industrial earnings are projected to increase significantly due to improved demand for heat exchangers, industrial grating and commercial boilers as well as a more favorable product mix and manufacturing savings. And in Rail, adjusted operating income is also anticipated to be modestly higher compared with 2017, as increased demand for after-market parts and Protran Technology products will be partially offset by a less favorable mix of equipment sales and lower contributions from contracting services. Lastly, Corporate spending is expected to be comparable with 2017.

This outlook also reflects:

• An anticipated 800 basis point to 1000 basis point reduction in Harsco's effective tax rate following recent U.S. tax reform;

• The implementation of the new pension classification standard and estimated net periodic pension costs, which are expected to be positive to overall Harsco earnings but negative to Metals & Minerals income as indicated above compared with 2017; and

• Expected impacts of the new revenue recognition standard that are not material to the overall guidance below for FY 2018 or Q1 2018.

 

Key highlights in the Outlook are included below.

 

Full Year 2018*

• GAAP and adjusted operating income for the full year is expected to range from $150 million to $170million; compared with GAAP operating income of $143 million and adjusted operating income of $147 million in 2017.

• GAAP and adjusted earnings per share from continuing operations for the full year are expected in the range of $0.97 to $1.14; compared with GAAP earnings per share of $0.09 and adjusted earnings per share of $0.74 in 2017.

• Free cash flow is expected in the range of $80 million to $100 million, including total net capital expenditures of between $125 million and $145 million and growth-oriented capital spending of $45million to $50 million; compared with $93 million in 2017.

• Net interest expense is forecasted to range from $34 million to $36 million as a result of lower interest costs following the term loan repricing; compared with $45 million in 2017.

• The effective tax rate is expected to range from 26 percent to 28 percent.

• Adjusted return on invested capital is expected to range from 12.0 percent to 13.5 percent; compared with 11.5 percent in 2017.

 

Q1 2018*

• GAAP and adjusted operating income of $30 million to $35 million; compared with GAAP and adjusted operating income of $28 million in the prior-year quarter.

• GAAP and adjusted earnings per share from continuing operations of $0.16 to $0.21; compared with GAAP and adjusted earnings per share of $0.11 in the prior-year quarter.

*Comparable 2017 figures do not reflect pension reclassification.

 

Conference Call

The 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 60474062. Listeners are advised to dial in at least five minutes prior to the call.

Replays will be available via the Harsco website and also by telephone through March 8, 2018 by dialing (800) 585-8367, (855) 859-2056 or (404) 537-3406.

 

Forward-Looking Statements

The 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; (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) the amount and timing of repurchases of the Company's common stock, if any; (14) the outcome of any disputes with customers, contractors and subcontractors; (15) 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; (16) implementation of environmental remediation matters; (17) risk and uncertainty associated with intangible assets; and (18) 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, 2016. 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 Harsco

Harsco Corporation serves key industries that are fundamental to worldwide economic development, including steel and metals production, railways and energy. 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.

 

See attached financials.

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