COMPANY SPOTLIGHT: Harsco Corp. (NYSE:HSC) Heavy Metal - The Good: Strong results for last several years.
- The Bad: Stock is up over 50% since January.
- The Beautiful: Total diversification across products and countries.
December 20, 2007 - Harsco Corp. (HSC-NYSE) is at your service if you are a metal producer or a construction company. Its Mill Services unit, MultiServ, offers metal reclamation, slag processing, scrap management, and other services for steel and nonferrous metals producers. Harsco's Access Services businesses, SGB Group and Patent Construction Systems, rent and sell concrete-forming equipment, scaffolding, and bridge-decking products, primarily to companies in the industrial maintenance and nonresidential construction industries. The company's Harsco GasServ division makes gas tanks, fittings, valves, and related gear. Other Harsco units make railway track, industrial grating, and heat exchangers. Harsco has been on an earnings binge the last few years. In 2004, it reported $1.37 a share, the next year $1.76, then jumping to $2.33 in 2006. This year look for $3.00 and $3.45 in 2008. The most recent quarter's report (ending September) showed net income up 26% compared to the same quarter last year.
Several factors are at work for creating better earnings. Access Services, focused on the non-residential construction segment, was a major contributor since this sector is still going strong, domestically and internationally where Harsco does 70% of its business. Future earnings will be helped by the sale of its low-margin unit Gas Technologies. Analysts are looking for improvement in the operating margin of 150 basis points when that's gone with the aid of Access Services' strength. In 2008, better efficiencies will help as well. Fewer administrative centers are planned; better buying programs and lower maintenance costs will make bottom line contributions. There's also planned a sale of a low-margin transport company in Europe.On the demand side, some analysts are looking for global steel consumption to rise by 7% with China and India showing the way. That helps the Mill Services division of HSC. Furthemore new markets are opening as economic development continues to grow in third world countries as well as the economically developed ones. On the negative side, steel production is lower in North America. Maintenance costs are high and the Mill Services' results will be hampered. Analysts believe 2008 will show an improvement for the division due to factors listed above. Some numbers: Return on Equity is a respectable 18%. There's a small quarterly dividend of .178 cents for a yield of 1.3%. Current assets are 1.2 times current liabilities. Debt is 38% of capital. Predictions are for sales to grow by 10% a year over the next 5 years, on average while earnings increase by 18.5% a year, on average, in the same time period. Net profit margin is 7% with expectations of growth to 8.3% within 5 years. Harsco popped this year. But not so much as to eliminate it from consideration. With its broad revenue source as well its large geographic reach, the company is well positioned to have good growth since it doesn't depend on any one economy or one product for success. Company Web site: http://www.harsco.com/ - Ted Allrich |
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