Competition: The Mother of Reinvention
According to Cramer, reinvention is the only way to stay afloat in business over the long haul. So he gets excited when he sees a U.S. company that decides it’s not going to succumb to the usual American manufacturing collapse story like so many others have.
Right now the best example of that is in Harsco. Originally Cramer thought this was a dirty equipment manufacturer, but now the company is like a mini-conglomerate of industrial services and products – they’re taking the lead in industrial outsourcing and selling to the rest of the world.
Harsco used to be all industrial products – railroad maintenance equipment, industrial gratings and heat exchangers, which today make up only 28% of sales. Cramer thinks that railroad maintenance could be a great sleeper business, but it’s not the most exciting aspect of the company.
Instead of letting the Chinese win out, Harsco went into services: mill services and access services, 40% and 32% of its sales, respectively. The company now provides outsourced services to the metals industry, transporting ladles of molten metal, managing scrap, furnace digging, and maintaining conveyor belts for the big steel players like Arcelor-Mittal and Corus. As the steel sector consolidates, Cramer says, they’re going to want to outsource more services to save money. Enter Harsco.
The access services business has some great exposure as well, on a global scale. Harsco rents out scaffolding, bridge shoring and roofing protection – all key parts of non-residential construction and industrial maintenance – to five of the six largest global contractors.
Overall, the company has also grown its ROW business – that’s "rest of the world" in Cramer parlance. In 2001, half its business was international, and now it’s 64%. The two services businesses get 79% of their business from overseas. Outsourcing companies and companies with international exposure are two of Cramer’s favorite plays right now.
Bottom Line: Harsco plays into the outsourcing trend and the need to diversify away from the U.S. The best part of the story is that it got here through reinvention – it saved its own skin. Cramer would be a buyer of HSC.
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