Harsco 3Q profit up 4 percent, sees job cuts

HARRISBURG, Pa. - Industrial services company Harsco Corp. on Thursday reported a nearly 4 percent rise in third-quarter profit as strong sales growth offset sharply higher fuel costs. But the company cut its full-year profit outlook and warned it will have to ratchet up job cuts and other cost-reduction measures to weather the global economic downturn.

The company, which provides steel mill services and construction equipment, said net income climbed to $80.3 million, or 95 cents per share, from $77.3 million, or 91 cents per share, a year ago. Income from continuing operations totaled 99 cents per share.

Revenue rose 13 percent to $1.04 billion from $927.4 million, helped by strong growth in services revenue. The dollar's weakness in relation to foreign currencies added about $18 million to sales.

Analysts surveyed by Thomson Reuters expected profit of 94 cents per share on revenue of $1.04 billion.

While quarterly results were solid, Chairman and Chief Executive Salvatore D. Fazzolari warned that the financial market crisis and "growing evidence that both the U.S. and Western Europe are in a recession have caused our near-term prospects to become more guarded."

He said that during October, there has been an "unprecedented reduction" in global steel production as well as a postponement of construction projects due mainly to the credit freeze. While steel production cuts of this magnitude aren't likely to be sustained long-term, Fazzolari said they will significantly hurt fourth-quarter results.

Therefore, Harsco reduced its outlook for 2008 adjusted earnings from continuing operations to between $3.20 and $3.25 from prior estimates of $3.50 to $3.55. Analysts have forecast profit of $3.51 for the full year.

Harsco said restructuring actions, including job cuts, will force a charge of $20 million, or 17 cents per share in the fourth quarter, but will save about $30 million in 2009.

Fazzolari said the company is aggressively cutting costs business-wide, including curbs on travel and hiring, and will trim its 2009 overall employment levels from 2008 levels. Harsco will cut capital expenditures by $150 million in 2009 and use that money to buy back stock — boosting its bottom line — and for acquisitions.

Furthermore, the company plans to redeploy equipment from slowing markets to new projects in the Middle East, Africa, India and China.

"We continue to be a financially sound company that generates prodigious cash flows, and our debt to capital ratio is near a multi-year low of 39.6 percent," Fazzolari added. "Our debt is over 85 percent fixed and our liquidity is strong. These positive items should counter the negative effects of the rising U.S. dollar, higher pension costs, and the near-term challenges in the steel and construction markets."

Shares rose $2.60, or nearly 13 percent, to finish at $23.08.

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