Harsco Corp (HSC)

Harsco is a diversified company that looks to be well suited for the challenging times ahead. The key aspects of this company should look good going forward. They are involved in the steel industry which should continue to grow globally on BRIC demand. They also work on railway construction which seems very bullish as the railroads have done well so far and even with a slight upcoming pullback they will still be the first to recover along with the transports. Their construction and infrastructure is non residential based and also looks good. This balanced portfolio of specialties protects to the downside on a global pullback and their balance sheet looks pristine and should handle any downturns well. They have done a good job of creating shareholder value and with their current organic growth. They have grown approximately 300% over the last five years.





Since the 1990s they have been transforming their company... More Harsco is a diversified company that looks to be well suited for the challenging times ahead. The key aspects of this company should look good going forward. They are involved in the steel industry which should continue to grow globally on BRIC demand. They also work on railway construction which seems very bullish as the railroads have done well so far and even with a slight upcoming pullback they will still be the first to recover along with the transports. Their construction and infrastructure is non residential based and also looks good. This balanced portfolio of specialties protects to the downside on a global pullback and their balance sheet looks pristine and should handle any downturns well. They have done a good job of creating shareholder value and with their current organic growth. They have grown approximately 300% over the last five years.





Since the 1990s they have been transforming their company into a more diverse brand. Their services business model has been changed to services based portfolio, and they are looking into acquiring other companies that will enable them to expand their footprint. This has made the company much less cyclical and has stabilized their stock price. This also caused them to have an increased P/E ratio like their peers and a more consistent revenue stream. In 2007, Harsco generated 85% of their revenue from services, 70% of revenue came internationally, and they have operations in 48 countries. Their access services are 39% of revenue and they are the largest renter of scaffolding and other construction related items, as they have over 200 sites in 32 countries. 31% comes from mill services and they operate under long term contracts in 35 countries. Minerals and rail services are 30% and not only repair the rails, but also recycle metals and sells heat exchangers.





If we look at company revenues they are a mix of different areas. They get the majority from Western Europe at 47%; North America is 34%, Latin America at 6%, Middle East at 5%, Asia Pacific and Eastern Europe at 4%. By 2010, they are looking to balance their portfolio as another 4% will be from overseas, mostly in emerging markets. Cash flow should increase every year through 2012. After dividends this will leave a healthy amount of cash after they divest themselves from operations that do not fit in their new growth model. After problems in 2005 they are starting to get their debt to capital ratio under control. Since 2000, this is down over 18%.





The world markets seem to be where this country has the best chance for growth. Currently they have a 5% share with respect to infrastructure, metals and materials. Together these markets encapsulate $60 billion in revenues. They also have a 3% market share with respect to the rails and that business is a $10 billion market. This is important as every percent could mean big moves in their balance sheet. Their access services are their best performing service as worldwide purchases of cranes and scaffolding have been increasing steadily. They have doubled their revenues in the last four years and still have markets to penetrate. Minerals and rail services are also rolling as the world is trying to find a cost effective way to move the materials and food they need. Their mill services looks great on increased need for steel in China and the rest of the world, it will be even better next year as the US residential market should find a bottom. They are also producing nickel, copper, and aluminum and are just making strides in penetration with large room for growth. They have also just implemented work in mining and cement which are other high growth areas. Most importantly, their current mill sites operate under contracts and this business hasn't fully realized the price differences in steel. Coming soon that will change as contract renewals at higher prices with escalate, hitting the top in 2010 when they will realize the highest revenue in this business. They are still looking to consolidate and outsource mill services for the highest margins. This will probably be the most surprising end of their business.





The main goals for 2008 are to generate $525 million in cash flow from operations, which looks easily attainable. They should be able to maintain double digit EPS growth. Margins look to improve further. They look at add other strategic companies to make them a more complete player in their industries. If we look at sales growth over the last five years we see access services are up 142%, mill services 87%, and minerals and rails up 125%. We see a positive momentum that looks to continue. They have seen where the profits lay and have completely restructured their company. I believe they are a buy.