Enviri Corp (NVRI) 2009 Q4 法說會逐字稿

Good morning. My name is Amy and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation fourth-quarter earnings release conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions).

Also this telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings of redistributions of this telephone conference by any other party are permitted at the express written consent of Harsco Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Sal Fazzolari, Chairman and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your conference.

Thank you very much. Good morning, everyone. I would like to welcome you to Harsco's fourth-quarter 2009 conference call. I have here with me today Gene Truett, our Vice President of Investor Relations, and of course Stephen Schnoor, our Chief Financial Officer.

Before we begin today's program, I will ask Gene to read the Safe Harbor statement. Gene?

Thank you, Sal. Good morning, everyone. As we do at the beginning of all of our calls, we just want to let you know that we will be having forward-looking statements in our discussions with you today. These statements relate to the future of our business, our operations, our results, economic expectations, and other aspects relating to and affecting our business. What we say today is based on our best information available. It is possible the results could differ from what we tell you today.

We have listed in our SEC statements reasons and risk factors that affect our businesses and these could be the reasons for any difference that could occur. We invite to review the SEC filings at your convenience. I would like to remind you that replays of this and related information are available on our website. Please take the time to access this information at your convenience. Sal?

Thanks, Gene. Starting off regarding the quarter, we were obviously pleased with the overall performance of the Company in the fourth quarter with four of the five what we call business platforms within Harsco posting improved year-over-year operating results.

However, clearly our Infrastructure segment did not meet our expectations for the fourth quarter. We continue to face challenges in this business due to difficult end markets. The lack of any meaningful commercial construction activity in both Europe and the United States exacerbated by severe winter weather posed near-term challenges for this business. Furthermore, these lower levels of overall nonresidential construction activity have also put further pressure on pricing.

And finally regarding the fourth quarter, the quarter did benefit from a lower tax rate, as I'm sure you have noted, but this was partially offset by over $3 million in higher acquisition costs and some additional restructuring costs across the businesses.

As noted in today's press release, we expect the performance of the Harsco infrastructure business in the first half to be lower than last year's first half with the first-quarter performance expected to be a loss. As a result of this macroeconomic environment, we are accelerating our planned 2010 cost reduction initiatives for Harsco Infrastructure into the first quarter. We are moving forward so that the majority of these benefits can be realized in the remaining three quarters of the year.

Our Infrastructure -- our restructuring, I should say our restructuring initiatives are focused mainly on Europe and the United States and principally include costs associated with closing additional branches. As you recall, we discussed that in December and I will put a little more color on this in a minute, as well as obviously severance costs associated with closures.

As you may recall, at the December analyst meeting, we indicated to you that we already have reduced the number of branches in Harsco Infrastructure from a high of 234 locations in 2008 to approximately 208 locations in 2009. You may also recall that we were expecting to reduce that number down to about 181 as we said at the meeting. Actually the final number is probably going to be even lower than that when we are done, but certainly it is going to be well over about a 25% reduction in the number of branches.

Our plan is to accelerate the majority of the 2010 branch closings that I just said into the first quarter. Also I just want to be assured that these branch closings will cause no major disruption to our customers and will effectively be transparent to them, but of course will result in substantial cost savings.

We are also going to accelerate the growth of our new Harsco shared services center in India in order to further reduce our cost structure across all the businesses but particularly in the Infrastructure business.

Finally, we expect the acquisitions that we made late in the fourth quarter of 2009 to contribute to earnings in the second half of this year as we complete their integrations by midyear. As part of the integration process, we are repositioning excess equipment from Europe to these new markets to of course enhance our presence without the need for additional capital or investment.

In summary, the accelerated branch closings and cost reduction initiatives in Infrastructure, the integration of the acquisitions, the expected benefits from improving the global supply chain, which I will talk little but more about, and the appointment of a new management team should better position the Harsco Infrastructure for improved results in the second half of 2010.

You may or may not recall that we substantially put in a whole new senior management team in the Infrastructure business in 2009 with one final piece to the puzzle remaining, which is the CEO position, which we are actively recruiting for. So -- but the majority of the operating folks are in place. The new management team is having an impact and will continue to have an impact and we feel confident that this new team can lead us forward in this business.

Before I turn the call over to Steve, I would like just to take a step back for a moment and reflect on 2009 and outline for you what we believe to be considerable accomplishments this past year despite of course the great recession.

First of all, we have significantly lowered our cost structure and reduced the breakeven point of all Harsco businesses with more savings to come in 2010 particularly in the Harsco Infrastructure business, as we just noted. We have executed as we told you we would our emerging markets/rest of the world strategy with great vigor in 2009. In 2009, in fact we generated 22% revenues from this part of the world. That is a notable improvement from prior years and just as importantly, we expect that number to continue to climb to about 28% this year and well on our way to our 30% target and in fact we will be ahead of our 30% target. As you recall, we were targeting 2012 to hit 30%. I believe we will hit that by 2011.

Also very noteworthy is particularly in 2009, we recruited top talent across the world and I believe that we have considerably strengthened our global leadership team. We also achieved in 2009 record free cash flow, which Steve is going to talk to you about, of $269 million. That is more than double last year's amount. We expect to repeat this in 2010. In fact, one of our strategic objectives going forward is to continue to increase our free cash flow number. This strategy will be underpinned by our global supply chain initiative with IBM, as you saw in recent announcement last week.

The global supply chain initiative will not only deliver considerable cost savings when it is fully implemented, but it will also and just as importantly lower the amount of capital employed in the business. Lower capital translates to improved free cash flow.

In summary, much has been done to not only weather the great recession but to also transform Harsco. We have positioned the Company well to take advantage of local opportunities as end markets improve.

I will now turn the call over to Steve, our CFO, who will give you more details on the fourth-quarter performance. Steve?

Thank you, Sal, and good morning, everyone. As reported in this morning's press release, the Company recorded earnings per share of $0.50 for the fourth quarter 2009. This exceeded the fourth-quarter 2008 earnings per share of $0.46, which excludes a restructuring charge of $0.28 per share. I am particularly pleased that we exceeded our targeted free cash flow for the year by posting $259 million of free cash flow, as Sal just mentioned. That exceeds our $250 million target and far exceeds the 2008 amount of $117 million.

Our record free cash flow provided more than enough funds for over $100 million of acquisitions, $64 million of dividends, and enabled us to pay down debt of almost $85 million.

Fourth-quarter earnings reflected comparative year-over-year improvement in all businesses with the exception of the Infrastructure business, as Sal mentioned as well. Both operating income and margins exceeded fourth-quarter 2008 performances for the Metals, Rail, Minerals, and Industrial businesses.

The fourth-quarter results also reflect improving or stable business conditions in most of our businesses including Metals and Minerals business, as well as our Industrial businesses. Our Rail business continues to have a strong backlog; however, business conditions for our Infrastructure business, particularly commercial construction, continued to deteriorate in the fourth quarter, as Sal mentioned as well.

Next, I believe it is important to you a final report card on our 2009 financial strategies. We reduced capital expenditures by almost $300 million from 2008 levels, beating our stated goal. We were able to achieve this reduction by redeploying equipment throughout the globe and prudently managing new expenditures in a very disciplined manner. The capital expenditure reduction enabled us to achieve the record free cash flow of $269 million to which I previously referred.

Our fourth-quarter 2008 restructuring and additional 2009 countermeasures enabled us to exceed our goal of $100 million in sustainable cost savings. We were also on track to achieve and exceed the additional $25 million in cost savings for 2010 that we previously discussed in our December analyst conference. Most of this additional cost savings will come from our Infrastructure group.

We also increased our dividend for the 16th consecutive year and retained our investment-grade ratings, credit ratings. Our prudent financial and liquidity management resulted in a very successful renewal of our revolving credit facility. In December, we renewed the facility for $570 million for three years, providing us with significant financial flexibility. The facility was substantially oversubscribed, adding further evidence of our financial stability.

The achievement of our key financial strategies puts the Company in a very good position to capitalize on growth opportunities as they present themselves and provides the Company with operating leverage as economic conditions improve.

However, we are not done yet. We are aggressively executing the 2010 financial strategies that we communicated to you in December.

I will now discuss the fourth-quarter earnings for the Company and each segment as well as our strong liquidity position. Fourth-quarter earnings in comparison to prior year benefited by cost reductions implemented throughout 2009. Execution of our lean continuous improvement program as well. A favorable income tax rate, an increase in our Metals and Minerals customers steel production volume, increased contract services volume for our Rail business, and improved commodity pricing in our Minerals and Industrial group partially offset any improvements of the significant reduced performance of the Infrastructure group.

I'll discuss each business segment in more detail in my comments. The dollar weakened in the fourth quarter of 2009 compared with 2008. Overall, foreign currency translation increased our fourth-quarter sales compared with 2008 by about $54 million but only had a very, very minimal effect on operating income.

As previously mentioned, due to our record free cash flows, we have paid down $85 million of debt since the end of 2008 despite cash of over $100 million used for acquisitions, balance sheet debt declined by $28 million in December 2008. That is a lower rate than the cash payments due to foreign currency translation.

Our debt to total capital ratio was reduced to 39.5% as of the end of the year, December 31. That's down 160 basis points from December 31, 2008, and I'm proud to say this is the lowest year-end debt to capital ratio since 1998. Again, this is despite $103 million of cash used for acquisitions, of ESCO [Nickel] and our joint venture in Saudi Arabia. Our liquidity position remains strong.

Let's now review the fourth-quarter performance of each of the business groups. As in the first three quarters, Harsco infrastructure was again significantly impacted in the fourth quarter by a reduction in global commercial construction activity and a difficult credit environment for many of our customers. Additionally, extreme weather conditions in North America and Europe significantly impacted results as work on many projects came to a halt and in some cases equipment was returned. The bad weather has continued into January especially in Europe and will have a significant first-quarter 2010 impact.

Foreign currency translation increased fourth-quarter 2009 sales of the Infrastructure group by about $21 million compared with last year. Operations in the Gulf region of the Middle East and the Asia-Pacific region in our global industrial maintenance business continued to perform well in the fourth quarter. However, this continued to be more than offset by general construction declines in the UK, other parts of Europe, and in North America.

Our strategic focus in 2010 is continuing our global expansion in these regions and grow the global industrial maintenance business. We have significant resources dedicated to the execution of these strategies.

Given the still difficult market environment for construction, our near-term outlook for our Infrastructure business is challenging. However, we will continue to leverage our global breadth and mobile asset base to focus on emerging markets and global infrastructure work, as well as a less cyclical industrial maintenance business.

We will also continue to aggressively implement countermeasures to reduce our cost base. To help accomplish that, we intend to take a restructuring charge of approximately $80 million in the first quarter. However, reduced commercial construction activity continues to have a detrimental effect on this group, resulting in delayed or postponed equipment sales and projects. Therefore, we expect weak performance in the first half of 2010 for the Infrastructure group especially in the first quarter.

Global steel production in the fourth quarter of 2009 as well as a steel production of our customers in particular improved over the very weak production in the fourth quarter of 2008. Additionally, there was sequential improvement over the third quarter of 2009. Steel production for the Company's customers was 17% higher than the fourth quarter of 2008 and 6% higher than the prior quarter and third quarter of 2009.

Therefore as expected, the fourth-quarter results improved significantly over the fourth quarter of 2008 even when excluding last year's restructuring charge.

Operating income also improved sequentially each quarter of 2009 excluding the third-quarter one-time adjustments. We expect 2010 results for the Metals group to far exceed the 2009 results due to the unprecedented low steel production in the first half of 2009 as well as the benefit of a full year of countermeasure cost savings. However, the first quarter is expected to be weaker than the others, the other three quarters due to seasonal factors.

Foreign currency translation increased Metals fourth-quarter sales by $30 million but had a very minimal effect on operating income. As reported in this morning's press release, we are in now reporting Harsco Rail as a separate segment. Consistent with the rest of the year, Harsco Rail again performed well in the fourth quarter. Machine shipments, improvements in global contract services performance, continuous process improvement implementation, continued to benefit this business. We expect similar performance in this business in 2010.

For the separate segment breakout of Harsco Rail, the all other category now consists of Harsco Minerals and Harsco Industrial. This group again posted respectable results in the fourth quarter, exceeding last year's results in both operating income and margins.

The fourth quarter of 2009 benefited from improved volume and commodity pricing in our Minerals business. The Harsco Industrial business benefited from reduced costs, lean continuous process improvements, and lower LIFO expense due to lower steel costs. We expect the Harsco Minerals business to perform well in 2010 assuming commodity pricing remains at current levels or improves.

Harsco Industrial is also expected to perform well in 2010. Recent improvements in the natural gas market helped to underpin our expectation.

I would like to close by providing assurance that we will be unrelenting in our focus on market share gains especially in our Infrastructure business. Continuous process improvement implementations, of limitations, additional cost reductions, maintaining a strong balance sheet, and maximizing our free cash flow. As a team, we have entered 2010 with a clearance and disciplined focus to execute on these strategies.

That completes my comments and I will now turn the call back to Sal.

Thanks, Steve. Let me now summarize our current outlook for 2010 and also particularly for the first quarter.

As we stated in a press release this morning, we are reaffirming our earnings guidance for 2010 in a range of $2.00 to $2.10 per diluted share from continuing ops.

Our confidence in 2010 is underpinned by the following, improving global steel production, which will benefit our Metals and our Minerals business; realizing, as Steve indicated, the full benefits from our 2009 countermeasures as well as the cost reduction initiatives we have aggressively underway early in 2010; a strong backlog in Harsco Rail; the continuing expected improvement in Harsco Minerals. In addition, we believe the Harsco Industrial business will continue to perform well and as we said that regarding the Harsco Infrastructure business, we do have confidence that this business will perform much better in the second half of 2010 as compared with the first half of 2010.

And finally, we also expect the second half of the year to benefit from the global supply chain initiative with IBM, and that will of course impact all the businesses.

With respect to the first-quarter specifically and on our outlook, Harsco Metals, Harsco Rail, and Harsco Minerals should all show improved year-over-year results. The Harsco Industrial platform will perform relatively well but due to the factors Steve mentioned, particular LIFO costs, this group is expected to turn in slightly lower operating results.

However, the outlook for non-residential construction markets particularly in Europe and the United States is not positive as certain key markets continued to deteriorate throughout the fourth quarter particularly in December and into the first quarter of 2010. Market conditions were greatly exacerbated by the severe winter weather.

Thus a weak non-residential construction market and ongoing pricing pressures continue to adversely impact our end markets. These negative trends along with the accelerated planned reorganization costs will result in an operating loss in the first quarter for the Harsco Infrastructure business.

As we stated at our December analyst conference and reiterated in this morning's press release, we expect first-quarter 2010 results to be below those of the first quarter of last year due to the expected near-term difficulties as we just explained in the Harsco Infrastructure business. It is principally all Harsco Infrastructure.

Thus our present outlook for the first quarter of 2010, as you saw in the press release, is from diluted earnings per share from continuing ops to be in the range of $0.05 to $0.10. It should be noted that our outlook for the first quarter again as Steve indicated, includes approximately $0.08 per share or $8 million in restructuring costs to accelerate the cost reduction initiatives for the year in Harsco Infrastructure.

And I should also add that in the first quarter guidance does include a couple million dollars in costs, total costs, which includes travel and everything else, and total costs associated with our global supply chain initiative.

That completes our formal comments and now we would be pleased to take your questions.

(Operator Instructions) Jim Lucas, Janney Montgomery Scott.

This is [Mike Wehrle] standing in for Jim today. How are you guys doing?

Doing well, Mike. How are you?

Good. I was just wondering in the Metals group, you know, we have been seeing reports that mills are coming back online and you mentioned your customers improved production. Can you tell me are you seeing some of your mills coming back online as well and do you have any capacity utilization rates at your mills for the fourth quarter?

Yes, we -- I think Steve did give you some statistics there on the improvement. I think it was 17% in the fourth quarter year-over-year. We are certainly seeing increased activity across some of our key markets in the Metals. And so we are confident that we should be able to achieve the targets that we have set internally for 2010 and which obviously then also benefits our Minerals business as well.

Also we do expect that we will be announcing some additional new contract signings hopefully very soon. We got a couple that we are hoping to announce in the next week or two and hopefully there will be even more behind that. So we are starting to see -- we're starting to gain some awards. We're starting to see better production. Our costs are well under control.

As you may recall, the Harsco Metals business was really on the vanguard of the cost-cutting back in fourth quarter 2008 and those cost cuts now are really manifesting themselves in the financials and will continue to manifest themselves in the financials. So we are basically we think -- provided this continues and is sustained throughout the year, that Metals and Minerals will perform well this year.

Do you have a specific capacity utilization number on your mills?

No, but we could certainly -- it's probably around 65% if I'd give your rough estimate.

You may recall, Mike, we did say 65% at the conference and at this point, we would stick with that. But I think we are certainly encouraged by the recent market indications.

Mike, it's Steve. As Sal indicated, production in the fourth quarter exceeded last year, but also a good sign is sequentially each quarter throughout 2009, we have seen an increase in production for our customers and we expect to see that as well in 2010 at this point.

Great. And then moving on to Infrastructure, did more of the downside surprise come from the weather or from an even worse commercial construction environment than you were expecting?

It's probably both, Mike, in all honesty. Just to give you a few anecdotal things, on the weather -- we basically from what our people tell us particularly in Europe but also to a lesser extent in the US, but it happened in the US as well, that from about December 15 to about January 18, nothing happened. Literally everybody shut down between the holidays, the weather, and nothing really restarted until the January -- the Monday I think it was January 18. And that was the first sign of any activity. In substance we went through over a month where really nothing happened.

In addition to that as you continue to read I'm sure like we read that credit has not flown, major construction projects are either still on standstill, being deferred, being canceled. We have had equipment sent back. Customers are being very cautious with relative to particularly on the commercial multi-family construction markets. And even some of the Infrastructure projects, you know, where governments are slow to fund the projects and so forth.

So it is a combination of both but the weather was a serious impact to December's results and will be even as much or more of an impact to January's results. I don't want to underestimate that because it was quite severe.

Are there any geographies that were worse than you were expecting just as far as the commercial construction? I know that like the UK and Ireland have been -- (multiple speakers) particularly bad, but are there any that were worse than you were expecting?

Yes, the UK, Ireland were much worse than expected, and the US in a lot of cases. The US weakened much more than we thought it would. And then -- so those were the three major countries. Then we have had pockets. Germany softened a little more than we had expected. A few of the Eastern European countries as well. Holland, France or some of the other countries held up relatively well. But those would be the major ones. I would say the UK, Ireland, US were really the major drivers of that.

Okay, thanks a lot.

Jeff Hammond, KeyBanc Capital Markets.

Good morning, guys. I just wanted to get -- certainly it seems like the weather is playing in and you are pulling forward some restructuring but it certainly feels like you guys are feeling maybe a little bit worse about infrastructure than you maybe would have a month, month and a half ago when you were at your December analyst meeting.

So just as you look at your 2010 guidance, what are the moving pieces? Do you still feel comfortable with it. Is there maybe a little more risk to it or there's some other things offsetting the Infrastructure weakness? Maybe just a little more color there.

Sure, Jeff, we'd be glad to. Yes, you are right. In the short term absolutely, we are not feeling as confident. The weather certainly like I said is a factor. Some of the jobs that we are talking about are not getting the funding and so forth. Pricing, the pricing environment is probably one of the main drivers that has deteriorated more than we expected as well.

Having said that, that's one of the reasons why we want to accelerate. We had planned -- just to give a little more color -- we had planned a number of restructuring actions and staged them through the entire year. We are going to move all of those forward, mainly most of them forward to the first quarter. And so that will give us confidence that those cost savings are not going to be realized for nine months as opposed to being amortized, say, over the 12 months number one.

Number two, we are making some headway, Jeff, in some markets. We are gaining some orders particularly on the industrial side and in the Gulf region in the Middle East, India, China. We are hoping to announce a small job there, but yet it's very important from a standpoint of the industrial market. And a few others.,

We think the three acquisitions that we did are going to contribute in the second half as we get the integration costs out of the way and we get them fully on our systems and they can start having an impact on the second half.

So when you add all that stuff up -- and don't underestimate also the impact of the new management team. We have three new heads. The way we split the Infrastructure group up is we have three heads, the Americas, Europe, and the rest of the world. All three of those guys essentially came on board in -- well two of them came on board in 2009. The other guy started January 1, 2010. We think we have three very solid, professional managers that will have, I believe, a substantial impact on the performance of the business. So you have got the new leadership team as well there.

And so when you add all this stuff up, we think that the second half will be much, much better than the first half. But it is going to be a tough first half, no question about it.

Okay, so as you think about the guidance overall, what is the offset to the weaker first half in Infrastructure? Is it -- you get more benefit in the second half from cost savings or there's less contingency?

Yes, it's cost savings, Jeff, number one. Number two, we think the Rail, Minerals and Metals are performing a little better, slightly better than we had originally thought. So those two factors. And then a bunch of other miscellaneous things. You know, we're trying to work to improve -- for example our free cash flows are allowing us to reduce the debt so we're hoping to have a little less interest costs.

As you well know, we are working taxes very hard, so there's a lot of initiatives underway to shore up, if you will, the performance, no pun intended, shore up the performance. And so that's why we then changed the guidance and we feel we can deliver the $2.00 to $2.10 for the year.

Okay, and then just on infrastructure demand, maybe the weather is -- some of the projects are getting deferred. What is your visibility as you look into the second quarter and second half of the year that things start to improve? Or should we just really look at the second-half improvement as all cost driven?

Well, certainly the visibility is not as great obviously as we have in some of the other businesses and that's one of the problems with this business. But we are fixing that. What I mean by that we are fixing it from the standpoint as you well know, we are shifting the portfolio and we have been working on it for the last two years shifting more to the industrial side which tends to be longer-term contracts. And we are getting some wins on that.

Number two, moving to the pure civil works which is the secure infrastructure work, those tend to be much, much longer construction projects, more visibility, because you can see the funding come in, the projects come in on stream. And we're trying to distance ourselves as much as we can from the pure commercial/multi-family side where really the least amount of visibility in the business.

So by repositioning the portfolio, also the geographic expansion, we made good headway. I think we're gaining some work in India. We're gaining some work in China. Latin America, I think is going to perform much better in the second half of 2010, so all those things kind of build up. It's not one thing. It's many, many things that give us confidence that we can turn this thing around and we will perform better in the second half.

Okay, great, and then just one final question back to Metals. I think you said, Sal or Steve, 17% improvement in production. It looks like your business on an organic basis was down in the fourth quarter. Can you just give me a better sense of how much of a revenue impact you are seeing from these exited contracts in the fourth quarter and what that impact looks like in '10?

Yes, it's a $100 million a year run rate, Jeff. I think I may have mentioned that on a prior call. I don't recall, but I'm pretty sure I've mentioned that number in different meetings. You may or may not have been there, but it's roughly $100 million and it impacted about $25 in the fourth quarter.

And those, remember in 2008, as you will recall, I told the guys in the Metals business that business as usual is over, that if the contracts don't meet our EVA, we're going to exit contracts. I will tell you, we've been exiting a lot of contracts. And right now it's up to $100 million.

The good news is we are working a lot of new contracts and we are hoping, like I said, we are hoping to announce a couple in the next week or two just to show you evidence that we are making progress on new contracts.

Okay. Thanks a lot, Sal.

Glenn Wortman, Sidoti.

Good morning, everyone. Just on the Infrastructure and your full-year guidance here, do you have any improvement on pricing built into your expectations?

No.

No, no price. We're not expecting great things from a price standpoint. We are expecting, obviously, improvement on the utilization rates, however, which is the other major driver of the business. And as Steve indicated, we are making -- particularly Steve give him a lot of credit. He has implemented a lot of good disciplines relative to capital and capital allocation.

So we think going forward -- then also I don't want to underestimate this impact of this global supply chain initiative. We think the combination of what Steve has done and what our global supply chain initiative with IBM has done that we are going to require a lot less capital in all of our businesses but particularly the Infrastructure business going forward, which means higher utilization rates it will translate to and of course more free cash flow.

So we think some of the things, the initiatives are going to come together as the year progresses.

Okay and on the global supply chain initiatives, do you guys have a number on potential cost savings there yet or are you still working on that?

Yes, I mean IBM literally showed up I think 10 of their consultants or whatever showed up at our corporate office this past Monday, so the project just literally kicked off this past Monday. It's going to take six months roughly to complete the roadmap of blueprint and all the good stuff, and then we will implement a quick hits, if you will. They do this in two stages.

You implement the quick hits in the second half of the year so there should be some very -- then we can perhaps -- so as we get into the third quarter, we could perhaps share some numbers with you, but it's too early now. Because we don't know what those numbers are going to be, but we know that there will be benefits because they have obviously lived through this many, many times with a lot of companies.

Then what happens is then they also give you a longer-term roadmap and that is -- which does require some investment, but then that's where you get the long-term payoff as well. So it's a two-stage thing. It's the quick hits and then the longer-term sustainable benefit.

So this thing is for real. We are very optimistic about this. We think it will have an impact. We think it will transform the way we do business across the globe. And again, with the objective -- I'm interested not only in the cost savings but I am just as interested on the reduction in capital.

All right, thank you very much.

Yvonne Verano, Jefferies.

Thanks. Just on the mill side, I know you say you are anticipating some new contracts. Are those going to be more at new mills or is that just going to be selling additional service to existing mills? Is there any particular geography that you are focusing on that growth?

Very good question, Yvonne. They will be new customers and new geographies. We are hoping to announce one in India. Specifically it will be our first contract in India and we hope to announce that soon. Then the second one that I mentioned is going to be in Latin America and that should hopefully get announced in the next couple of weeks as well. So stay tuned and we are executing our emerging market strategy as we said.

I guess with the global recession, does that give you even a stronger selling point when you are going into your customers as they might be looking to reduce cost?

Absolutely, because they are very interested in reducing costs, Yvonne, as you can appreciate. And so Galdino, our new CEO, is really now well embedded in the business. He has been with us now about seven, eight months, eight months, he's in his eighth month right. And he is really starting to have an impact on the business.

We have reorganized the management team. We have moved the headquarters out of London to Harrisburg. We have -- I think we've put together a very good team and I think that business is going to do well going forward.

Okay, great. Anything more we can expect on the acquisition side? We saw some nice transactions at the end of last year, but just give us a little color about what that market opportunity looks like.

In all honesty, there's no shortage of opportunities. We are looking at quite a few properties right now as we speak. We are trying to focus on the Rail and the Minerals side, because we think there are a lot of opportunities there. So we are very actively engaged there, but certainly even in Metals and Infrastructure and the Industrial Group for that matter, in all five of the platforms we are actually looking at (inaudible). We're not looking at anything of any massive size. We like these little bolt-ons to fill in geography, fill in technology and those kind of things.

But rest assured there's a pretty sizable pipeline but we want to do this in a nice orderly fashion because we want to make sure we have strong free cash flows. We want to keep the debt levels down -- or Steve, believe me, he comes in my office and really tells me about it so we are very focused on a very strong balance sheet, strong cash flows.

But certainly given the level of free cash flows and the sustainability of those free cash flows going forward, which is really a paradigm shift for Harsco. Because if you look in the past prior to 2009 and we did fairly well in '08 as well; we did over $117 million. But prior to 2008, if you look at the history, our free cash flow numbers were anemic. That's going to change, so it is a paradigm shift for us.

So what we are going to do responsibly is we are going to take that cash. We are going to do acquisitions. We are going to pay debt down. We could possibly do share buyback. We will of course pay dividends, because that's always number one in our minds for the shareholders, and so that gives you tremendous flexibility and you sustain a very strong balance sheet.

Okay, just on the Rail side, I know China is looking at the next five year plan. I know the last two you've been able to get some sizable orders. Any color you can give on what might be going on there?

Yes, we are very actively engaged, Yvonne. I wish I could give you a little more but we are very active engaged in China. They love our technology but it's not just China. We're working in India. We are looking to get some work. Saudi Arabia is looking to spend some money on Rail. We're actively -- so there's a lot of activity. (multiple speakers)

Japan and a few other places, so we are very engaged throughout the world, again with the objective to replace that revenue stream as we get into particularly 2012, because we think we are okay through 2011.

Right, okay. Great. Thanks very much.

Lara Brenckle, Harrisburg Patriot News.

Good morning, gentlemen. I just had a quick question about -- go back to the Infrastructure and the reduction in locations. Do you know about how many jobs that 25% could translate into and are we talking America, Europe? Would there be any impact particularly here in Pennsylvania?

Lara, the majority or the substantial majority are going to be in Europe principally UK and Ireland, more specifically, but also across all of Europe. And very few in the United States and none in Pennsylvania.

Okay, all righty, I'm sure that's pretty much what our readers wanted to know. Thank you very much.

Lloyd O'Carroll, Davenport & Co.

Good morning. It is still Davenport, by the way. The modeling question since you have split out Rail now, can you give us some sense of what -- how historical margins compared to the fourth quarter that you have given us so that we can sort of put some parameters around that?

Margins and Rail have been improving over the years slightly as a result of [ultimately] continuous improvement programs, the Lean Sigma programs that we have been implementing. They were the first to really embrace the Lean discipline right from the start and it's paying dividends in the margin. So what you see there you see improved margins for the prior year and that should continue going forward as well.

That is why we are -- Steve just brought up a very good point. We can't tell you the impact Lean has had particularly on our Rail business and we need to do the same thing in all of our businesses. They need -- although they have all embraced Lean, but no one to the extent that the Rail guys have.

And so we are pushing that forward particularly on Infrastructure and we think there are some opportunities there that improve their results.

They have done a great job with the margins and the principal reason is, you know, that the acceptance, the implementation, and the Lean discipline throughout their plants.

Is there any notable seasonality of margin in that business or to what extent is the Q4 margin a good takeoff point?

No, actually in that business, it is sporadic. It's not based upon weather at all. It's principally upon the timing of deliveries of machines and those machines have long lead times to production. So a lot depends on when they are shipped. So it could vary from quarter to quarter, so seasonality is not really a factor. It's the timing of deliveries, that's the real thing.

Also too, the windows for the service work. We do quite a bit of service work so it depends on when the windows, the Rails are very busy, believe it or not, when it comes to maintenance. They only give you certain windows and a lot of times the windows obviously, like Steve said, it is sporadic. So it's hard to pinpoint from quarter to quarter. So it's a combination of those two things.

But the margins you see now are sustainable and I think they can improve somewhat as well.

Okay, I appreciate it.

Jeff Hammond, KeyBanc Capital Markets.

Just to follow up on the new segment breakout, can you give us a sense -- because in your December meeting, you provided an outlook for each of the three segments. Can you give -- I think you were looking at kind of flat margins, flat revenues for Mineral and Rail together. Can you give us a better sense of how you are thinking about those two separately? And then also is there any plan to put out historical quarterly segment numbers in the near term?

Yes, actually what we could do when we file our 10-K, put out historical data for Harsco Rail. That is not a problem. And as far as the margins go for 2010, yes, we do -- the target margin in Rail, as we mentioned, if you go on -- we expect them to go up slightly in 2010 as a result of the things we talked about earlier.

They were at 17% or so in '09 and they should be somewhat higher at the end of 2010. So they are on the right track, no pun intended, when it comes to margin improvement.

Jeff, as you will recall, we said that historically when you look at Minerals and Rail, which obviously was Rail and Industrial, the combined three business platforms had we believe we had sustainable rates around 17%, 18%. Between 17% and 18% of sustainable and we still believe that. We think -- we can continue to improve particularly the Rail and Minerals one through the Lean Sigma initiatives as well as some of the ongoing activity and particularly on the Minerals side with the improved macroeconomic environment. But somewhere in that range, so are we addressing your question right --?

Yes, and then just from a topline perspective, I think overall that segment in December you had said kind of flat. Can you just give us a sense of growth rates in those two businesses? Or the two segments?

Jeff, again as we said, Rail will be comparable in '10 to '09. Topline may be at slightly better because again, we've got our factories full now, moving up from '08 to very nicely in '09 and then continuing at that nice level in '10.

As far as the Minerals and Industrial, you've got a combination of two parts. Minerals should be up and Industrial is certainly in the first half will be down. So probably down a little bit overall. We want to see how the second half --

Yes, and the recent industrial is down, Jeff, I don't know if you recall but for the first half that topline, the first half of '09, air exchangers which is the bulk of the Industrial Group, the natural gas business, they had a record first half in '09 and that's going to -- so from a comparison standpoint is going to be down year-over-year particularly the first half.

But they are starting to see some life because of higher gas prices. But on a net-net basis, that group will probably be slightly flat because you've got one up and one down. But I think there could be a little bit of upside revenue wise on the combined group -- a little bit.

Okay, and then just final housekeeping item. Acquisition revenue contribution and Infrastructure, can you quantify that in the fourth quarter?

Jeff, we had a very minimal amount of revenue. It was about $7 million.

Okay. Thanks, guys.

Marty Pollack, NWQ Investment Management.

Yes, just two questions. You know, the talk about high-speed rail, what is the potential opportunity and what do you think you might realize that for the Company? Obviously North America we are talking about the stimulus opportunity here.

Secondly, since you have already given us some transparency on the whole industrial, I mean the Mineral and Rail segment, is there any reason why you couldn't take it a step further and provide more data on both the Industrial piece and the Minerals (multiple

That is a very good question. I think as I've stated strategically, our objective is to grow the Minerals business and I can see hopefully not in the too distant future that group at some point will be split out as well once we get it to a more manageable size. It is still only about $200 million business, but once it starts getting to the size of say of our Rail business, I can see a scenario which I think is going to come sooner than later where you will have total transparency in all five business platforms.

But it's a very good question. Regarding the high-speed rail, yes, we're very focused obviously. We're watching every stimulus project. We've seen very little of it, but we are on top of it very close and I know they are considering this project in Florida which would be right there because it is in our backyard and certainly we would have some involvement. Don't forget we don't do the actual trains but we do the track construction work. We do the maintenance work, and we have all the right technologies and so forth.

So I am fairly confident that we will have some part of that. I just don't know at this point how much. It's too early.

Are we talking about essentially new trackage that would cannibalize some older ones or are we talking about parallel?

Yes, I don't have enough of the details yet, to be honest with you, because as you well know, they talk about these things. They talk about these things. We are watching them, but until they actually put the money behind it and get serious about it, there's a long lag until that happens.

The only thing I can assure you is that we have teams that we have organized on both our Rail business, because that impact our Infrastructure business as well. In our Infrastructure business, we have teams put together that are monitoring stimulus money all over the world for that matter. We have a specific team in the US of course monitoring particularly these rail projects which will impact both businesses.

Okay, just lastly back to the Minerals and Industrial, I'm just wondering if you could just briefly just describe those end markets, how they differ for both? So just a little bit of a sense of the end market demand there.

The Minerals business is driven principally by Metals production as well as Industrial activity. That is what drives the Minerals business. The Industrial group is driven by Industrial activity as well as natural gas. The natural gas, the drilling for natural gas, and so with the recent spike in natural gas prices, that's a plus.

Thank you very much.

(Operator Instructions) There are no further questions at this time.

Thank you. Thank you for those questions. Particularly they are very excellent questions. The only thing -- I'll just leave you with a final comment that this team is obviously very focused and very dedicated to deliver the results and rest assured, we're going to do everything in our power to do that.

We do have some very good things going on internally here and with any improvement and particularly in the Infrastructure markets, I think you're going to see the Company rebound quite a bit in its performance.

So we thank you for your support and we thank you for your ongoing interest and hope to talk to you obviously very soon.

This concludes today's conference call. You may now disconnect.