Enviri Corp (NVRI) 2010 Q1 法說會逐字稿

Good morning. My name is Maria and I will be your conference operator facilitator today. At this time I would like to welcome everyone to the Harsco Corporation first-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, and all rights are reserved. Harsco will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without express written consent of Harsco Corporation. Your participation indicates your agreement.

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

Thank you very much. Good morning, everyone. We would like to welcome you to Harsco's first-quarter 2010 conference call. I have here with me Gene Truett, our Vice President of Investor Relations, and of course, Stephen Schnoor, our Chief Financial Officer.

Before we begin, will ask Gene to read the Safe Harbor statement. Gene?

Thank you, Sal, and my good morning to everyone as well. 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 the best information available. It is possible that the results could differ from what we tell you today. We have listed in our SEC documents reasons and risk factors that affect our business. These could be the reasons for any difference that could occur. We invite you to review the SEC filings at your convenience.

We would like to remind you replays of this call and related information are available on our website. Please take the time to access this information at your convenience. Sal?

Thanks, Gene. Let's get into this with the first-quarter results.

Our first-quarter performance was in line with overall expectations as we indicated in the press release. However, our Harsco Rail and Harsco Metals business did post very strong results. But Harsco Infrastructure performed well below expectations.

What is pleasing to us in the quarter, though, was that four of the five business platforms in our portfolio posted improved operating margins, and with three of the four platforms also posting higher sales income and margins. So we think those are very good results and, very good forward-looking trends.

However, clearly, our Harsco Infrastructure segment suffered its worst quarter in its history. We faced very difficult and depressed end markets across our major geographies during the quarter. The lack of any meaningful commercial construction activity in both Europe and the United States -- greatly exacerbated, I may add, by severe winter weather -- resulted in a loss for the quarter.

As the quarter progressed in Harsco Infrastructure business, pricing deteriorated at a more rapid rate than we had expected; utilization rates declined to levels unseen in the past; and project postponements and deferrals by customers were much greater than we had anticipated.

As a result of this poor macroeconomic environment, we accelerated the majority of our planned cost-reduction initiatives as we had indicated to you that we would in the first quarter.

Also, as noted in today's press release, we expect the performance of the Harsco Infrastructure business to show sequential improvement in the second quarter. It will again however incur a loss, albeit a smaller loss than the first quarter.

We do however expect sequential improvement and profitability in the second half of the year. Our confidence in a second-half improvement and a return to profitability for the Harsco Infrastructure business is based on the following three factors.

First, the accelerated branch closings and cost-reduction initiatives that we have taken -- and we will continue to take to a lesser degree in the second quarter -- will provide a solid foundation that underpins the expected improvement in operating results.

Secondly, our emerging markets strategy should also benefit the second half as well, as we continue to execute our strategy of repositioning equipment to take advantage of real, new market opportunities.

The final thing is really seasonality and some overall end market improvement that we are starting to see in certain parts of the world should also benefit the second half as well.

Despite the very difficult end markets for our Harsco Infrastructure business, there is much to be positive about in the future of Harsco. Harsco Metals and Harsco Minerals businesses are expected to continue to post strong results as the year progresses. The Harsco Industrial business will also perform relatively well. And our Harsco Rail business is well positioned to possibly post another record year.

With the restructuring actions mostly behind us in these businesses, we can now truly focus on the future both top-line and bottom-line growth. We believe that we have effectively lowered our overall cost structure and reduced the breakeven point of all five of our business platforms.

As we indicated to you previously, $125 million in permanent and sustainable cost reductions have been achieved. We also believe that we will exceed this number due principally to the recent actions we have taken in the Harsco Infrastructure business.

Overall, we continue to create a more line and optimized Company with additional improvements expected as we begin to execute our global supply chain initiative later this year. We believe that we are on track to also reduce the overall amount of capital that we have invested in the business. Further, we have positioned the Company to achieve strong and sustainable free cash flows in the targeted area of about $250 million per year for the foreseeable future.

In addition to these actions, we continue to execute our emerging markets strategy. We generated, as you recall last year, about 22% of our revenues from these markets. For the first quarter, that number has increased to about 24%, and we believe that puts us on track to reach our target for all of 2010 to be in the area of about 28%.

We continued to strengthen the global management team. You will hear more about this hopefully in the future.

In summary, much has been done to not only weather the Great Recession but to fundamentally transform Harsco. For long-term success we believe that we have positioned the Company well to take advantage of global opportunities as the end markets gradually recover.

I will now turn the call over to Steve to give you more details on our performance for the first quarter. Steve?

Thank you, Sal, and good morning, everyone. As reported in this morning's press release we recorded earnings per share of $0.10 for the first quarter of 2010. First-quarter earnings met our expectations and accordingly were below first-quarter 2009 earnings per share of $0.25.

We reported top-line growth of $46 million or 7% over 2009. Foreign currency translation increased sales $41 million compared with 2009.

First-quarter results reflect improving market conditions for our Metals and Minerals businesses, continued exceptional performance of our Rail business capitalizing on its strong backlog, but also reflects stubbornly persistent distressed market conditions in non-residential construction, especially in North America and Europe.

With that as a backdrop, first-quarter sales and earnings improved substantially year-over-year in both the Metals and Rail businesses. Earnings for the Minerals importantly Industrial category equaled last year, but there was a significant margin improvement.

The one major disappointment in the quarter was the continuing poor performance of the Infrastructure business. We had expected a loss in the quarter, but the magnitude of the loss was greater than expected. Market conditions for the business have yet to show improvement.

In December, we provided some of the major economic driver assumptions for our businesses. I believe it is important that I provide you with a current update as to those drivers.

Starting with foreign currency translation, compared with the first quarter of 2009 we recorded an overall income before taxes benefit of $2.8 million from foreign currency translation in the first quarter. However, compared with the assumption we used in our December for our 2010 guidance, the translation effect has been negative on earnings, as a result of the dollar strengthening on a sequential basis throughout the first quarter of 2010.

In December, for purposes of our earnings guidance, we assumed a euro rate of $1.48 and a pound sterling rate of $1.65. First-quarter average rate for the euro was only $1.36 and the pound sterling was only $1.55. Additionally, other currencies such as the Brazilian real, the Australian dollar, and the Polish zloty also declined from our December assumed rates. Only the Canadian dollar improved.

Generally, the decline in rates against the dollar has had a negative effect on our earnings. Furthermore, the dollar has continued to strengthen since the end of the first quarter. As of yesterday the euro has declined to $1.32 and the pound sterling has declined to $1.52.

On a more positive note, in December we assumed that our Harsco Metals customers would produce 160 million tons of steel during 2010. It is now estimated that our customers will exceed that production this year.

Generally, first-quarter steel production is the lowest of the year, and we expect that again to be the case in 2010 for our customers and the industry overall.

One of the biggest factors affecting our expected 2010 performance is rental equipment utilization in our Infrastructure business. In December, we assumed an average utilization rate for 2010 of 58%.

However, in the first quarter, the utilization rate was only 50%. First quarter is always the slowest of the year, in particular this year, due to the severe weather conditions in North America and Europe.

We do expect the utilization rate to gradually increase the remainder of the year, but not to the average rate we assumed in December. It is very difficult given current market conditions to presently say what the utilization rate will be for the full year 2010.

Additionally, rental rates declined some 20% from those expected in the first quarter, resulting in a significant negative impact on our income. Rentals are the most profitable revenue source for our Infrastructure business. Therefore, reduced equipment utilization and rental rates have an exaggerated effect on both reduced income and margins, as occurred in the first quarter.

I will now briefly review the first quarter cash flows and liquidity and our liquidity position, and then discuss performance by business segment in more detail.

Despite $10 million in lower income in the first quarter of 2010, free cash flow was only slightly less than 2009. We achieved $30 million in cash from operations, a slightly positive free cash flow in 2010. We continue to effectively control and efficiently use capital, further reducing capital expenditures by $6 million to $30 million from the already low 2009 first-quarter amount.

As a result of the Australia Infrastructure acquisition in the first quarter, our debt-to-capital ratio increased slightly to 40.1% as of March 31 from 39.5% at year-end. I remind you, that was the lowest year-end debt-to-capital ratio since 1998. Further, the first quarter 2010 debt-to-capital ratio was still 180 basis points lower than the 41.9% at the end of the first quarter of 2009.

Let's now review the first-quarter performance of each of the business groups. The extremely difficult environment for global non-residential and commercial construction activity experienced in 2009 continued to affect our Infrastructure group in the first quarter of 2010.

That was compounded by extremely poor weather conditions in North America and Europe most of the quarter. Projects were stopped or delayed, and rental equipment utilization decline.

Although sequential quarterly improvement in the business is expected, the global non-residential construction market has not yet experienced any significant economic recovery that is benefiting some other market sectors. Therefore we do not expect to achieve the 2010 results originally expected in the guidance provided to you at the analyst meeting in December.

Despite the very challenging market conditions, we continue to focus on our strategies to grow operations in Latin America, the Gulf region of the Middle East, and the Asia-Pacific region, as well as our global industrial maintenance business. As 2010 progresses we do expect gradual improvements in our Infrastructure business.

In addition to the seasonal improvements expected to occur, the full effect of the benefits of the first-quarter restructuring and other cost reductions will take hold. Additionally, we assume that some of the weather-related postponed work from the last two quarters will be awarded.

However, we expect an operating loss for this group in the second quarter, with gradual but modest seasonal improvements in the second half that will also benefit from restructuring actions and other cost reductions.

Global steel production in the first quarter of 2010, as well as the steel production of our customers in particular, improved from in the historically weak production levels in the first quarter of 2009. Therefore, as expected, first-quarter results from Harsco Metals improved significantly from the loss experienced last year.

On a sequential basis consistent with historical seasonal patterns, and as communicated in my comments at year-end, first-quarter results will be the lowest of the year and were lower than the fourth quarter of 2009. This is expected due to the northern hemisphere bias of the Metals locations, as detrimental effects of weather in the first quarter, particularly this year, with the very severe weather conditions experienced.

Also affecting the first quarter in comparison to the fourth quarter in our Metals business was the Chile earthquake, which completely shut down a large mill we provide services to in that country. Additionally, fuel costs increased in the first quarter and foreign currency had a negative impact from our guidance expectations as the dollar strengthened in the quarter. As we noted in December, every $5 increase in price of a barrel of oil reduces Harsco Metals' annual operating income by approximately $2 million.

Costs were also incurred for several contract startups in the quarter that will benefit future periods. They include among others the EPA mandated environmental services contracts in Alabama as well as new contracts in India and Egypt. We expect earnings and margins at the Metals group to improve sequentially for the remainder of 2010.

Harsco Rail reported record first-quarter results, substantial sales, operating income and margin improvements over 2009. A strong backlog increased international sales and services, and the benefits of Continuous Process Improvement initiatives continue to benefit this business, resulting in both improved earnings and margins.

We expect a strong performance in this business throughout 2010, although individual quarterly results will be affected by the timing of shipments and the pull-forward effect they had in the first quarter of this year.

The Harsco Minerals & Industrial group again posted respectable results in the first quarter, equaling last year's operating income but improving margins over last year. The quarter benefited from improved volume and metals prices in our Minerals business. Additionally, this group continues to benefit from Continuous Improvement Initiatives and cost reductions that have improved margins.

We expect the Harsco Minerals business to continue to perform well for the remainder of 2010, assuming metals pricing remains at current levels or improves. Later this year in and in early 2011, there will be startup operations at additional international sites from new contract signings, which will serve to improve results.

Harsco Industrial results are expected to be slightly lower than 2009 due to higher LIFO expense.

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

Thanks, Steve. Let me now briefly summarize for you our current outlook for both the entire 2010 as well as the second quarter.

As we stated in the press release this morning, we are obviously pleased with the positive direction evidenced by the results from Metals, Minerals, Rail, and Industrial irrespective of the LIFO issue. However, again, overall Company results in the near term will continue to be significantly and adversely impacted by very poor end market conditions within our Harsco Infrastructure business.

Also as we pointed out in the press release, the resurgent US dollar and higher oil prices could continue to negatively impact results as well on a sequential basis. And that is relative to the assumptions that we used to develop the initial guidance.

The poor state of the US and European nonresidential construction markets was frequently mentioned last week and this week in numerous earnings announcements. Many CEOs stated that end markets will continue to be challenging for the year. I think that was certainly a consistent theme, anyone that deals in this space.

Also I may add anecdotally that the American Institute of Architects indicated last week that although while the Architectural Buildings Index improved somewhat in March, there was still -- this is the more important thing -- there is still a decline in demand for design services. So we've got a long way to go in the US.

In Europe, a similar story. Again anecdotally, the UK economic growth came in substantially lower than had been expected. And, of course, you're been reading lately about everything else that is going on in Europe as well.

The other thing I may add, besides the distressed and poor state of the US and European nonresidential construction markets, is the postponement and deferrals of projects that we have seen and continue to see in some key markets outside even these markets. And hence the reason for the guidance.

Given this very difficult operating environment for Harsco Infrastructure, we are obviously revising our full-year guidance from continuing ops to $1.55 to $1.65 from previous guidance of $2.00 to $2.10 per diluted share.

With respect to the second quarter, pretty much the same. Consistent story. Strong results we expect from Harsco Metals, Harsco Rail, and Harsco Minerals should all post very good results second quarter. And Harsco Industrial will perform relatively well, but again due to the LIFO cost issue their results will be down.

But like I said, on balance very strong results from all the businesses, other than Harsco Infrastructure, which will continue to be adversely impacted by the very poor end markets. So the outlook for us for the second-quarter guidance as we pointed out this morning is in the range of $0.40 to $0.45 per diluted share, and that compares with $0.52 in last year's second quarter.

That does complete our formal comments. Obviously, we would be very pleased to take any questions you may have.

(Operator Instructions) Jim Lucas, Janney Montgomery.

Thanks. Good morning, guys. First question, from a bigger-picture perspective. With the guidance being brought down once again, clearly you have some end markets that remain challenged even more than you had originally thought.

Could you talk about -- you gave some color in terms of the assumptions going into the year and some of those changes. But if you were to identify the two or three biggest deltas from your original $2.00 to $2.10 guidance versus where you are today, and -- is the bar low enough now that we could look at potentially having a floor in place from a guidance standpoint?

That's a very good question, Jim. First of all, I will answer by saying we have very limited visibility in this business right now. But more specifically -- it is really down in Infrastructure, that is.

More specifically to your point, though, it is really two things. It is utilization rates and rental rates. As Steve indicated, rental rates are down 20% year-over-year, quarter-over-quarter. That is quite significant. Much, much more than we had anticipated.

Utilization rates, again, the same thing. They are down 500 basis points from last year-over-year, much lower than we had projected.

Steve said it was 50%; it was actually 49.5%, to be exact, to give you. So we have never seen numbers with a 4 in front of it.

So again, remember the sensitivity. Every 100 basis points translates to $7 million in operating income that we had mentioned to you. So 500 basis point decline times $7 million gives you $35 million delta just on the rental asset utilization.

Then you compound that with a 20% decline in pricing, exacerbated by tremendous weather and also some deferrals and postponement of jobs -- this is what has driven the revised guidance.

Okay. That's very helpful. With regards to the rental rates, can you talk about the trends and what you have seen in April so far?

And on the deferrals, can you talk about geographically what you are seeing out there?

Yes, again very good points. On the rental rates, we think we have hit bottom. We are hitting bottom here in April, which is good news.

But again they're very, very low rates we have probably never seen in our history. So we are coming off of that.

The deferrals and the postponements, it's pretty much across the world. You would think they would be concentrated in the US and Europe. But we're seeing it in the Middle East. The Dubai credit crisis has impacted things, has had a ripple effect.

These projects will happen, but they have been delayed, deferred for three months, six months, nine months, 12 months. So that is a factor. Even in -- it's a confidence issue of course.

Then even in Latin America, and Central America -- the Panama Canal for example, that has been delayed, postponed, deferred, whatever. We are seeing this in quite a few markets.

Just to give you another one, in our Industrial business, typically the Industrial maintenance work occurs as scheduled every year, maintenance outages and so forth. We're even seeing those projects deferred. They are going to happen, but they have been pushed out a quarter or two.

So you add all this up, you get the result that we just articulated this morning.

On those maintenance contracts, is that a function of volume coming back at your customers and therefore they are deferring? Or is that also a confidence/credit issue?

No, it is not a credit issue. These are very high -- you are talking about the big companies here that are very well -- strong balance sheets and so forth. It is simply they're deferring maintenance for their own reasons. I can't tell you what their reasons are.

Jim, keep in mind that much of this becomes a quarter-to-quarter deferral or a spring to fall deferral in the case of electric utilities. They are looking at the same economic pictures that we are in their geographies, and there is a bit of a postponement that typically as I say goes from one half of the year to the other half.

Okay. Thanks a lot, guys.

Jeff Hammond, KeyBanc Capital Markets.

Hi, good morning, guys. Steve gave some good, I guess, moving pieces to the key drivers relative to December. But I wanted to go at that a different way.

Looking at your margin targets for Infrastructure for '10, I think you were looking for 7% to 8%. Clearly you are starting out in the hole. Is this a business that ultimately makes money on a full-year basis in '10?

Then just in the Metals side, it seems like some puts and takes, but much better capacity utilization and production levels. Maybe a little bit of an offset on fuel. How do we think about the 6% to 6.5% target that gets it out?

Yes, I'll take the Infrastructure one and I will let Steve answer the Metals one. On the Infrastructure one, Jeff, we will make money this year.

As I made in the comments, a big part of that is the cost-reduction actions. We are very confident they are going to have quite an impact on the second half of the year, number one.

Number two, we are picking up some jobs in the emerging markets that will contribute profitability to the second half. And they're pretty much scattered all over from Latin America -- from South America, I should say, to the Middle East, to Asia. So the combination of all those will help, certainly.

And then the weather will certainly be much more of a factor, positive factor in the second half as opposed to the first half.

Then of course the final thing is we are seeing a little bit of life in parts of Europe, like for example, Germany, France. It's in pockets, and other parts of the world where we're starting to see some bidding. We are starting to get some bites. We're landing a few projects here and there on the Industrial side as well.

So all of that when you add all this up, we think the second half will be profitable and we will be profitable for the year.

Yes, Jeff, regarding the Metals business -- generally speaking if you look at the history, the first quarter has typically been our slowest quarter of the year.

In this quarter, in 2010 in particular, you had the startup costs I talked about for those contracts in Egypt and India and one in Alabama, the EPA, which affected us. And also because of the -- and once again weather related, severe weather related, more so than normal in both Europe and the US.

A lot -- that reduced, for example -- we do sell slag as well as our production related to the steel tons produced by the mills. So slag sales actually declined significantly in the quarter.

We do see increased tons produced by our customers gradually each quarter for the remainder of the year. And ultimately the margins are expected to be what we had said in our conference in December, 6% to 6.5%. We are still comfortable with those margins for the year.

What are you predicting for the tonnage versus the original 160 million?

We're in the area of 165 million or so.

Okay. Then just on the fuel cost issue, because you called that out, my understanding was that you were trying to move that to a more variable cost for your customers. And as you rolled off some of these old contracts and brought on new ones that that would be less of an impact.

Is that playing out? Or is it just a longer time to get that through the system?

It's playing out. It's just that because of the length of the contracts, the maturity of the contracts, it takes a little bit of time. But every new contract that we sign or renewal, we're addressing that issue.

Jeff, I think if you were to look back at the '08 time period, early '09, when we saw a barrel go up substantially, that the impact back then on a relative $5 a barrel change was much more significant than it is today. Proving that with certainly new contract signings we are closing that down and making it more variable.

And renewals, keeping in mind that our contracts have about a seven-year average period, we started this in '08. We had some real big ones in '08, '09 and '10. But there is a couple-year tail on this.

Yes, and Jeff, also I may add finally that we're getting much quicker realization or recovery as well. Like before, we used to have to wait at least a year, and then you reviewed the inflation index at the customers. Now we have gone to more quarterly type things.

So there is a lot underway and it will work itself out over the next couple years, next two, three years. But we have certainly come a long way from where we were in 2008, as Gene said.

Okay, thanks. I will get back in queue.

Eric Glover, Canaccord.

Hi, good morning. One thing you mentioned in the press release is that you expect further restructuring benefits in the Harsco Metals segment. I was wondering if you could put some sort of dollar figure on that or help quantify that for me.

Are you referring to the --? I think we took a $1-million-plus charge in the first quarter, I think is what it was.

It was normal routine stuff. As we continued to prune the cost structure and those kind of things. There is nothing unusual.

As you will see with us, we typically have on a normal year -- of course the last two years have not been normal years by any stretch of the imagination. But if you were to look at a normal year, we typically have about $4 million to $5 million in restructuring charges for the entire Company.

Because you are always -- because of the nature of our business you're exiting sites, and so as contracts close out or you exit a rental yard and those kind of things, there's always those kind of costs involved.

So that is more of a normal, routine type thing as opposed to what we did on the Infrastructure side, which obviously was -- dramatically reduced the costs going forward.

Okay, thanks. Did I hear you say you are targeting 6% to 6.5% operating margins in Metals for this year?

Yes, sir.

Okay. Thank you.

Glenn Wortman, Sidoti & Company.

Good morning, everyone. Just looking at your full-year guidance and then the back-half improvement you are expecting in Infrastructure. Are you counting on an improvement or stabilization in your North America and European markets as well? Or how should we be thinking about that?

Very slight, but yes. Just very slight improvement. And that's based on some early indicators that we are seeing as well as some jobs that we won or we think we are going to win and those kind of things.

So it is based on something. It is not a wish.

Yes, Glenn, I think the one spot for the US is you look at the Architectural Billings Index from the AIA. Again while the number is still below 50, it is getting less below 50.

So there is a trend line; and there are some forward indicators within that Architectural Index that are little more positive. But again we're not betting on anything at this point in a major way.

Then just on the pricing side, how is that? How are you guys building that into your expectations?

We pretty much expect pricing not to deteriorate any further and with some slight improvement in pricing in the second half.

Okay.

Very slight, though. I mean we're not expecting significant improvement by any stretch of the imagination.

Okay. Then just in Metals, discounting for seasonality, how would you characterize the sequential trends as we move through the next several quarters?

I'm sorry, could you repeat that?

Sequential trends in the Metals performance?

Yes, discounting seasonality, the underlying business.

Production should be very strong in the second quarter, third quarter, fourth quarter.

It will stabilize in the second quarter and pretty much be pretty consistent to slightly increasing between the second, third, and fourth quarters.

Yes, I think you're aware that the World Steel came out about a month ago and actually revised their total production guidance for the world steel companies, 60 some countries. So I think that is kind of the trend line we're seeing.

Okay. Then finally just on your free cash flow, I think you are still expecting -- are you still expecting $250 million this year?

That's correct.

Okay, I'm sorry. Then in your press release you expect that for the foreseeable future. Are we talking about just next year, 2012? How far out?

That's our target, Glenn, is that we made a strategic decision in early 2008 that we were going to change the business model of Harsco. And that is, historically the model was that all the money was spent on CapEx, which in substance there was no free cash flow if you will.

We listened to the investor community for many years and we got that message loud and clear. So we embarked on this strategy to dramatically reduce the capital. And we have made good progress in 2008, then much better -- 2009 we had a record year of free cash flow.

We think 2010 and beyond in the next five years, let's say, we think we can achieve in the area of $250 million in free cash flow without impacting the operating results of the business by denying the capital.

All right. Thank you very much.

Yvonne Varano, Jefferies.

Thanks. I just wanted to know; you said you changed your utilization rate forecast from the year from the 58%. What are you using now?

Yvonne, I said that we had indicated, I think it was a utilization rate of -- I think it was 58%.

58% is what we indicated.

That we indicated in December. What we said for the first quarter -- the actual rate was 49.5% to be exact, to give you a precise number.

Now we do expect, obviously, because of seasonality that will start trending up as we progress. And we expect the year to be around 54% when the year is done as opposed to 58%.

So if you take 400 basis points to do the math I did earlier, that translates close to $30 million from what we had told you. Then you add in the pricing issues, you add in the deferrals and postponements of projects. And hence you get the result that we got this morning.

All right. Then just sticking with Infrastructure, I know you have been closing branches. Can you just give us some more metrics there where we are? How much still needs to be done? How many have been done?

Yes, we're almost there, Yvonne. If you looked, went back and looked, the peak peak branch -- actually at one point in 2008 we were actually at 239 branches, if you can believe it, in say 40 countries roughly. Currently were about 42 countries.

And we are down -- we should be down by April/May here to about a little bit under 200, on our way down to about 190. Because you've got to add back the acquisitions.

Remember I think I had told you would be down to about 180, I think we had said in December. And we would be down to 180 had you not had the acquisitions. So when you add the acquisitions back you're at about 190, the low 190s.

So if you exclude the acquisitions, we have taken well over 50 branches out. That is a substantial material change, and that is why we are confident about the costs.

In Europe particularly you can appreciate it takes a lot of time to get these actions done. And hence again the reason why we are expecting the benefit to occur in the second half as opposed to the first half.

Have you actually put a dollar amount on the cost savings you are anticipating?

Well, I think it comes back to much of that $25 million that we are expecting to see, cost reduction in the first quarter and a little bit in a second quarter, is Infrastructure.

Yes.

Okay. Then just lastly on Minerals, any comment, because I know you are selling that product out of that part of the business, and we have seen some commodity costs go up. How is that impacting the business?

Well, you are talking about the sale of metals? When we sell metals, recover the metals and sell the metals in the Minerals?

Yes.

Or are you talking about the co-products, Yvonne?

The sale of the metals.

Oh, okay. Commodity prices are up, thankfully, so it's positively impacted -- and steel production is up. So it is helping the performance of the business. We expect Minerals to have a very, very strong year this year.

Keep in mind, Yvonne, that this principally relates to our Minerals business. As Jeff, your associate, can tell you, as steel production increases at stainless steel mills, which is principally what they serve, their demand for the metals increases. So that is where it all comes from; that is the thing you track.

Right. Okay. I assume that your comments suggest that in that segment it is the Infrastructure where the revenues were down and the Minerals that were up year-over-year?

No, in the Industrial. The Industrial was down. Minerals were up, yes.

Yes, okay. Great. Thanks.

Tim Hayes, Davenport & Company.

Good morning. Just to clarify on the rental prices, did you say that they were down 20% both from a year-ago quarter and sequentially?

Yes, from the quarter -- yes, quarter-over-quarter, Tim, 20%. Sequentially from the fourth quarter to the first quarter?

They were down as well.

They were down as well, but I can't give you the exact percent. But they were definitely down. Much more than -- again, than we had anticipated.

They were down at least over 10%.

At least? Okay. I guess what maybe surprised me a little bit why the rental rates are declining more so now and maybe why they didn't declined more in '09 when activity was following off sharply.

Yes, Tim, recall that this is a late cycle business. What you have -- you have the dynamic of even though the economy starts to trend down, whatever you are building is still being built and finished. So those rental rates were established at the beginning of the project. They continue through the project.

And then what happens as you finish the project is that equipment comes back. And as we have said before, there are fewer places for that equipment to go. There is more equipment out there, so therefore the rates are impacted to come down.

So there is a delayed effect because it is a late cycle business.

Yes, late cycle, plus just the job has been contracted out at a fixed rental rate.

That is correct.

That's right.

Okay. That helps. Thank you.

Jeff Hammond, KeyBanc Capital.

Hey, just a couple quick follow-ups. Can you tell us what the acquisition contribution was in Infrastructure in the quarter?

Yes, Jeff, all the acquisitions combined added about $18 million in revenues. And they were slightly dilutive, less than $1 million.

We had expected that they would be -- there were four acquisitions that occurred in the last five, six months in the Infrastructure group. And the net result was $18 million in sales up, but a slight negative contribution.

Okay. Then as we go forward, you get the seasonal uptick there. So maybe a little bit more contribution (multiple speakers)?

Yes, the second half, Jeff. That is the other thing, too. You know, speaking of the second half, they will contribute in the second half as opposed to the first half as well.

Okay. Then is there a way to quantify how much pull-forward there was in the Rail business and how maybe that shakes out in the out-quarters?

No, I mean -- I think in the guidance we gave, Jeff, we had obviously a much stronger quarter than we thought -- again because of timing. Second quarter, though, is going to be very strong, and we will go from there.

Overall, we expect the business to at least equal last year's record results, and we are hopeful that they will even do better.

Okay. Thanks, guys.

(Operator Instructions) There are no further questions for you at this time. I'll turn the call back over to the leaders.

Well, thank you. Thank you for those questions. We appreciate your continuing interest and we look forward to speaking to you in July. Have a good day and thank you very much.

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