Enviri Corp (NVRI) 2010 Q2 法說會逐字稿

Good morning. My name is Andrea and I will be your conference facilitator. At this time I would like to welcome everyone to the Harsco Corporation second-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 or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement.

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

Thank you very much. Good morning, everyone. I would like to welcome you to the second-quarter 2010 conference call. I have here with me today Gene Truett, our Vice President, Investor Relations, and of course Stephen Schnoor, our Chief Financial Officer. Before we begin I will ask Gene to read the Safe Harbor statement.

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 reasons for any differences that could occur. We invite you to review the SEC filings at your convenience.

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

Thank you, Gene. Our performance in the second quarter, as we pointed out in the press release, was in line with our overall expectations. However, just like the first quarter our Harsco Rail, Metals, and Minerals businesses posted strong results while our Harsco Infrastructure business, unfortunately, again performed well below expectations.

We were particularly pleased that four of the five business platforms in our portfolio posted improved operating margins. And this is, of course, very encouraging from the standpoint that our aggressive cost reduction and continuous improvement initiatives are having the desired effect.

Clearly, however, our Harsco Infrastructure segment continues to suffer from the lack of any meaningful commercial construction projects in key end markets and from increased customer-driven project deferrals, postponements, and cancellations, all exacerbated by ongoing pricing pressures.

In addition, overall market anxiety and economic uncertainty is also having an adverse effect on both the timing and the scope of industrial maintenance projects as well as non-residential construction projects. Some of which is being influenced, by the way, by the escalation of the sovereign debt concerns particularly in Europe.

These external impacts to the Harsco Infrastructure business during the second quarter were much greater than we had anticipated and have significantly diminished our outlook for 2010. While the case could be made that we may be beginning to see the bottom of the cycle, we feel it's still too early to make this pronouncement, particularly given the recent concerns expressed by some economists about a second-half 2010 global slowdown.

We expect the performance of Harsco Infrastructure to show some sequential improvement in the third quarter as it did from quarter one to quarter two. However, it will again incur a loss, albeit a somewhat smaller loss than the first and second quarters. The loss in the third quarter is expected to be in the range of about $10 million to $13 million.

Although we expect the sequential quarterly improvement to continue for the year, it is now unlikely that this business segment will be profitable in the second half of the year or for the entire year. The ongoing macroeconomic uncertainty and the lack of visibility in end markets makes forecasting with any accuracy in this business extremely difficult.

I would like to address up front this morning the comments that I made at the last conference call back in April about the expected improvement that we had at that point regarding the second-half performance of the Harsco Infrastructure business. You may recall that I highlighted three factors that underpin our expectation for a better performance and a return to profitability in the second half of the year compared with the expected first-half loss. The three factors included the following -- the expected benefits from our aggressive cost reduction initiatives, the expected benefits from our emerging market strategy, and the expected benefits from seasonality and market improvements.

Let me start first with the expected benefits from cost reduction initiatives. These are showing the benefits we expected as evidenced by the sequential quarterly improvement. Unfortunately, the severity of the ongoing pricing pressures and the high level of project deferrals, postponements, and cancellations have greatly diluted these benefits.

Secondly, the expected benefits from emerging markets. We do expect the second half to benefit somewhat from a better performance from emerging markets. However, on a weighted contribution scale the impact, while important to us, is not material to the overall results.

Finally, the third factor which was the expected benefit from seasonality and overall market improvement. We are not seeing any measurable improvement in any key end markets. The poor market conditions coupled with, again, the unprecedented number of project deferrals and pricing pressures will now result in this factor actually being negative instead of positive as we had expected.

Thus the cumulative affect of these factors plus the substantially higher loss than we had expected in the second quarter of 2010 all add up to a very poor performance for the year, which is quite different than what we had expected back in April. Irrespective of current market conditions, we continue to execute on what we can control.

We now have a new CEO of Harsco Infrastructure. In the last year we have effectively replaced the majority of the management team in this business, bringing in fresh leadership to drive the turnaround that we expect. Although early, I am encouraged by the progress we are making in improving the business but this is currently being greatly overshadowed by the distressed end markets.

I would also add that despite operating losses the Harsco Infrastructure business did generate positive free cash flow for the first six months of the year and we also expect this business to post very positive free cash flow for the entire year. Given the severity of the economic cycle and the ongoing pricing pressures, we believe further cost reduction countermeasures will most likely be necessary in the Harsco Infrastructure business.

I have directed our new CEO of Harsco Infrastructure to evaluate our cost structure and to develop an action plan in this regard. You may recall that our new CEO comes to us from Flour Corporation, which is one of the world's largest and best providers of engineering procurement and construction services, so he is well familiar with end markets and its present challenges. He will also be fully engaged in further developing our emerging market strategy where we do continue to make steady progress in growing our business.

All these actions we believe will better position the Harsco Infrastructure business for the inevitable improvement in end markets as we work our way through this very, very difficult cycle.

Despite the extremely challenging economic environment for Harsco Infrastructure, all the other businesses continue to perform relatively well. In fact, our Harsco Rail business on a full-year basis is positioned to closely approximate last year's record results despite the headwind of higher LIFO costs in 2010.

Also despite negative operating performance in our Harsco Infrastructure business, we expect to achieve free cash flow of approximately $200 million this year. And I would add that all business platforms are expected to post positive free cash flow for that year, which again is very encouraging.

In addition to these actions, we have continued to effectively execute our emerging market strategy. In 2009 we generated 22% of our revenues from these markets. For the first six months of this year we achieved about 24%, this is almost double the level we were just several years ago and we believe we are on target to achieve our stated goal of 30% by 2012.

Most important for the future of Harsco is that we now have in place, I believe, a very high quality, new generation management team that will take the Company forward. At the same time we continue to significantly lower our overall cost structure and we do -- and we are gaining momentum in the emerging markets, while at the same time continuing to generate healthy free cash flows. This strong foundation positions us well, we believe, to resume our growth strategy in 2011.

I will now turn the call over to Steve to give you a little more color on the second-quarter performance. Steve?

Thank you, Sal, and good morning, everyone. As reported in this morning's press release, we recorded earnings per share from continuing operations of $0.40 for the second quarter. Overall, second-quarter earnings met our expectations and accordingly were below the second quarter of 2009 earnings per share of $0.52.

We reported top-line growth of $10 million or 1% over 2009. Foreign currency translation decreased sales by $15 million compared with 2009. Second-quarter results reflected improved market conditions for our Metals and Minerals businesses, the continued exceptional performance of our Rail business capitalizing on its strong backlog, but also reflects continuing depressed global market conditions in non-residential construction in our Infrastructure business as Sal mentioned.

With that as background, second-quarter sales, earnings, and operating margins improved substantially year-over-year in the Metals business. Sales were slightly down from the Rail business but earnings equaled last year and margins improved to a record level. Sales, earnings, and margins all improved in the Minerals and Industrial category despite significantly higher LIFO expense.

Again, a major disappointment in the quarter was the continuing poor market conditions in the Infrastructure business. Quarterly loss of $13.6 million, although lower than the first-quarter loss of $19.3 million, was much worse than we had expected. Compared with the second quarter of 2009, foreign currency translation negatively impacted operating income by approximately $1 million in the Infrastructure business. The other businesses were not significantly affected.

On a positive note, as communicated at our annual analyst conference in December, we assumed that our Harsco Metals customers would produce 160 million tons of steel in 2010. We currently expect our customers to exceed that production level this year. Through the first two quarters our customers produced approximately 85 million tons of steel; we currently expect slightly less production in the second half of 2010.

The biggest factors affecting our expected 2010 performance are rental equipment utilization and pricing in our infrastructure business. In December we assumed an average utilization for 2010 of 58% and in April we assumed 54%. In the second quarter that utilization rate was less than 52%. We do not expect the utilization rate to improve significantly for the rest of the year and will be below the rates assumed in both December and April.

Additionally, second-quarter rental rates did not improve significantly from the first quarter and were over 20% below the second quarter of 2009 rates. Rentals were the most profitable revenue source for our infrastructure business, therefore, reduced equipment utilization coupled with lower rental rates had a very substantial negative affect on both income and margins as occurred in the second quarter and first half of 2010.

As a reminder, a 1% change in utilization rates affects operating income by $7 million and the effect of reduced rental rates has almost a dollar-for-dollar negative incremental impact on operating income.

On a corporate-wide basis selling, general, and administrative expenses increased slightly in the second quarter and first half compared with 2009. The increase is attributable to the SG&A costs of the businesses that we acquired within the last year as well as to a lesser extent professional fees incurred for the Company's supply chain initiatives.

I will now briefly review the second-quarter cash flows in our liquidity position and then discuss performance by business segment in more detail. Year to date free cash flow was a respectable $51 million, approximately $23 million less than 2009, a year in which we achieved record free cash flow. This difference is a direct result of lower income in our infrastructure business.

We continue to effectively control and efficiently use capital, further reducing capital expenditures by $8 million to $75 million from the already greatly reduced 2009 amount. Our balance sheet and liquidity positions remain strong, total debt has decreased by $16 million since December 31, and net debt has decreased by $24 million.

Our debt to capital ratio was 40% as of June 30, down from 40.1% as of March 31 and 60 basis points lower than the 40.6% as of June 30, 2009. Moreover, our available liquidity as of June 30 will exceed $600 million and is higher than our both March 31 and at year-end 2009.

Let's now review the second-quarter performance of each of the business groups. The continuing extremely difficult environment for global non-residential and commercial construction activity experienced in 2009 and the first half of 2010 has been unrelenting and continues to negatively affect our Infrastructure group. Projects continue to be delayed, canceled, and some even stopped while already in progress prior to completion.

We have also recently been informed of cancellations and delays in certain expected industrial maintenance spending as customers are closely controlling every dollar of costs. Cancellations from these particular customers are unprecedented. We now have no expectations of significant improvement in market conditions for the remainder of 2010. Therefore, we expect our Infrastructure business to incur operating losses in the remaining two quarters of 2010 and for the full year.

As we reported earlier this month, we have hired a new CEO and appointed a new CFO for the Infrastructure business. To supplement Sal's comments from earlier, we expect an intense focus on the execution of strategy to improve the business performance. These strategies have been previously communicated to include growth in emerging markets, including expanding our operations in Latin America, the Gulf region of the Middle East, and the Asia-Pacific region, as well as our global industrial maintenance business.

Additionally, a key focus for the new leadership team will be to further streamline administration and reduce costs in the global Infrastructure operations. We expect significant progress on this strategy in the second half of 2010 with substantial benefits realized in 2011.

Global steel production in the second quarter of 2010, as well as the steel production of our customers in particular, again improved from the historically low production levels experienced in 2009. Therefore, as expected, second-quarter results for Harsco Metals improved significantly from both the first quarter of 2010 and the second quarter of 2009. We are particularly pleased with both the second-quarter top-line growth of 22% and the operating margin improvement of 630 basis points in our Minerals group compared with the second quarter of 2009.

Customer production volume increases at a lower cost base resulting from previous restructuring actions more than offset increased fuel costs, resulting in an almost 500% year-over-year increase in second-quarter operating income for the Metals business. Foreign currency translation had only a minimal effect on earnings compared with last year.

For the remainder of 2010 we expect margins in the Metals groups to continue to reflect improvement over last year. However, third-quarter margins are expected to be lower than the second quarter due to seasonal reductions in customer production volume, particularly in Europe.

Harsco Rail again reported exceptional results in the second quarter. Operating income approximated last year and operating margins of 25% were 170 basis points higher than 2009 and a record for any quarter. Higher margins reflect the results of our continuous improvement program, which has positively affected all aspects of this business. Just three years ago this business struggled to achieve double-digit margins.

We expect a record sales performance from this business for 2010 and operating income is expected to approximate last year's record reduced only by increased LIFO expense. However, due to the timing of shipments, results in the first half will exceed those in the second half as both the third and the fourth-quarter earnings we expect to be lower than the first two quarters.

Fourth-quarter earnings will be, by far, the lowest of the year. However, backlog and bidding activity remain strong and we again expect strong earnings from Harsco Rail in 2011.

The Harsco Minerals and Industrial groups posted strong results in the second quarter exceeding last year's sales, operating income, and operating margin. The quarter benefited substantially from improved volume in metals prices in our Minerals business and strong performance from international operations. We expect the Harsco Minerals business to continue to perform well in the remainder of 2010, but not as strong as the second quarter as minerals pricing has declined since June 30.

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

Thanks, Steve. Let me now summarize our current outlook for the year and the third quarter; then we will, of course, take your questions.

Although we are pleased with the positive direction of our Harsco Metals, Minerals, Rail, and Industrial business platforms, overall results for the second half of the year will be significantly and adversely impacted by very poor end market conditions within the Harsco Infrastructure business. Given the extremely challenging economic environment in this business, it is with great disappointment that we have to revise our full-year 2010 guidance for continuing operations to $0.80 to $0.90 from $1.55 to $1.65 per share.

As we pointed out in the press release, this guidance doesn't exclude any additional reorganization actions that we may have to undertake in the Harsco Infrastructure business once our new CEO completes his full assessment of the business.

With respect to the third quarter specifically, Harsco Metals is expected to post improved results over last year's comparable period. Harsco Rail results are expected to be slightly lower than last year's comparable period due principally to timing of shipments where our major customer in China asked us to accelerate shipments from the second half of 2010 to the first half of the year, which we did.

Harsco Mineral's results are expected to be slightly below last year's third quarter due principally to market conditions in the US and also to metals prices. The Harsco Industrial platform will perform relatively well, but again due principally to higher LIFO costs the group is expected to turn in slightly lower operating results compared with last year's third quarter.

And also may I add, the income tax rate in the third quarter is expected to be in the area of about 26%, which is consistent with what we have been saying all year. But this is substantially higher than the actual tax rate in 2009 in the third quarter of 15.7%.

Thus, our present outlook is for the third-quarter earnings per share for continuing ops to be in the range of $0.15 to $0.20 per share and that compares with $0.40 last year. The significant change from last year's third quarter is due principally to Harsco Infrastructure where last year, I will remind you, this business generated approximately $23 million in operating income. This year the expected loss is in the range of $10 million to $13 million. This, of course, is a considerable year-over-year swing of about $0.30 to $0.33 which puts tremendous stress on the quarterly results.

That completes our formal comments and, of course, we would be happy to take your questions.

(Operator Instructions) Glenn Wortman, Sidoti & Co.

Good morning, everyone. Now you guys have had a pretty tough time getting a handle on the profitability in your Infrastructure segment over the first half of the year. How confident are you in your ability to forecast the rest of 2010?

It's a very good question, Glenn, and obviously we can't disagree with your point there. The only thing I would add, if you looked at the first half, certainly the level of cancellations and postponements and the lack of visibility were for levels we have not seen before. I mean we even had cancellations all the way up through July that we were expecting that would benefit the second half.

What we have done is we have taken another from the ground up view of the second half and factored in only projects that we know for certain we are going to get. We tried to be as conservative as we possibly can and realistic as we possibly can, again with the caveat that there is limited visibility in this business. But certainly when you look at the bidding and you look at the things that we are working on, it's very difficult to really get your hands around exactly what the customers are going to do.

Also, and most important I may add, our new CEO and new CFO were very actively engaged in this forecast, if you will. And I believe they brought a great sense of realism to the numbers, to the outlook.

Ivor, who is our new CEO, as you know, comes from Flour. He has a very good insight into the business. He is an exceptional leader. We think he is going to make a tremendous difference in this business. So hopefully that answers your question.

So would you qualify this new outlook as more on the conservative side?

Realistic, how is that? Maybe that is a better word. More realism and less optimism.

Okay. And then you mentioned the rental rates. Has pricing stabilized recently?

Yes, Glenn, this is Steve. In the second quarter they stabilized and they were slightly higher than the first quarter, but we don't expect a significant increase for the remainder of the year. So I am just assuming that they will stay where they are right now.

Okay. And then just lastly, do you think you guys are losing any share in this market or just general conditions are so bad that you are just getting hit this hard?

No. I mean, that is a good question. We ask the same question and we believe we are not losing market share. In fact, in very small cases we are gaining market share.

We are gaining a little momentum in some of the key emerging markets, but as I mentioned earlier it's not going to have a material impact. But certainly that trend is going in the right direction, but we do not believe we are losing market share.

Okay, thank you very much.

James Lucas, Janney Montgomery Scott.

James sounds so formal. Good morning, guys. I guess the first question here, or maybe request, is when you look at the $25 million profit you turned a year ago in Infrastructure versus the $14 million loss, that nearly $40 million swing, could you bridge the delta of what has happened year over year to give us a better understanding of exactly what has changed?

Year over year I can tell you two of the main -- the rentals are the most profitable segment of this business and rental rates declined over 20% year over year. Utilization rate declined by 300 basis points or more year over year, so between those two factors that is a major effect on profitability.

I guess that is not really -- I mean trying to get to the heart of it, of understanding what exactly is the impact. Because I guess a different way to ask it is this -- obviously we on the outside, as well as you, have underestimated the severity of what is going on in that business.

There has been some restructuring there already. You have got the new leadership in place. But what is it about the cost structure within that Infrastructure business that the detrimentals are being as severe as they are? What is it that you can do to more dramatically reduce the breakeven level for this business?

Well, you have from a cost structure, Jim, as you know we have a lot of branches. We have taken about 50 branches out already, but certainly -- plus we had quite a bit of equipment. So you got the depreciation, you got the D&A. So you got a large D&A number in there; then you have this cost structure from a branch system, which we are continuing to shrink by the way and we are not done yet. So that is a driver.

But like Steve said, the rentals essentially, significantly are down year over year and those are almost dollar for dollar to the bottom line. Then you add in the much lower utilization rate. You saw the metric on the utilization rate, $7 million for every 100 basis points.

I could tell you without giving away the store on the rental rates that that number is exponential, so it has a dramatic impact to the bottom line. Then if you are stuck with equipment and D&A and branches, it's tough to overcome that in the short term.

Okay, that is helpful there. So having put a new leadership in place, how soon should we expect to hear what is in store for infrastructure?

What gives me -- that is a very good question, Jim. What gives me encouragement is this, we have the model; we have done it. Here is the model; we have done it in Rail. We changed the management, we restructured the business, and, boom, the Rail business performs well. It's not by accident.

We did the same thing in Metals. We changed the management, we restructured the business, and boom. Now, admittedly, there has been a slight uptick in production but we are certainly nowhere near historical levels on production in Metals.

And I believe the same thing will happen in Infrastructure. The new management team -- and we are already seeing signs of that. For example, the guy we put in to run all of Europe for us, he is doing a fantastic job and you can see it. You can see that he is turning that thing around in Europe and that gives me encouragement.

I do believe Ivor is the right person at the right time and I think he will do a great job as well as the new CFO. So I believe -- again, we have the track record there, no pun intended, with Rail and Metal. I think you will see the same thing.

Now how long will it take? It depends. Like I said, I am encouraged by what I am seeing in Europe. North America, extremely distressed; that one is a little difficult to get your mind around and get visibility on it. The rest of the world is doing okay so it's not like we have to turn the whole world around.

It's concentrated mainly in North America, certain parts of Europe, and of course the UAE is under a lot of stress because of what happened in Dubai with the sovereign debt issue. So it's becoming more isolated, Jim, which again is encouraging, so we can get our hands around that.

With the focus that we are putting on the business now and the things that we have been talking about recently with the new leadership, I can't give you an exact estimate when we will have this thing turned around but you will see a slow sequential improvement as we go through this year. Hopefully it sets it up for a fairly good rebound in 2011.

Okay, that is helpful. Then I guess just to switch gears and try to focus on the positive here, can you give us an update on how the Latin American strategy is going?

Yes, I mean, Latin America we are picking up. Again, it's all relative from a materiality standpoint. But in our Infrastructure business, for example, we are picking up some very good orders in Peru and Colombia, particularly, but we are also working on a strategy to enter Brazil very shortly on infrastructure. We have been there in metals and rail for a long time.

Chile is starting to look promising and a few other parts of Latin America. And we are shipping quite a bit of equipment, and continue to ship quite a bit of equipment, into that region; we are getting the orders. So I think, in 2011 I believe that Latin America is going to be a very strong contributor to us.

We are also setting up a presence in North Africa in infrastructure to service some of the North African countries. We are making slow progress in China, but we are hopeful to pick up some work there in India and so forth. So it's slow but we are setting up the foundation for 2011. But what we do have to deal with is the issue of North America principally.

Now the other businesses, you know, we are making good headway in emerging markets. We are hoping to have some pretty good announcements in the second half of the year, some new awards in Metals, Minerals, even Rail. And so over the next six months you will see some good news coming out of us.

And in regard to those, keep in mind that those will principally affect revenues in 2011 and beyond.

Okay, guys. Thank you.

Jeff Hammond, KeyBanc Capital.

Good morning, guys. Maybe starting with the other businesses, can you just walk through -- a lot of moving pieces here, the guidance coming down a lot. But I just want to understand how the other businesses look in the second half relative to your prior internal expectations? Are we feeling better or worse?

There just seems to be a lot of little things -- LIFO costs, timing of shipments, seasonal slowdown -- that are knocking down those businesses in the second half. I am just wondering if you are feeling any better or worse about those businesses.

No, on balance -- I will let Steve comments as well -- but on balance, Jeff, the businesses are going to perform relatively well. The only, and it's not a major difference, the only difference to note is the metals prices that we thought would be more sustainable in the second half, for Minerals that is, as what we were seeing in the second quarter and that certainly has not happened now. So that would be the only change, if you will.

Steel production has leveled off but we weren't expecting it to go much higher, so it's roughly within our expectations. We were expecting higher LIFO. We were expecting maybe a little bit of the shipments with Rail but not materially. There has been a little bit of shift between the quarters, but certainly on a macro level there has not been a significant change in our outlook for the other four platforms.

Okay. Can you quantify LIFO in 2Q and then in the second half?

Yes, the variance year over year in the second half should be about $6 million from where it was. The same, about the same amount in the first half, so it's the $6 million -- $12 million more expense this year overall.

Okay. So LIFO is not getting worse in the second half in those businesses?

No, it will affect those businesses compared to last year by that amount, but it's not getting worse overall compared with the first half.

Okay. And then just back to infrastructure. You mentioned the United States is very distressed and I am just -- back to kind of the whole share dynamic. Just as we listen to other industrial companies report, it feels like people are starting to make definitive statements that it feels like we are at a bottom, we are finding a bottom, stabilizing. Some order rates for HVAC equipment and elevators are starting to grow.

And I just wanted to understand the disconnect between what we are hearing generally from other companies and you characterizing it as still very challenged?

Our US business, Jeff, is kind of unusual relative to the rest of the world. It was really made up of two major market segments. It was made up of industrial, which is a good thing, and on the construction side it was principally commercial/multi-family, which is not a good thing.

I am not aware of anybody saying anything positive about the commercial/multi-family business. That is extremely distressed. There is some civil infrastructure work going on but certainly no major commercial/multi-family projects going on so that business has been tremendously impacted by that.

Secondly, the industrial, which has always been our strength here in North America; the issue there is two things. One is pricing, that everybody is just driving pricing down as you would expect them to under these economic environment. And, secondly, they are postponing, canceling, delaying, reducing the scope.

I can give you just anecdotally one example or a couple of examples. We had a project here that we do every year. It's worth about $7 million a year. They told us were going to do it the first quarter, then they said the second quarter, and then in early July they told us they are not doing it. They are putting it off until next year, something they never did before -- ever.

On another project they said to us we are going to do it but we are cutting the scope dramatically. We are only going to do X instead of Y, and by the way we want a lower price. So that is what is driving North America performance. It's primarily those two things.

Now where we are shifting the North American business into more the pure infrastructure, the civil works. We do have a lot of expertise in that throughout the world and we are bringing that expertise in to try to again, no pun intended, try to shore up the North American team with that kind of expertise.

We have hired recently some very good people from competitors to further develop that business for us, but it's slow. But that is the dynamics of the US market.

Okay. And then just on the cost savings, can you quantify -- you said you are on track there but can you quantify what the actual cost savings are going to be in the second half of the year? Because that was going to be a big delta and I don't have if that is just getting off -- because it sounds like you are a kind of building in a flat scenario from here from a utilization standpoint rental rate. So maybe just quantify the restructuring savings from here.

Jeff, we had previously communicated that we had taken actions to reduce costs prior to 2010 of $100 million and we have $25 million incremental in 2010. And they are being achieved, that additional $25 million. Most of that is going to infrastructure, so we are achieving those cost savings.

With the new CEO and CFO one of the prime objectives of these two guys is to relook at the cost structure even harder in the Infrastructure business. That is a top priority to immediately execute on some of those additional actions that are necessary to reduce that cost structure further for the rest of this year, and especially for 2011.

Okay. Yes, I know you gave those numbers before but my understanding was that it was going to be backend loaded. Did you get any of the $25 million cost savings in the front half or should we expect all of that? And how much of the $25 million is in Infrastructure?

It's very little, Jeff; very little in the first half. It was very little in the first half. The majority of it is coming in the second half to Infrastructure. And that was one of the reasons, one of the major reasons we thought we would have a much better second half. But, frankly, the pricing and the deferrals and the utilization and all that is just essentially eating all that away.

But, again, it feels like -- I mean just to step back a little bit, it feels like in the second quarter you kind of hit what you said you were going to do. You were going to lose less money in Infrastructure and you did. And it sounds like pricing is a little bit better; utilization is a little bit better.

So I mean are we seeing deterioration in the back half or am I overestimating what the restructuring savings is in the back half?

No. No, Jeff. The pricing and the assumption we have taken, I think as Steve said, the assumption we are taking is that we are not expecting any improvement in utilization rates or rental rates off where we are here at June 30, which is obviously significantly lower than last year's second half.

But I see your point relative -- what happens to all these cost savings compared to the first half, that is what you are saying.

I think, Jeff, it does come out to an earlier question, if I may, that I think we are taking a very prudent approach. And I think that we -- of all of the recent guidance we have given we believe this is guidance that is reasonably factual within the context of the uncertainty of the end markets.

We think that new management very quickly, within a couple of weeks, has gotten in and met with our key people to evaluate from the ground up. We are still suffering from -- still it's a visibility issue so I think that we are going to see the cost savings are going to be though, unfortunately, offset by the pricing difficulties that continue on a year over basis to be negative as well as some other market conditions.

Yes. And don't forget, Jeff, we did say that the losses in third quarter will be less than the prior two quarters, and certainly the fourth quarter will be our best quarter. So we are seeing -- that benefit is being manifested in the quarterly performance. Not to the level that we had hoped.

Okay. And then just last question on Infrastructure, so I appreciate you have a new CEO in there to run it and I look forward to meeting him, and he is going to -- you commented about taking additional actions.

But it feels like at this point, I mean how much more is there really to do given how distressed and challenged this business has been and given the current management team I am sure they have taken a harder look? What else is there structurally in your mind that needs to be done to fix the business?

I would rather wait until he comes back with his report and his recommendations, Jeff, in all honesty. But I think we can do more on both the top line as well as the bottom line. I think we can do much better on the sales and marketing end and I think we can -- he is -- that is one of his strengths.

Secondly, I think we can do more. I think there is more branches, more office consolidation, those kind of things that we can leverage off of without impacting the performance of the business.

Okay, thanks. I will get back in queue.

Yvonne Varano, Jefferies & Co.

Thanks. Sal, you gave some great color on what is going on in Infrastructure in the North American market. You touched a little bit on Europe, but could you give a little more color there from a country perspective?

Yvonne, I am sorry, are you saying more perspective on the rest of the countries?

Yes, in the infrastructure you just talked about Europe in a general sense. Is there any more detail that you can give us on what is going on in the specific countries there?

Yes, our European business, as a general statement because we operate in almost every country in Europe, is much better balanced from industrial to heavy civils and to commercial/multi-family. So they have a much, much better balance than actually anywhere else in the world, and that is probably one of the reasons the business is starting to show a little better promise there. Plus the fact that I think the new management team is having quite an impact.

So from a market standpoint, France is probably, believe it or not, our best country followed by Holland and then we go from there. The UK has turned a corner, finally, from a loss position to breakeven so that is encouraging. Germany is hanging in there okay.

Poland is starting to turn, which is very good news. Some of the other Eastern European countries are still struggling because of the debt issues and other factors. Scandinavia, parts of Scandinavia are still suffering; they are not good. So for Europe it's a mixed bag but certainly on a total basis the trend as a whole is in the right direction there.

Then if you move on to, let's say, the rest of the world, I am very encouraged by what is going on in Latin America. Middle East, Africa, and Asia very encouraged other than two areas; one is the UAE. The Dubai factor is clearly being felt in the region where they literally stopped projects overnight and continue to stop projects. A lot of projects have been slow to start up in Abu Dhabi; slow to start up in Saudi, although, again, we are encouraged by what we are seeing in Saudi for the future.

So on balance the rest of the world is looking okay as well for the longer term. So it's really back to North America and certain pockets of Europe and the UAE, that is the three areas.

And just in Holland I thought you had a lot of maintenance business there. Are you seeing the same issues in Holland that you have seen in the US with a lot of the delays or pushing out of maintenance?

Yes. Yes, we are. Same exact thing. One of our big customers there is one of the large oil companies and they have been doing the exact same thing -- deferrals, shrinking the work to a minimum, bare minimum, and also putting pressure on prices as well.

Now our Holland business is very diverse. Again, it sort of captures a lot of Europe. We have some very good balance there and we have some very good balance even within the industrial group there as well. So even though Holland is not performing anywhere near where they have in the past, they are still profitable and they are still performing okay.

Okay. Do you think that pushing out of business has the potential at all to make for a stronger maintenance cycle going into 2011?

That is where we are hopeful, Yvonne; that is where we are hopeful.

Okay. Just on the Rail business, I know there was some pull forward business into 1Q. How much advance notice do you usually get if a large customer is going to pull forward business and is there any potential for that to happen late in the second half, pulling some business forward out of 2011?

Yes. Yvonne, Gene. I think that -- keep in mind that it does take considerable time to make the units, nine to 12 months, so you don't have a great ability to pull quarters and quarters away. It's usually one quarter to the next to the next. What we simply had here was, as you know we have a very large order from a major customer and they did want some further delivery.

Now that order, if you may remember, originally was two parts. We are finishing up the first part of that major order from China as we speak and that is where these pull-forwards were. The next part we will begin -- is just beginning now and so really there won't be a great opportunity to pull those forward we don't expect from, for instance, early in 2011 into the latter part of 2010. So we are pretty comfortable the 2010 number is about where we think we are going to see it.

We are always hopeful something can happen, but we have got a good backlog. In fact, it equals -- last year at this time for China equals this year's and we think it's more likely to be delivered in 2011 as opposed to a pull-forward.

When you say that the backlog in China equals a year ago is that the full backlog or that is a year ahead backlog?

We would expect revenues from China in our Rail business in 2011 to very closely approximate revenues we will have generated in 2010. And by the way in 2009.

Yes, and some of it also in 2012. So we have a very solid foundation and we are getting new orders, Yvonne; $5 million here and $5 million there and those kind of things. We are hopeful to start announcing some of those later in the year as well.

But the bottom line with Rail is that we have a strong backlog. We believe 2011 will be another very good year for them as well as 2012, but we continue to try to improve upon that.

And just to be clear on the years, 2011 from China should look like 2010?

Yes, the top line should look like 2010.

Okay. And then 2012 a little less, because I think the contract rolls off it then?

Yes, yes.

A little less, that is correct.

Okay, perfect. Thanks a lot.

Eric Prouty, Canaccord.

Great, thanks. Just two specific questions. One, obviously a lot of discussion around the Infrastructure side and what is going on there. Any risk from a receivables standpoint or are you pretty current with receivables from customers or is there any risk there?

Eric, as you know -- and again this is Gene -- I am also the Company's Senior Credit Officer, although as I like to say Investor Relations is my day job.

I don't think so. We have taken a very disciplined approach to the credit management aspect. We clearly took actions as early as 2008 and continued them in 2009 and 2010 to make sure that we didn't keep running to people that we felt were not going to withstand the economic downturn. Of course we took risk. I think that our DSOs are pretty stable, around 70-some days.

Actually the DSO are better this year than they were last year.

There you go.

Our receivable turns are higher and our bad debt expense is lower 2010 versus the same period of 2009. We are stable in that.

And we are very adequately reserved where we believe we have any risk, so, no, I don't think that we have any concern -- should have had any concerns there.

Okay, perfect. And then with all -- obviously a lot of the corporate attention now going towards righting the ship there. What does this do for your outlook for M&A? Is that still a priority or are you going to more internally focus right now?

Well, we have, as you well know, we have a good balance sheet. We have very strong free cash flows irrespective of the challenges we have in Infrastructure and we are very actively looking on the Rail side. We would like to do a transaction on the rail side probably sometime in early 2011, so that is our focus.

Perfect. Thanks, guys.

There are no further questions at this time. I would like to turn the call back over to Mr. Fazzolari for closing remarks.

Yes, thank you. Thank you very much. Very good questions, appreciate all the input from everyone. In closing, just want to thank you for your ongoing support and thank you for joining us on this call today.

This concludes today's teleconference. You may now disconnect and have a great day.