Enviri Corp (NVRI) 2010 Q3 法說會逐字稿

Good morning. My name is Stephanie and I will be your conference facilitator. At this time I would like to welcome everyone to the Harsco Corporation third-quarter 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 redistribution 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 and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you. Good morning, everyone. I would like to welcome you to Harsco's third-quarter 2010 conference call.

I have here with me today Gene Truett, our Vice President Investor Relations, and Stephen Schnoor, our Chief Financial Officer. Before we begin this morning I will ask Gene to read the Safe Harbor statement. Gene?

Thank you, Sal, and I would like to add my good morning to everyone as well. As we do at the beginning of all of our calls, we just wanted 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 that 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 you to review the SEC filings at your convenience.

I would like to 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?

Thanks, Gene. Our program for today will commence with some very brief comments from me. Then, of course, I will turn the call over to Steve so he can give you further details on the third-quarter results. I will then comment again briefly on our outlook and then take your questions.

So let's get started with some brief opening comments. While better than we expected, the third-quarter results continue to reflect very difficult end-market conditions within our Harsco Infrastructure business. Particularly noteworthy, during the third quarter in the Harsco Infrastructure business was the unexpected reversal of moderating business conditions in key European countries, especially the United Kingdom.

Recently announced government economic austerity measures throughout Europe have aggravated an already existing negative market. This, along with continuing pricing challenges and the lingering effects of the sovereign debt crisis, has caused our outlook for Europe to be significantly diminished for the remainder of this year.

As they have for most of the year, we were pleased that four of the five business platforms in Harsco's portfolio posted solid results in the third quarter, particularly Harsco Minerals and Harsco Rail. This is very encouraging in that our aggressive cost reduction efforts, our continuous improvement initiatives, and our growth strategies are having the desired effect. Our Harsco Metals business also performed well in the quarter.

Clearly, however, our Harsco Infrastructure segment continues to be a disappointment. Market uncertainty, early termination of projects by customers for economic reasons, severe pricing pressures, and ongoing project deferrals all add up to a very difficult economic environment. The degree to which these factors continue to negatively affect the Harsco Infrastructure business is unprecedented and certainly at levels greater than had been anticipated.

While a case could possibly be made that we may be finally starting to see the bottom of the cycle, we feel it's still too early to make this pronouncement, particularly given the recent reversal of moderating business conditions in Europe. As such, we expect the operating loss of Harsco Infrastructure in the fourth quarter, excluding any restructuring charge, to at least be equal to or somewhat greater than the loss in the third quarter.

The depth, severity, and duration of this depressed economic cycle along with the lack of visibility in end-markets make forecasting with any accuracy in this business extremely difficult right now. As we respond to these difficult market conditions with additional countermeasures and a new operating leadership team we expect to incur a substantial restructuring charge in the fourth quarter. We believe this step is necessary in order to right-size the business.

We will provide, of course, all the details of the restructuring charge at the Company's annual analyst conference in New York City on December 10.

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

Thank you, Sal, and good morning, everyone. As reported in this morning's press release, we reported earnings per share from continuing operations of $0.26 for the third quarter. Overall, third-quarter earnings exceeded our expectations. Also as expected, earnings were below the third-quarter 2009 earnings per share of $0.40.

Te third-quarter 2009 earnings were impacted by an $0.11 one-time charge in the Harsco Metals segment.

In the third quarter we reported top-line growth of $8 million or 1% over 2009. However, foreign currency translation decreased sales by $16 million compared to 2009, therefore, before the negative foreign currency effects, sales grew by some 3%.

Third-quarter results reflect improved market conditions for our Metals and Minerals business compared with last year. The continued strong performance of our Rail business reflecting its high backlog, but also reflect continuing severely depressed global market conditions in non-residential construction affecting our infrastructure business and, to a lesser extent, our industrial grading business.

With that as a background, third-quarter sales, earnings, and operating margins improved substantially year-over-year in the Metals business. Sales were slightly down for the Rail business as expected due to the timing of shipments, but earnings were flat and margins improved by 130 basis points to 20.4%. Sales and income increased slightly in the Minerals and Industrial category where margins were slightly down due to lower results in Industrial group which I will explain later.

The Metals business performance met our expectations for the third quarter, while the Rail and Minerals business exceeded our expectations. Better-than-expected performance from our Rail business results in the timing of service and machine deliveries. As we have previously indicated, we still expect our fourth-quarter results for the Rail business to be much lower. However, the 2010 performance for that business is expected to be a record as we discussed in our second-quarter call.

Again, the major disappointment in the quarter was continuing poor market conditions and resulting poor performance for the Infrastructure business. The quarterly loss of $13.6 million equal to second-quarter loss was somewhat worse than we had expected. End-market conditions have simply not improved in this business.

Compared to third quarter of 2009 foreign currency translation positively affected operating income by approximately $1 million in the Metals business but the other businesses were not significantly affected.

The biggest factors affecting our expected 2010 annual performance are rental equipment utilization and pricing in our Infrastructure business. In July we assumed utilization of 53% in the third quarter. Actual utilization in the third quarter was slightly less than 53%. The market pricing or rental rates decline from both last year and the second quarter of 2010 by 15% and 5%, respectively.

Sequential deadline in pricing from the second quarter to the third quarter was unexpected. We did not expect rental rates to improve in the fourth quarter. Rentals are the most profitable revenue source for our Infrastructure business; therefore, any reduction in rental rates has a very substantial negative effect on both income and margins as experienced in the first nine months of this year.

As a reminder, a 1% change in utilization rates affects operating income by approximately $7 million and the effect of reduced rental rates is almost a dollar-for-dollar negative incremental impact. So rental rates have a greater effect than utilization.

On a corporate-wide basis, selling, general, and administrative expenses increased slightly in the third quarter and first nine months of this year compared with 2009. The increase is attributable to the SG&A cost of the businesses acquired within the last year, as well as professional fees incurred for the Company's supply chain initiative. On a year-to-date basis the increases are partially offset by approximately $4 million in lower bad debt expense.

I will now review the third-quarter cash flows and our liquidity position, then discuss performance by business segment in more detail. Year-to-date free cash flow was $106 million compared with $154 million in 2009, that is a year in which we achieved a record free cash flow. This difference is a direct result of lower income in our Infrastructure business as well as the timing of working capital changes.

We continue to effectively control and efficiently use capital. 2010 capital expenditures have increased by a modest $7 million to $130 million from the greatly reduced 2009 amount of $123 million.

As CFO I am proud to report that in September we had a very successful bond offering. We issued $250 million of five-year notes at only 2.7%. The cash has been used to pay the 7.25%, GBP200 million notes which matured actually yesterday. The significant positive interest rate differential reduced 2011 interest expense by approximately $12 million.

As a result of the September bond issue, the balance sheet cash balance increased to $330 million as of September 30. That balance has, of course, declined now as a result of the payment of the pound sterling notes yesterday. Our debt to total capital ratio was 43.3% as of September 30, increasing solely due to the September bond issuance. This ratio will decline due to the payment of the pound sterling notes.

A more representative measure as of September 30 is our net debt to net capital ratio of 35.5%. That is as low as it has been since September 2005. This compares with 37.4% as of the end of the second quarter of 2010, 37.1% as of year-end 2009, and 36% same time last year, as of September 30, 2009. So our balance sheet is in very good shape.

Let's now review the third-quarter performance in each of the business groups. The continuing difficult environment for global non-residential construction activity experienced in 2009 and the first three quarters of this year continues to negatively affect the performance of our Infrastructure group. Construction projects continue to be delayed or canceled. Additionally, delays in scope reductions again occurred in the third quarter in certain industrial maintenance spending as customers mostly monitor and control their costs.

Recently announced budget austerity measures in Europe have compounded the problem. We do not expect an improvement in these market positions for the remainder of 2010. As a result of the continued depressed market conditions as well as the winter seasonal slowdown, we again expect our Infrastructure business to incur an operating loss in the fourth quarter of 2010 possibly higher than the third-quarter loss, which excludes any restructuring charge.

With the unrelenting and persistent depressed market conditions we are further reviewing the global cost structure of this business. Every dollar of cost is being challenged, the end result will be a comprehensive restructuring plan which we expect to announce and begin to execute in the fourth quarter. Resulting cost reductions should significantly benefit the 2011 results of this business.

Global steel production in the third quarter of 2010, as well as the steel production of our customers in particular, again improved from the low production levels experienced last year in 2009. However, as expected, third-quarter production leveled off from the second quarter. Therefore, third-quarter results for Harsco Metals improved significantly from the third quarter of 2009 but, as expected, somewhat below this year's second quarter.

In the fourth quarter we expect steel production to remain at or be slightly below the level experienced in the third quarter.

The operating margin of 6.2% in the third quarter improved significantly from the negative margin of last year. We expect to end the year having achieved our stated goal for 2010 for a 6% to 6.5% operating margin for Harsco Metals.

Harsco Rail reported better-than-expected results in the third quarter. Operating income approximated last year and operating margins of 20.4% were 130 basis points higher than in 2009. This business has posted higher year-on-year margins every quarter this year. The 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 even double-digit margins.

Although, due to the timing of sales, fourth-quarter income will be substantially less in the third quarter, we expected a record sales performance from this business for the full-year 2010 and operating income is also expected to exceed last year's record. Backlog and bidding activity remained strong and we again expect strong earnings from Harsco Rail in 2011.

Overall, the Harsco Minerals and Industrial Group posted good results in the third quarter significantly exceeding last year's sales and operating income with a slightly lower operating margin. The quarter benefited substantially from improved volume and metals prices in our Minerals business. This was somewhat offset by lower performance in our industrial grading business due to the non-residential construction slowdown.

We expect the Harsco Minerals business to continue to perform well in the fourth quarter but below the third quarter due to the winter seasonal slowdown.

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

Thanks, Steve. Let me now summarize briefly for you our current outlook for the remainder of the year, that is 2010.

With moderating steel production, as I am sure all of you have read The Wall Street Journal this week, that one of the highlights, one of the feature articles, made it painfully clear that the steel production is moderating in the fourth quarter. Also, when you look at the higher LIFO expense that we have been talking to you about throughout the year as well, and, finally, when you look at the lower fourth quarter, expected lower fourth-quarter results for Rail, as Steve just mentioned to you, due to timing of orders and so forth. And, again, that has been discussed with you throughout the year as well.

So the culmination of this is that these other businesses are not expected to offset the forecasted poor performance of the Harsco Infrastructure business in the fourth quarter as they have in other quarters. Also, we expect a higher tax rate in the fourth quarter 2010 compared with last year's comparable quarter and that will further dampen results as well.

So given the foregoing, we are maintaining our previously communicated full-year 2010 EPS guidance from continuing ops of $0.80 to $0.90 per diluted share. This guidance again, of course, excludes any restructuring charge.

That completes our formal comments this morning. We would now be pleased to take your questions.

(Operator Instructions) Jim Lucas, Janney Montgomery Scott.

Thanks. Good morning, guys. First question on rail could you give us a little bit more color on what you are seeing in the backlog? You did a good job explaining in terms of the timing pattern but in terms of what the backlog looks like going into next year. And also talk about what quoting and bidding activity looks like there.

Absolutely, Jim. Good question. We get that asked quite a bit.

Just to kind of refresh your memory, in 2011 we still have quite a bit of the China order just to kind of set the stage there. Putting that aside, we have set specific targets in order for us to achieve, to offset those orders as they decline in 2012. I can tell you, as of today, we are basically on target due to bidding activities successfully winning orders.

So the backlog is in very good order. Bidding activity is actually very strong. We are doing very well on a success rate on that bidding so the whole picture is positive.

Jim, Gene. I would also, again, remind everyone that within Rail you have three revenue streams. We have around 30% of revenues that typically come from contract services; these are five-, seven-, and 10-year contracts, an annuity-type stream. Secondly, we have parts sale of upwards of 25% to 30% for units previously sold. And then the big question, of course, continues to be the replenishment of existing orders which Sal has just talked about with the strong backlog.

And, Jim, also and final point, on the bidding and the winning and you have seen some press releases already, what is encouraging to me on the Rail side is that now this work is coming from throughout the world. It's not just concentrated in one part of the world. We are having success in all the major regions of the world.

You should see and will see, hopefully by the time we get to New York, some additional announcements on some wins. And those, of course, will continue throughout 2011. So we are very encouraged and pleased at the progress of the Rail business.

All right, thank you on that. We look forward to getting a more thorough update in December on the restructuring plan for Infrastructure, but the one question there is on the rental prices down 5% sequentially was that mostly Europe based on your commentary about the worsening picture there or was it North America as well?

Jim -- and we will give you a lot more color obviously in December because we, of course, need to. It is all about Europe. If you look at the performance for the year, for the first nine months, a disproportionate amount of the loss is coming from Western Europe. So the issue is principally concentrated in Western Europe and when you look at Western Europe then you can even further decline it. The UK is by far number one, where we have the most difficulties.

Okay. And on the Metals business, your comment about the article earlier this week, could you talk about geographically what you are seeing in your customer base in terms of just the overall macro environment from a production standpoint? And also talk about what you are seeing in pricing in Metals today.

Well, Jim, I think The Wall Street article this week captured some of that. Also, I am sure you saw the recent announcements from both [Arsor Middle], US Steel, and of course Nucor with Dan DiMicco made some very strong comments. A lot of it, again, is tied into the non-res construction.

That is certainly having an impact also on the steel industry as well and certainly production is moderating. Again, Europe continues to be another drag on that as well. If you look at other parts of the world, you know, of course, Asia is doing very well. Latin America is doing very well. The Middle East is softening due to the significant construction downturn, particularly in the UAE and of course Dubai. And so it's a mixed bag.

Jim, on the pricing issue, keep in mind we have long-term contracts so pricing doesn't change through the contracts. The real issue is utilization rates at existing mills. We do benefit from new contract signings; we saw a bit of that in the quarter.

But existing mills with production down generally we lose operating leverage a little bit and when production goes up you gain it. So pricing really we are sort of neutral once we sign a contract. It really gets down to production, which is either from new contract signings or the delta of existing mills and their production or utilization rates.

Jim, also similar to the Rail business, there is a lot of bidding going on in the Metals and Minerals because they are working and collaborating together. We are hopeful that in the next 90 days that we will be able to make some pretty good announcements relative to some success that we have had throughout the world. Again, well dispersed, many geographies, and some very interesting projects.

So bear with us, but again we think this business has a very good future given the activity that is going on there.

And finally, just a quick housekeeping question. Steve, in your prepared remarks when talking about the bond refinancing what was your comment about interest expense going forward?

As a result of the reduced interest expense, 2.7% on our new bonds versus 7.25% on the bonds that we have paid off, we are estimating a savings [to] next year of about $12 million in interest expense.

Okay, great. Thank you very much.

(Operator Instructions) Jeff Hammond, KeyBanc Capital Markets.

Good morning, guys. Just -- I mean clearly a lot of moving pieces and challenges in Infrastructure, but just as I look at kind of the 2Q to 3Q trend it seems like sales were down, the loss was kind of flat, and despite some of the pricing pressures. Is that largely some of the restructuring benefit coming through that you had hoped? Are those savings starting to come through?

Yes, Jeff, the savings incrementally has been improving every quarter and that has certainly helped us more in the third quarter than it has in prior quarters for the year.

But, Jeff, as you recall too, we did expect the loss in the third quarter to be a little less than the second quarter and of course we didn't. That was attributable directly to the pricing issue that Steve mentioned.

Pricing is down from the second quarter which had a very significant affect on the business despite those restructuring savings. We are getting those savings but that is not offsetting market conditions and the pricing, the resulting pricing from those market conditions.

And that has, of course, affected the fourth quarter as well because again we were expecting the cost savings initiatives, the benefit to fourth quarter. And, again, we were expecting a modest, sequential improvement in the fourth-quarter loss. Now, of course, we are not going to see that.

We are expecting, as I mentioned in my comments, that it's going to equal to or be somewhat greater than the third-quarter loss.

Okay, but would you say the big driver 3Q to 4Q is really seasonality?

Seasonality comes into play, however, I think it's the general market conditions just being what they are with the deferrals, cancellations, and the pricing pressures we have had. We don't expect pricing to go up at all in the fourth quarter. As a matter of fact, we are assuming that it may deteriorate further.

So versus the 53% what utilization rate are you thinking?

In the fourth quarter? We don't --

Yes.

We don't see an improvement in utilization at all.

Okay. And then just on Metals, it looks like the business was roughly flat 2Q to 3Q. Your margins went from 7.9% to 6.2% and I just wanted to understand what maybe within the margin line was different.

So basically in the third quarter we expected -- first of all, we expected lower margins in the third quarter as a result of summer slowdown in Europe especially. Utilization rates going down in Europe and there were some other sites that we expected shutdowns throughout the globe, which occurred, and some of those are higher-margin sites. So the overall production rates for our businesses were down in some of the higher-margin areas.

Okay. So it was really a mix issue because revenues were again about flat?

It's a mix issue, no doubt about it. Generally speaking, when you have the slowdown in Europe, you have the vacation periods; the costs tend to get a little higher as well. Keeping in mind again that revenues are enhanced as a single point by new contract startups.

Was that a heavier hit in third quarter as you ramp or was there anything kind of unsustainable about the 7.9% in 2Q?

No, no, Jeff. We don't think so. The third quarter is always impacted by the utilization rate, particularly in Europe and a few other areas throughout the world. The Middle East is another one where we have had some utilization softness there in the third quarter as opposed to earlier in the year.

You might recall, Jeff, that in the second quarter utilization rates, global utilization rates peaked toward the high as 70% area and presently they are just in the low 70%. They are in the high 60%s now so there is a lot of operating leverage in utilization rates.

Okay, great. And then you mentioned that the interest expense savings, that is great to hear. Can you give us a sense of pension based on kind of where discount rates and returns are? How you think about pension into 2011?

Jeff, it's Steven again. We measure that as of December 31; a lot of moving pieces in the pension expense. We do expect the discount rate to have an effect on that in 2011; we just don't know what it's going to be at this point. We will talk about that in December as well.

But if you took current rates, can you ballpark what the headwind would be?

No, I can't. I wouldn't want to do that. As I said, there is a lot of pieces to pension expense and we just don't have enough information right now. We know where the trend is, as you mentioned.

Okay, great. I will get back in queue, thanks.

Tim Hayes, Davenport & Co.

Good morning. Just to start out a couple housekeeping items. What tax rate do you expect in Q4?

The tax rate for the year should be about 26%.

For Q4?

It will be around 26% as well.

Yes, it was a little higher in the third quarter. On a relative basis, too, if you look the tax rate last year was exceptionally low which was obviously not sustainable and I think we said that. I think it ended up being in the low teens or in the mid teens last year.

Actually, it was like 12% or so for the year; very, very low as a result of several, many things. This year we expect to end up at 26% or so.

Okay. And what about interest expense in Q4 versus -- since it has come down from Q3?

It will be down from where it was slightly in the fourth quarter.

Yes, but don't forget.

As a of the 2.7% --

I was going to say for one month we were carrying that extra $250 million.

Right. So it would be down slight.

Right.

Okay, that is helpful. And then turning to the Rail business, you had that big contract signed in China awhile back and that itself I believe starts to roll off sometime in 2011. That was a major contract that you had a press release on.

Now you are offsetting that with smaller wins, maybe a lot more singles versus that grand slam that that Chinese contract was. Can you help me understand how much of that Chinese contract will be offset by these smaller numerous wins that you have made recently?

Again, a reminder that the China contract does not roll off until early 2012 so it's still fully in in 2011. And you are right; the wins are more in the $10 million to $20 million range and so forth and you will continue to see those.

Again, as I mentioned to one of the callers earlier, is that we are, no pun intended, we are on track to hit all of our targets that we have set. Actually, we are slightly ahead of schedule as of today for us to continue to sustain the current revenue streams based on these wins or expected wins.

Yes. Tim, again, looking at the total revenues, say, at a $300 million level for Rail, we are confident that in 2010 and 2011 and 2012 we will be able to maintain, if not exceed at some level, that $300 million base.

Okay, thank you.

Eric Prouty, Canaccord.

Great, thanks a lot. Guys, back on Infrastructure. You described your own utilization rate. Would you believe that that approximates the, quote-unquote, industry utilization rate?

And maybe if you could just give an update from a competitive standpoint. I assume your competitors are facing the same pressure you are, if not more so. Any opportunities out there to pick off some weaker hands or what changes do you see in the competitive landscape out there? Thanks.

Eric, let me take the first part of the question on competitive. There really isn't any -- as you may recall, all of our competitors in this business -- in fact almost all the Harsco businesses are privately held, so there is really no market data in infrastructure utilization rates like there are in metals unfortunately. But anecdotally it's quite evident that the industry in general that we serve is suffering and all companies' utilization rates and run rates are down.

I don't think that that can be -- that is just a factual statement by anecdotal knowledge, even though we don't have the data points that we would like to have. There is no accumulating of that like there is with world steel and production.

As far as kind of a roll-off of it --

I mean, when you look at the competitive landscape of the ones that are being affected the most obviously are the ones that are more exposed to the non-res construction. We do have some competitors that do only industrial maintenance and so that is a different ballgame and a different impact.

But if you look that we know, even though most of them are privately owned, we know that all the ones that are exposed to the non-res construction side that they are suffering along with those. What has made our situation particularly acute is what I mentioned earlier is the fact that we had such a large concentration in Europe of our business. And Europe is just really suffering right now on that end, and particularly the UK and a few other countries that you read about every day. So that is what makes our situation a little more particular, say, than others.

Also keeping in mind that we do have the largest global footprint and that some competitors simply local and regional. If they are local and regional industrial maintenance they will do better as opposed to being more of a global player.

Sure, that is fair enough. Just more broadly I guess, given a lot of the internal changes you are making, the restructuring coming up, what does that mean as far as your pipeline or focus on M&A? And is that still an area that you are looking to pursue? Maybe if you can just get a little granular of any particular areas you are continuing to look at from an M&A standpoint.

We are being very cautious about M&A. As we have indicated that we do you obviously need to be very cognisant of the fact that we continue to generate some healthy free cash flow. We look at everything from share buybacks to dividends to acquisitions.

We do also have some pretty interesting organic growth projects that we are working on. We are hoping to share some of those with you in December which will require some investment as well. So it's a very well-balanced picture.

But as far as specifically on acquisitions, our focus is on Rail, Metals, and Minerals. We are not going to do any acquisitions in Infrastructure. We need to right-size that business. We need to get it focused. The last thing we need there is to have the management team distracted with any kind of acquisition, so there will not be any acquisitions in Infrastructure.

Sure. Okay, fair enough. Thanks a lot.

(Operator Instructions) Jeff Hammond, KeyBanc Capital Markets.

Just a few housekeeping items. Can you give us acquisition contribution in Infrastructure this quarter, just revenues from the acquisitions?

Yes, it was $21 million.

$21 million, okay. And then can you quantify what the LIFO expense was in 3Q/4Q, or what it was up year on year?

Jeff, Steve, we expect the delta by the end of the year LIFO of 2009 to 2010 to be between $10 million and $11 million additional expense.

And that was balanced between 3Q, 4Q?

And that is about [$4 million or $5 million] (multiple speakers) in the fourth quarter, I am sorry.

I am sorry, what was it 3Q?

About between $4 million and $5 million differential in the fourth quarter.

Okay, perfect. And then just on free cash flow, it says kind of approximately $200 million or approaching it I guess and I think you kind of stand just north of $100 million year-to-date. Is that kind of a stretch goal at this point or how should we think about that $200 million bogey for 2010?

Well, first of all, it is our target. The fourth quarter is always our best quarter for free cash flow. Last year we had between $150 million and $120 million in free cash flow in the fourth quarter alone. We continue to have a very disciplined approach to capital expenditures, that will continue in the fourth quarter.

We also have some opportunities in receivable collections because certain customers, large customers who normally pay at quarter end did not pay at the end of the third quarter so we received substantial receipts in the beginning of the fourth quarter.

So we have some opportunities there. We expect to have the best quarter of the year in the fourth quarter for free cash flow and we will be close to that target.

Okay, great. And then just final question. You focus most of the challenge comments on Western Europe and Infrastructure but I think last quarter North America surprised you to the downside. Can you just give us an update on any signs of life there or stabilization?

Yes, that is a good word. That is the word I was just going to say, Jeff, stabilization. It seems to have stabilized in North America.

The Middle East continues to be a challenge because of Dubai, but we are hopeful that will stabilize in this quarter as well and hopeful next year will be a little better for the Middle East. So that seems to be the trend. We thought we had Europe stabilized and then we were very surprised. Obviously, given the austerity measures, that certainly turned things around quickly on us.

Okay. Thanks, guys.

There are no further questions at this time. I turn the call back over to the presenters.

Thank you. In closing, I would just like to make a final comment here. As we turn the page on the final chapter of 2010 this year will certainly go down as the most difficult and challenging in the modern-day history of the Company.

Despite the very poor performance of the Harsco Infrastructure business in 2010, much has been accomplished at Harsco over the last 12 months. We will end the year with a very strong balance sheet as Steve indicated. We continue to generate strong free cash flows as we just discussed.

The Rail business, as again we have discussed in detail here today, is expected to achieve record results for the second consecutive year here in 2010 and we believe is well-positioned for another strong year in 2011. Harsco Metals and Harsco Minerals business had been re-energized and are positioned to perform well in 2011 and beyond.

And, finally, the right-sizing of the Harsco Infrastructure business in the fourth quarter here should position the business to perform much better in 2011.

So we look forward to sharing all this with you in New York City coming up right around the corner and we will share with you, of course, our longer-term strategies as well. So we look forward to seeing you then and I would like to thank you for your ongoing support and thank you for joining us today.

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