Enviri Corp (NVRI) 2011 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 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 the 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 and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you very much. Good morning, everyone. I'd like to welcome you to Harsco's third-quarter 2011 conference call. I have here with me today Gene Truett, our Vice President of Investor Relations and Stephen Schnoor, our Chief Financial Officer. Before we begin our call this morning, I will ask Gene to read the Safe Harbor statement. Gene?

Thank you, Sal, and 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 related to and affecting our business. What we say today is based on our best information available. It is possible that results could differ from what we tell you today. We've 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 call this morning will be as usual. We'll commence with some brief comments from me, and then Steve of course will review the quarter in a little more detail. And then I'll make a few comments on our outlook, and then we'll take your questions. So let's start with a few opening comments from me. The third quarter generally did unfold as we had expected, and as we outlined to you in the second-quarter press release, as well as the earnings call that day. With the exception of course of the end market conditions in the United Kingdom for our Harsco Infrastructure business which did deteriorate more significantly in the quarter than we had anticipated. In addition, we did incur certain other headwinds during the third quarter that precluded us from exceeding our earnings guidance. Mainly the $2.6 million in net contract exit costs of Metals and Minerals and higher LIFO costs of approximately $1 million in rail.

There are a couple of salient points I would like to make relative to the major items that impacted our results for the third quarter, starting with Metals and Minerals. The significant decline in stainless steel production, as we indicated in the press pelease of approximately 22%, greatly impacted operating income of the Metals and Minerals Segment by $5 million, and operating margins by 130 basis points. As you'll recall, with Minerals being our highest-margin business, the impact to segment results are of course amplified. Thus the mix of high revenues in the third quarter from our traditional Metals business, which has lower margins, and the lower revenues from the Minerals business, which has much higher margins, obviously had a significant net negative impact on overall operating results, on both the group and the company. Second, the Metals business did incur a $2.6 million in exit costs in the quarter, which also adversely affected both operating income and margins. As I stated throughout the year, we are determined to not renew contracts that do not offer the opportunity to improve our return on invested capital, and our operating margins. As you may recall, in 2008, those of you who have been with us for a long time, I started the unprecedented action at Harsco of exiting under-performing contracts. My focus now is on contract renewals that do not offer measurable long-term opportunities for high returns on capital and improved operating margins.

The Harsco Infrastructure Segment continued to benefit in the quarter from savings generated from last year's restructuring actions. However, during the quarter, and as I stated earlier, there was a significant further deterioration in operating results in the United Kingdom, due to that country's worsening economic conditions. I'm certain that you've seen the announcement that new construction orders in the UK are at 30-year lows and about the ongoing macroeconomic difficulties of the country. Had it not been for the UK, our Infrastructure Segment would have nearly achieved a breakeven performance in the third quarter. The slowdown in Western Europe, due to the sovereign debt crisis, is also having a negative impact on result of the business in the second half of the year, due to the uncertainty that this issue is causing, in making business investment decisions. Due to these new headwinds, we have already begun reviewing additional countermeasures and cost reduction actions to improve the future results of the infrastructure business, as we stated in the press release.

In summary, given all the headwinds that we've faced in the third quarter, we were pleased to achieve earnings within our range of guidance and we are particularly pleased with our cash flow performance for the third quarter. In a moment Steve will provide more details on the operating results of each business segment and on cash flows for the quarter. Before I turn the call over to Steve, however, there are a couple additional brief comments that I would like to make. First, it is important to emphasize to investors that the dividend is secure, and that Harsco is currently yielding approximately 3.7%. And secondly, I am pleased about the Equinox announcement that we made yesterday, because it expands our knowledge base of environmental solutions to provide recovery services to oil, sand, and the Metals markets. We are currently in discussions with a wide range of industrial customers in both Harsco Metals and Harsco Infrastructure, and we are hopeful that several pilot demonstration project will be underway by early 2012. We will share more on this technology, this exciting technology, and others, such as our ethanol technology alliance with LanzaTech at the upcoming Annual Analyst Meeting in New York City in December.

I will now turn the call over to Steve. 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 $0.40 for the third quarter. The results exceeded third-quarter 2010 earnings per share of $0.26 by 54%. Harsco Infrastructure and Harsco Industrial improved upon prior-year earnings, while Harsco Metals and Minerals operating income was below prior-year results, principally due to lower stainless steel customer's volume in the Minerals business. Harsco Rail's operating income was below prior-year due to higher LIFO costs in 2011 and unfavorable sales product mix. Overall, results in the quarter included approximately $1 million of due diligence costs for evaluation of opportunities in the rail business. In the second-quarter conference call, we had discussed the likelihood of incurring such costs. At this point, no transaction closing is imminent.

Third-quarter consolidated sales of $856 million were 14% higher than last year, with all business segments exceeding last year's sales. Foreign-currency translation accounted for 4% of the sales increase. As expected, the third-quarter effective income tax rate was lower than last year. The full-year 2011 effect income tax rate is now expected to be in the range of 22% to 25%.

I will now review our cash flows and our liquidity position, and then discuss performance of each business segment in more detail. Historically, most of our cash from operations is generated in the second half of the year, principally in the fourth quarter. This year is expected to be no exception. Third-quarter cash from operations was $120 million, far exceeding the $67 million generated in the first 2 quarters and also exceeding the $110 million generated in the third quarter of 2010.

As a CFO, I'm directly focused on continuous improvement in the cash conversion cycle, working with our customers, our Chief Credit Officer, Gene Truett, and our global business management to accelerate cash generation. As a result, in the last year we have significantly improved our working capital efficiency and reduced our bad debt expense to only 0.21% of revenues this year. Capital expenditures increased due to required funding through renewal contracts and from previously-announced incremental growth contracts in our Metals and Minerals businesses. Our debt-to-total-capital ratio as of September 30 was 38%. That's the same as June 30 and only slightly higher than the 37.6% at year-end 2010, which is the lowest debt-to-capital ratio since 1998. Third-quarter 2011 debt-to-capital ratio was significantly lower than the 43.3% for the third quarter of last year. So our balance sheet still remains in great shape, providing us with substantial financial flexibility. As you may know, our revolving credit facility matures at the end of 2012. My Assistant Treasurer and I are currently working on a plan with our bankers to renew the facility, most likely in the first half of 2012.

So let's now review the third-quarter performance of each of the business groups. Third-quarter sales of the Harsco Metals and Minerals Segment exceeded last year by 8%, while operating income and operating margins were lower than last year, due principally to substantially-lower volume in our higher return Minerals business, resulting from lower production by our stainless steel customers. Also in the third quarter, we recorded net exit costs of $2.6 million, which included costs to exit certain lower-return contracts, for which we will sell or redeploy our equipment to higher-return projects. To that point, I'd like to -- I am personally revolved in the review and approval process of new projects and contract renewals to insure the returns exceed our hurdle rates and that new products are consistent with our growth strategies. It should also be noted that almost $1 million of startup costs for the 25-year Tisco contract was recorded in the third quarter. Revenues for that contract are expected to commence in late 2012.

In the third quarter of 2011, steel production of our mill site customers was sequentially lower than the second quarter of 2011. This had a negative effect on sales and income, compared with the second quarter. Customer steel production for the remainder of 2011 is not expected to increase, principally affected by a slowdown in Europe, particularly the UK. And stainless steel volume is not expected to improve in the near term. This will affect the fourth quarter operating income, but will be partially mitigated by new contract startups and contract renewals with increased volumes. Still, fourth-quarter and full-year 2011 operating income for Metals and Minerals is expected to modestly exceed 2010.

The $3.3 million operating loss for Harsco Infrastructure in the third quarter was substantially lower than the $13.6 million operating loss in last year's third quarter, and also lower than the $5.1 million operating loss in the second quarter of 2011. The cost savings from the fourth quarter 2010 restructuring actions continue to be realized as expected. Had it not been for the significant deterioration in the UK market, the business would have been close to breakeven. The rental equipment utilization rates in the third quarter was 56.6% compared with 55.2% the third quarter of 2010, but it was somewhat lower than the second quarter of 2011, principally due to the lower activity in the UK. Rental rates in the third quarter were slightly higher than the third quarter of 2010, as well as the second quarter of 2011. We have been able to raise pricing in certain markets, however the lower utilization rates, especially in the UK offset the benefit of a slight rental rate increase.

Harsco Rail results in the third quarter were affected by several items. LIFO costs were higher than 2010, and the mix of products sold was unfavorable compared with 2010. A $12 million sale to a customers for machine that had been in service for several years was recognized at book value. This large sale at breakeven negatively affected operating margins. Without the sale and increased LIFO costs, operating margins for Harsco Rail would've been approximately 16.5%. Harsco industrial sales and operating income were higher than the third quarter of 2010. Operating margins were lower than last year due to higher commodity prices, which also affected LIFO costs. That completes my comments, and I will now turn the call back to Sal.

Thanks, Steve. Let me summarize our outlook for the remainder of the year. While we are encouraged by the overall results for the first 9 months, it remains prudent for us to presently view the outlook for the remainder of the year with a degree of caution. We do face a number of macroeconomic challenges and headwinds, particularly in Western Europe. In addition to significant deterioration of the UK economy and related construction markets, which will most likely impact our Infrastructure business, the recent announcement by steel producers that was in the Wall Street Journal last week or this week, I believe, that they plan to curtail production in the fourth quarter will obviously impact the Metals and Minerals business, and as we indicated in the press release, the shift to Rail deliveries from the fourth quarter to the first quarter will of course impact the Rail business.

More specifically, by business segment with respect to the fourth quarter 2011 outlook, Harsco's Infrastructure business, as previously noted, should continue to show an improvement compared with last year's fourth quarter. However, unlike previous quarters, the Infrastructure business will not continue to show sequential quarterly improvement as it did in the first, second, and third quarters of this year. This is due principally to two factors, seasonality and the UK non-residential construction market. The expected loss in the fourth quarter could be in the range of about $7 million to $9 million for Infrastructure, which is a measurable improvement over last year's fourth-quarter loss. And that of course excludes the restructuring charge. Because of the adverse impact of the UK market and the slowdown in Western Europe, and the US for that matter, we are proactively examining additional cost savings and countermeasures to improve both near-term and long-term outlook for this business.

Our Harsco Metals and Minerals business, will continue to be negatively impacted by the lower production volume in stainless steel as, we just discussed. Also, the general steel production slowdown in both Europe and the US will also affect results. Nonetheless, we do expect that the fourth quarter 2011 will show some modest improvement over the fourth quarter of 2010. And the improvement is driven principally by 2 things. New contracts that have been starting up, and contributing, and also cost reduction actions that are well underway. In addition, we are also proactively examining further cost savings and countermeasures to improve both the near-term and long-term outlook for the Metals and Minerals business as well.

The Harsco Rail business should again perform well, but the timing of shipments to China on the second phase of the Ministry of Rail equipment order will negatively impact expected fourth-quarter results. Certain units that were planned for the fourth quarter of 2011 delivery have now shifted to the first quarter 2012. Nonetheless, we do expect the fourth-quarter performance of Rail to measurably exceed last year's comparable period. And for Harsco Industrial, the business continues to perform well, and it will perform well in the fourth quarter, with expected results to be comparable to last year's fourth quarter.

In summary, we are seeing a challenging macroeconomic environment across many of our key end markets and again, particularly in Western Europe. In addition, we expect the sale of certain machines in Rail, as we just discussed, to shift from Q4 to Q1. Thus, as we pointed out in the press release, it remains prudent for us to be cautious as we conclude the year, and thus we are adjusting our full-year 2011 guidance of diluted earnings per share from continuing ops of $1.35 to $1.45 to a new range of $1.30 to $1.35. This implies an outlook for the fourth quarter of 2011 for diluted earnings per share from continuing operations in the range of $0.28 to $0.33, which is a considerable improvement over last year's $0.15 fourth-quarter performance, again excluding the restructuring charge. It is important to note, however, that Metals and Minerals, Infrastructure and Rail are all expected to show year-over-year fourth quarter improvement, with Industrial expected to pose comparable results to the prior year. And that completes my comments. And now we'd be pleased to take your questions.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from Jim Lucas with Janney Capital Markets. Your line is open.

Great, thanks. Good morning, guys. I want to start first on the Rail business. With a 2-part question. 1, the used equipment sale in the quarter, is this a trend that could potentially be materializing? And I was wondering if you could just flesh that out further. And secondly with Rail, does any update on your business in China in general, given all the changes that are going on with the Ministry of Rail, given what happened earlier this year in China?

Two good questions, Jim. Emphatic no on the first one. It's not a trend. It just happened as a long-term customer -- obviously we have some very good relationships with a lot of good customers, and simply with some of equipment that have been used for about 4 years and they wanted to buy it. And we sold it at net book value for a lot of reasons, but it's not a trend, but as we pointed out, it did impact margins. And regarding China, from our perspective, not much has changed from the standpoint that we continued to bid very aggressively in China. There is a lot of interest in our technology and what we do.

The China Ministry of Rail wants our machines, obviously, the second phase as we call it here. We just simply had a schedule shift from Q4 to Q1. But we still continue to make good inroads there on the Metros. We're also looking at establishing a parts business in China as well, to support and supply when all 41 of these grinders will be up and running, so there's a lot of good things happening for us in China, and there's been no material change as far as -- that's affecting us.

All right. That's helpful. And then switching gears on the Metals and Minerals side, I was hoping you could flesh out a little bit more what specifically you saw on the stainless side of the business as it related to you, and as you look at the other Metals, not looking at steel, but the other Metals, I mean, are you seeing any trends given all the macro concerns that seem to reemerge every other hour?

Yes, I understand. Good question. Probably the best place to start is on the stainless side. It just happens coincidentally, if you look at the Modern Metals October issue, which you probably don't read, but the headline says the stainless steel industry is faced with nickel price volatility, over capacity, and slow growth. And really, that headline captures exactly what we're seeing, Jim, and then we're suffering as a result of that. And that's probably the best way to really characterize and answer your question on that.

On the general Metals markets in general, yes, the uncertainty in Europe has not helped. And of course the slowdown even in the US has not helped. But as you saw in the -- I think October 19 Wall Street Journal article where the global steel market is losing a little bit of strength, and some steelmakers have begun to slow production, and that's where we are today. Now -- and I think we had indicated, in a lot of the analyst meetings that Gene and I have had and Steve and Gene have had, as we've gone around that we have seen some customers take some temporary outages, and hence the slowdown in the fourth quarter for us. But we still believe we're going to be up year-over-year because of the things I said.

All right.

New contracts, and cost reductions and so forth as I indicated.

Okay. And -- no, that's very helpful. And if I could sneak one more in, with regard to Infrastructure, taking a different approach, can you talk about -- give us an update in terms of the strategic changes that are in place, any positives that you're seeing with regard to shifting the mix there longer term?

Yes. Again, very good question, Jim. If you look at the Infrastructure business, and maybe we have not talked enough about this. You have to look at it on a region-by-region basis, Jim. If you look at our major regions of the world, Latin America for example, we're doing well there. And that business has some very good long-term prospects. You look at the Middle East and Africa, we're doing relatively well there as well. Again, we're seeing a little bit of orders coming from Saudi Arabia, and those kind of places. So that's generally doing well.

If you look at Asia Pac, we're gaining strength there. We're starting to consolidate our businesses there between China, India, Australia, and Singapore. And we think long-term that business and that part of the world is going to be -- perform relatively well. In the US, North America, our North America market because of our strong Industrial maintenance business we have in the US, it's holding up okay, I'd like it to be better. But it's holding up okay.

Then if you go to Europe, the final part of the map, the Eastern part of Europe is doing well. Poland, Russia, and some of those countries, we're doing okay. Then you look at Western Europe. Then you really have to -- it's really isolated to a few pockets. In Germany and France, we're doing okay. And UK, it's a disaster, as we just pointed out in our comments. And that's really what's driving the entire Infrastructure business now.

We have a few other small countries in Western Europe that are struggling a little bit, but they don't move the needle. It's really down to the UK in all honesty. But nonetheless, as I pointed out again in the release and we pointed out I think probably too many times already, that we are considering further cost reductions and countermeasures. We're in the middle of that right now.

We are determined to get this business healthy as soon as possible, and particularly, like I said, when you look at the geographies, it's not all doom and gloom in that business. It's really now almost isolated down to one major country and a few smaller countries. And that's it. Hopefully I didn't elaborate too much. Just want to make that point.

No, that was very helpful. Thank you for the color.

You're welcome.

Your next question comes from Eric Glover with Canaccord Genuity. Your line is open.

Hi, good morning. Thanks.

Good morning.

I was wondering sort of, what percentage of the Metals and Minerals business is actually related to stainless steel production specifically?

It's about 10%, yes, 10%. Steve just nodded his head. It's 10%. Yes.

Okay. Great. And I was wondering if you guys sort of agree with the general consensus about steel production globally for 2012? Which is I think about the 5% on a year-over-year basis? Does that sound reasonable to you? Are your customers telling you that it could be a little shaky at this point?

Yes. We're still evaluating that. We -- our planning cycle is really in November, and so we're just getting started. And so we are still talking customer-by-customer, site-by-site throughout the world, and unfortunately, I don't have a very good view as of this moment right now. I will of course by the end of -- toward the end of November as we roll all that up, based on the dialogue we have with each customer at every site, and that's typically how we compile our view for 2012. So -- but of course as you well know, it depends on the macroeconomic environment.

If we get some stability in Europe, and the US continues to hopefully show some signs of strength as we go into 2012, that will of course be huge. And of course it's back to construction again, if there's any uptick in construction, because that generates a lot of business for the steel industry. So there's just too many unknowns at the moment. And we don't have a very good view as of today. But we will, of course, at our December analyst meeting, we will give you a complete outlook for Metals as we see it.

Okay. Fair enough. And then finally, just wondering if you could talk a little bit more about Metals and Minerals in terms of -- you decided to exit some lower return contracts. Where is that this business actually going now? Are competitors picking that up or are companies taking that business back in house and doing some fills?

Yes. Generally competitors, regional competitors that we have, and as we've -- we're determined because we hear you guys. Everywhere we go, we hear that we need to improve the return on invested capital and our operating margins in Metals and Minerals. We're committed to doing that and delivering that. It all starts with -- it started back in 2008 with exiting contracts where we were losing money actually. Now we have contracts, particularly on the renewals side where the customers will not agree to the terms and conditions and the returns expectations we have, and we will exit those contracts in a nice orderly fashion.

Of course, we don't -- we cooperate and we're very professional and work it out with the customers. But long-term, that's our commitment. Our commitment is to improve -- there's plenty -- the thing about this business, which is actually a exciting about it, there's plenty of business. We have no shortage of opportunities. We could spend $1 billion in capital on this business if we wanted to. That's how many opportunities there are.

We're being very selective, we are focusing more on China, more on India. Where the Metal is going to be produced in the next 50 years, it's going to be more the emerging markets as opposed to Western Europe and other parts of the world, so we're focused our energies more towards that part of the world on future work.

Okay. Thank you very much.

You're welcome.

Your next question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Good morning, guys. Is there a way to quantify the impact of the Rail deferral? I guess what I'm struggling with is I think you said in the release you'd be comparable to 2010, which was $313 in revenue in Rail, and yet on the other hand you say you'll be north of $300 million. So it just seems like a pretty big range for the fourth quarter.

Yes, Jeff, it's around a $3 million to $4 million impact.

From a revenue or profit standpoint?

From a profit standpoint.

Okay.

Let's say -- keep it more around $3 million.

Okay.

On the profit. And leave it at that. Don't want to give you margins and all that --

Was there shift from 3Q, out of 3Q?

No. We actually ended up pretty much as we expected. There's always moving pieces, Jeff, as you can appreciate, there's so many machines that we ship -- if you're talking about China, no. There was no shift in China. There were some other smaller machines. But we always have that because you can appreciate the number of machines we cranked out of that factory in South Carolina.

Okay. And Steve, you mentioned a strong fourth quarter from a free cash flow. Can you give us a sense of what you think we will end the year from a free cash flow perspective and what you think CapEx ends up, given some of the moving pieces there?

Yes. As far as the cash goes, I mean as I mentioned, we hit $123 million in the third quarter, which as you know, far exceeded the $67 million in the first 2 quarters, emphasizes once again that the second half is a much greater cash generation half every year it's seasonal, and we expect the fourth quarter to be even higher than the third quarter. So we'll have sufficient cash to cover our balanced cash outflows, including first and foremost a dividend, then any growth CapEx for the Metals and Minerals business, and any other initiatives that we need to take care of. So once again, the fourth quarter is going to be very good, cash from operations wise, more than sufficient to cover our needs.

Yes. We should end up with a very strong balance sheet at the end of the year, Jeff.

Yes. So that leads to my next question. Your stock is kind of sitting near lows you saw in 2010 when you had a big earnings miss. 2009, where we were kind of at the bottom of the cycle, and your balance sheet, as you mentioned is best ever, and as you think of kind of balance, you still have share repurchase and I just wanted to see how you're thinking about share repurchase these days?

Absolutely. Again, good questions. Again, as you well know, we always strive to a balanced approach to everything, particularly with our cash flows, and we do expect our Board, at the November Board meeting to renew our existing 2 million share authorization, first of all, because that expires as it normally does, so we're going to get that renewed and expect it to be renewed. And then we will consider share buybacks as appropriate, to achieve this balanced view of our cash flows.

But that program was out there and you never used it. So I'm just -- are you thinking any differently about share buyback then you have been? Because you kind of talked about it -- a pretty good growth trajectory, if we can kind of look past this weak demand environment, and your stock seems to reflect the weak demand environment, so it just seems like with the be very strong balance sheet, that's a good use.

We are, Jeff. We are seriously looking at that.

Okay. Then just final question on Metals and Minerals, I know you're still trying to gauge I guess overall production. But how should we think about from your new contract signings versus the stuff you're rolling off? I mean, is the net of that growth? Is the net of that flat? How should we think about that moving into 2012?

On the revenue side, Jeff?

Yes.

Volume, don't have the full roll-up yet, but we still believe we'll show some modest improvement in revenues year-over-year. Of course you got to exclude the FX impact. I'm talking just organic. We still --

Right. I'm just trying to gauge, are you rolling more new wins on, or exited contracts off?

We are. The net is more -- I get what you're getting at. The net is more. More new ones as opposed to what we're rolling off.

Okay. And if I could sneak one more in, is there anything from your perspective you can do to mitigate some of the volatility in the stainless business? I know you capture some benefit when the prices are high, but it seems to have added a degree of volatility to a business that was historically more stable.

Yes, Jeff that's a very good question. And -- you must be in our management meetings or something. Yes. The answer is yes. The way you do it is by new contracts in different regions of the world. As I'm sure you know, the majority of this is North American-based. The old XL.

And we are making some headway, as you recall, we're just starting up new contracts in Slovenia and should be starting up new contracts in Austria. We're starting up a new one in China and other parts of the world. So as we get -- we're actually bidding on a few others that we think we're going to get over the next few months or so. So as we continue to get these new wins, and spread this out, we'll be able to balance that much, much better. And so the impact will not be as amplified as it has been in this year, and particularly the second half of this year.

Jeff, the shortfall we should emphasize in stainless steel production was almost entirely US-based. So getting these additional contracts on the geography should balance that out.

Okay. Thanks, guys.

You're welcome.

Your next question comes from Glenn Wortman with Sidoti & Co. Your line is open.

Good morning, everyone.

Good morning.

Just on Infrastructure. If your Infrastructure markets bounce on the bottom here or even deteriorate moderate modestly, given the cost conversations taking place, do you think you can get this business back to probability next year?

Well, as we indicated, again -- I hate to keep going back to the press release, but we are reviewing additional countermeasures and cost reduction actions to improve the results. And so we have not -- I would emphasize that we have not given up on the Infrastructure segment, being at or near breakeven, excuse me, I'm losing my voice, in 2012. But the results still mean even if we were to get close to breakeven, it still shows a measurable improvement year-over-year.

Okay. And then can you also help us better understand what's driving the Industrial business? Sales were up 46% in the quarter but based on your commentary, you're looking for a comparable performance year-over-year in the fourth quarter. Which does imply a pretty significant sequential decline. Can you just help us better understand the drivers there?

Yes. One of the main drivers is the international expansion. This year we opened up in Brazil, China, and Australia. And so that's a lot of the revenue coming from there. Some of those locations are still in the startup mode, they're not contributing as much to -- again, we don't want to make excuses, but I'm just trying to explain -- there is some costs associated with that. And so the margins are not as high as they will be, particularly as we get into the future. But that's what's accounting for part of that revenue growth.

How should we think about revenue in the fourth quarter relative to the third?

I believe we are forecasting -- if I recall, about comparable -- revenues as well as operating income. And the margins should be comparable as well. In fact, yes, I think that's what it is. That's what we were -- on the Industrial business? The Industrial business would be higher revenues, a little higher than the -- actually, than last year's fourth quarter, but a little down from the third quarter, due to seasonality. This year's third quarter.

Okay. All right. Thanks for taking my questions.

Sure.

Your next question comes from Scott Graham with Jefferies. Your line is open.

Yes, hi, good morning.

Good morning.

So it looks like working capital, you did a nice job there in improving the turns. I wanted to maybe revisit a previous question that hopefully you can answer about capital expenditure expectation for the full year 2011?

The CapEx, it all depends on the growth projects for Metals once again, and I would expect the trend from the first 3 quarters to be about the same with the growth CapEx for Metals and Minerals. So it's similar to the trend in the first 3 quarters or the year.

Okay. Then if that's the case, given that bears a growth CapEx component that I'm not sure was fully contemplated in the December analyst meeting, I'm just wondering, with this very large contracts with Cisco ramping up as we speak, what does that mean for CapEx in 2012, do you think?

Well, that contract, it's starting to ramp up now as I mentioned earlier, some startup costs and the CapEx will be part of the fourth quarter this year as well as the first half next year. It's a 40%, 60% joint venture. We have 60%, they have 40%. So 40% of the cash will be coming from our partner. So the CapEx will be partly the fourth quarter, and the first half of next year for that project.

And then we should see CapEx drop back down?

Well, I mean, CapEx, we're still rolling it up for next year. Our plans are in process. We're looking at various projects available to us, the capital allocation judgment. And then we're going to allocate that capital at the highest return projects, so the specific amounts for 2012, I don't have yet. But it's a balanced capital allocation approach to we have opportunities, we'll take advantage of them. So we don't have next year's number yet.

Okay. That's fine.

Scott, we're -- from a strategic standpoint, you got to appreciate our situation. We have an incredible opportunity right now, windows open and windows close. There's a window open right now for us in two very important markets. India and China. Those markets, the majority of the metal is going to be produced in those markets in the next 100 years. And we are uniquely positioned to take advantage of those markets. There's no other company on the planet that has that opportunity than us, and we just hate to miss that window, because it will close. When that window closes, it's going to be very difficult to get into those markets.

So some short-term pain, not only from spending growth CapEx, but also start-up costs, but we think for the long-term health of this company, and we're here to build an enduring enterprise. We're not here to build a quarterly enterprise. I know you may not like it, but that's -- my judgment is that we need to do this, because that's where the future of the metal is going to be produced for the world. And so we are committed to doing that.

Separate question. You guys have talked a lot about the opportunity to improve sourcing, and things along sort of the -- within the operations -- forgive me, I forget a couple of things that you cited there -- but you said you have it a fairly large opportunity to lower costs and really I think pretty much on a purchasing line if I remember correctly. Plant improvement benefits, that kind of thing. The plan was to do this over a 5-year period, and I'm just wondering if, given some of the weakness in some of the markets that you're seeing right now, is anything being contemplated to pull some of that forward?

Absolutely. Scott, we're working very aggressively to see if we can pull some of that forward, not only -- obviously in the fourth quarter here as we speak, and just as importantly for next year, we're trying to optimize, maximize -- it took us 2.5, almost 3 years now to get this global supply chain group up and running. They are now a live breathing entity, and I think they're going to have a very significant impact both near-term and long-term on how we operate across the globe and particularly not just on the sourcing side but also just putting together a very strong supply chain to help us compete more effectively throughout the world. So yes, we are trying to do that.

Okay. Here's my last question. Could you talk about where kind of the pension expense maybe projects out next year? Does it project out to be a little higher next year? Just a little bit of an idea? I'm not asking for specifics per se. Whatever you can give me, great.

Yes, Scott, this is Steve again. The pension obviously, the measurement date is December 31. So we're -- as part of our planning process, we're working with our actuaries to get what that estimate may be. We don't have it yet. This year's pension expense is total defined benefits I guess $13 million to $15 million. So we think it'll probably be higher next year based on the market returns in general. And the interest rates. But I don't have the amounts.

Yes. We expect it to be higher, Scott. Simply, it probably will be higher. The expense.

That's fine. That's what I thought. All right. That's really all I had. Thank you.

Thanks, Scott.

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

Thank you. In closing then, just make a final comment here. Despite the rise in headwinds that we saw throughout the third quarter, and obviously continues to the fourth quarter, we are focused on execution and cost reduction initiatives that will continue to drive the rate even point in each of our businesses down. Also, we believe we are making very notable progress in our emerging-market strategy, and we continue to reshape our portfolio of businesses to higher value solutions, and some have been announced recently. So again, we believe that Harsco has a very bright future. And we would like to thank you for your ongoing support you're going of course, thank you for joining us on this call today.

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