Enviri Corp (NVRI) 2012 Q4 法說會逐字稿

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

(Operator Instructions)

Also this telephone conference, presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation. All rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or re-distribution of this teleconference 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. Jim Jacobson, Director of Investor Relations. You may begin your call.

Thank you, operator, and welcome to everyone joining us today. I'm Jim Jacobson, Director of Investor Relations for Harsco. With me are Patrick Decker, our President and Chief Executive Officer, and Barry Malamud, our Interim Chief Financial Officer. This morning we will discuss our results for the fourth quarter of 2012 and provide our outlook for the first quarter of 2013. Then we will take your questions. Before our presentation, let me take care of a few administrative items. First, our fourth-quarter press release was issued this morning before the market opened. The release has been posted to the investor Relations section of our website.

Second, as a convenience to all participants on the call today, we have prepared a slide presentation that accompanies our formal remarks. A PDF of the slides has been posted to our website as well. We encourage you to access these slides as we will be referring to them during our remarks. Third, this call is being recorded in a webcast, and a replay will be available on our website later today.

Next, we will make statements considered forward-looking within the meaning of federal securities laws. These statements are based on our current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. For a description of such risks and uncertainties, see the risk factors section in our most recent 10-K and 10-Q, as well as in certain of our other SEC filings. The Company undertakes no obligation to revise or update any forward-looking statements.

And last, in this call, all references to adjusted operating income or loss, adjusted operating income margin, adjusted diluted earnings per share, and free cash flow are on a non-GAAP basis. These non-GAAP measures exclude restructuring charges and other special items. A description of the special items and reconciliation to US GAAP results are included in our press release issued today, as well as in our slide presentation. And both of those documents are on our website.

And now, I will turn the call to Patrick Decker, our President and CEO.

Thanks, Jim, and good morning, everyone. I'll provide an overview of our fourth-quarter performance and then share with you an update of my perspective on 2012. Barry well then discuss our consolidated and segment financial performance in more detail. I will then come back and provide you with a brief overview of what we expect and where we will be focused in 2013, as well as our outlook for the first quarter. Then I will discuss my observations of each of our business heading into 2013 and open the call to your questions. Let me start with slide 3 where I will review our fourth quarter results.

We reported another quarter of year-over-year operating margin improvement and adjusted earnings per share at the midpoint of our guidance, despite further deterioration in the metals end markets during the quarter. These expanded margins were achieved despite a decline in total revenues that was expected. Our fourth-quarter results benefited from accelerated equipment deliveries in Rail as part of our large multi-year order with the China Ministry of Railways. I would like to note that this acceleration was according to the customer's schedules.

We also benefited, as a Company, from the savings delivered from our cost reduction strategies. These favorable factors were mitigated by a reduction in our Metals and Minerals customers production volumes and lower Infrastructure revenues. Furthermore, our decision to exit contracts in Metals and Minerals that do not deliver acceptable margins and returns on capital reduced our revenue and reported earnings. We also experienced an uptick in tax expense due to factors very Barry will explain. Foreign currency translation had a slightly negative impact. As we disclosed in our press release this morning, we recorded a $265 million non-cash goodwill impairment charge related to the Infrastructure segment in the quarter as part of our annual goodwill impairment testing. While the business is demonstrating improved operating performance in the face of a prolonged market recovery, particularly in Europe, it was determined that a goodwill impairment charge was required at this time. Barry will provide more detail on our fourth-quarter performance, as well as additional color on the technical aspects of the goodwill impairment charge momentarily.

Now, please turn to slide 4. As I look back on 2012, I am encouraged by our initial progress on a number of fronts. We improved free cash flow, excluding restructuring payments, from $27 million to $60 million, despite lower revenues and earnings. This early progress towards sustainable improvement in cash flow and cash returns came from tightening our discipline around capital allocation and focusing on better working capital management. While we lowered CapEx spend in 2012, we consider this to be a healthy level of investment and allows us to continue to invest in attractive growth opportunities.

We improved our operating leverage. We grew adjusted operating income and expanded adjusted operating margin despite a decline in revenues due to challenging market conditions and currency headwinds. This was accomplished through the successful completion of the previously announced restructuring program, a focus on cost management and early progress in our continuous improvement and Lean journey. We continue to win new business and demonstrate our value to customers. We successfully commenced operations on the 25-year environmental services contract with TISCO in China late in the fourth quarter. And we won new, significant Metals and Minerals contracts and renewed contracts in key emerging markets all above our higher hurdle rates.

We leveraged our prior success in Rail and secured a number of attractive international orders. And we were encouraged by the pipeline of projects we are now bidding in Infrastructure as a result of our efforts to focus on more global accounts through our recent organization realignment. These are just a few examples which will contribute to our growth and expanded margins over the course of 2013 and beyond. Now, while I'm encouraged by our early progress and by the dedication and commitment of the Harsco team around the world, challenges clearly remain, and we have significant work to do in order for us to drive sustained cash flow and earnings growth. I will speak to this more after Barry covers the financials.

Now, I will turn the call to him for a more detailed review of our financial performance.

Thanks, Patrick, and good morning everyone. I will start on slide 6 with consolidated revenues. Revenues declined to $766 million in the quarter from $793 million in the fourth quarter of 2011. During the past year, we took several actions to increase long-term returns and invest capital more effectively. Two of these were exiting underperforming contracts in Metals and Minerals and ceasing operations in certain countries and infrastructure, which together accounted for nearly $30 million of the year-over-year revenue decline. This revenue performance also reflected an acceleration of equipment deliveries in Rail, which was partially offset by lower volume in metals and commercial construction. Foreign currency translation negatively impacted revenues by $8 million in the quarter.

Now, turn to slide 7, and I'll cover adjusted operating income. We grew adjusted operating income by 5% to $46 million in the quarter from $44 million in the prior-year quarter. Adjusted operating margin increased 50 basis points to 6.1%. The primary drivers for our operating improvement were the timing of equipment deliveries in Rail and benefits from our cost reduction actions. These gains were partially offset by lower results in Metals and Minerals. Foreign currency translation negatively impacted operating income by $2 million in the quarter. I will review each of the segments in more detail, momentarily.

Next, turn to slide 8, and I'll cover adjusted earnings per share. We reported adjusted earnings per share of $0.30 in the quarter, which was at the midpoint of our guidance range. These results were lower than the fourth quarter of 2011, due to higher year-over-year income taxes. Excluding special items, our effective income tax rate was 34% in the quarter. Let me explain this higher than normal recorded tax rate on slide 9. We operate profitably in many countries. We also currently operate at a loss in certain countries for which we receive no tax benefit. Looking at the example on the slide, if we use a 33% tax rate for profitable countries, the actual reported tax rate would be 44% because of the impact of the loss countries where no benefits are received. While this higher reported rate has an adverse impact on our earnings per share, it will not impact are cash payments for taxes. Please note, this is an illustrative example only and is not necessarily reflective of our specific results.

Now, please turn to slide 10, and I will discuss our segment performance starting with Metals and Minerals. This segment's revenues declined 10% to $334 million in the quarter from $372 million in the prior-year quarter. Exiting certain contracts accounted for $15 million, or about 40% of the year-over-year revenue decline. Our revenue performance also reflects lower volumes due to further deterioration in the global steel industry. Our customers' steel volume declined 10% in the quarter. Foreign currency translation had a negative impact on the quarter reducing revenues by $6 million.

Metals and Minerals adjusted operating income declined 36% to $18 million from $28 million. Adjusted operating margin decreased by 220 basis points to 5.2%. This performance was primarily due to lower steel production at our customers and, to a lesser extent, the impact from exiting underperforming contracts where earnings were less than our required hurdle rates. These factors were partially mitigated by our previous cost reduction actions and our continued discipline to manage costs in the current challenging market conditions.

Next, turn to slide 11, and I will cover Infrastructure. Revenues declined 12% in the quarter to $235 million from $266 million in the fourth quarter of 2011. Nearly half of the revenue decrease was attributable to our decision to cease operations in certain countries, which reduced revenues by $14 million in the quarter. Our revenue performance also reflected lower industrial maintenance services in North America, reduced equipment sales in Europe and continued softness in the commercial construction markets. Foreign currency translation reduced revenues an additional $2 million in the quarter. This segment reported an adjusted operating loss of $3 million in the quarter, compared with a loss of $12 million in the prior-year quarter. These results primarily reflected the benefits from our prior cost reduction actions, partially offset by almost $2 million of foreign currency translation.

Now, turn to slide 12, and let review the goodwill impairment charge. As Patrick said, we recorded a $265 million, non-cash goodwill impairment charge related to the goodwill in our Infrastructure segment in the fourth quarter of 2012. Accounting rules require companies to perform an annual test of their goodwill. As we previously disclosed, for the past few years we have been monitoring the Infrastructure business for potential goodwill adjustment, given the market conditions. As I'm sure you are aware, step one of the goodwill testing requires an analysis to determine if the fair value of each business exceeds its book value. As part of the step one testing for Infrastructure, we considered the prolonged recovery in the European markets and its impact on the timing of near-term cash flows versus expectations a year ago.

Based on the overall step one results, we determined it was necessary to go to step two of the goodwill testing. This second step included evaluation assistance from a third-party expert to assign values to both tangible and intangible assets. As a result of this rigorous analysis, it was determined that a goodwill impairment charge was necessary. It is important to note this is a non-cash charge, and we remain encouraged by the improvement in the operating performance in the business, despite the prolonged recovery in Europe.

Now, please turn to slide 13, and I will review Rail. This segment delivered a strong fourth quarter. Revenues grew 57% to $113 million. Operating income increased 26% to $21 million, however, operating margin declined 450 basis points to 18.4%. Rail's performance was primarily due to the timing of equipment deliveries to the China Ministry of Railways and the overall mix of equipment and parts sales. Margins were impacted by a lower quantity of replacement parts, compared with the prior year. Our margin performance also reflects the structure of the contract with the China Ministry of Railways. As we near completion of this large contract, the mix of deliveries now shifts, as expected, to a greater percentage of lower margin content, compared with the early stages of the contract.

Now turn to slide 14, and I will cover Industrial. Revenues increased to $84 million in the quarter from $82 million in the prior-year quarter. Operating income declined 5% to $12 million, and operating margin decreased 100 basis points to 15% due to unfavorable mix. Industrial's fourth quarter performance primarily reflects soft demand in the industrial boiler business, which was partially offset by strong demand for grading products. Our air-cooled heat exchangers business was essentially flat in the fourth quarter.

Next, I will turn to cash flow on slide 15. Free cash flow for the year, as defined on the slide, grew 121% to $60 million in 2012 from $27 million in 2011. This increase was primarily due to lower capital expenditures. It also reflected an improvement in our accounts receivable collections, which is a key part of our working capital strategy. Total CapEx was $265 million in 2012, down from $313 million in 2011. This reduction reflects our proactive actions to allocate growth capital more effectively. We will continue to invest in higher term projects to support our future growth, and we believe CapEx for 2013 will approximate 2012 levels.

Now, turn to slide 16, and I will review a few balance sheet metrics. Cash and equivalents totaled $95 million at December 31, 2012, down from $121 million at December 31, 2011. Total debt was $969 million at December 31, 2012 up from $909 million at December 31, 2011. The year-over-year changes in both cash and total debt balances largely reflects the cash payments for restructuring in 2012. Our debt-to-capital ratio was 52.9% at year-end, which was up from 42.7% at December 31, 2011. This increase is primarily due to the non-cash goodwill impairment charge. It is important to note we remain in compliance with all debt covenants. Before I turn the call back to Patrick, I will also mention we maintained our dividend in 2012. We understand the dividend's importance to many of our shareholders, and, just a few weeks ago, we announced the 252nd consecutive quarterly dividend.

With that financial review, I'll turn the call back to Patrick.

Thanks, Barry. Let me turn to 2013, and I'm going to begin with slide 18. Since our last call, I spent a considerable amount of time traveling around the world, seeing our operations firsthand, meeting our leaders and Harsco team members and spending time with our customers. I have also had the chance to spend important time with a number of our shareholders, as well as other key stakeholders. This on boarding process was a valuable learning experience for me, and it serves as a basis for our key focus areas I will discuss momentarily.

It also provided me with a deeper sense of the commitment from our Harsco team members to the proven principles to which the Company committed itself last summer. Those principles, again, are customer centricity, continuous improvement, innovation, employee engagement, and, ultimately, real value creation. The key to our success will be our ability to consistently execute against these principles.

Looking ahead in the near-term, we do expect to see continued volatility in our end markets and in certain geographies. As a result, we will heighten our focus on the elements of our business that we can control. Improving our cash flow generation and enhancing cash returns will remain key focus areas in 2013 and beyond.

In order to achieve this, we need to, and will, improve our working capital, because there remain notable opportunities to improve in this area, particularly in inventory and payables. We will build a robust and measurable Continuous Improvement in Lean culture throughout the Company. We will grow revenues by pursuing global infrastructure projects, winning new and attractive Metals and Minerals contracts, growing our international Rail business and capitalizing on our strong industrial position in the energy market. All of this will be done without compromising our capital allocation discipline.

Over time, our financial objectives is to move this Company to the point where we more than cover are cost of capital at the bottom of the cycle, and generate attractive returns on investment for our shareholders. Achieving these objectives requires a multifaceted approach and will take time. But we believe this heightened cash flow focus, coupled with a focus on prudent and disciplined investments for growth is a very responsible strategy for both the near- and long-term health of this Company. With this focus in place, we expect 2013 to be a year where we demonstrate further free cash flow improvements and expand our operating margin, despite the challenging end markets we continue to face.

Now, let me provide you with our outlook for the first quarter which is summarized on slide 19. The first calendar quarter has historically been our lowest EPS quarter of the year. We anticipate the first quarter of 2013 will reflect this same trend, which is driven by normal seasonality, due largely to much lower levels of commercial construction in the winter months. This is particularly acute this winter season given the weather patterns we have seen in Europe and North America. This year's first quarter will be further impacted by a difficult year-over-year comparison in our rail business.

Rail's first quarter operating income is expected to decline approximately $9 million from the same period a year ago. This is principally due to a highly favorable mix of equipment deliveries last year, and the expected shift of certain high margin equipment deliveries from the first quarter to the second quarter of this year. These delays are driven by changes in customers' delivery schedules and will shift roughly $4 million of operating income to the second quarter. As you know, our customers' delivery and acceptance schedules are very fluid, and they change from quarter to quarter. Given the profit margins on these deliveries, it can have a significant impact on our overall Company EPS in any given quarter, and we are certainly seeing the effects of that in our first-quarter outlook.

Metals and Minerals revenues in the first quarter are expected to be approximately 6% to 8% lower than the prior-year quarter. This is due, overall, to lower expected steel production in our customers and the carryover impact of contracts we exited this past year. The impact of these exited contracts will not yet be fully offset in the first quarter by the startup of significant new contracts we have recently won. These new contracts, which have much more favorable return profiles then those we've exited, will positively impact our results in the latter part of the year. Despite this expected revenue decline, operating margin percentage is anticipated to be in-line with the prior quarter due to our Company's cost reduction actions and the early stage impact of higher return contracts entering our mix.

Infrastructure's revenues in the first quarter are expected to be generally in line with the prior-year quarter. The business is expected to deliver year-over-year reduction in operating loss, due to the benefits from prior restructuring actions. While this does reflect a sequential increase in the operating loss from the fourth quarter, it is due to the normal seasonality in this business. We are encouraged by the increased levels of quoting activity on global projects, and we feel we are better suited to pursue and win these projects because of the organizational realignment late last year.

Industrial's revenues and operating margin in the first quarter are expected to be in line with the first quarter of 2012. This outlook reflects similar volumes for air-cooled heat exchangers and slightly increased order activity for grading and industrial boilers, compared with the first-quarter year ago.

We expect our effective income tax rate to approximate 30% for both the first quarter and the full-year 2013. This modest increase from historical levels is due to the factors Barry outlined.

Based on the aforementioned factors, most notably the mix and timing of equipment deliveries in Rail, we expect diluted earnings per share from continuing operations to range from breakeven to $0.05 in the first quarter, excluding special items. The Company reported diluted earnings per share from continuing operations of $0.07, excluding special items in the first quarter last year. With that review of our outlook for the first quarter, please turn to slide number 20, and I will provide you with my thoughts on each of our businesses heading into 2013.

In Metals and Minerals, we are encouraged by the availability of and our ability to win new contracts in emerging markets. This is particularly important as we expect to continue to see a global shift in steel production to emerging markets. Those customers are placing a real value on the environmental solutions we are bringing to them. While we have seen and will continue to see earnings pressure from having exited underperforming contracts, we are replacing them with new higher return contracts that will benefit results late in 2013 and beyond.

Another area of focus that is commencing this year, and we believe will increase margins over time, is a strong focus on the effective procurement, deployment, and maintenance of our fleet of mobile equipment around the world in Metals and Minerals. Recognizing this fleet is deployed over hundreds of sites today, and this is the single largest area of our capital deployment, this initiative will take time, but is a very responsible thing for us to do.

In Infrastructure we are encouraged by the steady improvement in operating performance of the business and the focus and alignment of the team around a few key initiatives. Examples of these initiatives include better coordination on global projects, improved yard management, and progress being made leveraging our engineering and design capabilities across regions.

In Rail, we expect to complete the large order with the Ministry of Railways in China in the first quarter. As a result of this order completion, we expect to see roughly $50 million less revenue in 2013, compared with last year. Now we feel very confident about the outlook and attractiveness of this business. We have leveraged our growing international presence to secure several new orders in new markets such as Saudi Arabia and Brazil, as well as continue to expand our presence in China. And I am also personally pleased by the focus the team is also placing on expanding our spare parts and after-market capabilities.

In Industrial, we have three niche businesses, each well-positioned and very attractive in markets, most notably energy. As you know, these businesses have grown considerably the last two years. While we have seen some near-term market softness, I do believe strongly in the attractiveness of the energy markets. And because these businesses generate very attractive margins and return on invested capital, our primary focus will be to look to make the necessary investments to accelerate our top line growth in these businesses.

Before we open the call to your questions, let me update you on our CFO search. Heidrick & Struggles has identified a strong pool of highly qualified candidates, and we are progressing very well in the selection process. And I'm very confident we will be able to announce the appointment in the near future.

I want to publicly recognize and thank Barry for his continued efforts and dedication in the interim CFO role. He is doing a tremendous job of leading the financial organization, particularly through our 2013 planning process and the year-end close as well as helping us maintain our capital allocation discipline. And he has been a very strong partner for me as well.

And so now we would be happy to answer questions. So, please, operator, would you open the lines for Q &A?

(Operator Instructions).

Jeffrey Hammond, KeyBanc Capital Markets.

I just wanted to hit some things on the first-quarter guidance. I guess, one, if I look at Rail, it looks like you are implying a break-even kind of quarter for Q1 '13. I understand moving pieces and dynamics there, but we really haven't seen anything even close to that in a number of years. So, I just want to understand that better. And then on Infrastructure, I think the restructuring savings was all in from the late 2011 restructuring was going to be like $40 million annually. My understanding is you did not get much benefit in Q1 '12. I'm just wondering why we're not seeing more benefit from that restructuring like we saw in 4Q to 4Q.

Sure. Thanks, Jeff. Let me start with Rail. Certainly, Q1 is going to be a tough quarter for the Rail business because we are working off the end of the China order. As we indicated in our prepared comments, the mix of content that we have in these remaining equipment pieces we're offering up to them are lower contents. So, it's going to be a lower-margin in the first quarter. And we've got a bit -- we've got a little bit of a trough here for a couple of quarters before we begin to see some of the new, larger Rail orders come on line that we have announced recently, internationally. It is a bit of a transition phase here for the Rail business, but we are very optimistic over time. And as we pointed out, that's about $0.09 of impact year-over-year for the total Company.

Secondly, on Infrastructure, we did recognize the benefits that we had expected to see before, but we saw those really pulled into 2012, so the carryover impact for 2013 in Q1 is expected to be a few million dollars.

Okay. I guess we have been asking questions on Rail for a number of years. What happens after the China contract? The consistent message is, we are kind of filling the pipeline, filling the pipeline, and there's good visibility, and I think you mentioned good growth. Are you surprised by this transition period in Rail, or is this something you kind of anticipated all along?

I think that -- I don't think that we were surprised by the transition period. These, as you know, Jeff, these are very long lead time certification jobs that we work on. The specification time is lengthy. Then, of course, the manufacture to delivery time is lengthy, as well. We've got pretty good visibility to late stage '13 and '14 because of the orders we that we have announced here recently in Saudi and India and Brazil, et cetera. So, we are encouraged. There's still work to do to continue to build out our international footprint and presence. There's additional work to be done in China. There will be additional projects to be bid there coming down the line. And, as I said in my comments, the team is also really focused, right now, on building out our after market and spare parts business which pulls through very high margin and keeps us intimate with those customers over time. It is a transition, but I don't think we're surprised, nor are we at all discouraged by the outlook in that business.

Okay, then just finally on free cash flow. Did you say you thought free cash flow would be flat year-on-year?

Are you talking about 2013, Jeff?

Yes.

No, we would expect to continue to see improvements in free cash flow.

Yes, because I just wanted -- can you maybe hit on where you think working capital is in terms of a source of cash in '13, and just how you are thinking about maintenance CapEx and growth CapEx on a full year basis in '13?

Sure. Certainly, let me speak first to CapEx. On the CapEx side, as we indicated, we think our CapEx for 2013 will be pretty much in line with what we spent in 2012. And we believe that to be a healthy level of spending. It is enough there to really go after a number of attractive contracts we either won or expect to win over the course of the year. Within the Metals and Minerals business, the question around mix between growth and replacement -- pretty consistent with what we have seen over the last year or two. It is roughly about, maybe 60% to two-thirds of our spending will be on growth, with the balance being on maintenance.

With respect to working capital, you heard me say this in the last quarter call, certainly, as I come on board, and you heard this from Henry before, working capital is an area of big opportunity for us. I'm encouraged by what I have seen the past three to four months, that when the team really focused on the receivable side, we were able to pull those past dues down to historically low levels. Therefore, I'm encouraged that when the team focuses on these areas, we do see the improvement. I think there are areas of opportunity that remain in inventory and payables. And those will be two areas that we have a particularly heightened focus going into 2013. I do see working capital continuing to be a source of cash flow opportunity for us.

And with growth CapEx -- that number is a little bit surprisingly high But as you refresh and you really take a hard look at your returns on capital and cash on cash returns, are you seeing that level of new contracts in growth CapEx to support a much higher return on capital profile?

Yes. Actually, Jeff, I stand corrected. I got those switched around for you. It is actually roughly 60% to two thirds is on maintenance, with the remainder on growth. So, my bad there.

Okay. So growth is ramping down and maintenance is ramping up?

I think we, again, continue to renew some of these attractive contracts we've got around the word in the emerging markets. Those require, obviously, us to continue to spend on the maintenance side. And, again, the growth base here is these are contracts that are multi-year, so it takes is the better part of a year to ramp-up the spending. And so we are, again, not at all surprised to see a little bit of a down tick there.

Okay. I will get back in the queue. Thanks.

Rob Norfleet, BB&T Capital Markets.

A couple of quick questions. One, Patrick, on Infrastructure, and we haven't really gotten into any more details in terms of the restructuring versus what you have done. But do you still believe that, that segment can reach profitability without any improvement in market conditions -- any rental rates and utilization rates just based on the restructuring that we put into place? Secondly, since you have had time, to obviously visit those operations and look at market conditions, do you think any additional initiatives or restructuring efforts are going to need to be taken to right-size that business?

Sure. Thanks for the question. I would say, first of all, certainly, it will be much more helpful if we see recovery in our end markets. That would certainly help quite a bit. While we are seeing some signs of stabilization there, it is still too early to declare victory anywhere in terms of an uptick. Although, we are encouraged by some of the increased project activity that's out there, particularly in the Middle East, parts of the UK, and certainly South America, we see opportunities there. I think that I am encouraged by what I see in terms of the focus that Mark and his leadership team are bringing to a few key initiatives across the business. And I am confident that, as we continue to execute those, that we will be able to drive improved operating efficiency in that business.

Again, just to remind, I think those three key areas are really, again, focusing on improved yard management, which speaks to operational efficiency. Secondly, again, winning our fair share, if not more of some of the multi- region or global projects that are out there, now that we realigned ourselves, internally, to be able to sell across regions. And then certainly, third, we've got a amount of technology in this business that is not necessarily always leveraged around the globe or across region. And so Mark has organized the team on the engineering side to be able to leverage that more effectively. So, I am encouraged. I'm optimistic we can drive further approval not necessarily without end-markets getting better. Certainly to get profitability we're going to need some help from the end markets two to do so.

Okay. That's fair. Second, when you look at the Metals and Mineral business, understandably, it still challenging and a big part of the portfolio that's in Europe. But when you look at your production labels from your customers in Q4 versus the industry even in Europe, you were down considerably more. When I look at 2013 at the forecasts like the World Steel Institute, even in Europe they are showing a 2% uptick in production. So is this more of a function of some of the under-performing contracts that we have exited that's having an impact on production, or it is more of a mix issue? I'm just trying to understand your portfolio versus what we're seeing on a geographic basis around the world.

Sure. Good question. I think it speaks more to the mix of contracts that we are in, and where our customers reside in those markets. I wouldn't tie that variation to the nature of the contracts themselves, because they are all volume driven. In terms of what we are seeing for 2013, your point is valid. The views are mixed depending on the regions around the world. We certainly, as we look at 2013, we think there's will still be some modest downside pressure from a volume standpoint in places like Europe. But we are also encouraged by what we are seeing, in certainly Asia, Latin America and the Middle East. Those two, probably, effectively offset and negate each other.

Okay. Last question is, obviously, having time as, I mentioned earlier, kind of reviewing this business. One of the criticisms on Harsco, over the years, has been you've got a very disparate group of assets that really don't interlink and have that many synergies. When you look at the portfolio, where do you see opportunities to develop cross synergies between the businesses, and maybe get investors to more better understand the model and the operating leverage that exists with upside throughout your earnings?

Yes. I appreciate the question. I would say, recognized I am still early in my tenure so I don't want to be too definitive here on those early views. I do see -- based on what I see, there is much to like about each of the four businesses. I think they each have their opportunity and their challenges. Certainly, as we are working together as a leadership team here, to really focus in on those handful of initiatives that are really going to drive great value across the Company, we are being selective in which of those truly come across the board businesses and can create value. And so -- still studying that, as we speak. I think there are some opportunities across each of the business is from and an engineering and development standpoint, because engineering is at the lifeblood of what we do here. There are, I believe, some opportunities in terms of cross-selling between a few of our businesses, as well, where do have some overlap in customers. Again, too early for me to tell to put any definitive marker out there for you.

Great. Thanks for your time.

Glenn Wortman, Sidoti & Co.

Just focusing, again, on the projected sequential performance in Infrastructure in the first quarter versus the fourth quarter. It looks like you're implying about flat revenue growth from 4Q to 1Q, but the operating loss is expected to be much larger. Is that just a geographic mix issue?

Yes. It is geographic mix in terms of impact on earnings.

Okay. And then, just looking at the margins in Metals and Minerals, you had posted year-over-year improvements in Q2 and Q3 despite the sales declines. In 4Q, the margin was down. Can you just maybe provide a little color there and then just give us your expectations in 2013 on margins for that business?

Sure. Speaking first to Q4, what really drove the margin rate down in Q4 was the bigger sequential move downward in LST volumes that we saw from the midpoint of the year to Q4. As we mentioned earlier, that was down as much as 10% year-over-year in the quarter. That really had the biggest impact on bottom-line leverage, and our cost actions, while aggressive, didn't fully mitigate that. As we go into 2013, I want to stop short of giving explicit guidance annually for that business, but I think it is fair to say that what we see happening in the overall dynamic is that the revenue that we will see that we -- from the contracts we are exiting, that revenue that goes away, will effectively be offset over the course of 2013 by the revenue we are getting from the new contracts that we are entering. Certainly, you will see an uptick in margins there from Metals and Minerals based upon that more favorable mix of contracts. Now, the big wild card out there for all of us, obviously, is what happens to LST volume. They can have certainly a meaningful upward or downward impact on margins. That's the one variable that's out there right now that I hold back from giving you any kind of explicit guidance.

Okay. Thanks for taking my questions.

Bhupender Bohra, Jefferies & Co.

I'm sitting in for Scott here. First question on Infrastructure. Could you give some color on how pricing was in the quarter? And if you can discuss some project activity which we have talked about.

Sure. I will start, first with pricing. Looking at rental rates, rental rates really stabilize from Q3 after having trailed down for the previous two quarters. It was still down 60 basis points from a year earlier. But the encouraging part was that it actually stabilize from Q3 into Q4. Still tough pricing environment, so I don't want to suggest there is a meaningful recovery there, but it was at least encouraging to see it stop the decline.

On the project side, I would say we see a growing pipeline of a dozen or so projects -- kind of above and volume on our base day to day business. We feel reasonably confident about winning our share or more of those contracts. But that really begins to benefit the second half of the year. And, as I mentioned in my comments earlier, that is really, primarily, in the UK, Middle East and parts of Latin America.

Okay. And, you just talked about the margin for 2013 on Metals and Minerals business. I just wanted to get some color -- as you said, we will see some favorable mix, and the operating margin might be better in 2013 versus 2012. Now, what actually is driving that? I mean mix is one thing. Are you doing something with the business like -- you mentioned something about like Lean or some productivity measures or something. If you can just talk about those things.

Sure. There is really, I'd say three primary drivers of that expected improvement. One is the favorable mix of contracts as we bring the new ones online. Second is we are expected to see notable benefits in 2013 from our procurement efforts as we go after the early stages of managing that fleet of equipment on a more global scale. And then certainly, third, as we expect to see benefits in the latter part of '13 around our rail Lean Continuous Improvement efforts across each one of these business, the Metals and Minerals asset deployment obviously is a rich area of opportunity for us.

Okay. That's all I have. Thank you very much.

(Operator Instructions)

Jeffrey Hammond with KeyBanc Capital Markets.

Hey, guys just wanted to -- and you gave a little bit of color here -- but if we look past Q1, and I know you're limiting guidance to Q1, but can you give us any kind of framework for how you are thinking about overall growth in each of the business on a full-year basis? Particularly, Rail given some of the transition and Infrastructure, which seems to be stabilizing but there seems to be some good contract opportunities.

Sure, Jeff. Let me give you some flavor here. We have given you a feel, I think already, for Rail in terms of what we think the year-over-year impact would be of having completed the China order and obviously not having that benefit in 2013 versus 2012. If I speak to the other three businesses, for Metals and Minerals, the top line, obviously, the big wild card there is what we expect to be happening in terms of LST volumes. That's hard for us to predict right now, but we say it is flat to modestly down based on our current outlook. We hope we are being overly conservative.

That's where were looking at right now. If you then look at the other drivers in that business, we expect that, effectively, the revenue that we would be losing from the contracts that we exited this past year, would effectively be neutralized by what we pick up in terms of the new contracts coming online. So, I call those kind of a flat year-over-year transitioning to more favorable returns in margins. And then, in Infrastructure, we do expect to see modest growth in Infrastructure in 2013, but, again, the caveat being there, it would be helpful to have a little bit of end market recovery to boost that. But we feel that, again, through some of the products we're going after, and some spots of recovery around the world that we would see some modest growth in 2013 for Infrastructure. And -- (multiple speakers) I was going to say, around it out.

For Industrial, it's a very short cycle business so we kind of see it -- out in terms of what the order activity is. Right now, we're saying that maybe flat year-over-year, but it really depends on what happens in the energy markets. As I said before, I'm generally encouraged by what we are seeing there. I think that could have -- that could be a flat to modest uptick in 2013.

Okay. And then just to go back to Rail. Maybe I missed this, but, what kind of the commensurate revenue hit in Q1 with this new $9 million Op income decline. I don't know if you framed the China contract wrapping up what the full-year revenue impact will be from that?

(Operator Instructions)

My question was on Rail, maybe I missed this, but it looks in the explicit guidance you did not give a revenue and packed in rail. And you framed how you think the revenues play out in Q1 for rail and quantify some impact on the revenue side from this China transition?

Yes, we expect Q1 to generally be flat with a year ago from a revenue standpoint. What we are getting impacted by really, is the lower margin on the remaining China equipment that we are shipping out. There might be a little bit of pressure on the revenue number just given the fact these equipment deliveries, as you know, can move from one month or week to the next. But again, over the course of 2013, you're then really looking at kind of a flat to down over the balance of Q2 and Q3. Then we would expect to see some uptick in Q4 as we begin to see some of the early deliveries on some of the new orders we just won.

Okay. And just on the Metals, can you -- is this -- I mean as we look at the exited contracts, are we -- do we essentially have two more quarters of this kind of $15 million drag? Is that the way to think about the exited contracts' headwind?

Yes. I think it is -- I would say -- I don't want to get too precise on the quarter, because obviously some of these start ups go sooner, or go faster or slower than expected. I would say it's a fair assumption to say it really is the second half of 2013 that we begin to see the real ramp-up in benefits from those new contracts.

Right, but the exit run rate of the stuff you are backing out of, is the last two quarters has been around $15 million. So we have two quarters -- two more quarters of that?

That is correct.

Okay. And then on Infrastructure, we just have kind of one more quarter of the exited countries' headwind? Is that fair?

That is correct.

Okay. Thanks a lot.

We have no further questions at this time in queue. I turn the call back to presenters for any closing comments.

Well, thank you. Before we conclude the call, I want to leave you with a few thoughts. Obviously, while we faced several challenges in 2013, as I mentioned earlier, we're going to remain intensely focused on the elements of the business we can control, and that is notably our cash flow. I'm definitely encouraged by the level of commitment throughout the Company to align around the key focus areas that we spoke to earlier. Thank you very much, and I will look forward to our next call.

Ladies and gentlemen, thank you for your participation in today's teleconference. You may now disconnect.