Enviri Corp (NVRI) 2013 Q2 法說會逐字稿

Good morning. My name is Denise and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation second 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 Web site made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement. I would now like to introduce Mr. Jim Jacobson, Director of Investor Relations. Please go ahead.

Thank you, Denise, and welcome to everyone joining us today. With me are Patrick Decker, our President and Chief Executive Officer; and Nick Grasberger, our Chief Financial Officer. This morning, we will discuss our results for the second quarter of 2013 and provide our outlook for the third quarter, then we will take your questions. Before our presentation, let me take care of a few administrative items.

First, our earnings news release was issued this morning before the market opened. A PDF file of that news release, as well as the slide presentation that accompanies our formal remarks for this call, have been posted to the Investor Relations section of our Web site. We encourage to you access these files.

Second, this call is being recorded and webcast and a replay will be available on our Web site later today.

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

Last, while there were no special items in the second quarter of 2013 the second quarter of 2012 did include special items. In this call, we will refer to adjusted results that exclude those special items. A description of those items and the reconciliation to US GAAP results are included in our press release issued today, as well as in our slide presentation.

Now I turn the call over to Patrick Decker, our President and CEO.

Thanks, Jim, and good morning, everyone. This morning we reported our second quarter EPS which was $0.30 and within our guidance range. Nick will provide additional clarity on our second quarter performance momentarily. But first I'd like to give my perspective on Harsco's performance and our future.

In short, three of our businesses, Infrastructure, Rail and Industrial delivered results that were in line or better than expectations. Metals and Minerals' results were below expectations and reflective of the significant challenges facing our customers in the steel industry. Let me be clear, I am not satisfied with our overall cash flow performance in the first half of the year, our near-term outlook, our second quarter performance in Metals and Minerals, which was disappointing and below expectations, nor the pace at which we are progressing to improve performance.

Our end markets are very challenging, there is simply no doubt about that. But we also must execute better so that we stay ahead of these challenges and position this Company for great success as markets recover. We are committed to continue taking the actions necessary to ensure this happens. To that end, we are working down parallel tracks to improve the operational performance of our businesses and to ensure that we are optimizing our portfolio. On the operational front, I have noted from my extensive travel to job sites and meetings with customers and our Harsco colleagues on the front line that over the years we have unnecessarily complicated our approach to business.

This has ranged from launching too many internal division and Company-wide initiatives and not placing enough emphasis on making sure we maintain our market competitiveness at the local level where we serve our customers. So I am placing a top priority on implementing a structured and disciplined approach to simplify and streamline our processes, cut back on a large number of internal initiatives, and make it easier for our local teams to focus on meeting our customers' needs every day. This is simply an extension of our adoption of continuous improvement, tools and disciplines.

We've started with our Metals and Minerals business where we are going bottoms up from the site level and taking a detailed review of the value we do or do not provide at each level of our business. This includes assessing the best operating model and interfaces between the division and the corporate center. We intend to move on to other businesses later this year and into next year. This, I believe strongly, will directly benefit our customers and enhance our competitive position allowing us to strengthen our local relationships and ultimately providing a greater shareholder return.

This is a bottom's up, not a historical top down approach, and at the most fundamental level is about getting back to basics and winning on the front line. It's about making sure that we have a more competitive cost position in the industry and making it easier for our local site teams to stay focused and be more empowered to provide superior service levels to our customers. We are very encouraged by the success we have seen in winning lucrative multi-year contracts in key developing markets around the world. This is proof that we have a very compelling value proposition and are poised for future growth as steel production continues to shift to those countries. The actions to which I am referring are about making sure that at the same time we do what is necessary to optimize the performance of our existing business footprint.

In parallel with improving the operations front, and as part of our approach to improving Harsco's financial profile and shareholder returns, we are taking the actions necessary to get to the right portfolio. As I've said previously, our portfolio is obviously challenged. Going forward, we believe the profile of this portfolio will include businesses that have or can achieve a real sustainable competitive advantage that positions us for attractive long-term growth, businesses that deliver strong free cash flow throughout business cycles, and have attractive return on capital profiles, and businesses that reduce our exposure over time to end markets that are highly cyclical and highly correlated.

We believe our efforts to simplify our businesses and optimize our portfolio will be highly complementary and are imperative for our future growth. We believe that these actions will lead to stronger execution and results. Now Nick will go over the quarter's results and our near-term outlook.

Thank you, Patrick. My comments will refer to the charts that were posted and I will begin on page 4. As Patrick noted, the EPS of $0.30 did come within our guidance range, albeit at the low end. I will just start with a few highlights from the quarter beginning with the Rail business. The Rail business, we will discuss in a minute, was up very strong in profit over the same quarter last year. We also, on a consolidated basis, had SG&A costs that were 2% to 3% below last year and lower than our expectations.

In terms of challenges for the quarter, far and away the largest challenge was the weakness in the steel industry. We will talk more about the impact of that on Metals and Minerals in a minute. We also had corporate costs that were somewhat higher year-over-year, about $2 million or $3 million, and these were in support of some of the areas of strategic focus that Patrick mentioned, and we expect this spending to continue into the third quarter as well and then tail off after that.

The Infrastructure and Industrial businesses were largely in line with the expectations for the quarter. Free cash flow, as Patrick noted, was another disappointment in the quarter, although much of the variance to expectations was due to the timing of receivable collection which we did realize in the month of July. As is typical in our business, we expect cash flow in the second half of the year to be much stronger. This year we are expecting cash flow to be over $100 million in the second half of the year.

So turning to slide five, the key numbers for the quarter, see that revenues were down 1%, operating income was down 12%. That is a somewhat high fall-through, about 60%, $7 million of a profit decline on $11 million reduction in revenues. This is due largely to lower by-product sales at the Metals and Minerals business, a weak mix in infrastructure and the higher corporate costs that I mentioned a minute ago. EPS was down 30% versus the 12% decline in operating income, was driven by a tax rate that was about 5 points higher than the rate a year ago. Interest expense, also somewhat higher and the effect of higher earnings in our joint ventures that is added back below the line.

Free cash flow was minus $44 million for the first half of the year. Again, we expect for the full year cash flow to be positive in the range of $50 million to $75 million. The debt-to-cap ratio has increased year-over-year to 56%. Debt was up about $85 million for the first six months of the year. We do expect that to decline, so we would view debt-to-capital to be 54%, 55% by year end. The real driver of the increase in that ratio versus last year has been restructuring spending and the write-off of the goodwill in the Infrastructure business.

Turning to slide 6, you can see the bridge on revenues for the quarter versus Q2 of last year on a business unit basis. M&M down 8%, or $27 million, Infrastructure up about 6% and the other businesses largely unchanged versus the same quarter last year.

Moving to slide 7, operating income bridge versus last year, this is the decline of $7 million, M&M accounting for $8 million of that. The Infrastructure business earnings were basically flat versus year ago, up a little. So even though the business had reasonable revenue growth, we didn't see that fall through to profit largely because of a mix issue, as well as some one-time expenses that will not be repeated going forward. The Rail business, Rail grew their operating income by $4 million year-over-year, 34%. And in contrast, Infrastructure very positive operating leverage, mostly driven by mix and in their case some one-time positive benefits in the quarter that will likely not be repeated. Then you can see the $3 million increase in corporate costs year-over-year that I mentioned a minute ago.

Okay. Turning to slide 8 on free cash flow, free cash flow year-to-date is $13 million worse than what we delivered in the first six months of last year. You can see that the principal reasons for that. Cash income is positive $26 million versus the same period last year. That is due in large part to lower restructuring spending. We spent $35 million to $40 million of cash incremental and restructuring last year versus what we spent this year in the first six months.

Working capital was a decline of -- or a use of $51 million of cash, that is $13 million more than the first six months of last year, largely due to receivables. And as I mentioned, mostly a timing issue that is already reversed. Capital spending growth, CapEx is up $14 million year-over-year consistent with what we have been discussing on the -- with Metals and Minerals and some of the new contracts that they have been executing against in China and India. And then asset sales, which largely relate to Infrastructure and the restructuring program of last year have declined as we expected year-over-year. Again, the take away box there at the bottom, just repeating that we do expect free cash flow for the full year to be $50 million to $75 million, roughly in line with the dividend outflow.

Okay. Chart 9, just a few balance sheet metrics. As I mentioned, debt increased about $85 million in the first six months. Debt-to-capital year-over-year is up about 8 points, although that will come down, we expect 54% to 55% by year end. Just as a note, the debt-to-EBITDA calculation, which we don't show here, is about 2.2 times.

You can also see on the chart that the EBITDA to interest coverage ratio remains strong and well in excess of the threshold for the debt covenant.

Turning to the business units, a few comments on each of them. Starting on page 10 with Metals and Minerals, the business showed an 8% decline in revenue for the second quarter versus last year. Operating income decreased 25%. On the positive side, we are beginning to see a favorable impact on profit of new contracts relative to exited contracts and lost contracts. So the net of all that was a modest positive in the quarter.

We do expect that dynamic to deliver $5 million to $10 million of incremental operating income in the second half of the year, mostly in Q4. You may have also seen, we announced another large contract in India. We are now in excess of [$500 million] (corrected by company after the call) of expected revenue from those new contracts in India. As you may recall, those are the higher margin resource recovery contracts that are very strategic to the direction of the business. Finally, in terms of the positives, SG&A in the M&M business is down 5% to 10% year-to-date versus a year ago.

In terms of challenges in M&M, beyond the steel industry and lower LST volume, we also saw lower sales of our byproducts. These are very high margin products for us. It's a function both of lower prices for both nickel and scrap, as well as lower volume. And the impact of those lower byproduct sales were in excess of half of the decline in the profit for M&M in the second quarter.

The other challenge in the quarter was a production outage at a major customer here in North America that is ongoing, and we expect that to continue perhaps through the balance of the year.

Chart 11, the Infrastructure business, Infrastructure revenues were up 6% or 7%, profit up 17%. On the positive side, North America, the services business was up 20% driven by strength in the western part of the country. Germany was up over 10%, and the UK business, which you may recall we restructured last year, is turning profitable now for the first time in many years. So that was certainly a highlight for the quarter for Infrastructure.

In terms of challenges, I think I mentioned this, that they have had an unfavorable mix of their services in the quarter. They had more labor-related versus equipment rental revenue which carries a lower margin. The equipment utilization rate is in the upper 50% range, which is somewhat weaker than expected. We saw softness in regions such as France, Italy, Poland and Australia. The other item that affected the operating leverage in the quarter was a few non-recurring expenses, mostly a few million dollars that was spent in support of a major trade show.

Okay. Turning to Rail on chart 12, the revenue in Rail was mostly flat. Profit was up 34% due in large part to favorable equipment mix, also we had strong sales of parts which were up about 20%. Cash flow was also very strong for rail in the quarter. Again, in contrast to the Infrastructure business, they had a few one-time items that helped them in the quarter. In terms of challenges in the quarter, some of the contract services, the volume was down there and that's due in large part to the non-renewal of a large contract here in the US.

Going forward on Rail, just a quick comment there, I think you know that we see volatility quarter-to-quarter in this business both in terms of revenue and profit because of the lumpiness of some of the contracts, as well as the impact of mix. On a full year basis, even though you will see in a minute we are expecting a somewhat weak third quarter, we see the profit margin in this business on the full year basis being kind of in the low-teens.

Finally, turning to Industrial on chart 13, revenue was up 3% and Industrial profit down 5%. Continued to generate very attractive margins at 17% in the quarter. We saw mid-teens growth for grating panels, we also experienced a favorable mix for Air-X-Changers and the business continues to generate strong results from their continuous improvement initiatives.

On the negative side for Industrial in the quarter, the pricing for grating products in line with steel prices is coming down and there is a lag effect there. And also in our Patterson-Kelley business, the demand for boilers was somewhat weaker than expected. So let's turn to our outlook for the third quarter, I'm on chart 14, beginning with the business units. For the Metals and Minerals business for the third quarter, relative to the third quarter of last year, we expect revenues to continue to be down. We are looking at something in the range of 10% to 12% down.

The OI margin we expect to be lower and, again, what you are seeing here is some of the positive churn on higher margin contracts which is serving to boost the margins despite the lower revenue. And, of course, as we look forward, we are continuing a rather challenged view of the steel industry offset to some degree by growth from these high returning contracts that I mentioned earlier.

In Infrastructure, we expect that business to continue to grow. We think high-single-digits in Q3 versus the same quarter last year, and we see a slightly improved operating margin.

Again, we are seeing positive developments in the US, offset to some degree by a continued challenging market in Europe. Even though we would expect Infrastructure to be in a slight loss position in Q3, as we move into Q4, we are expecting Infrastructure to become profitable.

On the Rail business, we're looking at a revenue decline in the high-teens due to a very difficult comp year-over-year due mostly to the fall off of the China business. The OI margin we expect to be in the mid-single-digits, but, again, on a full year basis with the rebound in margin in Q4 we expect the business to have 10% to 12%, maybe a bit higher, margins for the full year.

In industrial, we expect low-single-digit revenue gains in the third quarter. The OI margin to remain in the mid- to high-teens, and overall, we see solid demand for most of the products in the Industrial business.

On a full year basis, we expect the tax rate to be about 31%.

In terms of EPS guidance, we're looking at 17% to 22% versus last year. That is about a 50% decline. It's driven largely by the Rail business, the difficult year-over-year comp in the Rail business, as well as the continued softness in Metals and Minerals, the higher corporate costs that I mentioned that will be on going through the end of the third quarter, as well as a slightly higher tax rate and incremental interest expense. Then finally, just to repeat the free cash flow guidance, we expect on a full year basis to be in the range of positive $50 million to $75 million. Those are my comments. I will turn it back to Patrick.

Thanks, Nick. In summary, while we continue to operate in challenging end markets, we understand it's imperative to, one, drive better operational execution, two, simplify our operating model, three, optimize our portfolio, and in doing so, generate stronger results that deliver enhanced value to all of our stakeholders. We have deep customer relationships and our hard working employees are among the best in the industries we serve. I'm highly confident the actions I mentioned earlier will lead to a stronger, more focused Company capable of generating significant returns for our shareholders. Now we would be happy to answer questions so, operator, would you please open the lines for Q&A.

Certainly. (Operator Instructions) Your first question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Good morning, guys.

Good morning, Jeff.

So if I just look at slide 3, Patrick, in your discussion about portfolio optimization, does that entail divestitures at some point or walking away from more business as you go through this bottoms up approach? Because it seems like, if you talk about businesses with attractive return on capital and less cyclical, less cyclical and less correlation, it would suggest that either Metals and Minerals or Infrastructure at some point would come out of the portfolio?

Well, Jeff, as I've said in earlier calls, I came into the Company with no preconceptions regarding the portfolio and what the strategic options might be. And as you can appreciate, this clearly needs to be done in a very thoughtful and deliberate manner through a deep assessment of what our strengths, our capabilities and what are the challenges facing each of the businesses. We have engaged a top flight world class consulting firm.

They are renowned for working with companies during this type of strategic transformation. Decisions are going to be reached and done over a reasonable time frame. And I look forward to being able to communicate further with you at the right time. Unfortunately, as I'm sure you can appreciate, I can't get into specifics right now.

Okay. Then just to kind of go into Metals and Minerals a little bit. It sounds like the largest variance is the lower byproduct sales and then to a lesser extent this customer shut down?

Yes.

Okay. And the lower byproduct sales, I guess, both of those issues are supposed to carry into 3Q. Do we expect any resolution on those two into 4Q?

I think on the customer work stoppage, it is a labor dispute on their site. So it's hard for us to predict when that is going to get resolved. We are trying to take a prudent, conservative view as to how long that tails out. We expect it to likely continue throughout Q3. We had hoped it would be resolved by Q4, but it's something that we would be guessing at at this point in time.

On the byproduct sales, it really is a reflection, as Nick pointed to, a reflection of lower nickel prices and scrap prices in the marketplace. Again, it's hard for us to predict right now when those recover. And then, too, with the increase in scrap stocks that most of our customers have because of lower production volumes right now, again, that's driven a lower demand for these byproducts that we would sell back to them. We are hopeful that by Q4 we begin to see a pick up there based upon some of the forecasts out there in the customers, but we are trying to take a prudent view at least for Q3.

Okay. Great. Final question, on this -- as you talk about operational process and simplification, do you expect further restructuring charges, streamlining, et cetera, or is this all kind of more process and talent management related?

Simplification, Jeff, was really born from my extensive travels to our locations around the world. What I heard and saw loud and clear was that we needed to eliminate unnecessary complexity from our business model. We needed to increase our execution speed against our big initiatives, and, quite frankly, make it easier to deliver top service to our customers at the local site level every day. Obviously, this is all so critically important to making sure we have the right competitive cost position in our existing base business. But it's also about having the right business and support model in place to accelerate our growth and innovation opportunities as a Company.

So there is going to be some redeployment of resources to drive growth through even more of our contract wins, entering new markets, commercializing new technologies. But, again, there have been too many initiatives and complexity across the Company that has built up over time. It is adding cost and it has reduced execution speed, so the heart of simplification in my mind is about addressing this. Will there be meaningful costs taken out? Absolutely.

But it's also much more strategic than that. It's really a change in mindset. I would say by the way, the reaction from the front line toward this focus area and the inclusive bottoms up approach that we are taking is very positive and refreshing from our front line folks.

Thanks. I will get back in queue.

Thanks, Jeff.

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

Good morning, everyone.

Good morning.

Can you just elaborate a little bit more on the operating performance for Infrastructure, sales up 7%, but the operating loss was only down slightly. Do you expect the mix there to improve going forward? Has pricing also been an issue there?

Well, I will give you my thoughts and then I will let Nick add his perspective here, as well. Again, I think we continue to be encouraged by the renewed growth in the top line. Some of the one-time expense that Nick alluded to was an investment in the world's biggest trade show in Bauma, and that was a launch of a new product and technology there that we have seen very good reaction and response to.

Based on that, we still remain confident that in the -- by the fourth quarter of this year, we expect that business to have turned its first profit in a quarter. So are we declaring victory yet, absolutely not. There is still a lot of work to be done in that business. And we are being challenged by these soft European end markets and, quite frankly, until those recover it will be hard for us to have sustainable profitability in that business over time. So I think we feel pretty good about the direction, but, again, we are still staying very focused on execution in that business.

Thank you. On Rail, large swings in margins from quarter-to-quarter. Can you just confirm whether or not there has been any change to your long-term margin outlook for that business? It sounds like you are still looking for low- to mid-teens over the long term, and then if you can just comment on any medium-term outlook for end market demand?

I think that we do expect that business over time to deliver returns on capital in the 30%-plus range and operating margins in the low- to mid-teens. The demand that we have seen, I think, has been strong. As you know, we are navigating through a difficult comparison year-over-year. But with the expiration of a very high margin contract in China. I think we have a very bullish, both medium- and long-term, view of the rail business and the industry in which it plays.

And I would just add to that that we are encouraged by the level of quoting activity we see on the international front. That really is a big future growth opportunity for us. Secondly, I would add that I'm certainly pleased with the focus that the team is placing on improving and really going after the aftermarket parts and service profile of that business. I think that's a meaningful opportunity for us going forward. I'm pleased with the traction thus far.

Got you. One more, just on CapEx, what is your expectation for this year?

We expect it to be roughly in line with last year. Last year we spent $250 million, $260 million. I think we will be right there this year, as well.

Okay, thank you very much.

Thank you.

Your next question comes from John Ellison with BB&T Capital Markets. Your line is open.

Good morning. Sorry if this has already been covered in your earlier remarks. But I wanted to get a better understanding of your longer-term outlook in regards to Metals and Minerals. Should we expect to see revenue growth in this business going into 2014 and out years, or is the weakness we have seen recently expected to continue? And just for, in our case, what should be the primary indicator that things are getting better here?

Good question, John. I think that, obviously, this is a difficult market to predict where LST volumes and other key indicators will go. I know that it would appear to some that we are taking a conservative or pessimistic view here in the third quarter on LST volumes given our guide. I know many of our customers and others are coming out suggesting that there will be a recovery, at least sequential recovery in the back half of the year.

As I've said on earlier calls, I just think it's prudent for us based upon what we have seen here in this market to take a measured view on things. When that turns, everything else equal, absent any decline, any further decline in LST volumes beyond the quarter, we do remain optimistic that the benefit of these new contracts that are coming on line that Nick alluded to, and the relative attractive return in margin on those contracts versus businesses that we've walked away from are very encouraging. My comments earlier, which were, obviously, a strong tone around performance is not to suggest that we aren't taking the actions and haven't been taking the actions to improve the outlook of that business.

I just think there is also still an opportunity for better execution on our end internally. So, difficult to give you kind of a marker as to what revenue looks like over time. I do think that we feel better that absent any meaningful move in LST that we would likely see a return to growth in 2014.

Great. And just one more. I've gotten some questions from some of our clients on this, but I wanted to get a better understanding of how the price of nickel and other metals are impacting your business? Could you give a little color on that?

Yes. I think the biggest impact that it has for us, obviously, is the pricing and the value of the materials that we've recovered and, therefore, what are they worth to the customers that we are selling those byproducts back to. But it also is impacted by scrap prices and, so, again, the affordability or the ability for our customers to use other cheaper forms of scrap than what we've got here is a challenge in the near term until prices recover and volumes recover and there is a greater need in demand for these byproducts.

We are basically in this case talking about the briquettes that we sell back into the customers to be used in the blast furnaces. That would be the color I would give you in terms of the impact that it has for us.

Okay, thank you so much.

Thank you.

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

Hi. Good morning.

Good morning, Scott.

So I'm just wondering kind of on the M&M business, what specifically the dollars were in the exits versus the revenue from new contracts on a year-over-year basis?

For the second quarter?

Yes, please.

Okay. The new contracts were kind of $12 million, $13 million. Exit and lost contracts were kind of $22 million, $23 million, so the net was a negative kind of $10 million to $12 million, call it. But on an earnings standpoint, the net of all those was a positive $1 million to $2 million.

Right, okay. And were there exits in the Infrastructure business?

I don't believe there was anything of a material nature there.

No meaningful exits there in terms of referring to either broken contracts or exited markets, none of that.

Right, okay. So then I think the next thing is -- clearly, Patrick, you were pretty animated on the results, the guide, and you are hatching a simplification program which, Lord knows, has got to be better than One Harsco. Simplification, I assume, is going to -- and I think you've already said this -- impact each business and you will kind of roll this through the Company. Two questions on that.

Can you maybe, in Metals and Minerals, maybe kind of unbundle even more specifically than what you've said so far. Because that's, obviously, with Infrastructure, those are the problematic businesses right now. What do you expect to do between now and the end of the year with these costs that you are going to incur. What are you going to do -- how is that going to impact the margin next year? And very importantly, why wouldn't we do this all at the same time, both M&M and Infrastructure?

Well, I think in terms of -- what do I think the impact is going to be in terms margins and profitability, I will certainly hold back from putting a definitive marker out there until we get further through the process itself and the work itself. I do really want this to be a bottoms up approach rather than a top down approach which has been taken in the past, quite candidly. This is more than just about taking cost out. It really is about improving our overall competitive position in terms of performance.

When do I expect to begin to see the benefits of that? I think it is, benefits that we will begin seeing more so in 2014 and beyond. I think the -- in terms of why we would not be doing this at the same time in Infrastructure or the other businesses, part of this is because, from my own experience in these types of change situations before, it's better to get it right than to rush, although there is clearly, you heard in my comments a sense of urgency around this.

But this Company has had a history of -- and I have seen it myself and probably even experienced it myself here of having too many kind of enterprise-wide initiatives that we didn't have enough change management focus on how to make sure we are going about it the right way. So many companies suffer from that. We are no different. I just want to make sure that we take a deliberate and measured approach here, but with a sense of urgency to make it happen and get it done right.

Okay. That's great. That's the answer that I expected. I was just wondering if you could also answer maybe the first part of the question which was, let's say, for example, in M&M, let's say, what are you doing at a given mill that you are represented at to change that operation? A little bit more on the specifics there?

Sure. Yes, so, I'd say two things. One is, as we've said along the way, I believe there is very meaningful opportunities for us to continue to apply continuous improvement tools and we are in the early stages of doing that. We have seen some successes where we do have the opportunity to look at schematics on the job site, how we are using equipment, how are we making sure that we are standardizing the maintenance activities around that. How do we make sure that we extend the useful life of the equipment, reduce operating hours, and there are basic tools and procedures. Our folks have done a good job of this over the years.

I'm not suggesting that they have not, but there also are always opportunities that I have seen and we recognize to deploy CI at a site level. I think, secondly, part of what the simplification is about is making sure that we are all clear, as I said in my prepared remarks, that we understand what above the site level is really adding value or not adding value, because some of those things can become a distraction to a site leader and his or her ability to execute what they need to do every day. It really is about shifting the center of gravity back to the site level and then really being critical on what are those few things that we are going to do across the enterprise that are really going to add value through aggregating the resource or effort.

Much appreciated. Thank you for that detail. I have other questions, but I will jump back into the queue. Thank you.

Thank you.

Your next question comes from Chris Haberlin with Davenport. Your line is open.

Hi, good morning.

Good morning, Chris.

Can you just give us a little bit more color? I think you mentioned you expect Infrastructure to return to profitability in the fourth quarter. What the key drivers there are? I think in the last call you had mentioned that a return to profitability was in part dependent on improving revenues. Are you looking for a big step-up in revenue relative to kind of what we saw in the second quarter and what the outlook for the third quarter is?

Yes, I would say the single biggest driver is going to be the additional leverage we get from a growing top line. And I think, two, again, it is an element of improving mix, and, third, we have talked before around the fact that we are doing a fair amount of work on these global and regional accounts. We have seen a few wins there. Those don't come to fruition in terms of the revenue and the bottom line until later in the year. So I would say those are the three things in my mind that are going to have the biggest impact on getting it to profitability.

And then, in Metals and Minerals, I appreciate the color about the new contracts during the quarter. As we look out, and you have got $500 million in contracts in India that are coming on, how should we think about the revenue impact of those contracts? Is it going to be fairly consistent year in, year out or does it ramp up or ramp down? How should we think about the revenues from those contracts?

I think the -- I think as we've said before, the contracts that we had announced earlier this year and late last year were going to be, Jim, maybe, I don't remember the exact number we gave, but I think it was upwards of close to $100 million of revenue for the full year that was then going to offset the exited contracts that we had. So we would turn the corner from a revenue standpoint for the full year basis. I think in terms of -- I can't give you a dollar amount in terms of exactly what is going to come on line right now. We could certainly follow up with that, but it is a steady ramp up, I would say, through '14, probably into '15, for the contracts that we've recently announced. And then from '15 onwards, you would then see a steady stream of revenue from those accounts, that being the ones in China, the ones in India, the ones in Brazil that we had recently announced.

That is very helpful. Thanks very much.

Okay, thank you.

(Operator Instructions) Your next question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Just a couple of follow-ups. Were there some charges or anything in the Other expense, and maybe just if you can quantify the one-time good guys and bad guys in Infrastructure and Rail?

Yes, we took no charges in the quarter. I think Patrick mentioned in the case of Infrastructure, the rather large $1.5 million, $2 million spend to introduce a new product at the Bauma show, that was the most notable,,I guess, one-off, if you will, in Infrastructure.

In Rail, there were just things like reversals of warranty reserves, things like that. There were a few of those that were positive and will not recur. But I would say the most notable item kind of below the line, and non-recurring, would be the moneys that we are spending at corporate to support some of these initiatives. And as I think I said, we would expect the level of spending that we saw in Q2 of $2.5 million to $3 million to probably continue through the end of the third quarter and then tail off.

Okay. So there is another $2.5 million to $3 million consulting spend in 3Q that is incorporated into 3Q guide?

There is.

Are there any other one-time charges incorporated into the 3Q guide?

No, there are not.

Okay. And then just on Rail, it seems like for four or five years we didn't see a margin in the single-digits. Now we are getting these big swings. Do we change any accounting there or it is just --?

No, there have been no accounting changes. It's really driven by volume and mix quarter-to-quarter.

And I think, Jeff, probably the reason why you hadn't seen it before and it has not really been kind of called out before was a lot of that was likely being masked by just the sheer size and profitability of the Ministry of Rail over in China. Because the underlying base business, as far as I see it right now, this is the nature of it. I think you will see these ebbs and flows, and, obviously, we are doing a lot of work to secure some additional large attractive contracts that would also help blend out and smooth out this mix. But inherent in the base business is a level of lumpiness.

Okay, and then just finally, on Infrastructure, I think you've talked about going after some larger contracts. Any new contract wins to speak of as it relates to some of these larger E&C customers?

None that I would speak to or call out right now. There have been some contract wins, but none that I would be comfortable calling out specifically. And, again, there is still a fair amount of work done on, again, targeting those that are coming on line later this year and into next year.

Okay. Thanks so much.

Thank you.

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

Hi. My follow-up question is kind of off an earlier question on Infrastructure. But I also wanted to kind of wrap in M&M. The footprint. Now, what you guys are exploring are strategic profitability enhancements in M&M, and that will roll to the other businesses. I certainly get that in the current footprint. But I guess what I'm wondering is that as the gentleman alluded to earlier, you had a 7% increase in Infrastructure at an operating loss -- 7% increase in the revenue. And it kind of suggests to me that it's -- mix can be part of that, I get that, but it seems to be also geographic mix, right?

And if I'm wrong on that, please tell me. But how do you -- how do you fix that? Is this a matter of maybe -- frankly, in both businesses, Infrastructure and M&M, that we are just maybe in some of the wrong geographic locations, we're not enough in China in the mills and we're too much in Europe in Infrastructure. Could you speak a little bit to that, Patrick?

Sure. I think it's, obviously, always interesting, easy, and relevant to look at the end markets that we are in at any one point in time in the cycle and view that as being unattractive. I realize we have been in this cycle for a while and, obviously, the cycle until Europe is not helping us at all right now. It's quite a hindrance. But I also think that you do -- you need to take a long-term view of these markets and businesses and we've got well-established businesses there.

I think that what we have learned is that we did, as Mark and the team are doing, really focus on a return to growth, getting better at selling, and getting away from the distractions of perpetual restructuring and that takes time for us to rebuild those capabilities. I think, are there opportunities for to us accelerate our growth in some of the key emerging markets like China, like India? I absolutely believe so. I know the team does, as well. We are taking the steps to realize that.

But that takes time to go in those markets when we haven't been there before and to really build the capabilities for success. I think that there clearly are opportunities for us to drive simplification in that business and we will certainly focus on that, as we will the entire Company at Harsco. So, but I just want to make sure that we, again, are really focusing and deploying our resources on the areas that are going to create most value over the time frame that we have here and not create too many initiatives and too much more complexity than what the Company has already been faced.

Fair enough, okay. Thank you.

Thank you.

Your next question is from Chris Haberlin with Davenport. Your line is open.

Thanks very much. On the Rail segment, in the back half of this year, the comps are pretty bad because of the $50 million of the China Rail contract. I guess, as we look forward, absent any new contract wins in Rails, is this kind of the underlying level of business that we should expect forward, or is there anything else that maybe pops up in 2014 that will help either boost the revenue or margin profile?

Yes, from my perspective, the base level business here, as Nick alluded earlier, really should be in this kind of low- to mid-teen basis. It will ebb and flow from quarter-to-quarter but, again, over time these one-off large contract wins that we get, and we are not suggesting they are always going to be the size of the Ministry of Rail in China, but there are a number of these international rail corridor projects that we pursue. Those things would be additive to that base. Obviously, they create difficult comps along the way. But that is an attractive challenge to have when you do have a strong base business and you are able to go out and secure, on an occasional basis, these large contracts that come through for us. I hope that answers your question.

Yes. And then, going back to Metals and Minerals, the unplanned outage in North America customer, can you quantify what the impact was during the quarter just so we can kind of get an idea of when that strike ends what the potential upside is?

It was about $2 million of profit in the quarter.

And is that a relatively consistent profit rate at that mill?

Yes. Yes.

Okay. Thanks very much.

Thank you.

Seeing there are no further questions at this time, I'll turn the call back over to Mr. Decker.

Great, well, it's very clear to me that we have work to do. And we are very focused on that work. I remain very optimistic that with the focus that we have placed on the areas that I mentioned, that we will be able to improve our operational processes and execution. That will enhance the financial profile of our Company and generate strong results.

And we are clearly taking the action to do just that. So, with that, I look forward to having more to share with the investment community in the near future. Thank you all very much. We will talk to you soon.

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