Harsco Corporation (NYSE:HSC) is a metals industry services company. Its main clients are in the steel, energy, manufacturing, and mining industries, for whom it produces industrial goods like mining equipment and consults on large-scale infrastructure projects. Harsco is an international corporation, and one of its biggest clients is the Chinese government, which is spending big bucks on transportation infrastructure. In 2007 Harsco landed a contract to produce more than 40 new rail-grinding machines (used to build railways) in China, a deal that is expected to generate $350 million in revenues over the next four years.
The company's operations have traditionally been divided into four major segments: Mill Services, Access Services, Gas Technologies, and Minerals and Rail Services and Products. However, in December 2007, Harsco sold its Gas Technologies group to Wind Point Partners, a private equity firm, for $340 million. The sale of this division, which manufactured propane tanks and valves, is an example of Harsco’s ongoing shift in focus away from its roots in manufacturing and towards industrial services - offering maintenance, engineering, and product support for manufacturers and builders.
The company has shed many of its commodity manufacturing businesses, while making more than 15 acquisitions of various industrial services businesses since 1993. As of 2007, it had operations in 48 countries worldwide. Harsco reported record revenues of roughly $3.4 billion in 2006, with 70% of this income coming from locations outside the United States.
Harsco focuses primarily on providing support services for the steel, metals and non-residential construction industries, although the company also manufactures engineered products. The services that the company supplies are divided into three categories: Mill Services, Access Services and Minerals & Rail Technologies.
Each of the company's operating segments except for Gas Technologies showed improved results during 2006 compared to 2005. The success of the company's different divisions led to revenues of $3.4 billion in 2006, reflecting 24% growth compared to 2005. Along with revenue, operating income has been steadily rising as well, totaling $365.2 million in 2006. These increases reinforce positive trends over the period since 2002, presented in the graph below.
Of the four segments of Harsco's operations, the company's Mill Services segment was responsible for the largest share of sales, composing 40% of total 2006 sales or $1.4 billion. Access Services was the second most productive sector for the company, producing 31% of 2006 sales or almost $1.1 billion A breakdown of the percentage of sales generated by each operating segment from 2004 to 2006 can be seen below.
|Minerals and Rail Services and Products||18%||20%||17%|
Source:HSC 2006 10k
Harsco earns 60% of its revenues in overseas markets, with Europe as the company's largest customer in 2006 generating almost $1.6 billion. Indeed, Europe was responsible for the vast majority of revenues in the company's Mill Services and Access Services segments in 2006, claiming 56% and 70% respectively. However, North America was also a significant customer, generating 40% of total revenues in 2006. Also impressive is the growth in sales to all markets from 2005 to 2006, particularly the 41.2% rise in the volume of sales to Europe over that period. A breakdown of the geographical distribution of sales during 2006 by percentage can be seen below.
Harsco derived 62% of 2006 sales and 71% of 2006 operating income from markets outside of the United States. Indeed, European activity dominated the company's two most important segments in 2006, with 56% of Mill Services revenues and 70% of Access Services revenues being generated in the European market. A falling dollar may help the company achieve further growth in the international market as Harsco's services and products become relatively cheaper for international customers.
Harsco provides its industrial services worldwide and thus faces competition both domestically and internationally. After the sale of the company's Gas Technologies segment was completed in December 2007, Harsco should be able to focus more on global industrial services. Harsco operates in specialized industries, so competitors do not necessarily encompass all of the company's operations.
|Market Cap (billions $US, as of 3/19/08)||2007 Sales (billions $US)|
|Precision Castparts (PCP)||13.44||6.63|
|Shaw Group (SGR)||4.35||6.16|
|Reliance Steel & Aluminum Company (RS)||4.01||7.26|
|Stanley Works (SWK)||3.71||4.48|
|Titanium Metals (TIE)||2.51||1.28|
Source: Company Reports, Yahoo Finance