Harsco Q3 2010 Earnings Call Transcript

Oct.29.10 | About: Harsco Corporation (HSC)

Harsco Corp. (NYSE:HSC)

Q3 2010 Earnings Call

October 29, 2010 10:00 am ET

Executives

Salvatore Fazzolari - Chairman, Chief Executive Officer and President

Stephen Schnoor - Chief Financial Officer, Senior Vice President and Treasurer

Eugene Truett - Vice President of Investor Relations & Credit

Analysts

Timothy Hayes - Davenport & Company, LLC

Jeffrey Hammond - KeyBanc Capital Markets Inc.

James Lucas - Janney Montgomery Scott LLC

Eric Prouty - Canaccord Genuity

Operator

Good morning. My name is Stephanie, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation Third Quarter Release Conference Call. [Operator Instructions] I would now like to introduce Mr. Sal Fazzolari, Chairman and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Salvatore Fazzolari

Thank you. Good morning, everyone. I'd like to welcome you to Harsco's third quarter 2010 conference call. I have here with me today Gene Truett, our Vice President of Investor Relations; and Stephen Schnoor, our Chief Financial Officer. Before we begin this morning, I will ask Gene to read the Safe Harbor statement. Gene?

Eugene Truett

Thank you, Sal, and I'd like to add my good morning to everyone as well. As we do at the beginning of all of our calls, we just want to let you know that we will be having forward-looking statements, our discussions with you today. These statements relate to the future of our business, our operations, our results, economic expectations and other aspects relating to and affecting our business. What we say today is based on our best information available. It is possible that the results could differ from what we tell you today.

We've listed in our SEC statements reasons and risk factors that affect our businesses, and these could be the reasons for any difference that could occur. We invite you to review the SEC filings at your convenience. I would remind you that replays of this call and related information are available on our website. Please take the time to access this information at your convenience. Sal?

Salvatore Fazzolari

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

While better than we expected, the third quarter results continue to reflect very difficult end market conditions within our Harsco Infrastructure business. Particularly noteworthy during the third quarter in the Harsco Infrastructure business, was the unexpected reversal of moderating business conditions in key European countries, especially the United Kingdom.

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

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

Our Harsco Metals business also performed well in the quarter. Clearly, however, our Harsco Infrastructure segment continues to be a disappointment. Market uncertainty, early termination of projects by customers for economic reasons, severe pricing pressures and ongoing project deferrals all add up to a very difficult economic environment.

The degree to which these factors continue to negatively affect the Harsco Infrastructure business is unprecedented, and certainly at levels greater than had been anticipated. While case could possibly be made that we maybe finally starting to see the bottom of the cycle, we feel it's still too early to make this pronouncement. Particularly, given the recent reversal of moderating business conditions in Europe. As such, we expect the operating loss of Harsco Infrastructure in the fourth quarter, excluding any restructuring charge to at least be equal to or somewhat greater than the loss in the third quarter.

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

We believe this step is necessary in order to rightsize the business. We will provide, of course, all the details of the restructuring charge at the company's annual analyst conference in New York City on December 10. I will now turn the call over to Steve, our CFO, who will give you more details on our performance for the third quarter. Steve?

Stephen Schnoor

Thank you, Sal, and good morning, everyone. As reported in this morning's press release, we reported earnings per share from continuing operations of $0.26 for the third quarter. Over all, third quarter earnings exceeded our expectations. Also as expected, earnings was below the third quarter 2009 earnings per share of $0.40. The third quarter 2009 earnings were impacted by an $0.11 one-time charge in the Harsco Metal segment. In the third quarter, we reported top line growth of $8 million, or 1% over 2009. However, foreign currency translation decreased sales by $16 million compared with 2009, therefore before the negative foreign currency effects, sales grew by some 3%.

Third quarter results reflect improved market conditions for our Metals and Minerals business compared with last year. The continued strong performance of our Rail business reflecting its high backlog, but also reflect continuing severely depressed global market conditions in nonresidential construction, affecting our Infrastructure business and to a lesser extent, our Industrial grading business. With that as a background, third quarter sales, earnings and operating margins improved substantially year-over-year in the Metals business, sales are slightly down for the Rail business as expected due to the timing of shipments, but earnings were flat and margins improved by 130 basis points to 20.4%. Sales and income increased slightly for the Minerals in Industrial category but margins were slightly down due to lower results in Industrial group, which I will explain later.

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

Again a major disappointment in the quarter was continuing poor market conditions, resulting poor performance of the Infrastructure business. The quarterly loss of $13.6 million equaled the second quarter loss, was with somewhat worse than we had expected. End market conditions have simply not improved in this business. Compared with the third quarter of 2009, foreign currency translation possibly affected operating income by approximately $1 million in the Metals business, but the other businesses were not significantly affected.

The biggest factor is affecting our expected 2010 annual performance, our regular equipment utilization and pricing in our Infrastructure business. In July, we assumed utilization of 53% in the third quarter. Actual utilization in third the quarter was slightly less than 53%, but market pricing or rental rates declined from both last year and the second quarter of 2010 by 15% and 5%, respectively. Sequential decline in pricing from the second quarter to third quarter was unexpected. We do not expect rental rates to improve in the fourth quarter.

Records of the most profitable revenue source for our Infrastructure business. Therefore, any reduction in rental rates has a very substantial negative effect on both income and margins. As experienced in the first nine months of this year.

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

On a corporate wide basis, selling, general and administrative expenses increased slightly in third quarter and first nine months of this year compared with 2009. The increase is attributable to the SG&A cost of the business acquired within the last year, as well as professional fees incurred for the company's supply chain initiatives.

On a year-to-date basis, the increase is partially offset by approximately $4 million on lower bad debt expense. I will now review the third quarter cash flows in our liquidity position, and then discuss performance by business segment in more detail.

Year-to-date, free cash flow was $106 million compared with $154 million in 2009. At the year in which we achieved a record of free cash flow. This difference is a direct result of lower income in our Infrastructure business, as well as the timing of working capital changes. The change is to effectively control and efficiently use capital, 2010 capital expenditures have increased by a modest $7 million to $130 million, from a greatly reduced 2009 amount of $123 million.

As CFO, I'm proud to report that in September, we had a very successful bond offering. We issued $250 million of five year notes at only 2.7%. The cash has been used to pay the 7.25%, GBP 200 million sterling notes,, which matured actually yesterday. The significant positive interest rate differential, reduced 2011 interest expense by approximately $12 million.

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

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

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

Recently announced budget austerity measures in Europe have compounded the problem. We do not expect its improvement in these market conditions for the remainder of 2010.

As a result of the continued depressed market conditions, as well as the winter's seasonal slowdown, we again expect our Infrastructure business to incur an operating loss in the fourth quarter of 2010, possibly higher than the third quarter loss. This excludes any restructuring charge.

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

Global steel production in the third quarter of 2010, as well as the steel production of our customers in particular, again improved for the low production levels experienced last year in 2009. However, as expected, third quarter production leveled off from the second quarter. Therefore third quarter results for Harsco Metals improved significantly in the third quarter 2009, but as expected, somewhat below this year's second quarter. In the fourth quarter, we expect steel production to remain at or will be slightly below the level experienced in the third quarter. The operating margin of 6.2% in the third quarter improved significantly from a negative margin of last year. We expect to end the year having achieved our stated goal for 2010 of 6% to 6.5% operating margin for Harsco Metals.

Harsco Rail reported better-than-expected results in the third quarter. Operating income approximated last year an operating margins of 20.4% were 130 basis points higher than 2009. This business has posted higher year-on-year margins every quarter this year. The higher margins reflect the results of our continuous improvement program, just positively affects all aspects of this business.

Just three years ago this business struggled to achieve even double-digit margins. Although due to the timing of sales, fourth quarter income will be substantially less than the third quarter, we expected a record sales performance on this business for the full year 2010, and operating income is also expected to exceed last year's record. Backlog and bidding activity remains strong, and we again expect strong earnings from Harsco Rail in 2011.

Overall, the Harsco Minerals and Industrial group posted good results in the third quarter, significantly exceeding last year sales and operating income to a slightly lower operating margin. The quarter benefited substantially from improved volume and Metals prices in our Minerals business. This is somewhat offset by lower performance on Industrial grading business, these are nonresidential construction slowdown. We expect the Harsco Minerals business to continue to perform well in the fourth quarter, but below the third quarter, due to the winter seasonal slowdown. That completes my comments, I will now turn the call back to Sal.

Salvatore Fazzolari

Thanks, Steve. Let me now summarize briefly for you our current outlook for the remainder of the year, that is 2010. With a moderating steel production as I'm sure, all of you read the Wall Street journal this week, that was one of the highlights, featured articles made it faintly clear that the steel production is moderating in the fourth quarter. Also when you look at the higher LIFO expense that we've been talking to you about throughout the year as well, and finally when you look at the lower fourth quarter, expect the lower fourth quarter results for rail as Steve just mentioned, due to timing of orders and so forth. And again, that has been discussed with you throughout the year as well.

The combination of this is that these other businesses are not expected to offset the forecasted poor performance of the Harsco Infrastructure business in the fourth quarter, as they have in other quarters. Also we expect a higher tax rate in the fourth quarter 2010, compared with last year's comparable quarter. And that will further dampen results as well. So given the four going, we are maintaining our previously communicated full year 2010 EPS guidance from continuing ops of $0.80 to $0.90 per diluted share. And those guidance again of course excludes any restructuring charge. That completes our formal comments this morning, we would now be pleased to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jim Lucas with Janney Montgomery Scott.

James Lucas - Janney Montgomery Scott LLC

First question on Rail. Could you give us a little bit more color on what you're seeing in the backlog, I mean you did a good job explaining in terms of the timing pattern, but in terms of what the backlog look like going into next year, and also talk about what the quoting and bidding activity looks like there?

Salvatore Fazzolari

Absolutely Jim. Just kind to refresh your memory. In 2011, we still have quite a bit of the China order just to kind of set the stage there. Putting that aside, we have set specific targets in order for us to achieve, to offset those orders as they decline in 2012. I can tell you as of today, we are basically on Target due to bidding activities, successfully winning orders. So the backlog is in very good order, bidding activity is actually very strong, we're doing a very well on a success rate on that bidding. So the whole picture is positive.

Eugene Truett

Jim, Gene. I'd also again, remind everyone that within rail, you have three revenue streams, and we have a sale on the 30% of revenues that typically come from contract services, these are five, seven, 10 year contracts and annuity typed screen. Secondly we have a part sale upwards of 25% to 30% for units previously sold. And then the big question of course seems to be the replenishment of existing orders which Sal has just talked about with a strong backlog.

Stephen Schnoor

And Jim, also a final point, on the bidding and the winning, and you've seen some press releases already. What's encouraging to me on the Rail side, is that now, this work is coming from throughout the world, it's not just concentrated in one part of the world. We're having success in all the major regions of the world. And you should see and we'll see hopefully by the time we get to New York, some additional announcement on some wins, and those of course will continue throughout 2011. So we're very encouraged and pleased that the progress of the Rail business

James Lucas - Janney Montgomery Scott LLC

On the rental prices down 5% sequentially, was that mostly Europe based on your commentary about the worsening picture there or was it North America as well?

Salvatore Fazzolari

Yes. Jim, we'll give you a lot more color obviously in December, as we of course need to. It is all about Europe. If you look at the performance for the year for the first nine months, a disproportionate amount of the loss is coming from Western Europe. So the issue is principally concentrated in Western Europe. And we look at Western Europe, but then you can even further define it. The U.K. is by far number one where we have the most difficulties.

James Lucas - Janney Montgomery Scott LLC

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

Salvatore Fazzolari

Well jim, I mean I think the Wall Street article this week capture some of that. Also, I'm sure you saw the recent announcements from both Harsco Metal, U.S. Steel, and of course New Core with [indiscernible] had made some very strong comment. And a lot of it again is tied into the nonresidential construction. That's certainly having an impact, also on the steel industry as well. And certainly, production is moderating. Again, Europe continues to be another drag on that as well. If you look at other parts of the world, of course Asia is doing very well, Latin America is doing very well, Middle East is softening due to the significant construction downturn. And particularly, in the UAE and of course Dubai, and so it's a mixed bag.

Stephen Schnoor

Jim, on the pricing issue, keep in mind we have long term contracts, so pricing doesn't change the contract. The real issue is utilization rates and existing mills, we do benefit from new contract signings, we saw a bit of that in the quarter, but existing mills with production down generally, we lose operating leverage a little bit, when pricing goes up you gain it. Surprising really, we're sort of neutral once we sign the contract, it really gets down to production, which is either from new contract signings or the Delta of existing Mills and their production utilization rates

Salvatore Fazzolari

Jim, also, similar to the Rail business, there's a lot of bidding going on in the Metals and Minerals, because their working, collaborated together. We're hopeful that in the next 90 days, that we will be able to make some pretty good announcements relative to some success that we've had throughout the world again well dispersed, many geographies and some very interesting projects. So bear with us but again, we think this business has a very good future, given the activity that's going on there.

James Lucas - Janney Montgomery Scott LLC

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

Stephen Schnoor

As a result of reduced interest expense, 2.7% with a new bond, versus 7.25% on the bonds that we paid off, we're estimating savings to next year of about $12 million in interest expense.

Operator

[Operator Instructions] Your next question comes from Jeff Hammond with KeyBanc Capital Markets.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Clearly a lot of moving pieces and challenges in Infrastructure, but just as I look at kind of the 2Q to 3Q trend, it seems like sales were down, the loss was kind of flat. And despite some of the pricing pressures, is that largely some of the restructuring benefit coming through that you had hoped, are those savings starting to come through?

Stephen Schnoor

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

Salvatore Fazzolari

But Jeff, as you recall too, we did expect the loss in the third quarter to be a little less than the second quarter. And of course, we did. And now it's attributable directly to the pricing issue that Steve mentioned.

Stephen Schnoor

Right. Pricing is down from the second quarter. It has a very significant effect on the business, despite those restructure and savings. I mean we're getting our savings, but that's not offsetting the market conditions and the pricing, the result in pricing from those market conditions.

Salvatore Fazzolari

And that's of course, affected the fourth quarter as well. Because again, we were expecting the cost savings initiatives, the benefit of fourth quarter. And again, we were expecting a modest sequential improvement in the fourth quarter loss. Now of course, we're not going to see that. We're expecting as I mentioned in my comments that, it's going to equal to be somewhat greater than the third quarter loss.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

But would you say the big driver 3Q to 4Q is really seasonality?

Salvatore Fazzolari

Seasonality comes into play. However, I think it's a general market condition, just being what they are, the deferrals, cancellations and the pricing pressures we've had. We don't expect pricing to go up at all in the fourth quarter, as a matter of fact, we're assuming that will be deteriorated further.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

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

Salvatore Fazzolari

In the fourth quarter?

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Yes.

Salvatore Fazzolari

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

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Just on Metals. It looks like the business was roughly flat 2Q to 3Q, your margins went from 79 to 62. And I just wanted to understand what maybe within the margin line was different?

Salvatore Fazzolari

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

Jeffrey Hammond - KeyBanc Capital Markets Inc.

So it's really a mix issue? Because revenues were again about flat.

Stephen Schnoor

It's a mix issue, no doubt about it. And generally speaking, when you have a slowdown in Europe, you have the vacation periods, the cost tend to get a little higher as well.

Salvatore Fazzolari

And keeping in mind again, that revenues were enhanced as a single point by new contract start ups.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Was that a heavier hit in third quarter as you ramp? Or was there anything kind of unsustainable about the 79 in 2Q?

Salvatore Fazzolari

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

Stephen Schnoor

You might recall, Jeff, that in the second quarter, utilization rates, clearly utilization rates, picked up for the high 70% area. And pricing rates are just both below 70% or in the high 60s now. So there's a lot of operating leverage for utilization rates.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

You mentioned that the interest expense savings, that's great to hear. Can you give us a sense of pension, based on kind of where discount rates and returns are? How you think about pension into '11?

Stephen Schnoor

Jeff, it's Steve again. We measure that as of December 31, a lot of moving pieces in the pension expense. We didn't expect the discount rate to have an effect on that in 2011. We just don't know where its going to be at this point.

Salvatore Fazzolari

We'll talk about that in December as well.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

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

Stephen Schnoor

I wouldn't want to do that. As I've said, there's a lot of pieces to pension expense, and we just don't have enough information right now. We know where the spread is as we've mentioned.

Operator

Your next question comes from Tim Hayes with Davenport & Company.

Timothy Hayes - Davenport & Company, LLC

Just to start out, a couple of housekeeping items. What's the tax rate you expect in Q4?

Stephen Schnoor

The tax rate for the year would be about 26% after the Q4, it would be around 26% as well.

Salvatore Fazzolari

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

Stephen Schnoor

Yes, it seems like 12% for the year. It's very, very low. As a result of several money things. This year, we expect to end up at 26% or so.

Timothy Hayes - Davenport & Company, LLC

And What about interest expense in Q4 versus coming down from Q3?

Stephen Schnoor

It would be down from where it was, slightly in quarter four. Resulted in 2.7%.

Salvatore Fazzolari

For one month we are carrying that extra $250 million.

Timothy Hayes - Davenport & Company, LLC

Turning to the Rail business, you had that big contracts signed in China a while back, and that itself, I believe starts to roll off sometime in '11. There was a major contract that you had a press release on. Now you're offsetting that with smaller wins, maybe a lot more singles versus that grand slam that, that Chinese contract was. Can you help me understand how much of that Chinese contract will be offset by these smaller, numerous wins that you've made recently?

Salvatore Fazzolari

Again, a reminder that the China contract does not roll off until early 2012 so it's still fully in, in 2011. And you're right, the wins are more and the $10 million to $20 million range and so forth, and you'll continue to see those. Again as I mentioned into one of the callers earlier, is that we are, no pun intended, we are on track to hit all of our targets that we set. Actually we're slightly ahead of the schedule as of today. For us to continue to sustain the current revenue streams. Based on these wins or expected wins.

Stephen Schnoor

Tim, again, looking at the total revenues, say in the $300 million level Rail, we are confident that in '10, and '11, and '12, we'll be able to maintain, if not exceed at some levels at $300 million base.

Operator

Your next question comes from Eric Prouty with Canaccord.

Eric Prouty - Canaccord Genuity

Guys, back on Infrastructure. You described your own utilization rate. Would you believe that, that approximates kind of, "industry utilization rate.” Maybe if you could just give an update from a competitive standpoint, the senior competitors at state, facing the same pressure as you are, if not more so. Any opportunities out there to pick off some weaker hands, or what changes do you see in the competitive landscape out there?

Salvatore Fazzolari

Eric, let me take the first part of the question on competitive. There really isn't any -- as you may recall, all of our competitors in this business, in fact, almost all the Harsco business are probably held. So there's really no market data and infrastructure res utilization rates, like there are in metals unfortunately. But anecdotally, it's quite evident that the industry in general that we serve is suffering in all companies, utilization rates, our run rates are down. I don't think that, that can be, that's just a factual statement by anecdotal knowledge, even though we don't have the data points that we'd like to have. There's no accumulating of that, like there is at the world steel production. As far as kind of a roll off of it, being...

Stephen Schnoor

When you look at the competitive landscape, the ones that are being affected the most obviously, are the ones that are more exposed to the non res construction. We do have some competitors that do only Industrial maintenance. And so that's a different ballgame and different impact. But if you look and we know, even though most of them are probably owned, we know that all the ones that are exposed to the non-res construction site that their suffering along with us. What's made our situation particularly acute, is what I mentioned earlier, is the fact that we had such a large concentration in Europe of our business. And Europe is just really suffering right now on that end. And particularly, the U.K. and a few other countries that you read about everyday. So that's what makes our situation a little more particular than say, than others.

Stephen Schnoor

Also keeping in mind, that we do have those largest global footprint, and that some competitors simply look regional. And if they're local and regional industrial maintenance, they'll do better as opposed to being more of a global player.

Eric Prouty - Canaccord Genuity

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

Salvatore Fazzolari

We're being cautious about M&A. As we've indicated that we do obviously need to be very cognizant of the fact that we continue to generate some healthy free cash flow, and we look at everything. Some share buybacks, the dividends to acquisitions. We do also have some pretty interesting organic growth projects that were working on, we're hoping to share some of those with you in December, which will require some investment as well. So it's a very well balanced picture. But as far as specifically on acquisitions, our focus is on Rail, Metals and Minerals. We are not going to do any acquisitions in Infrastructure. We need the right size of that business, we need to get it focused, the last thing we need there is to have the management team distracted with any kind of acquisitions. So there would not be any acquisitions and Infrastructure.

Operator

[Operator Instructions] Your next question comes from Jeff Hammond with KeyBanc Capital markets.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

Can you give us acquisition contribution and Infrastructure this quarter, just revenues from the acquisitions?

Stephen Schnoor

It was $21 million.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

And then can you quantify what the LIFO expense was in 3Q, 4Q or what it was up year-on-year?

Stephen Schnoor

Jeff, Steve. We expect the delta by the end of the year. LIFO of '09, it tends to be between $10 million and $11 million, additional expense.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

And that was balanced between 3Q, 4Q?

Stephen Schnoor

Between $4 million or $5 million differential in the fourth quarter.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

And then just on free cash flow, kind of approximately $200 million or approaching, I guess and I think you've kind of stand just North of $100 million year-to-date. Is that kind of a stretch goal at this point? Or how should we think about that $200 million bogey for '10?

Salvatore Fazzolari

First of all, it is our target. The fourth quarter is always our best quarter for free cash flow. Last year, we had between $150 million and $120 million in free cash flow in the fourth quarter alone. We continue to have a very disciplined approach to capital expenditures, and that will continue in the fourth quarter. We also have some opportunities in receivable collections. Because certain customers who are large customers normally pay at quarter end, did not pay at the third quarter, so we received rates in the beginning of the fourth quarter. So we have some opportunities there, we expect to have the best quarter of the year in the fourth quarter free cash flow. And we'll be close to that target.

Jeffrey Hammond - KeyBanc Capital Markets Inc.

You focused most of the challenge comments on Western Europe and Infrastructure. But I think last quarter North America surprised you to the downside. Can you just give us an update on any signs of life there or stabilization?

Salvatore Fazzolari

It seems to have stabilized in North America. The Middle East continues to be a challenge because of Dubai, but we're hopeful that will stabilize in this quarter as well, and hopeful next year will be a little better, for the Middle East. So that seems to be the trend. We thought we had Europe stabilized, and then we were very surprised. And obviously given the uncertainty measures, that certainly turn things around quickly almost.

Operator

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

Salvatore Fazzolari

Thank you. In closing, just like to make a final comment here. As we turn to Page on the final chapter of 2010, this year will certainly go down as the most difficult and challenging in the modern-day history of the company. Despite the very poor performance of the Harsco Infrastructure business in 2010, much has been accomplished in Harsco over the last 12 months. We will end the year with a very strong balance sheet, as Steve indicated. We continue to generate strong free cash flow as we just discussed. The Rail business, as again we've discussed in detail here today, is expected to achieve a record results for the second consecutive year here in 2010, and we believe is well positioned for another strong year in 2011. Harsco Metals and Harsco Minerals business have been reenergized and our position to perform well in 2011 and beyond. And finally, the rightsizing in Harsco Infrastructure business in the fourth quarter here, should position the business to perform much better in 2011. So we look forward to sharing all this with you in New York City coming up around the corner, and we'll share with you of course our longer-term strategies as well. So we look forward to seeing you then and I would like to thank you for your ongoing support and thank you for joining us today.

Operator

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

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