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Harsco Corporation (NYSE:HSC)

Q2 2012 Earnings Call

July 31, 2012 10:00 am ET

Executives

Eugene M. Truett – Vice President of Investor Relations and Credit

Henry W. Knueppel – Interim Chairman and Chief Executive Officer

Stephen J. Schnoor – Senior Vice President, Chief Financial Officer and Treasurer

Galdino J. Claro – Executive Vice President and Chief Executive Officer of the Harsco Metals & Minerals Group

Analysts

William Fisher – Raymond James

Jeffrey D. Hammond – KeyBanc Capital Markets

Glenn Wortman – Sidoti & Company

Bill Nasgovitz – Heartland Funds

Operator

Good morning. My name is Martina, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation Second Quarter Earnings Release Conference Call. (Operator Instructions) Also, this telephone conference presentation and accompanying webcast, made on behalf of Harsco, are subject to copyright by Harsco and all rights are reserved. Harsco will be recording this teleconference. No other recordings or distribution of this telephone conference by any other party are permitted without expressed written consent of Harsco. Your participation indicates your agreement.

I would now like to introduce Mr. Eugene Truett, Vice President, Investor Relations and Credit of Harsco Corporation. Mr. Truett, you may begin your call.

Eugene M. Truett

Thank you, Martina, good morning. I would like to welcome everyone to Harsco’s second quarter 2012 earnings release conference call. I’m here this morning with Henry Knueppel, Harsco’s Interim Chairman and CEO, obviously we’ll have more to say about that on the call; Steve Schnoor, Harsco’s CFO and Treasurer; Galdino Claro, Executive Vice President and Group CEO Harsco Metals & Minerals is on the line with us.

Also this morning with us today is Jim Jacobson who joined Harsco yesterday as our Director, Investor Relations. We will get the new information on Jim’s background later today to all of you. As most of you, I’ll be retiring at early September and Jim will be assuming my Investor Relation responsibilities.

As we do at the beginning of all of our calls, we want to let you know that there maybe forward-looking statements in our discussions with you today. These statements relate to the future of our business, our operations, 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. We invite you to review the SEC filings at your convenience. I would also like to remind you that replays of this call and related information are available on our website. Please take the time to access this information at your convenience.

I’d like now to turn the call over to Henry Knueppel. Henry?

Henry W. Knueppel

Thank you, Gene. I would also like to add my welcome to all of those participating in the call this morning. Thank you for your continuing interest in Harsco. We are going to add to our typical agenda this morning. I will make some opening remarks about the second quarter; Steve Schnoor will give you some technical details and future details on the results; Galdino Claro will then give you some comments on the Metals & Minerals business; and I will finish up with some brief comments regarding the third quarter, and we will have time for questions.

While a number of substantial headwinds remain in our two largest businesses, we are pleased with the results achieved in the second quarter, as reported this morning. Despite overall business levels and revenues being down relatively significantly, adjusting for one-time items, income was comparable to last year’s second quarter.

This was accomplished with a clear dedication by the entire Harsco team to bringing our costs down. Achieving margin improvements on down revenues was a significant accomplishment and one I’m sure the investment community can truly appreciate. Fairly, we would prefer increased revenues, but those cards simply are not being dealt currently.

Importantly in the quarter, measurable progress was made in our previously announced restructuring initiatives, principally within our infrastructure segment. Results in the infrastructure also benefited from previously announced $6.7 million pre-tax non-cash gain related to the closure of certain foreign operations.

While our restructuring efforts are, at this point, overachieving our original targets, our markets are down and offsetting some of the expected savings. Unfortunately, there is no immediate clear insight on this front. I can tell you however, our focus is not on expanding – is now on expanding our selling efforts and taking full advantage of our capabilities in this business.

Further progress is also made in our Metals & Minerals business in the quarter with the signing of a new 20 year environmental services contract with Tangshan Iron & Steel, part of China’s largest steel maker. Other notable new contracts and contract renewals were also signed in the quarter as previously announced.

Both our Harsco Rail and Harsco Industrial business units had results in the quarter that exceeded our expectations. Harsco Rail continues to enjoy a strong order book and continued strong bidding activity. Rail is benefiting from growing global market acceptance of its high-technology rail, maintenance-of-way equipment, parts, and services, as well as delivery of the second phase of a multi-year large equipment order from the Ministry of Rails of China.

As previously reported, Rail's results in the second quarter of last year included an $8 million pre-tax non-cash one-time gain from the reduction of estimated costs related to the first phase of large equipment order to China. We do not expect this gain to be repeated.

While Harsco Industrial had a strong quarter, we are beginning to see a slowdown in bookings in our Air-X-Changers unit. The slowdown relates directly to the reduction in the oil and gas prices earlier in the year and the resulting impact on drilling activity. This will have some negative effect and results later in the third quarter that will be more impactful in the fourth quarter and beyond.

All things considered, we’ve made considerable progress during the second quarter despite market headwinds. Those improvements are testament to the qualities of the people at Harsco, and I want to thank them for their energy and their accomplishments in the quarter.

I'll now turn the call over to Steve Schnoor.

Stephen J. Schnoor

Thank you, Henry, and good morning, everyone. As reported in this morning’s press release, excluding previously announced pre-tax restructuring charges of $30 million, we report earnings per share from continuing operations of $0.49 for the second quarter. The results include approximately $0.06 per share, resulting from a $0.7 million gain associated with the Infrastructure business’ exit from certain European markets.

As for the restructuring we announced in 2011, excluding that item, earnings per share were $0.43, exceeding our previous guidance of $0.32 to $0.38. Second quarter 2011 earnings were $0.40 per share, excluding $0.07 from the previously reported $8 million one-time gain associated with the Rail businesses, China Ministry of Railways contract.

Second-quarter consolidated sales of $771 million were 12% lower than the same period last year. This reduction resulted primarily from foreign currency translation due to weaker Euro, as well as exit of the European countries by the Infrastructure group and exited contracts by the Metals & Minerals Group.

On a comparative basis, the second quarter 2012 results benefitted by improved performance of our Infrastructure business and a strong performance by the Industrial businesses. Including the previously mentioned one-time gain, the Infrastructure business was profitable for the first time since 2009.

Excluding the gain, Infrastructure improved from last year results due to savings from restructuring actions, which is partially offset by lower customer steel volume in the Metals & Minerals business. The Rail business as a result were also below last year, excluding the one-time gain, due to the timing of shipments and product mix. As you may recall from our first-quarter conference call, certain shipments that were originally expected to occur in the second quarter actually were shipped in the first quarter.

Second quarter effective income tax rate, excluding restructuring charges, was 24.7% compared with 25.4% in last year’s second quarter. For the third quarter, the effective tax rate excluding restructuring charges, is estimated in the area of 28% compared with 18% last year. As previously announced at our Annual Analyst Conference last year December to ensure the continuous successful transformation of our Infrastructure and Metals & Minerals businesses, especially in light of the headwinds from the European economy, we continue to execute our restructuring program which began in the fourth quarter of last year and will continue throughout 2012.

Total pretax restructuring charges are estimated approximately $198 million, which are recorded in both 2011 and 2012. We recorded a pretax restructuring charge of $101 million in the fourth quarter of 2011, $35 million in the first quarter of 2012 and $30 million in the second quarter. The remaining $32 million is expected to be recorded during the balance of 2012.

As a reminder, the restructuring charge includes further streamlining of our European presence, exiting underperforming locations and rationalizing our worldwide asset base. Total 2012 savings are expected to be approximately $36 million with full annualized savings estimated in the area of $65 million beginning in 2013. We are on schedule to deliver those savings.

I will now review our cash flows and liquidity, and then discuss the performance of each business segment in more detail. Year to date cash from operations was $91 million, excluding $56 million of cash that we paid for the restructuring activities. Cash from operations in 2012 exceeded the $81 million, again before restructuring the payments recorded in the first half of 2011.

Excluding net restructuring of payments, discretionary cash flow for the first half 2012 was $45 million, compared with $2 million in the first half of 2011. We define discretionary cash flow as cash from operations, plus cash from asset sales, less maintenance capital expenditures, those are required to maintain current revenues.

First half 2012 capital expenditures decreased $59 million compared with 2011, due to the timing of project capital requirements. Asset sales are routine part of our business and the cash is used to offset capital expenditures. First half 2012 cash from asset sales increased slightly in 2012 to $37 million compared with $33 million in 2011.

Asset sales in 2012 included $14 million related to the sale of assets disposed in restructuring activities and in 2011, included $23 million from the sale of our UK product line in the Infrastructure business. Thus, as considering asset sales, our net CapEx in the first half of 2012 are $86 million, excluding the restructuring asset sale receipts.

Our debt to total capital ratio as of June 30 is 45.7%, this compares with 42.7% as of December 31. The higher ratio as of June 30 results partially from the timing of net cash receipts, which were heavily weighted to the end of the second quarter and the first part of the third quarter, therefore limiting our ability to pay down debt at quarter end. Net debt to capital which considers our balance sheet cash was 42.5% as of June 30 compared with 39.2% at December 31, 2011.

Let's now review the second quarter performance of each of the business groups. Second quarter sales and operating income of the Harsco Metals & Minerals segment were lower than the same period last year due to foreign currency translation, contracts that were exited, and lower steel production by certain customers. These are partially offset by higher income in the Minerals business.

Operating loss for the business of 8.7% before restructuring costs exceeded the 8.3% for the second quarter of 2011, restructuring savings, service mix and increased income for the Minerals business contributors to the higher margin.

Looking ahead, continued weakening end markets are expect to negatively impact third quarter results in Metals & Minerals. However, operating margins are expected to improve due to restructuring savings and improved results in the Minerals business compared to third quarter of last year.

With $4.1 million second quarter operating income of the Infrastructure group, it’s the first operating profit for this business since 2009, these results do include a $6.7 million gain from exiting certain European countries, and exclude $28 million of restructuring charges.

From an operational perspective, the Harsco Infrastructure results in the quarter improved from the same period last year, reflecting savings from the restructuring program. End markets remain weak especially in North America and most of Europe.

On a comparative basis, second quarter sales were below the second quarter of 2011 due to foreign currency translation, the effective exiting certain European markets, and weaker end markets, particularly in industrial maintenance in North America. Despite the lower sales in the second quarter of 2012, results improved due to the restructuring savings.

The rental equipment utilization rate in the second quarter was 59.3% higher than the 56.3% in the seasonally weak first quarter, slightly lower than the adjusted utilization rate in the second quarter of 2011 due to continued weak end-market conditions in Europe.

To provide a valid year-on-year comparison, utilization rates for 2011 have been adjusted for the equipment rationalization that occurred as part of the restructuring activities. Rental rates in the second quarter of 2012 were approximated those in the second quarter of 2011 and were slightly higher than the first quarter of 2012.

Looking ahead, we expect continued restructuring savings in the Harsco Infrastructure business in the third quarter to continued weak end-market conditions, offsetting some of those benefits. Therefore, the third quarter operating income excluding restructuring costs is expected to approximate the third quarter of 2011, which is an operating loss of $3.3 million.

Harsco Rail sales in the second quarter were slightly higher than the comparable period in 2011. Operating income for Harsco Rail is lower mainly due to the one-time $8 million gain recognized in 2011. Also contributing to the lower income in 2012 was product mix and the timing of shipments.

As I mentioned in our first quarter call, certain first quarter 2012 machine shipments were originally expected to ship in the second quarter, thus impacting second quarter results. However, bidding and contract signings are strong. With the expected shipments for the remainder of the year, full-year results should meet our original expectations.

Harsco Industrial continue to perform well in the second quarter. Sales and operating income were higher than the second quarter of 2011, as well as the first quarter of 2012. Operating margins were also higher than the second quarter of last year. Looking ahead, third quarter results for the Harsco Industry are expected to be flat, compared with last year’s third quarter, but below the second quarter of 2012. We are closely monitoring the end markets which have recently softened and we are ready and capable to immediately reduce costs as necessary.

Looking to the third quarter overall, we face softening end markets with both our Metals & Minerals and Infrastructure businesses. This softening is most pronounced in Europe and North America. Additionally, the effective income tax rate is expected to increase sequentially for the third quarter, insurance expense will be higher.

Those factors combined with the normal European vacation period will result in lower sequential earnings in the third quarter in a range of $0.32 to $0.38 per share excluding restructuring costs. Despite this, we continue to aggressively execute our restructuring plan and achieve the expected benefits for the third quarter and beyond.

That now completes my comments and I’ll now turn the call over to Galdino.

Galdino J. Claro

Thank you, Steve, and good morning, everyone. As Steve mentioned, Metals & Minerals generated a healthy operating income in quarter two with margins above both last year and previous quarter. The positive trend of our performance gives us the confidence that our strategy of innovating our services portfolio towards environmental solution is starting to pay back.

A good contributor to our positive performance trend has been the replacement of low return basic new services contract by new ones mostly in the developing countries with strong focus on resources recovery. At the Metcore contract announced few days ago extending our Ferro Chrome mining experience from Brazil and South Africa, now into India. Some of those new contracts signed last year and the year before are now in full production and delivering returns above cost effect. Among others, we have to do the operation in India now at full speed as well as the zinc operation in Peru, the first light metal services contract in Latin America.

We have also renewed contracts in Mexico, Europe and in U.S., with expanded activities in resource recovery. Those are outsourcing the rate in returns above cost of capital and have lower capital intensity. By the end of this year, we will be starting up TISCO, which is expected to be in full production in 2013. We have recently announced the Tangshan contract as Henry pointed out, which similarly to TISCO, but now in the carbon and steel front is a long-term services contract we entered towards environmentally beneficial handling and processing of steelmaking by-products. Tangshan is the flagship site of China's largest steelmaker the Hebei Group, the second largest producer of steel in the world.

You have also seen our previous announcements regarding innovative resources, recovery, technology developments and partnerships. Equinox was one of them. Equinox is a separation technology designed to treat waste waters and oil containing half metal including couple, chrome, steel and arsenic. Providing solutions for the treatment of sludge or oily solids for steelmaking industry and order adjacent industries such as oil and mining.

Our full-scale Equinox portable plant went through a demonstration roadshow during this fourth semester with selected customers. And I’m glad to inform that resumes were remarkable, and exceed expectations. We believe to be able to sign the first service contract, utilizing Equinox technology yet this year.

We are pleased to be able to contribute it to the development of a more environmentally planned global steel industry. We believe customer satisfaction is the only sustainable value proposition we can offer to our shareholders.

Tangshan is still challenged work when our contract signing ceremony a month ago is a group testimony of our success. He stated Harsco is the premier service provided for the steel industry. It has the state-of-art technology, in a team laid up of dedicated professionals. Harsco has shown the road, the best services in his lag process. they have made great contributions through protecting the environment of the city of Tangshan, where we or Harsco need to contain our excitement here and keep things in perspective. The steel industry is under a very challenging situation and Harsco as a service provider is part of it. Our service portfolio decommoditization will not happen from one quarter to the other, but again the consistent increase of Metals & Minerals margins and returns during the last years, is of the confidence that we are in the right track.

I will finalize my comments with few – topics. First, the steel industry challenges certainly is lowering down the transformation phase of Harsco Metals & Minerals. However, our increasing margins and returns reflect the evolving levels of subtraction of our customers. We booked excellent progress with our new contracts, and contract renewables through innovative research recovery technologies and environmental solutions.

We had a good pipeline of promising opportunities going forward including the TISCO startup in quarter four, which is going to happen on schedule and on budget. The Harsco Metals & Minerals business opportunities, they have gone – go beyond the core, they are not limited with these two industries performance alone any more. Thank you very much for the opportunity, I will give it back now to Henry.

Henry W. Knueppel

Thank you, Galdino. Hopefully everyone can see a lot of things that are going on, that are growing very well in Metals & Minerals business. We are driving hard to improve the value equation to our customers and bringing innovation to the market. In future calls, we will ask our other business leaders to talk about some of the highlights in their businesses as well.

Before taking your questions, I would like to say a few words, and what we’ve presently see for the third quarter. As experienced in the first two quarters of 2012, we expect customers steel production to be below last year. In fact, as opposed to our expectations as we came into this year, we expect to see a sequential decline in production in the third quarter. The decline will come from extended summer shutdowns due to pressures of a globally weaker and expected economy.

In the Infrastructure segment, we expect end market conditions to remain challenging, with uncertain and end market environments particularly in Europe and U.S. These conditions continue to lag our expectations and offset a portion of the terrific restructuring execution by our team. The key for this segment is now driven by sales execution. Fortunately, we expect both our Rail and our Industrial businesses to have a third quarter at or slightly above the prior year comparable period. Lastly, negatively impact in this year’s third quarter will in effective tax rate of approximately 27% compared with last year’s third quarter rate of 18%, which was lowered by certain discrete items not available this year.

I want to take a few additional minutes to address what I can share to be the bigger opportunities for long-term value creation for Harsco. While we are working diligently on all fronts – all the fronts are already discussed in the short-term, market changes and global short-term events will impact our earnings as they will for all companies.

When I look at the bigger issue of long-term value creation, I’m extremely optimistic about our future. In my first full quarter and this position, I’ve been exposed to the energy, the talent, and the passion of the people who make up Harsco. I can tell you that our best days lay ahead. As a team, we look at ourselves, what we do well, and what we do not do well. We have renewed our commitment to creating value for customers and for all stakeholders by improving the value propositions we offer our customers.

We will do that with five significant and consistent initiatives. Those include customer centricity, putting the customer at the very centre of everything we do and looking at how we can increase the value we provide to our customers. People engagement creating the meritocracy within the company that rewards those people who drive results. Continuous improvement with Lean and Six Sigma and other world-class processes putting great tools in the hands of talented people.

Innovation, you heard some of the innovation is going on in Metals & Minerals, there is more to come. And finally, value accretion edit core which creating returns greater than our cost of capital. We are realigning all of the immense talent in resources at Harsco around these initiatives and our principles of improving the value proposition for our customers.

We will talk about these more in future but I can tell you that with full alignment on these initiatives, I'm excited about what the future holds. Yeah, we have some immediate headwinds to deal with, but we have the people and developing process is to create real value in the years ahead.

Further is with a great deal of pleasure and excitement, that we’re this morning announced the appointment of Patrick Decker, as our new President and CEO. Patrick has led the Flow Control business at Tyco for the last five years and led a very successful transformation of that business. Patrick brings immense energy and passion and is a person of incredible integrity. I could not be more excited to announce his appointment as CEO and President and a member of our board. For all these reasons and despite the current economy, I believe that future is extremely bright for Harsco.

With that operator, we will be happy to entertain questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Bill Fisher, from Raymond James. Your line is open.

William Fisher – Raymond James

Hi, good morning.

Henry W. Knueppel

Good morning, Bill

William Fisher – Raymond James

I have couple of things, first may be just frustrated on the capital expenditure guidance, any change in that, I know you have some – want some new projects, but the some of the maintenance CapEx appears lower.

Stephen J. Schnoor

Obviously, we’re doing everything we can Bill, everything we can to make the capital process, as efficient as possible that includes CI activities Henry mentioned, global procurement, higher returns on the capital that we’ve employ. But with the projects that are coming on board later in the year, our guidance for the year is still remains the same, and that's around $300 million of CapEx for the year.

William Fisher – Raymond James

Okay. And then on the infrastructure side – the losses are more concentrated still see in UK or certain markets are you seeing some strength than any other markets is different?

Henry W. Knueppel

We’re seeing strength in the Middle East, and we’re seeing strength in Latin America, but certainly Europe and North America are still very, very challenged. We have had some strength in Germany, but not enough to offset what we’re seeing in UK and elsewhere in Europe.

William Fisher – Raymond James

Okay, great. Thank you.

Stephen J. Schnoor

Thank you

Operator

Your next question comes from the line of Jeff Hammond, from KeyBanc Capital Markets, your line is open.

Jeffrey D. Hammond – KeyBanc Capital Markets

Hey, Good morning guys.

Henry W. Knueppel

Good morning

Stephen J. Schnoor

Good morning, Jeff.

Jeffrey D. Hammond – KeyBanc Capital Markets

Can you just dig in on what exactly you’re seeing, and how that builds in the Air-X-Changers business into the back part of the year and 2013, and then just –give a little more granularity on what’s driving the weakness in North American infrastructure.

Henry W. Knueppel

Sure. From Air-X-Changers standpoint, I would try to be hesitant to start to write-off 2013 yet, because there is lot of time for that to play-out. But you saw the prices of gas and oil drop back in, what was roughly 8 oil gas and bookings followed pretty quickly here, were actually to drop before that and booking started dropping in April.

So the end of this quarter, we’ll see a little follow up in that, the fourth quarter is going to be, I think challenged, but we’ve seen some improving bidding activity here, just recently as prices have recovered a little bit. The gas supply is declining so it is lot of use because of the summer heat, hopefully we’ll have a nice cold winter, and we’ll continue to see, the use help pricing. But we are not immune to the marketplace itself and fueling activity drops then we will feel that eventually. But I think it’s little too soon to talk about ’13. You’ve asked also, I’m sorry Jeff about – what was your – other question?

Jeffrey D. Hammond – KeyBanc Capital Markets

Just North America kind of drivers of the weakness in North America.

Henry W. Knueppel

I was certainly making a way, in last quarter we – are you talking about infrastructure now.

Jeffrey D. Hammond – KeyBanc Capital Markets

Yeah, yeah.

Henry W. Knueppel

Yeah, in infrastructure in the last quarter, we saw lot of power plants differ maintenance, we’re expecting the fall season to be normal, in that regard but, I think a little bit of the issue is frankly that we’ve concentrated hard enough on the restructuring activity and all that we are doing in there, and probably have not been pushing on the sales side as much as we should. So our goal now is to move the ball over to being much more aggressive in the marketplace and trying to get our fair share there.

Jeffrey D. Hammond – KeyBanc Capital Markets

Okay. And then, Henry, you mentioned, number of the drivers of kind of a value accretion, can you just outsell that with the CEO process in general and some of the characteristics you-found in a most attractive about Patrick and kind of how he thinks about some of these same continuous improvement in our areas of focus?

Henry W. Knueppel

Yeah, I certainly can. First of all, let me just say that the process itself was a great process. We had some outstanding candidate, and terrific job by the Heidrick & Struggles and the work that they did. But in the end Patrick stood out, and he stood out for a lot of reasons. One is his energy and his passion around improving businesses. He in his role of Tyco, walk into a business that was pretty ahead lot of disparate business that’s been acquired over the years. And he led integration of those businesses into a coherent operating group that he is out perform in the market.

He did that by using the same kinds of initiatives that we’re talking about. I can tell you that he is dedicated to continuous improvement, and he is dedicated to people engagement, and building business talent. And he is just a great fit. I don’t know how well as to say that he came across on every single point that we were looking for has been very, very strong, very capable and very ready, and so we’re very excited to have him a board.

Jeffrey D. Hammond – KeyBanc Capital Markets

Okay, great. And then just, can you just talk about any other progress you’re making on working capital metrics? I know that was a focus for you Henry, and just how you think of discretionary cash flow for the year in those terms?

Henry W. Knueppel

I’ll start and let Steve finish. I think we’ve made good progress in some of the working capital, and I frankly think we’re capable doing better than what we’re doing so far. So we’re continuing to work on that energetically. In terms of CapEx, I think that the team has done a good job of reducing some of the need that we saw. We thought we’re going to have as we came into the year, but we do have some year-over-year spending coming up in the second half as we ramp up for TISCO and now Tangshan. so that’s good news, not bad news, it’s just – you have to ramp it up before you start to reap the reward, so the second half will be a little bit heavier.

Overall, I would say that we are improving the disciplines that we have our own capital. They’re finding some new opportunities to reduce the capital intensity in Metals & Minerals business for sure. And I think the headset of using all of our assets, globally as an integrated infrastructure group. We’ll make a big difference over the longer pull in that business. Rail and Industrial are very capital efficient today as you know. so I think, if we can continue to make progress in Metals & Minerals, and if we’ve learned our lessons if you will in Infrastructure, we’ll see a significant improvement as we go through the cycle.

Jeffrey D. Hammond – KeyBanc Capital Markets

Okay, great. Thanks guys.

Operator

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

Glenn Wortman – Sidoti & Company

Yeah, good morning everyone.

Henry W. Knueppel

Good morning.

Galdino J. Claro

Good morning.

Stephen J. Schnoor

Hi, Glenn.

Glenn Wortman – Sidoti & Company

Steve, I think you mentioned that rental rates were up a bit sequentially. Can you just comment on where you’re seeing some increases and decreases if any and maybe you have looked on rates for the rest of the year?

Stephen J. Schnoor

Yeah. We think at the global rates Glenn, we don't really look at it by a region. but I think, Henry mentioned some of these in the stronger regions that we have right now and that being in Middle East, places like Germany and Central America, that's for the strongest rental rates at this point in time. But we get a [new book] on the global basis point.

Glenn Wortman – Sidoti & Company

And then, your outlook for the rest of the year, pretty stable?

Stephen J. Schnoor

The rental rates, we see stability there in a rental rates overall for the rest of the year. And certainly, we’re not seeing increases in those rates at this point in time. We’re going to try to maintain those obviously, just the impact of pricing is very, very critical to us towards some of the efforts we have, we will make it things more efficient, CI et cetera, one of the main goals is to maintain those rates and rating is much we possibly can, but can we do that or not that remains to be same.

Glenn Wortman – Sidoti & Company

Okay. and then just in the Rail business, how far long are you now on those large orders with [Sheng Guangzu] in the Chinese Ministry of Railways and then how much of revenue are you expecting from these orders this year and next. And then maybe if you could just comment on your prospects for replacing the loss revenue when orders are finished?

Henry W. Knueppel

I think, overall, what we’d say is, I think as we came into the year, we kind of think it was a somewhat of a 50/50. but I'd say we're going to be a little bit more oriented to this year. it looks like we're going to be able to get more of this year. so it’s probably going to be more of a 70/30 this year over next.

Eugene M. Truett

And that would be on a 100 million base or so…

Glenn Wortman – Sidoti & Company

Okay, okay. And then I know the pipeline looked sort of obviously you haven’t maybe a negative comp next year.

Henry W. Knueppel

bidding activity is extremely heavy and I’ll say that on a global basis, I mean we are making a lot of new inroads, which is great to see, and a lot of opportunities whether or not; I think it’s little more premature to talk about whether or not we can fill the gap left over by China. but I can tell you that our Rail team is working on it everyday and has made a lot of progress over the course of the year.

Glenn Wortman – Sidoti & Company

Okay. All right, thanks for taking my questions.

Henry W. Knueppel

Thank you.

Operator

(Operator Instructions) your next question comes from the line of Bill Nasgovitz from Heartland Funds. Your line is open.

Bill Nasgovitz – Heartland Funds

Yes, good morning, and thank you. What’s the competitive advantage for Harsco here versus a key competitor say for steel? Could you just speak to that a bit?

Henry W. Knueppel

I don’t think, I’m qualify to speak about Safeway, and I think again would be an appropriate even if was. So, I won’t talk about that. I’ll talk a little bit about Harsco’s advantage. So I think Harsco in total, we’d bring tremendous amount of experience ensuring and forming an access and scaffolding, a lot of different areas and a lot of different services. What we have not necessarily been the best at in the past as used is taking those services that we’re capable doing in one region and transferring those over to other region.

But you take a look at our total capability is nearly unmatched. So, one of the things that Mark Kimmel and his team are focusing on has been able to share those best practices, share those capabilities on a more global scale. And frankly we have a very global scale in our business. So I think that’s one of the advantages of Harsco Infrastructure, over nearly every other competitor, not every competitor, but certainly nearly every other competitor. So I think the keys for us be able to use the services that we are – we do an outstanding job within in certain areas across many more areas, and be able to become a bigger value provider to our customers.

Bill Nasgovitz – Heartland Funds

All right. Thank you.

Henry W. Knueppel

Thank you.

Operator

We have no further questions in queue.

Henry W. Knueppel

All right, thank you operator. It looks that’s all the questions. Before closing, I do want to take a minute to recognize Gene Truett. For last 18 years Gene has been an integral part of the Harsco’s story. In good times and bad, he has been forthright and explained Harsco through investors. Gene would be retiring at September, and I can tell you for sure, he’ll be missed. Gene has been a tremendous help to me in the short period of time, I’ve been here and I know for the long-term he has been a tremendous help to the invest in public. So, hopefully we’ll continue to see Gene frequently in the years ahead, Gene thank you.

Eugene M. Truett

Thank you.

Henry W. Knueppel

Again I want to thank everyone for joining the call and for your interest in Harsco. The takeaways from this call are that the second quarter was on the high end of our expectations despite continued headwinds. The third quarter will continue to have its share of end market challenges, but the people at Harsco are up to the challenges. We are not waiting for markets to improve to continue to improve the processes and discipline that will create value for all stakeholders.

Thank you. Have a great day.

Operator

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

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