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Harsco Corporation (NYSE:HSC)

September 13, 2012 2:00 pm ET

Executives

Jim Jacobson - Director of Investor Relations

Henry W. Knueppel - Independent, Non-Executive Chairman of The Board

Patrick K. Decker - Chief Executive Officer and President

Analysts

Brett L. Linzey - KeyBanc Capital Markets Inc., Research Division

R. Scott Graham - Jefferies & Company, Inc., Research Division

Glenn Wortman - Sidoti & Company, LLC

Timothy P. Hayes - Davenport & Company, LLC, Research Division

Operator

Good afternoon. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Harsco's Corporation Introduction of its new CEO Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Mr. Jim Jacobson, Director of Investor Relations, you may begin your conference.

Jim Jacobson

Thank you, Melissa, and good afternoon to everyone. I'd like to welcome everyone to our conference call to introduce Harsco's new President and Chief Executive Officer, Patrick Decker. Also joining us on this call is Henry Knueppel, Harsco's nonexecutive Chairman, who served as interim CEO for the past several months. We have a few brief prepared remarks, and then we will open the call to your questions. In total, we expect this call to last approximately 30 minutes.

As we do at the beginning of all of our calls, let me take care of a couple of administrative items. First, this call may include statements that are forward-looking within the meaning of federal securities laws. These statements may relate to the future of our business, our operations, results, economic expectations and other aspects pertaining to and affecting our businesses. Our statements today are based on our best information available at this time. It is possible our results could differ materially from those forward-looking statements. We have described the risk factors that may affect our businesses and results in certain of our SEC filings. We encourage you to review these documents. And lastly, this call is being webcast, and a replay of this call will be available on our website.

Now I'll turn the call to Henry.

Henry W. Knueppel

Thank you, Jim. It is with genuinely a great deal of pleasure that we introduce Patrick Decker as our new President and CEO and a member of the Board of Directors. Patrick is an incredibly strong business leader. Throughout the extensive interview process, we were thoroughly impressed with his leadership, his background and his accomplishments. And we could not be more excited than to have him join Harsco and our board.

Patrick comes to Harsco from Tyco International, where he led the Flow Control business for the last 5 years. The Flow Control business was one of Tyco's -- was Tyco's second-largest segment, generating approximately $3.6 billion in sales in 2011. Patrick led a very successful transformation of that business through a difficult economic period, and he and his team were able to create a substantial amount of value. Tyco's Flow Control business was set to be spun off as a standalone public company, and Patrick was slated to be its CEO.

When Pentair made its offer to acquire the Flow Control business, it was our good fortune in that Patrick became available to lead Harsco. In a few minutes, Patrick will discuss his background in more detail.

Now let me just briefly discuss the hiring process. The hiring process followed what are considered industry best practices. The search was led by Heidrick & Struggles, and specifically by their CEO search leaders. Heidrick presented us with outstanding candidates and in the end Patrick stood out, and he did so for many reasons. I'll cover only a couple of the main points.

First and simply stated, Patrick is a great fit. He came across on every attribute that we were looking for as being very strong, very capable and very ready. In particular, Patrick's strong leadership, his outstanding and demonstrated operational track record and his extensive global experience and his financial expertise were a very strong match for Harsco and set him apart.

Secondly, he has great integrity, energy and passion for improving businesses. In his role at Tyco, he inherited a segment that had a lot of disparate businesses which had been acquired over the years. He led the integration of those businesses into a coherent operating group that outperformed the market, and he did that by using the same kind of initiatives that we are undertaking.

I can assure you that he is dedicated to continuous improvement, people engagement and building business talent. So despite the challenges in our global end markets, we believe the future is extremely bright for Harsco, and we are extremely pleased and excited to have Patrick on board.

With that, I'll turn the call over to Patrick.

Patrick K. Decker

Thank you, Henry. I can truly say I'm honored and humbled by the opportunity the Board of Directors has given me to lead Harsco, and I'm very confident and excited about the opportunities we have to create additional and sustainable value in this company.

I'll discuss my background, the factors that attracted me to Harsco and my thoughts on our key focus areas, and then we'll be happy to take your questions. Let me start with my background. I grew up in Southern Indiana, and I graduated from Indiana University with a degree in accounting and finance. I started my career with Pricewaterhouse, then I spent roughly 12 years with Bristol-Myers Squibb. Eight of those years were spent living and working in operations in Latin America and Asia. And I can say that during that time, I came to better appreciate the unique opportunities and challenges of building successful businesses in many of the fast-growing and developing markets in the world. I also came to better appreciate the importance of having alignment around global strategy at all levels of the company, making sure you have the right resources and measurements in place and making sure you have the best team and people on the field to win in those important markets.

I finished my tenure at Bristol-Myers Squibb as the Chief Financial Officer of its Mead Johnson division, the global leader in infant nutrition, where I led its finance strategy and business development functions.

In 2003, I joined Tyco International and served as part of a leadership team that very successfully addressed basic process and people development challenges. We built a culture across a very diverse set of businesses and geographies, and it was one which focused on creating sustainable value growth and attractive returns through a constant focus on continuous improvement, disciplined capital allocation and customer centricity. During my time there, I held CFO roles at 2 Tyco divisions and then in 2007, I was named as the President of Tyco Flow Control.

As Henry indicated, Flow Control was Tyco's second-largest business with 2011 revenues of roughly $3.6 billion, and we had operations in roughly 100 countries around the world. The Flow Control experience was an excellent one for me, and one that serves me well as I lead this great company to realize its full potential for value creation.

We overcame tremendous structural, as well as competitive and end market challenges and implemented a significant amount of change. Our actions were driven not only by the challenges presented by the global economy, but even more importantly by the need to better align around and better serve our existing customers, as well as win new ones.

Our success was enabled by a greater focus on leadership, talent development and employee engagement, more disciplined investment decisions and capital allocation, a focus on making sure we invested in building the right capabilities in the world's fastest-growing markets, growing our highly profitable aftermarket service business around the world and maintaining an unwavering commitment to continuous improvement through things like Lean, Six Sigma, value selling and other fundamentals of operational excellence.

I am very proud of flow control's achievements, which included faster than market growth, improved operating and financial performance and accelerated emerging market penetration. Now let me briefly give you a sense of what I found attractive and compelling about the opportunity to lead this great company, Harsco. First, Harsco provides very important value-added services and products to customers in critical end markets. While the current state of those markets is challenging, they continue to be very attractive over the long run.

Second, our businesses are global in nature, and we hold market-leading positions around the world. We have significant opportunities to expand further in rapidly growing markets because we have the solutions and technologies that meet those customers' needs.

Third, there's a lot of value to be created in this company for each of our important stakeholder groups by simply making sure we make very disciplined capital allocation decisions everyday, and building a culture of continuous improvement. As a result, we should be able to consistently improve our return on capital and drive growth in those parts of the business that deliver returns above our cost of capital.

And fourth, and by no means least, the people of Harsco are dedicated and talented. Clearly we face challenging end markets, and we do need to continue to improve our performance. It will require people and teams to continue to come together to win for our customers and shareholders. I am confident we will do so because when you combine the right people and processes with the right services, products and technologies, you will win. We did it at Tyco Flow Control, we will do it at Harsco.

Now if I were to give you my overall management construct and philosophy, it would entail 3 elements: focus, total alignment on priorities and execution. It's all about focusing on the right things, making sure our people and processes are aligned around those focus areas, and then consistently executing every day and measuring and holding ourselves accountable.

Now before we open the call to your questions, I'd like to leave you with 3 final thoughts. First, I am in complete alignment with the strategies that Henry and the executive team have already put into motion. We will successfully complete our restructuring, continue to lower our cost structure and embrace innovation to better serve our customers and win in the marketplace. We will be more selective with respect to capital allocation. We will continue our focus on continuous improvement through Lean, Six Sigma, pricing and other tools, and we will get back to selling, and particularly selling value. With the restructuring nearing completion, we will strengthen our focus even more on better serving customers, winning new ones and expanding market share.

Second, we have a foundation for significant operating leverage. Our 2 largest segments have been operating in very difficult and below-normal market conditions. As we've lowered our cost structure and expanded our presence in countries outside of North America and Western Europe, I feel we've led a good starting foundation for greater income leverage and improved returns on capital as market conditions improve, and as we accelerate our top line growth through share gains and emerging market expansion. The key now is for us to execute and leverage that lower cost structure.

Third, we are stewards of shareholder capital. It's your capital, not the company's, not management's, yours. Therefore, we must deliver attractive returns to you. We must also continue to communicate with the investment community in an open, honest and transparent manner. I am personally committed to both: Attractive returns and straightforward communication. So I look forward to meeting you and gaining your perspective.

Now as you might expect, I'll be spending a significant amount of my time during my initial tenure with the company out in the field, meeting customers, channel partners, our Harsco colleagues and seeing our operations firsthand. In addition, we'll soon begin our 2013 planning and budgeting process.

Now with that said, let me give you a couple of dates that will give us an opportunity for further and more meaningful communication. On November 1, we will report third quarter results and on December 7, we will host our Annual Investor Conference in New York. Jim Jacobson and I have already begun working on a 12- to 18-month calendar as part of a proactive Investor Relations program. I am certainly committed to devoting appropriate time to our owners and analysts and again, I look forward to meeting you.

In summary, I am honored and excited by the opportunity to lead this company. We provide essential services and products to critical end markets. We have market-leading positions and are increasing our presence in rapidly growing geographies and markets. I am in complete agreement with the strategy that Henry and the team have put in place, and again I could not be more excited about our future.

So with that, I will now turn it over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brett Linzey from KeyBanc Capital Markets.

Brett L. Linzey - KeyBanc Capital Markets Inc., Research Division

Yes, just a question on performance metrics. As we look over the next couple of years, I mean, how should we rate your success and monitor your progress over that period?

Patrick K. Decker

Well, I think as you can appreciate, this is day #4 for me on the job. So I'm not necessarily comfortable yet putting specific markers out there until I've had a chance to really study the operations, get to know our customers, our people around the world. Again, I know that Henry and the team have already put some markers out there in terms of what you can expect for us within the quarter. And certainly as I get more time out there and get more time speaking with each of you, I'll be in a better position to give you more specifics on that. But I can assure you, they will be definitive markers that you can certainly hold us accountable to and measure us against.

Brett L. Linzey - KeyBanc Capital Markets Inc., Research Division

Okay, great, and then just in terms of your high-level view on the industrial economy, where we are today and then any color around key end markets where Harsco participates, and any thoughts there would be helpful.

Patrick K. Decker

Sure, again I -- Day 4 in the role, but I realize yours is more of a macro question in terms of what we're seeing. I know that certainly listening into some of the earlier calls that Henry's conducted, and some of your interactions, I would certainly say that the end markets certainly aren't helping us at this point in time, and I don't think we see any significant signs of recovery there just yet. That's why this team, I think, is focused on all the right things and making sure we can control what we actually can control. Anything the market gives us then can certainly be upside above and beyond that and so again, I wouldn't want to offer any additional color based on that.

Operator

Our next question comes from the line of Scott Graham from Jefferies.

R. Scott Graham - Jefferies & Company, Inc., Research Division

So one of the things that we've been hearing some of the executives at your company talk about is a much more focus on getting to that operating leverage when your end markets turn up much more focused on returns on invested capital, and this certainly has come, not coincidentally, with the arrival of Henry. Could you talk about some of the specific things that you've seen that the company has been successful at the first 6 months, and maybe any type of color on things that you might change going forward to maybe expedite some margin enhancements, really kind of protecting earnings while your end markets are weak.

Patrick K. Decker

Sure, again I'll add the caveat, it's Day 4, but I can appreciate your question. Again, I'd reiterate my definitive commitment to the focus area and strategies that Henry and the team have put in place here. I think that they are absolutely the right focus areas as Henry's pointed out before, it's that focus on customers centricity, it's that focus on people engagement, it's that focus on a constant commitment to continuous improvement, it's that focus to innovation, and it's that focus on real value creation, both with our customers and therefore, obviously for our owners of the company. To me, there's really not a lot to argue about with that. Those are absolutely the right focus areas. In terms of what I've seen in the brief time I've been here, I certainly see a leadership team and an organization that is embracing those core focus areas, and I think they find it refreshing, and I think they find it encouraging to hear that I'm coming on board with a complete commitment to maintaining our momentum in those areas. These are absolutely the right things for us to be focusing on.

Henry W. Knueppel

Scott, this is Henry. Just a couple of things I guess I would point out. Number one, as we talked with Patrick throughout this process and there's been a lot of discussion and we've had a lot of contact, Scott's a very strong believer in return on invested capital and the strength of cash flow. So I think those -- I suspect that he will find a lot of things that will drive those initiatives to improve those as we go forward. There are a number of things that we try to put in place, but they're in the infancy, and I think as Scott gets his arms around that or as Patrick gets his arms around that, there will be more of that to come. But I think one of the strongest points here is the integration of many of our businesses. As you know, we were -- we had a lot of independent businesses for a long period of time, and we've been in the process of integrating those over the last few years. There are still a lot of opportunities and synergies for us to take advantage of, and Patrick has great experience globally at figuring out how to do that. So I think that you'll -- I'd surprised at least if a fresh set of eyes with Patrick's experience doesn't end up finding a number of different additional alternative opportunities, if you will, to strengthen the business and be more integrated.

Patrick K. Decker

I would completely support and commit to what Henry said there, and I think that it's that focus on continuous improvement, and again the customer centricity that I do believe given the nature of the footprint, and the way the businesses have come together, that there will be significant opportunities out there for us to drive efficiency and value creation.

R. Scott Graham - Jefferies & Company, Inc., Research Division

I appreciate it. Might I ask a follow-up?

Patrick K. Decker

Well, certainly.

R. Scott Graham - Jefferies & Company, Inc., Research Division

The restructuring of the Infrastructure business looks like it's going to get us to about a breakeven level, hopefully more than that. But without any revenue help, I would probably argue not much more than that. Do you, in your short time there, and maybe this is even a better question for you, Henry, has -- do you think we could go deeper into the restructuring of the Infrastructure business, to turn that thing more profitable? Because the visibility on the European construction markets and while I know you're doing okay in a couple of them, the visibility on any type of meaningful improvement in those markets seems to be really lacking, and maybe you need to go a little bit deeper on this restructuring. I was just wondering what you, the 2 of you, your thoughts are on that.

Henry W. Knueppel

Yes, I don't think it's fair for Patrick to try to answer that. He hasn't had a chance to do it. I just say that as we talked a little bit on the last call, the markets are eating up a portion of the savings that we'd anticipated, and so I think your overall assumption is correct. Either more is required, or we have to be able to sell more. We're -- we'll always be looking at how we can take additional cost out and become more efficient. But I think one of the big keys for us is that we probably got a little too busy doing the restructuring and lost a little sales emphasis, and I think there are pieces of business available that we have to get back into gear selling and Patrick referenced that earlier, but I would say that that's -- it's just part of the -- part of what we have to do now.

Operator

Your next question comes from the line of Glenn Wortman from Sidoti.

Glenn Wortman - Sidoti & Company, LLC

It's early, but would you say you've been surprised by anything that you've encountered thus far, whether it's internal parts go [ph], state of the end markets, or...

Patrick K. Decker

No, not at all. I think that again, what I've been impressed by is again, the commitment that Henry and the team have embarked upon here in the focus areas. I am very encouraged by the energy level and enthusiasm on the part of our folks around the world. And to me, there's -- there are no challenges and things here that we can't, by working together, overcome. It's a great business with a great, rich heritage. So no real surprises.

Glenn Wortman - Sidoti & Company, LLC

Okay, and you've kind of touched upon this already, but what would you say -- what most in your past experience do think will help you tackle the challenges that Harsco faces?

Patrick K. Decker

Sorry could you repeat that? I couldn't follow it.

Glenn Wortman - Sidoti & Company, LLC

Yes, sure, sure. What most in your past experience do you think will help you tackle the challenges that Harsco faces today?

Patrick K. Decker

Yes, I think that again, as I touched on that in my earlier comments. But a couple of things jumped out to me. I think it is the global experience and specifically in a set of businesses that were also highly distributed, not a lot of things have been integrated, a great deal of focus needed to be placed on our people, their talent, their skillset, getting them engaged, getting them focused on a few key areas rather than dozens of things. And Henry's done a great job of working with the team on doing that. And then as the other thing I think is really shifting and I know these words sound great when you say them real fast, but really shifting the center of gravity closer to the customer, and realizing that it's important that we take cost out. It's important at the same time that we'd be growing our business in those areas that are above the cost of capital, and there are those opportunities out there. So I don't know if that answers your question or not, but those would be the couple of 3 things that I would point out.

Operator

[Operator Instructions] Your next question comes from the line of Tim Hayes from Davenport & Company.

Timothy P. Hayes - Davenport & Company, LLC, Research Division

I guess Pat, as a newcomer, and looking at Harsco from a high level, is -- does the company have -- it has a collection of many businesses that seem to have little, if any, synergies between them. Do you think there's an opportunity to identify what may be non-core, sell them off, that would help unlock shareholder value?

Patrick K. Decker

Well I think the, again as I -- I'm coming here primarily with a focus on executing the strategies that have been put in place. I know that there'll be those that will see my Tyco background and draw some references there in terms of portfolio moves, and I think obviously at the end of the day, we want to make sure that we are optimizing the performance of all of our businesses to make sure they're covering their cost of capital and giving our shareholders an attractive return. And certainly if we find over time that that's not possible, then one has to make tough choices on what business we were in. But I'm not coming here with a preconceived notion on that, and our job really is to recognize the value that already exist in these businesses and to optimize that and then we go forward from there.

Operator

And there are no further questions at this time.

Patrick K. Decker

Okay. Well with that, I guess we will -- we'll wrap up the call. Again, we want to thank everybody for taking the time to join us today, and we look forward to getting out and speaking with you as we can. Thanks again.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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