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Harsco Executive Summary

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Investment View We initiate coverage of Harsco Corporation with a Sell rating. Harsco Corporation is a multinational provider of industrial services and engineered products. Although the company's operations fall into three reportable segments: Harsco Metals & Minerals, Harsco Industrial and Harsco Rail, the segments are disproportionate and leave Harsco Corp. in a vulnerable state. The company’s collective operational results are predicated on the efficacy of the troubled Metals and Minerals segment, which accounted for 64% of total revenues for FY2015. We believe the current trend in company share price is not in line with company performance. It appears that the recent jump in investor confidence stems from improved net earnings; however, …show more content…

The Company's net cash borrowings increased by $47.3 million in 2015 principally due to increased credit facility borrowings related to capital expenditures, mostly for the Harsco Metals & Minerals Segment; dividend payments; treasury share purchases under the Company's share purchase program then in effect; and for the Protran and JK Rail acquisitions. At debt levels as of December 31, 2015, a one percentage point increase/decrease in variable interest rates would increase/decrease interest expense by $4.6 million per year. If the Company is unable to successfully manage its exposure to variable interest rates, its debt service obligations may increase even though the amount borrowed remains the same, and in turn, its results of operations and financial condition may be negatively impacted. As previously stated, Harsco Corporation’s operational results are largely dependent on the performance of the company’s Metals & Minerals segment. On November 9, 2015, the Company announced its intention to pursue strategic options for the separation of the Harsco Metals & Minerals Segment from the rest of the Company. Additionally, management has stated that there can be no assurance that the Company will …show more content…

for customers throughout the world. Additionally, this segment provides railway track maintenance services principally in the U.S. and the U.K. The Rail segment's key competitive factors are quality, technology, customer service and value. Primary competitors for both products and services are privately-held global businesses as well as certain regional competitors. As a consequence of operating in 30 different countries, Harsco Corporation is exposed to a plethora of macroeconomic risk factors every day. We believe that the most pertinent macro threats to Harsco Corporation’s continued operations are those which apply to the company’s heavily weighted Metals & Minerals segment. The industry and thus the segment depend highly on activities of the non-precious metals mining and steel industry. China remains the driver of the iron ore and steel industry. With China recently switching from a production market to a consumer market, the industry has been facing strong over-supply, driving down iron ore and steel prices as well as industry activities. The non-precious metal mining and steel industry has seen restructuring since 2014; jobcuts and strikes have been widespread affecting key players including BHP,

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