Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated EBITDA increased by 7% compared to Q2 of last year.
- Free cash flow was $60 million higher than the previous year.
- Financial leverage continues to decline, with debt-to-EBITDA now below 4 times for the first time since 2020.
- Clean Earth segment achieved record EBITDA of $38 million and an EBITDA margin of 16%.
- Harsco Environmental segment saw EBITDA growth of 5% to 10% year-over-year when adjusted for currency impacts and other factors.
Negative Points
- Adverse impacts from a strengthening US dollar affected overall performance.
- Harsco Environmental's EBITDA margin came in below expectations, averaging around 16% in the first half of the year.
- Rail segment continues to face challenges with long-term engineered order (ETO) contracts, leading to occasional additional charges.
- Free cash flow in Q3 is anticipated to weaken due to timing benefits seen in Q2.
- Clean Earth's volume growth was relatively flat, with some segments like retail showing softness.
Q & A Highlights
Q: On HE adjusted EBITDA margin, it came in below expectations. How do you plan to achieve the 18% implied margins for FY24?
A: (Tom Vadaketh, CFO) We had unusual items in the first half, including severance costs. We don't expect these in the second half. FX pressure will continue but won't affect margins. We expect the second half to be more normal, maintaining the 18% to 20% range. (Nick Grasberger, CEO) We also have underperforming sites in HE that are improving, which will positively impact margins in the second half.
Q: You mentioned receiving $40 million from asset sales and targeting $50 million to $75 million. What else is up for sale?
A: (Tom Vadaketh, CFO) We are looking at opportunities to monetize additional assets and remain focused on achieving the $50 million to $75 million range.
Q: Rail had a strong quarter. Is the growth driven by domestic demand, and how do ETO contract adjustments factor in?
A: (Nick Grasberger, CEO) The core business, including standard equipment, aftermarket, and services, is up year-over-year. ETO charges on large contracts are excluded from adjusted EBITDA. The growth is from the core business, not from reduced ETO charges.
Q: Clean Earth had a strong quarter. Can you provide more details on revenue growth, volume versus price, and sector performance?
A: (Nick Grasberger, CEO) Underlying volume was relatively flat. Healthcare saw good growth, but larger projects in M&I and soils are still in backlog. Retail volume is soft. Overall, volume is up slightly when excluding project work comparisons.
Q: Can you provide more color on ETO contract adjustments in Rail and their impact on future divestiture plans?
A: (Tom Vadaketh, CFO) We are progressively getting more accurate with cost estimates for ETO contracts. Adjustments are trailing off, but we still have a few years of deliveries. Once we start delivering vehicles, we may consider divestiture.
Q: Regarding the IT system rollout in Clean Earth, when can we expect to see SG&A cost reductions?
A: (Nick Grasberger, CEO) We expect SG&A cost reductions in the latter half of 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
