Recently announced, Harsco Corporation (HSC - Snapshot Report) received a six-year contract from Alfa Acclai Group to provide steel mill services to the latter. The total value of the contract exceeds a whopping $55 million.
Alfa Acclai Group is a reinforced concrete steel manufacturer since 1950. It currently produces around 2.5 million tonnes of steel per year with a global employee database of 1,200 people. Through this contract, Alfa shall effectively reuse its scrap smelting by-products, thereby ameliorating energy consumption and dissolving pollution emission issues.
Harsco will provide on-site scrap and slag yard management services to Alfa’s steel mill in Brescia, northern Italy. In this regard, the company shall create a new scrap yard and also render support services for maintenance and processing. A technologically advanced slag handling system coupled with an improved weighing system and an advanced GPS detection facility shall be installed at the unit which is expected to be operational by 2012 end.
The company recently declared its fourth quarter financial results of fiscal 2011, whereby it’s Metals and Mineral segment faced a few challenges with which Harsco had to grapple using its contract win gains. Operating margin was also quite under pressure, coming in at 4% compared to 6.4% in the previous comparable year quarter, primarily due to European demand softness.
However, the company remains optimistic with regard to its first quarter performance of 2012. We believe that such contract awards along with the various restructuring activities implemented largely would escalate revenues and margins considerably in the upcoming quarters.
Formidable players in the industry for Harsco to remain wary about are W.W. Grainger, Inc. (GWW - Analyst Report), TMS International Corporation and ScanSource Inc. (SCSC - Snapshot Report). We continue to maintain a Neutral recommendation on Harsco. Our view is supported with a Zacks #3 Rank on the stock which translates into a short-term rating of Hold.