Q1 2022 Harsco Corp Earnings Call
Good morning, My name is Jay and I'll be your conference facilitator.
At this time I would like to welcome everyone to the Harsco Corporation first quarter release conference call.
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After the Speakers' remarks, there will be a question and answer period.
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I'd now like to introduce Dave Martin of Harsco Corporation. Mr. Martin You may begin your call.
Thank you Jay and welcome to everyone. Joining us this morning, I'm, Dave Martin of Harsco.
With me today is Nick Grasberg, our chairman and Chief Executive Officer, and in human AGA Harsco, as senior Vice President and CFO .
Before I presentation. However, let me mention a few items first.
Our earnings release as well as a slide presentation for this call are available on our website.
Second we will make statements today that are considered forward looking within the meaning of the federal Securities laws. These statements are based on our current knowledge and expectations.
And are subject to certain risks that may cause actual results to differ from these forward looking statements.
For a discussion of such risks see the risk factors section in our most recent 10-K.
The company undertakes no obligation to revise or update any forward looking statements.
Lastly on this call we may refer to adjusted financial results that are considered non-GAAP for SEC reporting purposes.
A reconciliation to GAAP results is including included in the earnings release as well as the slide presentation.
With that said I'll turn the call to Nick.
Yeah.
Good morning, everyone and thanks for joining us today.
Before I discuss our results, let me speak to the ongoing crisis in Ukraine.
The global steel market is in the process of rebalancing as a result of the Russia, Ukraine conflict.
And we anticipate limited impacts to our harsco environmental segment.
Over time, given the diversity of our portfolio.
Furthermore, harsco has no direct exposure within either country.
And any related disruptions at customer sites were short lived and minimal in the quarter.
Okay.
Turning to our results Harsco consolidated revenue was up 1% versus the first quarter of 2021.
And adjusted EBITDA totaled $49 million.
These adjusted results are consistent with our guidance.
Much of the quarter, however was characterized by unprecedented inflation and commodities and other input costs.
As well as tightness in our supply chains and labor markets, particularly in the U S.
We expect these factors to remain a concern and are working aggressively to mitigate the impact on our businesses.
That being said underlying demand within most of our key markets remains firm, including the steel industry and are most of the markets served by clean Earth.
We also remain confident in the outlook of our rail business as the industry continues to recover from Covid related impacts.
For example, we have sold more tampered the core of our product line and the first 100 days of this year than we did all of last year.
Now, let me comment on each of our two core businesses.
Harsco environmental had a strong quarter. Despite these conditions as a result of strong execution.
Looking forward our steel industry outlook is largely unchanged as is our expectation for AG for the full year.
Any impacts from the conflict in Ukraine are expected to be muted longer term for our environmental business.
Given the diversity of our customer portfolio and of our exposures.
<unk> results are projected to strengthen in the coming quarters, reflecting better seasonal volumes and additional benefits from our growth investments.
These investments include Echo products, where our steel fault business recently introduced its first carbon negative asphalt product.
Steel fault is a compelling growth story within AG, which illustrates our innovation mindset.
And positions us as a strategic environmental partner to the steel industry.
The outlook for our all check business, which we acquired a few years ago was also beginning to improve.
We expect to sign at least three contracts this year.
Either sell directly or to build.
So you saw plants for customers that need a better environmental solution to process waste from the aluminum manufacturing process.
Looking at clean Earth in the first quarter again, we were impacted by incremental cost inflation.
Particularly for fuel and price increases for steel containers.
These effects were more pronounced late in the quarter and additionally volumes continued to be affected by the ongoing shortage of drivers.
As well as weakness within certain retail customers, where pandemic related benefits have waned.
The Onboarding of drivers has however improved significantly over the past few weeks.
While these items will continue to weigh on clean Earth in the second quarter, we've begun addressing these challenges proactively.
Recently, we initiated a series of price increases and surcharges to offset significant increases in the cost of fuel third party transportation costs and containers.
By and large the responses from our customers have been favorable.
There are also some bright spots within clean Earth, our full circle of service is increasingly supporting sustainability goals for our customers.
We will continue to pursue avenues to expand some of our unique capabilities.
In addition, the outlook for our soil in dredge business is quite promising with numerous large projects in the pipeline for later this year and into 2023.
Overall for clean Earth, we anticipate margins will recover in the second half of the year and our longer term view on margins and growth potential remain unchanged.
Turning to sustainability, our strategic direction and environmental focus is quite clear.
Harsco was uniquely positioned as the leading provider of recycling and reuse solutions within the industrial waste market.
Customers are increasingly searching for more environmentally friendly solutions for their waste streams consistent.
Consistent with our value proposition.
We continue to drive initiatives internally to improve our carbon footprint across our logistics and processing plant operations.
Since 2019, our carbon intensity.
It has declined 13, 5%, putting us on track to deliver our 15% reduction goal by 2025.
There is much more for us to do here and we will have additional details to disclose regarding our sustainability achievements and goals within our next sustainability report.
To be published later this year.
Next let me comment on rail and our efforts to reduce our financial leverage.
We're committed to a sustainable leverage ratio of under three times as we've discussed in the past.
Our rail transaction is an important step for harsco in this regard.
Fundamentals within the rail maintenance of way market has clearly improved in recent months, particularly in North America, where we have experienced a notable pickup in order activity.
The increase in our backlog during the quarter supports our return to a more normalized level of EBITDA in the business for this year, which is about $40 million.
The process to divest rail is continuing to progress as anticipated.
There has been tremendous interest in this unique and valuable asset for more than 70 parties globally.
We are now narrowing the list of potential buyers and expect to continue with the more detailed due diligence process with this smaller group within the next few.
Two weeks.
Our expectations remain unchanged for the sale of the rail business in the second quarter with the closing of the transaction shortly thereafter.
I would like to conclude by acknowledging the harsco is 12000 employees for their ongoing dedication to the company.
<unk> commitment to satisfy our customers in a safe and compliant manner.
The engagement of our employees.
Thanks, Nick and good morning, everyone.
Please turn to slide five.
Harsco Q1 revenues from continuing operations increased 1% compared with the prior year quarter to $453 million, including a 2% headwind from FX translation.
Adjusted EBITDA totaled $49 million, which was in line with our guidance.
Relative to our expectations environment little performed strongly and corporate costs were slightly favorable.
Meanwhile, clean Earth results were impacted by increased inflation pressures.
<unk>, mainly to fuel with diesel increasing approximately 40% driven by the Russia, Ukraine conflict also driver availability, including the impact of Omnicom earlier in the quarter impacted volume.
Each of these items impacted results by $1 million to $2 million.
We are taking action to mitigate the spike in inflation due.
Due to the Russia, Ukraine conflict and.
Including with respect to pricing, which I'll return to later.
Harsco with GAAP loss per share from continuing operations in Q1 was 9%.
While the adjusted loss was one cent.
Yes.
This adjusted per share figure in the quarter was outside of our guidance range due to the higher effective tax rate.
It was impacted by the geographic distribution of our income.
Lastly, our free cash flow for the quarter was a deficit of $29 million.
This result was consistent with our expectations.
As we've discussed in the past Q1 is typically the low point for our cash flows during the year for various reasons.
<unk>, the timing of interest and pension payments as well as incentive compensation payments.
Our cash performance is expected to improve meaningfully for the remaining quarters of the year.
Please turn to slide six and our environmental segment.
Segment revenues totaled $262 million and adjusted EBITDA was $48 million.
Revenues increased 2% on higher volumes and commodity prices, partially offset by foreign exchange impacts.
Meanwhile, adjusted EBITDA decreased by $6 million year on year.
The change reflects the expected less favorable mix of services and higher operating costs, mainly with an equal products.
Also FX in Brazil sales tax credits in the prior year combined impacted results by approximately $2 million.
On the Russia, Ukraine conflict as Nick mentioned, we have not seen any material impact to date on harsco environmental we did see a modest number of steel output disruptions at customer sites.
The high energy prices and the raw material availability. However.
Steel prices have since supported these operations and some production has likely moved elsewhere to offset these impacts.
This illustrates the benefits of our global portfolio.
Higher commodity prices have also helped harsco.
Please turn to slide seven to discuss clean Earth.
For the quarter revenues totaled $191 million and adjusted EBITDA was $10 million.
Compared to the first quarter of 2021 revenues increased 1%.
Meanwhile, adjusted EBITDA decreased 4 million year on year.
This change.
Primarily relates to hazardous material line of business, we have fewer drive was muted volumes somewhat.
And high inflation following the Russia, Ukraine crisis impacted results.
These costs were greatest later in the quarter, particularly for fuel third party transportation and containers.
We have instituted additional price increases.
And implemented surcharges.
On top of the price increases we introduced in Q4.
Across a large percentage of our sales book to offset this inflation.
While most customers understand and support the price increases it will take till late in Q2 for these impacts to be fully realized.
So we are absorbing our cost price timing mismatch.
We also continue to focus on cost controls to mitigate our risk here.
Lastly on clean Earth. The truck driver shortage is slowly improving turnover declined in the first quarter and March was a good month for recruiting drivers.
Before turning to our outlook, let me comment briefly on rail.
During the first quarter, we recorded special items in rail, which totaled $35 million.
This amount for additional estimated future costs to complete fixed price contracts with three large European customers.
These contract adjustments relate primarily to supply chain challenges and production delays.
I'd have increased anticipated costs and further delayed our progress on these projects, resulting in penalties.
We are working with our suppliers and customers to mitigate some of the impacts that resulted in these charges.
And as Nick mentioned, a process to sell rail is progressing according to plan and we are optimistic of our ability to complete a transaction this year.
Settling rail is important to reduce our level of leverage.
Now, let's turn to our 2020 to outlook on slide nine.
Our adjusted EBITDA is now expected to be within a range of 250 million to $265 million with the change versus our February guidance entirely attributable to inflationary factors and clean Earth.
With the cost price.
Timing mismatch in the first half.
This new EBITDA guidance relates to adjusted.
A translates to adjusted earnings per share of 35 to 44 cents.
Beyond the EBITDA change the revised EPS guidance incorporates a change to our anticipated interest expense due to higher anticipated market rates.
And our effective tax rates.
Lastly, we are now targeting free cash flow, excluding rail of $25 million to $40 million.
You can find our segment guidance within the appendix of the slide deck.
Let me conclude on slide 10, with our second quarter guidance.
Q2, adjusted EBITDA is expected to range from 59 million to $64 million.
We expect environmental adjusted earnings to be modestly lower due to business mix and FX impacts.
Clean Earth adjusted EBITDA is anticipated to also modestly be lower due to the cost price timing mismatch.
In addition, corporate costs should be within the range of 10 to 11 million for the quarter.
Thanks, and I will now hand, the call back to the operator for Q&A.
Okay.
Okay.
Thank you and as a reminder, if you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
Once again Thats star one on your telephone keypad will pause for a moment to compile the Q&A roster.
And our first question comes from the line of Michael Hoffman of Stifel. Your line is open.
Thank you very much Nick on Sherman David.
Can we I mean I'd like to start for rail for one second and try and put something to bed.
There is a perception that you can't sell this well enough to get a delevering event.
And you've talked about the number.
Bidders.
Should we be concerned about these charges how do you work that through our due diligence process, what everybody needs to understand why you can get.
Net proceeds that will take a turn turn and a half out of this business model.
Yeah.
Well first of all I think it's important to reiterate the strength of the process. So far with a very large number of interested parties very large number of bidders.
That are really focused on the core of the business.
And its future growth potential which of course, we believe is quite high.
A large European contracts, where we have adjusted the the future profitability.
We will be looked at effectively along with excess working capital as debt like items by the buyers.
And I will say that the charges, we took in the first quarter.
We believe there is a reasonable path to reversing all of our part of those as we continue to dialogue with our customers about.
The.
Covid driven nature of those adjustments, whether it be for late delivery or for cost inflation. So.
But I think it's it should be relatively straightforward for the buyers to look at those.
Contracts and.
And kind of assess what the future cash flow.
Impact would be plus or minus.
And adjust in their valuation for the core so that's I guess, a long winded way of saying that we do expect.
Just to be a significant delevering events as we've said in the past.
Okay.
Switching gears then to the fundamentals.
Cost issues aside are you seeing.
Industrial North American industrial economic environment that is creating a favorable top line.
<unk> and <unk> and your ability to count for cost issues timely aside that that that's good.
Yes, I think the the volume trends in U S. Industrial market are quite good we did see in the first quarter.
Some softness with a few major retailers that we serve on a on a national basis.
But we expect those to be somewhat short lived but the volumes in health care and industrial.
Another retail accounts are actually quite good.
And in the retail issue is the timing one or did they see a.
<unk> in foot traffic and that led to less activity.
Yeah, it's the latter.
These are a few retailers that in particular benefited from.
The the buying patterns of consumers during the pandemic got it okay and then on shipment on a free cash in the press release you have.
A line item, that's a pension income number.
So one is that cash and two how is that how do I think about that in the context of.
30% to 50 being revised down to 25 to 40.
The pension income is a non cash item.
That doesn't impact our 25.
To 40, if you really think of our free cash flow change in guidance.
There were two items one our cash interest cost is going up as the new projections for interest rates are seven to eight hikes. This year and the second we did reduce our EBITDA guidance slightly for.
For the your combined doors are about $14 million and we've reduced cash at midpoint by about seven so we've compensated for part of the decline.
Okay and.
When you think about it in the AG business.
Are you expecting the rest of the world that make up the 30 million tons of Russian steel that's exported and therefore.
You could see increased level of production across your customer base or you're still sticking with we're 1% to 2% production growth out of China year over year.
Yeah.
Yes, it's a good question Michael.
We're sticking with our original guidance on volume growth.
But to answer the first part of your question, yes, given the demand.
Trends in the global steel industry, we would expect that that.
Production gap in Russia, and Ukraine to be made up elsewhere.
Okay.
Right.
<unk>.
Thank you next question comes from the line of Larry Solow CJS Securities. Your line is open.
Oh, good morning, guys. Thanks, sorry, I was on the call a little late just a couple of questions on clean Earth, which you may have.
Just some of the stuff that was a little bit I think that was sort of the source part for me in the quarter that's in.
In terms of.
Revenue shortages and whatnot is that.
Driver shortages.
Is that improving and do you do you make up you know what happens if you don't pick up some of this waste and stuff do you make that up does that accumulate.
Are you losing share to other.
All the companies.
How does that.
How is it a sign on the retail side is that or is that just lost revenue that.
You can't get back.
Yeah.
Well first of all clearly our competitors move the material by by truck as well and I think we're all on the same situation here right.
No we do think.
As the situation improves and I think as I mentioned, maybe on shipment did as well, we do expect and we have seen the last several weeks.
The trends improving in terms of.
The hiring of drivers so we do see the situation improving the second quarter.
Clearly should be better than the first which was better than the fourth of last year.
With that said I think it's probably would be a bit aggressive to assume that we can.
Simply recover all of that lost volume.
There's certainly an element of that that we're confident will recover but I wouldn't expect to fully recover that volume.
And how about on the soil side.
I don't know if you guys addressed this I know that's been.
Down considerably last couple of years Hasnt comeback down coming into Covid.
In terms of.
Function activities and infrastructure hopefully starts to move forward.
Do you see any visibility light at the end of the tunnel.
Hum on that side of the business and the dredging side as well I know that kind of try and what sort of is I guess, what kind of combined now but.
Any comments on that color on that yes, Larry we are for the first time in some some time.
We do have visibility into a a more robust pipeline of projects.
And so.
Yes, I would tend to view that as a bit of upside for the year for us we have.
Relatively modest volumes built into our guidance, but we're hoping.
Some of these projects to break loose and generate revenue for US later this year.
We've been frustrated before.
Uh huh.
On that front, so, we're perhaps taking a bit of a cautious.
Our cautious view on our guidance, but we are seeing improved visibility for the first time in a couple of years.
And lots of talk on the PFS side.
No clean Earth, I think had one right.
Right right before you acquired them a couple of quarters it for.
A couple of projects all the stars align and I think they did a you know.
A few million dollars of EBITDA in one quarter or maybe one half year on the on the PFS side and I don't expect you probably have much visibility for this year or putting any numbers in your guidance, but lots of talk about it what do you see clean Earth being Uh huh.
At least that incremental provider you know frit for PFS clean up again as we look out over the next few years.
Yes, Theres no question, we view that as probably one of the top three to five growth drivers in the business over the next few years and in fact.
This summer we will be starting a project on Cape Cod.
Joint base on Cape Cod, with our mobile technology.
Processing PFS contaminated soils.
And so that should be a a very critical project for us.
Believes that if that is as successful as we expect it to be.
That many more opportunities similar opportunities should become available to us.
Okay. Then just last question just on you saw and I realize you did this acquisition it was over two years ago. So it's now part of clean Earth.
So it's separate.
But.
Just in terms of I know when you guys acquired it there was some pricing issues, there and and then just.
Inefficiencies and excess.
Storage facilities.
On those couple of items in there and I know now you're raising pricing across the business. So.
Is there still a sort of a discrepancy between what you saw.
Units and what your legacy business there on the clean Earth legacy side, if you will.
Yeah, I think we've largely addressed that issue.
We've stopped.
I guess tracking directly the integration benefits, we set a target for.
And we achieved that in.
Don't know maybe a third of those benefits were related to pricing.
Okay. Okay fair enough. Thanks, I appreciate all the color.
Thank you.
Thank you next question comes from the line of prop.
One of Lake Street Capital Your line is open.
Good morning.
Just wanted to follow up on the.
Price increases in CE with sort of the percentage of price increases that you are.
Moving to take and how.
How does that sort of flow through at the end of the year.
Yeah.
Yes, well it's.
It's quite a mix across the various customer types retail industrial.
And in healthcare in their surcharges, there also our price increases depending.
Depending upon the nature of the contract or the customer.
So it's a real it's a real mix I think the easiest way to look at it.
Is that relative to our original budget for this year inflation.
Clean Earth.
About $20 million higher than we expected.
And the price realization that we expect to offset that is only about 10.
So that kind of drives the delta in the guidance for clean Earth.
You had mentioned now.
Certainly as we roll into next year and have the full year impact of those price increases.
And continue to adjust our contracts to give us the flexibility.
In the future if needed to address.
Surprises I'll call them and cost inflation.
That should.
It should be a nice enhancement to margins, but a.
But the gap the gap this year as in terms of EBITDA about $10 million.
Okay, great. Thank you that's very helpful.
And then maybe on the interest expense line, what are you sort of expect for interest expense in 'twenty two.
So there's somewhere between 68 and $70 million of interest expense the C. R.
From our prior guidance at that stage the expectations were for three to four interest rate hikes. This year now the expectations built into the seven to eight interest hikes this year.
Okay, great. Thank you I'll turn it over.
Sorry, just one additional clarification. This doesn't the interest expense. It doesn't include any benefit from reduction in debt. After the sale of rail and the corresponding interest reduction then.
Yep got it thank you.
Thank you next question comes from the line of Chris Howe of Barrington Research. Your line is open.
Good morning, everyone. Thanks for taking my questions.
I wanted to follow up on the soil in dredge business. You had mentioned that there are projects for later this year.
As we think about that along with some other buckets.
As pricing increases, which will benefit later in Q2.
And perhaps future price increases how should we look at these different channels as it relates to the margin recovery in the second half.
For cleaner.
Or even beyond that.
Yeah.
Go ahead in Sherman.
Yes, so if you really start thinking off price increases.
The $10 million.
Nick mentioned that was uncovered is really in the first half of the year. So there is a cost price mismatch during the first half of the year. The second half of the year, our price increases are covering inflation.
I was mentioning we've put in place is a lot of surcharges stop fees, which really is going to be tight.
Gotcha.
The contributing factors for inflation.
So our margins will recover from that the soil in dredge business is from a guidance perspective relatively flat to last year.
That business has a very high contribution margin adds incremental volume would come in so if we were able to pull in some work into this year there could be good margin upside as Nick mentioned.
Now lot of the projects the pipelines developing for later this year into 2023, so as you start thinking margins 'twenty three 'twenty four we see a recovery in the soils dredge business split really could be a couple of points of margin expansion into our long term targets.
And then on top of that as you factor in our efficiency program through the digitalization effort through our logistics improvements.
And continued growth in the business, that's how we get to our.
Mid term margin targets of 15%.
Got it that's perfect.
And no specific order here, if we go to the driver shortage and clean Earth do you mentioned Mark was a little bit better for recruitment.
Can you give a sense of the current magnitude of shortage versus where you hope to be.
Yes, So we grew probably about 60 to 70 drive those shorts.
And March was a good month for us.
Both the number of drivers we on boarded but also we.
First quarter saw a reduction in the turnover so actual people, leaving drivers, leaving the business. So net positive on both ends for us. Additionally, as we'd mentioned earlier.
During the last quarter, we basically took into effect certain new procedures on onboarding to cut the time for onboarding of our drivers and getting them productive and about half of that is starting to help us all.
Okay and then my last question just going back to these ongoing challenges of inflation and supply chain labor.
It doesn't seem at this point things are getting much better but more of a duration is being extended how are you factoring in.
Future price increases to perhaps overcompensate.
For these challenges to not be on the short end.
Yes.
Think.
A lot of.
The the work comes down to the structure of our contracts.
Of course, this business had not experienced inflation of this magnitude in the past certainly not as quickly as it develops and so the contracts were written at a time when accommodating that was not.
Not even a thought so.
A lot of the work.
We will be done through.
Giving us the avenue to make appropriate adjustments.
Per the contract going forward.
Okay, and then likewise I would assume that these price increases.
Somewhat stick with us for a while.
To account for that.
The challenge is that it.
Are occurring and have occurred.
Yes, certainly.
We are anticipating.
Okay. Thank you for taking my questions.
Thank you.
Thank you once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad once again Thats star one on your telephone keypad.
I would like to withdraw your question. Please press the pound key.
Question comes from the line of Zane Karimi of D. A Davidson your line is open.
Hey, good morning.
Morning, gentlemen, and thank you for taking my questions.
Good morning.
So first off here on.
Clean Earth can you.
Speak a little bit more to your previously announced 2020 for cleaner expectations in what has changed between the initial announcements and today and in particular, what changes if any needs to be worked on to hit those targets.
Yeah.
Yes, I assume you're referring to the EBITDA margin target of 15% that we've discussed.
Yes, and our top line.
Yeah Yeah.
Yes, so I think on Sherman mentioned.
A key component of that bridge to get from where we are today to the 15%.
<unk> two points of that will be.
The soil in dredge business returning to pre pandemic.
Volume levels, so that would be a few points.
I would expect we do expect an incremental one to two points in margin from.
The leverage that we will receive from incremental volume.
And then I think on human also mentioned.
A lot of the <unk>.
The initiatives that are underway, which will serve to both improve the customer experience, but also two to help the back office operations become more effective.
Likely leading to a.
A reduction in G&A costs. So so those are the principal components of let's call it that five point gap.
Between normalized current margins.
Adjusting for inflation.
And the 15% target that we have.
Okay. Thank you and maybe I know you've discussed a lot of the cleaner potential near term headwinds, but I was hoping to talk a little bit about <unk>.
What youre seeing.
As best you can but 2023 and 2020 for opportunities there.
Well I think those opportunities are consistent with kind of the investment thesis.
We stated when we bought the business.
There.
Significant opportunities in areas like <unk> there are opportunities.
With our.
Our front end work that we're doing to improve the customer experience to take what has been.
It kind of negative churn in large accounts to one that's positive.
And of course the ongoing.
Opportunity to expand permit capabilities at our federally permitted sites to process different kinds of waste so.
There are many many opportunities.
That are consistent with those that we mentioned when we when we bought the business a few years ago and we.
We indicated that we think that the the volume opportunity in this business.
On an annual basis is kind of mid single digits.
Plus of course any benefits of price so we still believe that.
Thats achievable.
Okay I appreciate the color and I'll jump back into queue.
Thank you next question comes from the line of Jeff Hammond of Keybanc. Your line is open.
Hey, good morning, guys.
Hey, Jeff.
Sorry, I jumped on a little late I don't know if you gave EBITDA for the quarter for for rail, even though its disc ops or what it is.
Trailing I know youre talking about the $40 million go forward.
We didn't give the EBITDA, but really the results were impacted by the $35 million charge that I referenced during the call, but really going forward as Nick mentioned during the call. We've seen a very strong recovery into Q1 and the early parts of.
Q do in in the rail business the number of Pampers, we sold in the first 100 days.
Our core product that is more than we did all year last year, they've received or another.
Order.
In this quarter Q2 that will help.
To show good growth in the base business of this.
Rail segment and as a result, we feel pretty comfortable that buyers are looking at this business. They should be looking at the near term, earning potential which is around the $40 million Mark.
Okay, perfect and then.
Just on <unk> can you just talk about.
Kind of how if there's any moving pieces within the guide it seems unchanged, but it seems like certainly nickel scrap.
Should be kind of a tailwind I don't know if theres offsetting headwinds.
Yes, there are a number of moving parts.
As you noted.
Echo products group somebody can put cost to producing those products.
Costs have increased so we've.
Recovering that in price as we speak but there was a bit of a headwind in the quarter and probably some of the second quarter as well due to that as you point out some other commodity prices, which tend to benefit the business have.
Have remained a bit higher than we than we thought but overall the volume in the business.
As is consistent with our original thoughts.
And yes, we are quite comfortable with the original guidance that we provided for the full year.
Okay, Great and then last one just on.
I know when you bought you saw you were talking about.
I guess restructuring some of the transfer facilities in the transportation business.
I'm, just wondering kind of where you are in that evolution and.
Kind of how you maybe think about it the same or differently given given all of this kind of.
Driver shortage inflation et cetera.
Well, we've made a number of changes already to our to our route planning and.
And so forth.
So a lot of that has already been addressed although as you can imagine in this in this market it certainly.
This is prompting us to look a level deeper and to continue trying to find efficiencies in our in our route.
Planning, so thats an ongoing.
This should have I would say Jeff.
Okay I appreciate it guys.
Thank you.
Thank you next question comes from the line of Michael Hoffman of Stifel. Your line is open yes.
Yes. Thank you for the follow up I, just wanted to get a point of clarity.
$20 million of headwind 10 million offset and its contract structural limitations that are preventing you from doing that faster is that what I.
I think I heard you in effect Thats correct and that of course is something were addressing now.
And when this.
Sudden and severe inflationary environment whatever.
Recur.
Yes, I think thats.
That's taken us a bit more time to work through the appropriate mechanisms to increase prices given the structure of the contracts again, whether they be surcharges or price increases and temporary versus permanent.
It's quite a mixed bag.
Uh huh.
<unk>.
Contracts. So it's it has taken a bit of time to work through that.
Quite pleased with the effort of our clean Earth team to get where we are today and certainly have confidence that we.
We will be in a better position to mitigate this going forward.
And.
I get and I appreciate that these businesses are all being run as one but theyre now underlying segment. So is this.
And industrial issue of retail issue, a health care issue, which is it more of something and that's why there's some timing here, yes, it's more more retail and industrial it's not not a health care issue, it's really not a legacy clean Earth issue, it's more of a.
I mean, you saw issue with respect to.
Industrial and retail.
Alright, and then what are the plans.
To term out the debt is that something that's tied to you get rail solar to Delever, and then try and term out and get out from under some of this variable versus fixed issue.
Currently we're 50 50 from a variable versus fixed.
And as we get the rail proceeds obviously will be paying down some of the variable debt.
So our percentage for the rest of this year goes a little bit higher towards fixed.
At this stage you know interest rates are up so taking out the high yield and replacing that probably isn't.
Our strategy given the current interest rates, but we will continue to monitor interest rates and look at mechanisms to further reduce our interest costs as we continue to delever and.
Kind of a stronger balance sheet.
Okay, and then lastly, Nick.
I wanted to ask about the 15% margin.
My recollection was clean Earth legacy was very high margin because soils dredge.
So.
Such high Incrementals.
Volumes virtually zero, but the combined was meant to be better than 15.
Because of the benefit of clean Earth now now, we're only getting to <unk> because of soils dredge I thought that's what 15 was without soils dredge.
Recovering well, we're talking just over the next few years, we really haven't looked out beyond a few years, where the margins can can can develop to I think to pick up five or so points of margin in the next few years.
As a as an aggressive but reasonable target for the team and Thats what were.
We're tasking them to do when we have a pretty good roadmap on how to get there where.
Where the margins can go beyond 15%.
We will.
We'll discuss that later.
Okay. Thank you for taking the extra questions.
Okay.
Thank you there are no further question at this time and would like to turn the call back to Dave Martin for closing remarks.
Thank you for joining the call and I apologize for the technical issues with Nick at the very end of his prepared remarks feel free to contact me with any follow up questions and again, we appreciate your interest in Harsco and look forward to speaking with you in the future have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a great day.
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Sure.
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