Kirby Q2 2009 Results
Kirby Corporation (NYSE:KEX) announced net earnings for the second quarter ended June 30, 2009 of $33.7 million, or $.63 per share, compared with net earnings of $40.3 million, or $.74 per share, for the 2008 second quarter. Kirby's published 2009 second quarter guidance range was $.52 to $.62 per share. Consolidated revenues for the 2009 second quarter were $272.7 million compared with $348.3 million reported for the 2008 second quarter.
Joe Pyne, Kirby's President and Chief Executive Officer, commented, "The decline in our marine transportation and diesel engine services demand reflects a difficult economic environment. Our 2009 first quarter actions focused on early retirements, staff reductions, cost reductions and efficiency initiatives. Our marine transportation mix of business, which is heavily weighted to term contracts, softened the negative impact of lower demand on our second quarter operating results. Marine transportation demand across all four of our market segments remained below prior year levels. Our diesel engine services segment's service levels and direct parts sales remained weak as our customers continued to defer maintenance, particularly in the Gulf Coast oil services market."
Kirby reported net earnings for the 2009 first six months of $61.7 million, or $1.15 per share, compared with $77.0 million, or $1.42 per share, for the first half of 2008. Consolidated revenues for the 2009 first six months were $550.4 million compared with $678.8 million for the first six months of 2008.
During the 2009 first quarter, Kirby took specific steps to reduce overhead and lower expenditures, taking a $4.0 million charge before taxes, or $.05 per share. The shore staffs of the marine transportation and diesel engine services segments were reduced by approximately 6% through early retirements and staff reductions. In addition, all officer and management salaries were frozen at 2008 levels. On-going cost reduction efforts include a significant reduction in the number of chartered towboats operated and the laying up of Kirby owned towboats and tank barges. Kirby estimates that the 2009 first quarter early retirements and staff reductions charge had a positive $.02 per share impact on the second quarter results, will result in a savings of $.02 per share for the 2009 year, net of the $.05 per share first quarter charge, and will result in a savings of $.08 per share for 2010.
Segment Results - Marine Transportation
Marine transportation revenues and operating income for the 2009 second quarter decreased 23% and 15%, respectively, compared with the second quarter of 2008. The reductions reflect lower petrochemicals, black oil products, refined petroleum products and agricultural chemicals demand, driven by the current global economic recession and lower pricing. In addition, lower diesel fuel costs resulted in lower revenues associated with the pass through of diesel fuel to the customer through fuel escalation and de-escalation clauses in term contracts.
Petrochemical demand of more finished products into the Midwest continued to modestly improve and demand along the Gulf Coast appears to be stabilized when compared with the 2009 first quarter. Black oil demand remained relatively stable while refined products demand remained weak. Agricultural chemical demand also remained weak as the spring Midwest inventory fill did not occur primarily due to heavy spring rain which reduced the farmers' ability to apply fertilizer. The number of time charters, or day rate contracts, declined during the quarter as customers returned equipment they did not need or became comfortable that their requirements could be filled in the spot market.
The marine transportation segment operated an average of 219 towboats during the 2009 second quarter and 226 towboats during the 2009 first six months compared with 259 towboats operated during the 2008 corresponding periods. As demand weakened, Kirby released chartered towboats and laid-up Kirby owned towboats to balance its horsepower requirements with volume demand. Going forward, Kirby will continue to monitor its towboat requirements and downsize or increase its towboat fleet as market changes warrant.
The marine transportation operating margin improved to 24.4% for the 2009 second quarter compared with 22.0% for the 2008 second quarter. The improved operating margin, despite the decrease in demand, reflected the positive impact of Kirby's cost reduction and efficiency initiatives, lower insurance claim losses, more efficient operations at lower utilization rates and more favorable operating conditions compared with the 2008 corresponding period.
Segment Results - Diesel Engine Services
The diesel engine services revenues and operating income for the 2009 second quarter decreased 17% and 28%, respectively, compared with the 2008 second quarter. The marine market remained weak as Gulf Coast offshore oil services and inland marine customers, and East and West Coast customers deferred maintenance on equipment in response to the economic slowdown. The medium-speed railroad market also remained weak as customers deferred maintenance. The medium-speed power generation market benefited from favorable engine-generator set upgrades projects and the international offshore oil services market was stronger during the second quarter. The diesel engine services operating margin was 13.6% for the 2009 second quarter compared with 15.6% for the 2008 second quarter.
Continued strong cash flow for the 2009 first half, aided by a reduction in accounts receivable, was used to fund capital expenditures of $116.6 million, including $84.0 million for new tank barge and towboat construction and $32.6 million for upgrades to the existing fleet, and to reduce debt by $36.9 million. Total debt as of June 30, 2009 was $210.4 million and the debt-to-capitalization ratio was 17.9%, down from 21.7% at December 31, 2008 and 25.6% at June 30, 2008.
Commenting on the 2009 third quarter market conditions and guidance, Mr. Pyne said, "For the 2009 third quarter, our earnings guidance is $.62 to $.67 per share compared with $.77 per share for the 2008 third quarter. For the 2009 year, we are tightening our earnings guidance to $2.40 to $2.50 per share compared with net earnings for the 2008 year of $2.91 per share. We continue to see some improved demand in our upriver movements of petrochemicals and stable demand in the balance of our marine transportation markets. While upriver movements of petrochemicals historically have been a leading indicator for both positive and negative demand going forward, it is just too early to tell if this improvement in upriver volumes will continue. It appears to us that our customers are fine tuning their volumes to what they see as sustainable demand. We anticipate our diesel engine services business will continue to face challenges for the balance of 2009 as customers continue to defer maintenance due to reduced utilization of their equipment. Our 2009 capital spending guidance range remains at $180 to $190 million, which includes approximately $135 million for the construction of 46 new tank barges and five towboats."