Kirby Announces 2019 Q2 Financials

Kirby Corporation (“Kirby”) (NYSE: KEX) has announced net earnings attributable to Kirby for the second quarter ended June 30, 2019 of $47.3 million, or $0.79 per share, compared with earnings of $28.6 million, or $0.48 per share, for the 2018 second quarter.  

Excluding a one-time charge related to the retirement of Kirby’s Executive Chairman, 2018 second quarter net earnings attributable to Kirby were $46.8 million, or $0.78 per share.  Consolidated revenues for the 2019 second quarter were $771.0 million compared with $802.7 million reported for the 2018 second quarter.

David Grzebinski, Kirby’s President and Chief Executive Officer, commented, “During the second quarter, our marine transportation business significantly improved its profitability despite challenging inland operating conditions. In distribution and services, however, oilfield related activity declined more than anticipated as our customers focused on returns and free cash flow. Although we do not expect a significant rebound in 2019, there is no doubt this lull in activity is creating pent-up demand for future remanufacturing and replacement as equipment continues to be worked hard. The combination of the weakness in distribution and services and the challenging operating conditions for inland marine in the first half of the year has resulted in a lowering of our earnings per share guidance for 2019.

“In inland marine transportation, activity was robust throughout the second quarter, and strong customer demand and high barge utilization helped to improve term and spot market pricing.  Although inland marine’s operating income improved significantly, it was somewhat tempered by continued near-record high water conditions on the Mississippi River System, significant lock maintenance projects, and extended delays in the Houston Ship Channel. Overall, these issues contributed to nearly double the delay days year-over-year and negatively impacted the quarter’s results by approximately $0.05 per share.

“In coastal marine transportation, market conditions continue to improve. During the quarter, barge utilization rates increased into the mid-80% range, and we renewed term contracts higher in the mid-single digits. These improvements, together with reduced sequential shipyard maintenance, resulted in slightly positive operating margin for the quarter.

“In distribution and services, ongoing spending reductions in the oilfield impacted our oil and gas businesses during the second quarter, resulting in reduced revenue and operating income. Although we anticipated a sequential decline, the impact was more pronounced than expected with minimal orders for new oilfield equipment, reduced maintenance and service activity on pressure pumping units, lower transmission overhaul volumes, and reduced parts sales. This reduction was partially offset by continued growth in our commercial and industrial business including increased sales of new back-up power generation equipment,” Mr. Grzebinski concluded.

Segment Results – Marine Transportation
Marine transportation revenues for the 2019 second quarter were $404.3 million compared with $378.2 million for the 2018 second quarter. 

Operating income for the 2019 second quarter was $53.2 million compared with $38.2 million for the 2018 second quarter.

In the inland market, average barge utilization was in the mid-90% range during the quarter.  Operating conditions were challenging with prolonged flooding on the Mississippi River System, lock maintenance projects, and closures in the Houston Ship Channel. These conditions resulted in 3,331 delay days, a 92% increase compared to the 2018 second quarter. Spot market and term contract pricing continued to improve during the quarter, with spot rates increasing in the low to mid-single digit range sequentially and approximately 15% year-over-year. Average term contract pricing on expiring contracts increased in the mid-to high single digits. Revenues in the inland market increased 8% compared to the 2018 second quarter primarily due to higher barge utilization, the contribution from the Cenac and CGBM acquisitions, and improved pricing.  These gains were partially offset by the negative impact of poor operating conditions. The operating margin for the inland business was in the mid-teens during the quarter.
In the coastal market, barge utilization rates improved to the mid-80% range during the 2019 second quarter.  Compared to the 2018 second quarter, spot market pricing was approximately 10% to 15% higher, and term contracts repriced modestly higher in the mid-single digits during the quarter. Revenues in the coastal market increased 3% year-on-year, primarily due to improved pricing and higher barge utilization. During the quarter, the coastal operating margin was positive in the low to mid-single digits.

The marine transportation segment’s 2019 second quarter operating margin was 13.2% compared with 10.1% for the 2018 second quarter.

Segment Results – Distribution and Services
Distribution and services revenues for the 2019 second quarter were $366.7 million compared with $424.5 million for the 2018 second quarter. 

Operating income for the 2019 second quarter was $23.1 million compared with $40.2 million for the 2018 second quarter.

In the oil and gas market, revenues and operating income declined compared to the 2018 second quarter due to reduced activity in the oilfield. 

During the quarter, the oil and gas businesses experienced lower customer demand across the entire portfolio including new and remanufactured pressure pumping equipment, new and overhauled transmissions, parts and service. During the quarter, the oil and gas operating margin was in the mid-single digits.

In the commercial and industrial market, revenues and operating income increased compared to the 2018 second quarter primarily due to higher installations of back-up power systems in the power generation business.  Activity in the marine repair sector was stable year-on-year.  During the quarter, the commercial and industrial operating margin was in the mid-single digits.

The distribution and services 2019 second quarter operating margin was 6.3% compared with 9.5% for the 2018 second quarter.

Cash Generation
EBITDA of $133.2 million for the 2019 second quarter compares with EBITDA of $112.7 million for the 2018 second quarter.  Cash flow was used to fund capital expenditures of $66.3 million during the 2019 second quarter, which included $8.4 million for new inland towboat construction, $4.9 million primarily related to progress payments on the construction of three new 5000 horsepower coastal ATB tugboats, $45.6 million primarily for upgrades to existing inland and coastal fleets, and $7.4 million related to projects in distribution and services. As well, $5.4 million was used to purchase four inland barges that were previously leased. Total debt as of June 30, 2019 was $1,594.7 million, a reduction of $72.8 million compared to March 31, 2019, and Kirby’s debt-to-capitalization ratio was 32.4%.

2019 Outlook
Commenting on the 2019 full year outlook and guidance, Mr. Grzebinski said, “We have lowered our 2019 earnings guidance to $2.80 to $3.20 per share. Although the lower end of our previous guidance range contemplated some reduced oilfield activity in distribution and services for the second half of 2019, it has become increasingly evident that orders for new pressure pumping equipment and maintenance activities will remain very limited for the balance of the year. The majority of the reduction to our earnings guidance range relates to weakness in distribution and services, with a small portion attributed to the impact from poor operating conditions in inland marine. Despite this near-term reduction, the long-term outlook for Kirby remains positive. Our marine business continues to have strong fundamentals and is expected to continue to improve, and we anticipate distribution and services will rebound nicely when the inevitable recovery in maintenance and replacement of oilfield equipment spending occurs.”

In the inland marine transportation market, strong customer activity and growing volumes from the petrochemical complex are expected to yield barge utilization levels in the mid-90% range, as well as higher pricing for the remainder of 2019. In the third quarter, better weather should drive improved operating efficiencies on contracts of affreightment.  However, the recent hurricane and continued high water conditions on the Mississippi River are expected to impact the third quarter. Overall, inland revenue is expected to increase slightly sequentially with operating margins improving modestly from second quarter levels.

In the coastal market, barge utilization is expected to be in the low to mid-80% range during the second half of 2019. Pricing is expected to continue to improve modestly on renewing contracts.  For the third quarter, coastal revenues and operating income are expected to be similar to the second quarter.  In the fourth quarter, however, seasonal activity declines in the Pacific and shipyard maintenance on several large capacity vessels will have an adverse impact on revenue and operating margins.

In the distribution and services segment, although customer inquiries for new pressure pumping equipment continue, firm commitments and the pace of orders have slowed considerably. As well, maintenance on existing pressure pumping units, transmission overhauls, and parts sales have also declined to minimal levels.  Based on current activity levels, deliveries of new pressure pumping equipment are expected to materially decline for the remainder of 2019, and maintenance activities are expected to remain very low. Transmission overhauls and parts sales are also expected to remain at the reduced levels. In the commercial and industrial market, revenues and operating income are expected to decline in the third quarter with fewer installations of major back-up power systems and reduced vessel repair service levels in marine. These should be partially offset by improved utilization in the rental power generation fleet during the summer storm season along the Gulf Coast.

Kirby’s 2019 capital spending is expected to be in the $225 to $245 million range. Capital spending guidance includes approximately $40 to $45 million in progress payments on new marine vessels, which includes three 5000 horsepower coastal ATB tugboats and thirteen 2600 horsepower inland towboats. Approximately $155 to $165 million is associated with capital upgrades and improvements to existing inland and coastal marine equipment (including approximately $20 million for coastal ballast water treatment systems) and marine facility improvements. The balance of approximately $30 to $35 million largely relates to new machinery and equipment, rental fleet growth, facility improvements, and information technology projects.