Kirby Announces 2Q Results
Kirby Corporation (NYSE: KEX) has announced net earnings attributable to Kirby for the second quarter ended June 30, 2017 of $25.8 million, or $0.48 per share, compared with $38.9 million, or $0.72 per share, for the 2016 second quarter.
Second quarter net earnings includes pre-tax expenses of $0.7 million, or approximately $0.01 per share, related to the pending acquisition of Stewart & Stevenson LLC (“S&S”). Consolidated revenues for the 2017 second quarter were $473.3 million compared with $441.6 million reported for the 2016 second quarter.
David Grzebinski, Kirby’s President and Chief Executive Officer, commented, “Our second quarter reflected trends across our businesses consistent with late 2016 and the 2017 first quarter. In particular, results in our land-based diesel engine business continue to drive higher, surpassing our expectations. While product demand in that market has been slow to build relative to upswings we’ve experienced in the past, service demand has been robust enough for us to reach near-peak operating margins, even on relatively low revenue. We are excited about the potential for a combination of improving operational leverage from increased throughput, and higher revenue as product sales improve. Our revised 2017 outlook, discussed in more detail below, was prompted by recognition of this market strength combined with a more conservative view in our marine markets for the year.”
Grzebinski continued, “The macro backdrop is as encouraging as it’s been since we entered the land-based services market, with equipment broadly in a state of disrepair and a long tail of pent up service demand lagging the increase in the rig count over the past twelve months. We believe our decision to purchase S&S is well timed. The transaction will unlock new strategic opportunities for our distribution and services business, and afford us an opportunity to expand the service capability at S&S, while enhancing an already good position for further strengthening of the market.”
Grzebinski concluded, “We remain steadfast in our view of the long-term potential in our marine transportation markets. The inland market, in particular, has experienced one of the most severe and long-lasting downturns in the past three decades. This sets up a market that is conducive to both consolidation and a lack of capital investment by the competition, which plays to Kirby’s strength and future growth opportunities. We are committed and have the balance sheet capacity to pursue the right acquisitions in the inland marine market, and we expect to emerge from this downturn larger and more efficient, with unparalleled customer service in the industry.”
Segment Results – Marine Transportation
In the inland market, barge utilization was in the mid-80% to high 80% range for the quarter, compared to the high 80% to low 90% range in the first quarter. Operating conditions improved due to better weather, which enhanced operating efficiency and drove lower utilization compared to the first quarter. Seasonally weak demand for the transportation of agricultural chemicals also drove modestly lower sequential utilization. Demand for inland tank barge transportation of petrochemicals and black oil was stable year-over-year, while demand for refined petroleum products and agricultural chemicals was lower. Both term and spot contract pricing were at lower levels relative to the second quarter of 2016. Spot pricing remained stable compared to the 2017 first quarter. The operating margin for the inland business was in the mid-teens.
In the coastal market, tank barge utilization was in the high 60% to mid-70% range during the second quarter as the market became incrementally weaker relative to earlier in the year. Demand for the transportation of black oil, petrochemicals, and dry products was stable, while demand for the transportation of refined petroleum products and crude oil was lower than the 2016 second quarter, as weakness in those markets persists due to an oversupply of barrel capacity. The trend of coastal vessels moving into the spot market at the expiration of term contracts continued, increasing idle time and voyage costs. The operating margin for the coastal marine business was in the negative low-single digits.
The marine transportation segment’s 2017 second quarter operating margin was 10.8% compared with 19.2% for the second quarter of 2016 as a result of weaker term and spot pricing in the inland market and increased idle time and voyage costs in the coastal market as more barges operated in the spot market.
The higher revenues and operating income as compared to the second quarter of 2016 were due to improved demand for the remanufacturing of pressure pumping units, rebuilt transmissions, and an increase in the sale of new pressure pumping units. Orders for new pressure pumping equipment were received during the quarter, and are expected to ship in the third quarter. In our marine diesel engine services business, revenues declined compared to the 2016 second quarter due to customer deferrals of major overhauls, particularly in the Midwest and on the East Coast. Demand in the power generation market was slightly lower than the 2016 second quarter, and was comparable to the 2017 first quarter.
Mr. Grzebinski continued, “In our diesel engine services markets, we anticipate pressure pumping remanufacturing and transmission overhaul service work in our land-based business will maintain current levels in the third quarter and remain strong through year end, with revenue for the year of $400 million to $450 million versus prior guidance of $290 million to $340 million. We expect a minor sequential decline for the marine and power generation businesses for the remainder of the year due to the deferral of service work by marine customers.”
Mr. Grzebinski concluded, “With respect to S&S, we expect to close on the transaction during the third quarter, and plan to provide earnings guidance for the remainder of 2017 on our third quarter earnings call.”
Kirby expects 2017 capital spending to be in the $165 to $185 million range, unchanged from previous guidance. Capital spending guidance includes approximately $50 million in progress payments on new coastal equipment, including a 155,000 barrel ATB, two 4900 horsepower and six 5000 horsepower coastal tugboats. The balance of $115 to $135 million is primarily for six new inland tank barges and capital upgrades and improvements to existing inland and coastal marine equipment and facilities, as well as diesel engine services facilities.