Kirby Reports Q1 Loss, Withdraws 2020 Guidance

America's largest tank barge operator Kirby Corporation on Tuesday announced a net loss of $248.5 million for the first quarter, down from $44.3 million earnings for the same period last year. The company also withdrew its full year earnings guidance.

The sharp deceline in energy prices and oil and gas activity negatively impacted the revenue and operating income of Kirby's distribution and services segment, leading the Houston-based company to implement workforce reductions, furloughs and reduced work schedules, said Kirby president and CEO David Grzebinski.

The sitiuation was better for Kirby's marine transportation business despite "unfavorable" operating conditions. For the first quarter of 2020, Kirby's marine transportation revenues, operating income and operating margin were $403.3 million, $50.7 million and 12.6% respectively, compared to $368.1 million, $35.4 million and 9.6% for the the same period in 2019.

“In the first quarter in marine transportation, despite poor seasonal operating conditions, our inland marine business had strong activity with elevated demand, high barge utilization levels and increased pricing for both spot and term contracts. Similarly, tight market conditions in coastal resulted in good barge utilization and improved spot and term contract pricing," Grzebinski said

The coronavirus pandemic did little to slow Kirby's tank barge operations, but Grzebinski said evolving market conditions could cause a slowdown. 

"Since the onset of the COVID-19 pandemic, marine activity has remained relatively strong with many customers using incremental barges to ready their supply chains, store products and relocate inventories. However, with many refineries and some chemical plants curtailing production in response to lower consumer demand, our barge utilization levels started to decline in mid-April.”

In the inland market, average barge utilization was in the low to mid-90% range during the quarter. Operating conditions were unfavorable due to poor weather conditions, including fog and wind along the Gulf Coast and flooding on the Mississippi River, as well as lock closures on key waterways. These conditions resulted in 4,490 delay days which were similar to the record 4,613 delay days in the 2019 first quarter. Spot market and term contract pricing improved during the quarter, with spot rates increasing in the mid-single digit range sequentially and year-over-year. Average term contract pricing on expiring contracts increased in the low-single digits. Revenues in the inland market increased 13% compared to the 2019 first quarter primarily due to the contribution from the Cenac acquisition and improved pricing. The operating margin for the inland business was in the mid-teens during the quarter and was adversely impacted by the significant delay days.

In the coastal market, barge utilization rates were in the low to mid-80% range during the 2020 first quarter. Compared to the 2019 first quarter, spot market and term contract pricing was approximately 10% to 15% higher. Revenues in the coastal market were similar to the 2019 first quarter with the impact of higher pricing being offset by planned shipyard days on large capacity vessels. During the quarter, the coastal operating margin was in the low single digits.

2020 Outlook
Kirby has withdrawn its full year ernings guidance, Grzebinski said, citing "the COVID-19 pandemic and many unknowns surrounding the depth of the global recession and the potential impact on future demand."

“Our businesses are dealing with very volatile market conditions. During this time, we are managing this situation day-by-day with an intense focus on the health and safety of our employees, seamless operations, and uninterrupted customer service. Additionally, we are aggressively reducing costs, lowering capital spending, and focusing on cash flow,” he explained.

In inland marine, as a result of the mounting headwinds associated with COVID-19 and reduced consumer demand for petrochemicals, crude oil, and refined products, activity and barge utilization levels have declined to levels around 90% in recent weeks. With refineries and petrochemical plants reducing utilization rates to align with declining demand, Kirby expects low volume levels to persist until economic activity resumes. However, the long-term nature of many of the company's inland term contracts and the flexibility of barging in the evolving and complex U.S. supply chain will help to insulate some of the decline in business activity, it said. Opportunities for storage, product relocations and upcoming lock maintenance projects will also help to mitigate lower demand.

In the coastal market, although approximately 85% of revenues are under term contracts, quarterly revenues and barge utilization are expected to decline in the near-term as a result of COVID-19. During the second quarter, Kirby’s barge utilization has experienced a slight softening, particularly related to spot moves of refined products as customer refinery runs and demand have declined. Additionally, labor constraints in the shipyard industry as a result of the pandemic have resulted in delays and extended shipyards for several of Kirby’s large capacity vessels. Kirby’s retirement of four aging coastal barges, as well as anticipated activity reductions in the coal transportation business will have an impact on the full year.

Grzebinski said, “I expect 2020 will be a solid year for Kirby despite the obvious challenges. We are well-prepared to weather the challenges presented by COVID-19. In marine, although we anticipate a decline in volumes and barge utilization, we believe as in past cycles that our marine customer contracts and the variable nature of our cost structure will help to minimize the impact on our operating margins. The integration of Savage is going well despite the headwinds from COVID-19, and I’m optimistic that we can quickly realize synergies that will result in a favorable contribution from this acquisition.

"Kirby is in a strong position with respect to liquidity and cash flow generation. We expect to have significant free cash flow in 2020 in the range of $250 to $350 million and intend to direct our cash flow towards debt repayment, enhancing liquidity, and strengthening our balance sheet.”