Kirby Reports Improving Earnings, Wage Increases

Kirby Corporation reported net earnings for the second quarter of $28.6 million, or 48 cents per share, compared with $25.8 million—also 48 cents per share—for the 2017 second quarter. Consolidated revenues for the 2018 second quarter were $802.7 million compared with $473.3 million reported for the 2017 second quarter.

The second quarter results include a previously announced one-time, non-tax-deductible charge in general corporate expenses totaling 30 cents per share associated with the retirement of Kirby’s executive chairman.

“I am pleased with Kirby’s second-quarter results,” said David Grzebinski, president and CEO. “Both of our segments performed well during the quarter, delivering improved revenue and operating income sequentially and year-on-year. In the inland marine transportation market, pricing on term contracts started to move higher, with term contracts renewing up in the low single digits, setting the stage for what we believe will be a further upward movement in pricing in the second half of 2018.

“During the quarter, we completed the integration of Higman Marine and the Targa pressure barges, and I’m happy to report that both had a positive contribution to second-quarter earnings.”

Kirby’s marine transportation segment had second-quarter revenues of $378.2 million, compared with $331.3 million for the 2017 second quarter.

In the inland market, barge utilization was in the high 80 percent to low 90 percent range during the quarter, compared to the mid-to-high 80 percent range in the 2017 second quarter, the company said. Operating conditions were adversely impacted by high water conditions on the Mississippi River early in the quarter, resulting in increased delay days relative to the 2017 second quarter. However, weather conditions improved in May and June, enhancing operating efficiency but driving seasonally lower utilization compared to the first quarter, the company said.

Term contract pricing moved modestly higher in the 2018 second quarter, with contracts renewing up in the low single digits on average. Spot market pricing was in-line with the 2018 first quarter, but was up 10 to 15 percent year-on-year, Kirby reported.

Revenues in the inland market increased compared to the 2017 second quarter primarily due to the contribution from the Higman acquisition, recent pressure barge purchases, and higher fleet utilization. The operating margin for the inland business improved to the mid-teens during the quarter, the company said.

In the coastal market, barge utilization rates improved to the low- to mid-80 percent range during the second quarter. Term contract and spot market pricing were stable relative to the 2018 first quarter; however, compared to the 2017 second quarter, both term and spot market pricing were down 10 to 15 percent on average.

Capital Expenditures

Cash flow was used to fund capital expenditures of $112 million during the 2018 second quarter, including $6.3 million for new inland towboat construction, $9.7 million for progress payments on the construction of six 5,000 horsepower coastal articulated tug-barge (ATB) tugboats, and $45.9 million primarily for upgrades to existing inland and coastal fleets. Kirby also spent $50.1 million for a new 155,000-barrel coastal ATB that was under construction for a competitor and is scheduled to be delivered to Kirby in the 2018 third quarter. Cash used in acquisitions was $69.3 million related to the purchase of 16 pressure barges from Targa Resources.

Total debt as of June 30 was $1,442.5 million, and Kirby’s debt-to-capitalization ratio was 31.2 percent.

Wage Increases And Outlook

Grzebinski said the company’s guidance range for the third quarter is 50 to 70 cents per share, and for the full year is $2.15 to $2.55 per share.

“In our inland marine transportation market, third quarter and full year guidance contemplates utilization in the low- to mid-90 percent range,” Grzebinski said. “We continue to expect that industry-wide barge retirements, minimal new-builds, and additional petrochemical capacity will yield favorable industry utilization rates throughout the remainder of 2018.

“Term contract renewals, which started to move higher in the second quarter, are expected to continue this trend. This should result in a mid-single-digit average pricing inflection on term contracts renewing in the second half of 2018.

“However, as the inland market has started to recover, the labor market has tightened. As a result, we implemented wage increases for our inland mariners and shore staff effective this quarter. This will result in higher compensation costs going forward, and impact our earnings by approximately 5 cents per share for the remainder of 2018. This is included in our updated guidance.

“In our coastal market, we expect utilization in the low to mid-80 percent range for the remainder of 2018. Our guidance range assumes a stabilized pricing environment in this market for the remainder of the year.”

Grzebinski continued, “The long-term outlook for Kirby remains very bright. We are confident that the marine transportation segment has bottomed, and expect further improvement as the inland market continues its recovery. The coastal market, while challenging in the near term, has stabilized and will likely rebound in the next year or so.

“Kirby is well-positioned with significant recent investments in our fleet. The acquisition of Stewart & Stevenson and its successful integration into our distribution and services segment has made us a market leader in this business. With our enlarged scale and geographic diversity, we are poised to capitalize on anticipated growth in U.S. shale oil and gas, standby power generation, and the improving commercial marine industry,” he said.

Kirby expects 2018 capital spending to be in the $265 million to $290 million range, which is an increase of $65 million due to the opportunistic purchase of a new 155,000-barrel coastal ATB originally under construction by a competitor. Capital spending guidance includes approximately $65 million in progress payments on new marine vessels, including six 5,000 horsepower coastal tugboats, and fifteen 2,600 horsepower inland towboats to be delivered over a period of three years. Approximately $125 to $145 million is associated with capital upgrades and improvements to existing inland, including Higman, and coastal marine equipment, ballast water treatment systems for coastal vessels, and facility improvements. The balance largely relates to rental fleet growth, new machinery and equipment, and facility improvements in the distribution and services segment, the company said.