Kirby: Hurricanes, COVID-19 Lower Barge Revenues
Reduced demand from the ongoing COVID-19 restrictions combined with hurricanes to drop barge utilization rates and lower inland revenues by 22 percent, Kirby Corporation announced as it released its third-quarter results October 29. David Grzebinski, Kirby’s president and CEO, said that while he believes the economic crisis driven by the COVID-19 restrictions has bottomed out, continuing uncertainty will keep barge revenues flat through 2021.
“The COVID-19 pandemic and the associated economic slowdown adversely impacted Kirby’s businesses during the third quarter,” Grzebinski said. “Although general economic activity was slightly improved and increased profitability was realized in the distribution and services segment, the marine transportation businesses experienced lower volumes and barge utilization.”“In marine transportation, our inland and coastal businesses were heavily affected by weak demand for liquid products including refined products, crude and black oil,” he added. “Throughout the third quarter, refinery utilization was well below historical norms as many of our customers experienced low consumer demand, high product inventories and unfavorable economics. Additionally, a very active hurricane season resulted in further reductions in volumes and widespread disruptions, including prolonged closures of some refineries, chemical plants, waterways and major ports. These challenging market conditions during the quarter contributed to low barge utilization and limited spot market activity.”
Kirby reported net earnings for the third quarter of $27.5 million, or $0.46 per share, compared with $48 million or $0.80 per share for the 2019 third quarter. Consolidated revenues for the 2020 third quarter were $496.6 million compared with $666.8 million reported for the 2019 third quarter.
Marine transportation revenues for the 2020 third quarter were $320.6 million compared with $412.7 million for the 2019 third quarter. Operating income for the 2020 third quarter was $32.4 million, compared with $72.7 million for the 2019 third quarter. The segment operating margin for the 2020 third quarter was 10.1 percent compared with 17.6 percent a year ago.
In the inland market, average barge utilization was in the low 70 percent range during the third quarter, compared to the low 90 percent range in the 2019 third quarter. Barge volumes were heavily impacted by lower refinery and chemical plant utilization and reduced demand for refined products and petrochemicals. Significant hurricane and tropical storm activity also contributed to widespread and prolonged operational disruptions and lower volumes along the Gulf Coast throughout the quarter.
As a result of lower barge utilization, average spot market pricing for the quarter declined about 10 percent both sequentially and year-on-year. Average term contract pricing on expiring contracts was in the low single digits. Revenues in the inland market declined 22 percent compared to the 2019 third quarter due to the impact of reduced barge utilization and lower fuel rebills but were partially offset by the Savage Inland Marine asset acquisition, which closed on April 1. During the third quarter, the inland market represented 77 percent of segment revenues and had an operating margin in the mid-teens.
In the coastal market, reduced demand for refined products and black oil resulted in limited spot market activity and barge utilization in the mid-70 percent range. Pricing in the spot market was generally stable; however, average term contract pricing declined in the mid-single-digits year-on-year. Revenues in the coastal market declined 25 percent compared to the 2019 third quarter as a result of reduced spot market activity, lower fuel rebills, retirements of three large-capacity vessels and delays associated with hurricanes and tropical storms along the East and Gulf coasts. The coastal market represented 23 percent of segment revenues and had a negative operating margin in the mid-single digits during the quarter.
Oil And Gas
In the oil and gas market, revenues and operating income declined compared to the 2019 third quarter due to low oil prices and reduced oilfield activity, which resulted in limited customer demand for new and overhauled transmissions, parts and service. The manufacturing business experienced a sharp reduction in orders year-on-year with minimal deliveries of new and remanufactured pressure pumping equipment. During the quarter, the oil and gas market represented approximately 28 percent of segment revenues and had a negative operating margin in the low double digits.
Commenting on the fourth quarter outlook, Grzebinski said, “Although Kirby continues to be challenged by unprecedented declines in demand as a result of the COVID-19 pandemic, our business activity and utilization levels have bottomed. Economic activity is slowly improving, and we have seen pockets of increased demand. While this is encouraging, in the fourth quarter our results are expected to be impacted by continued low barge utilization and pricing pressure, normal seasonality from weather in marine, and likely, customer budget exhaustion in distribution and services.
“Looking beyond 2020, while the timing and magnitude of a material economic recovery are unclear, we believe this demand-driven downturn is temporary, and demand will rebound sometime in 2021. In marine, as discussed before, pricing typically does not improve until barge utilization is in the mid-80 percent range. Nevertheless, Kirby is in a strong financial position, and we will continue to tightly manage our costs, maintain capital discipline, generate free cash flow and pay down debt.”
In inland marine, absent potential new lockdowns related to COVID-19, Kirby said it expects improvement in barge utilization as refinery and chemical plants along the Gulf Coast recover from recent hurricanes and economic activity gradually increases. The reopening of the Illinois River in October is also expected to contribute some sequential improvement in barge utilization.
However, until a meaningful recovery in demand occurs, the company said market conditions are expected to remain challenging. Increased delays from seasonal winter weather are also expected to have an adverse impact on operating efficiencies. Overall, compared to the 2020 third quarter, Kirby said it expects inland revenues and operating margins will be flat to down slightly in the fourth quarter.
On the balance sheet, as of September 30, 2020, Kirby had approximately $613 million in cash and liquidity available. Kirby expects 2020 capital spending to be approximately $150 million, representing a year-on-year reduction of approximately 40 percent. The company remains focused on good maintenance of the marine transportation fleet, but capital spending needs are limited.