Kirby Reports First-Quarter Loss, Expects Improvement
The ongoing effects of the COVID-19 pandemic, which have hit the oil industry especially hard, and the effects of the major winter storm in February combined to hit the earnings of Kirby Corporation in the first quarter.
On April 29, Kirby announced a net loss for the first quarter ending on March 31 of $3.4 million, or $0.06 per share, compared with a loss of $347.2 million or $5.80 per share for the 2020 first quarter. Excluding one-time items, net earnings were $35.3 million or $0.59 per share in the 2020 first quarter.
Consolidated revenues for the 2021 first quarter were $496.9 million, compared with $643.9 million reported for the 2020 first quarter.
“As anticipated, Kirby’s first quarter results were greatly affected by the continuing effects of the COVID-19 pandemic, particularly in marine transportation where volumes and pricing have significantly declined,” said David Grzebinski, Kirby’s president and CEO. “The quarter was also materially impacted by Winter Storm Uri, which resulted in prolonged shutdowns at many of our marine transportation customers’ operations starting in mid-February. These disruptions resulted in a significant decline in liquids production and volumes for the quarter, and in some cases extending into April. Distribution and services [were] also impacted by the storm with reduced activity levels, and many of our locations across the South closed for several days. Overall, we estimate that the winter storm reduced our first quarter earnings by approximately $0.09 per share.”
Grzebinski said he expects the company to return to profitability in the second quarter.
“The first quarter’s financial results were impacted by continued pandemic headwinds, low pricing in marine transportation and the impact of Winter Storm Uri. However, most of Kirby’s businesses are starting to experience higher activity levels and improving market conditions. We believe the second quarter will show a modest improvement as activity continues to build, and we are optimistic there will be a meaningful improvement in pricing and utilization levels in the second half of the year. In the second quarter, we expect market conditions and barge utilization in inland marine will improve, which should help to boost spot market pricing in the coming months … Overall, we anticipate a return to profitability during the second quarter.”
The company’s marine transportation sector was already beginning to improve in February when the winter storm hit, Grzebinski said. “In marine transportation, during the first half of the quarter, our inland business experienced steady improvement … which resulted in our barge utilization improving to near 80 percent by mid-February. However, as Winter Storm Uri impacted Texas and Louisiana, our customers were forced to close their refineries and chemical plants, many of which did not fully resume operations until late in the quarter. During this time, refinery utilization along the Gulf Coast plummeted to near 40 percent, and as much as 80 percent of the Gulf Coast petrochemical complex was taken offline. Overall, these disruptions significantly reduced our volumes and operating efficiencies during the quarter. When combined with the impact of lower pricing, seasonal winter weather, and high-water conditions on the Mississippi River, inland operating margins sharply declined.”
Marine transportation revenues for the 2021 first quarter were $301 million, compared with $403.3 million for the 2020 first quarter. Operating income for the 2021 first quarter was $1.9 million compared with $50.7 million for the 2020 first quarter. Operating margin for the 2021 first quarter was 0.6 percent compared with 12.6 percent for the 2020 first quarter.
In the inland market, Kirby’s average barge utilization was in the mid-70 percent range during the quarter. Inland operations experienced “materially reduced customer activity and increased delays as a result of Winter Storm Uri,” the company reported. Operating conditions were also negatively affected by seasonal wind and fog along the Gulf Coast, flooding on the Mississippi River, ice on the Illinois River and various lock closures along the Gulf Intracoastal Waterway.
Overall, average spot rates declined in the mid-single-digit range sequentially. Compared to the 2020 first quarter, spot market rates were down approximately 25 percent to 30 percent. Revenues in the inland market declined 30 percent compared to the 2020 first quarter due to the impact of lower pricing and barge utilization, reduced fuel rebills and the impact of the winter storm.
These reductions, the company said, were partially offset by the Savage Inland Marine asset acquisition, which closed on April 1, 2020. During the first quarter, the inland market represented 75 percent of segment revenues. Inland’s operating margin was in the low to mid-single digits and was significantly affected by lower pricing, delays and reduced customer activity associated with the winter storm.
Increased maintenance and repair, horsepower and employee costs also impacted the quarter’s results as operations began to ramp-up in anticipation of increased activity levels.
Oil Sector Slowed
In the coastal market, the company said, low demand for refined products and black oil contributed to limited spot market activity and barge utilization in the mid-70 percent range. Revenues in the coastal market declined 10 percent compared to the 2020 first quarter as a result of reduced barge utilization, lower fuel rebills, and the retirements of three large vessels during the 2020 second and third quarters. The coastal market represented 25 percent of segment revenues and had a negative operating margin in the mid-single digits during the quarter.
Kirby’s marine repair, commercial and industrial segments were also negatively affected by the storm and the COVID-19 pandemic. Its marine repair business was down due to reduced major engine overhaul activity. In the oil and gas market, revenues and operating income declined compared to the 2020 first quarter due to reduced oilfield activity, which resulted in lower customer demand for new and overhauled engines, transmissions, parts and service.
The manufacturing business experienced reduced year-on-year deliveries of new and remanufactured pressure pumping equipment. The oil and gas businesses were also impacted by the winter storm, with reduced activity levels at many locations across Texas and Oklahoma. During the quarter, the oil and gas market represented approximately 32 percent of segment revenues and had a negative operating margin in the mid-single digits.
Inland Activity Improving
In the inland marine sector, Kirby said its barge utilization in April improved to more than 80 percent and is expected to increase further as the economy recovers and refineries and chemical plants return to full operations following the winter storm. In the second half of 2021, Kirby anticipates its barge utilization will improve into the high 80 percent to low 90 percent range. “This improvement in utilization should lead to a more positive pricing environment in the coming months,” the company said.
While inland revenues and operating margin are expected to sequentially improve in the second quarter due to increasing barge utilization and more favorable weather conditions, some costs could increase as well, the company said. Anticipated improvements in the spot market, which currently represents approximately 35 percent of inland revenue, will contribute to “more meaningful increases in revenues and operating margins in the second half of the year.”
In coastal, weak market conditions and limited spot demand are expected to continue in the second quarter. Kirby expects coastal barge utilization to remain in the mid-70 percent range with revenues and operating margin similar to the 2021 first quarter. Coastal barge utilization and operating results are also expected to improve in the second half of the year as demand for refined products grows and potential infrastructure spending increases demand for asphalt.
Kirby said it expects 2021 capital spending to range from $125 million to $145 million, with the midpoint representing a year-on-year reduction of about 10 percent. About $15 million of that spending is associated with the construction of new inland towboats, and $95 to $110 million is associated with capital upgrades and repairs.