Kirby Reports Lower Earnings, Higher Revenues

Kirby Corporation on July 29 reported net earnings for the second quarter of $10.2 million, or $0.17 per share, compared with earnings of $25.0 million or $0.42 per share for the 2020 second quarter. Consolidated revenues for the 2021 second quarter were $559.6 million compared with $541.2 million reported for the 2020 second quarter, the company said.“Kirby’s second quarter results reflected improved market dynamics and increased demand across most of the company’s end markets,” said David Grzebinski, Kirby president and CEO. “With the U.S. economy continuing to recover, our refining and petrochemical customers ramped up production and inland barge availability tightened meaningfully. In distribution and services, economic growth and favorable oilfield market conditions contributed to increased activity and improved profitability. Overall, these positive developments contributed to healthy sequential improvements in revenue and earnings for the company.

“In marine transportation, our inland business experienced a strong improvement in demand, which resulted in second quarter average barge utilization increasing into the low to mid-80 percent range. This increase was primarily driven by improved economic conditions, higher refinery and chemical plant utilization and increased demand for refined products and black oil. The Colonial Pipeline outage also provided significant temporary increases in barge demand during the second half of May.

“These favorable market dynamics helped to sequentially improve spot market pricing for the first time in over a year. Overall, inland revenues increased 13 percent sequentially, and operating margins improved into the high single digits for the second quarter,” Grzebinski said.

“In distribution and services, activity levels significantly improved during the second quarter, resulting in strong sequential and year-on-year increases in revenue and operating income,” he said. “In oil and gas, improved market fundamentals and increased rig and well completions activity resulted in higher demand for new transmissions, parts and service. New orders in our manufacturing business resulted in increased deliveries of new environmentally friendly pressure pumping and frac-related power generation equipment. In commercial and industrial, economic growth across the U.S. resulted in increased service volumes in our on-highway businesses. Sales of Thermo King refrigeration equipment also increased during the quarter. These gains were partially offset by sequentially lower revenues in commercial power generation due to the timing of large back-up power installations.”

Segment Results

Kirby’s marine transportation revenues for the 2021 second quarter were $332.9 million, compared with $381 million for the 2020 second quarter. Operating income for the 2021 second quarter was $18.5 million compared with $51.4 million for the 2020 second quarter. Operating margin for the 2021 second quarter was 5.6 percent compared with 13.5 percent for the 2020 second quarter.

In the inland market, average barge utilization was in the low to mid-80 percent range during the quarter compared to the mid-70 percent range in the 2021 first quarter and the mid-80 percent range in the 2020 second quarter, the company reported. Inland barge volumes increased sequentially as the U.S. economy continued to improve, and Gulf Coast refinery and chemical plant activity recovered from the effects of Winter Storm Uri. Barge demand was further increased by the Colonial Pipeline outage that occurred in May.

In the coastal market, weak demand for refined products and black oil transportation contributed to low spot market activity and barge utilization in the low to mid-70 percent range. Pricing on spot and term contracts was generally stable during the quarter. Revenues in the coastal market were modestly higher compared to the 2020 second quarter and represented 24 percent of segment revenues. The coastal business had a negative operating margin in the mid-single digits during the quarter.

Kirby’s distribution and services segment revenues for the 2021 second quarter were $226.7 million compared with $160.2 million for the 2020 second quarter. Operating income for the 2021 second quarter was $6.2 million compared with an operating loss of $14.1 million for the 2020 second quarter. Operating margin for the 2021 second quarter was 2.7 percent compared with -8.8 percent in the 2020 second quarter.

2021 Outlook

Commenting on the 2021 full year outlook, Grzebinski said the company expects further growth in both the marine transportation and the distribution and services segments going forward as the U.S. and international economies continue to reopen, although some possible headwinds could slow that growth.

“While we remain very optimistic about increased business activity for the remainder of 2021, the recent spike in COVID-19 cases in pockets of the U.S. and around the world has created uncertainty which could impact the pace of the recovery,” he said. “Increasing supply chain and labor constraints are also concerning, particularly in distribution and services, where delays in key components could defer some product sales and manufacturing deliveries in the second half of the year.”

Kirby said its barge utilization, which is currently in the mid-80 percent range, is expected to gradually increase into the high 80 percent to 90 percent range during the second half of 2021. This increase in activity should yield further improvements in the spot market, which currently represents approximately 35 percent of inland revenue, and contribute favorably to revenues and operating margins, the company said.

In coastal, market conditions are expected to remain challenging for the remainder of the year, but increasing demand for refined products is expected to contribute to modest improvement in spot market activity levels, Kirby said. As a result, the company expects coastal barge utilization to increase into the mid-70 percent range with third-and fourth-quarter revenues and operating margins modestly improved compared to the 2021 second quarter.

Kirby expects 2021 capital spending to range between $125 million and $145 million, with the midpoint representing a year-on-year reduction of approximately 10 percent. Approximately $15 million of the spending is associated with the construction of new inland towboats, and approximately $95 to $110 million is associated with capital upgrades and improvements to existing inland and coastal marine equipment and facility improvements. The balance of approximately $15 to $20 million largely relates to new machinery and equipment, facility improvements and information technology projects in distribution and services and corporate. Overall, Kirby expects to generate net cash provided by operating activities of $395 million to $435 million, with free cash flow of $250 million to $310 million in 2021.

CFO Plans Retirement

Along with the earnings announcement, Kirby reported that William “Bill” Harvey, executive vice president and chief financial officer, intends to retire in the first quarter of 2022. He will continue to serve in his role until his successor is named to ensure a smooth transition of his duties.