Kirby Corporation 2022 Form 10-K Summary
Business context and reporting period
Kirby Corporation filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Kirby operates two reportable segments: Marine Transportation (KMT), the largest domestic tank-barge operator in the United States, and Distribution and Services (KDS), which provides engine, transmission, power-generation, oilfield-equipment, parts, repair, rental and manufacturing services.
KMT transported petrochemicals, black oil, refined petroleum products and agricultural chemicals. KDS served commercial and industrial customers and the oil and gas market. The Company had approximately 5,200 employees and operated 1,037 inland tank barges, 29 coastal tank barges and related towing equipment at year-end.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $2.785 billion | $2.247 billion | +24% |
| Operating income | $192.9 million | $(258.1) million | Improved |
| Net earnings attributable to Kirby | $122.3 million | $(247.0) million | Returned to profit |
| Diluted EPS | $2.03 | $(4.11) | Improved |
| Cash flow from operations | $294.1 million | $321.6 million | $(27.4) million |
| Capital expenditures | $172.6 million | $98.0 million | +$74.6 million |
- KMT revenue was $1.617 billion, up 22%, and operating income was $136.2 million, up 116%. The operating margin increased to 8.4% from 4.8%.
- KDS revenue was $1.168 billion, up 26%, and operating income was $67.0 million, up 143%. The operating margin increased to 5.7% from 3.0%.
- KMT represented 58% of consolidated revenue and KDS represented 42%. KMT revenue consisted of approximately 49% petrochemicals, 28% black oil, 20% refined petroleum products and 3% agricultural chemicals.
- KDS revenue consisted of approximately 82% service and parts and 18% manufacturing; commercial and industrial activities represented 56% of KDS revenue and oil and gas activities 44%.
- Cash and cash equivalents were $80.6 million at December 31, 2022. Current assets were $1.212 billion and current liabilities were $642.2 million.
- Inventories increased 39% to $461.8 million, primarily because of higher activity and supply-chain delays in KDS.
- Debt outstanding before unamortized discounts and issuance costs was $1.083 billion, compared with $1.167 billion in 2021. Debt-to-capitalization declined to 26.2% from 28.7%.
- Interest expense increased to $44.6 million from $42.5 million, reflecting higher average borrowing rates despite lower average debt.
- The Company purchased approximately 0.4 million shares for $22.9 million and has not paid common-stock dividends since 1989.
Material changes versus the prior comparable period
- Results improved substantially as refinery and petrochemical utilization, marine utilization, contract pricing and oilfield activity recovered from pandemic-related weakness and the effects of Winter Storm Uri and Hurricane Ida in 2021.
- Inland tank-barge utilization improved from the mid-to-high 80% range in the fourth quarter of 2021 to approximately 90% in the fourth quarter of 2022. Coastal utilization improved to the low-to-mid 90% range during the second half of 2022, although coastal capacity remained relatively oversupplied.
- Renewed inland contracts produced pricing increases of approximately 10% to 16% during 2022, while spot pricing increased approximately 15% to 27% depending on the quarter. Coastal pricing also increased.
- 2022 had no impairment charges. In contrast, 2021 included $340.7 million of pretax noncash impairment charges related primarily to coastal marine equipment and KMT goodwill.
- Operating cash flow declined 9% because 2021 included a $119.5 million federal tax refund; the decline was partly offset by higher 2022 revenue and operating income.
- The Company replaced its prior credit agreement in July 2022 with a $500 million revolving facility and a $250 million term loan maturing in 2027. It borrowed $310 million under the new arrangement and repaid $80 million of the term loan during the fourth quarter.
- On October 20, 2022, Kirby issued $60 million of 3.46% senior notes due 2033. The remaining $240 million of related 3.51% notes were issued on January 19, 2023.
Outlook, risks and unusual items
Management expects improved financial results from both KMT and KDS in 2023 and projects operating cash flow of $480 million to $580 million. Management expects favorable inland conditions, strong utilization, higher spot rates and higher renewal rates. Coastal results are expected to benefit from improved demand and pricing but face higher planned maintenance and ballast-water-treatment costs.
KDS demand is expected to benefit from high commodity prices, increasing rig counts, well-completion activity and demand for environmentally friendly pressure-pumping and power-generation equipment. Supply-chain constraints and long lead times may shift deliveries between quarters or into 2024.
- Marine operations remain exposed to low or high water, lock closures, hurricanes, storms, fog, accidents, spills, vessel crewing constraints, fuel-price volatility, Jones Act changes and competitive capacity additions.
- Fuel costs represented approximately 16% of marine transportation revenue in 2022. Contract fuel escalators generally have a 30-to-120-day lag, creating short-term under- or over-recovery risk.
- KDS is sensitive to oil and gas prices, customer capital spending, hydraulic-fracturing regulation, competition, supply disruptions and the loss of key distributorships or supplier relationships.
- Five KMT customers represented approximately 17% of consolidated 2022 revenue, while three KDS customers represented approximately 9%. No individual customer accounted for 10% or more of consolidated revenue.
- Key general risks include inflation, higher interest rates, cybersecurity, adverse weather, climate-related regulation, environmental liabilities, labor availability, acquisitions and supply-chain disruptions.
- The 2022 fourth quarter included $3.3 million of pretax severance expense and $0.9 million of pretax professional fees related to a strategic alternatives review. The 2022 second quarter included $1.5 million of pretax severance expense.
- Contingencies include environmental Superfund matters and litigation related to the 2016 grounding and fuel spill involving the tug Nathan E. Stewart. Management believes its accruals and insurance coverage are adequate and does not expect a material adverse effect, but the civil exposure from the Canadian proceeding could not be estimated.
- The Company was in compliance with its debt covenants at December 31, 2022. The $350 million of 3.29% senior notes matured on February 27, 2023; management intended to repay them using the 2033 note proceeds and revolving-credit availability.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal controls were effective at December 31, 2022.
Important facts for investors to verify
- Confirm the post-year-end repayment or refinancing of the $350 million senior notes due February 27, 2023 and the issuance of the $240 million Series B 2033 notes.
- Assess whether 2023 marine utilization and contract-rate increases offset fuel, labor, maintenance and ballast-water-treatment costs.
- Monitor KDS backlog conversion, supply-chain constraints, inventory growth and exposure to oilfield activity.
- Review the maturity profile, variable-rate exposure and covenant headroom under the 2027 Credit Agreement.
- Evaluate customer concentration, contract renewals and the mix of term versus spot revenue.
- Review environmental, spill, Superfund and other litigation disclosures, including insurance recoveries and potential uninsured exposure.
- Compare the projected 2023 operating cash flow of $480 million to $580 million with actual results and planned capital expenditures.