Kirby Corporation 2021 Q3 Form 10-Q Summary
Business context and reporting period
Kirby Corporation operates two reportable segments: Marine Transportation, the largest U.S. domestic tank-barge operator, and Distribution and Services, which provides aftermarket parts, repair, rental, and oilfield equipment manufacturing. The filing covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The financial statements are unaudited.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $598.9 million | $496.6 million | $1.655 billion | $1.682 billion |
| Net earnings attributable to Kirby | $(264.7) million | $27.5 million | $(257.9) million | $(294.8) million |
| Diluted EPS | $(4.41) | $0.46 | $(4.30) | $(4.92) |
| Operating income | $(316.9) million | $29.9 million | $(289.7) million | $(445.5) million |
| Operating cash flow | Not separately provided | Not separately provided | $280.4 million | $359.8 million |
| Capital expenditures | Not separately provided | Not separately provided | $72.0 million | $129.4 million |
Q3 revenue increased 21% year over year, while nine-month revenue decreased 2%. Q3 revenue comprised $338.5 million from Marine Transportation and $260.4 million from Distribution and Services. Nine-month segment revenue was $972.4 million and $683.0 million, respectively.
Marine Transportation operating income was $16.9 million in Q3 and $37.3 million for nine months, with margins of 5.0% and 3.8%, compared with 10.1% and 12.2% in the prior-year periods. Distribution and Services operating income was $11.0 million in Q3 and $20.1 million for nine months, with margins of 4.2% and 2.9%, compared with 0.6% and negative 1.6%.
Cash and cash equivalents were $54.4 million at September 30, 2021, compared with $80.3 million at December 31, 2020. Total assets were $5.390 billion and total equity was $2.846 billion. Debt outstanding, including current amounts and before unamortized discounts and issuance costs, was approximately $1.212 billion, compared with $1.475 billion at year-end 2020. The debt-to-capitalization ratio declined to 29.8% from 32.2%.
Material changes versus the prior comparable period
- Q3 results included $340.7 million of pretax noncash impairment and other charges, consisting principally of $219.1 million of marine transportation goodwill impairment, $97.5 million related to coastal equipment held for sale or retired, and $24.2 million of other long-lived-asset impairments. The after-tax effect was $275.1 million, or $4.58 per share.
- The company decided to exit the Hawaii market, sold four coastal tank barges, seven coastal tugboats and other assets for $17.2 million, and classified an additional 12 coastal tank barges and four coastal tugboats as held for sale.
- Marine Transportation revenue increased 6% in Q3 but decreased 12% for nine months. Lower utilization and pricing, COVID-19 effects, Winter Storm Uri and Hurricane Ida weighed on the nine-month performance. Inland utilization improved to the low-80% range in Q3 from the low-70% range in Q3 2020.
- Distribution and Services revenue increased 48% in Q3 and 18% for nine months, reflecting stronger commercial, industrial and oilfield activity. The segment returned to profitability after a loss in the prior-year nine-month period.
- Operating cash flow decreased 22% for nine months, primarily due to weaker Marine Transportation results, despite a $119.5 million federal tax refund received in the first quarter.
- The company repaid $250.0 million under its revolving credit facility and $15.0 million under its term loan during the first nine months. It repaid an additional $20.0 million under the term loan in October 2021.
- Goodwill declined 33% from year-end 2020 to $438.7 million, primarily because of the marine transportation impairment.
Outlook, commentary, risks and unusual items
- Management expected further Marine Transportation growth in Q4 2021. October inland utilization improved to the high-80% range, and inland operating margins were expected to be around 10%.
- Coastal utilization was expected to approach 90% in Q4 following the Hawaii exit and equipment retirements; planned shipyard activity was expected to reduce coastal revenue by mid-single digits sequentially, with margins at or slightly below breakeven.
- Distribution and Services revenue was expected to decline modestly sequentially, with low- to mid-single-digit margins, due to seasonality, supply-chain constraints and delayed components. Some sales and manufacturing deliveries could move into 2022.
- Management projected 2021 capital expenditures of $120 million to $130 million, including approximately $95 million to $100 million for marine-equipment and facility upgrades.
- Key risks include COVID-19 and variants, supply-chain and labor constraints, fuel prices, economic and oilfield cycles, adverse weather and navigation conditions, hurricanes, lock closures, marine accidents, environmental regulation, interest rates, competition and acquisition timing.
- Contingencies include environmental and maritime claims. In the 2019 Houston Ship Channel incident, the court found the Genesis River solely at fault; Kirby and its insurers were collecting a $20.2 million judgment. A separate 2016 British Columbia grounding claim remained unquantified, although management stated that insurance and accruals were adequate.
- Guarantees, letters of credit and performance bonds had aggregate notional value of $21.2 million at September 30, 2021. Management did not expect material cash outlays under these instruments.
- The company stated that it was in compliance with all debt covenants and that disclosure controls were effective as of September 30, 2021.
Important facts for investors to verify
- Whether the marine impairment charges represent the final required write-downs, particularly for coastal assets and goodwill.
- The pace and sustainability of inland utilization, contract repricing and operating-margin recovery.
- The effect of the Hawaii exit, coastal retirements and planned shipyard activity on revenue, utilization and asset values.
- Whether supply-chain and labor constraints defer Distribution and Services orders into 2022.
- Future cash flow after capital expenditures, debt repayments and the nonrecurring tax refund received in 2021.
- Available liquidity: $844.9 million under the revolving credit facility and $8.7 million under the separate credit line at September 30, 2021; cash was $39.3 million as of November 5, 2021.
- Potential exposure from environmental, maritime and other legal proceedings, including the unquantified British Columbia claim.