Kirby Corporation 10-Q Summary
Business Context and Reporting Period
Kirby Corporation operates two reportable segments: domestic marine transportation and diesel engine services. Marine transportation moves bulk liquid products using inland and coastal tank barges and towboats; diesel engine services provides engine, transmission, parts, repair, remanufacturing and oilfield equipment services. The filing covers the unaudited quarter ended March 31, 2014, compared primarily with the quarter ended March 31, 2013.
As of March 31, 2014, Kirby operated 878 inland tank barges with 17.4 million barrels of capacity, 72 coastal tank barges with 6.0 million barrels of capacity, 76 coastal tugboats and an average of 255 inland towboats during the quarter.
Financial Performance and Key Metrics
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Total revenue | $589.2 million | $558.8 million | +5% |
| Operating income | $106.9 million | $99.8 million | +7% |
| Net earnings attributable to Kirby | $62.2 million | $56.6 million | +10% |
| Diluted EPS | $1.09 | $1.00 | +9% |
| Operating margin | 18.1% | 17.9% | Expanded modestly |
| Marine transportation revenue | $435.8 million | $418.5 million | +4% |
| Marine transportation operating income | $97.6 million | $89.3 million | +9% |
| Marine transportation margin | 22.4% | 21.3% | +110 basis points |
| Diesel engine services revenue | $153.5 million | $140.3 million | +9% |
| Diesel engine services operating income | $12.8 million | $14.0 million | -9% |
| Diesel engine services margin | 8.3% | 10.0% | Down 170 basis points |
Net cash provided by operating activities was $115.2 million versus $97.8 million in the prior-year quarter. Capital expenditures were $62.3 million versus $71.2 million. Cash and cash equivalents increased to $19.2 million from $4.0 million at December 31, 2013.
Total assets were $3.806 billion at March 31, 2014, compared with $3.683 billion at December 31, 2013. Long-term debt was $708.0 million, down from $749.2 million, and the debt-to-capitalization ratio declined to 25.3% from 27.0%. Debt consisted of $500.0 million of senior notes and $208.0 million outstanding under the term loan; there were no borrowings under the revolving credit facility.
Kirby had $325.0 million available under its revolving credit facility and $9.1 million available under its separate credit line as of May 6, 2014. The company was in compliance with applicable debt covenants.
Material Changes Versus the Prior Comparable Period
- Marine transportation benefited from strong demand, high utilization and favorable pricing. Inland and coastal tank barge utilization generally remained in the 90% to 95% range.
- Inland term-contract revenue increased to approximately 80% of inland revenue from 75%; coastal term-contract revenue increased to approximately 80% from 70%.
- Inland term-contract renewals increased approximately 3% to 5%, while coastal renewals increased approximately 7% to 9% compared with the comparable 2013 renewals.
- Marine transportation results were partially offset by severe winter weather, heavy ice, increased delay days and additional horsepower requirements. Inland delay days increased 41% to 2,897.
- Diesel engine services revenue rose 9%, but operating income declined because the prior-year period included a $4.3 million favorable adjustment from reducing the United acquisition earnout liability.
- Q1 2014 included $2.8 million of pretax severance charges and an estimated combined negative impact of approximately $0.03 per share from winter-related operating disruptions and the Houston Ship Channel incident. Q1 2013 included the $4.3 million earnout-related credit.
- Kirby took delivery of 27 inland tank barges and retired 10, for a net increase of 17 barges and approximately 155,000 barrels of capacity.
Guidance, Outlook, Risks and Unusual Items
Management projected 2014 capital expenditures of approximately $320 million to $330 million, including approximately $135 million for 66 inland tank barges and one inland towboat and approximately $80 million for progress payments on two coastal articulated tank barge and tugboat units. Funding is expected from operating cash flow and available credit.
Management expected continued strong petrochemical, black oil and refined petroleum transportation demand, supported by domestic petrochemical production, refinery activity, crude oil and condensate movements, and aging industry equipment. The diesel engine services market was expected to improve modestly, while land-based pressure-pumping activity was expected to recover slowly because of excess industry horsepower.
On March 22, 2014, a Kirby tank barge collided with another vessel near the Houston Ship Channel and discharged intermediate fuel oil. Kirby recorded a $100.4 million accrued liability and a $99.4 million insurance receivable, reflecting a $1.0 million deductible. Cleanup, claims and litigation remain ongoing. Kirby stated that it did not expect a material adverse effect on its consolidated financial statements, but the ultimate outcome remains uncertain. The company was named in class actions, other damage claims and a Jones Act-related action, and additional claims may be filed.
Other risks include marine accidents, environmental laws, weather and navigational disruptions, fuel costs and recovery timing under fuel escalation clauses, interest-rate exposure, competition, customer and industry cycles, acquisitions and compliance with debt covenants. Guarantees, letters of credit and performance bonds had aggregate notional value of $41.9 million at March 31, 2014.
On April 30, 2014, Kirby prepaid $26.0 million of the term loan, reducing the outstanding balance to $182.0 million. In April 2014, the company also committed to additional inland and coastal equipment construction, including a second coastal articulated tank barge and tugboat unit.
Most Important Facts to Verify
- Whether cleanup costs, insurance recoveries, litigation claims and other liabilities from the Houston Ship Channel incident remain within the recorded estimates.
- Whether marine utilization and contract-rate increases persist as new barge capacity enters the market.
- Whether severe weather, navigational delays and fuel-cost timing continue to pressure marine margins.
- Whether diesel engine services and pressure-pumping demand improve enough to restore segment margins.
- Whether the $320 million to $330 million 2014 capital expenditure plan remains achievable without materially increasing leverage.
- Future term-loan amortization, interest-rate exposure and continued compliance with debt covenants.