Kirby Corporation 2010 Q3 Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation is the largest domestic inland tank barge operator in the United States and also provides diesel engine overhaul, repair and parts services. The unaudited report covers the three and nine months ended September 30, 2010, with comparisons to the corresponding 2009 periods.
- Marine transportation represented 83% of nine-month revenue and included 850 active inland tank barges with 16.4 million barrels of capacity.
- Diesel engine services represented 17% of nine-month revenue and serves marine, power generation and railroad customers.
Financial Performance and Key Metrics
| Metric | Q3 2010 | Q3 2009 | 9M 2010 | 9M 2009 |
|---|---|---|---|---|
| Revenue | $281.3 million | $272.2 million | $823.2 million | $822.6 million |
| Operating income | $52.7 million | $59.9 million | $146.4 million | $166.2 million |
| Operating margin | 18.7% | 22.0% | 17.8% | 20.2% |
| Net earnings attributable to Kirby | $30.7 million | $35.0 million | $84.6 million | $96.7 million |
| Diluted EPS | $0.57 | $0.65 | $1.56 | $1.79 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $169.8 million | $237.1 million |
- Marine transportation revenue increased 2% in Q3 and 3% for the nine months, but segment operating income declined 11% and 9%, respectively. Operating margin fell to 22.1% from 25.3% in Q3 and to 21.0% from 23.6% for the nine months.
- Diesel engine services revenue increased 9% in Q3 but decreased 11% for the nine months. Segment operating income declined 3% in Q3 and 21% for the nine months; operating margin was 9.3% versus 10.4% in Q3 and 9.7% versus 10.9% for the nine months.
- Higher fuel prices, lower contract rates, increased delay days and weak Gulf Coast marine demand pressured profitability. Fuel prices increased 15% in Q3 and 35% for the nine months.
Balance Sheet, Debt and Liquidity
- Cash and cash equivalents were $149.2 million at September 30, 2010, compared with $97.8 million at December 31, 2009.
- Total assets were $1.758 billion, compared with $1.636 billion at year-end 2009. Equity was $1.126 billion, compared with $1.056 billion.
- Total debt was approximately $200.2 million, consisting primarily of $200 million of senior notes due February 2013. The debt-to-capitalization ratio declined to 15.1% from 15.9%.
- The company had no borrowings under its $250 million revolving credit facility and approximately $250.0 million of availability at September 30, 2010. It was in compliance with applicable debt covenants.
- Capital expenditures were $108.0 million for the nine months, including $60.3 million for new tank barges and towboats. Treasury stock purchases totaled $20.6 million.
Material Changes Versus Prior Comparable Period
- Revenue was essentially flat for the first nine months, while operating income, net earnings attributable to Kirby and diluted EPS declined approximately 12%, 12% and 13%, respectively.
- Marine transportation demand and utilization improved in petrochemicals and black oil, but lower pricing negotiated during 2009 and the first half of 2010, higher fuel costs and 26% more delay days for the nine-month period reduced margins.
- Diesel engine services benefited from stronger power-generation work in Q3, but continued customer maintenance deferrals, the Gulf of Mexico deepwater drilling moratorium and pricing pressure weakened nine-month results.
- Operating cash flow declined $67.3 million year over year, primarily because working capital included a $25.2 million federal income tax receivable after the extension of bonus depreciation caused estimated tax overpayments.
- The company purchased 497,000 shares during Q3 for $18.9 million at an average price of $38.01. The remaining repurchase authorization was 2.086 million shares as of November 3, 2010.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2010 capital expenditures of $135 million to $145 million, including approximately $70 million for new tank barge and towboat construction. Planned 2011 new-construction expenditures were $50 million to $60 million.
- Management stated that the outlook for the balance of 2010 and into 2011 was unclear because of the sluggish U.S. economy, high unemployment, weak consumer confidence, excess industry tank-barge capacity and uncertainty surrounding Gulf of Mexico drilling regulations.
- The company expects to contribute $15 million to $25 million to its pension plan before December 31, 2010; no 2010 contribution had been made as of September 30.
- Interest-rate swaps had a $200 million notional amount and foreign-currency forwards had a $15.5 million notional amount. The company expected approximately $5.2 million of interest-rate swap losses and $0.5 million of foreign-currency losses in accumulated other comprehensive income to be reclassified into earnings over the following year.
- Environmental matters included potential cost-sharing obligations related to the Palmer Barge Line and State Marine Superfund sites. The company recorded its best estimate of its share of potential liabilities and stated that other proceedings were not expected to have a material effect.
- Guarantees, letters of credit and performance bonds totaled $26.5 million, and management did not expect material cash outlays under these instruments.
- Forward-looking risks include adverse economic conditions, competition, weather and navigational delays, marine accidents, fuel costs, interest rates, new construction by competitors, environmental and safety regulation, and acquisition timing.
Investor Verification Priorities
- Verify the sustainability of improved marine utilization against excess industry capacity and contract-rate trends.
- Assess whether fuel escalation clauses adequately offset higher fuel costs, including the 30-to-90-day recovery lag.
- Monitor diesel engine services demand, particularly Gulf Coast oil-services exposure and the effects of drilling regulations.
- Confirm the timing and funding of planned capital expenditures, pension contributions and the February 2013 senior-note maturity.
- Review the potential exposure from Superfund claims, derivative losses, pension obligations and $26.5 million of guarantees and performance bonds.
- Evaluate the effect of the revolving credit facility’s June 2011 maturity and possible refinancing terms on liquidity.