KIRBY CORP 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2010. Kirby Corporation is the nation's largest domestic inland tank barge operator, transporting petrochemicals, black oil products, refined petroleum products, and agricultural chemicals. The company also operates a diesel engine services segment providing overhaul and repair services for marine, power generation, and railroad industries.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $268.3 million | $277.7 million |
| Net Earnings (Kirby) | $24.7 million | $28.0 million |
| Diluted EPS | $0.46 | $0.52 |
| Operating Cash Flow | $56.6 million | $81.4 million |
| Cash and Equivalents | $121.4 million | $6.0 million |
| Total Debt (Long-term + Current) | $200.2 million | $200.2 million |
| Debt-to-Capitalization | 15.6% | 15.9% (Dec 2009) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 3.4% year-over-year. The Marine Transportation segment revenue was flat ($219.6M vs $219.0M), while Diesel Engine Services revenue dropped 17% ($48.7M vs $58.6M) due to weak service levels and deferred maintenance in the marine market.
- Profitability: Net earnings attributable to Kirby declined 12% to $24.7 million. Operating income for Marine Transportation fell 8% despite higher volumes, driven by lower contract rates and a 37% increase in diesel fuel costs.
- Cost Reductions: The company incurred a pre-tax charge of $4.1 million for retirements and staff reductions, continuing a strategy that has reduced shore staff by 22% since October 2008.
- Liquidity Improvement: Cash and cash equivalents increased significantly to $121.4 million from $97.8 million at year-end 2009, driven by strong operating cash flow and a reduction in capital expenditures compared to the prior year.
Guidance, Outlook, and Risks
- Capital Expenditures: Management projects 2010 capital expenditures in the range of $125 million to $135 million, including approximately $60 million for new tank barge and towboat construction.
- Market Outlook: Petrochemical demand improved in Q1 2010 compared to 2009. The company believes the diesel engine services segment has reached the bottom of its business cycle, though no improvement was seen in Q1. The industry fleet supply/demand balance is expected to improve as older barges are scrapped.
- Contingencies:
- Oil Spill Incident: On January 23, 2010, a collision involving a Kirby towboat and barges with the S/S Eagle Otome resulted in an 11,000-barrel crude oil spill. Kirby believes it was not at fault and has adequate insurance coverage.
- Environmental Liability: The company is a Potentially Responsible Party (PRP) for the Palmer Barge Line Site. The EPA intends to pursue recovery of costs, but Kirby cannot currently estimate its potential liability.
- Derivatives: The company utilizes interest rate swaps to hedge approximately 100% of its variable rate debt exposure. Net losses of $5.2 million on these swaps are expected to be reclassified into earnings over the next year.
Investor Verification Checklist
- Verify the impact of the January 2010 oil spill incident on future insurance claims and potential litigation costs.
- Monitor the trend in spot contract rates for marine transportation, which were down 15-25% year-over-year.
- Assess the recovery timeline for the Diesel Engine Services segment, specifically regarding deferred maintenance in the Gulf Coast oil services market.
- Review the company's ability to execute its $125M-$135M capital expenditure plan given current credit market conditions.
- Track the resolution of the Palmer Barge Line Site environmental liability and potential cost allocations.