KIRBY CORP 10-Q Summary: Period Ended June 30, 2008
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2008. 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, repair, and parts sales for marine, power generation, and railroad industries.
Key Financial Metrics
| Metric | Q2 2008 | Q2 2007 | YTD 2008 | YTD 2007 |
|---|---|---|---|---|
| Total Revenues | $348.3M | $288.0M | $678.8M | $562.2M |
| Net Earnings | $40.3M | $30.1M | $77.0M | $54.6M |
| Diluted EPS | $0.74 | $0.56 | $1.42 | $1.02 |
| Operating Cash Flow (YTD) | $98.8M (vs. $87.6M YTD 2007) | |||
| Capital Expenditures (YTD) | $106.5M (vs. $95.6M YTD 2007) | |||
| Debt-to-Capitalization | 25.7% (down from 27.9% at Dec 31, 2007) | |||
| Cash and Equivalents | $6.1M (as of June 30, 2008) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 21% in Q2 2008 and 21% YTD 2008 compared to 2007. Marine transportation revenue grew 23% (Q2) and 24% (YTD), driven by strong petrochemical demand and higher contract/spot rates. Diesel engine services revenue grew 14% (Q2) and 10% (YTD).
- Profitability: Net earnings rose 34% in Q2 and 41% YTD. Operating margins improved in the Marine Transportation segment to 22.0% (Q2) and 21.7% (YTD) from 21.0% and 19.8% in 2007, respectively.
- Cost Pressures: Diesel fuel costs surged, with the average price per gallon increasing 83% in Q2 2008 ($3.56) compared to Q2 2007 ($1.95). However, fuel escalation clauses in term contracts allowed for cost recovery, albeit with a 30-90 day lag.
- Operational Efficiency: Navigational delays increased 6% in Q2 and 12% YTD due to high water conditions on the Mississippi River and winter weather issues, though the company deployed additional towboats to mitigate delivery impacts.
Guidance, Outlook, and Risks
- Outlook: Management anticipates marine transportation business levels in Q3 2008 to remain similar to Q2, with expectations of better operating conditions and improved demand for refined products in the Midwest. The diesel engine services segment is expected to remain favorable with potential improvement in the oil service market.
- Capital Expenditures: Projected full-year 2008 capital expenditures are in the range of $165M to $175M, including approximately $90M for new tank barge and towboat construction.
- Acquisitions: The company acquired Lake Charles Diesel (June 2008) and six inland tank barges from ORIX (March 2008) to expand its diesel services and barge fleet.
- Risks: Key risks include adverse weather (high water, ice, hurricanes), fuel price volatility, navigational delays, and economic conditions affecting petrochemical and oil service demand. The company is also a Potentially Responsible Party (PRP) regarding the Palmer Barge Line Site, with the EPA seeking cost recovery of $2.9M; the company's specific liability share is currently unestimable.
Investor Verification Checklist
- Fuel Cost Recovery: Verify the effectiveness of fuel escalation clauses in term contracts given the 30-90 day lag and the sharp rise in diesel prices.
- Navigational Delays: Monitor Mississippi River water levels and weather forecasts, as high water and ice significantly impact transit times and operating costs.
- Capital Allocation: Track progress on the $165M-$175M capital expenditure plan, specifically the delivery of 26 new barges and 4 new towboats.
- Environmental Liability: Review updates on the Palmer Barge Line Site Superfund liability and the company's potential exposure to the $2.9M EPA cost recovery claim.
- Debt Structure: Confirm the status of the $250M revolving credit facility and the utilization of interest rate swaps to hedge against variable rate debt exposure.