Business Context and Reporting Period
Company: Kirby Corporation (KIRBY CORP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: Kirby is the nation's largest domestic inland tank barge operator, transporting petrochemicals, black oil products, refined petroleum, and agricultural chemicals. It also operates a diesel engine services segment providing overhaul, repair, and parts sales for marine, power generation, and railroad industries.
Key Financial Metrics
| Metric ($ in thousands) | Q3 2008 | Q3 2007 | 9M 2008 | 9M 2007 |
|---|---|---|---|---|
| Total Revenues | $354,647 | $302,556 | $1,033,477 | $864,775 |
| Net Earnings | $41,778 | $34,430 | $118,759 | $88,989 |
| Diluted EPS | $0.77 | $0.64 | $2.19 | $1.66 |
| Operating Cash Flow (9M) | $183,448 | $155,838 | ||
| Capital Expenditures (9M) | $141,525 | $123,027 | ||
| Total Assets (Sep 30, 2008) | $1,542,663 | |||
| Total Debt (Sep 30, 2008) | $269,170 (Current: $1,247; Long-term: $267,923) | |||
| Debt-to-Capitalization | 23.3% (Sep 30, 2008) vs 27.9% (Dec 31, 2007) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 17% in Q3 2008 and 19% for the first nine months of 2008 compared to the prior year periods. Marine transportation revenue grew 19% (Q3) and 22% (9M), while diesel engine services revenue grew 11% (Q3) and 10% (9M).
- Profitability: Net earnings increased 21% in Q3 and 33% for the nine-month period. Operating income for the marine transportation segment increased 18% (Q3) and 29% (9M).
- Segment Performance:
- Marine Transportation: Benefited from strong demand in petrochemical markets, rate increases on term contracts (8-11% net of fuel), and spot market rates (11-15% increase). Operating margins were 22.7% (Q3) and 22.0% (9M).
- Diesel Engine Services: Driven by strong medium-speed market activity and higher pricing. Operating margins were 15.7% (Q3) and 15.8% (9M).
- Cost Dynamics: Diesel fuel costs increased significantly (average price $3.99/gallon in Q3 2008 vs $2.21 in Q3 2007), but the company benefited from a timing lag in fuel escalation clauses, purchasing fuel at lower prices than the escalated rates billed to customers in Q3.
Guidance, Outlook, Risks, and Unusual Items
- Hurricane Impact: Hurricanes Gustav and Ike negatively impacted Q3 results, estimated at $0.09 per share. The storms caused closures of the Gulf Intracoastal Waterway and shutdowns of petrochemical/refining facilities. Management anticipates Q4 marine transportation levels to remain similar to pre-Ike Q3 levels, assuming facility recovery, though winter weather is expected to deteriorate conditions.
- Capital Expenditures: Projected 2008 capital expenditures are $165 million to $175 million, including $90 million for new construction (25 barges, 5 towboats).
- Acquisitions: Completed acquisition of Lake Charles Diesel ($3.6 million) and six inland tank barges from ORIX ($1.8 million) in 2008.
- Share Repurchases: Purchased 643,000 shares for $25.9 million in Q1 and Q3 2008, and an additional 194,400 shares for $7.5 million in October 2008.
- Interest Rate Hedging: Entered into new interest rate swaps in November 2008 (subsequent event) to extend hedges on variable rate senior notes. The company maintains a $250 million revolving credit facility with $180.9 million available as of Sep 30, 2008.
- Risks: Exposure to credit market volatility, counterparty risk on derivative instruments, and environmental liabilities (Palmer Barge Line Site Superfund costs estimated at $2.9 million total, company's share undetermined).
Investor Verification Checklist
- Hurricane Recovery: Verify the extent of operational recovery in the Houston/Galveston and Port Arthur areas and the impact on Q4 volumes.
- Fuel Cost Pass-Through: Monitor the effectiveness of fuel escalation clauses as fuel prices fluctuate and the 30-90 day lag impacts margins.
- Capital Allocation: Track progress on the $165-$175 million capital expenditure plan and the timing of new vessel deliveries.
- Debt Covenants: Confirm continued compliance with the $250 million revolving credit facility covenants amidst credit market volatility.
- Environmental Liability: Monitor developments regarding the EPA's cost recovery efforts for the Palmer Barge Line Site.