Kirby Corporation 2019 Form 10-K Summary
Business context and reporting period
Kirby Corporation is the largest domestic U.S. tank-barge operator, with operations in marine transportation and distribution and services. Marine transportation moves petrochemicals, black oil, refined petroleum products and agricultural chemicals; distribution and services provides engine and equipment parts, repair, rentals and oilfield-service equipment manufacturing. The filing covers the fiscal year ended December 31, 2019. The requested “2019 Q4” period is addressed through the annual results and disclosed fourth-quarter data.
Financial performance and key metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $2.838 billion | $2.971 billion | (4%) |
| Net earnings attributable to Kirby | $142.3 million | $78.5 million | +81% |
| Diluted EPS | $2.37 | $1.31 | +81% |
| Operating income | $242.0 million | $155.3 million | +56% |
| Operating cash flow | $511.8 million | $347.0 million | +47% |
| Capital expenditures | $248.2 million | $301.9 million | (18%) |
| Long-term debt, including current portion | $1.370 billion | $1.410 billion | (3%) |
Marine transportation revenue increased 7% to $1.587 billion, operating income increased 46% to $215.8 million, and the operating margin improved to 13.6% from 9.9%. Distribution and services revenue declined 16% to $1.251 billion, operating income declined 48% to $67.2 million, and the operating margin fell to 5.4% from 8.7%.
Marine transportation represented 56% of consolidated revenue and distribution and services represented 44%. Marine revenue consisted of 54% petrochemicals, 23% black oil, 19% refined petroleum products and 4% agricultural chemicals. Distribution and services revenue consisted of 75% service and parts and 25% manufacturing; oil and gas represented 53% of that segment and commercial and industrial represented 47%.
At December 31, 2019, cash and cash equivalents were $24.7 million, total assets were $6.079 billion, total equity was $3.372 billion and debt-to-capitalization was 28.9%, down from 30.5% in 2018. The Company had no revolving-credit borrowings, $375 million outstanding under its term loan and $1.0 billion of senior notes outstanding. Revolving-credit availability was $844.7 million at December 31, 2019.
Fourth-quarter 2019
Fourth-quarter revenue was $655.9 million and net earnings attributable to Kirby were $2.8 million, or $0.05 diluted EPS, compared with a fourth-quarter 2018 net loss attributable to Kirby of $24.4 million, or $(0.41) diluted EPS. Fourth-quarter 2019 results included a $35.5 million pretax, $28.0 million after-tax, noncash write-down of oilfield and pressure-pumping inventory and $4.8 million pretax, $3.7 million after-tax, severance and early-retirement expense.
Material changes versus the prior comparable period
- Marine results benefited from the Cenac acquisition in March 2019, the full-year contribution from 2018 acquisitions, improved coastal utilization and higher inland and coastal contract pricing.
- Marine utilization was generally in the low-to-mid-90% range inland and the mid-80% range coastal during much of 2019, although weather, flooding, fog, ice, lock maintenance and Houston Ship Channel delays increased operating disruption.
- Distribution and services weakened because of oil-price volatility, lower oilfield customer spending, excess pressure-pumping capacity and reduced orders for pressure-pumping equipment, transmissions and related parts and service.
- Inventory declined 31% to $351.4 million, partly due to lower oilfield activity and the fourth-quarter write-down.
- The Company acquired the Cenac marine fleet for $244.5 million and increased its inland fleet to 1,053 tank barges from 1,003 at year-end 2018.
- The Company adopted lease accounting under ASU 2016-02 in 2019, recognizing operating lease right-of-use assets of $159.6 million and operating lease liabilities of $166.8 million at year-end.
Guidance, outlook, risks and unusual items
Management expected 2020 inland marine revenue and operating income to increase, supported by petrochemical growth, new plants, the full-year Cenac contribution and the planned Savage acquisition. Inland utilization was expected in the low-to-mid-90% range. Coastal revenue and operating income were expected to be flat to slightly higher, with utilization in the mid-to-high-80% range; four aging coastal ATBs were expected to be retired because of ballast-water-management-system costs. Management expected oil and gas distribution and services revenue and operating income to decline in 2020, while commercial and industrial results were expected to improve.
On January 29, 2020, Kirby agreed to acquire Savage Inland Marine for approximately $278 million in cash, financed with additional borrowings, subject to customary conditions and regulatory approval. On January 3, 2020, it completed the approximately $40 million Convoy acquisition.
Key risks include inland-waterway infrastructure failures and delays, adverse weather, marine accidents and pollution, crew availability, Jones Act changes, environmental and ballast-water regulations, fuel-price volatility, barge oversupply, energy-market weakness, oilfield-cycle exposure, customer concentration, cyber incidents and acquisition integration. The Company disclosed unresolved environmental and maritime contingencies, including the Nathan E. Stewart grounding and the 2019 Genesis River collision; management believes reserves and insurance are adequate, but potential exposure in the Canadian civil proceeding could not be estimated.
The Company reported no dividend payments since 1989. KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management stated that previously identified privileged-access control deficiencies were remediated by March 31, 2019 and controls were effective at year-end.
Most important facts for investors to verify
- Whether the expected 2020 marine utilization and pricing improvements offset coastal vessel retirements and regulatory costs.
- The magnitude, financing and integration effects of the Savage and Convoy acquisitions.
- The sustainability of the 2019 marine margin improvement, given weather disruptions, barge additions and spot-market exposure.
- The depth and duration of the oilfield downturn and the potential for further inventory write-downs in distribution and services.
- Refinancing or repayment of the $150 million Senior Notes Series A due February 27, 2020 and the subsequent effect on leverage and interest expense.
- Ultimate costs of pollution, environmental, maritime and other legal contingencies, including matters for which exposure remains unquantified.