Kirby Corporation 2013 Q2 Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation is a domestic tank barge operator and diesel engine services provider. Its reportable segments are Marine Transportation and Diesel Engine Services. The filing covers the quarter and six months ended June 30, 2013, compared with the corresponding 2012 periods. The financial statements are unaudited and include normal recurring adjustments.
As of June 30, 2013, Kirby operated 863 inland tank barges with 17.3 million barrels of capacity, 79 coastal tank barges with 6.2 million barrels of capacity, 86 coastal tugboats, and eight offshore dry-bulk barge and tug units.
Key Financial Metrics
| Metric | Q2 2013 | Q2 2012 | Six Months 2013 | Six Months 2012 |
|---|---|---|---|---|
| Total revenue | $563.9 million | $511.8 million | $1,122.7 million | $1,078.8 million |
| Operating income | $109.3 million | $83.7 million | $209.1 million | $172.8 million |
| Operating margin | 19.4% | 16.3% | 18.6% | 16.0% |
| Net earnings attributable to Kirby | $63.1 million | $47.6 million | $119.7 million | $98.5 million |
| Diluted EPS | $1.11 | $0.85 | $2.10 | $1.76 |
| Net cash from operating activities | Not separately provided | Not separately provided | $269.3 million | $136.6 million |
| Capital expenditures | Not separately provided | Not separately provided | $168.2 million | $153.8 million |
Marine Transportation generated 75% of consolidated revenue in both the second quarter and first six months. Marine revenue increased 24% in both comparable periods, while segment operating income increased 36% in the quarter and 33% year to date. Marine operating margins improved to 23.0% from 21.0% in the quarter and to 22.2% from 20.7% year to date.
Diesel Engine Services revenue decreased 17% in the quarter and 30% year to date. Segment operating income decreased 1% and 25%, respectively, while reported margins increased to 10.7% from 8.9% in the quarter and to 10.3% from 9.7% year to date. The margin comparison benefited from contingent earnout valuation credits.
Balance Sheet, Debt and Liquidity
- Total assets were $3.724 billion at June 30, 2013, compared with $3.653 billion at December 31, 2012.
- Cash and cash equivalents were $5.3 million, down from $11.1 million at year-end.
- Total debt was $1.021 billion, consisting primarily of $500.0 million of senior notes, $442.0 million of term debt, $70.9 million drawn on the revolving credit facility and $8.3 million under a separate credit line.
- The debt-to-capitalization ratio declined to 35.7% from 39.9% at December 31, 2012.
- As of August 1, 2013, the company reported $281.6 million of availability under its revolving credit facility and $9.1 million under its credit line.
- Kirby was in compliance with the covenants governing its senior notes, revolving credit facility and term loan.
Operating cash flow funded capital expenditures, debt reduction and other requirements. Financing activities included $225.0 million of new long-term borrowings and $226.0 million of long-term debt repayments during the first six months.
Material Changes Versus the Prior Comparable Period
- Consolidated second-quarter revenue increased 10%, operating income increased 31%, net earnings attributable to Kirby increased 33%, and diluted EPS increased 31%.
- Six-month revenue increased 4%, operating income increased 21%, net earnings attributable to Kirby increased 21%, and diluted EPS increased 19%.
- Marine Transportation benefited from strong petrochemical, black oil and refined petroleum demand, improved pricing and higher coastal activity following the Allied and Penn acquisitions completed in the fourth quarter of 2012.
- Diesel Engine Services was pressured by lower demand for new pressure-pumping equipment and weaker land-based diesel engine, transmission and parts activity.
- The 2013 results included a $6.1 million pretax second-quarter credit and a $10.4 million pretax six-month credit from reducing the fair value of the United acquisition earnout liability. The comparable 2012 periods included pretax charges of $0.1 million and $4.3 million.
- Second-quarter results were negatively affected by high water on the Mississippi and Illinois Rivers and the Algiers Lock closure. Management estimated the net impact at approximately $0.03 per share.
- Interest expense increased 22% in the quarter and 30% year to date, primarily because of acquisition-related borrowings.
- Inland tank barge capacity increased by approximately 650,000 barrels on a net basis during the first six months after deliveries and retirements.
Outlook, Risks and Unusual Items
Management maintained a favorable outlook for Marine Transportation, citing inland petrochemical and black oil utilization of approximately 90% to 95%, coastal utilization near 90%, strong petrochemical production and improving coastal demand. Approximately 75% of inland and coastal marine revenue was under term contracts, providing some revenue visibility. Inland term contract renewals increased approximately 4% to 6%, and coastal renewals increased approximately 7% to 9%.
Management projected 2013 capital expenditures of approximately $230 million to $240 million, including construction of 68 inland tank barges and three inland towboats. Funding was expected from operating cash flow and available credit.
Management expected the land-based diesel engine services market to remain profitable but weak, with potential improvement in late 2013 or early 2014. The company was focusing on remanufacturing and servicing existing pressure-pumping equipment because new pressure-pumping unit orders had essentially stopped.
- Key operating risks include adverse economic conditions, competition, weather and water conditions, marine accidents, lock delays, fuel costs, interest rates, environmental and government regulation, and the timing and size of acquisitions.
- The company recorded a $4.9 million Allied-related contingent liability at June 30, 2013 and a $7.9 million United earnout liability due in April 2014. The Allied liability relates to developments under the U.S. Farm Bill and may result in additional payments.
- Guaranties, letters of credit and performance bonds totaled $45.8 million, including $6.1 million of letters of credit and $39.7 million of performance bonds. Management did not expect material cash outlays under these instruments.
- All outstanding interest-rate swaps expired February 28, 2013. The company retained a foreign-currency forward contract with a $0.5 million notional amount.
- A putative securities class action was dismissed by the court on June 18, 2013. Management stated that other proceedings were not expected to materially affect financial condition, results or cash flows.
Important Facts for Investors to Verify
- Determine the extent to which reported earnings growth depends on the $10.4 million year-to-date earnout liability credit and assess underlying segment performance excluding this item.
- Monitor utilization, pricing and contract renewal trends in inland and coastal marine transportation, especially after the 2013 industry barge construction program.
- Evaluate diesel engine services exposure to the depressed pressure-pumping equipment market and the timing of the anticipated recovery.
- Reconcile planned 2013 capital expenditures of $230 million to $240 million with operating cash flow, debt repayment requirements and available borrowing capacity.
- Review debt maturities, quarterly term-loan amortization, variable-rate exposure and covenant compliance as interest expense remains elevated.
- Assess the potential cash impact of the Allied contingent payment and the United earnout liability due in 2014.
- Consider the operational and financial effects of weather disruptions, navigational delays, lock closures, fuel-cost recovery lags and marine regulatory requirements.