KIRBY CORP quarterly report, Q1 FY2024

Kirby Corporation 2024 First-Quarter Form 10-Q Summary

Business Context and Reporting Period

Kirby Corporation is the largest domestic tank barge operator in the United States and operates through two reportable segments: Marine Transportation (KMT) and Distribution and Services (KDS). The unaudited filing covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. The company had 58.3 million common shares outstanding as of May 3, 2024.

Financial Performance and Key Metrics

Metric	Q1 2024	Q1 2023	Change
Total revenue	$808.0 million	$750.4 million	Up 8%
Operating income	$101.5 million	$61.5 million	Up 65%
Operating margin	12.6%	8.2%	Up 4.4 percentage points
Net earnings attributable to Kirby	$70.1 million	$40.7 million	Up 72%
Diluted earnings per share	$1.19	$0.68	Up 75%
Net cash provided by operating activities	$123.3 million	$16.5 million	Up 648%
Capital expenditures	$81.0 million	$73.2 million	Up 11%

KMT revenue increased 15% to $475.4 million, representing 59% of consolidated revenue. KMT operating income increased 93% to $83.0 million, and its operating margin expanded to 17.5% from 10.4%. Higher term and spot pricing, strong utilization, and reduced industry barge supply due to heavier maintenance activity were the primary drivers.

KDS revenue decreased 2% to $332.6 million, while operating income decreased 3% to $22.0 million. Its operating margin was 6.6%, compared with 6.7% in the prior-year quarter. Power generation and marine repair activity improved, but lower on-highway and conventional oilfield activity offset those gains.

Net earnings attributable to Kirby represented an approximately 8.7% net margin, compared with approximately 5.4% in Q1 2023. Interest expense was $13.2 million, essentially unchanged year over year, while the average debt balance declined but the average interest rate increased.

Cash Flow, Debt, and Liquidity

Cash and cash equivalents were $75.2 million at March 31, 2024, compared with $32.6 million at December 31, 2023.
Total debt, including current obligations and before unamortized discounts and issuance costs, was $1.066 billion, up from $1.022 billion at year-end 2023. Net carrying value was $1.060 billion.
The debt-to-capitalization ratio increased to 24.8% from 24.2% at December 31, 2023.
The $500 million revolving credit facility had $87.0 million outstanding, $6.0 million of letters of credit, and $413.0 million of available borrowing capacity at March 31, 2024. The facility matures July 29, 2027.
The $250 million term loan had $170.0 million outstanding. Scheduled repayments begin June 30, 2025.
The $500 million 4.2% senior notes mature March 1, 2028. The $300 million of 2033 senior notes mature January 19, 2033. No principal payments are required on these notes before maturity.
The company was in compliance with all debt covenants at March 31, 2024.
As of May 3, 2024, liquidity included $58.0 million of cash, $446.0 million available under the revolving credit facility, and $2.7 million available under the short-term credit line.

Operating cash flow substantially exceeded capital expenditures in the quarter. Capital expenditures included $57.0 million for KMT and $24.0 million for KDS and corporate activities. Treasury stock purchases consumed $41.8 million, covering 498,505 shares at an average price of $83.82 per share.

Material Changes Versus the Prior Comparable Period

Consolidated revenue increased $57.6 million, primarily from stronger Marine Transportation pricing and activity.
Operating income increased $40.1 million, with nearly all of the segment improvement coming from KMT.
Marine pricing on contracts renewed during the quarter increased approximately 9% to 12% for inland term contracts, 14% to 17% for inland spot contracts, 19% to 21% for coastal term contracts, and 30% to 32% for coastal spot contracts.
Inland utilization remained in the low-to-mid-90% range and coastal utilization remained in the mid-to-high-90% range.
KMT’s revenue mix shifted toward term contracts: approximately 65% of inland revenue was under term contracts versus 55% in Q1 2023; coastal term-contract revenue increased to approximately 96% from 75%.
KDS power-generation revenue and operating income increased, supported by large data-center project awards. Oil-and-gas revenue and operating income declined because of lower conventional oilfield activity.
Q1 2023 included $3.0 million of pretax strategic review and shareholder-engagement costs and $2.7 million of pretax interest income associated with an IRS refund. These items affected year-over-year comparability.
Cash flow from operations increased by $106.8 million, primarily because of higher profitability, increased business activity, and favorable collection timing.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

Management expects improved financial results in 2024. It projects 2024 capital expenditures of $290 million to $330 million, including approximately $190 million to $240 million for marine maintenance, existing-equipment improvements, and facilities, and approximately $90 million for growth capital.

Management expects favorable inland marine conditions from steady refinery and petrochemical utilization, limited new industry barge construction, and a heavy maintenance cycle. It anticipates further spot-rate improvements and continued upward resets in term contracts. Coastal demand and rates are also expected to improve.

For KDS, management expects steady demand overall, continued power-generation strength, stable or improving marine repair and on-highway activity, and stable oil-and-gas manufacturing activity through most of 2024. Lower conventional oil-and-gas work and extended lead times may create volatility in product deliveries.

On April 23, 2024, Kirby agreed to purchase 13 inland tank barges and two high-horsepower towboats for approximately $65 million in cash, with closing expected in May 2024. The acquisition is expected to be financed through the revolving credit facility.
The company faces risks from economic conditions, recessionary pressures, higher interest rates, competition, weather, high- or low-water conditions, storms, fog, ice, marine accidents, lock delays or closures, fuel costs, regulatory requirements, environmental laws, and acquisition timing.
The company remains involved in litigation related to the 2016 grounding and fuel discharge involving the tug Nathan E. Stewart and barge DBL 55 in British Columbia. Potential exposure cannot be estimated, but management believes insurance coverage and recorded accruals are adequate and does not expect a material adverse effect.
Guaranties, standby letters of credit, and performance bonds had aggregate notional value of $31.6 million at March 31, 2024. Management does not expect material cash outlays under these instruments.
The company does not expect to contribute to its primary pension plan in 2024 but expects to contribute $1.6 million to the Higman pension plan during the remainder of 2024.
Disclosure controls and procedures were deemed effective, and no material changes occurred in internal control over financial reporting during the quarter.

Important Facts for Investors to Verify

Whether Marine Transportation pricing, utilization, and favorable supply-demand conditions persist through the remainder of 2024.
Whether KDS power-generation growth offsets weakness in conventional oilfield and on-highway markets.
Progress and financing of the approximately $65 million barge and towboat acquisition expected to close in May 2024.
Execution of the projected $290 million to $330 million 2024 capital expenditure program and its effect on leverage and free cash flow.
Availability and future use of the revolving credit facility, particularly in light of planned acquisition spending and scheduled term-loan amortization beginning in 2025.
Exposure to weather, navigational delays, fuel-price volatility, environmental and marine liabilities, and the unresolved Nathan E. Stewart litigation.
The sustainability of recent earnings growth after adjusting for the absence of the prior-year strategic review costs and IRS-related interest income.