Kirby Corporation — Q1 2022 Form 10-Q Summary
Business context and reporting period
Kirby Corporation operates two reportable segments: Marine Transportation, the largest U.S. domestic tank barge operator, and Distribution and Services, which provides aftermarket parts and services, equipment rentals, and energy-related manufacturing. The filing covers the unaudited three months ended March 31, 2022, compared with the same period in 2021.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $610.8 million | $496.9 million | +23% |
| Marine Transportation revenue | $355.5 million | $301.0 million | +18% |
| Distribution and Services revenue | $255.2 million | $195.9 million | +30% |
| Operating income | $29.7 million | $3.2 million | +939% |
| Operating margin | 4.9% | 0.6% | +4.3 points |
| Net earnings attributable to Kirby | $17.4 million | $(3.4) million | Returned to profit |
| Diluted EPS | $0.29 | $(0.06) | +$0.35 |
| Operating cash flow | $32.2 million | $102.6 million | $(70.3) million |
| Capital expenditures | $35.1 million | $14.1 million | +$21.0 million |
Marine Transportation operating income increased to $16.9 million from $1.9 million, and operating margin improved to 4.8% from 0.6%. Distribution and Services operating income increased to $11.0 million from $2.9 million, with margin improving to 4.3% from 1.5%.
Cash flow from operations declined primarily because Q1 2021 included a $119.5 million federal tax refund, while Q1 2022 reflected increased inventory purchases and incentive compensation payments. Q1 2022 investing cash outflow was $24.7 million, including $35.1 million of capital expenditures and a $3.9 million acquisition, partly offset by $14.3 million of asset-disposition proceeds. Financing cash outflow was $9.9 million, including a $10.0 million Term Loan repayment.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $32.4 million at March 31, 2022, compared with $34.8 million at December 31, 2021.
- Total assets were $5.38 billion; total equity was $2.91 billion.
- Debt, including current debt and bank notes, had a carrying value of approximately $1.16 billion, compared with $1.17 billion at year-end 2021.
- The debt-to-capitalization ratio decreased to 28.4% from 28.7%.
- The $850 million unsecured revolving facility had $844.9 million of available capacity at March 31, 2022, after $5.1 million of outstanding letters of credit.
- An additional $8.7 million was available under a $10 million credit line.
- The Company was in compliance with all debt covenants at March 31, 2022.
- Kirby entered into an agreement for $300 million of unsecured senior notes due January 19, 2033, consisting of $60 million at 3.46% and $240 million at 3.51%. The notes were scheduled for issuance in October 2022 and January 2023 and are intended, together with revolver capacity, to refinance the $350 million of 3.29% senior notes due February 2023.
Material changes versus the prior comparable period
- Results benefited from recovery from the COVID-19 slowdown and the severe effects of Winter Storm Uri on Q1 2021 refinery, petrochemical and industrial activity.
- Marine utilization improved: inland tank barge utilization was in the mid-80% range versus the mid-70% range, while coastal tank barge utilization was in the low-90% range versus the mid-70% range.
- Inland term contract renewals increased approximately 7%–9%, and spot renewals increased approximately 15%–20%. Coastal term and spot renewals increased approximately 4%–6%.
- Marine Transportation costs increased 13%, including higher fuel costs and costs associated with the Omicron variant. Diesel consumption increased to 11.5 million gallons from 10.8 million gallons, while the average price rose to $2.50 per gallon from $1.65.
- Distribution and Services benefited from stronger marine, on-highway, commercial and industrial, and oilfield activity. Manufacturing continued to face supply-chain delays.
- Inventories increased 9% from year-end to $360.5 million, primarily because of supply-chain delays and inventory staged for later project deliveries.
- On March 31, 2022, the Company acquired assets of a gearbox repair company for $3.9 million in cash.
- The Company did not repurchase treasury stock during the quarter; approximately 1.4 million shares remained available under the repurchase authorization as of May 6, 2022.
Guidance, outlook, risks and unusual items
Management expected both segments to deliver improved financial results in 2022. The outlook called for continued improvement in inland utilization, spot pricing and term-contract renewals, while coastal results were expected to be constrained by planned shipyard maintenance and ballast-water-treatment installations. KDS demand was expected to benefit from high commodity prices, increased rig counts, well completions, and favorable commercial and industrial activity.
Management projected 2022 capital expenditures of $170 million to $190 million, including approximately $5 million for new inland towboats, $145 million to $155 million for maintenance capital and marine equipment and facilities, and $20 million to $30 million for KDS, corporate, information technology and other equipment.
Principal risks include inflation and higher fuel prices, supply-chain delays and long lead times, adverse weather and water conditions, lock delays, marine accidents, environmental and government regulation, interest-rate changes, competition, economic conditions, COVID-19 or other pandemics, and cyclical oil and gas activity. Fuel escalation clauses generally mitigate long-term fuel exposure but may lag price changes by 30 to 90 days, and spot contracts generally lack fuel escalators.
The Company remains involved in litigation related to the 2016 Nathan E. Stewart fuel spill in British Columbia. Potential exposure in the civil proceeding could not be estimated; management believes insurance coverage and recorded accruals are adequate and does not expect a material adverse effect. Guarantees, standby letters of credit and performance bonds totaled $19.7 million at March 31, 2022.
Important facts for investors to verify
- Whether the planned 2033 senior-note issuances occurred as scheduled and were sufficient to refinance the 2023 notes at maturity.
- Whether the expected 2022 capital-expenditure range of $170 million to $190 million remained appropriate.
- The sustainability of improved marine utilization, contract pricing and segment margins after comparison effects from Winter Storm Uri and the 2021 COVID-19 disruption.
- The extent to which higher fuel, labor and other inflationary costs are recovered through contract escalators, including the timing lag.
- Progress in resolving KDS supply-chain constraints and converting orders into deliveries and revenue.
- Developments, potential exposure and insurance coverage related to the Nathan E. Stewart litigation and other contingencies.
- Interest-rate exposure on variable-rate borrowings and continued compliance with debt covenants.