Kirby Corporation — 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 industrial and oilfield equipment parts, service, rental, manufacturing and remanufacturing. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods.
Financial performance and key metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Total revenue | $559.6 million | $541.2 million | $1,056.5 million | $1,185.1 million |
| Operating income (loss) | $24.0 million | $34.3 million | $27.2 million | $(475.4) million |
| Net earnings (loss) attributable to Kirby | $10.2 million | $25.0 million | $6.8 million | $(322.2) million |
| Diluted earnings (loss) per share | $0.17 | $0.42 | $0.11 | $(5.38) |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $197.8 million | $242.1 million |
| Capital expenditures | Not separately provided | Not separately provided | $38.4 million | $92.8 million |
All dollar amounts are approximate and presented in millions unless otherwise indicated. The consolidated operating margin was approximately 4.3% in the second quarter and 2.6% for the first six months of 2021, compared with approximately 6.3% and negative 40.1%, respectively, in the comparable 2020 periods.
- Marine Transportation: Second-quarter revenue declined 13% to $332.9 million and six-month revenue declined 19% to $633.8 million. Operating income declined 64% to $18.5 million in the quarter and 80% to $20.4 million for the six months. Operating margins were 5.6% and 3.2%, respectively, versus 13.5% and 13.0% in 2020.
- Distribution and Services: Second-quarter revenue increased 42% to $226.7 million and six-month revenue increased 5% to $422.6 million. Operating income was $6.2 million and $9.1 million, compared with losses of $14.1 million and $10.4 million in 2020. Operating margins improved to 2.7% and 2.1% from negative 8.8% and negative 2.6%.
- Balance sheet and liquidity: Cash and cash equivalents were $53.1 million at June 30, 2021, versus $80.3 million at December 31, 2020. Total assets were $5.77 billion and total equity was $3.11 billion. Debt, including current portions and before debt discounts and issuance costs, was $1.28 billion, down from $1.48 billion at year-end. The debt-to-capitalization ratio declined to 29.1% from 32.2%.
- Available financing: Revolving credit capacity was $789.9 million after $5.1 million of outstanding letters of credit. An additional $8.7 million was available under a separate credit line. The company was in compliance with its debt covenants at June 30, 2021.
Material changes versus the prior comparable period
- Consolidated second-quarter revenue increased modestly because strong Distribution and Services growth more than offset lower Marine Transportation revenue. Six-month revenue decreased because of the severe marine downturn in the first quarter.
- Marine Transportation was affected by lower utilization and pricing, COVID-19-related demand reductions, and Winter Storm Uri, which temporarily shut down Gulf Coast refineries and chemical plants. Inland utilization improved from the mid-70% range in the first quarter to the low-to-mid-80% range in the second quarter.
- Distribution and Services returned to profitability as commercial and industrial activity and oilfield activity improved. The 2020 comparison was burdened by a $3.3 million bad-debt expense related to a large oil-and-gas customer bankruptcy and $1.4 million of severance costs.
- The 2020 first six months included $561.3 million of noncash impairment, inventory write-down and other charges, including goodwill impairment, as well as a $50.8 million tax benefit from CARES Act net operating loss carrybacks. These items materially depressed 2020 earnings and make year-over-year comparisons less representative.
- Operating cash flow decreased 18%, primarily because of lower marine revenue and operating income, despite a $119.5 million federal tax refund received in 2021.
- Debt decreased primarily through $195.0 million of repayments under the revolving credit facility. The company also purchased four previously leased inland tank barges for $7.5 million.
Guidance, outlook, risks and unusual items
- Management expects further growth in both segments during the second half of 2021 as economies reopen, but cited COVID-19 uncertainty, supply-chain constraints, labor shortages and component delays as risks.
- Management projects 2021 capital expenditures of $125 million to $145 million, including approximately $15 million for new inland towboats, $95 million to $110 million for marine equipment and facility upgrades, and $15 million to $20 million for Distribution and Services, corporate and information technology projects.
- Inland utilization was expected to improve toward the high-80% to 90% range during the second half, with inland operating margins expected in the low double digits in the third quarter and further improvement in the fourth quarter, subject to weather and COVID-19 developments.
- Coastal market conditions were expected to remain challenging, although management anticipated modest improvement in utilization, revenue and margins.
- Full-year Distribution and Services revenue was expected to increase 15% to 25% versus 2020, with operating margins in the low-to-mid single digits.
- Material operational risks include adverse economic conditions, competition, weather and waterway disruptions, marine accidents, fuel costs, interest rates, environmental and governmental regulation, COVID-19, and the timing and size of acquisitions.
- Legal contingencies include several marine pollution and accident matters. In the 2019 Houston Ship Channel collision, the court ruled on July 8, 2021 that the Genesis River was solely at fault and Kirby Inland Marine had no liability; no appeal had been filed as of the filing. Other matters remain subject to uncertainty, including a Canadian proceeding related to the 2016 Nathan E. Stewart grounding.
- Guarantees, standby letters of credit and performance bonds totaled $23.4 million at June 30, 2021. Management did not expect material cash outlays under these instruments.
Most important facts for investors to verify
- Whether improving inland utilization and spot pricing can offset lower term-contract rates and restore marine operating margins.
- The sustainability of the Distribution and Services recovery, particularly in oilfield equipment manufacturing and service markets.
- Execution of the $125 million to $145 million 2021 capital-expenditure plan and its effect on free cash flow.
- Debt maturities and refinancing requirements, including $350 million of 3.29% senior notes due February 2023 and significant Term Loan obligations due March 2024.
- Exposure to COVID-19, supply-chain and labor constraints, fuel-cost timing mismatches, severe weather and waterway disruptions.
- Final resolution and insurance coverage for outstanding environmental and marine litigation, including the Canadian grounding matter.