Kirby Corporation Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation is the largest domestic tank barge operator in the United States and also provides engine, transmission, equipment, marine, power generation, on-highway and oilfield services through its Distribution and Services segment. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods.
- Marine Transportation represented 58% of revenue in both the second quarter and first six months.
- Distribution and Services represented 42% of revenue in both periods.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $698.0 million, up 25% | $1.309 billion, up 24% |
| Operating income | $46.5 million, up 94% | $76.2 million, up 180% |
| Operating margin | 6.7%, versus 4.3% | 5.8%, versus 2.6% |
| Net earnings attributable to Kirby | $28.5 million, versus $10.2 million | $45.9 million, versus $6.8 million |
| Diluted EPS | $0.47, versus $0.17 | $0.76, versus $0.11 |
| Net cash from operations | Not separately provided | $95.6 million, versus $197.8 million |
- Marine Transportation revenue increased 22% in the quarter and 20% year to date. Segment operating margin improved to 7.6% and 6.3%, respectively, from 5.6% and 3.2%.
- Distribution and Services revenue increased 29% in the quarter and 30% year to date. Segment operating margin improved to 5.7% and 5.1%, respectively, from 2.7% and 2.1%.
- Capital expenditures were $79.1 million year to date, compared with $38.4 million in 2021. The company projected full-year 2022 capital expenditures of $170 million to $190 million.
- Cash and cash equivalents were $25.1 million at June 30, 2022, versus $34.8 million at December 31, 2021. Current assets were $1.052 billion and current liabilities were $541.4 million.
- Debt outstanding, net of discounts and issuance costs, was $1.136 billion at June 30, 2022, compared with $1.163 billion at year-end 2021. Debt-to-capitalization declined to 27.9% from 28.7%.
- The company had $844.9 million of available capacity under its former revolving credit facility at June 30, 2022, plus $8.7 million under a separate credit line. As of August 5, 2022, liquidity included $18.0 million of cash, $459.9 million of availability under the new revolving facility and $8.7 million under the credit line.
Material Changes Versus the Prior Comparable Period
- Results benefited from higher tank barge utilization, stronger term and spot pricing, increased fuel rebills and improved refinery and petrochemical activity.
- Marine utilization improved materially: inland utilization was in the low-90% range in the second quarter versus the low-to-mid-80% range in 2021; coastal utilization was in the low-90% range versus the low-to-mid-70% range.
- KDS benefited from stronger commercial, industrial and oilfield activity, although supply-chain constraints and delays continued to affect manufacturing.
- Year-to-date operating cash flow decreased 52%, primarily because 2021 included a $119.5 million federal tax refund. Higher inventory purchases and incentive compensation payments also reduced 2022 cash flow.
- Inventories increased 12% from year-end to $370.4 million, reflecting higher activity and supply-chain-related buildup for projects expected to be delivered later in 2022 and into 2023.
- The company repaid $30.0 million of its term loan and repurchased 310,047 shares for $18.1 million during the first six months.
- The second quarter included $1.5 million of pretax severance expense, or $0.02 per share after tax.
Guidance, Outlook, Risks and Unusual Items
Management expected both segments to produce improved financial results in 2022. Refinery and petrochemical utilization was near historic highs, supporting strong barge utilization and improving rates. KDS demand was expected to benefit from high oil prices, increasing rig counts, growing well-completion activity and favorable commercial and industrial conditions.
- Inflation and significantly higher fuel prices remain risks. Contract escalation mechanisms are expected to recover much of these costs over time, but fuel adjustments may lag by 30 to 90 days, and spot contracts generally lack fuel escalators.
- Coastal results were expected to be affected by planned shipyard maintenance and ballast-water-treatment installations during 2022.
- Supply-chain constraints and long lead times continued to affect KDS manufacturing.
- On July 29, 2022, after quarter-end, the company replaced its 2024 credit agreement with a 2027 agreement providing a $500 million revolving facility and a $250 million term loan. It borrowed $285 million under the new agreement to repay the former term loan.
- The company expects to issue $300 million of unsecured notes due in 2033 and intends to use the proceeds and revolving capacity to repay its $350 million of 3.29% notes due February 2023.
- Outstanding legal matters include litigation related to the 2016 Nathan E. Stewart fuel-spill incident in Canada. The company cannot estimate potential exposure but believes insurance coverage and accrued liabilities are adequate and does not expect a material adverse effect.
- Letters of credit and performance bonds totaled $20.2 million at June 30, 2022. Management did not expect material cash outlays under these instruments.
- Key risks include economic conditions, competition, weather and navigational disruptions, marine accidents, fuel costs, interest rates, environmental regulation, COVID-19 or other pandemics, supply-chain constraints and acquisition timing.
Investor Verification Points
- Verify the sustainability of higher marine utilization and pricing as term contracts renew and spot-market conditions change.
- Monitor fuel-cost recovery timing, inflationary pressures and the effect of coastal maintenance and ballast-water projects on margins.
- Confirm completion and pricing of the 2033 note issuances and refinancing of the 2023 notes.
- Track operating cash conversion, inventory normalization and capital expenditures against the $170 million to $190 million full-year projection.
- Review compliance with the new credit agreement’s interest-coverage and debt-to-capitalization covenants.
- Assess potential exposure from the Canadian fuel-spill litigation and other environmental or marine contingencies.