Kirby Corporation 2022 Third-Quarter Form 10-Q Summary
Business context and reporting period
Kirby Corporation is the largest U.S. domestic tank-barge operator, transporting petrochemicals, black oil, refined petroleum products and agricultural chemicals. Its Distribution and Services segment provides aftermarket parts and services, equipment rentals, and oilfield, power-generation and electrification equipment. The unaudited report covers the quarter and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $745.8 million, up 25% | $2.055 billion, up 24% |
| Operating income | $58.9 million | $135.1 million |
| Operating margin | Approximately 7.9% | Approximately 6.6% |
| Net earnings attributable to Kirby | $39.1 million | $85.0 million |
| Diluted earnings per share | $0.65 | $1.41 |
| Operating cash flow | Not separately provided for the quarter | $161.2 million |
| Capital expenditures | Not separately provided for the quarter | $120.3 million |
- Marine Transportation revenue was $433.0 million in the quarter and $1.194 billion year to date, increases of 28% and 23%, respectively. Segment operating margins were 9.6% and 7.5%, compared with 5.0% and 3.8% in 2021.
- Distribution and Services revenue was $312.8 million in the quarter and $860.4 million year to date, increases of 20% and 26%. Segment operating margins were 7.1% and 5.8%, compared with 4.2% and 2.9% in 2021.
- September 30, 2022 cash and cash equivalents were $37.0 million, compared with $34.8 million at December 31, 2021. Management reported approximately $114 million of cash equivalents as of November 3, 2022.
- Total debt, including current portion and before unamortized discounts and issuance costs, was $1.124 billion at September 30, 2022. Reported net long-term debt was $1.118 billion. Debt-to-capitalization was 27.3%, down from 28.7% at year-end 2021.
- Total assets were $5.456 billion and total equity was $2.975 billion at September 30, 2022. Inventory increased 18% from year-end to $392.5 million, primarily because of higher activity and supply-chain-related buildup in Distribution and Services.
Material changes versus the prior comparable period
- Revenue, operating income and profitability improved substantially in both segments. Higher marine utilization, pricing and fuel rebills benefited Marine Transportation, while stronger commercial, industrial and oilfield activity benefited Distribution and Services.
- The 2021 comparison was depressed by Winter Storm Uri, Hurricane Ida, COVID-19-related disruption and a $340.7 million noncash impairment charge. The 2021 impairment comprised charges related to coastal marine equipment and marine transportation goodwill; no impairment was recorded in 2022.
- Net earnings attributable to Kirby changed from a $264.7 million loss in the 2021 third quarter to $39.1 million of earnings, and from a $257.9 million loss to $85.0 million for the first nine months.
- Operating cash flow declined 43% year over year to $161.2 million, primarily because 2021 included a $119.5 million federal tax refund and because 2022 inventory increased. Capital expenditures rose to $120.3 million from $72.0 million.
- On July 29, 2022, Kirby replaced its prior credit agreement with a $500 million revolving facility and a $250 million term loan, both generally maturing July 29, 2027. In October 2022, the company repaid $20 million of the term loan.
- Kirby purchased approximately 0.4 million shares for $22.9 million during the first nine months, at an average price of $59.32 per share. Approximately 1.0 million shares remained available under the repurchase authorization as of November 3, 2022.
Guidance, outlook, risks and unusual items
- Management projected 2022 capital expenditures of $170 million to $190 million, including approximately $145 million to $155 million for marine maintenance and improvements, approximately $20 million to $30 million for Distribution and Services and corporate projects, and approximately $5 million for new inland towboats.
- Management expects improved results in both segments during the remainder of 2022 and into 2023. High refinery and petrochemical utilization, stronger barge utilization, higher contract pricing, increased oilfield activity and demand for electrification equipment support the outlook.
- Expected offsets include higher interest rates, recessionary risks, inflation, elevated fuel costs, supply-chain constraints, long lead times, seasonal delays and record-low Mississippi River water levels. Coastal results may be reduced by planned shipyard maintenance and ballast-water-treatment installations.
- Marine transportation term contracts generally include fuel escalation mechanisms, but management noted a 30- to 120-day lag before cost recovery. Spot contracts generally lack fuel escalators.
- The $350 million 3.29% senior notes mature February 27, 2023. Kirby intended to repay them using proceeds from its 2033 notes and availability under the 2027 revolving facility. The $300 million 2033 note financing consists of $60 million issued October 20, 2022 and $240 million scheduled for issuance January 19, 2023.
- As of September 30, 2022, available borrowing capacity was $474.9 million under the 2027 revolving facility and $8.6 million under a separate credit line. Kirby reported compliance with all debt covenants.
- A legal proceeding remains pending in Canada relating to the 2016 grounding and fuel spill involving the tug Nathan E. Stewart. Potential exposure cannot be estimated, although management believes insurance coverage and existing accruals are adequate and does not expect a material adverse effect.
- Guarantees, standby letters of credit and performance bonds had aggregate notional value of $20.1 million at September 30, 2022. Management does not expect material cash outlays under these instruments.
- Management identified adverse economic conditions, competition, weather and water conditions, marine accidents, lock delays, fuel prices, interest rates, environmental regulation, pandemics and acquisition activity as risks that could cause actual results to differ from forward-looking statements.
Important facts for investors to verify
- Verify the timing and funding of the February 2023 senior-note repayment, including issuance of the remaining $240 million of 2033 notes and use of revolving capacity.
- Monitor operating cash conversion as inventory remains elevated and capital expenditures approach the $170 million to $190 million projected range.
- Assess whether higher marine pricing and utilization offset fuel, labor, maintenance and other inflationary costs after contractual recovery lags.
- Track supply-chain constraints, delayed Distribution and Services deliveries and demand in the oilfield and commercial-industrial markets.
- Evaluate exposure to Mississippi River water levels, seasonal weather, vessel maintenance, coastal oversupply and environmental or marine-accident liabilities.
- Reconcile the September 30 cash balance with the higher cash-equivalent amount reported as of November 3, 2022, and review subsequent borrowing and repayment activity.