Kirby Corporation 2020 Form 10-K Summary
Business context and reporting period
Kirby Corporation reported for the fiscal year ended December 31, 2020. The company operates two segments: marine transportation, the largest U.S. domestic tank-barge operator, and distribution and services, which provides engine, transmission and equipment parts, repair, rental, manufacturing and oilfield services.
Marine transportation generated 65% of 2020 revenue and operated 1,066 inland tank barges, 44 coastal tank barges, 248 average inland towboats during the fourth quarter, 44 coastal tugboats and offshore dry-bulk equipment. Distribution and services generated 35% of revenue and served commercial and industrial, marine, power-generation, on-highway and oil-and-gas markets.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $2.171 billion | $2.838 billion | (24%) |
| Marine transportation revenue | $1.404 billion | $1.587 billion | (12%) |
| Distribution and services revenue | $767.1 million | $1.251 billion | (39%) |
| Operating income | $(420.8) million | $242.0 million | Decline |
| Net loss attributable to Kirby | $(272.5) million | $142.3 million net income | Turned to loss |
| Diluted earnings per share | $(4.55) | $2.37 | Decline |
| Operating cash flow | $444.9 million | $511.8 million | (13%) |
| Capital expenditures | $148.2 million | $248.2 million | (40%) |
| Acquisitions and marine equipment | $355.0 million | $262.5 million | Increase |
Marine transportation operating income was $163.6 million, with an 11.7% operating margin versus 13.6% in 2019. Inland utilization declined from the low-to-mid-90% range in the first quarter to the high-60% range in the fourth quarter. Coastal utilization was in the mid-70% range during the second through fourth quarters.
Distribution and services reported an operating loss of $12.2 million and a negative 1.6% operating margin, compared with $67.2 million of operating income and a 5.4% margin in 2019. Service and parts revenue was $711.1 million, or 93% of segment revenue; manufacturing revenue was $56.1 million.
At December 31, 2020, cash and cash equivalents were $80.3 million, total assets were $5.924 billion, total equity was $3.088 billion and long-term debt including current amounts was $1.469 billion. Debt-to-capitalization increased to 32.2% from 28.9% in 2019. The company reported $594.9 million of available capacity under its revolving credit facility at year-end and was in compliance with debt covenants.
Debt included $250.0 million drawn on the revolving credit facility, a $375.0 million term loan due in 2024, $350.0 million of 3.29% senior notes due in 2023 and $500.0 million of 4.2% senior notes due in 2028. The company repaid $150.0 million of 2.72% senior notes at maturity in February 2020.
Material changes versus the prior comparable period
- COVID-19, reduced refinery and petrochemical activity, lower oilfield spending and oil-price volatility materially reduced demand across both segments.
- Marine transportation revenue declined 12%, operating income declined 24%, and contract pricing weakened substantially late in the year. Inland term-contract renewals in the fourth quarter decreased approximately 10% to 12%, while spot rates decreased approximately 25%.
- Distribution and services revenue declined 39% and operating income declined 118%, reflecting the oilfield downturn, excess pressure-pumping capacity and lower commercial and industrial activity.
- The company recorded $561.3 million of pre-tax non-cash impairment and other charges, including $388.0 million of goodwill impairment, $165.3 million of long-lived-asset impairment and an $8.0 million inventory write-down.
- Goodwill declined to $657.8 million from $953.8 million, and other intangible assets declined to $69.0 million from $210.7 million, primarily because of the distribution and services impairments.
- The company acquired the Savage inland tank-barge fleet for $279.0 million and Convoy for $37.2 million, and purchased six newly constructed inland pressure barges for $39.4 million.
- Despite the net loss, operating cash flow remained positive at $444.9 million. Cash increased to $80.3 million from $24.7 million, aided partly by tax refunds and borrowings.
Fourth-quarter results, outlook and unusual items
Fourth-quarter 2020 revenue was $489.8 million, operating income was $24.8 million, net earnings attributable to Kirby were $22.2 million and diluted earnings per share were $0.37. This compared with fourth-quarter 2019 revenue of $655.9 million, operating income of $16.2 million, net earnings of $2.8 million and diluted earnings per share of $0.05. The 2019 fourth quarter included $35.5 million of inventory write-downs and $4.8 million of severance and early-retirement expense.
Management expected the first half of 2021 to remain challenging, with improving activity and utilization in the second half as the pandemic eased, refinery utilization recovered and the U.S. economy improved. First-quarter 2021 earnings were expected to decline sequentially because of weak marine markets, lower contract-renewal pricing, winter delays and vessel-crewing difficulties.
Management projected 2021 capital expenditures of $125 million to $145 million. Inland utilization was expected to improve from the low-to-mid-70% range early in the year to the high-80% to low-90% range by year-end, although full-year inland margins were expected to be below the mid-teens level achieved in 2020. Coastal revenue was expected to decline, with negative operating margins for the full year dependent on a recovery in refined-products and black-oil demand. Distribution and services margins were expected to be positive in the low-to-mid-single digits.
The 2020 tax benefit was $189.8 million, substantially reflecting CARES Act net-operating-loss carrybacks. The company recorded a $188.2 million federal income-tax receivable at year-end and received a $119.5 million tax refund, including interest, in February 2021.
Material risks include prolonged COVID-19 effects, oil and gas activity and commodity-price volatility, excess tank-barge or pressure-pumping capacity, contract-renewal pricing, weather and waterway disruptions, marine accidents and pollution liabilities, environmental and ballast-water regulations, crewing constraints, interest-rate and refinancing risk, cybersecurity, customer concentration and potential changes affecting the Jones Act.
Contingencies include environmental claims and Superfund matters, including Portland Harbor, the USOR site and the SBA Shipyard site, as well as litigation related to marine incidents. Management stated that accruals and insurance coverage were adequate for disclosed incidents, except that potential exposure in the Canadian civil proceeding related to the 2016 grounding could not be estimated.
Most important facts for investors to verify
- Whether marine utilization and contract pricing recover as projected, particularly after the significant fourth-quarter 2020 inland rate declines.
- Whether distribution and services can return to profitability amid weak oilfield activity, excess pressure-pumping capacity and customer capital-spending discipline.
- The sustainability of operating cash flow relative to approximately $1.475 billion of debt, upcoming 2023 and 2024 maturities, lease obligations and planned capital expenditures.
- The sensitivity of future results to COVID-19 impacts, refinery and petrochemical utilization, crude-oil and natural-gas prices, weather and waterway disruptions, and vessel-crewing availability.
- The valuation assumptions supporting the remaining $657.8 million of goodwill and $69.0 million of other intangible assets following the 2020 impairments.
- The amount and timing of tax refunds and the outcome of federal tax examinations for 2017 through 2019.
- Potential costs from environmental regulations, ballast-water treatment, pollution incidents, Superfund matters and other marine contingencies.
- Management’s forecast of $125 million to $145 million in 2021 capital expenditures and the company’s ability to maintain covenant compliance and revolving-credit availability.