Kirby Corporation 2019 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation, the largest domestic U.S. tank barge operator, reported unaudited results for the three months ended March 31, 2019. Its two reportable segments are Marine Transportation and Distribution and Services. At quarter-end, the company operated 1,061 inland tank barges with 23.6 million barrels of capacity, 51 coastal tank barges with 4.9 million barrels of capacity, and related towing vessels.
Financial Performance and Key Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $744.6 million | $741.7 million | Flat, up approximately 0.4% |
| Operating income | $72.1 million | $50.7 million | Up approximately 42% |
| Net earnings attributable to Kirby | $44.3 million | $32.5 million | Up approximately 36% |
| Diluted EPS | $0.74 | $0.54 | Up $0.20 |
| Operating margin | Approximately 9.7% | Approximately 6.8% | Improved |
| Net cash from operating activities | $38.5 million | $18.7 million | Up approximately 106% |
- Marine Transportation: Revenue increased 8% to $368.1 million, segment operating income increased 119% to $35.4 million, and operating margin improved to 9.6% from 4.8%. Inland utilization was in the mid-90% range and coastal utilization was in the low-80% range.
- Distribution and Services: Revenue declined 6% to $376.5 million, primarily because of lower oilfield activity and reduced demand for new pressure-pumping equipment and related products. Operating income nevertheless increased 2% to $37.6 million, with margin improving to 10.0% from 9.2%.
- Cash flow and investment: Capital expenditures were $60.9 million on the cash flow statement and $66.0 million as reflected on the balance sheet. Acquisitions and marine equipment purchases used $247.5 million of cash, including the Cenac fleet acquisition.
- Balance sheet: Total assets were $6.30 billion, compared with $5.87 billion at December 31, 2018. Cash was $7.3 million. Total equity was $3.27 billion.
- Debt and liquidity: Debt outstanding had a carrying value of approximately $1.67 billion and a fair value of $1.68 billion. The debt-to-capitalization ratio was 33.8%, compared with 30.5% at year-end 2018. As of March 31, $667.0 million was available under the $850 million revolving credit facility; as of May 8, availability was $685.0 million. The company reported compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Marine Transportation benefited from the full or partial contribution of the Higman, Targa and CGBM acquisitions, improved utilization, higher spot and term pricing, and coastal cost reductions implemented in 2018.
- The March 2019 acquisition of Cenac’s marine fleet added 63 inland tank barges, 34 inland towboats and two offshore tugboats for $244.5 million. The acquisition increased the company’s inland fleet by a net 58 barges after retirements.
- Distribution and Services revenue weakened because of declining oilfield activity, although lower costs and favorable-margin equipment deliveries supported modestly higher operating income.
- Interest expense increased 35% to $13.2 million, primarily because of debt incurred for acquisitions and equipment purchases.
- First-quarter 2018 included $3.3 million of Higman transaction costs, $2.9 million of severance and retirement costs, and $3.9 million of noncash stock-award-plan expenses, making the year-over-year earnings comparison more favorable in 2019.
- The company adopted the new lease accounting standard on January 1, 2019, recognizing operating lease right-of-use assets of $159.7 million at March 31 and operating lease liabilities of $167.8 million. The adoption had no material effect on earnings or cash flows.
Guidance, Outlook, Risks and Unusual Items
- Management projects 2019 capital expenditures of $225 million to $245 million, funded primarily through operating cash flow and available revolving-credit capacity.
- Management expects inland marine revenue and operating income to increase in 2019, supported by continued customer demand, new petrochemical capacity, additional Permian Basin pipeline volumes, modest fleet additions and contributions from acquisitions. Inland utilization is expected to remain in the mid-90% range.
- Coastal revenue and operating income are expected to improve, with utilization projected to rise modestly into the low- to mid-80% range. Oversupply of coastal tank barges remains a constraint.
- Distribution and Services oilfield results remain uncertain because of lower oilfield activity and crude oil price volatility. Management expects second-quarter 2019 segment revenue and operating income to decline from the first quarter because certain pressure-pumping unit deliveries may be delayed into the third quarter.
- Quarterly marine operations were affected by heavy fog, Illinois River ice, high Mississippi River water, lock-maintenance closures, a Houston Ship Channel fire and increased shipyard days. Inland operations incurred 4,613 delay days, 82% more than in the first quarter of 2018.
- Key risks include economic and industry cyclicality, oilfield activity, fuel costs and recovery timing, interest rates, weather and navigational disruptions, marine accidents, environmental laws, competition, fleet oversupply, acquisition execution and debt covenant compliance.
- Environmental and legal contingencies remain outstanding regarding the 2016 Nathan E. Stewart grounding and the 2014 M/V Miss Susan collision. Management believes insurance and reserves are adequate and does not expect a material adverse effect, but potential exposure in the Nathan E. Stewart proceedings cannot be estimated.
- Disclosure controls were not effective at March 31, 2019 because of a previously reported material weakness in information-technology controls. Management expects remediation during 2019, but the weakness had not yet been considered remediated.
Most Important Facts for Investors to Verify
- Whether inland marine utilization, pricing and Cenac integration deliver the expected full-year earnings contribution.
- The pace and duration of the oilfield downturn and its effect on Distribution and Services revenue, margins and delayed equipment deliveries.
- Debt reduction, interest expense and compliance with the revolving-credit, term-loan and senior-note covenants, particularly as the $150 million Series A notes mature in February 2020.
- Actual 2019 capital expenditures versus the $225 million to $245 million projection and the resulting effect on free cash flow.
- Progress in remediating the material weakness in internal control over financial reporting.
- Developments, reserves and insurance coverage related to the outstanding environmental and maritime claims.