Kirby Corporation 2015 Q1 Form 10-Q Summary
Business context and reporting period
Kirby Corporation is the largest domestic tank barge operator in the United States, with operations in Marine Transportation and Diesel Engine Services. The unaudited filing covers the three months ended March 31, 2015, compared with the three months ended March 31, 2014.
At March 31, 2015, the company operated 905 inland tank barges with 18.1 million barrels of capacity, 69 coastal tank barges with 6.0 million barrels of capacity, 73 coastal tugboats and an average of 249 inland towboats during the quarter.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenues | $587.7 million | $589.2 million | Down 0.3% |
| Operating income | $103.1 million | $106.9 million | Down 3.5% |
| Operating margin | 17.5% | 18.1% | Down approximately 60 bps |
| Net earnings attributable to Kirby | $61.1 million | $62.2 million | Down 1.9% |
| Diluted earnings per share | $1.09 | $1.09 | Flat |
| Net cash provided by operating activities | $102.6 million | $115.2 million | Down 11% |
| Capital expenditures | $96.5 million | $62.3 million | Up 55% |
Marine Transportation revenue was $419.9 million, down 4%, and segment operating income was $96.3 million, down 1%. The segment margin improved to 22.9% from 22.4%. Diesel Engine Services revenue increased 9% to $167.8 million, but segment operating income declined 31% to $8.8 million; its margin fell to 5.3% from 8.3%.
Interest expense declined 6% to $5.3 million despite higher average debt, primarily because of lower average interest rates. Earnings before taxes were $97.9 million, and the income tax provision was $36.5 million. Cash and cash equivalents declined to $4.5 million at March 31, 2015 from $24.3 million at December 31, 2014.
Material changes versus the prior comparable period
- Marine Transportation revenue declined primarily because average marine diesel fuel prices fell 34%; fuel costs are generally passed through to customers. Utilization remained strong at approximately 90% to 95%.
- Marine Transportation margin improved despite higher pension expense, depreciation and amortization, and challenging weather and ice conditions.
- Diesel Engine Services revenue increased from higher parts, engine and transmission sales and completion of pressure-pumping-unit projects, but profitability was reduced by production issues, low crude oil prices and weaker land-based oilfield activity.
- A significant portion of the land-based pressure-pumping backlog was delayed into 2016. The company reduced staffing in its land-based manufacturing area by approximately 40%.
- The company recorded a $1.6 million pretax gain on the sale of a small Diesel Engine Services product line and $1.2 million of pretax severance charges. The prior-year quarter included $2.8 million of severance charges and an estimated $0.03 per share negative impact from ice, weather-related delays and the Houston Ship Channel incident.
- Operating cash flow decreased because changes in operating assets and liabilities consumed $18.1 million, compared with $3.4 million in the prior-year quarter.
- The company repurchased 1.252 million shares for $98.0 million, increasing treasury stock and contributing to a decline in total equity.
Debt, liquidity and capital allocation
Total debt outstanding was $818.9 million at March 31, 2015, consisting of $218.9 million under the revolving credit facility, $100.0 million under the term loan and $500.0 million of senior notes. The debt-to-capitalization ratio increased to 26.9% from 24.0% at December 31, 2014. The estimated fair value of total debt was $812.7 million.
On April 30, 2015, Kirby entered into a new unsecured revolving credit facility increasing borrowing capacity from $325.0 million to $550.0 million, maturing April 30, 2020. The new facility refinanced the prior revolving facility and $100.0 million term loan. It also permits up to $300.0 million of additional commitments, subject to bank consent. The company expects to recognize a $0.3 million loss on debt retirement in the second quarter of 2015.
As of May 6, 2015, availability was approximately $241.9 million under the new revolving facility and $8.8 million under the separate credit line. The company was in compliance with its debt covenants at March 31, 2015.
Guidance, outlook, risks and unusual items
- Management projected 2015 capital expenditures of $315 million to $325 million, funded through operating cash flow and available credit.
- The planned 2015 construction program includes 39 inland tank barges, three inland towboats and progress payments on four coastal articulated tank barge and tugboat units.
- Management expected stable inland utilization in 2015, but remained cautious on inland pricing because lower crude oil prices created excess capacity, particularly among 30,000-barrel tank barges.
- Coastal utilization remained strong, with higher renewal rates and continued expectations for strong demand and pricing.
- Management expected the land-based Diesel Engine Services business to generate a small quarterly operating loss during each of the remaining three quarters of 2015. Marine diesel services were expected to remain stable, with weakness in Gulf of Mexico oil services, while power generation was expected to remain stable.
- Key risks include economic conditions, competition, weather and navigational disruptions, fuel costs, interest rates, marine accidents, environmental regulation, construction costs and schedules, and the timing and magnitude of acquisitions.
- Contingencies include litigation and environmental claims related to the March 2014 Houston Ship Channel collision and the Gulfco Marine Maintenance Superfund site. Management believes reserves and insurance coverage are adequate and does not expect a material adverse effect, but the proceedings remain ongoing.
- Guaranties, standby letters of credit and performance bonds had an aggregate notional value of $32.6 million at March 31, 2015.
Important facts for investors to verify
- Whether Diesel Engine Services losses and delayed pressure-pumping orders persist as expected through the remainder of 2015.
- Whether inland excess barge capacity pressures contract renewals, spot rates and utilization.
- Progress against the $315 million to $325 million 2015 capital expenditure plan and the related debt and liquidity requirements.
- Compliance with the new revolving credit facility’s interest coverage and debt-to-capitalization covenants.
- Ultimate exposure from the Houston Ship Channel collision and Gulfco environmental proceedings, including insurance recoveries and reserve adequacy.
- Execution, timing and cost of the planned inland and coastal vessel construction program.