KIRBY CORP 10-Q Summary: Period Ended June 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, and the six months ended on that date. Kirby Corporation is the nation's largest domestic inland tank barge operator, transporting petrochemicals, black oil products, refined petroleum products, and agricultural chemicals. The company also operates a diesel engine services segment providing overhaul and repair services for marine, power generation, and railroad industries. Operations are significantly impacted by the global economic recession, resulting in reduced demand across both segments.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2009) | Value ($ in thousands) |
|---|---|
| Total Revenues | $550,404 |
| Net Earnings Attributable to Kirby | $61,725 |
| Diluted Earnings Per Share | $1.15 |
| Operating Cash Flow | $151,558 |
| Capital Expenditures | $116,608 |
| Total Assets | $1,547,164 |
| Total Debt (Long-term + Current) | $210,411 |
| Cash and Cash Equivalents | $8,478 |
| Debt-to-Capitalization Ratio | 17.9% |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 19% to $550.4 million for the six months ended June 30, 2009, compared to $678.8 million in the prior year period. Marine transportation revenue fell 20%, and diesel engine services revenue fell 16%.
- Earnings Decline: Net earnings attributable to Kirby decreased 20% to $61.7 million ($1.15 per share) from $77.0 million ($1.42 per share) in the prior year.
- Cost Reductions: The company reduced shore staff by approximately 10% compared to June 2008, incurring a $3.95 million pre-tax charge in Q1 2009 for early retirements and staff reductions. Operating expenses decreased significantly due to lower fuel costs (diesel prices dropped ~60% QoQ) and reduced towboat operations (average 226 towboats in 2009 vs. 259 in 2008).
- Cash Flow Improvement: Despite lower earnings, operating cash flow increased 53% to $151.6 million, driven primarily by a $44.3 million decrease in accounts receivable due to lower business activity levels.
- Balance Sheet: Total assets increased slightly to $1.55 billion. Long-term debt decreased 15% to $210 million as the company utilized strong cash flows to pay down borrowings.
Guidance, Outlook, and Risks
- Outlook: Management expects petrochemical and refining production to remain below 2008 levels for the remainder of 2009. No notable improvement is forecasted for the diesel engine services segment as customers continue to defer maintenance.
- Capital Expenditures: Projected 2009 capital expenditures are in the range of $180 million to $190 million, including approximately $135 million for new tank barge and towboat construction. The company anticipates 2009 new capacity will approximate capacity to be retired.
- Contract Renewals: Term contract rates renewed in Q2 2009 declined 0% to 8% compared to Q2 2008. Spot market rates decreased 10% to 15%.
- Risks:
- Economic Conditions: Continued global recession impacting demand for transported goods and maintenance services.
- Weather and Navigation: Adverse weather (high/low water, storms) and lock delays can impact operations.
- Counterparty Risk: Exposure to credit market volatility regarding the Revolving Credit Facility and interest rate swap counterparties.
- Environmental Liability: Ongoing involvement as a Potentially Responsible Party (PRP) at the Palmer Barge Line Superfund site; liability amount is currently unestimable.
Investor Verification Checklist
- Verify the sustainability of the 53% increase in operating cash flow given the 19% revenue decline.
- Monitor the impact of the 10% reduction in towboat fleet on future revenue recovery potential.
- Review the status of the Palmer Barge Line Superfund site liability and potential EPA cost recovery demands.
- Assess the company's ability to maintain the 17.9% debt-to-capitalization ratio if credit markets tighten further.
- Track the execution of the $180-$190 million capital expenditure plan and the timing of new asset deliveries.