Kirby Corporation 2021 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation is the largest domestic tank barge operator in the United States and also provides engine, transmission, equipment, and oilfield services. The filing covers the three months ended March 31, 2021, with comparisons to the first quarter of 2020. Results were affected by the COVID-19 economic slowdown, reduced customer activity, and Winter Storm Uri.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $496.9 million | $643.9 million | Down 23% |
| Marine transportation revenue | $301.0 million | $403.3 million | Down 25% |
| Distribution and services revenue | $195.9 million | $240.7 million | Down 19% |
| Operating income | $3.2 million | $(509.7) million | Improved from prior-year impairments |
| Net loss attributable to Kirby | $(3.4) million | $(347.2) million | Improved materially |
| Diluted loss per share | $(0.06) | $(5.80) | Improved |
| Operating cash flow | $102.6 million | $71.5 million | Up 43% |
| Capital expenditures | $14.1 million | $49.2 million | Down 71% |
Consolidated operating margin was approximately 0.6% in Q1 2021, compared with a significant operating loss in Q1 2020. The marine transportation operating margin declined to 0.6% from 12.6%, while distribution and services maintained a 1.5% margin in both periods.
Cash and cash equivalents were $52.3 million at March 31, 2021, compared with $80.3 million at December 31, 2020. Total debt, net of discounts and issuance costs, was $1.35 billion, down from $1.47 billion at year-end, primarily due to a $120.0 million repayment on the revolving credit facility. The debt-to-capitalization ratio declined to 30.4% from 32.2%.
The company had $714.9 million of available capacity under its $850.0 million revolving credit facility and $8.7 million available under a separate credit line. Management stated that the company was in compliance with all debt covenants.
Material Changes Versus the Prior Comparable Period
- Marine transportation revenue decreased 25% and operating income decreased 96%, primarily due to lower utilization, weaker inland term and spot pricing, COVID-19-related demand reductions, and Winter Storm Uri.
- Inland tank barge utilization averaged in the mid-70% range, compared with the low-to-mid-90% range in Q1 2020. Coastal utilization averaged in the mid-70% range, compared with the low-to-mid-80% range previously.
- Inland renewed term contracts declined approximately 7% to 9%, while renewed spot contracts declined approximately 25% to 30%. Coastal renewed pricing was generally unchanged.
- Distribution and services revenue declined 19% and operating income declined 22%, reflecting lower commercial, industrial, marine repair, oilfield, and pressure-pumping activity.
- Q1 2020 included $561.3 million of pretax noncash impairment and inventory charges, including $388.0 million of goodwill impairment, $165.3 million of long-lived asset impairments, and an $8.0 million inventory write-down. No comparable charges were recorded in Q1 2021.
- Q1 2020 benefited from a $50.8 million tax benefit related to CARES Act net operating loss carrybacks. Q1 2021 included receipt of a $119.5 million federal tax refund, including accrued interest.
- The company acquired the Savage Inland Marine fleet in April 2020; the acquisition partially offset weakness in the marine transportation segment but also increased depreciation and amortization.
Cash Flow, Liquidity, Debt, and Capital Allocation
Operating cash flow was $102.6 million, supported substantially by the federal tax refund and lower incentive compensation payments. Investing activities used $9.3 million, including $14.1 million of capital expenditures and $4.8 million of asset-sale proceeds. Financing activities used $121.3 million, primarily reflecting repayment of revolving credit borrowings.
Management projected 2021 capital expenditures of $125 million to $145 million, including approximately $15 million for new inland towboats, $95 million to $110 million for marine equipment and facility upgrades, and $15 million to $20 million for distribution, services, corporate, and information technology projects.
Guidance, Outlook, Risks, and Unusual Items
Management expected modest improvement in the second quarter, a return to profitability in Q2 2021, and more meaningful marine utilization improvement in the second half of 2021. Inland utilization had improved to above 80% in April and was expected to reach the high-80% to low-90% range in the second half of the year. Distribution and services revenue was expected to increase, with full-year operating margins anticipated in the low-to-mid-single digits.
Coastal conditions were expected to remain weak in Q2, with utilization in the mid-70% range and results similar to Q1. Management cited potential improvement later in 2021 from increased refined-product demand and infrastructure-related asphalt demand.
- Key operating risks include COVID-19, economic conditions, oilfield activity, customer production levels, industry competition, weather, water levels, lock closures, marine accidents, fuel costs, interest rates, environmental regulation, and acquisition timing.
- The company remains involved in legal and environmental proceedings related to vessel collisions and fuel or cargo releases, including the 2019 Houston Ship Channel incident and the 2016 British Columbia grounding. Management believes accruals and insurance coverage are adequate, but exposure in the British Columbia civil proceeding could not be estimated.
- Guarantees, standby letters of credit, and performance bonds had aggregate notional value of $23.5 million at March 31, 2021. Management did not expect material cash outlays under these instruments.
- A 1% increase in variable interest rates was estimated to increase annual interest expense by approximately $6.25 million based on year-end balances.
- Management stated that disclosure controls were effective and that no material changes occurred in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether inland and coastal utilization trends continued to improve after March 31, 2021, and whether spot pricing recovered as expected.
- The sustainability of the projected 2021 capital expenditure program and its effect on free cash flow and debt repayment.
- Progress toward the expected return to profitability and low-to-mid-single-digit distribution and services margins.
- Remaining exposure and insurance recoveries related to the Houston Ship Channel, British Columbia, and other environmental or maritime claims.
- Debt maturities, covenant compliance, and refinancing requirements, particularly the $350 million of senior notes due in February 2023 and debt due in March 2024.
- The extent to which Q1 operating cash flow was dependent on the one-time $119.5 million federal tax refund.