Kirby Corporation 2013 Third-Quarter Form 10-Q Summary
Business context and reporting period
Kirby Corporation is a domestic marine transportation company and diesel engine services provider. The filing covers the quarter and nine months ended September 30, 2013, compared with the comparable 2012 periods. Marine transportation represented 79% of third-quarter revenue and 76% of nine-month revenue. The 2013 results include the Allied and Penn acquisitions completed in the fourth quarter of 2012.
Key financial metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Revenue | $551.1 million | $521.3 million | $1.674 billion | $1.600 billion |
| Operating income | $118.3 million | $92.6 million | $327.4 million | $265.4 million |
| Operating margin | 21.5% | 17.8% | 19.6% | 16.6% |
| Net earnings attributable to Kirby | $69.1 million | $53.1 million | $188.8 million | $151.6 million |
| Diluted EPS | $1.21 | $0.95 | $3.32 | $2.70 |
| Operating cash flow | Not separately provided | Not separately provided | $450.7 million | $246.2 million |
Marine transportation revenue increased 25% in the quarter and 24% year to date; segment operating income increased 39% and 35%, respectively. Marine operating margins were 26.1% in the quarter and 23.5% year to date, compared with 23.4% and 21.6% in the prior-year periods.
Diesel engine services revenue declined 33% in the quarter and 31% year to date. Segment operating income declined 38% and 29%, respectively, and margins were 7.9% and 9.6%, compared with 8.5% and 9.3% in the prior-year periods. The decline primarily reflected weak demand for pressure-pumping equipment and land-based diesel engine products and services.
Capital expenditures were $207.0 million during the first nine months, compared with $255.9 million in the prior-year period. Cash used in investing activities was $180.3 million, and cash used in financing activities was $275.0 million. Cash and cash equivalents were $6.5 million at September 30, 2013, compared with $11.1 million at December 31, 2012.
Total debt was approximately $860.9 million at September 30, 2013, compared with $1.135 billion at year-end 2012. Debt-to-capitalization declined to 31.0% from 39.9%. Debt consisted principally of $500.0 million of senior notes, $312.0 million under the term loan and $48.9 million under the revolving credit facility. The company reported compliance with all applicable debt covenants and $276.1 million of availability under the revolving credit facility at September 30, 2013.
Material changes versus the prior comparable period
- Revenue increased 6% in the third quarter and 5% for the first nine months, while diluted EPS increased 27% and 23%, respectively.
- Marine transportation benefited from strong petrochemical, black oil and refined petroleum demand, improved coastal utilization, favorable pricing and the Allied and Penn acquisitions.
- Inland utilization remained approximately 90% to 95%; coastal utilization improved to approximately 90% from approximately 75% to 80% in the 2012 third quarter.
- Diesel engine services weakened materially because of excess pressure-pumping capacity, low natural gas prices and reduced land-based oilfield activity.
- Operating cash flow increased 83% year over year, primarily because of higher earnings, depreciation, deferred taxes and favorable changes in operating assets and liabilities.
- The company refinanced $200.0 million of floating-rate senior notes maturing in February 2013 with new senior notes and reduced total debt during the period.
Guidance, outlook, risks and unusual items
Management projected 2013 capital expenditures of $240 million to $250 million, including construction of 68 inland tank barges and three inland towboats. Future capital expenditures were expected to be funded from operating cash flow and available credit.
Management expected strong petrochemical and black oil demand to support marine transportation utilization and pricing. The coastal market was improving, while the land-based diesel engine services market was considered near the bottom of its cycle, with improvement expected sometime in 2014. The filing does not provide a specific earnings or revenue forecast.
Third-quarter and nine-month 2013 results included pretax credits of $7.9 million and $18.3 million, respectively, from eliminating the contingent earnout liability related to the United acquisition. These credits favorably affected reported operating income and segment margins. The nine-month period also included an estimated $0.03-per-share adverse impact from high water and the Algiers Lock closure. Weather and navigation disruptions increased delay days, particularly during the second quarter and July.
Key risks include economic conditions, industry competition, weather and water conditions, marine accidents, lock delays, fuel costs, interest rates, new vessel construction, environmental and government regulation, and acquisition timing. The company also had $46.6 million of guaranties, letters of credit and performance bonds; management did not expect material cash outlays under these instruments. Legal proceedings were described as ordinary-course matters not expected to have a material effect.
Important facts for investors to verify
- Separate the effect of the $18.3 million earnout credit from underlying nine-month operating performance.
- Assess whether marine utilization and pricing can remain strong as new tank-barge capacity enters the market.
- Monitor the diesel engine services recovery, particularly pressure-pumping equipment demand and North American natural gas activity.
- Reconcile the $240 million to $250 million capital-expenditure outlook with operating cash flow, debt repayment and fleet expansion.
- Review variable-rate debt exposure, covenant requirements and the October 31, 2013 $52 million term-loan prepayment.
- Evaluate exposure to high or low water, lock closures, hurricanes, fuel-price changes, environmental requirements and marine accidents.