Kirby Corporation 2010 Q2 Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation operates two reportable segments: marine transportation and diesel engine services. It is the largest domestic inland tank barge operator, with 860 active inland tank barges and 16.5 million barrels of capacity at June 30, 2010. The filing covers the three and six months ended June 30, 2010, compared with the corresponding 2009 periods. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q2 2010 | Q2 2009 | Six Months 2010 | Six Months 2009 |
|---|---|---|---|---|
| Revenue | $273.7 million | $272.7 million | $541.9 million | $550.4 million |
| Operating income | $50.6 million | $57.7 million | $93.6 million | $106.3 million |
| Operating margin | 18.5% | 21.2% | 17.3% | 19.3% |
| Net earnings attributable to Kirby | $29.3 million | $33.7 million | $53.9 million | $61.7 million |
| Diluted EPS | $0.54 | $0.63 | $1.00 | $1.15 |
| Operating cash flow | Not separately provided | Not separately provided | $103.0 million | $151.6 million |
- Marine transportation revenue increased 6% in Q2 and 3% year to date, but operating income declined 7% in both periods. Marine operating margins fell to 21.6% from 24.4% in Q2 and to 20.4% from 22.7% year to date.
- Diesel engine services revenue declined 21% in Q2 and 19% year to date. Operating income declined 45% and 27%, respectively, with margins falling to 9.5% from 13.6% in Q2 and to 9.9% from 11.1% year to date.
- Capital expenditures were $67.6 million during the first six months, including $34.7 million for new tank barges and towboats and $32.9 million for fleet upgrades.
- Cash and cash equivalents were $140.8 million at June 30, 2010, compared with $97.8 million at December 31, 2009.
- Total debt was approximately $200.2 million, consisting principally of $200.0 million of senior notes due February 2013. No borrowings were outstanding under the $250.0 million revolving credit facility.
- Debt-to-capitalization declined to 15.2% from 15.9% at December 31, 2009. The company reported $248.4 million of availability under the revolving credit facility as of June 30, 2010.
Material Changes Versus the Prior Comparable Period
- Revenue was essentially flat in Q2 and declined 2% for the first half, while net earnings attributable to Kirby declined 13% in Q2 and 13% year to date.
- Improved marine demand and utilization were offset by lower contract rates, higher fuel costs and increased weather- and navigation-related delay days. Diesel fuel prices increased 60% in Q2 and 49% year to date.
- Marine transportation represented 84% of Q2 revenue and 83% of first-half revenue, compared with 80% and 79%, respectively, in the prior-year periods.
- Diesel engine services remained pressured by deferred customer maintenance projects, particularly in Gulf Coast oil services. Stable power generation and improved railroad activity provided only partial offsets.
- Operating cash flow declined $48.5 million year to date, primarily because 2009 benefited from a significant reduction in receivables, while 2010 experienced a net use of cash from operating working capital changes.
- The company continued cost-reduction initiatives and had reduced shore staff by 23% from the October 2008 peak. A $4.1 million pretax charge for retirements and staff reductions was recorded in the 2010 first quarter.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2010 capital expenditures of $135 million to $145 million, including approximately $70 million for new tank barge and towboat construction. Planned 2011 new-construction expenditures were estimated at $50 million to $60 million.
- Management described the outlook for the balance of 2010 and into 2011 as guarded because of the sluggish U.S. economy, high unemployment, weak consumer confidence, excess tank barge capacity and uncertainty surrounding the Gulf of Mexico drilling moratorium.
- Management identified potential growth through acquisitions of independent marine operators, captive fleets and diesel service providers.
- Approximately 75% of marine transportation revenue was under term contracts and 25% under spot contracts. Q2 term-contract rates were down approximately 10% to 12% from the prior-year quarter, while spot rates were down approximately 10% to 15%.
- The company had $200.0 million of interest-rate swaps designated as cash-flow hedges. Derivative liabilities totaled $18.4 million at June 30, 2010, compared with $15.3 million at year-end 2009.
- Management expected to contribute $15 million to $30 million to its pension plan before December 31, 2010; no 2010 contribution had been made as of June 30.
- The company was subject to potential CERCLA environmental cost claims related to two Port Arthur, Texas, Superfund sites. Management could not estimate its portion of the claims because allocation among potentially responsible parties remained unresolved.
- Guarantees, letters of credit and performance bonds totaled $31.5 million. Management did not expect material cash outlays under these instruments.
- The company repurchased 41,678 shares during June and, after quarter-end, purchased an additional 184,882 shares under a Rule 10b5-1 plan. The July 2010 authorization increased total remaining repurchase capacity to 2.9 million shares.
Important Facts for Investors to Verify
- Whether marine contract pricing and industry tank barge overcapacity continue to pressure margins despite improving volumes and utilization.
- The timing and amount of planned capital expenditures, new-barge deliveries and fleet retirements.
- The sustainability of operating cash flow after working-capital changes and pension contributions.
- Refinancing or repayment plans for the $200 million of senior notes maturing in February 2013.
- The potential financial exposure from the two CERCLA environmental claims and the company’s pension funding requirement.
- The effect of the Gulf of Mexico drilling moratorium and deferred maintenance on diesel engine services demand.