Kirby Corporation Form 10-Q Summary
Business Context and Reporting Period
Kirby Corporation is the largest domestic tank barge operator in the United States, with marine transportation and diesel engine services businesses. The unaudited filing covers the three months ended March 31, 2016, compared with the first quarter of 2015. As of March 31, 2016, Kirby operated 885 inland tank barges, 70 coastal tank barges, 75 coastal tugboats and an average of 240 inland towboats during the quarter.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $458.7 million | $587.7 million |
| Operating income | $65.4 million | $103.1 million |
| Net earnings attributable to Kirby | $38.1 million | $61.1 million |
| Diluted earnings per share | $0.71 | $1.09 |
| Cash flow from operations | $111.5 million | $102.6 million |
| Capital expenditures | $50.5 million | $96.5 million |
| Interest expense | $4.2 million | $5.3 million |
Marine transportation revenue was $378.3 million, or 82% of consolidated revenue, with operating income of $69.8 million and an 18.4% operating margin. Diesel engine services revenue was $80.4 million, or 18% of consolidated revenue, and produced an operating loss of $0.8 million, with a negative 1.0% margin.
At March 31, 2016, cash and cash equivalents were $1.7 million. Long-term debt, net of current portion and debt issuance costs, was $712.2 million, consisting principally of $215.9 million drawn under the revolving credit facility and $500.0 million of senior notes, less $3.8 million of unamortized debt issuance costs. The debt-to-capitalization ratio was 23.5%, compared with 25.4% at December 31, 2015. Kirby reported $279.7 million of availability under its revolving credit facility and $9.1 million under its separate credit line as of May 4, 2016.
Material Changes Versus the Prior Comparable Period
- Revenue declined 22%, operating income declined 37%, net earnings attributable to Kirby declined 38%, and diluted EPS declined 35% year over year.
- Marine transportation revenue declined 10% and operating income declined 28%. The margin fell to 18.4% from 22.9%.
- Diesel engine services revenue declined 52%, and operating income declined from $8.8 million to a $0.8 million loss. The margin fell to negative 1.0% from 5.3%.
- Lower marine diesel fuel prices reduced reported marine revenue because fuel costs are generally passed through to customers. Lower inland contract rates, increased coastal spot-market exposure, vessel idle time and higher depreciation also pressured results.
- Inland term-contract rates renewed during the quarter declined approximately 5% to 7% from comparable 2015 renewals. Inland utilization remained approximately 90% to 95%; coastal utilization was in the high-80% to low-90% range.
- Diesel engine services was adversely affected by weak oilfield activity, reduced demand for pressure-pumping equipment, lower parts and service demand, and customer deferrals of major maintenance projects.
- Operating cash flow increased 9% despite lower earnings, primarily because of favorable changes in operating assets and liabilities and higher deferred tax provisions.
- The company reduced debt by approximately $62.9 million during the quarter and repurchased 35,000 shares for $1.8 million.
Guidance, Outlook, Risks and Unusual Items
Management projected 2016 capital expenditures of $230 million to $250 million, funded through operating cash flow and available credit. The program includes inland barges, coastal articulated tank barges, tugboats, a petrochemical tank barge and upgrades to existing equipment and facilities.
Management expects inland utilization in the 90% to 95% range, with utilization around the low-90% level and continued modest pricing pressure. Coastal utilization for the remaining three quarters of 2016 was expected to be in the mid-80% to low-90% range. The diesel engine services land-based market was expected to remain challenging, while the power-generation market was expected to remain stable. Deferred marine maintenance work could support second-half results, although management noted that orders may not become firm until 2017.
First-quarter results included $5.6 million of pretax severance charges, including $3.8 million in marine transportation, $1.4 million in diesel engine services and $0.4 million in corporate expenses. The 2015 first quarter included $1.2 million of severance charges and a $1.6 million pretax gain from selling a small diesel engine services product line.
On April 15, 2016, after quarter-end, Kirby acquired 27 inland tank barges, 13 inland towboats and equipment under construction from subsidiaries of SEACOR Holdings for approximately $88 million in cash, financed through the revolving credit facility. Final purchase-price allocation had not been completed.
Key risks include excess industry tank-barge capacity, declining or volatile crude oil and black-oil volumes, contract-rate pressure, weather and river conditions, marine accidents, fuel-price volatility, competition, environmental regulation, interest rates, customer maintenance deferrals and the timing and financing of acquisitions.
The company remains involved in litigation and environmental matters, including claims related to the 2014 Houston Ship Channel collision and oil discharge, and CERCLA-related proceedings. Management believes insurance coverage and recorded reserves are adequate and does not expect these matters to have a material adverse effect, although the litigation and claims process remains ongoing. Guaranties, letters of credit and performance bonds totaled $20.2 million at March 31, 2016.
Kirby adopted the debt issuance cost presentation provisions of ASU 2015-03 effective January 1, 2016. The filing states that the company was evaluating the potential effects of other recently issued accounting standards, including revenue recognition, leases, inventory and employee share-based payment guidance.
Facts Investors Should Verify
- Whether inland and coastal contract-rate pressure and excess capacity persist through the remainder of 2016.
- Whether diesel engine services demand improves, particularly in oilfield equipment, Gulf of Mexico marine services and deferred maintenance.
- Progress against the $230 million to $250 million 2016 capital-expenditure plan and the resulting effect on debt.
- Integration, purchase-price allocation and expected returns from the $88 million SEACOR fleet acquisition.
- Utilization, pricing and renewal trends for inland and coastal fleets.
- Potential costs, insurance recoveries and resolution timing related to the Houston Ship Channel collision and other environmental proceedings.
- Compliance with revolving-credit and senior-note covenants while funding acquisitions, capital projects and share repurchases.