Kirby Corporation eyes future inland marine acquisitions

JULY 27, 2017 — Kirby Corporation (NYSE: KEX) announced net earnings for the second quarter ended June 30, 2017 of $25.8 million, or $0.48 per share, compared with $38.9 million, or $0.72 per share, for the 2016 second quarter. Second quarter net earnings includes pre-tax expenses of $0.7 million, or approximately $0.01 per share, related to the pending acquisition of Stewart & Stevenson LLC. Consolidated revenues for the 2017 second quarter were $473.3 million compared with $441.6 million reported for the 2016 second quarter.

"Our second quarter reflected trends across our businesses consistent with late 2016 and the 2017 first quarter," commented President and CEO David Grzebinski, noting that, "in particular, results in our land-based diesel engine business continue to drive higher, surpassing our expectations."

He said that the company had revised its 2017 outlook prompted by recognition of the strength of the land based disel business combined with a "more conservative view of our marine markets for the year."

"We remain steadfast in our view of the long-term potential in our marine transportation markets," said Mr. Grzebinski.The inland market, in particular, has experienced one of the most severe and long-lasting downturns in the past three decades. This sets up a market that is conducive to both consolidation and a lack of capital investment by the competition, which plays to Kirby's strength and future growth opportunities. We are committed and have the balance sheet capacity to pursue the right acquisitions in the inland marine market, and we expect to emerge from this downturn larger and more efficient, with unparalleled customer service in the industry."

Outlook

Commenting on the 2017 third quarter and full year market outlook and guidance, Mr. Grzebinski said, "Our earnings guidance for the 2017 third quarter is $0.40 to $0.55 per share compared with $0.59 per share for the 2016 third quarter. Our full year earnings guidance is narrowed to $1.80 to $2.10 per share. Third quarter and full year guidance contemplates inland marine utilization in the mid-80% range at the low end and low 90% range at the high end. While we hoped to see modest pricing gains in our inland business in the second half of 2017, we are tempering that expectation as it now seems more likely to occur in 2018. As a result, the difference between the low and high end of guidance is dependent on inland tank barge utilization and flat pricing. In our coastal market, we expect utilization in the mid-60% to low 70% range for the third quarter and low 70% to mid-70% range for the full year. We expect quarterly negative operating margins in the range of the low single digits to high single digits. For the full year in the coastal business we are guiding to negative operating margins in the mid-single digits on the low end and low single digits on the high end."

Mr. Grzebinski continued, "In our diesel engine services markets, we anticipate pressure pumping remanufacturing and transmission overhaul service work in our land-based business will maintain current levels in the third quarter and remain strong through year end, with revenue for the year of $400 million to $450 million versus prior guidance of $290 million to $340 million. We expect a minor sequential decline for the marine and power generation businesses for the remainder of the year due to the deferral of service work by marine customers."

Mr. Grzebinski concluded, "With respect to S&S, we expect to close on the transaction during the third quarter, and plan to provide earnings guidance for the remainder of 2017 on our third quarter earnings call."

Kirby expects 2017 capital spending to be in the $165 million to $185 million range, unchanged from previous guidance. Capital spending guidance includes approximately $50 million in progress payments on new coastal equipment, including a 155,000 barrel ATB, two 4900 horsepower and six 5000 horsepower coastal tugboats. The balance of $115 to $135 million is primarily for six new inland tank barges and capital upgrades and improvements to existing inland and coastal marine equipment and facilities, as well as diesel engine services facilities.

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