Kirby reports third quarter results

kirby flagOCTOBER 25, 2012 — Kirby Corporation (NYSE: KEX) Chairman and CEO Joe Pyne says he's "pleased with our overall third quarter performance, particularly in light of challenging weather conditions related to persistent low water throughout the Mississippi River System and the impact of Hurricane Isaac."

Kirby yesterday announced net earnings for the quarter ended September 30, 2012 of $53.1 million, or $0.95 per share, compared with $52.7 million, or $0.94 per share, for the 2011 third quarter. Consolidated revenues for quarter were $521.3 million compared with $563.6 million reported for the 2011 third quarter.

Mr. Pyne said weather events negatively impacted third quarter revenues and earnings by an estimated $0.03 to $0.04 per share.

During the third quarter, he said, overall demand remained strong within the inland tank barge fleet with continued high utilization levels and price increases on both term and spot contract business. For the coastal tank barge fleet, revenues were relatively consistent with the prior year quarter and 2012 second quarter.

"Utilization levels have begun to increase and there are some signs of overall market improvement," said Mr. Pyne. "In our diesel engine services segment, the Midwest and Gulf Coast marine markets were negatively affected by the same challenging weather conditions that impacted the inland tank barge fleet. Weakness in our land-based diesel engine services market continued, as a lack of demand for manufacturing of new pressure pumping units continued to weigh on this segment's revenues and operating results."

Segment Results

Marine Transportation

Marine transportation revenues for the 2012 third quarter were $349.8 million, compared with $351.2 million for the 2011 third quarter, and operating income for the 2012 third quarter was $81.7 million compared with $78.1 million for the third quarter of 2011. Inland tank barge fleet utilization during the third quarter remained in the 90 percent to 95 percent range with favorable pricing trends, reflecting healthy demand across all major product markets. These favorable trends were partially offset by the negative impact of Hurricane Isaac and low water conditions throughout the Mississippi River System which led to the light loading of tank barges, restricted tow sizes and increased transit times, all of which led to lower revenues and ton miles. Water levels along the Gulf Intracoastal Waterway have remained at normal levels.

Kirby's coastal fleet contributed positively to the segment's operating income and generated approximately 20 percent of segment revenues. Operating results for the coastal operations reflected some modest demand improvement in the Atlantic, Gulf Coast, and West Coast markets, but were negatively impacted by continued low equipment utilization and competitive bidding for available movements in New York Harbor. However, an increase in the transportation of crude oil, the relocation of equipment from the East Coast to the Gulf Coast, as well as some modest improvement in the demand for refined petroleum products along the East Coast have served to absorb some excess industry capacity.

The marine transportation operating margin for the 2012 third quarter was 23.4 percent compared with 22.2 percent for the third quarter of 2011. Improvement in the 2012 third quarter operating margin reflected steady equipment utilization and higher pricing.

Segment Results – Diesel Engine Services Diesel engine services revenues for the 2012 third quarter were $171.6 million compared with $212.4 million for the 2011 third quarter. Operating income for the 2012 third quarter was $14.6 million compared with $21.2 million for the 2011 third quarter. The 2012 third quarter decrease in revenue and operating income primarily reflected the curtailment in demand for the manufacture of new pressure pumping units to service the oilfield drilling market in North American shale formations, partially offset by demand for the remanufacturing of pressure pumping units.

During the 2012 third quarter, marine diesel engine service market conditions were generally stable and the power generation market continued to improve.

The diesel engine services operating margin was 8.5 percent for the 2012 third quarter compared with 10.0 percent for the 2011 third quarter. The decrease in operating margin was driven by lower margins in the land-based business.

Cash Generation

Kirby continued to generate strong cash flow during the 2012 first nine months, with EBITDA of $370.4 million compared with $307.9 million for the 2011 first nine months. The cash flow was used in part to fund capital expenditures of $255.9 million, including $123.2 million for new tank barge and towboat construction, $44.3 million for progress payments on the construction of two offshore dry-bulk barge and tug units scheduled for completion in 2012, and $88.4 million primarily for upgrades to the existing inland and coastal fleets. Total debt as of September 30, 2012 was $782.0 million and Kirby's debt-to-capitalization ratio was 32.5 percent.

Outlook

Commenting on the 2012 fourth quarter and full year market outlook and guidance, Mr. Pyne said, "Our earnings guidance for the 2012 fourth quarter is $0.83 to $0.93 per share compared with $1.00 per share reported for the 2011 fourth quarter. Our fourth quarter guidance range reflects our expectation for continued strong inland marine transportation of petrochemical and black oil products, as well as favorable term and spot contract pricing. Our guidance also reflects continued low water restrictions in the Mississippi River System throughout the fourth quarter. We anticipate a normal seasonal decline in our coastal marine transportation market, partially offset by some very modest improvement in utilization. We also anticipate lower results in our diesel engine business due to weaker demand in our land-based business, as well as the timing of power generation projects. The primary difference between the low and high end of our guidance range is the continued lack of visibility in the land-based diesel engine services market, variability in winter weather conditions, and the severity of low water restrictions on the Mississippi River System. For the 2012 year, our earnings per share guidance was narrowed to $3.53 to $3.63 compared with $3.33 per share for the 2011 year."

Mr. Pyne continued, "Our 2012 capital spending guidance range is currently $305 to $315 million, including approximately $130 million for the construction of 55 inland tank barges and five inland towboats, and approximately $70 million in progress payments on the construction of two offshore dry-bulk barge and tugboat units scheduled for delivery in 2012 with an estimated cost of $52 million each. The increase from the previous capital spending guidance range of $290 to $300 million is primarily related to timing of shipyards for upgrades to the marine transportation fleet."

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