With record earnings, Kirby orders more tonnage

JULY 31, 2014 — Houston headquartered Kirby Corporation (NYSE:KEX) yesterday announced record second quarter earnings and upped its 2014 capital expenditure guidance from $370 million to $380 million as it reported further additions to its shipbuilding order book.

Net earnings attributable to Kirby for the second quarter ended June 30, 2014 were $75.0 million, or $1.31 per share, compared with $63.1 million, or $1.11 per share, for the 2013 second quarter. Consolidated revenues for the 2014 second quarter increased 11% to $628.1 million compared with $563.9 million reported for the 2013 second quarter.

David Grzebinski, Kirby's President and Chief Executive Officer, commented, "We were pleased with our second quarter results. During the second quarter, we experienced continued high utilization and strong demand in our marine transportation markets. In our land-based diesel engine services market, we saw further signs of improving industry fundamentals and strengthening demand for equipment and services in the oil and gas industry."

Marine transportation

Marine transportation revenues for the 2014 second quarter were $456.7 million compared with $423.9 million for the 2013 second quarter. Operating income for the 2014 second quarter was $116.0 million compared with $97.6 million for the 2013 second quarter. Inland tank barge utilization remained in the 90% to 95% range and pricing continued to improve modestly. Demand for the marine transportation of petrochemicals, black oil, including crude oil, and refined petroleum products on the inland waterways remained strong. Overall, operating conditions throughout the inland waterway system were seasonally normal during the quarter.

Coastal tank barge utilization also remained in the 90% to 95% range, consistent with the 2014 first quarter and a modest improvement over last year. Coastal tank barge utilization levels continue to support higher term and spot contract pricing.

The marine transportation segment's 2014 second quarter operating margin was 25.4% compared with 23.0% for the second quarter of 2013.

Diesel Engine Services

Diesel engine services revenues for the 2014 second quarter were $171.3 million compared with $140.0 million for the 2013 second quarter, up 22%. Operating income for the second quarter of 2014 was $14.3 million compared with operating income of $14.9 million for the 2013 second quarter which included a $6.1 million benefit resulting from the reduction of the fair value of the United contingent earnout liability.

The higher revenues reflected modest improvement in the marine and power generation markets, and a more marked improvement in the land-based diesel engine services market. The land-based market benefited primarily from an improvement in the sale and service of engines, transmissions and pressure pumping units. Demand for the remanufacturing of pressure pumping units remained relatively steady throughout the quarter.

Cash Generation

Kirby continued to generate strong cash flow during the 2014 first six months with EBITDA of $314.5 million compared with $288.9 million for the 2013 first six months. During the first six months, capital expenditures were $163.3 million, including $57.5 million for new inland tank barge and towboat construction, $26.9 million for progress payments on the construction of new offshore articulated tank barge and tugboat units ("ATBs"), and $78.9 million primarily for upgrades to the existing inland and coastal fleets, as well as the final costs for the construction of two offshore dry-bulk barge and tugboat units delivered during 2013. Total debt as of June 30, 2014 was $649.3 million, reflecting a reduction of $99.9 million since December 31, 2013, and Kirby's debt-to-capitalization ratio was 23.0%.

Outlook

Commenting on the 2014 third quarter and full year market outlook and guidance, Mr. Grzebinski said, "Our earnings guidance for the 2014 third quarter is $1.30 to $1.40 per share compared with $1.21 per share in the 2013 third quarter, which included an $0.08 per share United earnout benefit. We are raising our full year 2014 guidance to $4.90 to $5.10 per share compared with $4.44 per share for the 2013 year, which included a $0.20 per share United earnout benefit. Our third quarter guidance assumes normal seasonal operating conditions in both our inland and coastal marine transportation markets. Utilization in both our inland and coastal fleets is projected to remain in the 90% to 95% range. For our diesel engine services segment, we expect continued improvement in the land-based market. The pace of recovery in the land-based market is the primary factor for the difference in the high and low end of our range for earnings guidance. For the marine and power generation sectors, we anticipate continued stable markets."

Newbuilding orders

Mr. Grzebinski continued, "We continue to see solid fundamentals in the marine transportation markets and a good long-term outlook. With respect to our previously announced intentions to construct the two 155,000 barrel coastal units our Board authorized in April 2014, shipyard construction contracts were executed during the quarter. We estimate the combined cost for both vessels will be approximately $125 to $130 million, with expected deliveries in late 2016 for the first unit and early-to-mid 2017 for the second unit. We also signed agreements during the quarter for the construction of 30 inland 10,000 barrel tank barges scheduled for delivery in the 2015 first half and three inland towboats to be delivered during the second half of 2015. Including progress payments for this additional inland and coastal marine equipment, and previously announced increases in our marine transportation construction program, we now expect our 2014 capital spending to be in the $370 to $380 million range."

The new 2014 capital spending guidance range of $370 to $380 million includes approximately $140 million for the construction of 66 inland tank barges and one inland towboat, all expected to be delivered in 2014. The guidance range also includes approximately $105 million in progress payments on the construction of two 185,000 barrel ATBs and two 155,000 barrel ATBs. The balance of $125 to $135 million is primarily for capital upgrades and improvements to existing inland and coastal marine equipment and facilities, diesel engine services facilities and final costs related to the construction of two offshore dry-bulk barge and tugboat units delivered during 2013.

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