Kirby earnings hit by COVID-19 and hurricanes

Written by Nick Blenkey

America’s largest tank barge operator, Houston-headquartered Kirby Corporation (NYSE: KEX), today reported third quarter net earnings of $27.5 million, or $0.46 per share, compared with net earnings of $48.0 million or $0.80 per share for the 2019 third quarter. Consolidated revenues for the 2020 third quarter were $496.6 million compared with $666.8 million reported for the 2019 third quarter.

“The COVID-19 pandemic and the associated economic slowdown adversely impacted Kirby’s businesses during the third quarter,” said President and CEO David Grzebinski, “Although general economic activity was slightly improved and increased profitability was realized in the distribution and services segment, the marine transportation businesses experienced lower volumes and barge utilization.”

Both inland and coastal marine transportation businesses were heavily affected by weak demand for liquid products including refined products, crude, and black oil, he said, noting that, throughout the third quarter, refinery utilization was well below historical norms as many of our customers experienced low consumer demand, high product inventories, and unfavorable economics.

“Additionally, a very active hurricane season resulted in further reductions in volumes and widespread disruptions including prolonged closures of some refineries, chemical plants, waterways, and major ports,” said Grzebinski. “These challenging market conditions during the quarter contributed to low barge utilization and limited spot market activity.”


In the inland market, Kirby reports that average barge utilization was in the low 70% range during the 2020 third quarter compared to the low 90% range in the 2019 third quarter. Barge volumes were heavily impacted by lower refinery and chemical plant utilization and reduced demand for refined products and petrochemicals. Significant hurricane and tropical storm activity also contributed to widespread and prolonged operational disruptions and lower volumes along the Gulf Coast throughout the quarter.

As a result of lower barge utilization, average spot market pricing for the quarter declined approximately 10% both sequentially and year-on-year. Average term contract pricing on expiring contracts was down in the low single digits. Revenues in the inland market declined 22% compared to the 2019 third quarter due to the impact of reduced barge utilization and lower fuel rebills, but were partially offset by the Savage Inland Marine asset acquisition which closed on April 1, 2020. During the third quarter, the inland market represented 77% of segment revenues and had an operating margin in the mid-teens.


In the coastal market, reduced demand for refined products and black oil resulted in limited spot market activity and barge utilization in the mid-70% range. Pricing in the spot market was generally stable; however, average term contract pricing declined in the mid-single digits year-on-year. Revenues in the coastal market declined 25% compared to the 2019 third quarter as a result of reduced spot market activity, lower fuel rebills, retirements of three large capacity vessels, and delays associated with hurricanes and tropical storms along the East and Gulf Coasts. The coastal market represented 23% of segment revenues and had a negative operating margin in the mid-single digits during the quarter.


Commenting on the fourth quarter outlook, Grzebinski said, “Although Kirby continues to be challenged by unprecedented declines in demand as a result of the COVID-19 pandemic, our business activity and utilization levels have bottomed. Economic activity is slowly improving, and we have seen pockets of increased demand. While this is encouraging, in the fourth quarter our results are expected to be impacted by continued low barge utilization and pricing pressure, normal seasonality from weather in marine, and likely, customer budget exhaustion in distribution and services.

Looking beyond 2020, while the timing and magnitude of a material economic recovery are unclear, we believe this demand driven downturn is temporary and demand will rebound sometime in 2021. In marine, as discussed before, pricing typically does not improve until barge utilization is in the mid-80% range. Nevertheless, Kirby is in a strong financial position, and we will continue to tightly manage our costs, maintain capital discipline, generate free cash flow, and pay down debt.”

In inland marine, absent potential new lockdowns related to COVID-19, Kirby expects improvement in barge utilization going forward as refinery and chemical plants along the Gulf Coast recover from recent hurricanes and economic activity gradually increases.

The reopening of the Illinois River in October is also expected to contribute some sequential improvement in barge utilization. However, until a meaningful recovery in demand occurs, market conditions are expected to remain challenging. As well, increased delays from seasonal winter weather are expected to have an adverse impact on operating efficiencies. Overall, compared to the 2020 third quarter, Kirby expects inland revenues and operating margins will be flat to down slightly in the fourth quarter.

In coastal, Kirby expects the spot market to remain challenging in the near term until demand for refined products and black oil materially improves. However, compared to the third quarter, reduced delays associated with recent hurricanes and tropical storms on the East and Gulf Coasts are expected to modestly benefit the fourth quarter’s results. Overall, Kirby expects coastal fourth quarter revenues will be flat sequentially with operating margins in the negative low single digits.


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