Inland tank barges boost Kirby earnings

JULY 26, 2012 —Tank barge operator Kirby Corporation reported net earnings for the second quarter ended June 30, 2012 of $47.6 million, or $.85 per share, compared with $41.7 million, or $.77 per share, for the 2011 second quarter. Consolidated revenues for the 2012 second quarter were $511.8 million compared with $437.3 million reported for the 2011 second quarter.

Chairman and CEO Joe Pyne commented: “Our second quarter earnings of $.85 per share came in at the high end of our revised $.80 to $.85 per share guidance range. During the second quarter, we experienced overall continued strong inland tank barge utilization and improved rates as United States petrochemical production remained strong. Our coastal transportation results were hindered by higher than anticipated maintenance related costs and further deterioration in the Northeast market. In our diesel engine services segment, our legacy marine market remained strong during the quarter and our power generation market remained positive. For the land-based market, with the decrease in natural gas prices, we experienced a significant decrease in demand for the manufacturing of hydraulic fracturing equipment, but the demand for the remanufacturing of such equipment continues to improve.”

Kirby reported net earnings for the 2012 first six months of $98.5 million, or $1.76 per share, compared with $74.1 million, or $1.38 per share, for the first half of 2011. Consolidated revenues for the 2012 first six months were $1.08 billion compared with $737 million for the first six months of 2011.

Segment Results – Marine Transportation

Marine transportation revenues for the 2012 second quarter were $342.2 million, compared with $266.6 million for the 2011 second quarter, and operating income for the 2012 second quarter was $71.7 million compared with $58.4 million for the second quarter of 2011. High United States production levels at petrochemical plants, stable refinery output and favorable demand for the movement of crude oil resulted in continued strong inland transportation demand, fleet utilization in the 90 percent to 95 percent range and favorable pricing trends during the second quarter. Temporarily lower petrochemical volumes from one major customer due to scheduled and unscheduled maintenance at multiple facilities, as well as low water levels on the Mississippi River System which led to light loading of tank barges and resulting lower revenues, did negatively impact the second quarter and resulted in lower ton miles when compared with the 2011 second quarter.

Kirby Offshore Marine, Kirby’s coastal tank barge fleet acquired on July 1, 2011, generated approximately 20 percent of the marine transportation segment’s 2012 second quarter revenues. The coastal operating results were positive, but hindered by continued softness and excess capacity in the New York Harbor market that resulted in low equipment utilization levels and competitive bidding for available movements. The 2012 second quarter results were also negatively impacted by additional maintenance and repair related expenditures, and resulting lost revenue days.

The marine transportation operating margin for the 2012 second quarter was 21.0 percent compared with 21.9 percent for the second quarter of 2011. The 2012 second quarter margin reflected the overall strong inland demand and equipment utilization and higher term and spot market pricing, offset by lower margins for the coastal fleet.

Segment Results – Diesel Engine Services

Diesel engine services revenues for the 2012 second quarter were $169.7 million compared with $170.7 million for the 2011 second quarter. Operating income for the 2012 second quarter was $15.1 million compared with $17.6 million for the 2011 second quarter. The 2012 second quarter slight decrease in revenues and lower operating income reflected order cancellations or postponements for the manufacturing of fracturing units, as well as a decline in service of land-based diesel engines and sales of engines, transmissions and parts, all associated with the current low price of natural gas and resulting decline in drilling for natural gas in North American shale formations. Partially offsetting the decline in manufacturing of fracturing units was the demand for fracturing units to be remanufactured, and higher revenues and operating results from the marine market.

The marine diesel engine services market continued to benefit from large service projects for inland and coastal domestic customers, as well as international customers, and from higher service work for oil service customers as the Gulf of Mexico oil and gas drilling activity continued to improve. The power generation market benefited from higher parts shipments during the second quarter.

The diesel engine services operating margin was 8.9 percent for the 2012 second quarter compared with 10.3 percent for the 2011 second quarter. The lower margin reflected the decline in the manufacturing of fracturing units and softer land-based diesel engines and transmissions sales and service, as well as current lower margins on the remanufacturing of fracturing units during the startup phase. Partially offsetting these declines were higher operating margins earned in the marine and power generation markets as these markets continued to improve.

Cash Generation

Kirby continued to generate strong cash flow during the 2012 first six months, with EBITDA of $242.8 million compared with $179.7 million for the 2011 first six months. The cash flow was used in part to fund capital expenditures of $153.8 million, including $69.6 million for new tank barge and towboat construction, $32.3 million for progress payments on the construction of two offshore dry-bulk barge and tug units scheduled for completion in 2012, and $51.9 million primarily for upgrades to the existing inland and coastal fleets. Total debt as of June 30, 2012 was $799.5 million and Kirby’s debt-to-capitalization ratio was 33.9 percent.

Outlook

Commenting on the 2012 third quarter and full year market outlook and guidance, Mr. Pyne said, “Our earnings guidance for the 2012 third quarter is $.87 to $.97 per share compared with $.94 per share reported for the 2011 third quarter. Our third quarter guidance range reflects a continued strong inland marine transportation petrochemical and black oil products markets, favorable term and spot contract pricing, and favorable marine and power generation diesel engine services markets. Our guidance also reflects the continuation of low water conditions throughout the Mississippi River System during the third quarter. We anticipate improved results from our coastal marine transportation market, benefiting from seasonal refined products movements, partially offset by continued weakness in the New York Harbor market. Due to the lack of clear visibility, a key contributor between our low and high end guidance range for both the third quarter and the year is the land-based diesel engine services market, particularly the demand for the manufacturing and remanufacturing of oilfield equipment, including hydraulic fracturing units. For the 2012 year, earnings per share guidance was narrowed to $3.50 to $3.70 compared with $3.33 per share for the 2011 year.”

Mr. Pyne continued, “Our 2012 capital spending guidance range is currently $290 to $300 million, including approximately $130 million for the construction of 58 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 $265 to $275 million is primarily for upgrading the coastal fleet and progress payments on inland tank barges and towboats recently ordered in 2012 and scheduled for delivery starting in December 2012 and throughout 2013.”