Kirby reports record third quarter results

Kirby Corporation (NYSE:KEX) reports record net earnings for the third quarter ended September 30, 2011 of $52.7 million, or $.94 per share, compared with $30.7 million, or $.57 per share, for the 2010 third quarter. Consolidated revenues for the 2011 third quarter were a record $563.6 million compared with $281.3 million reported for the 2010 third quarter.

Chairman and CEO Joe Pyne said the results reflected strong United States petrochemical production levels, stable refinery production levels, and a continued strong export market, all leading to high inland tank barge utilization levels and favorable term and spot contract pricing.

“K-Sea Transportation Partners LLC, our coastwise and local transportation company acquired on July 1, 2011, was accretive to our third quarter operating results,” said Mr. Pyne, “but, as anticipated, K-Sea’s operating results were offset by acquisition related expenditures, and higher interest expense and common shares outstanding associated with the acquisition.”

Marine transportation revenues for the 2011 third quarter were $351.2 million, a 51 percent increase compared with the 2010 third quarter, and operating income was $78.1 million, a 52 percent increase compared with the third quarter of 2010.

Kirby’s inland petrochemical fleet was close to fully utilized, operating in the low to mid 90 percent utilization levels. Kirby’s black oil products fleet also operated at close to full utilization levels, benefiting from stable United States refinery production levels, the exportation of heavy fuel oils and demand for the transportation of crude oil principally from the Eagle Ford shale formations in South Texas and from the Midwest to the Gulf Coast. The strong utilization levels in both the petrochemical and black oil products fleets led to higher term and spot contract pricing during the quarter.

Diesel fuel prices for the 2011 third quarter increased 51 percent compared with the 2010 third quarter, thereby positively impacting marine transportation revenues since fuel price increases are covered by fuel escalation and de-escalation clauses in term contracts.

The higher marine transportation revenues and operating income also reflected the acquisition of K-Sea effective July 1, 2011, generating approximately 20 percent of the marine transportation segment’s 2011 third quarter revenues. K-Sea’s coastwise and local fleet utilization level, primarily from the transportation of refined petroleum products, averaged in the 75 percent to 80 percent range.

The marine transportation operating margin for the 2011 third quarter was 22.2 percent compared with 22.1 percent for the third quarter of 2010, reflecting the strong petrochemical and black oil products demand, strong equipment utilization levels and higher term and spot contract pricing, partially offset by a lower K-Sea operating margin and the cost impact of higher diesel fuel prices.

Outlook

Commenting on the 2011 fourth quarter and full year market outlook and guidance, Mr. Pyne said, “Our earnings guidance for the 2011 fourth quarter is $.97 to $1.02 per share, a 64 percent to 73 percent increase compared with $.59 per share reported for the 2010 fourth quarter. Our guidance reflects close to full equipment utilization in our petrochemical and black oil products fleets and continued favorable term and spot contract rate increases. We anticipate our inland marine transportation segment will be negatively impacted by winter weather conditions in the fourth quarter. Our guidance also includes positive operating results from our coastwise and local markets, but due to seasonality of the refined products market and winter weather conditions we do anticipate lower operating results compared with the third quarter. In our diesel engine services segment, we anticipate continued strong demand for the manufacturing of hydraulic fracturing equipment and sale and service of transmissions and engines, partially offset by fewer power generation engine-generator set upgrade projects during the fourth quarter. For the 2011 year, we are raising and tightening our earnings per share guidance to $3.30 to $3.35 compared with $2.15 per share for the 2010 year.”

Mr. Pyne continued, “Our 2011 capital spending guidance range remains at $225 to $235 million, including approximately $120 million for the construction of 40 inland tank barges, two inland towboats and progress payments on 2012 inland tank barge and towboat construction. This guidance range also includes approximately $35 million in progress payments on the construction of two offshore articulated dry-bulk barge and tugboat units scheduled for delivery in the second half of 2012 with an estimated cost of $50 million each. The balance of approximately $70 to $80 million is primarily capital upgrades and improvements to existing marine equipment and facilities.”

K-Sea Transportation Acquisition
On July 1, 2011, Kirby purchased K-Sea, an operator of tank barges and tugboats participating in the coastwise and local transportation of primarily refined petroleum products in the United States. The total consideration of the transaction was approximately $604 million, excluding transaction fees, consisting of $228 million in cash paid to K-Sea common and preferred unit holders and the general partner, $263 million of cash to retire K-Sea’s outstanding debt, and $113 million through the issuance of approximately 1,939,000 shares of Kirby common stock valued at $58.28 per share, Kirby’s closing share price on July 1, 2011. The acquisition was financed through a combination of a new $540 million bank term loan and the issuance of Kirby common stock.

K-Sea’s fleet, comprised of 57 tank barges with a capacity of 3.8 million barrels and 63 tugboats, operates along the East Coast, West Coast and Gulf Coast of the United States, as well as in Alaska and Hawaii. K-Sea’s tank barge fleet, 54 of which are double hull, has an average age of approximately nine years and is one of the youngest fleets in the coastwise and local trade. K-Sea’s customers include major oil companies and refiners, many of which are current Kirby customers for inland tank barge services. K-Sea has major operating facilities in New York, Philadelphia, Norfolk, Seattle and Honolulu.

October 27, 2011