Kirby Corporation Announces 2017 Third Quarter Results

HOUSTON, Nov. 1, 2017 /PRNewswire/ -- Kirby Corporation ("Kirby") (NYSE: KEX) today announced net earnings attributable to Kirby for the third quarter ended September 30, 2017 of $28.6 million, or $0.52 per share, compared with $32.0 million, or $0.59 per share, for the 2016 third quarter.  Consolidated revenues for the 2017 third quarter were $541.3 million compared with $434.7 million reported for the 2016 third quarter.

David Grzebinski, Kirby's President and Chief Executive Officer, commented, "Our third quarter results were better than expected as the negative impact from hurricanes was more than offset by the combination of some cost recoveries from marine customers for delays, a rebound in volume demand after the hurricanes, and strength in our distribution and services segment, including Stewart & Stevenson LLC ("S&S").  Inland utilization increased following Hurricane Harvey as pent-up demand and a stronger pricing environment for our customers' products led to more liquid barge moves.  Although this increase in utilization may be temporary, utilization has remained firm into the fourth quarter."

Mr. Grzebinski continued, "In our distribution and services segment, the legacy land-based business continued to operate in an oilfield services environment that incentivizes service sales.  We saw this in the continued strong demand in the third quarter for the remanufacture of pressure pumping equipment and overhaul of transmissions.  Fulfillment of new pressure pumping equipment orders remained steady compared to the second quarter of 2017, and were complemented by an uptick in demand for the sale of new transmissions and related parts.  S&S saw healthy demand for the manufacturing of new pressure pumping equipment and the sale of new product and related parts.  S&S's earnings in the quarter were also aided by hurricane-related activity, as demand for rental standby power generation surged and S&S temporarily added shifts to relieve pent-up demand for service work in the aftermath of the storms."

Segment Results – Marine Transportation
Marine transportation revenues for the 2017 third quarter were $318.8 million compared with $359.0 million for the 2016 third quarter.  Operating income for the 2017 third quarter was $36.0 million compared with $55.5 million for the 2016 third quarter.  The cost and delay impact of Hurricanes Harvey and Irma was approximately $0.07 per share.  Approximately $0.04 per share was offset by some cost recoveries from customers for delays, and elevated utilization in the inland business for the remainder of the quarter due primarily to pent-up demand, increased need for logistical solutions, and a higher pricing environment for customers' products. 

In the inland market, barge utilization was in the mid-80% to mid-90% range for the quarter.  Operating conditions during the quarter were good prior to Hurricane Harvey's arrival on the U.S. Gulf Coast at the end of August.  For the remainder of the quarter operating conditions were considerably challenged.  Unrelated upriver infrastructure challenges in September also increased delay days.  Demand for inland tank barge transportation of petrochemicals and black oil was higher compared to the 2016 third quarter, while demand for the transportation of refined petroleum products was slightly lower.  Both term and spot contract pricing were at lower levels relative to the third quarter of 2016, and spot contract pricing was stable sequentially.  The operating margin for the inland business was in the mid-to-high teens.

In the coastal market, utilization was in the low 60% to mid-60% range as the market weakened further in the third quarter and barges continued to move from term contracts into the spot market.  Revenues from the transportation of refined petroleum products, black oil, and crude oil were lower than the 2016 third quarter, while revenues from the transportation of petrochemicals were stable.  The operating margin for the coastal business was in the negative mid-single digits.

The marine transportation segment's 2017 third quarter operating margin was 11.3% compared with 15.4% for the third quarter of 2016 as a result of weaker pricing in both marine markets and increased idle time in the coastal market as more barges operated in the spot market. 

Segment Results – Distribution and Services
Distribution and services revenues for the 2017 third quarter were $222.5 million with operating income of $22.0 million, compared with 2016 third quarter revenues of $75.7 million and an operating profit of $4.6 million.

The legacy land-based distribution and services business continued to see strong demand for remanufactured pressure pumping units and transmission overhauls.  Revenues were higher and operating margins slightly lower sequentially as a result of an uptick in demand for the sale of new transmissions and increased sales of lower margin parts in the remanufacturing process. 

S&S contributed $0.03 per share to 2017 third quarter earnings primarily due to elevated demand for rental equipment and increased service sales as a result of pent-up demand following hurricanes Harvey, Irma, and Maria.  S&S also realized sales of new product and related parts in the quarter while experiencing healthy demand for the sale of new pressure pumping equipment.

In the marine distribution and services business, revenues declined compared to the 2016 third quarter due to customer deferrals of major overhauls.  Gulf Coast oilfield services activity remained slow.  Demand in the power generation market was slightly lower in the quarter, both sequentially and compared to the 2016 third quarter, primarily due to the timing of major projects. 

The distribution and services operating margin was 9.9% for the 2017 third quarter compared with 6.1% for the 2016 third quarter primarily as a result of increased activity in the land-based distribution and services business.

Cash Generation
EBITDA of $293.3 million for the 2017 first nine months compares with EBITDA of $336.1 million for the first nine months of 2016.  Cash flow was used to fund capital expenditures of $133.4 million, including $8.5 million for new inland tank barge and towboat construction, $41.2 million for progress payments on the construction of one new coastal articulated tank barge and tugboat unit ("ATB"), two 4900 horsepower coastal tugboats and six 5000 horsepower coastal ATB tugboats, and $83.7 million primarily for upgrades to the existing inland and coastal fleets.  In addition, cash used in acquisitions was $451.2 million, including $377.9 million for the acquisition of S&S; $68.0 million for the purchase of nine pressure tank barges, four inland tank barges and three inland towboats from a competitor; $1.4 million for the purchase of four inland tank barges; and $3.9 million for the purchase of a barge fleeting and marine fueling business in Freeport, Texas.  Total debt as of September 30, 2017 was $1.03 billion and Kirby's debt-to-capitalization ratio was 26.4%.

Outlook
Commenting on the 2017 fourth quarter and full year market outlook and guidance, Mr.  Grzebinski said, "Our earnings guidance for the 2017 fourth quarter is $0.40 to $0.55 per share compared with $0.60 per share for the 2016 fourth quarter, and considers the full effect of the shares issued as part of the S&S acquisition.  Our full year earnings guidance is updated to $1.90 to $2.05 per share, compared to prior guidance of $1.80 to $2.10 per share.  Fourth quarter and full year guidance contemplates inland marine transportation utilization in the mid-80% range at the low end and mid-90% range at the high end.  In our coastal market, we expect utilization in the low 60% to mid-60% range for the fourth quarter.  In the coastal market we remain focused on managing costs and optimizing the equipment available for commercial use."

Mr. Grzebinski continued, "In our distribution and services segment, we expect demand for pressure pumping remanufacturing to maintain at third quarter levels for the remainder of the year.  We anticipate demand for transmission overhauls will dip slightly in the fourth quarter, and demand for new transmissions will remain steady.  We also expect to deliver a new pressure pumping fleet in the fourth quarter.  For S&S, we are guiding to $0.03 to $0.05 per share, increased from prior guidance of $0.02 to $0.04 per share.  This includes the impact of higher average shares outstanding due to the shares issued for the acquisition.  We anticipate demand for rental equipment will return to normal levels.  In our marine and power generation distribution and services business we expect seasonally lower business levels sequentially."

Kirby expects 2017 capital spending to be in the $175 to $185 million range, updated from previous guidance of $165 to $185 million.  Capital spending guidance includes approximately $50 million in progress payments on new coastal equipment, including a 155,000 barrel ATB, two 4900 horsepower and six 5000 horsepower coastal tugboats.  The balance of $125 to $135 million is primarily for five new inland tank barges and capital upgrades and improvements to existing inland and coastal marine equipment and facilities, as well as distribution and services facilities. 

Conference Call
A conference call is scheduled for 7:30 a.m. central time tomorrow, Thursday, November 2, 2017, to discuss the 2017 third quarter performance as well as the outlook for the 2017 fourth quarter and year.  The conference call number is 888-317-6003 for domestic callers and 412-317-6061 for international callers.  The confirmation number is 5381009.  An audio playback will be available at 1:00 p.m. central time on Thursday, November 2, 2017, through 5:00 p.m. central time on Thursday, November 9, 2017, by dialing 877-344-7529 for domestic callers and 412-317-0088 for international callers.  The replay access code is 10113108.  A live audio webcast of the conference call will be available to the public and a replay available after the call by visiting Kirby's website at http://www.kirbycorp.com/. 

GAAP to Non-GAAP Financial Measures
The financial and other information to be discussed in the conference call is available in this press release and in a Form 8-K filed with the Securities and Exchange Commission.  This press release and the Form 8-K include a non-GAAP financial measure, EBITDA, which Kirby defines as net earnings attributable to Kirby before interest expense, taxes on income, depreciation and amortization.  A reconciliation of EBITDA with GAAP net earnings attributable to Kirby is included in this press release.  This earnings press release includes marine transportation performance measures, consisting of ton miles, revenue per ton mile, towboats operated and delay days.  Comparable performance measures for the 2016 year and quarters are available at Kirby's website, http://www.kirbycorp.com/, under the caption Performance Measurements in the Investor Relations section. 

Forward-Looking Statements
Statements contained in this press release with respect to the future are forward-looking statements.  These statements reflect management's reasonable judgment with respect to future events.  Forward-looking statements involve risks and uncertainties.  Actual results could differ materially from those anticipated as a result of various factors, including cyclical or other downturns in demand, significant pricing competition, unanticipated additions to industry capacity, changes in the Jones Act or in U.S. maritime policy and practice, fuel costs, interest rates, weather conditions and timing, magnitude and number of acquisitions made by Kirby.  Forward-looking statements are based on currently available information and Kirby assumes no obligation to update any such statements.  A list of additional risk factors can be found in Kirby's annual report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission. 

About Kirby Corporation
Kirby Corporation, based in Houston, Texas, is the nation's largest domestic tank barge operator transporting bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, coastwise along all three United States coasts, and in Alaska and Hawaii.  Kirby transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge.  Kirby also operates offshore dry-bulk barge and tugboat units engaged in the offshore transportation of dry-bulk cargoes in the United States coastal trade.  Through the distribution and services segment, Kirby provides after-market service and parts for engines, transmissions, reduction gears, and related equipment used in oilfield services, marine, power generation, on-highway, and other industrial applications.  Kirby also rents equipment including generators, fork lifts, pumps, and compressors for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, for land-based oilfield service customers. 

SOURCE Kirby Corporation