Kirby announces Q4 and 2019 full year results
Kirby Corporation (“Kirby”) (NYSE: KEX) announced net earnings attributable to Kirby for the fourth quarter ended December 31, 2019 of $2.8 million or $0.05 per share, compared with a net loss of ($24.4) million or ($0.41) per share for the 2018 fourth quarter. Excluding one-time charges in both quarters, 2019 fourth quarter net earnings attributable to Kirby were $34.5 million or $0.58 per share, compared with $44.9 million or $0.75 per share for the 2018 fourth quarter. Consolidated revenues for the 2019 fourth quarter were $655.9 million compared with $721.5 million reported for the 2018 fourth quarter.
For the 2019 full year, Kirby reported net earnings attributable to Kirby of $142.3 million or $2.37 per share, compared with $78.5 million or $1.31 per share for 2018. Excluding one-time items in both years, 2019 net earnings attributable to Kirby were $174.0 million or $2.90 per share, compared with $171.4 million or $2.86 per share for 2018. Consolidated revenues for 2019 were $2.84 billion compared with $2.97 billion for 2018.
Kirby’s 2019 fourth quarter and full year results were impacted by one-time pre-tax charges of $40.3 million or $0.53 per share which included write-downs of oilfield and pressure pumping related inventory of $35.5 million or $0.47 per share, and severance and early retirement expense of $4.8 million or $0.06 per share.
Kirby also announced the signing of a definitive agreement to acquire the inland tank barge fleet of Savage Inland Marine (“Savage”) for approximately $278 million in cash and the assumption of leases. Savage’s tank barge fleet consists of 90 inland tank barges with approximately 2.5 million barrels of capacity and 46 inland towboats. Savage primarily moves petrochemicals, refined products, and crude oil on the Mississippi River, its tributaries, and the Gulf Intracoastal Waterway. Savage also operates a significant ship bunkering business as well as barge fleeting services along the Gulf Coast. The closing of the acquisition is expected to occur late in the first quarter of 2020 and is subject to customary closing conditions and regulatory approvals. The purchase will be financed through additional borrowings.
David Grzebinski, Kirby’s President and Chief Executive Officer, commented, “The fourth quarter’s financial results were impacted by one-time charges primarily related to the oil and gas market of our distribution and services segment. These actions were necessary to align our operations with oilfield market conditions and anticipated activity levels in 2020. Excluding the one-time charges, our earnings were $0.58 per share.
“In inland marine transportation, we experienced favorable market conditions with barge utilization rates in the low 90% range and pricing increases on term contract renewals. As anticipated, however, the efficiency of our operations declined with the onset of winter weather conditions and major lock maintenance closures which contributed to a 33% increase in delay days as compared to the third quarter. Additionally, the quarter’s results were impacted by higher planned barge maintenance.
“The purchase of Savage’s inland tank barge and towboat fleet represents an excellent strategic addition to Kirby’s inland marine fleet with young, well-maintained vessels. In the last few years, Savage has built a diverse and well-respected inland marine transportation business with a strong presence in towing, bunkering, and fleeting along the Gulf Coast. These operations complement Kirby’s inland business very well and will enable us to better service our customer’s towing and fleeting needs. Further, Savage’s ship bunkering business in New Orleans is an ideal expansion of Kirby’s existing bunkering operations in Texas and Florida, and gives Kirby the ability to service bunker customers in this important Gulf Coast port.
“In coastal, we continued to experience strong customer demand and tightening market conditions with reduced availability of equipment, particularly in the Atlantic and Gulf Coast regions. As a result, barge utilization was in the mid-80% range, pricing on term contracts renewed higher, and many of our spot market barges were placed into new term contracts.
“In distribution and services, results in our oil and gas related businesses declined with many of our key customers cutting their spending and activity levels through the quarter and holidays. In manufacturing, our financial results were heavily impacted by very few orders and weak demand for remanufacturing. Similarly, sales of oilfield related equipment, parts, and service in our distribution businesses were also at reduced levels. Although we believe there will be an increase in oilfield activity levels in 2020, the outlook for our business remains challenging in the near-term as our customers continue to rationalize their pressure pumping fleets and focus on cash flow. As a result, we implemented additional workforce reductions and adjusted the value of oilfield and pressure pumping related inventory to align with current market conditions.
“In the commercial and industrial market, we acquired Convoy Servicing Company (“Convoy”) for $40 million. Convoy is a Thermo King refrigeration system sales, service and parts distributor for North Texas, East Texas, and Colorado. This acquisition expands our geographic distribution territory for Thermo King to include a significant share of Texas and extends our reach into Colorado. The Convoy acquisition closed on January 3rd and is expected to be accretive to our earnings in 2020,” Mr. Grzebinski concluded.
Segment Results – Marine Transportation
Marine transportation revenues for the 2019 fourth quarter were $402.0 million compared with $382.5 million for the 2018 fourth quarter. Operating income for the 2019 fourth quarter was $54.5 million and included $1.5 million of one-time severance and early retirement expense. This compares with operating income of $44.5 million for the 2018 fourth quarter. Operating margin was 13.6% for the 2019 fourth quarter compared to 11.6% for the 2018 fourth quarter.
In the inland market, barge utilization was in the low 90% range during the quarter and was adversely impacted by reduced chemical plant and refinery utilization and extended turnarounds for some major customers. Operating conditions were negatively impacted by significant wind and fog, as well as lock maintenance closures along the Gulf Coast and the Illinois River. Pricing continued to improve year-on-year, with spot rates increasing in the mid-single digits and average rates on renewing term contracts increasing in the low to mid-single digits percentage range. Revenues in the inland market increased 7% compared to the 2018 fourth quarter due to improved pricing and the contribution from the Cenac acquisition, but were partially offset by the impact of reduced chemical plant and refinery utilization. During the quarter, inland represented approximately 78% of marine transportation revenue and had an operating margin in the mid-teens. Inland’s operating income was impacted by increased levels of planned barge maintenance and one-time severance and early retirement expense of $1.1 million.
In the coastal market, barge utilization rates were in the mid-80% range and benefited from strong customer demand and several spot market barges which were placed on term contracts during the 2019 fourth quarter. Compared to the 2018 fourth quarter, spot market pricing increased approximately 10%, and expiring term contracts repriced higher in a range between 5% and 15%. Revenues in the coastal market were up moderately year-on-year primarily due to increased pricing and higher barge utilization. During the quarter, coastal represented approximately 22% of marine transportation revenue and had an operating margin in the mid-to high single digits. Coastal operating income was favorably impacted by lower operating expenses which were partially offset by one-time severance and early retirement expense of $0.4 million.
Segment Results – Distribution and Services
Distribution and services revenues for the 2019 fourth quarter were $253.9 million compared with $339.0 million for the 2018 fourth quarter. Distribution and services generated an operating loss of ($2.7) million in the 2019 fourth quarter which included $3.3 million of one-time severance and early retirement expense. This compares to operating income of $28.2 million for the 2018 fourth quarter. Operating margin for the 2019 fourth quarter was slightly above breakeven excluding the severance expense compared to 8.3% for the 2018 fourth quarter. The reduced operating margin is primarily the result of significant activity reductions in the oil and gas market and the one-time charges.
In the oil and gas market, revenues and operating income declined compared to the 2018 fourth quarter primarily due to reduced activity in the oilfield which resulted in lower customer demand for new and overhauled transmissions, parts and service in the distribution businesses. The manufacturing group also reported lower year-on-year revenue and an operating loss as a result of reduced orders and deliveries of new and remanufactured pressure pumping equipment. During the quarter, the oil and gas businesses incurred one-time severance and early retirement charges of $3.3 million. The oil and gas market represented approximately 47% of distribution and services revenue and had a negative operating margin in the mid-to high single digits.
In the commercial and industrial market, revenues increased compared to the 2018 fourth quarter primarily due to improvement in the power generation, commercial marine, and on-highway businesses. Operating income declined modestly due to service and product sales mix. During the quarter, the commercial and industrial market represented approximately 53% of distribution and services revenue and had an operating margin in the mid-single digits.
Cash Generation
EBITDA of $72.0 million for the 2019 fourth quarter included $35.5 million of non-cash one-time inventory write-downs and compares with EBITDA of $124.5 million for the 2018 fourth quarter. Cash flow was used to fund capital expenditures of $64.1 million during the 2019 fourth quarter, including $2.3 million for progress payments on the construction of inland towboats, $2.3 million for progress payments on the construction of three 5000 horsepower coastal ATB tugboats, $51.6 million primarily for upgrades to existing inland and coastal fleets, and $7.9 million in distribution and services and corporate. Total debt as of December 31, 2019 was $1,369.8 million, and Kirby’s debt-to-capitalization ratio was 28.9%.
2020 Outlook
Commenting on the 2020 full year outlook and guidance, Mr. Grzebinski said, “Our earnings guidance range for the year is $2.60 to $3.40 per share, reflecting continued growth in inland, flat to modest growth in coastal, and a modest earnings contribution from Savage which takes into consideration integration costs, the time needed to integrate the fleet, inherited contracts, and interest expense. In distribution and services, although we anticipate a modest recovery in our oil and gas businesses relative to fourth quarter 2019 activity levels, significant uncertainty exists in our outlook, particularly regarding manufacturing activity.”
In the inland marine transportation market, 2020 guidance contemplates favorable market conditions with continued growth in customer demand, increased volumes from new petrochemical plants, and modest net new barge construction in the industry. These factors are expected to result in barge utilization rates in the low to mid-90% range throughout the year. Combined with the anticipated contribution from Savage, inland revenues are expected to increase in the low double digits to mid-teens percentage range year-on-year with an overall operating margin in the high teens.
In the coastal market, barge utilization is expected to improve into the mid-to high 80% range driven by strong customer demand and tight industry capacity. Kirby’s retirement of four aging coastal barges, three of which are large capacity vessels that would have required ballast water treatment systems, as well as anticipated activity reductions in the coal transportation business will have an impact on the full year. As a result, coastal revenues are expected to only be flat to slightly up year-on-year with positive operating margins in the low to-mid single digits.
In distribution and services, 2020 revenues are expected to decline 12% to 17% compared to 2019. In the oil and gas market, activity levels are expected to remain restrained in the near term, particularly in manufacturing as customers continue to rationalize excess capacity in their pressure pumping fleets. In oil and gas distribution, sales of transmissions, engines, and parts, as well as service activities are expected to increase from 2019 fourth quarter levels as the year progresses, but the magnitude of the improvement will be dependent on oilfield activity levels. In commercial and industrial, revenues are expected to increase with share growth in the on-highway and industrial markets, including the Thermo-King business with the acquisition of Convoy. Overall, operating margins in distribution and services are expected to be positive in the low to mid-single digits.
Kirby expects 2020 capital spending to be in the $155 to $175 million range, including capital requirements for the Savage fleet. This range represents a 30% to 40% reduction in capital spending compared to 2019. Capital spending guidance includes approximately $25 to $30 million in progress payments on six new 2600 HP inland towboats. Approximately $110 to $120 million is associated with capital upgrades and improvements to existing inland and coastal marine equipment and facility improvements. The balance of approximately $20 to $25 million largely relates to new machinery and equipment, facility improvements, and information technology projects in the distribution and services segment and corporate.
