Kirby Corporation Reports Sharp Drop In Revenue

Kirby Corporation last week announced net earnings for the 2020 fourth quarter of $22.2 million, or $0.37 per share, compared with $2.8 million, or $0.05 per share, for the 2019 fourth quarter. Excluding one-time charges in the 2019 fourth quarter, net earnings attributable to Kirby were $34.5 million or $0.58 per share.

Consolidated revenues for the 2020 fourth quarter were $489.8 million, compared with $655.9 million reported for the 2019 fourth quarter.

For the 2020 full year, Kirby reported a net loss of $272.5 million, or $4.55 per share, compared with net earnings of $142.3 million, or $2.37 per share, for 2019. Excluding one-time items in both years, 2020 net earnings were $110.0 million or $1.84 per share, compared with $174.0 million or $2.90 per share for 2019.

Consolidated revenues for 2020 were $2.17 billion compared with $2.84 billion for 2019.

“During the fourth quarter, the impact of the pandemic on the economy continued to constrain demand in Kirby’s businesses,” said David Grzebinski, Kirby president and CEO, in the January 28 earnings announcement. “Although overall demand modestly increased in some areas of distribution and services, there was no improvement in inland and coastal barge utilization in the quarter.

“In marine transportation, our inland and coastal businesses faced continued market weakness and low demand for liquid cargoes including refined products, crude and black oil,” he said. “With hurricanes impacting the Gulf Coast in October and a second wave of COVID-19 cases escalating during the quarter, average refinery utilization only began to improve in mid-November and remained well below historical norms for the fourth quarter. These challenging market conditions contributed to continued low barge utilization throughout the quarter, limited spot market activity and increased pricing pressure.

“In distribution and services, overall activity levels continued to slowly recover during the fourth quarter. In commercial and industrial, we benefited from modest improvements in economic activity, higher Thermo King product revenues and sales of new marine engines. These improvements were partially offset by seasonality, including lower utilization in the power generation rental fleet and reduced major overhauls in marine repair. In the oilfield, improved U.S. frac activity contributed to higher demand for new transmissions, parts and service; however, total oil and gas revenues declined due to the timing of new pressure pumping equipment deliveries in manufacturing,” Grzebinski concluded.

Marine Transportation Segment

Marine transportation revenues for the 2020 fourth quarter were $299.4 million compared with $402.0 million for the 2019 fourth quarter. Operating income for the 2020 fourth quarter was $29.2 million compared with $54.5 million for the 2019 fourth quarter. The segment operating margin for the 2020 fourth quarter was 9.7 percent, compared with 13.6 percent for the 2019 fourth quarter.

In the inland market, average barge utilization was in the high 60 percent range during the 2020 fourth quarter, compared to the low 90 percent range in the 2019 fourth quarter, the company said. As a result of lower barge utilization, average spot market pricing for the quarter declined approximately 10 percent sequentially and 25 percent year-on-year. Average term contract pricing on expiring contracts was down in the low double digits, Kirby reported.

Revenues in the inland market declined 28 percent compared to the 2019 fourth quarter due to the impact of reduced barge utilization and lower fuel rebills, partially offset by the Savage Inland Marine asset acquisition, which closed on April 1, 2020. During the fourth quarter, the inland market represented 75 percent of segment revenues and had an operating margin in the low to mid-teens.

In the coastal market, reduced demand for refined products and black oil resulted in limited spot market activity, the return of some chartered equipment as term contracts expired and barge utilization in the mid-70 percent 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 18 percent compared to the 2019 fourth quarter as a result of reduced barge utilization, lower fuel rebills, retirements of three large capacity vessels and delays associated with hurricanes in the Gulf of Mexico during October. The coastal market represented 25 percent of segment revenues and had a negative operating margin in the low to mid-single digits during the quarter, the company said.

Cash Generation

Kirby reported that during the fourth quarter, net cash provided by operating activities was $85.1 million, some of which was used to fund capital expenditures of $18.8 million, resulting in free cash flow of $66.3 million. A significant U.S. tax refund in excess of $100 million previously contemplated in Kirby’s cash flow guidance was not received during the fourth quarter as anticipated, and it is now expected in the 2021 first quarter.

As of December 31, 2020, the company had $80.3 million of cash and cash equivalents on the balance sheet and $684.1 million of cash and liquidity available. Total debt was $1,468.6 million, reflecting a $109.8 million reduction compared to September 30, 2020, and the debt-to-capitalization ratio was 32.2 percent.

2021 Outlook

Grzebinski said the difficulties of 2020 will likely continue for at least the first half of 2021.

“Although Kirby’s businesses continue to be challenged by the COVID-19 pandemic and the associated unprecedented declines in demand, we believe that improved business activity and utilization levels will occur in the second half of the year,” he said. “With the vaccine distribution now underway, it is likely that material improvements in economic activity and increased energy consumption are ahead. We do believe, however, the first half of the year will likely remain challenging until the pandemic eases and refinery utilization materially recovers. In the first quarter, we expect weak market conditions in marine transportation to continue with further pricing pressure on contract renewals.

“As well, surging cases of COVID-19 across the U.S. have impacted our ability to crew our vessels, resulting in delays and in some cases lost revenue. As a result, we anticipate a sequential reduction in earnings during the first quarter with improving results thereafter as the effects of the pandemic moderate and demand for our products and services steadily increases.”

Kirby projects gradual improvement in market conditions in the inland market for the second quarter, with a more meaningful recovery in the second half of the year. The company expects barge utilization, now in the low- to mid-70 percent range, to improve to the high-80 percent to low-90 percent range by the end of the year.

For the coastal market, however, the company expects continued declining revenues and earnings. Much of Kirby’s coastal business was under term contracts established before the COVID-19 pandemic; with current headwinds including limited spot demand, the return of some chartered equipment, lower term contract pricing and crewing difficulties associated with COVID-19, financial results are expected to be lower in 2021, Kirby said. In addition, the company retired three older large-capacity coastal vessels in 2020, with another expected in mid-2021, and those retirements will have a negative impact on full-year results.

Kirby expects 2021 capital spending to range between $125 to $145 million, with the midpoint representing a year-on-year reduction near 10 percent. Approximately $15 million is associated with the construction of new inland towboats, and approximately $95 to $110 million is associated with capital upgrades and improvements to existing inland and coastal marine equipment and facility improvements.

“Undoubtedly, 2020 will be remembered as an extremely challenging year,” Grzebinski said. “Kirby faced unprecedented reductions in demand across the company, a record-setting hurricane season and the need to protect the health and safety of our employees and customers. Despite the many challenges, I am proud that our dedicated employees rose to the occasion. Throughout 2020, we safely crewed our vessels, kept our branches and facilities operating, ensured reliable and consistent customer service, and successfully integrated newly acquired companies and assets. Although our overall financial performance materially declined year-on-year, I’m pleased with our efforts to reduce costs, control capital expenditures, and focus on cash flow.

With these actions, Kirby enters 2021 in a strong financial position. The new year brings continued uncertainty with respect to the timing of a material recovery and likely further reductions in earnings during the first quarter. Regardless, we believe better days are ahead with improved demand and activity levels for all of Kirby’s businesses as 2021 progresses and the impacts from the pandemic moderate.”