Hawaii Exit, Hurricane Ida Impact Kirby Earnings

Kirby Corporation announced a third-quarter net loss of $264.7 million or $4.41 per share October 28, although the bottom-line number was impacted by significant one-time items. Excluding the one-time items related to coastal marine, the company said its adjusted net earnings were $10.3 million or $0.17 per share.

A year ago, Kirby reported net earnings of $27.5 million or $0.46 per share for the 2020 third quarter.

Consolidated revenues for the 2021 third quarter were $598.9 million compared with $496.6 million reported one year ago.

“Kirby’s third quarter results were impacted by a one-time noncash impairment charge related to our exit from Hawaii and the restructuring of our coastal marine business,” said David Grzebinski, Kirby president and CEO. “Our adjusted earnings were similar to the second quarter but were improved when excluding the significant impact of Hurricane Ida.

“Looking forward, we continue to see underlying market improvement in all our core businesses and remain very optimistic about the outlook for Kirby,” Grzebinski said.

“In marine transportation, our inland business experienced improved market fundamentals early in the quarter with barge utilization reaching the mid-80 percent range by the end of July. In August, however, volumes declined as the COVID-19 Delta variant slowed the pace of the economic recovery and reduced demand for refined products and crude.

“Our inland business was also materially impacted by Hurricane Ida, which made landfall near New Orleans, La., in late August. This intense storm left a widespread path of destruction that ultimately resulted in closures of key waterways and many refineries and chemical plants for much of September and extending well into October. We estimate the reduced demand, combined with damages incurred to our fleet, reduced our third quarter earnings by approximately $0.08 per share.”

Aside from the areas impacted by Hurricane Ida, operating conditions on the inland waterways were good with favorable summer weather conditions throughout much of the quarter, Kirby said in the earnings report. Average spot market rates during the quarter were unchanged sequentially and compared to the 2020 third quarter. Term contract pricing on a few expiring contracts that renewed in the third quarter declined in the low to mid-single digits on average compared to a year ago.

Revenues in the inland market increased 3 percent compared to the 2020 third quarter, primarily due to increased fuel rebills and barge utilization, offset by lower pricing on term contracts renewed in the past year, Kirby said.

During the 2021 third quarter, the inland market represented 76 percent of Kirby’s marine segment revenues.

“Despite the challenging third quarter, the inland market has improved in October with increased customer demand and our barge utilization recently rising into the high 80 percent range,” Grzebinski said.

Exit From Hawaii

Grzebinski said the company’s coastal business showed signs of improvement during the quarter, with modest increases in spot market demand and Kirby’s barge utilization rising into the mid-70 percent range.

During the quarter, Kirby completed the sale of its Hawaii marine transportation assets including four coastal tank barges and seven coastal tugboats for cash proceeds of $17.2 million. In addition, the company retired 12 coastal wire tank barges and four coastal tugboats that had limited customer acceptance in today’s market; these events resulted in a noncash impairment charge of $121.7 million, Kirby said.

As a result of the sale of the Hawaii equipment, and the decision to retire additional coastal marine equipment, the company concluded that a triggering event had occurred and performed interim quantitative impairment tests. These tests resulted in a noncash impairment of goodwill totaling $219 million, Kirby said.

Overall, the company recorded noncash impairments of long-lived assets related to coastal marine equipment and impairments of goodwill in the marine transportation segment totaling $340.7 million before-tax, $275.0 million after-tax, or $4.58 per share.

“During the quarter, we decided to exit Hawaii and the coastal wire tank barge market, incurring a one-time noncash impairment charge,” Grzebinski said. “This decision focuses our coastal business on attractive markets, eliminates significant future capital outlays and removes our exposure to marketing coastal wire assets with poor market acceptance. Through these actions, we expect our coastal business will improve its performance in 2022 and is now positioned for long-term success.”

Capital Expenditures, Outlook

Kirby reported capital expenditures for the third quarter of $33.6 million. During the quarter, the company sold assets with net proceeds of $22.4 million including $17.2 million for the coastal marine equipment in Hawaii. As of September 30, the company had $54.4 million of cash and cash equivalents on the balance sheet and $908 million of liquidity available. Total debt was $1,208.2 million, reflecting a $260.4 million reduction compared to December 31, 2020, and the debt-to-capitalization ratio was 29.8 percent.

Commenting on the 2021 fourth quarter outlook, Grzebinski said, “Overall, we expect our fourth quarter earnings to sequentially improve. In marine transportation, with some major refinery and chemical customers only recently resuming operations post-Hurricane Ida, and portions of the Gulf Intracoastal Waterway still closed, some of the impacts from the storm have carried into the fourth quarter.

“Despite these headwinds, we have seen steady improvement in volumes and inland barge utilization during October, which we expect will contribute to improved marine transportation revenue and operating income in the fourth quarter.”

Kirby expects 2021 capital spending to range between $120 million and $130 million, with the midpoint representing a year-on-year reduction of more than 15 percent. Approximately $10 million of the spending is associated with the construction of new inland towboats, and approximately $95 million to $100 million is associated with capital upgrades and improvements to existing inland and coastal marine equipment and facility improvements. The balance of approximately $15 to $20 million largely relates to new machinery and equipment, facility improvements and information technology projects in distribution and services and corporate.

“While the emergence of the COVID-19 delta variant and Hurricane Ida delayed our recovery, we firmly believe that Kirby is well-positioned for significant growth in 2022 and beyond,” Grzebinski said. Throughout the pandemic, we have taken the necessary actions to restructure poor performing businesses, retire aging and underutilized equipment, improve our product offerings and realign our cost structure. Through strict capital discipline and intense focus on cash flow generation, we have significantly reduced our debt and have increased our liquidity, firmly placing the company in a strong position to act on strategic growth opportunities. With continued economic improvement anticipated going forward, and expectations that global energy demand will meet or exceed pre-pandemic levels in 2022, we are excited about Kirby’s future earnings potential.”