Kirby Corporation Announces Sharply Higher Earnings
Kirby Corporation announced net earnings for the fourth quarter of $37.3 million or $0.62 per share, compared with earnings of $11.0 million, or $0.18 per share for the 2021 fourth quarter. Excluding one-time items in both quarters, net earnings were $40.3 million or $0.67 per share, compared with earnings of $16.7 million, or $0.27 per share, in the year-ago period. Consolidated revenues for the 2022 fourth quarter were $730.2 million compared with $591.3 million in the 2021 fourth quarter.
Kirby’s 2022 fourth quarter results included one-time pre-tax charges of $4.2 million or $0.05 per share, including severance and early retirement expenses associated with restructuring and strategic review, the company said in the January 31 announcement.
For the 2022 full year, Kirby reported net earnings of $122.3 million or $2.03 per share, compared with a net loss of $247.0 million or $4.11 per share for 2021. Excluding one-time items in both years, 2022 net earnings were $126.6 million or $2.10 per share, compared with $33.7 million or $0.56 per share for 2021.
Consolidated revenues for 2022 were $2.78 billion compared with $2.25 billion for 2021.
‘Very Favorable’ Outlook
“Kirby’s fourth quarter earnings showed significant growth year-over-year driven by improved fundamentals in both businesses, Kirby President and CEO David Grzebinski said. “Looking forward into 2023, the outlook for marine transportation and distribution and services is very favorable, and we expect continued growth in earnings during the year.
“In inland marine, we experienced steady market conditions with barge utilization rates in the 90 percent range and pricing increases on term contract renewals in the low teens year-over-year.
“As anticipated, the efficiency of our operations declined in the fourth quarter due to low-water conditions on the Mississippi River and the onset of winter weather conditions, which contributed to a 147 percent increase in delay days as compared to the third quarter. Despite these headwinds, inland marine showed continued improvement in margins with operating margin improving into the low teens,” he said.
“In our coastal marine business, overall market conditions remained steady during the fourth quarter with low- to mid-90 percent utilization in barges and continued improvement in spot market and term contract pricing. These trends were partially offset by unfavorable weather conditions and planned maintenance leading to a slight sequential decrease in operating margins into the low single digits.
“In distribution and services, demand in the fourth quarter remained strong and consistent with the third quarter throughout much of the segment with continued increases in new orders and backlog,” he said. “This strong demand was offset by supply chain delays and some seasonal slowness in activity leading to a slight sequential decline in revenues and operating income. In oil and gas, backlog continued to build as we received incremental new orders for environmentally friendly pressure pumping equipment and frac-related power generation equipment. In commercial and industrial, demand was solid, with increased revenue both sequentially and year-over-year.”
Marine Transportation Segment
Marine transportation revenues for the 2022 fourth quarter were $422.7 million compared with $350.6 million for the 2021 fourth quarter. Operating income for the 2022 fourth quarter was $46.7 million compared with $25.7 million a year ago.
In the inland market, average 2022 fourth quarter barge utilization was in the 90 percent range, compared to the mid to high-80 percent range in the 2021 fourth quarter. Operating conditions were unfavorable with increased weather and navigational delays contributing to a 33 percent increase in delay days year-over-year. During the quarter, average spot market rates increased in the low single digits sequentially and in the low- to mid-20 percent range compared to the 2021 fourth quarter. Term contracts that renewed in the fourth quarter increased in the 10 to 15 percent range on average compared to a year ago.
Revenues in the inland market increased 24 percent compared to the 2021 fourth quarter primarily due to higher barge utilization, pricing and fuel rebills. Operating margins improved sequentially and year-over-year to the low teens. The inland market represented 80 percent of segment revenues in the fourth quarter of 2022.
In coastal, market conditions improved modestly during the quarter, with Kirby’s barge utilization remaining in the low to mid-90 percent range. Pricing in the spot market increased in the low to mid-single digits sequentially, and term contract renewals increased by low teens year-over-year. Revenues in the coastal market were 8 percent higher compared to the 2021 fourth quarter and represented 20 percent of segment revenues. The coastal business had a positive operating margin in the low-single digits during the quarter.
In Kirby’s other business segment, distribution and services revenues for the 2022 fourth quarter were $307.4 million, compared with $240.7 million for the 2021 fourth quarter.
Balance Sheet
As of December 31, 2022, Kirby had $80.6 million of cash and cash equivalents on the balance sheet and $584.9 million of liquidity available. Total debt was $1,079.6 million, reflecting an $83.7 million reduction compared to December 31, 2021, and the debt-to-capitalization ratio improved to 26.2 percent.
2023 Outlook
“We exited 2022 with solid strength in our businesses,” Grzebinski said. “The marine market remains healthy, and we expect favorable market conditions in 2023. Our barge utilization is strong in both inland and coastal, and rates are steadily increasing. In distribution and services, despite persistent supply chain constraints and delays, demand for our products and services continues to grow, and we continue to receive new orders in manufacturing. Overall, we expect our businesses to deliver improved financial results in the coming quarters.
“While all of this is encouraging, we are mindful of economic challenges related to higher interest rates and a potential recession,” he said. “Labor constraints and inflationary pressures appear to be moderating but continue to contribute to rising costs across our businesses. With these factors in mind, we will continue to focus on managing costs and driving cash flow from operations. In the near-term, we intend to use this cash flow to opportunistically return capital to shareholders and further strengthen our balance sheet. Also, consistent with our balanced approach to capital allocation, we will continue to evaluate accretive acquisitions and high-return organic growth opportunities to drive continued long-term shareholder value creation.”
In inland marine, the 2023 outlook anticipates favorable market conditions with continued growth in customer demand, steady volumes from refinery and 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 percent range throughout the year. Overall, inland revenues are expected to grow by low double digits on a full-year basis, the company said. Barring further cost inflation and rising fuel costs, Kirby expects operating margins to be in the mid-teens on average for the full year with improvement as the year progresses.
In coastal marine, Kirby expects modestly improved customer demand through the balance of the year with barge utilization in the low to mid-90 percent range. Rates are expected to continue slowly improving, though meaningful gains remain challenged by underutilized barge capacity across the industry, the company said. Revenues and operating margins are expected to be impacted by an approximate doubling of planned shipyard maintenance days with ballast water treatment installations on certain vessels. For the full year, coastal revenues are expected to be flat compared to 2022. Coastal operating margins are expected to near break-even to low single digits on a full-year basis, Kirby said.
In distribution and services, favorable oilfield fundamentals and steady demand in commercial and industrial are expected to continue in 2023. In the oil and gas market, high commodity prices, increasing rig counts and growing well completions activity are expected to yield strong demand for OEM products, parts and services in the distribution business.
In manufacturing, the company expects demand for environmentally friendly pressure pumping and e-frac power generation equipment to remain strong, with new orders and increased deliveries of new equipment during the year. However, ongoing supply chain issues and long lead times are expected to persist in the near-term, contributing to some volatility as deliveries of new products shift between quarters and into 2024.
In commercial and industrial, strong markets are expected to help drive full year revenue growth in the low double-digit percentage range, with increased activity in power generation, marine repair and on-highway. Overall, the company expects segment revenues to grow 10 percent to 20 percent on a full-year basis with operating margins in the mid to high-single digits.
Kirby expects to generate net cash provided from operating activities of $480 million to $580 million in 2023. With many capital projects still under review and the expectation of continued supply chain delays, the company will update its outlook for capital spending as the year progresses.
“2022 was an exciting, but challenging year at Kirby,” Grzebinski said. “I’m pleased with the effort and performance of our team, which delivered significant year-over-year operational improvement as we battled persistent cost inflation, historic low-water conditions and stubborn supply chain delays. The dedication of our team to exceptional customer service continues, and even with the threat of recession our outlook for 2023 is strong.”
Strategic Review
Earlier in January, Kirby announced that its board of directors had concluded a review of strategic alternatives for the distribution and services business. The board considered alternatives including a sale or spin-off of the segment, but in the end decided to continue on the current path.
“Following a thorough review of strategic alternatives, the Kirby board determined that the best way to enhance shareholder value is to continue to execute on the strategic plan for both the marine transportation and distribution and services businesses at this time,” said Joseph Pyne, Kirby’s chairman of the board. “The M&A market continues to be constrained by macroeconomic headwinds, including a challenging financing environment. The board remains committed to maximizing value and will continue to evaluate all opportunities to do so, consistent with its fiduciary duty to shareholders.”
