Kirby Corporation To Purchase Cenac Fleet

Kirby Corporation announced January 31 that it has signed an agreement to purchase the marine transportation fleet of Cenac Marine Services LLC.

The purchase price is approximately $244 million in cash, subject to certain closing adjustments.

Kirby said the purchase would be financed through additional borrowings.

Cenac’s fleet consists of sixty-three 30,000-barrel inland tank barges with approximately 1.9 million barrels of capacity, 34 inland towboats, and two offshore tugboats. Cenac moves petrochemicals, refined products, and black oil, including crude oil, residual fuels, feedstocks and lubricants on the Lower Mississippi River, its tributaries, and Gulf Intracoastal Waterway for major oil companies and refineries.

The closing of the acquisition is expected to occur late in the first quarter and is subject to customary closing conditions, including regulatory approvals under the Hart-Scott-Rodino Act, Kirby said.

When completed, this will be the fourth major acquisition by Kirby since the beginning of 2018. Last February 15, Kirby completed the acquisition of Higman Marine Inc., including 159 tank barges and 75 inland towboats for $418 million. In May, Kirby acquired Targa Resources Corporation’s inland marine tank barge business—including 16 pressure barges with total capacity of 258,000 barrels—for $69.3 million in cash. And in November, Kirby announced it had signed an agreement to acquire the 27-barge inland fleet of CGBM 100 for an undisclosed amount.

In total, the three 2018 acquisitions added 75 towboats and 202 tank barges with a total capacity of 5.3 million barrels. When the Cenac deal closes, Kirby will have added—in the space of about one year—a total of 109 towboats and 265 barges with total capacity of 7.2 million barrels.

“The acquisition of Cenac’s young fleet of well-maintained inland tank barges and modern boats is an ideal complement to Kirby’s operations,” said David Grzebinski, Kirby president and CEO, in the announcement. “Cenac has a strong history of operational excellence, and is well respected by the industry and its customers. Cenac’s inland fleet of 30,000-barrel tank barges, of which approximately 80 percent are clean and 20 percent are heated black oil vessels, has an average age of only four years. Similarly, Cenac’s fleet of modern inland towboats and offshore tugboats has an average age of only six years.

“The addition of these vessels to Kirby’s fleet will not only further reduce our average age profile, but will also further enable us to avoid significant capital outlays for new vessels in the future,” Grzebinski said.

Cenac said in an announcement it would retain its Main Iron Works shipyard. Main Iron Works recently delivered the first of three towboats it is building for Kirby.

“We welcome this opportunity for our vessels to integrate within Kirby Corporation’s fleet, while we independently foster growth for our company’s construction and maintenance operations,” said CEO Arlen “Benny” Cenac, who is the great-great-grandson of company founder Jock Cenac. “Our company has remained strong through the generations by adapting to new opportunities within the oil, gas and marine transport industries and this continues in that tradition.”

Under the agreement, Cenac’s marine employees will be offered jobs by Kirby. The vessels will continue serving their current routes, the Cenac announcement said.

Cenac Marine will remain headquartered on its Houma campus, which it will continue to own and operate. Kirby will occupy a small suite of offices on the Cenac campus.

“Through the Cenac facilities in Houma as well as those at Main Iron Works, which was acquired in 2015, we shall continue to build state of the art, best in class tugs,” the Cenac announcement said. “Cenac’s continued focus and emphasis on its shipyard operations accomplishes its strategic focus to increase growth potential that will not only benefit the Cenac companies, as well as its current and future employees.

“We are in a different time in this business that takes new and different ways to make it all work,” Benny Cenac said. “With all of us pulling the same way, we will continue our success.

“Every decision we make at our company is measured against the examples of entrepreneurship and courage of my great-great-grandfather,” he concluded. “We are confident that Jock Cenac would be proud and pleased with this decision, and the good position it places us in for the future.”

Earnings Announcement

The Cenac news came as part of Kirby’s announcement of its quarterly and full-year 2018 earnings.

The company reported a net loss for the fourth quarter of $24.4 million, or 41 cents per share, although excluding certain one-time charges, net earnings were a positive $44.9 million, or $.75 per share. For the same quarter of 2017, the company had earnings of $231.3 million, or $3.87 per share.

Kirby said the one-time charges related to older coastal vessels that require ballast water treatment systems.

Consolidated revenues for the 2018 fourth quarter were $721.5 million, compared with $708.1 million reported for the 2017 fourth quarter.

For the 2018 full year, Kirby reported net earnings of $78.5 million, or $1.31 per share, compared with $313.2 million, or $5.62 per share for 2017. Excluding certain one-time charges, 2018 net earnings were $171.4 million, or $2.86 per share.

Consolidated revenues for 2018 were $2.97 billion, compared with $2.21 billion for 2017.

“While our quarter’s financial results were negatively impacted by one-time impairment charges in our coastal and Osprey barge businesses, the underlying results from operations were solid,” Grzebinski said. Excluding the non-cash impairment charges, our earnings per share of $0.75 compares to our guidance range of $0.55 to $0.75.

“In inland marine transportation, we continued to experience strong demand and high barge utilization levels,” he continued. “These favorable market conditions resulted in further pricing increases, with spot market rates sequentially improving in the mid-to high-single-digit range. During the quarter, we experienced a 28 percent increase in delay days as a result of seasonal weather patterns along the Gulf Coast and lock delays which reduced operating efficiencies. Despite those challenges, inland marine delivered a slight increase in sequential revenue with operating margins similar to the third quarter.

Kirby’s coastal segment, however, saw continued tightening market conditions and modest pricing improvement, he said. Speaking of the coastal segment, Grzebinski said: “As expected, our financial results in the quarter were negatively impacted by planned major shipyard maintenance on several large capacity vessels. Additionally, during the quarter we impaired four older articulated tank barge units (ATBs) and one leased barge that require mandatory ballast water treatment systems under new regulations. Investing to meet this requirement in these aging barges would be financially unattractive. We expect that we will early retire these ATBs at their next shipyard dates which range between 2020 and 2023.”

Captial Expenditures

Kirby reported capital expenditures of $70.1 million during the 2018 fourth quarter, including $7.1 million for new inland towboat construction, $11.7 million for progress payments on the construction of six 5,000 hp. coastal ATB tugs, $11.3 million for progress payments on the new 155,000-barrel coastal ATB barges under construction that delivered in the 2018 fourth quarter, and $40 million primarily for upgrades to existing inland and coastal fleets. During the 2018 fourth quarter, Kirby used $34.7 million in cash to purchase the 27 barges from CGBM 100, as well as three specialty barges and a towboat that were previously leased from a third party.

Total debt as of December 31, 2018, was $1,410.2 million, and Kirby’s debt-to-capitalization ratio was 30.5 percent, the company said.

2019 Outlook

Grzebinski said Kirby’s earnings guidance range for 2019 is $3.25 to $3.75 per share. “This guidance range includes the Cenac acquisition, which we expect will be earnings neutral to slightly positive in 2019, taking into consideration integration costs, the time needed to integrate the fleet, inherited contract pricing, higher interest expense, and anticipated synergies. Overall, the midpoint of our guidance range reflects year-on-year earnings per share growth of more than 20 percent, excluding one-time items in 2018.”

Kirby expects 2019 capital spending to be in the $225 to $245 million range, including the Cenac fleet.

Grzebinski concluded, “2018 was an exciting year at Kirby, and I’m pleased with the hard work and performance of our team to deliver significant year-on-year growth in revenue and earnings per share, excluding one-time items. During the year, we closed several acquisitions in our marine transportation segment and made significant progress with the integration of Stewart & Stevenson.

“Our actions in 2018 have set the stage for continued growth in 2019. Our inland marine fleet is in excellent condition, and we expect meaningful growth in its earnings. Coastal is expected to return to break-even or slightly positive operating income. In distribution and services, the strength of our current manufacturing backlog is encouraging, and increasing demand for back-up power generation systems and our diversified portfolio should help mitigate potential headwinds. And finally, our strong balance sheet, together with meaningful growth in cash flow from operations and reduced capital expenditures will allow us to focus on debt reduction in 2019 while providing flexibility to pursue small acquisition opportunities.”