Kirby hoping for a post-Harvey rebound in activity
Reopening plants and refineries after Hurricane Harvey created a pent-up demand for moving liquid products on barges, and executives with Houston-based Kirby Corp. said Thursday that demand has continued into the fourth quarter.
They sounded cautiously optimistic during a morning earnings call that the activity could help lead to higher contracts after a period of relatively low industry prices. An excess of barges has meant companies are paying Kirby and its competitors less to move products.
“The market will need to have the sense that business is indeed going to get better and these utilization rates are going to be maintained before I think you see any inflection in pricing,” executive chairman Joseph Pyne said.
Pricing challenges and this year’s hurricanes contributed to an 11 percent drop in third-quarter net income to $28.6 million. Kirby reported earnings per share dropped to 52 cents compared with 59 cents during the same three-month period a year ago.
Costs and delays caused by hurricanes Harvey and Irma were equal to some 7 cents per share, though roughly 4 cents per share were offset by pent-up demand following the hurricane, an increased need for logistical so-
lutions and higher pricing for customers’ products, among other things.
Challenges from Hurricane Harvey included silt buildup in the Gulf Intracoastal Waterway that left barges unable to traverse the section where it meets the Colorado River, near Matagorda, for several weeks.
The U.S. Army Corps of Engineers, with its dredging contractors, opened the affected portion to vessels with 8-foot drafts on Sept. 25. It was then opened to vessels with 9-foot drafts on Sept. 30 and 10-foot drafts on Oct. 9. The waterway is expected to be open to vessels with the maximum 12foot draft on Tuesday.
Kirby, however, has been operating without issues for a while. Barges in the In- tracoastal Waterway generally aren’t loaded down enough to exceed drafts of 10½ feet, director of public and government affairs Matt Woodruff said.
While pent-up demand following the hurricanes could be a reason for cautious optimism, Kevin Sterling, managing director at investment bank Seaport Global Securities, expressed concern that some barge owners will continue pricing their services below break-even levels. They’re losing money to get business, he said.
“This can’t go on forever. At some point, someone will cry uncle,” he said. “There will be some consolidation opportunities.”
During the shale boom, when more crude was being moved along the waterways, additional barge equipment was built to handle the demand. Then oil prices tanked and that market dried up.
It will take industry consolidation for the excess to go away, Sterling said. He expects it won’t be long before some smaller operators go out of business or sell to larger ones and see their equipment scrapped.
“We’re probably in the 7th or 8th inning of getting close to consolidation occurring,” he said.
Sterling wasn’t the only one who couldn’t resist a baseball nod on Thursday. The first analyst during the Q&A portion of the conference call started with a celebratory note.
“Congratulations on the Astros,” he said “Great series.”
Thursday’s call also hit on Kirby’s recent acquisition of Stewart & Stevenson, a global manufacturer and distributor of products and services for the oil and gas, marine, construction and other industries.
Stewart & Stevenson contributed 3 cents per share to third-quarter earnings, primarily due to elevated demand for rental standby power generation and increased service sales as a result of pent-up demand following hurricanes Harvey, Irma and Maria. Stewart & Stevenson temporarily added shifts to meet the demand after the storms.
Kirby’s land-based services also benefitted from the improving energy sector. President and CEO David Grzebinski said Kirby continued to build and deliver new hydraulic-fracturing equipment.