Better times just around bend, Kirby says as earnings increase
Houston-based Kirby Corp., the country’s largest operator of tank barges, reported an 18 percent increase in first-quarter earnings as the marine transportation sector continues recovering from “one of the worst down cycles the industry has seen,” president and CEO David Grzebinski told investors Thursday.
Marine transportation companies, which overbuilt barge equipment during the shale boom, have struggled the past few years. The market dried up when oil prices plummeted, and the extra equipment pushed down prices that companies could charge. The industry consolidated, retired barges and built few new pieces of equipment.
But it appears that prices have bottomed out, Grzebinski said, and could be moving up, especially for inland business along the Gulf Intracoastal Waterway and U.S. rivers benefiting from the petrochemical boom and higher oil prices.
Such barge movements were challenged by weather during the first quarter, but pricing for shorter-term contracts were up 10 percent to 15 percent compared with the end of 2017. Kirby executives are optimistic that longer-term contracts renewed in the second half of this year could also include modest price increases.
“All of these factors point to continued market improvement, and Kirby is well positioned to capitalize on this with our expanded fleet,” Grzebinski said. The company recently acquired
local competitor Higman Marine.
Moving barges along the coast, requiring larger and more rugged equipment, is still suffering from the overbuilt market. Pricing stabilized during the first quarter compared with the end of 2017, but it was down year over year. Such challenges prompted Kirby to shed some employees and temporarily take barges out of service. The company also had layoffs related to the integration of Higman Marine. Kirby did not disclose the number of people let go.
“While recent pricing trends could be a sign that the cycle has bottomed,” Grzebinski said, “we continue to expect difficult coastal market conditions for the next year or so.”
Kevin Sterling, managing director of Seaport Global Securities, said Kirby often acts as an industry leader. If it removes barges, for instance, other companies might follow suit.
Other companies have removed equipment and laid off workers in their coastal businesses. Sterling said there’s simply too much supply chasing too little demand.
“These industries are all cyclical. It will come back,” he said of the coastal business. “It may not be until 2020, but it will come back. It’s not dead forever.”
Overall, the company reported first-quarter earnings of $32.5 million, or 54 cents per share, up from $27.5 million, 51 cents per share, reported during the first quarter of 2017.
Challenges in Kirby’s marine transportation sector were offset by its business selling equipment for oil field services, marine and other industrial applications.
Last year’s acquisition of Stewart & Stevenson, a global manufacturer and distributor of such products, and accelerated growth in the oil and gas market, boosted Kirby’s distribution and services revenues to $401.3 million in the first quarter, up from $148.1 million in 2017.
This segment helped to “more than offset extensive weather delays in inland marine and continued weakness in coastal,” Grzebinski said.
Kirby's first-quarter results were affected by onetime expenses associated with the acquisition of Higman Marine, an amendment to the employee stock plan and severance expenses. The retirement of executive chairman Joseph Pyne, announced Tuesday, contributed to Kirby’s altering its earnings per share guidance for the year.
For the second quarter, the company's guidance is 30 cents to 50 cents per share inclusive of about 30 cents per share for the onetime expenses associated with Pyne's retirement. For the full year, Kirby lowered its earnings guidance to $2.15 to $2.65 per share, down from $2.50 to $3.00 per share.
But operationally — looking at the number of barges, amount of cargo and pricing of that cargo — Sterling said Kirby did not change its guidance.
“They’re continuing to do the right things operationally,” he said.
Kirby’s stock rose nearly 5 percent Thursday, to close at $87.
During Thursday’s conference call, many investors took a moment to thank Pyne for his 40 years with the company. Pyne has led Kirby as president and CEO, been on the board of directors since 1988 and held a variety of operating and administrative positions with Kirby Inland Marine.
He will continue to serve Kirby as chairman of the board in a non-executive role, being less involved with the day-to-day operations but still part of the company.
“I am honored to have been a part of it. Kirby has a very interesting history which goes back over 100 years,” Pyne said. “As shareholders, you aren’t buying history. You are buying the company’s future. I’m very excited about Kirby’s future.”