Kirby Corp. (KEX) Tops Q4 EPS by 14c
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Kirby Corp. (NYSE: KEX) reported Q4 EPS of $0.37, $0.14 better than the analyst estimate of $0.23. Revenue for the quarter came in at $489.8 million versus the consensus estimate of $490.75 million.
David Grzebinski, Kirby’s President and Chief Executive Officer, commented, “During the fourth quarter, the impact of the pandemic on the economy continued to constrain demand in Kirby’s businesses. Although overall demand modestly increased in some areas of distribution and services, there was no improvement in inland and coastal barge utilization in the quarter.
“In marine transportation, our inland and coastal businesses faced continued market weakness and low demand for liquid cargoes including refined products, crude, and black oil. With hurricanes impacting the Gulf Coast in October and a second wave of COVID-19 cases escalating during the quarter, average refinery utilization only began to improve in mid-November and remained well below historical norms for the fourth quarter. These challenging market conditions contributed to continued low barge utilization throughout the quarter, limited spot market activity, and increased pricing pressure.
“In distribution and services, overall activity levels continued to slowly recover during the fourth quarter. In commercial and industrial, we benefited from modest improvements in economic activity, higher Thermo King product revenues, and sales of new marine engines. These improvements were partially offset by seasonality including lower utilization in the power generation rental fleet and reduced major overhauls in marine repair. In the oilfield, improved U.S. frac activity contributed to higher demand for new transmissions, parts, and service; however, total oil and gas revenues declined due to the timing of new pressure pumping equipment deliveries in manufacturing,” Mr. Grzebinski concluded.
Commenting on the 2021 full year outlook, Mr. Grzebinski said, “Although Kirby’s businesses continue to be challenged by the COVID-19 pandemic and the associated unprecedented declines in demand, we believe that improved business activity and utilization levels will occur in the second half of the year. With the vaccine distribution now underway, it is likely that material improvements in economic activity and increased energy consumption are ahead. We do believe, however, the first half of the year will likely remain challenging until the pandemic eases and refinery utilization materially recovers. In the first quarter, we expect weak market conditions in marine transportation to continue with further pricing pressure on contract renewals. As well, surging cases of COVID-19 across the U.S. have impacted our ability to crew our vessels, resulting in delays and in some cases lost revenue. As a result, we anticipate a sequential reduction in earnings during the first quarter with improving results thereafter as the effects of the pandemic moderate and demand for our products and services steadily increases.”
In inland marine, market conditions are expected to remain challenging in the coming months, with gradual improvement in the second quarter, and a more meaningful recovery in the second half of 2021. Barge utilization is projected to start the year in the low to mid-70% range and improve into the high 80% to low 90% range by the end of the year. Pricing, which typically improves with barge utilization, is expected to remain under pressure in the near-term. Financially, first quarter revenues and operating margin are expected to be the lowest of the year, and sequentially down as compared to the 2020 fourth quarter due to the impact of lower pricing on term contract renewals and increased delays from seasonal winter weather. Anticipated improvements in the spot market later in 2021 should contribute to increased barge utilization and better operating margins as the year progresses. However, the full year impact of lower term contract pricing is expected to result in full year operating margins lower than the mid-teens margins realized in 2020.
In coastal, COVID-19 and the associated impact on market conditions are expected to have a meaningful impact on 2021 results. Throughout 2020, much of coastal’s business was under term contracts established in more favorable market conditions during 2019 and early 2020. With current headwinds including limited spot demand, the return of some chartered equipment, lower term contract pricing, and crewing difficulties due to COVID-19, coastal’s financial results are expected to be lower in 2021. As well, the retirement of three older large capacity coastal vessels during the second and third quarters of 2020, and the retirement of an additional vessel in mid-2021, will have a negative impact on full year results when compared to 2020. In the first quarter, Kirby expects coastal revenues and operating margin to decline compared to the 2020 fourth quarter, primarily due to the impact of lower term contract pricing and challenges crewing vessels. For the full year, Kirby expects coastal revenues will decline year-on-year with negative operating margins, the magnitude of which will be dependent on the timing of a material improvement in refined products and black oil demand later in 2021.
In distribution and services, improving economic activity and growth in the oilfield are expected to boost activity levels and contribute to meaningful year-over-year improvement in revenue and operating income. In commercial and industrial, revenues are expected to benefit from improving economic conditions, as well as from growth in the on-highway market, in part due to Kirby’s new online parts sales platform which was launched last year. However, these gains are expected to be partially offset by lower sales of new marine engines which had remained strong throughout 2020. In the oil and gas market, higher commodity prices and increasing well completions activity are expected to contribute to improved demand for new transmissions, service and parts, as well as higher pressure pumping remanufacturing activity. Additionally, a heightened focus on sustainability across the energy sector and industrial complex is expected to result in continued growth in new orders for Kirby’s portfolio of environmentally friendly equipment during the year. Overall, operating margins in distribution and services are expected to be positive in the low to mid-single digits for the full year, with the first quarter being the lowest, and the third quarter being the highest prior to normal seasonal declines in the fourth quarter.
Kirby expects 2021 capital spending to range between $125 to $145 million, with the midpoint representing a year-on-year reduction near 10%. Approximately $15 million is associated with the construction of new inland towboats, and approximately $95 to $110 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. Overall, Kirby expects to generate net cash provided by operating activities of $375 million to $455 million, with free cash flow of $230 million to $330 million in 2021.
Mr. Grzebinski concluded, “Undoubtedly, 2020 will be remembered as an extremely challenging year. Kirby faced unprecedented reductions in demand across the Company, a record setting hurricane season, and the need to protect the health and safety of our employees and customers. Despite the many challenges, I am proud that our dedicated employees rose to the occasion. Throughout 2020, we safely crewed our vessels, kept our branches and facilities operating, ensured reliable and consistent customer service, and successfully integrated newly acquired companies and assets. Although our overall financial performance materially declined year-on-year, I’m pleased with our efforts to reduce costs, control capital expenditures, and focus on cash flow. With these actions, Kirby enters 2021 in a strong financial position. The new year brings continued uncertainty with respect to the timing of a material recovery and likely further reductions in earnings during the first quarter. Regardless, we believe better days are ahead with improved demand and activity levels for all of Kirby’s businesses as 2021 progresses and the impacts from the pandemic moderate.”
For earnings history and earnings-related data on Kirby Corp. (KEX) click here.
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