Kirby Corporation announces record 2012 Q1 results
Kirby Corporation yesterday announced record net earnings attributable to Kirby for the first quarter ended March 31, 2012 of $50.9 million, or $.91 per share, compared with $32.4 million, or $.60 per share, for the 2011 first quarter. Consolidated revenues for the 2012 first quarter were $566.9 million compared with $299.4 million reported for the 2011 first quarter.
Kirby's 2012 first quarter results included a $4.2 million before taxes, or $.05 per share, charge associated with increasing the fair value of the United Holdings LLC ("United") contingent earnout liability, and a $2.4 million before taxes, or $.03 per share, severance charge associated with the integration of Kirby Offshore Marine, LLC ("Kirby Offshore Marine") into Kirby.
Joe Pyne, Kirby's Chairman and Chief Executive Officer, commented, "Our first quarter results were helped by a strong inland tank barge market with high equipment utilization levels and favorable term and spot contract pricing. Kirby Offshore Marine performed as expected factoring in typical winter weather operating conditions and the $2.4 million severance charge. In our diesel engine services segment, United's business was strong, driven by manufacturing oil service equipment and remanufacturing and servicing existing oil service equipment. Our legacy diesel engine services marine and power generation markets reflected higher operating results from increased service for marine transportation, Gulf Coast oil service and power generation customers."
Mr. Pyne further commented, "In April, we changed the name of K-Sea Transportation Partners LLC, our coastal marine transportation company acquired in July 2011, to Kirby Offshore Marine thereby more fully integrating our coastal operation into the Kirby family of marine companies. Jim Farley was named President of Kirby Offshore Marine, having previously served as an Executive Vice President in our inland operations. David Grzebinski, our Executive Vice President and Chief Financial Officer, will also serve as Chairman of Kirby Offshore Marine."
Segment Results – Marine Transportation
Marine transportation revenues for the 2012 first quarter were $336.0 million, a 39% increase compared with the 2011 first quarter, and operating income was $68.5 million, a 30% increase compared with the 2011 first quarter. For the first quarter, Kirby's strong inland transportation performance continued with high tank barge utilization levels in the low to mid 90% range and higher term and spot contract pricing. Low priced natural gas, a basic feedstock used by petrochemical customers, continued to positively impact the global competitiveness of the United States petrochemical industry, leading to higher production levels and resulting strong demand for Kirby's inland petrochemical tank barge fleet. Black oil products demand for Kirby's inland fleet also remained strong, driven by continued stable United States refinery output, the continued export of heavy fuel oils, and the movement of crude oil from the Midwest to the Gulf Coast and along the Gulf Intracoastal Waterway. The first quarter also benefited from a continued favorable inland refined products market, as well as a strong first quarter agricultural chemical market. Diesel fuel prices for the 2012 first quarter increased 19% compared with the 2011 first quarter, impacting marine transportation revenues since fuel price increases are covered by fuel escalation and de-escalation clauses in term contracts.
Kirby Offshore Marine generated approximately 20% of the marine transportation segment's 2012 first quarter revenue. Operating results for the first quarter were slightly above breakeven, as the winter months are more difficult due to seasonality in the refined products market, closure or a significant reduction in demand in Alaska and on the Great Lakes, as well as poor operating efficiency caused by winter weather conditions. In addition, during the first quarter the Northeast market saw coastal tank barge utilization and rates deteriorate caused by the unseasonably mild Northeast winter, resulting in a lack of demand for distillate products. Kirby Offshore Marine's first quarter operating results also included a $2.4 million before taxes, or $.03 per share, severance charge associated with the integration of administrative functions into Kirby.
The marine transportation segment's 2012 first quarter operating margin was 20.4% compared with 21.8% for the first quarter of 2011. The 2012 first quarter margin reflected the continued strong inland demand, resulting high inland tank barge utilization levels and higher term and spot contract pricing, offset by a slightly higher than breakeven coastal market operating margin, including the $2.4 million severance charge.
Segment Results – Diesel Engine Services
Diesel engine services revenues for the 2012 first quarter were $231.0 million compared with $57.7 million for the 2011 first quarter, and operating income was $23.6 million compared with $6.6 million for the 2011 first quarter. The land-based oil services market, acquired in April 2011 with the acquisition of United, contributed approximately 75%, and the marine and power generation markets contributed approximately 25% of the diesel engine services first quarter 2012 revenues.
The land-based market benefited from the manufacturing of oil service equipment, an increase in the remanufacturing of hydraulic fracturing equipment, as well as favorable sales and service of transmissions and diesel engines. The diesel engine services marine market benefited from large service projects for major domestic and international customers, as well as higher service work for oil service customers as the Gulf of Mexico oil and gas drilling activity increased during the first quarter. The power generation market benefited from major generator set upgrades and parts sales for both domestic and international power generation customers.
The diesel engine services 2012 first quarter operating results included a charge to selling, general and administrative expense of $4.2 million before taxes, or $.05 per share, increasing the fair value of the contingent earnout liability associated with the April 2011 acquisition of United. As part of the United acquisition, United's former owners are eligible to receive a three-year earnout provision for up to an additional $50 million payable in 2014, dependent upon achieving certain financial targets. The estimated fair value of the earnout to be paid to the former owners is recorded as a contingent liability on Kirby's balance sheet. The estimated fair value of the earnout is based on probability weighting and discounting various potential payments. Any change in the fair value of the contingent liability during a quarter is included in earnings until the earnout is settled. As of March 31, 2012, the Company had recorded a contingent earnout liability of $26.8 million.
The diesel engine services operating margin was 10.2% for the 2012 first quarter compared with 11.5% for the 2011 first quarter. The marine and power generation diesel engine markets reflected higher operating margins as service work increased, while the land-based operating margin was lower, primarily a reflection of the $4.2 million earnout charge.
Cash Generation
Cash flow generation remained strong during the 2012 first quarter with EBITDA of $124.7 million compared with $80.4 million for the 2011 first quarter. The cash flow was used in part to fund capital expenditures of $61.9 million, including $21.1 million for new inland tank barge and towboat construction, $18.8 million for progress payments on the construction of two offshore articulated dry-bulk barge and tug units scheduled for completion in 2012, and $22.0 million primarily for upgrades to the existing inland and coastal fleets. Total debt as of March 31, 2012 was $773.0 million and Kirby's debt-to-capitalization ratio was 33.9%.
Outlook
Commenting on the 2012 second quarter and full year market outlook and guidance, Mr. Pyne said, "Our earnings guidance for the 2012 second quarter is $.97 to $1.02 per share and we are maintaining our 2012 year guidance of $3.85 to $4.05, excluding any past or potential changes to the United contingent earnout liability. Our second quarter guidance includes improved seasonal operating conditions in both our inland and coastal marine transportation trades, with low to mid 90% utilization levels in our inland trade and mid to high 70% utilization levels in our coastal trade, leading to continued favorable inland pricing and stable coastal pricing. In our diesel engine services segment, with the current industry rotation away from drilling for natural gas to enhanced crude oil exploration, we anticipate favorable demand for the remanufacturing of hydraulic fracturing units and a reduction in the manufacturing of new units. We also anticipate continued favorable marine and power generation markets."
Mr. Pyne further commented, "Our 2012 capital spending guidance range is $265 to $275 million, including approximately $110 million for the construction of 55 inland tank barges and five inland towboats, and approximately $70 million in progress payments on the construction of a new offshore integrated dry-bulk barge and tugboat unit scheduled for delivery in the 2012 fourth quarter with an estimated total cost of $52 million each."
Kirby's 2012 first quarter results included a $4.2 million before taxes, or $.05 per share, charge associated with increasing the fair value of the United Holdings LLC ("United") contingent earnout liability, and a $2.4 million before taxes, or $.03 per share, severance charge associated with the integration of Kirby Offshore Marine, LLC ("Kirby Offshore Marine") into Kirby.
Joe Pyne, Kirby's Chairman and Chief Executive Officer, commented, "Our first quarter results were helped by a strong inland tank barge market with high equipment utilization levels and favorable term and spot contract pricing. Kirby Offshore Marine performed as expected factoring in typical winter weather operating conditions and the $2.4 million severance charge. In our diesel engine services segment, United's business was strong, driven by manufacturing oil service equipment and remanufacturing and servicing existing oil service equipment. Our legacy diesel engine services marine and power generation markets reflected higher operating results from increased service for marine transportation, Gulf Coast oil service and power generation customers."
Mr. Pyne further commented, "In April, we changed the name of K-Sea Transportation Partners LLC, our coastal marine transportation company acquired in July 2011, to Kirby Offshore Marine thereby more fully integrating our coastal operation into the Kirby family of marine companies. Jim Farley was named President of Kirby Offshore Marine, having previously served as an Executive Vice President in our inland operations. David Grzebinski, our Executive Vice President and Chief Financial Officer, will also serve as Chairman of Kirby Offshore Marine."
Segment Results – Marine Transportation
Marine transportation revenues for the 2012 first quarter were $336.0 million, a 39% increase compared with the 2011 first quarter, and operating income was $68.5 million, a 30% increase compared with the 2011 first quarter. For the first quarter, Kirby's strong inland transportation performance continued with high tank barge utilization levels in the low to mid 90% range and higher term and spot contract pricing. Low priced natural gas, a basic feedstock used by petrochemical customers, continued to positively impact the global competitiveness of the United States petrochemical industry, leading to higher production levels and resulting strong demand for Kirby's inland petrochemical tank barge fleet. Black oil products demand for Kirby's inland fleet also remained strong, driven by continued stable United States refinery output, the continued export of heavy fuel oils, and the movement of crude oil from the Midwest to the Gulf Coast and along the Gulf Intracoastal Waterway. The first quarter also benefited from a continued favorable inland refined products market, as well as a strong first quarter agricultural chemical market. Diesel fuel prices for the 2012 first quarter increased 19% compared with the 2011 first quarter, impacting marine transportation revenues since fuel price increases are covered by fuel escalation and de-escalation clauses in term contracts.
Kirby Offshore Marine generated approximately 20% of the marine transportation segment's 2012 first quarter revenue. Operating results for the first quarter were slightly above breakeven, as the winter months are more difficult due to seasonality in the refined products market, closure or a significant reduction in demand in Alaska and on the Great Lakes, as well as poor operating efficiency caused by winter weather conditions. In addition, during the first quarter the Northeast market saw coastal tank barge utilization and rates deteriorate caused by the unseasonably mild Northeast winter, resulting in a lack of demand for distillate products. Kirby Offshore Marine's first quarter operating results also included a $2.4 million before taxes, or $.03 per share, severance charge associated with the integration of administrative functions into Kirby.
The marine transportation segment's 2012 first quarter operating margin was 20.4% compared with 21.8% for the first quarter of 2011. The 2012 first quarter margin reflected the continued strong inland demand, resulting high inland tank barge utilization levels and higher term and spot contract pricing, offset by a slightly higher than breakeven coastal market operating margin, including the $2.4 million severance charge.
Segment Results – Diesel Engine Services
Diesel engine services revenues for the 2012 first quarter were $231.0 million compared with $57.7 million for the 2011 first quarter, and operating income was $23.6 million compared with $6.6 million for the 2011 first quarter. The land-based oil services market, acquired in April 2011 with the acquisition of United, contributed approximately 75%, and the marine and power generation markets contributed approximately 25% of the diesel engine services first quarter 2012 revenues.
The land-based market benefited from the manufacturing of oil service equipment, an increase in the remanufacturing of hydraulic fracturing equipment, as well as favorable sales and service of transmissions and diesel engines. The diesel engine services marine market benefited from large service projects for major domestic and international customers, as well as higher service work for oil service customers as the Gulf of Mexico oil and gas drilling activity increased during the first quarter. The power generation market benefited from major generator set upgrades and parts sales for both domestic and international power generation customers.
The diesel engine services 2012 first quarter operating results included a charge to selling, general and administrative expense of $4.2 million before taxes, or $.05 per share, increasing the fair value of the contingent earnout liability associated with the April 2011 acquisition of United. As part of the United acquisition, United's former owners are eligible to receive a three-year earnout provision for up to an additional $50 million payable in 2014, dependent upon achieving certain financial targets. The estimated fair value of the earnout to be paid to the former owners is recorded as a contingent liability on Kirby's balance sheet. The estimated fair value of the earnout is based on probability weighting and discounting various potential payments. Any change in the fair value of the contingent liability during a quarter is included in earnings until the earnout is settled. As of March 31, 2012, the Company had recorded a contingent earnout liability of $26.8 million.
The diesel engine services operating margin was 10.2% for the 2012 first quarter compared with 11.5% for the 2011 first quarter. The marine and power generation diesel engine markets reflected higher operating margins as service work increased, while the land-based operating margin was lower, primarily a reflection of the $4.2 million earnout charge.
Cash Generation
Cash flow generation remained strong during the 2012 first quarter with EBITDA of $124.7 million compared with $80.4 million for the 2011 first quarter. The cash flow was used in part to fund capital expenditures of $61.9 million, including $21.1 million for new inland tank barge and towboat construction, $18.8 million for progress payments on the construction of two offshore articulated dry-bulk barge and tug units scheduled for completion in 2012, and $22.0 million primarily for upgrades to the existing inland and coastal fleets. Total debt as of March 31, 2012 was $773.0 million and Kirby's debt-to-capitalization ratio was 33.9%.
Outlook
Commenting on the 2012 second quarter and full year market outlook and guidance, Mr. Pyne said, "Our earnings guidance for the 2012 second quarter is $.97 to $1.02 per share and we are maintaining our 2012 year guidance of $3.85 to $4.05, excluding any past or potential changes to the United contingent earnout liability. Our second quarter guidance includes improved seasonal operating conditions in both our inland and coastal marine transportation trades, with low to mid 90% utilization levels in our inland trade and mid to high 70% utilization levels in our coastal trade, leading to continued favorable inland pricing and stable coastal pricing. In our diesel engine services segment, with the current industry rotation away from drilling for natural gas to enhanced crude oil exploration, we anticipate favorable demand for the remanufacturing of hydraulic fracturing units and a reduction in the manufacturing of new units. We also anticipate continued favorable marine and power generation markets."
Mr. Pyne further commented, "Our 2012 capital spending guidance range is $265 to $275 million, including approximately $110 million for the construction of 55 inland tank barges and five inland towboats, and approximately $70 million in progress payments on the construction of a new offshore integrated dry-bulk barge and tugboat unit scheduled for delivery in the 2012 fourth quarter with an estimated total cost of $52 million each."