Kirby posts record earnings in Q3 of US$52.7M, up 71% year-over-year as revenues double to US$563.6M; results driven by strong U.S. petrochemical production levels, strong export market, stable refinery production levels

Alison Gallant

Alison Gallant

Oct 27, 2011 – PRNewswire

HOUSTON , October 27, 2011 (press release) – - 2011 third quarter earnings per share were $.94 compared with $.57 earned in the 2010 third quarter
- 2011 fourth quarter earnings per share guidance is $.97 to $1.02 compared with $.59 earned in the 2010 fourth quarter
- 2011 year earnings per share guidance raised to $3.30 to $3.35 compared with $2.15 earned in 2010

Kirby Corporation ("Kirby") (NYSE:KEX - News) today announced record net earnings attributable to Kirby for the third quarter ended September 30, 2011 of $52.7 million, or $.94 per share, compared with $30.7 million, or $.57 per share, for the 2010 third quarter. Consolidated revenues for the 2011 third quarter were a record $563.6 million compared with $281.3 million reported for the 2010 third quarter.

Joe Pyne, Kirby's Chairman and Chief Executive Officer, commented, "Our record third quarter results were a reflection of strong United States petrochemical production levels, stable refinery production levels, and a continued strong exportation market, all leading to high inland tank barge utilization levels and favorable term and spot contract pricing. K-Sea Transportation Partners LLC ("K-Sea"), our coastwise and local transportation company acquired on July 1, 2011, was accretive to our third quarter operating results, but, as anticipated, K-Sea's operating results were offset by acquisition related expenditures, and higher interest expense and common shares outstanding associated with the acquisition." The K-Sea acquisition is discussed in detail on page 4 of this press release.

Mr. Pyne continued, "Our record third quarter results also reflected record earnings from United Holdings LLC ("United"), our land-based distributor and service provider of engine and transmission related products and manufacturer of oilfield service equipment acquired on April 15, 2011. United's operating results reflected a continued strong market for the manufacturing of hydraulic fracturing equipment and the sale and service of transmissions and engines."

Kirby reported record net earnings attributable to Kirby for the 2011 first nine months of $126.9 million, or $2.33 per share, compared with $84.6 million, or $1.56 per share, for the first nine months of 2010. Consolidated revenues for the 2011 first nine months were a record $1.3 billion compared with $823.2 million for the first nine months of 2010.

Segment Results – Marine Transportation

Marine transportation revenues for the 2011 third quarter were $351.2 million, a 51% increase compared with the 2010 third quarter, and operating income was $78.1 million, a 52% increase compared with the third quarter of 2010. The positive third quarter results reflected increased production volumes by United States petrochemical producers for both domestic and foreign destinations, benefiting from low natural gas prices and its impact on the global competitiveness of the United States petrochemical industry. As a result, Kirby's inland petrochemical fleet was close to fully utilized, operating in the low to mid 90% utilization levels. Kirby's black oil products fleet also operated at close to full utilization levels, benefiting from stable United States refinery production levels, the exportation of heavy fuel oils and demand for the transportation of crude oil principally from the Eagle Ford shale formations in South Texas and from the Midwest to the Gulf Coast. The strong utilization levels in both the petrochemical and black oil products fleets led to higher term and spot contract pricing during the quarter. Diesel fuel prices for the 2011 third quarter increased 51% compared with the 2010 third quarter, thereby positively impacting marine transportation revenues since fuel price increases are covered by fuel escalation and de-escalation clauses in term contracts.

The higher marine transportation revenues and operating income also reflected the acquisition of K-Sea effective July 1, 2011, generating approximately 20% of the marine transportation segment's 2011 third quarter revenues. K-Sea's coastwise and local fleet utilization level, primarily from the transportation of refined petroleum products, averaged in the 75% to 80% range.

The marine transportation operating margin for the 2011 third quarter was 22.2% compared with 22.1% for the third quarter of 2010, reflecting the strong petrochemical and black oil products demand, strong equipment utilization levels and higher term and spot contract pricing, partially offset by a lower K-Sea operating margin and the cost impact of higher diesel fuel prices.

Segment Results – Diesel Engine Services

Diesel engine services revenues for the 2011 third quarter were $212.4 million, a 338% increase compared with the 2010 third quarter, and operating income was $21.2 million, a 371% increase compared with the third quarter of 2010. The significantly higher revenues and operating income were attributable to United and its continued strong land-based market for manufacturing of hydraulic fracturing equipment used in recovering oil and gas reserves from United States land-based shale formations, and from the sale and service of transmissions, diesel engines and compressor systems. For the 2011 third quarter, United generated approximately 75% of the diesel engine services segment's revenues.

The segment also benefited from stronger service work and direct parts sales from its medium-speed and high-speed marine market, a reflection of the improved inland marine transportation market, and a continued favorable medium-speed power generation market for engine-generator set upgrade projects and direct parts and engine sales. Service and direct parts sales in both the medium-speed and high-speed Gulf Coast oil services market generally remained weak, with some modest improvement the result of Gulf of Mexico plug and abandonment activities.

The diesel engine services operating margin was 10.0% for the 2011 third quarter compared with 9.3% for the 2010 third quarter. The favorable operating margin reflected the stronger inland marine and power generation markets and higher than historical operating margin for United.

General Corporate Expenses

General corporate expenses for the 2011 third quarter were $7.1 million compared with $3.2 million for the 2010 third quarter, primarily reflecting acquisition transaction fees and other costs associated with the acquisition and integration of K-Sea.

Cash Generation

Kirby continued to generate strong cash flow during the 2011 first nine months, with EBITDA of $307.9 million. The cash flow was used in part to fund capital expenditures of $163.2 million, including $110.1 million for new tank barge and towboat construction and $53.1 million primarily for upgrades to the existing fleet. Total debt as of September 30, 2011 was $796.9 million, consisting primarily of a bank term loan issued in July 2011 to finance the K-Sea acquisition with a current balance of $513.5 million, a $200.0 million private placement loan that matures in February 2013 and $83.3 million outstanding under Kirby's $250 million revolving credit facility. Kirby's debt-to-capitalization ratio was 36.0% at September 30, 2011 compared with 20.5% as of June 30, 2011 and 15.1% as of September 30, 2010.

Outlook

Commenting on the 2011 fourth quarter and full year market outlook and guidance, Mr. Pyne said, "Our earnings guidance for the 2011 fourth quarter is $.97 to $1.02 per share, a 64% to 73% increase compared with $.59 per share reported for the 2010 fourth quarter. Our guidance reflects close to full equipment utilization in our petrochemical and black oil products fleets and continued favorable term and spot contract rate increases. We anticipate our inland marine transportation segment will be negatively impacted by winter weather conditions in the fourth quarter. Our guidance also includes positive operating results from our coastwise and local markets, but due to seasonality of the refined products market and winter weather conditions we do anticipate lower operating results compared with the third quarter. In our diesel engine services segment, we anticipate continued strong demand for the manufacturing of hydraulic fracturing equipment and sale and service of transmissions and engines, partially offset by fewer power generation engine-generator set upgrade projects during the fourth quarter. For the 2011 year, we are raising and tightening our earnings per share guidance to $3.30 to $3.35 compared with $2.15 per share for the 2010 year."

Mr. Pyne continued, "Our 2011 capital spending guidance range remains at $225 to $235 million, including approximately $120 million for the construction of 40 inland tank barges, two inland towboats and progress payments on 2012 inland tank barge and towboat construction. This guidance range also includes approximately $35 million in progress payments on the construction of two offshore articulated dry-bulk barge and tugboat units scheduled for delivery in the second half of 2012 with an estimated cost of $50 million each. The balance of approximately $70 to $80 million is primarily capital upgrades and improvements to existing marine equipment and facilities."

K-Sea Transportation Acquisition

On July 1, 2011, Kirby purchased K-Sea, an operator of tank barges and tugboats participating in the coastwise and local transportation of primarily refined petroleum products in the United States. The total consideration of the transaction was approximately $604 million, excluding transaction fees, consisting of $228 million in cash paid to K-Sea common and preferred unit holders and the general partner, $263 million of cash to retire K-Sea's outstanding debt, and $113 million through the issuance of approximately 1,939,000 shares of Kirby common stock valued at $58.28 per share, Kirby's closing share price on July 1, 2011. The acquisition was financed through a combination of a new $540 million bank term loan and the issuance of Kirby common stock.

K-Sea's fleet, comprised of 57 tank barges with a capacity of 3.8 million barrels and 63 tugboats, operates along the East Coast, West Coast and Gulf Coast of the United States, as well as in Alaska and Hawaii. K-Sea's tank barge fleet, 54 of which are double hull, has an average age of approximately nine years and is one of the youngest fleets in the coastwise and local trade. K-Sea's customers include major oil companies and refiners, many of which are current Kirby customers for inland tank barge services. K-Sea has major operating facilities in New York, Philadelphia, Norfolk, Seattle and Honolulu.

GAAP to Non-GAAP Financial Measures

The financial and other information to be discussed in the conference call is available in this press release and in a Form 8-K filed with the Securities and Exchange Commission. This press release and the Form 8-K include a non-GAAP financial measure, EBITDA, which Kirby defines as net earnings attributable to Kirby before interest expense, taxes on income, depreciation and amortization. A reconciliation of EBITDA with GAAP net earnings attributable to Kirby is included in this press release. This earnings press release includes marine transportation performance measures, consisting of ton miles, revenue per ton mile, towboats operated and delay days. Comparable performance measures for the 2010 and 2009 years and quarters are available at Kirby's web site, http://www.kirbycorp.com/, under the caption Performance Measurements in the Investor Relations section.

About Kirby Corporation

Kirby Corporation, based in Houston, Texas, is the nation's largest domestic tank barge operator, transporting bulk liquid products throughout the Mississippi River System, the Gulf Intracoastal Waterway and coastwise along all three United States coasts, Alaska and Hawaii. Kirby transports petrochemicals, black oil products, refined petroleum products and agricultural chemicals by tank barge. Through the diesel engine services segment, Kirby provides after-market service for medium-speed and high-speed diesel engines and reduction gears used in marine and power generation applications. Kirby also distributes and services high-speed diesel engines and transmissions, pumps and compression products, and manufacturers oil field service equipment, including hydraulic fracturing equipment, for land-based pressure pumping and oilfield service markets.
 

   

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 
       
 

Third Quarter

Nine Months

 
 

2011

2010

2011

2010

 
 

(unaudited, $ in thousands except per share amounts)

 

Revenues:

         

   Marine transportation                               

$    351,206

$    232,785

$    859,495

$    682,603

 

   Diesel engine services                              

212,376

48,532

440,777

140,636

 
 

563,582

281,317

1,300,272

823,239

 

Costs and expenses:

         

   Costs of sales and operating expenses                 

378,520

172,029

858,928

505,908

 

   Selling, general and administrative                     

52,780

29,334

121,284

90,366

 

   Taxes, other than on income                         

3,244

3,092

10,468

10,171

 

   Depreciation and amortization                         

36,827

24,135

90,233

70,359

 

   Loss (gain) on disposition of assets                   

(97)

(8)

(71)

55

 
 

471,274

228,582

1,080,842

676,859

 

   Operating income                                   

92,308

52,735

219,430

146,380

 

Other income (expense).                               

(6)

131

123

173

 

Interest expense                                     

(5,974)

(2,750)

(12,085)

(8,115)

 

   Earnings before taxes on income                      

86,328

50,116

207,468

138,438

 

Provision for taxes on income                           

(32,734)

(19,211)

(78,745)

(52,979)

 

   Net earnings                                      

53,594

30,905

128,723

85,459

 

Less: Net earnings attributable to noncontrolling interests     

(860)

(218)

(1,867)

(830)

 
           

   Net earnings attributable to Kirby                      

$     52,734

$     30,687

$    126,856

$     84,629

 
           

Net earnings per share attributable to Kirby common stockholders:  

         

   Basic                                           

$           .95

$           .57

$          2.33

$         1.57

 

   Diluted                                           

$           .94

$           .57

$          2.33

$         1.56

 

Common stock outstanding (in thousands):

         

   Basic                                            

55,151

53,318

53,853

53,430

 

   Diluted                                           

55,371

53,439

54,066

53,559

 
           

CONDENSED CONSOLIDATED FINANCIAL INFORMATION

 
       
 

Third Quarter

Nine Months

 
 

2011

2010

2011

2010

 
 

(unaudited, $ in thousands)

 

EBITDA:  (1)

         

   Net earnings attributable to Kirby                      

$     52,734

$     30,687

$    126,856

$     84,629

 

   Interest expense                                   

5,974

2,750

12,085

8,115

 

   Provision for taxes on income                         

32,734

19,211

78,745

52,979

 

   Depreciation and amortization                         

36,827

24,135

90,233

70,359

 
 

$   128,269

$     76,783

$    307,919

$   216,082

 
           

Capital expenditures                                  

$     65,237

$     40,399

$    163,210

$   108,036

 

Acquisitions of businesses and marine equipment           

$   486,365

$               -

$    816,767

$               -

 
         
     

September 30,

 
     

2011

2010

 
 

(unaudited, $ in thousands)

 

Cash and cash equivalents                                                           

$        8,365

$    149,204

 

Long-term debt, including current portion                                                 

$    796,882

$    200,151

 

Total equity                                                                        

$ 1,417,757

$ 1,125,731

 

Debt to capitalization ratio                                                             

36.0%

15.1%

 
               

 

 

 

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