Kirby Announces 2Q Results
Kirby Corporation (NYSE: KEX) announced net earnings attributable to Kirby for the second quarter ended June 30, 2011 of $41.7 million, or $.77 per share, compared with $29.3 million, or $.54 per share, for the 2010 second quarter. The 2011 second quarter results included an estimated $.07 per share negative impact from high water and flooding issues throughout the Mississippi River System. Consolidated revenues for the 2011 second quarter were $437.3 million compared with $273.7 million reported for the 2010 second quarter.
Joe Pyne, Kirby's Chairman and Chief Executive Officer, commented, "Our second quarter results reflected continued strong tank barge utilization and an improvement in barging rates as United States petrochemical production remained strong and refinery utilization stable. We are also beginning to see new demand for crude oil transportation from shale formations in South Texas. In addition, we had a positive contribution 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. These positive results were partially offset by the negative impact of the record high water and flooding conditions throughout the Mississippi River System during the quarter."
Mr. Pyne continued, "In addition to the United acquisition, on July 1 we successfully expanded our marine transportation footprint with the acquisition of K-Sea Transportation Partners L.P. ("K-Sea"), an operator of tank barges and tugboats participating in United States coastwise transportation of primarily refined petroleum products." The United and K-Sea acquisitions are discussed in detail on page 3 and 4 of this press release.
Kirby reported net earnings attributable to Kirby for the 2011 first six months of $74.1 million, or $1.38 per share, compared with $53.9 million, or $1.00 per share, for the first half of 2010. Consolidated revenues for the 2011 first six months were $736.7 million compared with $541.9 million for the first six months of 2010.
Segment Results – Marine Transportation
Marine transportation revenues for the 2011 second quarter were $266.6 million, a 16% increase compared with the 2010 second quarter, and operating income was $58.4 million, an 18% increase compared with the second quarter of 2010. Tank barge utilization for the petrochemical and black oil products fleets remained in the low to mid 90% level. Low natural gas prices continued to positively impact the global competitiveness of the United States petrochemical industry, leading to higher petrochemical production levels and corresponding increased marine transportation volumes for both domestic consumers and terminals for export destinations. The black oil products market remained favorable, driven by the continued exportation of heavy fuel oil and new demand for the transportation of crude oil principally from the Eagle Ford shale formations in South Texas. Diesel fuel prices for the 2011 second quarter increased 42% compared with the 2010 second quarter, thereby positively impacting marine transportation revenues since fuel price increases are covered by fuel escalation and de-escalation clauses in term contracts.
High water and flooding on the Mississippi River System and a portion of the Gulf Intracoastal Waterway for the majority of the second quarter negatively impacted the quarter by an estimated $.07 per share. With the high water and flooding conditions the United States Coast Guard and Army Corps of Engineers periodically closed sections of waterway and placed restrictions in certain areas as the high water levels moved southbound. Restrictions included limits on tow sizes, extra horsepower requirements, daytime travel only restrictions, and assist towboat requirements at bridges, locks, certain sections of affected waterways and at barge fleeting areas. As a result, trip times were extended, additional towboats were chartered and operating inefficiencies occurred, resulting in loss of revenues and additional operating expenditures.
The marine transportation operating margin for the 2011 second quarter was 21.9% compared with 21.6% for the second quarter of 2010, a reflection of continued strong petrochemical and black oil products demand and equipment utilization levels, and higher term and spot market pricing, partially offset by the cost impact of the high water and flooding during the majority of the quarter and the cost impact of rising diesel fuel prices.
Segment Results – Diesel Engine Services
Diesel engine services revenues for the 2011 second quarter were $170.7 million, a 293% increase compared with the 2010 second quarter, and operating income was $17.6 million, a 328% increase compared with the second quarter of 2010. The significant increase in both revenue and operating income were primarily attributable to the United acquisition. During the second quarter, United benefited from the strong market for manufacturing and sale of hydraulic fracturing equipment used in recovering oil and gas reserves from United States land-based shale formations, and from the sale of transmissions and diesel engines. The segment also continued to benefit from a strong power generation market for engine-generator set upgrade projects, along with strong direct parts and engine sales. Service and direct parts sales in both the medium-speed and high-speed Gulf Coast oil services market remained weak as customers continued to defer major maintenance projects.
The diesel engine services operating margin was 10.3% for the 2011 second quarter compared with 9.5% for the 2010 second quarter and 11.5% for the 2011 first quarter. The 2011 second quarter operating margin reflected the lower margins for United's manufacturing and sale of transmissions and diesel engines as compared to the service component of the segment.
Commenting on the 2011 third quarter and full year market outlook and guidance, Mr. Pyne said, "Our earnings guidance for the 2011 third quarter is $.82 to $.87 per share, a 44% to 53% increase compared with $.57 per share reported for the 2010 third quarter. Our third quarter guidance range reflects the continuation of the second quarter's strong petrochemical and black oil products demand, favorable term and spot contract rate increases and strong demand for the manufacturing of hydraulic fracturing equipment. These will be partially offset by fewer power generation engine-generator set upgrade projects and lower results from our four offshore dry-bulk barge and tug units with one unit in the shipyard for a portion of the quarter. The third quarter guidance includes positive earnings from K-Sea, offset by estimated one-time K-Sea acquisition transaction costs of $.03 per share, and higher interest expense and higher common shares outstanding associated with the K-Sea acquisition. For the 2011 year, we are raising and tightening our earnings per share guidance to $3.00 to $3.10 from previous guidance of $2.70 to $2.90 per share."
Mr. Pyne continued, "Our 2011 capital spending guidance range was updated to $225 to $235 million, including approximately $120 million for the construction of 40 inland tank barges and two inland towboats and progress payments on 2012 inland tank barge and towboat construction. The guidance range also includes approximately $35 million in progress payments on the construction of two offshore integrated dry-bulk barge and tugboat units scheduled for delivery in 2012 with an estimated cost of $50 million each."
2011 Second and Third Quarter Acquisitions
On April 15, 2011, Kirby purchased United, a distributor and service provider of engine and transmission related products for the oil and gas services, power generation and transportation industries, and a manufacturer of oilfield service equipment. The purchase price was $271.2 million in cash. In addition, there is a three-year earnout provision for up to an additional $50 million payable in 2014. United, headquartered in Oklahoma City, Oklahoma with 21 locations across 13 states, distributes and services equipment and parts for Allison Transmission, MTU Detroit Diesel Engines, Daimler Trucks NA, and other diesel and natural gas engines. United also manufactures oilfield service equipment, including hydraulic fracturing equipment. United's principal customers are oilfield service companies, oil and gas operators and producers, compression service companies and transportation companies. The acquisition was financed through Kirby's operating cash flows and from borrowings under Kirby's revolving credit facility.
On July 1, 2011, Kirby purchased K-Sea, an operator of tank barges and tugboats participating in the coastwise transportation primarily of 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 58 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 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.