Kirby Corp. (KEX) filed Quarterly Report for the period ended 2009-09-30.
Kirby Corporation conducts operations in two business segments: marine transportation and diesel repair. The Company's marine transportation segment is engaged in the inland transportation of industrial chemicals petrochemical feedstocks agricultural chemicals and refined petroleum products by tank barge; and in the offshore transportation of refined petroleum products by tanker and tank barge and dry-bulk container and palletized cargoes by barge and break-bulk ship. The Company's diesel repair segment is engaged in the sale overhaul and repair of diesel engines and related parts sales. Kirby Corp. has a market cap of $1.86 billion; its shares were traded at around $34.63 with a P/E ratio of 13.4 and P/S ratio of 1.3. Kirby Corp. had an annual average earning growth of 12.2% over the past 10 years. GuruFocus rated Kirby Corp. the business predictability rank of 5-star.
Highlight of Business Operations:
The Company s marine transportation segment s revenue and operating income for the 2009 third quarter decreased 21% and 11%, respectively, when compared with the third quarter of 2008. For the 2009 first nine months, revenue and operating income decreased 20% and 14%, respectively, compared with the first nine months of 2008. During the 2009 third quarter and first nine months, all four transportation markets, petrochemicals, black oil products, refined products and agricultural chemicals, saw demand for the movement of products soften, driven by the current economic recession. Pricing declined during the 2009 third quarter and first nine months as overall industry demand softened. In addition, lower diesel fuel prices resulted in lower 2009 third quarter and first nine months revenues associated with the pass through of diesel fuel to customers through fuel escalation and de-escalation clauses in term contracts when compared with the 2008 third quarter and first nine months. During the 2009 second and third quarters, petrochemical demand of more finished products into the Midwest continued to improve modestly and demand along the Gulf Coast stabilized when compared with the 2009 first quarter. Black oil products and refined products demand stabilized during the 2009 third quarter, but remained well below prior year levels. Agricultural chemical demand was weak during the 2009 third quarter and first nine months due to high Midwest inventory levels. Favorable operating conditions during the 2009 third quarter and first nine months offset to some degree the impact of the lower demand, but also drove down barge utilization.
During the 2009 third quarter and first nine months, approximately 80% of the marine transportation revenues were under term contracts and 20% were spot market revenues. With the decline in industry-wide demand, excess equipment throughout the industry was moved into the spot market, placing downward pressure on spot market pricing, as well as on contract renewals. Time charters, which insulate the Company from revenue fluctuations caused by weather and navigational delays and temporary market declines, represented approximately 54% of marine transportation revenues under term contracts during the 2009 third quarter compared to an average of 56% during 2008 and the first six months of 2009. Rates on term contracts, net of fuel, renewed during the 2009 first quarter were generally renewed at existing rates and in some cases rates were traded for longer terms, while 2009 second and third quarter contract renewals declined in the zero to 8% and 7% to 15% range, respectively, when compared with the corresponding quarters of 2008. Spot market rates for 2009, which include the cost of fuel, decreased an average of 3% to 4% in the first quarter, 10% to 15% in second quarter and 10% to 20% in the third quarter when compared with the corresponding quarters of 2008. In each of the 2009 first three quarters, the Company estimates that approximately 40% to 50% of the spot market rate decreases were fuel related. Effective January 1, 2009, annual escalators for labor and the producer price index on a number of multi-year contracts resulted in rate increases on those contracts by 4% to 5%, excluding fuel.
For the 2009 third quarter and nine months, approximately 16% and 19%, respectively, of the Company s revenue was generated by the diesel engine services segment, of which 56% and 61% were generated through service and 44% and 39% from direct parts sales, respectively. The results of the diesel engine services segment are largely influenced by the economic cycles of the marine, power generation and railroad industries it serves.
The Company s diesel engine services segment s 2009 third quarter revenue and operating income decreased 34% and 56%, respectively, compared with the third quarter of 2008. For the first nine months of 2009, revenue and operating income decreased 22% and 46%, respectively, compared with the 2008 first nine months. Demand levels for service and direct parts sales across all segments of the inland and offshore marine markets and offshore oil services markets remained weak as customers deferred maintenance on equipment in response to the economic slowdown. The medium-speed railroad parts and service market was also weak as industrial and shortline railroad customers deferred maintenance in response to lower railroad traffic. The medium-speed power generation market benefited from favorable service and parts sales in the 2009 first half but revenues declined in the 2009 third quarter. The 2008 third quarter and first nine months results were negatively impacted by Hurricane Gustav, as noted above, which resulted in the closure of the segment s facilities for several days, as well as customers facilities and operations.
The diesel engine services segment s operating margin for the 2009 third quarter was 10.4% compared with 15.7% for the third quarter of 2008. For the 2009 first nine months, the operating margin was 10.9% compared with 15.8% for the 2008 first nine months. The lower operating margin for the 2009 third quarter and first nine months reflected lower service levels and direct parts sales and resulting lower labor utilization, and the charge for early retirements and staff reductions in the 2009 first quarter.
As a result of the continuing global recession, petrochemical and refining production is below and is anticipated to remain below 2008 levels for the remainder of 2009. Petrochemical demand of more finished products into the Midwest continued to modestly improve and demand along the Gulf Coast stabilized when compared with the 2009 first half; however, the United States economy will have to start expanding before the Company sees any significant improvement in demand. During 2008 and the 2009 first nine months, 80% of marine transportation revenues were under term contracts, of which approximately 50% are up for renewals throughout 2009, including contracts renewed in the 2009 first nine months. Rates on term contracts, net of fuel, renewed during the 2009 first quarter were generally renewed at existing rates and in some cases rates were traded for longer terms, while 2009 second and third quarter contract renewals declined in the zero to 8% and 7% to 15% range, respectively, when compared with the corresponding quarters of 2008. Spot market rates for 2009, which include the cost of fuel, decreased an average of 3% to 4% in the first quarter, 10% to 15% in second quarter and 10% to 20% in the third quarter when compared with the corresponding quarters of 2008. In each of the 2009 first three quarters, the Company estimates that approximately 40% to 50% of the spot market rate decreases were fuel related. During 2008 and the 2009 first nine months, some incremental capacity was added to the industry fleet and the Company anticipates some additional capacity will be added during the 2009 fourth quarter, based on current orders; however, the current reduction of petrochemical and refining production has resulted in excess barge capacity, lower utilization and the acceleration of the retirement of older barges. Weaker market conditions may constrain industry wide new barge orders for 2010 and the retirement of older barges may be accelerated. The Company also anticipates that the diesel engine services segment will continue to perform below 2008 levels with no notable improvement forecasted for the 2009 fourth quarter as customers continue to defer maintenance due to reduced utilization of their equipment.
KEX is in the portfolios of PRIMECAP Management.
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