Kirby Corporation Announces 2020 Second Quarter Results
- Second quarter 2020 earnings of
$0.42 per share
- Marine transportation and distribution and services revenues decline amid weak economic conditions, but activity is slowly starting to improve
- Marine operating margins increase despite reduced volumes and barge utilization levels
- Significant cost reductions implemented across the Company and expect FY2020 capital expenditures down ~40% year-on-year
- Strong net cash flow provided by operating activities of
$171 million and free cash flow of$127 million in the second quarter
- Expect FY2020 free cash flow of
$250 to$350 million
“In marine transportation, with demand for many liquid products down significantly during the quarter, refiners scaled back their utilization levels into the high 60% range before it gradually improved into the mid-70% range, and chemical plant utilization fell to near 70%. As a result, demand for barge transportation weakened as the quarter progressed, and when combined with favorable summer operating conditions, our barge utilization fell into the mid-70% range in inland and the low 70% range in coastal by the end of June. To offset the impact of these activity declines, we aggressively implemented additional cost reductions across the business, significantly reducing horsepower, operating costs, and general and administrative expenses. Despite a 6% sequential reduction in segment revenue, our cost reduction efforts contributed to a sequential improvement in segment operating margins from 12.6% to 13.5%.
“Distribution and services experienced significant headwinds during the second quarter with a 33% sequential reduction in revenue. In the oilfield, the decline in oil prices, lower rig counts, and reduced demand resulted in an approximate 80% decline in
Second Quarter 2020 Segment Results – Marine Transportation
Marine transportation revenues for the 2020 second quarter were
In the inland market, average barge utilization was in the mid-80% range during the quarter compared to the mid-90% range in the 2019 second quarter. Barge volumes were heavily impacted by reduced demand for refined products and petrochemicals. Operating conditions were fair with improved weather conditions across the waterway network and reduced flooding on the
In the coastal market, as a result of reduced demand for refined products and black oil transportation, barge utilization was in the mid-70% range during the 2020 second quarter compared to the mid-80% range in the 2019 second quarter. Spot market activity declined throughout the quarter; however, spot market and term contract pricing were stable. Revenues in the coastal market declined 17% compared to the 2019 second quarter as a result of reduced spot market activity, retirements of two large capacity vessels, and planned shipyard activity. The coastal market represented 20% of segment revenues and had a breakeven operating margin during the quarter.
Second Quarter 2020 Segment Results – Distribution and Services
Distribution and services revenues for the 2020 second quarter were
In the oil and gas market, revenues and operating income declined due to low oil prices and reduced activity which resulted in limited customer demand for new and overhauled transmissions, parts and service. The manufacturing business experienced a sharp reduction in orders with minimal deliveries of new and remanufactured pressure pumping equipment. During the quarter, the oil and gas market represented approximately 19% of segment revenues and had a negative operating margin.
In the commercial and industrial market, revenues declined primarily due to reduced economic activity and stay-at-home orders across the
Cash Generation
For the 2020 second quarter, EBITDA of
2020 Outlook
Commenting on the 2020 full year outlook,
In inland marine, although refinery and petrochemical plant utilization rates have started to improve, Kirby expects a slow recovery going forward until economic activity rebounds more significantly. With barge utilization rates starting the third quarter in the mid-70% range, the Company anticipates sequentially lower average barge utilization for the quarter. This is expected to have an adverse impact on revenues and operating margins. Overall, Kirby expects inland revenues and operating income will sequentially decline in the third quarter.
In the coastal market, with 85% of revenues under term contracts, much of coastal’s business is expected to be stable through the end of the year. The spot market remains challenging, but reduced shipyard maintenance is expected to benefit the third quarter’s results. Kirby plans to retire one additional large capacity vessel in the third quarter and expects reduced activity in the coal transportation business for the remainder of the year. Overall, Kirby expects coastal third quarter revenues and operating income will modestly improve sequentially.
In distribution and services, activity in the oil and gas market is expected to remain challenged with all major customers curtailing spending for the duration of 2020. Although some operators are starting to bring shut-in wells back on-line and frac activity is modestly improving, Kirby does not expect to see a material improvement in activity in the short-term as many customers have significant excess pressure pumping capacity available for use. In commercial and industrial, although the Company’s businesses continue to be adversely impacted by reduced economic activity, there have been some recent improvements in the on-highway and power generation sectors. Fleet miles in the nation’s trucking industry are growing, and power generation projects which were previously deferred are being rescheduled for the coming months. Additionally, Kirby expects increased seasonal utilization of the power generation rental fleet and higher activity in the Thermo King refrigeration businesses. As well, the impact of our cost reduction initiatives is expected to be more fully realized in the third quarter. As a result, overall, segment operating margins are expected to improve in the third quarter but remain below breakeven levels.
On the balance sheet, as of
Conference Call
A conference call is scheduled for
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
Forward-Looking Statements
Statements contained in this press release with respect to the future are forward-looking statements. These statements reflect management’s reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties. Actual results could differ materially from those anticipated as a result of various factors, including cyclical or other downturns in demand, significant pricing competition, unanticipated additions to industry capacity, changes in the Jones Act or in
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (unaudited, $ in thousands, except per share amounts) | |||||||||||||
| Revenues: | |||||||||||||
| Marine transportation | $ | 380,987 | $ | 404,286 | $ | 784,244 | $ | 772,407 | |||||
| Distribution and services | 160,172 | 366,756 | 400,841 | 743,256 | |||||||||
| Total revenues | 541,159 | 771,042 | 1,185,085 | 1,515,663 | |||||||||
| Costs and expenses: | |||||||||||||
| Costs of sales and operating expenses | 373,539 | 563,495 | 827,107 | 1,100,150 | |||||||||
| Selling, general and administrative | 65,612 | 69,150 | 137,692 | 141,946 | |||||||||
| Taxes, other than on income | 13,065 | 10,579 | 24,471 | 20,577 | |||||||||
| Depreciation and amortization | 54,502 | 55,093 | 110,288 | 110,316 | |||||||||
| Impairments and other charges | — | — | 561,274 | — | |||||||||
| (Gain) loss on disposition of assets | 189 | (3,118 | ) | (303 | ) | (5,275 | ) | ||||||
| Total costs and expenses | 506,907 | 695,199 | 1,660,529 | 1,367,714 | |||||||||
| Operating income (loss) | 34,252 | 75,843 | (475,444 | ) | 147,949 | ||||||||
| Other income | 2,290 | 2,381 | 5,013 | 1,813 | |||||||||
| Interest expense | (12,708 | ) | (15,515 | ) | (25,507 | ) | (28,716 | ) | |||||
| Earnings (loss) before taxes on income | 23,834 | 62,709 | (495,938 | ) | 121,046 | ||||||||
| (Provision) benefit for taxes on income | 1,429 | (15,269 | ) | 174,238 | (29,149 | ) | |||||||
| Net earnings (loss) | 25,263 | 47,440 | (321,700 | ) | 91,897 | ||||||||
| Less: Net earnings attributable to noncontrolling interests | (261 | ) | (153 | ) | (539 | ) | (314 | ) | |||||
| Net earnings (loss) attributable to Kirby | $ | 25,002 | $ | 47,287 | $ | (322,239 | ) | $ | 91,583 | ||||
| Net earnings (loss) per share attributable to Kirby common stockholders: | |||||||||||||
| Basic | $ | 0.42 | $ | 0.79 | $ | (5.38 | ) | $ | 1.53 | ||||
| Diluted | $ | 0.42 | $ | 0.79 | $ | (5.38 | ) | $ | 1.53 | ||||
| Common stock outstanding (in thousands): | |||||||||||||
| Basic | 59,912 | 59,740 | 59,898 | 59,725 | |||||||||
| Diluted | 59,937 | 59,907 | 59,898 | 59,865 | |||||||||
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (unaudited, $ in thousands) | |||||||||||||
| EBITDA: (1) | |||||||||||||
| Net earnings (loss) attributable to Kirby | $ | 25,002 | $ | 47,287 | $ | (322,239 | ) | $ | 91,583 | ||||
| Interest expense | 12,708 | 15,515 | 25,507 | 28,716 | |||||||||
| Provision (benefit) for taxes on income | (1,429 | ) | 15,269 | (174,238 | ) | 29,149 | |||||||
| Impairment of long-lived assets | — | — | 165,304 | — | |||||||||
| Impairment of goodwill | — | — | 387,970 | — | |||||||||
| Depreciation and amortization | 54,502 | 55,093 | 110,288 | 110,316 | |||||||||
| $ | 90,783 | $ | 133,164 | $ | 192,592 | $ | 259,764 | ||||||
| Capital expenditures | $ | 43,605 | $ | 66,336 | $ | 92,830 | $ | 127,268 | |||||
| Acquisitions of businesses and marine equipment | $ | 281,825 | $ | 5,370 | $ | 342,247 | $ | 252,840 | |||||
| 2020 | 2019 | ||||||||||||
| (unaudited, $ in thousands) | |||||||||||||
| Cash and cash equivalents | $ | 108,471 | $ | 22,521 | |||||||||
| Long-term debt, including current portion | $ | 1,642,839 | $ | 1,594,706 | |||||||||
| Total equity | $ | 3,051,984 | $ | 3,322,172 | |||||||||
| Debt to capitalization ratio | 35.0 | % | 32.4 | % | |||||||||
MARINE TRANSPORTATION STATEMENTS OF EARNINGS
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (unaudited, $ in thousands) | |||||||||||||
| Marine transportation revenues | $ | 380,987 | $ | 404,286 | $ | 784,244 | $ | 772,407 | |||||
| Costs and expenses: | |||||||||||||
| Costs of sales and operating expenses | 244,990 | 267,537 | 510,885 | 513,727 | |||||||||
| Selling, general and administrative | 26,816 | 29,255 | 58,740 | 62,472 | |||||||||
| Taxes, other than on income | 11,122 | 9,159 | 20,545 | 17,125 | |||||||||
| Depreciation and amortization | 46,684 | 45,092 | 91,983 | 90,416 | |||||||||
| Total costs and expenses | 329,612 | 351,043 | 682,153 | 683,740 | |||||||||
| Operating income | $ | 51,375 | $ | 53,243 | $ | 102,091 | $ | 88,667 | |||||
| Operating margin | 13.5 | % | 13.2 | % | 13.0 | % | 11.5 | % | |||||
DISTRIBUTION AND SERVICES STATEMENTS OF EARNINGS
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (unaudited, $ in thousands) | |||||||||||||
| Distribution and services revenues | $ | 160,172 | $ | 366,756 | $ | 400,841 | $ | 743,256 | |||||
| Costs and expenses: | |||||||||||||
| Costs of sales and operating expenses | 128,549 | 295,958 | 316,222 | 586,423 | |||||||||
| Selling, general and administrative | 37,225 | 37,195 | 75,197 | 74,586 | |||||||||
| Taxes, other than on income | 1,912 | 1,411 | 3,882 | 3,428 | |||||||||
| Depreciation and amortization | 6,633 | 9,064 | 15,969 | 18,082 | |||||||||
| Total costs and expenses | 174,319 | 343,628 | 411,270 | 682,519 | |||||||||
| Operating income (loss) | $ | (14,147 | ) | $ | 23,128 | $ | (10,429 | ) | $ | 60,737 | |||
| Operating margin | (8.8 | )% | 6.3 | % | (2.6 | )% | 8.2 | % | |||||
OTHER COSTS AND EXPENSES
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| (unaudited, $ in thousands) | |||||||||||||
| General corporate expenses | $ | 2,787 | $ | 3,646 | $ | 6,135 | $ | 6,730 | |||||
| Impairment of long-lived assets | $ | — | $ | — | $ | 165,304 | $ | — | |||||
| Impairment of goodwill | $ | — | $ | — | $ | 387,970 | $ | — | |||||
| Inventory write-downs | $ | — | $ | — | $ | 8,000 | $ | — | |||||
| (Gain) loss on disposition of assets | $ | 189 | $ | (3,118 | ) | $ | (303 | ) | $ | (5,275 | ) | ||
ONE TIME CHARGES AND BENEFITS
The 2020 first six months GAAP results include certain one-time charges. The following is a reconciliation of GAAP earnings to non-GAAP earnings, excluding the one-time items for earnings before tax (pre-tax), net earnings attributable to Kirby (after-tax), and diluted earnings per share (per share):
| First Six Months 2020 | |||||||||
| Pre-Tax | After-Tax | Per Share | |||||||
| (unaudited, $ in millions except per share amounts) | |||||||||
| GAAP loss | $ | (495.9 | ) | $ | (322.2 | ) | $ | (5.38 | ) |
| Impairments and other charges | 561.3 | 433.3 | 7.24 | ||||||
| Income tax benefit on 2018 and 2019 net operating loss carrybacks | — | (50.8 | ) | (0.85 | ) | ||||
| Earnings, excluding one-time items(2) | $ | 65.4 | $ | 60.3 | $ | 1.01 | |||
RECONCILIATION OF FREE CASH FLOW
The following is a reconciliation of GAAP net cash provided by operating activities to non-GAAP free cash flow(2):
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019(7) | 2020 | 2019(7) | ||||||||||
| (unaudited, $ in millions) | |||||||||||||
| Net cash provided by operating activities | $ | 170.6 | $ | 149.6 | $ | 242.1 | $ | 188.2 | |||||
| Less: Capital expenditures | (43.6 | ) | (66.3 | ) | (92.8 | ) | (127.3 | ) | |||||
| Free cash flow(2) | $ | 127.0 | $ | 83.3 | $ | 149.3 | $ | 60.9 | |||||
| FY 2020 Projection | FY 2019(7) | ||||||||
| Low | High | Actual | |||||||
| (unaudited, $ in millions) | |||||||||
| Net cash provided by operating activities | $ | 400.0 | $ | 500.0 | $ | 511.8 | |||
| Less: Capital expenditures | (150.0 | ) | (150.0 | ) | (248.2 | ) | |||
| Free cash flow(2) | $ | 250.0 | $ | 350.0 | $ | 263.6 | |||
MARINE TRANSPORTATION PERFORMANCE MEASUREMENTS
| Second Quarter | Six Months | ||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||
| Inland Performance Measurements: | |||||||||||||
| 3,688 | 3,707 | 7,307 | 6,853 | ||||||||||
| Revenue/Ton Mile (cents/tm) (4) | 8.2 | 8.4 | 8.5 | 8.7 | |||||||||
| Towboats operated (average) (5) | 324 | 309 | 318 | 297 | |||||||||
| Delay Days (6) | 2,815 | 3,331 | 7,305 | 7,944 | |||||||||
| Average cost per gallon of fuel consumed | $ | 1.12 | $ | 2.24 | $ | 1.55 | $ | 2.09 | |||||
| Barges (active): | |||||||||||||
| Inland tank barges | 1,131 | 1,067 | |||||||||||
| Coastal tank barges | 47 | 49 | |||||||||||
| Offshore dry-cargo barges | 4 | 4 | |||||||||||
| Barrel capacities (in millions): | |||||||||||||
| Inland tank barges | 25.6 | 23.7 | |||||||||||
| Coastal tank barges | 4.5 | 4.7 | |||||||||||
| (1) | Kirby has historically evaluated its operating performance using numerous measures, one of which is EBITDA, a non-GAAP financial measure. Kirby defines EBITDA as net earnings attributable to Kirby before interest expense, taxes on income, depreciation and amortization, impairment of long-lived assets, and impairment of goodwill. EBITDA is presented because of its wide acceptance as a financial indicator. EBITDA is one of the performance measures used in Kirby’s incentive bonus plan. EBITDA is also used by rating agencies in determining Kirby’s credit rating and by analysts publishing research reports on Kirby, as well as by investors and investment bankers generally in valuing companies. EBITDA is not a calculation based on generally accepted accounting principles and should not be considered as an alternative to, but should only be considered in conjunction with, Kirby’s GAAP financial information. | |
| (2) | Kirby uses certain non-GAAP financial measures to review performance excluding certain one-time items including: earnings before taxes on income, excluding one-time items; net earnings attributable to Kirby, excluding one-time items; and diluted earnings per share, excluding one-time items. Management believes that the exclusion of certain one-time items from these financial measures enables it and investors to assess and understand operating performance, especially when comparing those results with previous and subsequent periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of the company's normal operating results. Kirby also uses free cash flow, which is defined as net cash provided by operating activities less capital expenditures, to assess and forecast cash flow and to provide additional disclosures on the Company’s liquidity as a result of uncertainty surrounding the impact of the COVID-19 pandemic on global and regional market conditions. Free cash flow does not imply the amount of residual cash flow available for discretionary expenditures as it excludes mandatory debt service requirements and other non-discretionary expenditures. These non-GAAP financial measures are not calculations based on generally accepted accounting principles and should not be considered as an alternative to, but should only be considered in conjunction with Kirby’s GAAP financial information. | |
| (3) | Ton miles indicate fleet productivity by measuring the distance (in miles) a loaded tank barge is moved. Example: A typical 30,000 barrel tank barge loaded with 3,300 tons of liquid cargo is moved 100 miles, thus generating 330,000 ton miles. | |
| (4) | Inland marine transportation revenues divided by ton miles. Example: Second quarter 2020 inland marine transportation revenues of |
|
| (5) | Towboats operated are the average number of owned and chartered towboats operated during the period. | |
| (6) | Delay days measures the lost time incurred by a tow (towboat and one or more tank barges) during transit. The measure includes transit delays caused by weather, lock congestion and other navigational factors. | |
| (7) | See Kirby’s 2019 10-K and 2019 second quarter 10-Q for amounts provided by (used in) investing and financing activities. |
Contact:Eric Holcomb 713-435-1545
Source: Kirby Corporation