Kirby Corporation (KEX)

KEX 
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Kirby Corporation (KEX)

Goldman Sachs 2012 Industrials Conference

November 13, 2012 11:45 AM ET

Executives

Joe Pyne – Chairman and CEO

David Grzebinski – EVP and CFO

Analysts

Tom Kim – Goldman Sachs

Presentation

Tom Kim

My name is Tom Kim. I’m the lead transportation analyst for Goldman Sachs. It is my pleasure this morning to host the session with Kirby. I’m privileged to sit here with the Chief Executive Officer as well as the Chief financial Officer. Joe Pyne will lead us off, Joe is the CEO of Kirby, the nation’s leading inland and offshore tank barge operator and David Grzebinski will also present on the financial aspects of the company. And after about 25 minutes of discussion, we will go into Q&A.

Without further ado, I will turn the floor over to you Joe.

Joe Pyne

Okay, thank you, Tom. We are competing with the watch here. Kirby is in two businesses, we are in the marine transportation business and the diesel engine service business. Almost two thirds of our current revenues are in the marine transportation area and about a third in the diesel engine service area. We are exclusively a barge operator both in inland and coastal barge operator. So we will come back and drill down into these areas later in the presentation.

Just some public facts about Kirby, approximate market cap with $3.1 billion, enterprise value a little less than $4 billion, employee about 4400 people. The Kirby specific facts, we are the largest inland and coastal barge operator in the United States by a significant margin. About 75% of our inland revenues are under contract a year or longer. On the coastal side, this is really driven by the fact that the coastal sector is in a little different place in the recovery cycle than the inland sector, about 60% of the revenues are under contract a year or longer; 90% of those revenues are under time charter; on the inland side, it’s a little less, it’s about 58%. We would expect over time that the coastal revenues under contract would rise to levels at least where the inland contracts are.

On the diesel engine side of the business, we are a national service and parts provider of really the core engines that are used both in the marine applications but also in power servers and power generation application that need speed engines and high-speed engines. We also assemble, manufacture and remanufacture oilfield equipment, equipment that’s really used to extract oil from shale formations, high-pressure pumpers and associated equipment with that. We are an aggregator and consolidator in both those spaces, 31 marine transportation acquisitions since the middle 80s and 16 diesel engine acquisitions.

This looks at the marine transportation acquisitions, the most recent one being a coastal acquisition, Allied Transportation which was done first of this month. There are still some shippers engaged in this business, we have indicated them in red on the slide. What’s been happening is over time shippers have been outsourcing their fleets, we bought Union Carbide’s fleet, Dow’s fleet, (inaudible) chemical fleet, and Exxon’s fleet and some smaller fleets. But we think that the general trend has is going to be to outsource from the shipper community.

This looks at the diesel engine acquisitions, the largest one being the United Holdings which we did last year and we have announced, I don’t think we closed yet, Applied Services.

Revenue growth since 1988, over 16%; an impressive revenue growth with respect to earnings growth of about 15%. This goes back to 1994, we had a discontinued operation that we adjusted our earnings back to ‘94. We sold really an offshore piece of the marine transportation business in the late ‘90s.

Drilling down to the transportation side of the business, the inland waterway system of United States, a very extensive system, 12,000 miles of navigable waterways, navigable because of the series of locks and dams that maintain water levels to navigation drafts.

This is our inland operating system. On the coastal side, our operating system is shaded and blue and it’s the three colors as well as Alaska and Hawaii.

Some facts about the barge business. This is an industry that services the areas that I pointed out on the map. On the inland side, it is comprised of really two segments, a dry cargo segment which is a much larger segment – excuse me, a the tank barge segment which is the segment we are in. We are in the tank barge segment not in the dry cargo segment for a reason. We think that the tank barge side of the business is a business that you can actually add value. You are competing on price and availability but you’re also competing on your safety record, your ability to be flexible and reliable with respect to the service offering. You’re working with companies who really do care who the (inaudible) of your cargo is because of the reputational risk and liabilities that could be attached if there was a problem. In fact, the dry cargo business on the other hand is really availability and price, so it’s hard to add value to that.

On the coastal side, again we are the largest operator in this business but as you look at the industry population of barge users, we are defining it at about 185,000 barrels such that the part we are in and below. There are 270 barges in this universe.

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