Kirby Corporation (KEX)

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Kirby Corporation (KEX)

Q4 2012 Earnings Call

January 31, 2013, 11:00 am ET

Executives

Steve Holcomb - VP, IR

Joe Pyne - Chairman & CEO

Greg Binion - President & COO

David Grzebinski - EVP & CFO

Analysts

Gregory Lewis - Credit Suisse

Jon Chappell - Evercore Partners

Jack Atkins - Stephens

Ken Hoexter - Merrill Lynch

John Barnes - RBC

Chaz Jones - Wunderlich

Jimmy Gilbert - Iberia Capital

David Beard - Iberia

Steve O'Hara - Sidoti & Company

Presentation

Operator

Welcome to the Kirby Corporation 2012 Fourth Quarter Conference Call. My name is Allen and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Steve Holcomb. Mr. Holcomb, you may begin.

Steve Holcomb

Good morning. Thank you for joining us. With me today are Joe Pyne, Kirby’s Chairman and Chief Executive Officer; Greg Binion, our President and Chief Operating Officer and David Grzebinski, our Executive Vice President and Chief Financial Officer.

During this conference call we may refer to certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at kirbycorp.com in the Investor Relations section under non-GAAP financial data.

Statements contained in this conference call 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 risk and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby’s Form 10-K for the year-end December 31, 2011, filed with Securities and Exchange Commission.

I will now turn the call over to Joe.

Joe Pyne

Thank you, Steve and good morning. Yesterday afternoon we announced fourth quarter earnings of $1.03 per share including a $0.09 per share credit decreasing the fair market value of the earnout liability. The liability associated with our acquisition of United Holdings in April 2011. Despite this credit, we exceeded our guidance range, if you take the credit out of $0.83 to $0.93 per share.

For the year, even with the collapse of the land-based pressure pumping business, we still achieved record earnings of $3.73 per share or a 12% increase when you compare our $3.33 per share for last year which again were record earnings for the company.

In the 2012 fourth quarter, our inland tank barge business maintained high utilization rates with consistent and healthy levels of demand across all our markets. Low water conditions in the Mississippi River did continue to affect our operations during the quarter forcing us to light load cargo for cargo destined to Northern parts of the river system and making us a little less efficient because of the longer transit times and the reduced cargo levels.

Among other achievements for inland operations during the quarter, we executed the renewal of a multi-year contract with options with one of our largest customers ExxonMobil. In our coastal fleet, we experienced improvement in demand in all markets during the quarter. The fourth quarter historically is a little slower given the seasonality of this business. We attribute this to a combination of tighter capacity from new demand for coastal transportation of the crude oil and natural gas condensate, but also to higher heating oil demand associated with cooler weather in the Northeast during December.

We are also working more for inland customer base; this is encouraging. These are inland customers that have coastal requirements. As many of you are aware, we made the decision last year to invest more capital in our coastal fleet in 2012 and frankly for the next couple of years to bring our coastal equipment up to our internal maintenance standards. We think this investment will pay long-term dividends principally because it allows the fleet to meet the vetting requirements of our major inland customers, but it also makes it more reliable.

In our land-based diesel engine business, the market for new pressure pumping units continues to be very weak and is the primary factor of the decline in overall diesel engine service revenue from last year. Year-over-year revenue decline was a result of a significant reduction in orders for manufacturing in our land-based business. Also experiencing a decline in the sale of engines transmissions and parts; partially offsetting this decline in manufacturing is an increase at remanufacturing and maintenance of existing pressure pumping units.

The remanufacturing business is significantly more specialized and labor intensive than our manufacturing business. We continue to make progress in reducing the number of man hours required to service this equipment. We are not satisfied yet with our performance, but we think we are making good progress. While 2013 starts out to be a year of uncertainty over drilling activity with overcapacity in the US pressure pumping market, we are confident in the long-term strategy of growing the service side of this business and making this business more stable and predictable. The overall demand for new and remanufactured oil service equipment may yet improve later this year; we’ll see.

We spend a lot of time last year explaining this business; I thought it might be helpful to just summarize here where we are currently with United; this is our land-based diesel engine service business. We are moving United to a service platform which will principally maintain pressure pumping equipment and as demand returns manufacture this equipment to meet new and replacement requirements. We will also focus on continuing to expand this business’ existing supply and distribution business and also our compression service business which manufactures compression equipment for natural gas transmission and electric utilities; you know perhaps a good way to get your arms around this business as it currently situated is United which is this land-based diesel engine business for 2013 is going to be around 5% of our total forecasted EBITDA.

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