Kirby Corporation (KEX)

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Kirby Corporation (KEX)

Q4 2008 Earnings Call

January 29, 2009 1l:00 am ET

Executives

G. Stephen Holcomb - VP of IR

Joe Pyne - President and CEO

Norman W. Nolen - EVP, Treasurer and CFO

C. Berdon Lawrence - Chairman of the Board of Directors

Analysts

Jonathan Chappell - J.P. Morgan

Alexander Brand - Stephens Inc.

Ken Hoexter - BAS-ML

Noah Parquette - Cantor Fitzgerald

John Barnes - BB&T Capital Markets

Jimmy Gilbert - Rice Voelker

David Yuschak - SMH Capital

Daniel Burke - Johnson Rice & Company

(Dvorst Hinman) - Walt, Howsten and Company

Chaz Jones - Morgan, Keegan & Company, Inc

Matt Mylam - Seneca Capital

(Gregory McCosko) - Lord, Abbett & Co.

(Michael Harvey) - Halogen

Charles Rupinski - Maxim Group

Presentation

Operator

Good morning, my name is Carrie and I will be your conference operator today. At this time I would like to welcome everyone to the Kirby Corporation 2008 fourth quarter earnings conference call. (Operator Instructions)

Thank you Mr. Steve Holcomb, you may begin your conference.

G. Stephen Holcomb

Thank you for joining U.S. this morning. With me today is Berdon Lawrence, Kirby's Chairman, Joe Pyne, the President and Chief Executive Officer of Kirby and Norman Nolen, our Executive Vice President and Chief Financial Officer. During the conference call we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our web site, 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 annual report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Joe Pyne

Thank you Steve.

The 2008 fourth quarter was the 20th consecutive quarter that our earnings exceeded the same quarter the previous year, and 2008 was the fifth year in a row that we reported record financial results. Late yesterday we reported a 13% increase in our fourth quarter earnings, reporting $0.72 per share compared with the $0.64 per share recorded for the 2007 fourth quarter, and a 27% increase over our 2008 year earnings, reporting $2.91 per share, compared to the $2.29 per share for 2007.

Also included in our fourth quarter results was a $6 million before-tax, or a $0.07 per share after-tax, increase in our allowance for doubtful accounts due to the deteriorating economic environment that we're facing.

On the marine transportation side, petrochemical companies responded very aggressively to the worsening economic environment during the fourth quarter, announced a number of plant closures and reduced volumes within our market area in order to reduce their inventories. Alliance held up well in the third quarter because companies were in a catch-up mode following hurricanes Gustav and Ike. However our volumes were significantly weaker in the fourth quarter – 22% under last year, especially in our up-river markets. That's the part of our business that's closer to the end-user.

Throughout most of the fourth quarter we were able to utilize excess river equipment that principally the barges that work on the river in the canal where demand was stronger. We do anticipate that overall demand will stabilize, but will stabilize at levels below the first half of 2008 levels. Once our customers have completed their inventory adjustments and begin to get confidence with respect to what substandable (ph) demand is.

Kirby has historically used charter boats to satisfy approximately one-third of its horsepower requirements, which gives U.S. the flexibility to balance horsepower needs to current demand. To date, and over the high in the fourth quarter, we've released 23 charter boats in the last several months, which has helped U.S. reduce the margin erosion caused by falling demand. We are currently operating today 242 towboats, and we continue to downsize our tow boat fleet when warranted by market changes.

We will also address lower demand through cost reductions, which include an early retirement program and a reduction of shore staff in the first quarter. Also, deferring some capital projects when appropriate for them and idling some equipment and deferring maintenance on that equipment.

Our fourth quarter included a $0.06 after-tax per share timing benefit for lower diesel fuel costs, which fell from $3.99 per gallon in the third quarter to $2.59 per gallon in the fourth quarter. We do anticipate a reversal of this trend in the current quarter, I'll address that later in the call when we discuss our first quarter guidance.

Our fourth quarter term-and-spot revenue mix remained at 80% term and 20% spot. Time charter or day rate contracts which reduced revenue volatility caused by weather, navigation delays and market declines, ended the year at a high at 60% of total contracts, though we do expect that percentage to decrease as barge availability increases.

This isn't necessarily negative to Kirby because we've always have been able to leverage our flexibility, our power, our infrastructure, trade lanes and size to use our equipment more efficiently under our freight (inaudible) contracts renewed during the fourth quarter increased 8 to 10% over the same period in 2007. Spot rates which are impacted by falling fuel prices declined 5 to 6% over the quarter compared to the third quarter, but remained 8 to 10% higher than the fourth quarter of 2007.

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