Kirby Corporation (KEX)

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Kirby Corporation (KEX)

Bank of America Global Transportation Conference Call

May 15, 2013 08:00 am ET

Executives

Joseph H. Pyne – Chairman, President and Chief Executive Officer

David W. Grzebinski – Executive Vice President and Chief Financial Officer

Analysts

Ken Hoexter – Bank of America Merrill Lynch

Presentation

Ken Hoexter – Bank of America Merrill Lynch

Welcome to our 20th Annual Global Transport Conference. My name is Ken Hoexter. For those who don’t know me, I’m BofA Merrill Lynch’s Airfreight and Surface Transportation Analyst and we thank you for taking the time to join us today. We put together what we believe to be a great schedule of companies set that we have 40 companies’ industry representatives, all presenting over the next few days. So we think, we have a great show for you.

With us let me just get started right away. With us today we’ve got Kirby Corporation, Joe Pyne, Chairman and CEO; and Dave Grzebinski, EVP, President and CFO; and future CEO as Joe prepares for the Executive Chairman role next year. The company provides inland barging for industrial chemicals petroleum products and agriculture chemicals on both the inland waterway trade and coastal trade. This has been one of our favorites lately given the improvement of the offshore utilization. And with the growth of crew, there is certainly a lot of interest in growing, growing that rapidly interest within the story.

So with that let me turn it over to Joe. Thanks Joe.

Joseph H. Pyne

Thank you. Thank you, Ken. Good morning. Kirby Corporation is in two businesses. We’re in marine transportation and diesel engine services. With respect to the marine transportation segment, we’re both an inland tank barge operator as well as a coastal tank barge operator. We have a market cap of a little less than $4.4 billion enterprise value of close to $5.5 and about 4600 employees.

Just some facts about Kirby. Kirby, as I indicated is in the two sectors of the tank barge business both inland and coastal and we’re the largest in both sectors. We have on the inland side of the business 26%, 27% of the market and on the coastal side of the business, a little more, close to 30% of this market. We manage the business conservatively. On the inland side, 75% of our business is going to be under contract a year longer. On the coastal side, about 70% is a year or longer, but truthfully as that business improves we’ll look to move the contract mix up to a higher level.

In diesel engine business, we’re both a national provider of service to both medium and high speed engines and we’re in the land based drilling business, principally building and maintaining high pressure pumps used to frac shale deposits for oil and gas recovery. Kirby has been a consolidator. We’re the aggregation of 49 acquisitions that makeup our company. This looks at the marine acquisitions, we’ve made over the last 30 years and the diesel engine acquisitions.

With respect to the marine acquisitions, we’ve also brought a number of shipper fleets, shippers have started the outsourcing of their fleets in late 80s, early 90s, the ones that you would recognize would be Dow Chemical, Union Carbide and ExxonMobil’s fleets. We have good revenue growth over the last 25 years, over 16% the year, earnings growth a little less than 15% per year.

Drilling down into the marine transportation sector, we operate on the inland waterways system, for the inland part of our business, that’s a very extensive system 12,000 miles of navigable waterways that really opening the heartland of the country to itself and global markets. On the coastal part of the business, we’re on all three coasts: Atlantic, Gulf and Pacific, and we also have operations in Alaska and Hawaii. So we have a large geographic footprint in this business.

Just some facts about the business, this is a very important part of the U.S. transportation system. [Powerway] and the inland liquid business have about 3300 barges in this sector. There is a much larger dry cargo sector on the inland side of the business, over 18,000 dry cargo barges, we’re not in that area.

On the coastal business, as you define the market 200,000 barrels or less indicate, we have about 30% of that business that’s a much thinner marketers about 270 barges in that business. We do have a small offshore dry cargo business, seven of our offshore barges are dry cargo barges, but we’re principally a liquid mover. We’re protected by the Jones Act, a very little obsolescence in this business. You can move barges around to service the market and it’s an environmentally friendly mode of transportation.

This looks at the drivers, this is for the Transportation Group. A little less than 50% of what we do is chemicals followed by black oil refine products and then agriculture chemicals. With respect to chemicals that’s driven by consumer durable and non-durable goods. This is really the new part of the business, creating new demand. It’s the dislocation and poor infrastructure that moves liquids discovered in these shale formations to market and there is really three ways to do it: pipeline, rail and barge.

With respect to barging, we move quite a lot of cargo from South Texas to Houston and New Orleans. We move crude oil out of Albany for the New York Harbor into Delaware Bay. And there is a new movement rail to Anacortes, Washington and then barge to the California refining system.

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