Kirby Corporation (KEX)

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Kirby Corporation (KEX)

Q3 2013 Earnings Call

October 28, 2013, 11:00 AM ET

Executives

Stephen Holcomb - Vice President, Investor Relations

Joseph Pyne - Chairman, President and Chief Executive Officer

David Grzebinski - Executive Vice President and Chief Financial Officer

Gregory Binion - President, Marine Transportation Group

Analysts

Jon Chappell - Evercore Partners

Greg Lewis - Credit Suisse

Michael Webber - Wells Fargo

Jack Atkins - Stephens

William Horner - BB&T Capital Markets

Ken Hoexter - Merrill Lynch

John Barnes - RBC Capital Markets

Chaz Jones - Wunderlich

David Tamberrino - Stifel

David Beard - Iberia

Presentation

Operator

Good morning, and welcome to the Kirby Corporation 2013 third quarter earnings conference call. My name is Sherry, and I'll be your operator for this call. (Operator Instructions) I would now like to turn the call over to Steve Holcomb. Steve, please go ahead.

Stephen Holcomb

Thank you for joining us this morning. With me today are Joe Pyne, Kirby's Chairman, President and Chief Executive Officer; David Grzebinski, Kirby's Executive Vice President and Chief Financial Officer; and Greg Binion, President of Kirby's Marine Transportation Group.

During this 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 website at kirbycorp.com in the Investor Relations section under non-GAAP financial data.

Statements contained in this conference call with respect to 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 ended December 31, 2012, filed with Securities and Exchange Commission.

I will now turn the call over to Joe.

Joseph Pyne

Thank you, Steve, and good morning. Earlier this morning we announced third quarter earnings of $1.21 per share, which included a $0.08 per share credit to the contingent earn-out liability, thereby eliminating all the remaining earn-out liability associated with our acquisition of United Holdings in April 2011.

Our inland and coastal tank barge fleets continue to remain high equipment utilization levels and favorable pricing trends during the quarter. We continue to benefit from strong petrochemical production, stable refinery production levels, export refined products and fuel oils, which remain strong, and of course the movement of crude oil and gas condensate from shale formations in United States. Our land-based diesel engine business remains challenging, and we do think that this business will be stronger next year.

In our marine diesel engine business, the medium-speed engine business was busy during the quarter, servicing both inland and coastal customers. The high-speed market was softer during the quarter as well for the year. As a result of this continued softness, we incurred a $500,000 charge for the temporary reduction of force during the third quarter. And with respect to the power generation market, it continues to be stable.

I'll now turn the call over to Greg, who will discuss our marine transportation markets, and then David will give you a financial update. Following those remarks, I'll conclude with some comments about our 2013 fourth quarter and year guidance and outlook.

Gregory Binion

Thank you, Joe, and good morning, to all. I will address the inland business and then the coastal business. Our inland marine transportation business continued its overall strong performance with equipment utilization in the 90% to 95% range in favorable terms and spot contract pricing. The 2013 third quarter saw improved operating conditions compared with the high water conditions on the Mississippi and Illinois River that persisted throughout the second quarter.

Additionally, the Algiers Locks was closed from late March until mid-July, creating heavy congestion and multi-day delays in the New Orleans area and along the alternate route to the Mississippi River, the Bayou Sorrels and Port Allen Locks. The congestion in delays were cleared by late July.

We also experienced seasonably typical low water on upper Mississippi and Illinois River during September, which resulted in the light loading of barges transiting those areas. For the 2013 third quarter, inland transportation revenues from our long-term contracts, that is one year or longer in duration, were 75% total revenue, with 59% from time charters and 41% from the freight contracts.

Moving to inland marine transportation pricing. Term contracts renewed during the third quarter continued to renew at the mid-single digit levels, when compared with the 2012 third quarter. Spot contact pricing levels on average remain 5% to 8% higher than term contract pricing.

Moving to new inland tank barge and towboat construction. During the 2013 first nine months, we took delivery of 55 new tank barges totaling $1.2 million barrels of capacity and three towboats. We retired 37 tank barges and returned four leased tank barges, removing approximately 630,000 barrels of capacity.

So net-net our 2013 first nine months, we added 14 tank barges to our fleet, increasing our inland capacity by approximately 570,000 barrels. As of September 30, we operated 855 inland tank barges with a capacity of 17.2 million barrels.

For the 2013 fourth quarter, we expect to place in service 13 inland tank barges with a capacity of approximately 175,000 barrels. The cost of the new inland tank barges and towboats as well as the two offshore dry-bulk tug barge units delivered throughout 2013 will be approximately $143 million.

At this present time with only 17.3 million barrels of inland capacity, slightly above our present level, and approximately 650,000 barrels above the 16.7 million barrels at the beginning of 2013. Kirby offshore marine continued its strong performance with equipment utilization remaining about 90% during the third quarter, consistent with the 2013 first six months and significantly above the 75% to 80% utilization range for the 2012 third quarter.

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