Kirby Corporation (KEX)

KEX 
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Kirby Corporation (KEX)

Q3 2012 Earnings Call

October 25, 2012 11:00 a.m. ET

Executives

Stephen Holcomb – VP, IR

Joe Pyne – Chairman and CEO

Greg Binion – President and COO

David Grzebinski – EVP and CFO

Analysts

Jon Chappell – Evercore Partners

Gregory Lewis - Credit Suisse

Jack Atkins – Stephens

Ken Hoexter – Merrill Lynch

John Barnes – RBC Capital Markets

Chaz Jones – Wunderlich

Kevin Sterling – BB&T Capital Markets

Alex Brand – SunTrust

David Beard – Iberia

Jimmy Gilbert – Iberia Capital

Bill Baldwin - Baldwin Anthony

Presentation

Operator

Welcome to the Kirby Corporation 2012 Third Quarter Conference Call. My name is Trish and I will be your operator for today’s call. (Operator Instructions) Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to Steve Holcomb. Please go ahead.

Stephen Holcomb

Good morning. Thank you for joining us. With me today are Joe Pyne, Kirby’s Chairman and Chief Executive Officer; Greg Binion, Kirby’s 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 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 the future are forward-looking statements. These statements reflect management’s reasonable judgment with respect to future events. Forward-looking statements involve risks 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, 2011, filed with the Securities and Exchange Commission. I will now turn the call over to Joe.

Joe Pyne

Thank you, Steve. We announced last night that our third-quarter earnings of $0.95 per share came at the upper end of our $0.87 to $0.97 per share guidance range. Inland tank barge business continues to perform well with results that were above 2011 third quarter levels despite the low water conditions throughout the Mississippi River system that created a number of operating challenges this quarter, in addition to the delays caused by hurricane Isaac which was also in the quarter.

Demand for our coastal tank barge equipment was roughly in line with the 2012 second-quarter levels although we are beginning to see some modest improvement, particularly towards the latter half of the quarter. Our marine diesel engine service, that’s our heritage diesel engine service, operating results were below their 2011 third-quarter results. This was principally due to the hurricane. The hurricane closed our Louisiana facilities for several days and low water conditions which had some of our customers deferred maintenance projects and to a lesser extent of the timing of projects.

In our land-based diesel engine service business, the market for new pressure pumping units continues to be very weak and is the primary factor in the decline in overall diesel engine service revenues compared to last year. I am going to come back at the end of our prepared remarks and talk about the fourth quarter and the year outlook.

I’ll now turn the call over to Greg Binion who will discuss our inland tank barge and diesel engine service markets. And then today David will discuss the coastal tank barge market as well as the financial update.

Greg Binion

Thank you, Joe. Good morning to all. For the third quarter, our inland transportation sector continued its overall strong performance with high equipment utilization in the 90% to 95% range with both higher term and spot contract pricing. The low water conditions on the Mississippi River which began in mid-May caused -- persisted through the third quarter causing delays, light loadings and smaller tow sizes all of which caused a reduction in our ton miles. These conditions have continued into October and could extend into the fourth quarter as we continue to experience drought conditions in the Midwest which impacts our river loadings and efficiency.

To date we have not seen sufficient rainfall to relieve the situation and there is a possibility for the situation to get worse in sections of the upper Mississippi river near St. Louis. As they did last year in the high water, the Army Corps of Engineers has done a very good job in keeping the river open and continues to work with industry to minimize commercial disruptions. We will continue to update you on the situation as it develops further.

During the third quarter, hurricane Isaac also drove increased delay days forcing us to limit or suspend operations for as many as nine days for vessels in Southeast Louisiana. While operating conditions were and remain challenging, demand across our inland markets remains strong. Revenues from our long-term contracts, that is one year or longer in duration, remain at 75% and the mix of the time charter and the freightment business for the third quarter was 58% and 42% respectively.

Turning to the inland marine transportation pricing, term contracts during the third quarter continued to be renewed in the mid-single-digit level and in some cases higher when compared to 2011 third quarter. Spot contract pricing, which includes the price of fuel saw rate increases modestly when compared to the 2012 second quarter. During the 2012 first nine months, we took delivery of 53 new tank barges, totaling 972,000 barrels of capacity and retired 40 tank barges with 635,000 barrels of capacity.

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