HOUSTON, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Kirby Corporation (NYSE: KEX) today announced net earnings attributable to Kirby for the third quarter ended September 30, 2020 of $27.5 million, or $0.46 per share, compared with net earnings of $48.0 million or $0.80 per share for the 2019 third quarter. Consolidated revenues for the 2020 third quarter were $496.6 million compared with $666.8 million reported for the 2019 third quarter.
David Grzebinski, Kirby’s President and Chief Executive Officer, commented, “The COVID-19 pandemic and the associated economic slowdown adversely impacted Kirby’s businesses during the third quarter. Although general economic activity was slightly improved and increased profitability was realized in the distribution and services segment, the marine transportation businesses experienced lower volumes and barge utilization.
“In marine transportation, our inland and coastal businesses were heavily affected by weak demand for liquid products including refined products, crude, and black oil. Throughout the third quarter, refinery utilization was well below historical norms as many of our customers experienced low consumer demand, high product inventories, and unfavorable economics. Additionally, a very active hurricane season resulted in further reductions in volumes and widespread disruptions including prolonged closures of some refineries, chemical plants, waterways, and major ports. These challenging market conditions during the quarter contributed to low barge utilization and limited spot market activity.
“In distribution and services, financial results sequentially improved during the third quarter as activity levels began to recover, and we realized the benefit of cost reductions. In commercial and industrial, activity levels in on-highway and power generation increased as lockdowns eased and economic activity rebounded. Additionally, we experienced higher utilization levels in our power generation rental fleet as a result of hurricanes along the Gulf Coast. In the oilfield, although activity remained muted, U.S. frac activity levels improved from second quarter lows, leading to modest increases in service demand and sales of pressure pumping equipment. Overall, revenues increased 10% sequentially with operating margin improving to breakeven,” Mr. Grzebinski concluded.
Third Quarter 2020 Segment Results – Marine Transportation
Marine transportation revenues for the 2020 third quarter were $320.6 million compared with $412.7 million for the 2019 third quarter. Operating income for the 2020 third quarter was $32.4 million compared with $72.7 million for the 2019 third quarter. Segment operating margin for the 2020 third quarter was 10.1% compared with 17.6% for the 2019 third quarter.
In the inland market, average barge utilization was in the low 70% range during the 2020 third quarter compared to the low 90% range in the 2019 third quarter. Barge volumes were heavily impacted by lower refinery and chemical plant utilization and reduced demand for refined products and petrochemicals. Significant hurricane and tropical storm activity also contributed to widespread and prolonged operational disruptions and lower volumes along the Gulf Coast throughout the quarter. As a result of lower barge utilization, average spot market pricing for the quarter declined approximately 10% both sequentially and year-on-year. Average term contract pricing on expiring contracts was down in the low single digits. Revenues in the inland market declined 22% compared to the 2019 third quarter due to the impact of reduced barge utilization and lower fuel rebills, but were partially offset by the Savage Inland Marine asset acquisition which closed on April 1, 2020. During the third quarter, the inland market represented 77% of segment revenues and had an operating margin in the mid-teens.
In the coastal market, reduced demand for refined products and black oil resulted in limited spot market activity and barge utilization in the mid-70% range. Pricing in the spot market was generally stable; however, average term contract pricing declined in the mid-single digits year-on-year. Revenues in the coastal market declined 25% compared to the 2019 third quarter as a result of reduced spot market activity, lower fuel rebills, retirements of three large capacity vessels, and delays associated with hurricanes and tropical storms along the East and Gulf Coasts. The coastal market represented 23% of segment revenues and had a negative operating margin in the mid-single digits during the quarter.
Third Quarter 2020 Segment Results – Distribution and Services
Distribution and services revenues for the 2020 third quarter were $176.0 million compared with $254.1 million for the 2019 third quarter. Operating income for the 2020 third quarter was $1.1 million compared with $9.1 million for the 2019 third quarter. Operating margin was 0.6% for the 2020 third quarter compared with 3.6% for the 2019 third quarter.
In the oil and gas market, revenues and operating income declined compared to the 2019 third quarter due to low oil prices and reduced oilfield activity which resulted in limited customer demand for new and overhauled transmissions, parts and service. The manufacturing business experienced a sharp reduction in orders year-on-year with minimal deliveries of new and remanufactured pressure pumping equipment. During the quarter, the oil and gas market represented approximately 28% of segment revenues and had a negative operating margin in the low double digits.
In the commercial and industrial market, revenues declined compared to the 2019 third quarter primarily due to reduced economic activity which resulted in lower activity levels in the on-highway and power generation businesses. The marine business was also down year-on-year due to reduced major overhaul activity and new engine sales. These reductions were partially offset by the contribution from Convoy Servicing Company (“Convoy”), a Thermo King distributor which was acquired in early 2020. During the quarter, the commercial and industrial market represented approximately 72% of segment revenues and had an operating margin in the mid-single digits.
Cash Generation
For the 2020 third quarter, EBITDA was $85.7 million compared with $133.1 million for the 2019 third quarter. During the quarter, net cash provided by operating activities was $117.7 million, some of which was used to fund capital expenditures of $36.6 million. As of September 30, 2020, the Company had $119.6 million of cash and cash equivalents on the balance sheet. Total debt was $1,578.3 million, reflecting a $64.5 million reduction compared to June 30, 2020, and the debt-to-capitalization ratio was 33.9%.
2020 Outlook
Commenting on the fourth quarter outlook, Mr. Grzebinski said, “Although Kirby continues to be challenged by unprecedented declines in demand as a result of the COVID-19 pandemic, our business activity and utilization levels have bottomed. Economic activity is slowly improving, and we have seen pockets of increased demand. While this is encouraging, in the fourth quarter our results are expected to be impacted by continued low barge utilization and pricing pressure, normal seasonality from weather in marine, and likely, customer budget exhaustion in distribution and services. Looking beyond 2020, while the timing and magnitude of a material economic recovery are unclear, we believe this demand driven downturn is temporary and demand will rebound sometime in 2021. In marine, as discussed before, pricing typically does not improve until barge utilization is in the mid-80% range. Nevertheless, Kirby is in a strong financial position, and we will continue to tightly manage our costs, maintain capital discipline, generate free cash flow, and pay down debt.”
In inland marine, absent potential new lockdowns related to COVID-19, Kirby expects improvement in barge utilization going forward as refinery and chemical plants along the Gulf Coast recover from recent hurricanes and economic activity gradually increases. The reopening of the Illinois River in October is also expected to contribute some sequential improvement in barge utilization. However, until a meaningful recovery in demand occurs, market conditions are expected to remain challenging. As well, increased delays from seasonal winter weather are expected to have an adverse impact on operating efficiencies. Overall, compared to the 2020 third quarter, Kirby expects inland revenues and operating margins will be flat to down slightly in the fourth quarter.
In coastal, the spot market is expected to remain challenging in the near term until demand for refined products and black oil materially improves. However, compared to the third quarter, reduced delays associated with recent hurricanes and tropical storms on the East and Gulf Coasts are expected to modestly benefit the fourth quarter’s results. Overall, Kirby expects coastal fourth quarter revenues will be flat sequentially with operating margins in the negative low single digits.
In distribution and services, activity levels are slowly recovering from 2020 second quarter lows. In the fourth quarter, Kirby expects to benefit from the gradual improvement in the economy, but a weak oil and gas market, potential customer budget exhaustion, and some seasonality will likely result in sequential reductions in revenue and operating income. In the oil and gas market, activity is expected to be minimal as customers continue to rationalize excess pressure pumping capacity resulting in limited deliveries of new pressure pumping units. Also, many oil and gas companies are expected to slow drilling and completions activity in the fourth quarter, further reducing demand for parts and service. In commercial and industrial, demand for parts and new engines in marine and on-highway is expected to increase as economic activity improves and customers complete projects. These gains, however, will be partially offset by seasonal activity reductions associated with the dry cargo harvest in marine and reduced utilization of the power generation rental fleet following hurricane season. Overall, compared to the 2020 third quarter, segment revenues are expected to modestly decline in the fourth quarter with operating margins in the negative low to mid-single digits.
On the balance sheet, as of September 30, 2020, Kirby had approximately $613 million of cash and liquidity available. The Company does not have any scheduled debt maturities until 2023. Kirby expects 2020 capital spending to be approximately $150 million, representing a year-on-year reduction of approximately 40%. The Company remains focused on good maintenance of the marine transportation fleet, but capital spending needs are limited. Overall, Kirby expects to generate net cash provided by operating activities of $450 million to $500 million, with free cash flow of $300 million to $350 million in 2020.
About Kirby Corporation
Kirby Corporation, based in Houston, Texas, is the nation’s largest domestic tank barge operator transporting bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, coastwise along all three United States coasts, and in Alaska and Hawaii. Kirby transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge. In addition, Kirby participates in the transportation of dry-bulk commodities in United States coastwise trade. Through the distribution and services segment, Kirby provides after-market service and parts for engines, transmissions, reduction gears, and related equipment used in oilfield services, marine, power generation, on-highway, and other industrial applications. Kirby also rents equipment including generators, industrial compressors, railcar movers, and high capacity lift trucks for use in a variety of industrial markets, and manufactures and remanufactures oilfield service equipment, including pressure pumping units, for land-based oilfield service customers.
