Kirby Corp. announced net earnings for the second quarter ended June 30 of $28.6 million, or 48 cents per share. This compares to $25.8 million, or 48 cents per share, for the 2017 second quarter.
Consolidated revenues for the 2018 second quarter were $802.7 million compared with $473.3 million reported for the 2017 second quarter. The second quarter results include a previously announced one-time, non-tax deductible charge of 30 cents a share related to the retirement of Executive Chairman Joe Pyne.
David Grzebinski, Kirby’s president and CEO, said he was pleased with the results. "In the inland marine transportation business, we delivered strong improvement in revenue and operating profit as this business started its recovery from the prolonged downturn and we realized the benefits of recent acquisitions," he told analysts during the company's earnings call today. This sets the stage for what Kirby believes will be a further upward movement in pricing in the second half of 2018.
During the quarter, Kirby completed the integration of Higman Marine and Targa Resources Corp.'s pressure barges, and both had a positive contribution to the Houston-based company's second-quarter earnings. Approximately 180 barges and 75 towboats have been added to the Kirby fleet through these acquisitions. At the end of the second quarter, the inland fleet had 990 barges, representing 21.7 million bbls. of capacity.
In Kirby's coastal marine business, overall market conditions were unchanged during the quarter, however, the company reported that it did see a positive shift with a few spot contracts repricing modestly higher in the low single digits. Utilization rates also improved into the low-to-mid 80% range.
"While these trends are encouraging, we continue to expect the coastal market will remain challenging for the remainder of 2018 and into 2019,” Grzebinski said.
Operating income for the second quarter was $38.2 million compared with $35.6 million for the 2017 second quarter. In the inland market, barge utilization was in the high-80%-to-low-90% range during the quarter, compared to the mid-to-high 80% range in the 2017 second quarter. Operating conditions were adversely affected by high water conditions on the Mississippi River early in the quarter, resulting in increased delay days compared to the 2017 second quarter. However, weather conditions improved in May and June, helping to improve operating efficiency but driving seasonally lower utilization compared to the first quarter. Term contract pricing moved modestly higher in the second quarter, with contracts renewing up in the low single digits on average. Spot market pricing was in line with the 2018 first quarter, but was up 10% to 15% year-on-year.
Revenues in the inland market increased compared to the 2017 second quarter primarily due to the contribution from the Higman acquisition, the recent pressure barge purchases, and higher fleet utilization. The operating margin for the inland business improved to the mid-teens during the quarter. In the coastal market, barge utilization rates improved to the low-to-mid-80% range during the second quarter. Term contract and spot market pricing were stable relative to the 2018 first quarter. However, compared to the 2017 second quarter, both term and spot market pricing were down 10% to 15% on average. Revenues in the coastal market declined compared to last year primarily due to lower contract pricing and a reduction in transport volumes as a result of barge retirements which were completed at the end of 2017. The marine transportation segment’s 2018 second quarter operating margin was 10.1% compared with 10.7% for the 2017 second quarter.
Kirby's earnings guidance range for the third quarter is 50 cents to 70 cents per share which is down sequentially primarily due to vendor delays and the timing of revenue recognition in distribution and services. This is partially offset by continued improvement in inland marine transportation. For the full year, Kirby expects its earnings range to be $2.15 to $2.55 per share, or $2.50 to $2.90 per share excluding the 30 cents per share charge for Pyne’s retirement and the 5 cents per share non-cash expenses related to a first quarter amendment to the employee stock plan.
Looking forward, Kirby estimates that utilization will be inn the low-to-mid-90% range. The company expects that industrywide barge retirements, minimal newbuilds, and additional petrochemical capacity will result in favorable industry utilization rates throughout the remainder of 2018. "In summary, things continue to move in the right direction. Inland marine has turned the corner and is expected to continue to improve going forward."
However, as the inland market has started to recover, the labor market has tightened. As a result, the company increased wages for its inland mariners and shore staff effective this quarter. This is expected to affect Kirby's earnings by approximately 5 cents per share for the remainder of 2018.
"Now to sum things up, our second-quarter results were solid," Grzebinski said. "And recent inland marine acquisitions are generating positive momentum and contributions to earnings. Term contract pricing has recently started to move higher on average. And overall, it appears that a pricing inflection is likely in the second half of the year. Coastal remains stable and profitability has improved."
