雅虎香港財經 Kirby Corporation (NYSE:KEX) Q1 2024 Earnings Call Transcript
Kirby Corporation (NYSE:KEX) Q1 2024 Earnings Call Transcript April 25, 2024
Kirby Corporation beats earnings expectations. Reported EPS is $1.19, expectations were $0.98. Kirby Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the Kirby Corporation 2024 First Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over today to Mr. Kurt Niemietz, Kirby's VP of Investor Relations and Treasurer. Please go ahead.
Kurt Niemietz: Good morning, and thank you for joining the Kirby Corporation 2024 first quarter earnings call. With me today are David Grzebinski, Kirby's President and Chief Executive Officer; and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer; and Christian O'Neil, President of Kirby's Marine Transportation Group. A slide presentation for today's conference call as well as the earnings release, which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly-comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under Financials.
As a reminder, 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 and 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 latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David.
David Grzebinski: Thank you, Kurt, and good morning, everyone. Before we begin, I would like to take a moment to announce that effective tomorrow at Kirby's Annual Meeting, Christian O'Neil will become Kirby's President and Chief Operating Officer. In this new role, Christian will report to me as CEO and will be responsible for the day-to-day operations of both our Marine Transportation and our Distribution and Services businesses. With over 25 years with the company, spanning roles across various businesses, Christian brings a wealth of experience, a history of operational excellence and a strong customer-focused mindset that will benefit KDS and Kirby as a whole as we continue growing the company. I'd like to congratulate Christian on this new role and thank him for his many years of service at Kirby.
Christian O'Neil: Thank you, David. I'm humbled and excited to assume my new role, and I'm very optimistic about the future for Kirby. In all my years with the company, I can say that the market fundamentals we're enjoying today are the most promising and on par with some of the best times we've experienced. I'm looking-forward to what lies ahead for us.
David Grzebinski: Well said, Christian. Now looking at our earnings, earlier today, we announced first quarter revenue of $808 million and earnings per share of $1.19. This compares to 2023 first quarter earnings per share of $0.68. Overall, both our segments performed well during the quarter, delivering significantly higher revenue and operating income year-over-year. The first quarter's results reflected steady market fundamentals in both marine transportation and distribution and services. These were partially offset by modest weather and navigational challenges for marine and continued supply-chain constraints in D&S. During the quarter, we remained focused on operating safely and efficiently and delivered solid results even with these headwinds.
In Inland Marine Transportation, our first quarter results were modestly impacted by delayed days. Throughout the quarter, our operations were challenged by high winds, ice delays on the Illinois River, fog along the Gulf Coast and lock delays throughout the system. These weather and navigational issues slowed transit times and impacted the financial performance of our contracts of affreightment. Overall, delay days increased 22% compared to the fourth quarter of 2023, but were down modestly year-over-year. From a demand standpoint, customer activity was strong in the quarter with barge utilization rates running in the low-to-mid 90% range throughout the quarter. Market conditions remained strong due to continued customer demand and limited barge availability, coupled with inflation, which contributed to favorable pricing.
Spot prices were up in the low-to-mid single digits sequentially and in the 15% range year-over-year. Term contract prices also renewed up higher with low double-digit increases versus a year ago. Overall, the first quarter inland revenues increased 14% year-over-year and margins were in the high-teens. In coastal, market fundamentals remained strong with our barge utilization levels running in the mid-to-high 90% range. During the quarter, we saw solid customer demand and limited availability of large capacity vessels, which resulted in low 20% range price increases on term contract renewals and low 30% increases in spot market prices. These increases helped mitigate inflation, particularly with shipyards and partially offset the capital expense from the addition of ballast water treatment systems.
Our planned shipyard maintenance on several large vessels continues to wind-down and we brought back one large unit for maintenance in the quarter. Overall, first quarter coastal revenues increased 20% year-over-year and operating margins were in the high single to low double digit range. Turning to distribution and services, beginning this quarter, we are going to provide detail on D&S in three areas; power generation, commercial and industrial and oil and gas, where commercial and industrial comprises 43%, power generation 41% and oil and gas 16% of KDS revenues. We are doing this to appropriately reflect the significance of the power generation market to our growth. Our power generation market is made up of installation and service on new power generation units as well as standby and rental backup power equipment.
The fundamental strength of this market is driven by the incessant demand for 24/7 power from data centers and other industrial, financial, healthcare and retail customers. Power generation is a key driver of growth for distribution and services, and we are excited by the long-term outlook for this market. In total, demand was stable across our markets in D&S with continued new orders and high levels of backlog. In power generation, strong order growth drove a 42% sequential and 50% year-over-year increase in revenues with several large project wins from data center customers. In manufacturing, revenues were up 8% sequentially, driven by deliveries of previously delayed shipments and healthy demand for our e-frac and related products. In commercial and industrial market, overall demand remained steady across our different businesses with growth coming from the marine repair sector.
In summary, our first quarter results reflected continued strength in market fundamentals for both segments, despite weather and supply chain issues. The inland market is strong and market conditions continue to support higher rates. In coastal, industry-wide supply-demand dynamics are favorable, our barge utilization is good and we are realizing real rate increases. Strong demand for power generation and distribution and services is mostly offsetting weakness in oil and gas and to a lesser extent in some other areas. I'll talk more about our outlook later, but first, I'll turn the call over to Raj to discuss the first quarter segment results and balance sheet in more detail.
Raj Kumar: Thank you, David, and good morning, everyone. In the first quarter of 2024, Marine Transportation segment revenues were $475 million and operating income was $83 million with an operating margin of 17.5%. Compared to the first quarter of 2023, total marine revenues increased $63 million or 15% and operating income increased $40 million or 93%. Compared to the fourth quarter of 2023, total marine revenues inland and coastal together increased 5% and operating income increased 22%. As David mentioned, fog and high winds along the Gulf Coast produced a 22% sequential increase in delay days and negatively impacted operations and efficiency, while planned shipyard activity and weather impacted the coastal business. These headwinds were offset by solid underlying customer demand, improved pricing and most importantly, execution.
Looking at the inland business in more detail. The inland business contributed approximately 81% of segment revenue. Average barge utilization was in the low-to-mid 90% range for the quarter, which is slightly better than the utilization seen in the fourth quarter of 2023 and compares similarly to the first quarter of 2023. Long-term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 65% of revenue with 62% from time charters and 38% from contracts of affreightment. Improved market conditions contributed to spot market rates increasing sequentially in the low-to-mid single digits and in the 15% range year-over-year. Term contracts that renewed during the first quarter were up on average in the low double digits compared to the prior year.
Compared to the first quarter of 2023, inland revenues increased 14%, primarily due to higher term and spot contract pricing and fewer delay days. Inland revenues increased low-to-mid single digits compared to the fourth quarter of 2023, despite unfavorable navigation and operating conditions. Inland operating margins improved by nearly 150 basis points, driven by the impact of higher pricing and continued cost management, which helped stave off lingering inflationary pressures. Now moving to the Coastal business. Coastal revenues increased 20% year-over-year due to higher contract prices and fewer shipyards. We had one large vessel conclude its planned shipyard and re-enter service during the quarter. Overall, Coastal had an operating margin in the high single to low double digit range, resulting from higher pricing and cost leverage.
The coastal business represented 19% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid-to-high 90% range, which is in-line with the first quarter of 2023. During the quarter, the percentage of coastal revenue with under-term contracts was approximately 96%, of which approximately 98% were time charters. Average spot market rates were up in the low-to-mid single digits sequentially and around 30% year-over-year. Renewals of term contracts were higher in the low 20% range on average year-over-year. With respect to our tank barge fleet for both the Inland and Coastal businesses, we have provided a reconciliation of the changes in the first quarter as well as projections for 2024. This is included in our earnings call presentation posted on our website.
At the end of the first quarter, the inland fleet had 1,078 barges, representing 23.8 million barrels of capacity. On a net basis, with the newly-acquired barges we announced today, we expect to end 2024 with a total of 1,094 inland barges, representing 24.2 million barrels of capacity. Coastal Marine is expected to remain unchanged for the year. Now, I'll review the performance of the D&S segment. Revenues for the first quarter of 2024 were $333 million with an operating income of $22 million and operating margin of 6.6%. Compared to the first quarter of 2023, the D&S segment saw revenue decreased by $5 million or 2% with operating income decreasing by approximately 3%. When compared to the fourth quarter of 2023, revenues decreased by $14 million or 4% and operating income decreased by $7 million or 23%.
In Power Generation, revenues increased 50% year-over-year as we saw a pickup in orders from data centers and other industrial customers for power generation and backup power installation. We also continued to see steady deliveries of natural gas-driven power generation equipment in the oil and gas space. Power generation operating income was up 45% year-over-year and had operating margins in the high single digits. Power generation represented 41% of total segment revenues. On the commercial and industrial side, steady activity in marine repair partially offset lower deliveries due to supply chain bottlenecks in our Thermo King business. As a result, commercial and industrial revenues were down 7% year-over-year. Operating income increased 11% year-over-year, driven by favorable product mix and ongoing cost saving initiatives.
Commercial and industrial made up 43% of segment revenues with operating margins in the high single digits. Compared to the fourth quarter of 2023, commercial and industrial revenues decreased by 13% as Thermo King supply chain constraints were partially offset by increased activity in marine repair. Operating income was up 28% over the same time period driven by favorable product mix. In the oil and gas market, we continue to see softness in conventional frac-related equipment as lower rig counts tampered demand for new engines, transmissions and parts throughout the quarter. This softness is being partially offset by execution on backlog and new orders of e-frac equipment. Revenues in oil and gas were down 43% year-over-year and 38% sequentially.
Oil and gas represented 16% of segment revenue in the first quarter and had operating margins in the mid-single digits. Now turning to the balance sheet. As of March 31, we had $75 million of cash with total debt around $1 billion and our debt-to-cap ratio remained below 25%. During the quarter, we had net cash-flow from operating activities of $123.3 million. First quarter cash flow from operations was impacted by a working capital build of approximately $30 million driven by underlying growth in the business. We continue to target unwinding working capital as the year progresses. We use cash flow and cash-on-hand to fund $81 million of capital expenditures or CapEx, primarily related to maintenance of equipment. During the quarter, we also used $41.8 million to repurchase stock at an average price just under $84.
As of March 31, we had total available liquidity of approximately $491 million. For 2024, we are on-track to generate cash flow from operations of $600 million to $700 million on higher revenues and EBITDA. We still see some supply chain constraints posing some headwinds to managing working capital in the near term. Having said that, we are targeting to unwind this working capital as orders shipped in 2024 and beyond. With respect to CapEx, we expect capital spending to range between $290 million and $330 million for the year. Approximately $190 million to $240 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements. Approximately $90 million is associated with growth capital spending in both of our businesses.
The net result should provide approximately $300 million of free cash flow for the year. As always, we are committed to a balanced capital allocation approach and will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities. I will now turn the call back to David to discuss the remainder of our outlook for 2024.
David Grzebinski: Thank you, Raj. Both of our segments performed well during the quarter, delivering improved revenue and operating income, and our team executed well despite weather-related delays in the Marine Transportation segment and continuing supply-chain constraints in D&S. We continue to see favorable fundamentals as 2024 progresses and we expect steady quarterly earnings progression for the remainder of the year. Our outlook in the marine market remains strong for the full-year. Refinery activity is at high levels, our barge utilization is strong in both inland and coastal and rates are increasing across the board. In Distribution and services, we are seeing an uptick in demand for power generation, products and services, and we continue to receive new orders in manufacturing, both of which are helping to soften the inherent volatility of our oil and gas markets.
Overall, we expect our businesses to deliver improving financial results as we move through the remainder of 2024. In Inland Marine, we anticipate positive market dynamics due to limited new barge construction in the industry and many units going in for maintenance, combined with steady customer demand. With these strong market conditions, we expect our barge utilization rates to be in the low-to-mid 90% range throughout the year. Overall, inland revenues are expected to grow in the mid-to-high single-digit range on a full-year basis. However, I need to give the normal caveats. A potential recession along with a drop in demand could impact expected growth as could unexpected lock delays or low water conditions. That said, we expect operating margins will continue to gradually improve during the year from the first quarter's level and average around 20% or higher for the full-year.
In coastal, market conditions have strengthened considerably and supply-and-demand is favorable across the industry fleet. Strong customer demand is expected throughout the year with our barge utilization in the low-to-mid 90% range. With major shipyards and ballast water treatment installations concluding, revenues for the full year are expected to increase in the high single to low double-digit range compared to 2023. Coastal operating margins are expected to be in the high single to low double-digit range on a full-year basis. In Distributions and Services, we expect to see incremental demand for products, parts and services in the segment. In commercial and industrial, the demand outlook in marine repair is strong, while on highway is somewhat weak with the exception of refrigeration products and services.
In power generation, we anticipate continued growth as data center demand and the need for backup power is very strong. However, you've heard us talk about supply chain issues. The bottom line is, if we could get more large engines, we would be able to package them into the power generation market given the strength we see. Engine supply, however, is constraining our growth here. In oil and gas, activity levels are lower, but seem to be bottoming. Our manufacturing backlog does provide stable levels of activity throughout most of '24. We do anticipate extended lead times for certain OEM products to continue and they will contribute to volatility in delivery schedules, but we're working through that. Overall, the company expects segment revenues to be flat to slightly down on a full-year basis with operating margins in the mid-to-high single digits, slightly lower year-over-year due to mix.
To conclude, overall, we're off to a solid start in 2024 and have a favorable outlook for the remainder of the year. Our balance sheet is strong and we expect to generate significant free cash flow despite high levels of CapEx this year, and we expect to use the majority of that free cash flow for share repurchases or growth opportunities. We see favorable market continuing and expect our businesses will produce improving financial results as we move through the year. As we look long-term, we are confident in the strength of our core businesses and our long-term strategy. We intend to continue capitalizing on strong market fundamentals and driving shareholder value creation. Operator, this concludes our prepared remarks. We are now ready to take questions.
Operator: [Operator Instructions] Our first question comes from Ben Nolan at Stifel. Ben, your line is open.
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