Kirby Corporation. (



Q3 2011 Earnings Call

October 27, 2011 11:00 a.m. ET


Steve Holcomb – VP – Investor Relations

Joseph Pyne – Chairman, CEO

Greg Binion – President, COO

David Grzebinski – EVP, CFO


Ken Hoexter – Merrill Lynch

Alex Brand – SunTrust Robinson

Mike Buttonfield – Stifel Nicolaus

Kevin Sterling – BB&T Capital Markets

Chaz Jones – Morgan Keegan

David Beard - Iberia Capital Partners

Steve O’Hara – Sidoti & Company

Jimmy Gibert - IBERIA Capital

Sander Todd - Creighton



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Welcome to the Kirby Corporation Third Quarter Earnings Conference Call. My name is John and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Steve Holcomb. Mr. Holcomb you may begin.

Steve 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 in the Investor Relations section under non-GAAP financial data.

Statements contained in this conference call are with respect to the future or 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 annual report on Form 10-K for the year ended December 31, 2010 and quarterly report on Form 10-Q for the period ended June 30, 2011 filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Joseph Pyne

Okay. Thank you, Steve, and good morning. Late yesterday we announced record setting net earnings for the 2011 fourth quarter of $0.94 per share, which reflects a 65% improvement over the $0.57 per share reported for the 2010 third quarter.

This quarter, we also closed the acquisition of K-Sea Transportation on July 1


. K-Sea is a coastwise and local tank barge operator with a diverse geographic footprint, operating on the east, west and Gulf Coast as well as the Great Lakes and in Alaska and Hawaii and owns one of the younger fleets in the U.S. coastwise tank barge business.

The K-Sea fleet consists of 57 tank barges, 54 which are double hull with an average age of about nine years and 63 tugboats. K-Sea's total tank barge capacity is 3.8 million barrels.

Our record third quarter results reflects a strong inland tank barge transportation market. Accretive operating earnings from K-Sea a robust land-based diesel engine service business and an improved marine and stable power generation service business.

Original earnings guidance range for the third quarter was $0.82 to $0.87 per share. On September 19th, we announced that we expected our third quarter results to exceed $0.90 per share. Yesterday, we announced $0.94 per share. Stronger than expected petrochemical volumes stable, domestic refinery production held by some export volumes, favorable weather, higher term and contract rates all impacted our results for the third quarter.

Development of U.S. shale formations for oil and gas, not only drove our land-based diesel engine service business, but also a low price natural gas is driving U.S. petrochemical volumes and the liquids coming out of these formations are providing black oil volumes to move, all very positive.

As we expected, and as we've commented on before K-Sea's accretive operating results were generally offset by investment banking and legal fees, higher interest expense and the dilutive effect of the issuance of 1.9 million shares that Kirby stock associated with this acquisition.

For the third quarter K-Sea's equipment utilization rate was in the mid to high 70% range. The Atlantic Pacific and Hawaii fleets experienced good equipment utilization rates. The New York harbor-based fleet reflected lower utilization rates due to some overcapacity principally on the bunker market. With respect to pricing, contracts in this market renewed basically as expiring, but spot contract rates improved in the low to single-digit percentage range.

During the 2011, third quarter approximately 60% of K-Sea's coastwise and local revenue was under contract and 40% was in the stock market. A time charter is represented about 90% of the revenues under term contracts in the third quarter.

With respect to K-Sea, we are working with Tim Casey and his management team integrating K-Sea were appropriate into Kirby. We expect this integration process will be completed early next year. K-Sea's market is certainly more difficult that are in the transportation business. We're pleased with our their progress and believe that this business should continue to improve over the next couple of years as single hull vessels leave the market and volumes improve.

I'll come back at the end of end of our prepared remarks and talk and about our fourth quarter forecast as well as the full year outlook. Now we're going to turn the call over to Greg for a recap of our – and the marine transportation business and diesel engine services business also.

Greg Binion

Thank you, Joe and good morning to all. The domestic petrochemical industry continues benefit from low price of natural gas providing it with the competitive advantage to global markets.

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