Kirby Corporation. ( KEX) Q3 2011 Earnings Call October 27, 2011 11:00 a.m. ET Executives Steve Holcomb – VP – Investor Relations Joseph Pyne – Chairman, CEO Greg Binion – President, COO David Grzebinski – EVP, CFO Analysts 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 Presentation Operator
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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 st. 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. Read the rest of this transcript for free on seekingalpha.com