Kirby's Management Presents At Bank Of America Merrill Lynch Global Transportation Conference (Transcript)

Kirby Corporation (KEX)

Bank of America Merrill Lynch Global Transportation Conference Call

May 17, 2012 11:30 ET

Executives

Joe Pyne – President and Chief Executive Officer

Dave Grzebinski – Chief Financial Officer

Presentation

Unidentified Analyst

So, up next, we've got Kirby Corporation. With us today from the company, we have got Joe Pyne, President and Chief Executive Officer and Chairman as well and Dave Grzebinski, Chief Financial Officer and in the audience is Greg Binion, President and Chief Operating Officer.

Kirby is about a $3.5 billion market cap company, just about $2 billion in sales. As you know, they provide inland tank barging for industry chemicals, petroleum products, agricultural chemicals. The company has been quite acquisitive over the past year with United and K-Sea Partners which are exciting new legs to the story for Joe to tell us about. With that, I am going to turn it over to Joe and appreciate your coming once again. Thank you.

Joe Pyne

Thanks (Chin). I am going to deviate a little bit from the presentation. We'll go through the presentation quickly, so there is hopefully it will be sometime for questions, after we are finished, but there is some volatility in our stock this morning, which I want to address. We had issued an 8-K to shed that we were going to use this opportunity, because it's webcast to give a little more color on our earnings for the year.

And I think that with that news that was issued maybe a half hour ago, the people jump to some conclusions. It maybe they shouldn’t have. So, I am going to just review kind of our latest perspective on our annual forecast, which we have set at $3.85 to $4.05 a share. And this forecast assumes continued improvement in the inland tank barge business and in our legacy marine diesel engine business, essentially flat performance with respect to K-Sea, now Kirby Offshore Marine, adjusted for some seasonality that's in that business and some deterioration in our United Engine business in the second half of the year principally in the manufacturing area and part of this deterioration will be partially offset by our implementation of the remanufacturing initiative that we have to remanufacture our service equipment.

And we think the risk to this guidance this year is in the K-Sea or Kirby Offshore Marine area and United. Our United guidance assumes a reasonable flow of frac equipment coming into infra repair. And based on what we know today, these assumptions appear to be reasonable, but frankly we are basing our estimate on what our customers are telling us, not on firm contractual commitments, but our customers are pretty positive on the demand that they see for re-manning, essentially at a frac equipment. With respect to K-Sea or KOM, the Kirby Offshore Marine, the market is slowly improving. This is not unexpected. However, there are two potential risks this year that I want to know. We have some short-term burden mostly finished this quarter in the timing of removing G&A from their business model. We have estimated that most of the G&A savings would be achieved in the first quarter, but it now occurs that we'll have some of these costs continuing through the second quarter. This isn't a significant event. And the other area of concern is with Kirby Offshore Marine's maintenance had practices and these are practices that we inherit and we bought this company in July of 2011.

As we brought the equipment into the shipyard and reviewed their maintenance standards – their standards are not those that Kirby practices in its inland and it's inherited to offshore business. We now believe that we will have to spend some additional money on this equipment more than we forecasted in our 2012 forecast.

We are in the process of conducting a very thorough review of this issue, which should be complete by mid-June and we may need to comeback and adjust our guidance based on the additional cost that we are going to incur. But as I said earlier on a positive note, I think that K-Sea's market is continuing to do better and this maintenance ketchup is really a one-time issue, we'll get it behind us. So, what is always mean because I don't want this be misinterpreted, I mean, frankly, I don't think that we know with any specificity, but I do think that we could say that this is – this could potentially be something like $0.01 or $0.02 to may be $0.09 or $0.10 adjustment to the forecast with respect to the K-Sea maintenance issue. I wanted to get that out and now I am going to very quickly go through this presentation and then allow you to ask questions.

Okay, with respect to our businesses were two businesses, marine transportation and diesel engine services, you can see the business mix, market cap based on a $61 stock price of about $3.4 billion tax about Kirby where the largest inland and costal barge operator, size matters. About 75% of our inland businesses under contract, 25% stock on the offshore side, it's a 60-40 mix, it's our intention to move this business up with respect to its contract exposure. In the diesel engine business, we are the national footprint and we manufacture and remanufacture world service equipment and we've grown this business through acquisition, the aggregation of 29 marine acquisitions, 16 diesel engine acquisitions.

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