Q4 2020 Kirby Corp Earnings Call
Yeah.
Good morning, and welcome to the Kirby Corporation, 'twenty and 'twenty fourth quarter earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. We ask that you limit your questions to one question and one follow up ask a question you May Press Star then one on your Touchtone phone.
Draw your question press the pound key. Please note that this event is being recorded I would now like to turn the conference over to Mr. Eric Holcomb.
Kirby's VP of Investor Relations. Please go ahead.
Good morning, and thank you for joining US with me today are David Chris Vince E Kirby, President and Chief Executive Officer, and Bill Harvey Kirby's Executive Vice President and Chief Financial Officer, a slide presentation for <unk>.
Today's conference call as well as the earnings release, which which was issued earlier today can be found on our website at Kirby Corp, Dot Com <unk>.
During this conference call, we may refer to certain non-GAAP or adjusted financial measures.
Conciliations 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 and 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.
We're looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated as a result of various factors, including the impact of the COVID-19 pandemic.
And the related response on governments on global and regional market conditions and the company's business.
A list of these risk factors can be found and Kirby's form 10-K for the year ended December 31, 2019, and and subsequent quarterly filings on form 10-Q, I will now turn the call over to David.
Thank you Eric and good morning, everyone earlier today, we announced 2024th quarter earnings of 37 cents per share.
The quarter's results were impacted by the COVID-19, pandemic, which reduced demand for Kirby as products and services, particularly and marine transportation, where we experienced low volumes and continued poor market dynamics and pool barge utilization.
Across the company, we have tightly managed costs, which has helped maintain overall marine transportation margins near 10% and distribution and service margins near breakeven.
Our fourth quarter earnings also included a tax benefit as a result of the cares Act, which bill will discuss in a few minutes.
Looking at our segments and marine transportation, the inland and coastal markets experienced challenging market conditions with low demand, particularly for the transportation of refined products crude oil and black oil.
Although the economy showed some modest signs of improvement during the quarter, increasing cases of COVID-19 high product inventories and impacts from to Gulf Coast Hurricanes contributed to a slight sequential decline and cord and quarterly average refinery utilization.
During the quarter refinery utilization averaged 77% compared to our previous five year fourth quarter average of 90% and it ended at the ended the quarter at 80%.
Chemical plant utilization modestly improved one 1% sequentially, but remained below 2019 levels.
Overall for our inland and coastal businesses, there were minimal spot requirements low barge utilization and additional pricing pressures throughout the quarter.
And distribution and services fourth quarter revenues sequentially improved benefiting from the continued economic recovery higher product sales and commercial and industrial.
And some pickup in activity and oil and gas distribution.
And the commercial and industrial markets, we experienced increased demand for parts and service and the on highway and power generation businesses.
Our product sales and thermo King and increased deliveries of new marine engines.
These gains were partially offset however by normal seasonality, including lower utilization and the power generation and rental fleet. Following the hurricane season, as well as reduced major overhauls and marine repair during the harvest and the dry cargo market.
And the oil and gas market activity continued to recover as many e&ps modestly increased spending during the fourth quarter and well completion activity improves.
Active frac crews, which bottomed around $50 and the second quarter improved every month during the fourth quarter and finished the year and excess of 150.
This activity improvement contributed to higher demand for new transmissions parts and service and our distribution businesses.
And manufacturing re manufacturing activity was steady and we received additional new orders for environmental friendly.
Fracturing equipment and.
And a few moments I will talk about our outlook for 2021, but before I do I'll turn the call over to bill to discuss our fourth quarter segment results and the balance sheet.
Thank you David and good morning, everyone.
And the fourth quarter and Marine transportation revenues were $299 4 million with and operating income of $29 2 million and and operating margin of nine 7%.
Paired to the 2023rd quarter Marine revenues declined $21 2 million or 7% and operating income declined $3 2 million.
The reductions are primarily due to significantly reduced pricing and inland reductions and inland barge utilization and increased delay days as a result of seasonal weather aggressive cost reductions helped to limit the impact on operating margin.
During the quarter the inland business contributed approximately 75% of segment revenue.
Average barge utilization declined modestly into the high 60% range as a result of the second wave of COVID-19 continued weak refinery utilization and.
And extended hurricane season.
Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 70% of revenue was 62% from time charters and 38% from contracts of affreightment.
Term contracts that renewed during the fourth Corp, fourth quarter were down and the low double digits on average spot market rates declined approximately 10% sequentially and 25% year on year during the fourth quarter, the operating margin and the inland business was and the low to mid teens.
And coastal markets continued to be challenged by significantly reduced demand for refined products and black oil we.
We experienced weak spot market dynamics and some chartered equipment was returned as term contracts expired.
During the quarter coastal barge utilization was in the mid 70% range unchanged sequentially, but down from the mid 80% range and the 2019 fourth quarter.
Average spot market rates were generally stable, but term contracts continued to renew lower in the mid single digits. During the fourth quarter. The percentage of coastal revenues under term contracts was approximately 85% of which approximately 85% were time charters.
Coastal's operating margin and the fourth quarter was and the negative low single to mid single digits.
With respect to our tank barge fleet, a reconciliation of the changes and the fourth quarter as well as projections for 2021 are included in our earnings call presentation posted on our website.
Moving to distribution and services revenues for the 2024th quarter were $193 million with an operating loss of $2 9 million.
Compared to the third quarter revenues improved $14 4 million or 8%. The sequential improvement was primarily due to modest economic improvements and increased product sales and the commercial and industrial markets.
<unk> gains were offset by lower revenues and the oil and gas market due to the timing of pressure pumping equipment deliveries and manufacturing.
Segment operating income declined slightly during the quarter as a result of product and service sales mix.
And commercial and industrial and modest sequential improvements resulted in increased demand for parts and service and the on highway and power generation businesses.
Higher thermo King product sales and the timing of new Marine engine deliveries also contributed to sequential increases in revenue.
These were partially offset by normal seasonality, including lower utilization of the power generation and rental fleet and reduce major overhaul demand and marine repair during the fourth quarter, the commercial and industrial businesses represented approximately 78% of segment segment revenue on.
Operating margin was and the low single digits and was impacted by a higher mix of product and parts revenue during the quarter.
And oil and gas revenues and operating income sequentially declined primarily due to reduced deliveries of new pressure pumping equipment and manufacturing.
This reduction was partially offset by increased demand for new transmissions parts and services and oil and gas distribution as U S. Frac activity continued to improve.
During the fourth quarter, the oil and gas related businesses represented approximately 22% of segment revenue and had a negative operating margin and the mid teens.
Turning to the balance sheet as of December 31, we had $83 million of cash total debt was $1 7 billion and our debt to cap ratio was 32, 2% share.
During the quarter, we had strong cash flow from operations of $85 1 million and we repaid $109 8 million of debt.
We also used cash flow and cash on hand to fund capital expenditures of $18 8 million.
For the full year, we generated $296 7 million of free cash flow defined as cash flow from operations minus capital expenditures.
And this amount was slightly below the low end of our previously disclosed guidance range of $300 million.
This guidance range contemplated a significant income tax refund related to the cares act of over $100 million, which was not received as expected prior to the end of the year.
We now anticipate this drug refund will be received during the 2021 first quarter at the end of the year, we had total available liquidity of $684 million.
Looking forward capital spending is expected to continue to trend down in 2021 for the full year, we expect capital expenditures of approximately $125 to 145 million, which represents nearly a 10% reduction compared to 2020 and.
And is primarily composed of maintenance requirements for our marine fleet as.
As a result, we expect to generate free cash flow of $230 million to $330 million, which includes the tax refund previously discussed before.
Before I close I'd like to address income taxes during.
During the fourth quarter, we had an effective tax rate benefit as a result of net operating losses, which were carried back to prior higher tax rate years as allowed by the cares Act legislation.
And 2021, we expect our income tax rate will be around 25%.
I'll now turn the call back over to David to discuss our operational outlook for 2000 22021.
Thank you Bill.
With 2020, and the rearview mirror it goes without saying we are all hopeful for brighter days and the new year.
As we look at our businesses, thus far and 2021, we believe some green shoots are materializing.
And marine transportation refinery utilization has steadily improved into the low 80% range inland spot activity has modestly picked up and our barge utilization has bounced up off the bottom into the low to mid 90 mid 70% range.
Demand and distribution and services has continued to recover with an improving economy and more favorable commodity prices.
While all of this is encouraging the reality is that we are still in the midst of a global pandemic demand for our products and services are still near all time lows and uncertainty around the timing of material economic recovery remains.
All of this makes predicting 2021 very challenging with a wide range of possible outcomes.
And the near term, we expect tough market conditions to pursue.
Persist into the second quarter, particularly in marine transportation, where industry barge utilization is very low and we are experiencing very competitive pricing dynamics.
As well the latest wave of COVID-19 cases has resulted in some challenges crewing, our vessels, particularly and coastal.
And distribution and services the magnitude and timing of the recovery is dependent on and economic recovery and stability in the oil and gas markets that being said, although we are starting the year with near term pressures and uncertainty. We are very optimistic that the second half of 2021 will be materially better.
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And the meantime, we intend to remain very focused on cost control capital discipline and cash generation and debt reduction.
Diving into the businesses.
And the inland market, we expect the current challenging market dynamics to continue and the near term with gradual improvement and the second quarter, followed by a more meaningful recovery and the second half of the year as demand improves.
And the first quarter, we anticipate our results will sequentially decline and be the lowest of the year increased.
Increased delays from normal seasonal weather winter weather as well as lower pricing on term contract renewals are expected to be more than offset.
And to expected to more than offset very modest improvements and our average barge utilization.
Beyond the first quarter activity should begin to recover with an improving economy, which should lead to more favorable spot market dynamics.
Even with the pandemic new petrochemical plants are still scheduled to come online.
And there has been very limited construction of new barges and significant retirement of barges are occurring across the industry.
All of this should help improve the market and is expected to contribute to a meaningful improvement and barge utilization and likely into the high <unk> to low 90% range by the end of the year.
With respect to pricing, we expect pressure to persist in the near term as rates typically move with barge utilization.
As a result, although market conditions are looking more favorable later in the year, we expect full year revenues and operating margins to decline compared to 2020, driven by lower average barge utilization and the full year impact of lower pricing on term contract renewals.
And coastal tough market conditions, and low barge utilization are expected to have a meaningful impact on 2021.
Coastal results.
And contributed to year on year reduction and revenues and operating losses in this business.
During 2020, the majority of the coastal fleet operated under term contracts established and more favorable markets during 2019 and in early 2020. These.
And these contracts helped to minimize the financial impact as demand fell throughout the pandemic. However, with many of these contracts now starting to expire and low demand for refined products and black oil is expected for a while longer we now expect lower overall pricing in 2021 for the coastal business.
As well the retirement of three older large capacity coastal vessels and 2020 due to ballast water treatment requirements and the retirement of an additional barge scheduled for mid 2021.
Will contribute to lower revenue and operating margin compared to 2020.
Looking at the first quarter, we expect coastal revenues and operating margin will decline sequentially due to continued weakness and the spot market pricing pressure and recent challenges crewing our vessels.
Similar to inland, we expect coastal market conditions will improve as the year progresses, resulting in higher barge utilization.
And reduced operating losses, and the second half of 2021.
Looking at distribution and services, we expect a more robust economy and increased activity and the oilfield will result in material year over year improvements and demand for much of the segment.
And commercial and industrial we anticipate continued improvement and on highway with increasing truck fleet miles and and initial recovery and bus repair demand as activity resumes.
And work.
And returned to work commences.
We also anticipate some additional growth and on highway parts sales as a result of the recent launch of our new online sales platform.
Elsewhere demand for new installations.
<unk> and services and power generation is expected to grow as demand for electrification and $24 seven and power intensifies.
And oil and gas we expect current improved oil prices will contribute to increased rig counts and well completions during 2021.
Industry analysts have predicted the average active frac crew count could climb back to near 200, which is a notable improvement from 2020 levels.
And as a result, we expect to see higher demand for new engines, and transmissions parts and services and distribution as well as increased re manufacturing activities on existing pressure pumping equipment.
With respect to manufacturing of new equipment, the current excess of traditional pressure pumping capacity across the industry will likely restrained significant orders of content conventional fleets.
However, a heightened focus on ESG and both energy and industrial sectors is expected to result in increased demand for Kirby extensive portfolio of environmentally friendly equipment.
Out the year.
Overall and distribution and services, we expect 2021 revenues and operating income will materially improve as compared to 2020 with commercial and industrial representing approximately 70% and oil and gas representing 30% of segment revenues for the full year.
Although the range is dependent on the timing of the material economic recovery, we expect segment operating margins will be and the low to mid single digits for the full year with the first quarter being the lowest and the third quarter being the highest we expect a normal seasonal reduction during the fourth quarter.
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To close out 2020, it was a difficult year with unprecedented challenges.
And the efforts of our dedicated employees to ensure business continuity and remain focused on safety and to aggressively reduce costs where were commendable on <unk>.
Very proud of our accomplishments amidst a very challenging backdrop.
Looking forward, although some near term challenges and uncertainty remain we are confident Kirby is and a strong position to meaningfully recover when the pandemic eases and demand for our products and services improves.
And Marine transportation. It was only one year ago debt inland barge utilization was and at all time high.
Inland operating margins were near 20%.
And prices were materially increasing and both inland and coastal.
Although demand has significantly declined since that time because of the pandemic industry supplies and check with very limited new barge construction and inland no incremental capacity plan and coastal and significant retirements across both sectors. All of this is very positive for our businesses and is expected to.
Contribute to a meaningful tightening and the barge market once demand improves when you consider our inland fleet expansion over the last three years, which is approximately 40% higher on barrel capacity basis as well as our recent efforts to improve the efficiency of our inland and coastal fleets.
We believe there is a significant earnings potential and marine transportation.
And distribution and services, while managing through the pandemic.
And unprecedented downturn, we were very focused on improving our business during 2020.
Throughout the year, we took aggressive and proactive steps to streamline and rightsize the business for the near term while strengthening it for the long term, including consolidating businesses support functions and management teams.
Renewing and expanding OEM relationships and product offerings.
Completing and the implementation of a common ERP system.
Rolling out a new online parts sales platform.
And developing and prototyping new products for the expanding wave of electrification.
Overall, we anticipate improved results as the economy grows and oilfield activity recovers and our efforts during 2020 will meaningfully contribute to more favorable long term returns of this segment.
Yes.
Finally from a liquidity perspective, we generated strong free cash flow of nearly $300 million and a very difficult year and we made significant progress on paying down debt. We expect 2021 will be a strong cash flow year with expectations of 230 to 330 million and free cash flow for the full year.
Here, we intend to use this cash flow to pay down debt and enhance liquidity.
Operator. This concludes our prepared remarks, we are now ready to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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A reminder, we ask that you. Please limit your questions to one question and one follow up.
Our next question comes from Jack Atkins with Stephens. Your line is now open.
Hey, guys. Good morning, Thank you for taking my questions, Yes, good morning, Greg.
David maybe if we could start with one of your closing points there at the end just around industry.
Capacity and I'd be curious to hear your thoughts on both inland and coastal but yes, I think we went into this downturn with about call. It 3900 inland barges.
Where do you think we're going to stand and maybe at the end of 2021, how much how much capacity do you think the industry is going to take out just because of the difficulty we've seen over the last.
12 to 18 months, and then I'd be curious to get your thoughts kind of looking at the coastal market. The same way how much capacity you think is going to come out by the time, we get to the other side of this.
Yes.
So.
And the number of new barge deliveries in 2020 was approximately 140 to 145.
I think if you look at standard on our toes.
And does river transport news and his number was $1 43, and we think Thats about right.
The retirements.
What we don't know.
I will tell you this.
Because we do know Kirby numbers, we had originally planned to retire only 10 barges in 2020, we ended up retiring about 95%.
So.
And our retirement alone.
And a significant dent in that debt impact of new barges.
But I would say this I fully expect the number of retirements will be north of 150 to maybe even north of 200 retirements in 2020, we'll see and.
And pharma does a survey that comes out and in March or April and we will get a better feel for.
On the retirement when we looked at 2021.
No that there were 36 barges that carried over into 2021 net werent delivered that were ordered pre pandemic. So there's.
And theres not a lot of new construction on the horizon.
And the retirements are continuing.
No.
Just from.
On a network that there has been a lot of retirements. We just don't have a good number on it. So net net I think barge capacity goes down.
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Ah considerably is hard to quantify but.
It will be meaningful for 2021, and Jack as we've said and our prepared remarks.
And just prior to the pandemic Kirby's utilization was at an all time high we were we were.
Over 95% utilized so.
Net debt.
It should bode well and when demand comes back, but you know on the Newbuild side one.
Steel prices scrap steel prices are up and Thats actually helped the retirement, but it also has raised the cost of new barges.
And we're hearing and the market that just a new barge, whether it's a 10000 barrel or 30000 barrel or black oil play and barge debt.
Because of the steel prices and other cost.
On the pricing of new barges is up 25% to 35%. So that to me is a very good sign and that means it's going to it's going to be very expensive to build new capacity. So we're pretty bullish on the on the supply and demand situation on the inland side and I would say, it's even better on the coastal side.
Really no new capacity coming in OSB had a couple of units that they had built for replacement those those essentially have delivered theres nothing really.
And the order that I'm aware of and.
And.
And I think there's a very long lead time right.
Youre going to order a on offshore barge.
Even if you had the design.
And the Dror, it's probably at least two years before you would get it so.
And.
Think the elasticity and the coastal business is going to be even greater when it comes back.
So, we're we're pretty pretty happy with the supply demand situation right now.
Okay. That's helpful. Thank you David and I guess just for my follow up question kind of thinking about the balance sheet and cash flow youre going to hopefully if everything goes according to plan in 2021.
With net debt somewhere and call it $1 1 billion dollar range.
Yes.
The last.
Couple of downturns on the barge market and we've really seen since 2010.
And for you to 2014 has that changed the way you guys are thinking about.
And your capital structure long term and the amount of debt that you want to hold on the balance sheet has anything changed long term and David or Bill just curious your thoughts around the capital structure and how you plan on on <unk>.
Looking at that and the future.
Jack I don't think anything's changed materially.
As you know at the end of the year, our debt to cap is about 32% and using the numbers you just talked about with the cash flow from this year, we'd get down to.
As low as the mid Twenty's and that's a pretty conservative approach. We do look we do while on a direct and the short term.
Cash flow to reduce debt and increase liquidity.
Although if you step back and look at the metrics of the company. They are moving the right way and then moving the right way pretty quickly.
Okay. That's helpful. Thanks, and thanks for the time guys.
Alright, Thanks Jack.
Thank you. The next question comes from Jon Chappell with Evercore. Your line is now open.
Thank you good morning, everybody.
Hey, good morning.
David you laid out a kind of a tale of two halves view.
Right now on the inland business and and also laid out the difference and 12 months and the contractual renewal pricing so.
Kind of a two parter here one how much of your business your book of business and inland comes up for contract renewal and the first half of the year.
Which.
Probably maybe a little bit softer and two what's your appetite and maybe the appetite of your customers to take shorter term contract renewals, so that youre not locking in and kind of the trough of the market and missing out on the beginning of the upturn and the second half of the year.
Yes.
Good question John.
Our renewals typically our ratable through the year with the fourth quarter being the heaviest if theres one quarter thats heavy in the fourth quarter, because everybody kind of has a year and <unk>.
Mindset, there is a lot of year and mindset.
So when we look at renewals, it's not particularly heavy here and the first half.
I would say look you heard the numbers were not high income and.
In our prepared remarks spot pricing was down 10% sequentially and 25% year over year and term pricing was down.
Kind of low double digits on renewals and the fourth quarter. So look that debt as part of our message today is that.
Margins are going to be under pressure.
This year as those those prices roll through but to your point.
And that will change as utility goes up.
Pricing should start to go the other direction and.
We have a pretty big spot portfolio right now, we're about 30% spot and 70% contract.
And.
That's.
That's it.
It is going to give us a good bit of equipment that can can rise pretty quickly and then and then theres the big contracts that do renew and the first half.
Those will be pretty low, but then the second half should be better so we should get.
As prices rise.
It should come through pretty quick but as.
As you've seen in the past it takes it takes about a year for things to roll through and the margin.
Both on the up and I'm on the downside so it'll take some while but we do have that big slug of spot equipment that can reprice pretty quickly.
Okay.
Helpful and then.
Follow up just completely switching gears and when you made the student's Stevens and acquisition. There was a lot of I think cost synergies that you had identified and.
Think this downturn is probably accelerated.
Or maybe even help you exceed some of those cost targets with a little bit of green shoots and the oil patch with consolidation kind of picking up.
And with you having about as lean infrastructure and you can possibly have and that business. When you think about the next couple of years do you think that you are along for the business.
On or maybe that will complete opposite and and now that you have this kind of hopefully lean and mean structure that benefits from an upturn.
Is there more to do as far as capital deployment and that business.
Yes, I don't think Youll see us deploy new capital there what you will see and this will take some time for us to rollout, we've invested in R&D and and new product development, we alluded to it and in the prepared comments.
Look electrification is happening and.
Stewart <unk> Stevenson and particular has has some great tech.
Technology, and Knowhow and engineering resources and.
We've got some really good ESG centric products that are rolling out so we're pretty excited about that.
Some of that is being applied to the oilfield.
As you know we've made a lot of electric fracs over the years.
And those are the kind of the one style of electric track is to use gas turbines that drive electric drive and then to a pump.
But there is.
Basically electric grids now.
And that can drive electric pumps, and using natural gas generation to generate the electric power and we're right and the square middle of that and Thats, good and subtraction, but also importantly, those those electrification.
Products are can be used well outside the oilfield.
And we're working hard on that.
It's not anything we're ready to give you numbers for you to build into your model, but I will tell you, it's moving along with a lot of speed and there's a lot of excitement.
And the company about debt. So when you when you roll that together with a lean cost structure.
Rebound and the economy, and commercial and industrial being about 75% of.
On distribution and services.
And we're pretty excited about it now does that mean, we put new capital and there no I think thats one of the great things about DNS is it doesn't require a lot of capital it's got a pretty low capital base. It generally is around working capital as we deploy the capital.
So thats, probably a long non answer but.
Yes.
Characterize it is we're pretty excited about what we've got in front of US. We've made a lot of good changes a lot of investments during 2020, and I think <unk> is poised to to really contribute to Kirby is bottom line.
Okay I really appreciate that thank you David.
Thanks, Sean.
Thank you. The next question comes from Ken <unk> with Bank of America. Your line is now open.
Greg Good morning, Dave Bill and Eric.
And so from coastal okay, good morning, and coastal sounds like all hard event.
Hard environment.
But but let's stick with inland first when you walk through your thoughts on the environment. So you've mentioned some new capacity the continued retirements.
But utilization at refineries creeping up from lows, maybe you could talk a bit about how long does it take for you to see that in rates is it something you're.
You're talking about.
A quarter or is it longer than that and how long does it typically take to see that debt environment changed.
Yes.
That's a good question right right now well, let me, let me talk to utilization for a quick second because that is what drives pricing right.
And that Utilizations tightening and.
And and it is tightening.
And that it's going to continue for a while that debt and <unk>.
Mind set is what helps drive pricing.
Our utilization and the fourth quarter kind of dipped to the high 60%, which is the lowest we've ever seen it but we're starting to see it in the low seventies now I think we are between 70% and 75% utility and.
And it keeps inching up part of that to your point as refinery utilization coming back we've seen refinery utilization tick up but be careful with refinery utilization because theres, a mathematical thing going on as they shut down some of the refineries the denominator.
Fell a bit so even though the nameplate utilization is higher.
<unk>.
And 2% to 3% higher than on a constant capacity basis.
But.
The key is that that refinery utilization keeps ticking up which helps our utility on the volumes we move.
And so we're starting to see it climb very encouraged with where utilities going so far this year.
And.
And I don't see anything on the horizon that says that's not going to continue and.
It won't take long to get good pricing.
Stop its decline and to start to decline.
I wish I could give you a definitive date.
Does that happen and the and the first quarter or the second quarter or even the third quarter I am not sure, but I do think it happens this year and I think it will move pretty quickly because.
Yes, there hasnt been a lot of building as we talked about earlier.
The supply and demand balance should tighten and really rapidly and that that should get pricing go on the other direction rather quickly.
Sorry, I can't be more definitive on that.
And you mentioned coastal haven't tough tough time, it's the same dynamic and coastal except I actually think the elasticity and coastal's is stronger because they are there.
Bigger units and they move.
Further now that said, though as you know coastal has a lot more refined products. So it's been impacted a little harder in terms of structure of the industry and then inland.
But again I think the same dynamics hold as utility comes up you'll see pricing step back pretty quickly.
And Youll see things go back on contract, we've seen more and more equipment move from term to spot because our customers just didn't have the volumes.
We look forward to that changing and I think it's starting to change now and the encouraging thing we saw on the Covid statistics as Theres pretty pretty.
Strong downward trend and number of new.
Infections so.
And I guess it looks it looks like everything is headed and right direction.
Thanks, David I guess, just a quick follow up on that day.
And to coastal how critical is that staffing issue does it become is it does it up and I assure you just can't get the operators out there are you seeing because vessels park or Greg.
A side comment and it's more of a lack of demand.
Yes, it's more of a lockup and demand for sure, but we have had impact so what can happen and are these coastal vessels, they're not close to land a lot of times and so they can be out on a voyage that.
And if you get a case that it cant come through and in fact, the whole crew, where even if it's just one member of the crew you've got to divert the vessel back to shore.
Re crew.
And sterilize the whole vessels so.
On these very expensive units.
Can use of weeks.
Weeks charter hire just going through that process of getting it to shore getting the crew off.
Re crewing and after you sanitize it so.
Yes, it can be meaningful if we if you get a lot of that and we've had some we had some and the fourth quarter, we've had some and the first quarter.
It takes take a unit, that's earning $30 $40000, a day and you lose that for per week.
Starts to add up pretty quickly.
Yes.
But the bigger issue is just the demand decline that had happened and.
Our hope is that that's about to turn the other direction.
Great. Thanks.
Thanks I appreciate the question.
Thanks, Dan.
Thank you. The next question comes from Randy given with Jefferies. Your line is now open.
Howdy gentlemen has it gone.
And how you doing man.
Great Great. So just looking at DNS and kind of run rate going forward it fell back to a loss and the fourth quarter.
From a slight gain on the third quarter. So maybe what drove this sequential decline.
And then following the ongoing cost reductions when do you expect another quarterly profit and this segment.
Yes.
The sequential decline.
We foreshadow do we talked about it but a big part of it is we have some seasonality in the fourth quarter versus the third quarter and the third quarter you typically get.
And one a lot of rental income on power generation because of the hurricane season.
And that carries over a little bit into the fourth quarter, but typically we will see our rental and utilization fall and the fourth quarter.
For power.
Standby backup power that gets deployed during hurricane season that happened in the fourth quarter kind of as we predicted and so thats part of it the other part of it is.
Our marine repair diesel engine and marine repair and gearbox repair business.
It has some seasonality and the fourth quarter as well because the dry cargo fleet goes to work in the fourth quarter to move the harvest so.
Basically we get a little more business and the third quarter and then the dry cargo operators put all of our equipment to work and so we don't have as much work repair work and the fourth quarter. So both of those.
<unk> contribute to the seasonality that we see and the sequential decline.
Some of that will start to reverse in the and the first quarter Youll see some more maintenance on the on the marine repair but.
Hopefully, we don't have any hurricanes hit us and first quarter. So we will get some snap back on that.
But what really is going to help DNS as some of the product deliveries and the U S economy coming back we sell a lot of spare parts and a lot of.
Truck parts and a lot of backup power.
A lot of bus repair all of that is economic driven and as the economy comes back that should start to drive the profitability and.
And then on oil and gas.
And we took some orders and the fourth quarter and those will start to deliver and the first and second quarter. So we should start to see some some profitability from that and <unk>.
Terms of when do we go profitable and the quarter I am not prepared to say that but I think.
We've said for the full year, we expect DNS to be kind of mid single low to mid single digit operating margins with.
With revenue.
Revenue up and I'll give you a little feel for revenue it could be up 10% to 30% just depending on when the U S economy starts to get really really humming. So.
We're pretty optimistic about jbs for 2021.
Got it Okay, and then turning to like acquisitions and growth clearly movie theaters videogame stores Theyre getting all the love right now, but not saying should expand into those businesses, but any appetite for acquisitions and the inland barge market keep the keep the streak of annual barge consolidation going.
And then what about expansion into maybe offshore wind and LNG.
Yes no.
Great question.
As Bill said, we're focused on on shoring up our balance sheet getting a little stronger until we get out of this pandemic. So we will.
We will delever some more.
We always do like to do consolidating acquisitions.
But that's just on on the table until we get out of this.
And just kind of a pandemic and this uncertainty and get a little more visibility.
But you did bring up wind and that is an exciting area.
If you look at some of the plans, particularly on the East coast.
The number of projects is enormous so I think what is it 28 gig of wind power.
Thats planned.
That's an enormous amount of work for <unk>.
Jones Act compliant vessels.
The good news is president and buys and came out and supported the Jones Act just recently.
There'll be opportunities for Jones Act.
Marine companies to support the development of wind.
And that can take there's number of different types of vessels that can go out there and there is the installation type vessels, there is transportation to get the equipment out too.
Out to the to the sites, where the wind mills are and then of course, there is maintenance and repair and crewing vessels. So.
That could be a significant growth area clearly Kirby is looking at debt.
One of the largest marine companies and the United States. We're in discussions we're not liberty to really say much more than that but.
It could be.
A meaningful growth opportunity.
But as you know Randy and Kirby is very disciplined about is capital deployment and.
We'll be smart.
And make sure we've got.
Good prospects with decent contract cover before we deploy significant cap.
Yes.
And that would be the case so good day here. Thanks, so much.
And I think.
Thank you. The next question comes from Greg Lewis with <unk>. Your line is now open.
Yeah, Thanks, and good morning, everybody.
Good morning, David.
David.
I'm going to ask a question.
Around competitors I mean, you touched on it like Hey, before pre Covid you guys were getting inland margins up into the 20% range, but but really that was kind of like.
What is maybe a 90 120 day period.
And if we were to look back over the last five years.
It's really been a challenging market and.
And maybe not to call out specific competitors, but at this stage.
Basically a five year extended downturn, but there are there competitors that.
It's been very public that Bouchard has a lot of equipment, that's not really operating as they go through what they are going through.
Is there any can you paint a similar picture to any companies without mentioning names is that happening and it all on the inland side or when we look at the inland fleet.
Maybe companies are.
More stronger than we think for.
And I'm, just trying to get a feel for that.
Yes, sure let me just ramble for a second of course, you know on the inland side. The ACL had had gone through a bankruptcy.
David where just over Levered and they were trying to do their best and dessert best.
They just had way too much leverage for the downturn that went through.
I think there are a number of companies.
And that are severe.
Severely levered right now.
But as you know we were able to pick up higman and because they were over levered and a declining market.
And so.
It's out there.
The bankruptcies.
It always seems like they can last longer than you would think.
And they get over Levered.
But certainly there are some some people that are very very stressed year and this current environment.
We've seen some pricing go down below cash cost.
Which is very frustrating right.
Either they are desperate or are.
Or they don't really understand their cost structure and in order.
To do that but.
It's a sign of how bad the market got.
And Im encouraged with what we're seeing and utility and I think.
And it will come back pretty quickly and we're starting to see the utility move.
And north which was really good but there are undoubtedly some people out there that are close to bankruptcy.
And that's probably good me not to comment specifically about anybody whether it's on the inland side or the up side.
I mean, you mentioned one of them anyway.
Yes. It has been five years, it's been a tough five years.
But again I think.
We're part of a critical infrastructure to run the U S economy, and ultimately things come back.
And we're starting that as you said I know it was only a 120 days with things we're all moving in the right direction before this.
Covid.
And then Mike and Greg.
And I might add.
And I don't think we can point, our finger that competitors with respect to the downturn. There was no relation to competitors there was some building but not.
Not meaningful it was really due to the pandemic and the onetime drop and demand and.
It wasn't competitor action, though we may not like how some of them may behave at the bottom, but thats. This.
And this is an unprecedented decline.
Simply something the industry has ever seen and a lot of interest use of numbers that we're seeing a decline like this.
Yes, yes, yes, and no doubt.
And then just shifting gears.
<unk>.
And there's going to be some opportunities and on the D&S side.
It's interesting as you think about some of.
Your customers that operate and the oil patch.
<unk>, it's tough to let go of.
Existing equipment.
And so clearly there's going to be and opportunities for new equipment.
As there is replacement, but is there anything.
DNS.
And then Kirby are Stewart, and Stevenson and terms of may be retrofitting some existing equipment.
And to move start moving it towards more environmentally friendly and so is that something that debt.
The company is looking at or is it more hey, as older stuff gets retired we just replace it with more environmentally friendly staff.
Thanks.
Yes, no no youre right, we have done a lot of <unk>.
Grades is what I would call.
Either going from old tier engines to new tier four engines and upgrades been some pretty hefty.
Orders that we've converted a lot of just standard diesel engines over to Biofuels biofuel cash.
Pillar has the dynamic gas blending engine, which which can run up to about 80%.
Natural gas.
And with diesel and have no methane slip.
So we've done a lot of that those kind of conversions.
And I would tell you and almost all the new construction has been biofuel or electric and.
Our inbound and the fourth quarter was around all of that so.
You're spot on there are a lot of ESG driven upgrades.
Which actually do give give the owners lower cost of operation.
Electric has a little less maintenance.
And these biofuel.
Yes.
Biofuel engines give them less cost in terms of fuel.
Natural gas is still pretty cheap and.
So there have been a number of conversions that continues to grow as the way I would say it.
I don't think Youll see conventional frac units ordered.
And the near future.
Okay, great. Thanks, very much everybody.
Thanks, Greg.
Thank you. The next question comes from Ben Nolan with Stifel. Your line is now open.
Hey, good morning, guys.
Hey, Ben.
Hey, I wanted to follow up just as Youre looking.
And David you kind of mentioned this when you talked about sort of the debt.
Problem with calculating.
Binary utilization, but theres been a handful of refineries that have closed down.
And who knows whether or not and they'll come back but.
Is there anything out there from a refinery utilization standpoint, or just a refinery capacity standpoint that you think has has permanently changed and <unk>.
Underlying barge demand might be.
Some of these some of these refineries that are gone I mean are they meaningful long term impact.
For Japan.
Yes, no I think.
The large very efficient.
It's very efficient.
Refiners are the the survivors and are the ones.
And with very complex integrated capabilities, they're going to be.
Survivors and I think some of the smaller ones have shutdown because.
Perhaps they are not as efficient so.
And that's what you would expect the older plants get shut down first and.
Whether they restart or not we'll see.
And have heard that there is one refinery.
And looking to restart.
And that's really good news because it had some barge large utility with it.
So some of them will restart I don't think all of them will restart I think some of them are inherently disadvantaged from a.
Refinery complexity standpoint, and and refinery efficiency standpoint, the other thing is youre seeing biofuel and and.
Other.
Environmentally.
Friendly products that debt.
And our refining customers are are adding to their portfolios and we're starting to see some of those type moves emerge so.
I don't think Theres anything systemically that makes and all go away.
<unk>, obviously, we will have a longer term impact.
But.
And there's a debate about how long that takes and if if some of that demand destruction is absorbed.
Or replaced by.
Emerging market.
Demand growth.
If you think of the developing economies typically they start to burn more energy as they develop.
Don't think debt.
And that phenomenon of changes so.
But longer term and obviously, we're all thinking about the impact of Evs and what that can do to demand.
But I think it's got it's got multiple years, if not decades to play out.
And I.
I know some friends with Evs, but they also have a suburban and their garage. So I think it's got a ways to.
Play out.
Right right well.
It makes the word if you can mix the word hydrogen and conversation here you add 10% of your share price.
Yes.
Well, we had talked about changing our name to Kirby Gamestop.
There you go.
Switching gears, a little bit over to D&S.
It sounds like things are start, especially on the industrial side of the business it sounds like they're starting to normalize and typical seasonality.
You've done some acquisitions, there, obviously theres been a lot of.
Cost that's been pulled out of the whole system longer term.
<unk> changed at all with respect to what you think your operating margins might be able to look like there is this still sort of day.
Mid to high single digits.
Call It mid cycle run rate operating business or is there any chance debt.
<unk> been able to fine tune that business and after that you can kind of.
Peak out an extra.
And for three 4% something like that yes.
I sure would like to say that.
Yes, our cost structure and things that we did systemically.
Consolidate management teams and take out cost.
Ed.
Frankly, it systems ERP systems online platforms.
Cost to serve customers.
And is dropping so we should be able to get some margin expansion, but I'm. Just just we got to see the recovery here before I'm ready to commit to that.
But I will tell you our team is doing a fantastic job preparing for.
And the U S economy coming back they are ready and.
I think we.
Should have some positive margin leverage it's just for us to pencil. It out is a little difficult right now.
Okay.
Alright, I appreciate it thanks, Greg.
Thank you alright.
Alright, Thanks, Ben and thanks, everyone. Unfortunately, we've run out of time. Thanks.
Thanks for joining our call today, if you have any additional questions feel free to reach me to day seven.
And one 343 515 or five thanks, everyone have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
And that ESG.
That's always make and an anchor and so for us.
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