Q1 2023 Kirby Corporation Earnings Call
Speaker 5: Good day and thank you for standing by. Welcome to the Kirby Corporation 2023 First Quarter Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session.
Speaker 5: To ask a question, during the session you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again.
Speaker 5: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kurt Nimitz. Please go ahead.
Speaker 8: Good morning, and thank you for joining us. With me today are David Grzyzbynski, Kirby's President and Chief Executive Officer, and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's conference call, as well as the earnings release, which was issued earlier today.
Speaker 8: can be found on our website at www.curbycorp.com. 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.
Speaker 8: 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.
Speaker 8: Forward-looking statements involve risks and uncertainties, and our actual results could differ materially from those anticipated as a result of various factors.
Speaker 9: A list of these risk factors can be found in CARB-E's form 10K for the year ended December 31, 2022 and in other filings made with the SEC from time to time. I will now turn the call over to David.
Speaker 1: Thank you, Kurt, and good morning, everyone.
Speaker 1: Earlier today, we announced first quarter revenue of $750 million and earnings per share of 68 cents.
Speaker 1: Included in the results are two offsetting one-time events.
Speaker 1: One-time costs related to strategic review and shareholder engagement activities of four cents per share, which were offset by interest on our delayed IRS refund of four cents per share. The net 68 cents compares to...
Speaker 1: 2022 first quarter earnings per share of 29 cents. Both of our segments performed well during the quarter, delivering significantly higher revenue and operating income year over year. The first quarter results reflected steady market fundamentals in both marine transportation and aviation.
Speaker 1: distribution services partially offset by significant weather and navigation challenges for marine and continued supply chain constraints and distribution and services.
Speaker 1: During the quarter, we remain focused on operating as safely and as efficiently as possible and delivered solid results even with these headwinds.
Speaker 1: And Inland Marine, our first quarter results were heavily impacted by delayed days. Throughout the quarter, our operations were challenged by high winds and heavy fog along the Gulf Coast and locked delays on the Illinois and Mississippi rivers.
Speaker 1: These weather and navigational related issues significantly slowed transit times and impacted the financial performance of our contracts of the Freightment 2022 and 33% compared to the fourth quarter.
Speaker 1: So there's, that adds to kind of our barge utilization, although you don't get paid for it on the contracts of a freightman, but it does help the construct. But all that said, you know, I would say momentum and the pace in spot pricing is gaining, not waning even as weather gets better. It's just really tight. And Ken, this industry bubble of maintenance is real. It's very tight out there and it's gonna be tight for at least two full years. And I think that's making the market a little nervous about availability, which is a good thing. And, you know, it's been a long time in coming. We've had, you know, we've had a lot of
Speaker 2: some lean years, but right now I would say the momentum is strong and if anything is gaining, not waning. So I guess I'll ask maybe a couple rolled in just because they're really, I guess, almost yes or no answers, but you know, coastal utilization you were just running through with Ben, kind of the thoughts on the market. If we're still generating negative margins in the near term, maybe just help me understand that because if you're effectively pulling out capacity, you're talking about high utilization, I mean I can't imagine a market where utilization is in the low to mid 90s and you can't just take, is it just because your contracts are so long you can't take pricing up to meet that demand near term?
Speaker 1: And then, yeah, no, yeah, go ahead. Yeah, I don't mean to cut you off, but in Coastal, you know, it's 90% contracted. You know, those contracts are typically one year. So it just takes a full year cycle. You know, the contracts that renewed in the first quarter.
Speaker 1: and coastal we're up in the 20% range. So, you know, it's happening. We're inflecting right now. And it's just because of the contract nature, you know, there's a lot less spot in the coastal market versus the inland market.
Speaker 2: I'll just throw out Ben's last question on the assets. Maybe just the 100 million you're talking about, is this doubling down in terms of your thought on DNS and keeping it in the company if we're now adding to the balance sheet? No, we're not doubling down. I would just say that this is just special. It's really good technology. The returns are...
Speaker 1: are very high. It's going to be very accretive in terms of EPS. But we're probably not going to grow that portfolio. This is kind of just where we're at right now. We're pretty excited.
Speaker 1: Ken, you can imagine it smooths out earnings for the lease term and it's going to be very high margin for earnings.
Speaker 1: And it smooths out earnings for the lease term and it's going to be very high margin for earnings. Great, thanks for the time. Appreciate it Dave.
Speaker 3: Thank you. Please stand by for our next question.
Speaker 3: Our next question comes from the line of Greg Lewis of BTIG. He is now open.
Speaker 1: Yeah, hey, thank you and good morning everybody. So Raj, I guess on the puts and takes of the CapEx guidance and you called out the 100 million frac investment, you called out the 40 million barge investment, as we think about that 300 to 380, is that...
Speaker 2: you know, what gets us to the low end, what gets us to the high end, and if we're at the low end, does that just, a lot of that capex just fall through to 24? Yeah, Greg, so you know, why we gave such a wide range is, you know, the bulk of this is going to be the shipyard. You know, David talked about the
Speaker 4: the Coast Guard regulations driven strip yards that the whole industry is going through. And with that, we talk about supply chain and we talk about supply chain a lot in the DNS business, but the supply chain also is impacted when we do all this maintenance for our fleets here.
Speaker 4: that's why I gave such a wide range because there could be some slippage that goes into next year.
Speaker 4: Given the way I would look at it is this maintenance bubble is going to be probably a two-year phenomenon.
Speaker 4: Part of the hedge there is because of always seeing it with the supply chain.
Speaker 1: I think the good news though Greg is you know once we get through the bubble
Speaker 1: Yeah, the free cash flow will really jump. You'll start to see it jump in 24 and then 25, our capex will be back down to what it was more typical. But still, as Raj said, we're going to generate in excess of $150 million in free cash flow this year even with the...
Speaker 2: you know, it didn't seem like it, you know, going in the right direction getting there. On the CNI and DNS, it seems like forward guidance is kind of in the, you know, mid-high single digits and it looks, I mean, and we're already there in CNI and DNS. You know, could you maybe talk a little bit about is that maybe CNI
Speaker 2: Is that business just where it is maybe a little bit more susceptible to recession? Or is it something where we just have such visibility in those sectors, in those divisions that margins are just going to trend sideways for the rest of the year?
Speaker 1: Yeah, I think it will.
Speaker 1: There's two pieces, right? I mean there's CNI and then there's the oil and gas and the manufacturing side. You know, CNI's...
Speaker 1: margins were high single, mid to high single digits. Manufacturing, oil and gas were lower, you know, kind of low single digits to mid single digits. And so when you put it all together, I think our average margin was what, 6.7? 7, yeah. 6.7 for...
Speaker 1: for DNS. What's really holding back the margin progression there is supply chain. Yeah, it's just.
Speaker 1: it takes out the efficiency in our manufacturing facilities because you're missing a part, flows down the kind of the assembly line nature of our manufacturing and you know, it's the supply chain challenges are amazing. It could be a cam shaft for an engine or it could be a
Speaker 1: VFD, variable frequency drive, or it could be even as simple as an electric box, right? And what that does is it impacts the efficiency which hurts the margins. I would tell you that... If you remember back, video was edited, so it was when I was brilliant and long Worked everyday, so I would tell you that although we work sportsora, um...
Speaker 1: We're hoping to, and hoping is not the right word, we're seeing some improvement in the supply chain, but it's still every day it's there. And as that gets better, you will see the margins expand.
Speaker 4: I'd be disappointed if we're not into the high single digits in 24 in DNS. And Greg, if I could add to that, as we work through the supply chain issues, you should also see the inventory unwinding progression even get better. Right, you'll notice that in Q1 Ok, you'll be
Speaker 4: we had a build of working capital because business is good, and we built working capital, but the target here is that supply chain works its way through the system. We should start to unwind that inventory position.
Speaker 1: Yeah, and Raj, just to be clear, that's not part of the cash flow analysis. That would be an addition, right?
Speaker 1: Yeah, and Raj, just to be clear, that's not part of the cash flow analysis. That would be in addition, right? Yes.
Speaker 4: Okay, perfect. All right, thank you for the time.
Speaker 4: All right, thank you for the time. Thanks, Rick.
Speaker 3: Thank you. Please stand by for our next question. Our next question.
Speaker 3: comes from the line of Greg Wasikowski.
Speaker 5: at Weber Research and Advisory. Your line is now open.
Speaker 2: Hey guys, good morning. We're hearing the same things obviously on rate momentum and supply-demand tightness. It also seems like rates are really a long way off still from building new being economically feasible. So David I was wondering if you could kind of paint a picture for us of
Speaker 2: how far off we really are and then at any point along the way, are there any concerns over rates increasing so much that it actually hurts the competitiveness of marine transportation versus rail or other types of onshore alternative transportation methods?
Speaker 1: Yeah, let me let me take the last your last question first. Gosh, we're, we're still, you know, in terms of cost per ton mile. You know, they.
Speaker 1: barging is so much more cost effective from rail and certainly for trucking. So we're a long way away from.
Speaker 1: from being non-competitive there. You know, I think, you know, just to use a number, you're going to need $11,000 to $12,000 a day to justify building new. It's Virtual Death Pen Guidance. It's VirtualGovernment needed.
Speaker 1: the cost of the equipment's gone up. Something we don't talk a lot about is the cost of compliance, right? Whether it's Coast Guard regulations, Subchapter M, which is the inspected tow boats. The different regulations have just continued to add costs and insurance costs have gone up.
Speaker 1: When you put all that together, we're still a ways away from rates that justify new bills.
Speaker 6: Got it. That's very helpful. Thank you. And then on along the same lines for the yards.
Speaker 6: You know, say, you know, one day we get there, there's a spike in rates that make it make sense, right? Can you comment on the state of the yards and what the process would eventually eventually be like for them to scale up if new build orders eventually come in? You know, how much inertia is there and how difficult would it be to set for them?
Speaker 1: very busy right now and shipyard capacity is very tight.
Speaker 1: else's where labor is tight, you know, getting getting labor is tight, you know, they're working extra shifts. So the repair side of the shipyard situation is very tight. You know, they're trying to ramp up as much as they can in terms of the number of shifts.
Speaker 1: You know, we obviously, being very large, have some really good relationships with some top-notch yards. So we're not particularly worried about it for our repair work.
Speaker 1: So that's the maintenance side of the shipyards, but in terms of new builds, you know, there's really one, what I would call 800 pound gorilla out there, and that's our COSA. They have the ability to...
Speaker 1: or to produce barges and you know they I think
Speaker 1: could do easily 100 to 200 barges a year if they converted some of their dry cargo barge lines over to liquid barge lines. I just don't see that happening because the price of new builds are so high. But our COSTA has the ability to ramp up.
Speaker 1: if the demand is there. There are a handful of other ones that can build liquid barges, but again, Arcosa is the big one. That said, Arcosa is very busy with dry cargo barges right now, not liquid barges. The dry cargo.
Speaker 1: businesses is in need of some barges and they've been building dry cargo barges which are a lot cheaper, a lot easier to build than
Speaker 1: in need of some barges and they've been building dry cargo barges which are a lot cheaper a lot easier to build than than a liquid barge.
Speaker 5: Thank you, David. I'll pass it on. Thanks. Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone.
Speaker 8: Please stand by for our next question. Our next question comes from the line of Jack Adkins of Stevens Incorporated. Your line is now open. Okay, great. Congrats and good morning, guys. Thanks for taking my questions. Hey, good morning, Jack. Thank you, Jim and I, Jeff.
Speaker 6: So I guess, David, if I could go back to the CapEx and DNS, I think that's really interesting.
Speaker 6: As you sort of think about smoothing out the earnings power there, when would you expect to maybe start seeing accretion from that investment? Is that something that's going to hit in 24? Could that be second half of this year? And I guess how long are the contracts that you're signing related to that? Yeah. As long as it's within that Borresaw
yesthere. We're going to start delivering those throughout this year, kind of the second half. So you'll start to see some accretion in, probably in the fourth quarter and then you'll see some really nice accretion in twenty-four.