Q1 2025 Kirby Corp Earnings Call
[music].
Okay.
Good day, and thank you for standing by.
Speaker Change: Welcome to the Kirby Corporation 2025 first quarter earnings Conference call. At this time, all participants are in listen only mode. After the speaker's presentation. There will be a question answer session.
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Kurt: I'd now like to hand, the conference over to your first speaker today, Kurt maybe.
Speaker Change: President of Investor Relations and Treasurer. Please go ahead.
Kurt: Good morning, and thank you for joining the Kirby Corporation 2025 first quarter earnings call with me today are David Przybylski, Kirby's, Chief Executive Officer, Raj Kumar Kirby's Executive Vice President and Chief Financial Officer, and Christian O'neil, Kirby's, President and Chief operating Officer.
Kurt: A presentation for today's conference call as well as the earnings release, which was released earlier today can be found on our website. 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.
Kurt: And are also available on our website in the Investor Relations section under financials.
Kurt: 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.
Kurt: We're looking statements involve risks and uncertainties and our actual results could differ materially from those anticipated as a result of various factors.
Kurt: A list of these risk factors can be found in Kirby's latest Form 10-K filing and in our other filings made with the SEC from time to time.
David: I'll now turn the call over to David.
David: Thank you Kurt and good morning, everyone.
David: Earlier today, we announced first quarter earnings per share of $1 33, which compares to 2024 first quarter earnings of $1 19 per share.
David: Our first quarter results reflected improved market fundamentals in marine transportation and continued strong demand for power generation and distribution and services.
David: These positive trends were partially offset by weather and navigational challenges and marine and continued supply delays in distribution and services.
David: Overall, our combined businesses performed well during the quarter.
David: In inland Marine transportation, our first quarter results were considerably impacted by delay days throughout the quarter. Our operations were challenged by winter storms, I wind and fog across the Gulf coast as well as lock delays throughout the system.
David: These weather and navigational issues slowed transit times and impacted the financial performance of our contracts of affreightment.
David: Overall delay days increased 50% compared to the fourth quarter of 2024, and 15% from a year ago period.
David: Despite these increases in delays market conditions improved from the fourth quarter due to better customer demand and limited barge availability.
David: Which contributed to favorable price improvements.
David: From a demand standpoint customer activity was strong in the quarter with barge utilization rates running in the low to mid 90% range throughout the quarter.
David: Spot prices were up in the low single digits sequentially and in the high single digits year over year.
David: Term contract prices also renewed up higher with mid single digit increases versus a year ago.
David: Overall margins for inland marine or right around 20%, despite the poor operating conditions.
David: And coastal marine market fundamentals remained steady with our barge utilization levels running in the mid to high 90% range.
David: During the quarter, we saw continued strength in customer demand and limited availability of large capacity vessels, which resulted in mid 20% range price increases on term contract renewals.
David: Our planned shipyard maintenance on several large vessels that we mentioned last quarter continues to wind down but was a headwind to coastal revenue and margins during the quarter.
David: Overall first quarter coastal revenues decreased 6% year over year and operating margins were in the high single to low double digit range.
David: Turning to distribution and services demand was mixed across our end markets with growth in some areas offset by softness or delays in other areas in.
David: In power generation revenues were down 23% year over year as supply.
David: <unk> pushed some projects out of the quarter. However, the pace of inbound orders was strong adding to our backlog.
David: With continued project wins from backup power and other industrial customers as the need for power remains critical.
David: And oil and gas, even though a very soft conventional oil and gas business pushed revenues down 18% year over year operating income was up 123% year over year, driven by E Frac and cost management initiatives.
David: In our commercial and industrial market revenues grew 6% sequentially and 12% year over year driven by growth in marine repair activity, while operating income was up 23% year over year due to favorable product mix and ongoing cost control initiatives.
David: <unk>.
David: In summary, our first quarter results reflected continued strength in market fundamentals for both segments, despite meaningful weather impacts and supply delays.
David: In the market is strong and market conditions continue to support higher rates and coastal industry wide supply and demand dynamics remained favorable our barge utilization is good and we are realizing real rate increases.
David: In distribution and services strong demand for power Gen is mostly offsetting weakness in oil and gas and in other areas.
David: Talk more about our outlook later, but first ill turn the call over to Raj to discuss the first quarter segment results and the balance sheet.
Raj: Thank you David and good morning, everyone.
Raj: In the first quarter of 2025 Marine Transportation segment revenues were 476 million and operating income was $87 million with an operating margin of 18, 2%.
Total marine revenues inland and coastal together was steady as compared to the first quarter of 2024, and operating income increased $3 6 million or 4%.
Raj: Compared to the fourth quarter of 2024 total marine revenues increased 2% and operating income increased 1%.
Raj: As David mentioned fog and high winds along the Gulf Coast produced a 50% sequential increase in delay days that impacted operations and efficiency inland while planned shipyard activity impacted the coastal marine business.
Raj: This was offset by solid underlying customer demand improved pricing and most importantly execution.
Raj: Looking at the inland business in more detail.
Raj: The inland business contributed approximately 82% of segment revenue.
Raj: Average barge utilization was in the low to mid 90% range for the quarter, which was better than the utilization seen in the fourth quarter of 2024.
Raj: Long term inland marine transportation contracts or those contracts with a term of one year or longer contributed approximately 70% of revenue with 61% from time charters and 39% from contracts of affreightment.
Raj: Improved market conditions contributed to spot market rates, increasing sequentially in the low single digits and in the high single digit range year over year.
Raj: Term contracts that renewed during the first quarter were up on average in the mid single digits compared to the prior year.
Raj: Compared to the first quarter of 2024 inland revenues increased 2%, primarily due to higher utilization and pricing offsetting the negative impacts of higher delay days.
Raj: Inland revenues increased 3% compared to the fourth quarter of 2024, despite unfavorable weather related conditions.
Raj: Even with the difficult weather conditions inland operating margins improved year over year, driven by the impact of higher pricing and continued cost management, which help stave off lingering inflationary prejudice.
Raj: Now I'll move on to the coastal business.
Raj: <unk> revenues decreased 6% year over year due to the higher number of shipyards in the quarter. The impact from these higher shipyard was felt throughout the quarter, but it's beginning to wind down in the second quarter.
Raj: Overall wholesale had an operating margin right around 10% at shipyards were partially offset by higher pricing and cost leverage the coastal business represented 18% of revenues for the Marine transportation segment.
Raj: Average coastal barge utilization was in the mid to high 90% range, which is in line with the first quarter of 2024.
Raj: During the quarter the percentage of coastal revenue under term contracts was approximately a 100% of which approximately 100% what time charters.
Raj: The renewal of term contracts well on average approximately 25% higher year over year and we also noted that average spot market rates were up in the mid single digit sequentially and around 20% year over year.
Raj: With respect to our tank barge fleet for both the inland and coastal businesses. We have provided a reconciliation of the changes in the first quarter as well as projections for 2025.
Raj: This is included in our earnings call presentation posted on our website.
Raj: At the end of the first quarter. The inland fleet had just over 1100 barges, representing $24 6 million barrels of capacity at.
Raj: And includes the newly acquired barges, we announced today.
Raj: We expect to end 2025, with a total of 1117 inland barges, representing $24 8 million barrels of capacity.
Raj: Coastal marine is expected to remain unchanged for the year.
Raj: Now I'll review the performance of the distribution and services segment.
Raj: Revenues for the first quarter of 2025 were $310 million with operating income of $23 million and an operating margin of seven 3%.
Raj: Compared to the first quarter of 2020 for the distribution and services segment saw revenue decrease by 7%, while operating income increased by approximately 3% when compared to the fourth quarter of 2024 revenue decreased by 26 million and operating income decreased by $4 million.
In power generation revenues decreased 23% year over year as supply delays push some projects out of the quarter disc.
Raj: Despite power generation revenues being down we saw continued orders from data centers and other industrial customers for power generation in backup power installations.
Raj: This contributed to a very healthy backlog of power generation projects.
Raj: Power generation operating income was down 39% year over year, given the supply delays and had an operating margin in the mid to high single digits power generation represented 34% of total segment revenues.
Raj: On the commercial and industrial site growth in marine repair offset lower activity levels in our on highway and Thermo King business driven by the ongoing trucking recession.
Raj: As a result, commercial and industrial revenues were up 12% year over year and operating income increased 23% year over year, driven by favorable product mix and ongoing cost savings initiatives.
Raj: Commercial and industrial made up 52% of segment revenues with operating margins in the high single digits.
Raj: Compared to the fourth quarter of 2020 for commercial and industrial revenues increased 6% as increased activity in marine repair was partially offset by softness in trucking in the trucking related businesses.
Raj: Operating income was up 13% over the same period driven by favorable product mix.
Raj: In the oil and gas market, we continue to see softness in conventional frac related equipment as low rig counts and tempered demand for new engines transmissions and parts throughout the quarter. This softness is being partially offset by execution on backlog for orders of E Frac equipment.
Raj: This dynamic caused revenue to dropped 17% sequentially and 18% year over year.
Raj: However, despite the drop in revenues operating income was up 7% sequentially and 123% year over year, driven by our <unk> business and cost management initiatives oil and gas represented 14% of segment revenue in the first quarter and had operating margins in the high single digits.
Raj: Now I'll move on to the balance sheet.
Raj: As of March 31, we.
Raj: We had $51 million of cash with total debt of around $1 1 billion and our net debt to EBITDA was just under one five times.
Raj: During the quarter, we had net cash flow from operating activities of $36 5 million.
Raj: First quarter cash flow from operations was impacted by a working capital build of approximately $122 million driven.
Raj: Driven by the underlying growth in the business in advance of projects, especially in the power generation space.
Raj: We expect to unwind some of this working capital as the year progresses.
Raj: We use cash flow and cash on hand to fund $79 million of capital expenditures, our capex primarily related to maintenance of equipment.
Raj: Additionally, as announced we used $97 3 million to acquire some equipment from an undisclosed seller that comprised 14 budgets, including four specialty vouchers and for higher high horsepower riverboats.
Raj: During the quarter, we also used $101 5 million to repurchase stock at an average price just over $101.
Raj: Our repurchases have continued in the second quarter with another 23 million at an average price of $91 18.
Raj: As of April 30th.
Raj: As of March 31, we had total available liquidity of approximately $334 million.
Raj: We are on track to generate cash flow from operations of $620 million to $720 million on higher revenues and EBITDA for 2025, we still see some supply constraints.
Raj: Posing some headwinds to managing working capital in the near term, having said that we expect to unwind this working capital as orders shipped in 2025 and beyond.
Raj: With respect to Capex, we continue to expect capital spending to range between 280 and $320 million for the year.
Raj: Approximately $180 million to $220 million is associated with marine maintenance capital and improvements to existing inland and coastal marine equipment and facility improvements.
Raj: Approximately 100 million is associated with growth capital spending in both of our businesses and could be deferred depending on economic conditions.
Raj: As always we are committed to a balanced capital allocation approach and we will use this cash flow to opportunistically return capital to shareholders and continue to pursue long term value created value, creating investment and acquisition opportunities.
David: I'll now turn the call back over to David to discuss the remainder of our outlook for 2025.
David: Thank you Raj.
David: We're off to a solid start in 2025, while recent macro events.
David: Have created some near term uncertainty in places we continued to see favorable fundamentals as the year progresses, our current outlook and the marine market remains strong for the full year refinery activity is at high levels. Our barge utilization is strong in both inland and co.
David: And rates continue to increase.
David: In distribution and services, we are seeing strong demand for our power generation products and services and we continue to receive new orders in manufacturing both of which are helping to soften the decline in our oil and gas markets.
David: Overall, we expect our businesses to deliver improving financial results as we move through the remainder of 2025.
David: In inland Marine we anticipate positive market dynamics due to limited new barge construction in the industry combined with steady customer demand.
David: With these strong market conditions, we expect our barge utilization rates to be in the low to mid 90% range throughout the year.
David: Overall inland revenues are expected to grow in the mid to high single digit range on a full year basis.
David: However, I need to give the normal cautionary points, a potential tariff induced recession or unforeseen changes in trade flows could cause a drop in demand, which would impact expected growth.
David: That said for now we see revenues growing as planned and expect operating margins will gradually improve during the year from the first quarter's levels.
David: And average around 200 to 300 basis points higher on a full year basis.
David: In coastal market conditions remained solid in the supply of vessels is favorable across the industry.
David: Strong customer demand is expected throughout the remainder of the year with our barge utilization in the mid 90% range.
David: With the number of shipyard days declining and essentially 100% of the coastal fleet on term contracts, we expect a significant step up in revenues and margins.
David: Through the remainder of the year.
David: For all of 2025, we expect revenues to increase in the high single to low double digit range.
David: Compared to 2024 coastal operating margins are expected to improve to the mid teens range on a full year basis.
David: In the distribution and services segment.
David: We still see mixed results as near term volatility driven by supply issues customers deferring maintenance and lower overall levels of activity in oil gas <unk>.
David: Partially being offset by orders for power Gen.
David: In commercial and industrial demand outlook in marine repair remained steady while on highway service and repair remains weak.
David: And oil and gas, we expect revenues to be down in the high single to low double digit range as the shift away from conventional frac to E. Frac continues to take place and customers continue to maintain considerable capital discipline.
David: In power generation, we anticipate continued strong growth in orders as data center demand and the need for backup power is very strong.
David: We expect extended lead times for certain OEM products to continue and it will contribute to volatility in the delivery schedule of new products throughout 2025.
David: Overall.
David: We expect total segment revenues to be flat to slightly down on a full year basis with operating margins in the high single digits, but very slightly lower than they were a year ago.
David: To conclude we are off to a solid start in 2025 and have a favorable outlook for the remainder of the year. Our balance sheet is strong and we expect to generate significant free cash flow. Despite high levels of Capex. This year.
David: Absent acquisitions, we would expect to use the majority of free cash flow for share repurchases.
David: We see favorable markets, continuing and expect our businesses will produce improving financial results as we move through the year.
David: And as we look long term, we are confident in the strength of our core businesses and our long term strategy, we intend to continue capitalizing on strong market fundamentals.
David: And driving shareholder value creation.
Speaker Change: Operator. This concludes our prepared remarks, we are now ready to take questions.
David: Thank you.
David: At this time, we will conduct a question and answer session.
As a reminder to ask a question you need to press star one on one of your telephone and wait for your name to be announced.
David: Draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
David: Our first question comes from Jonathan <unk> from Evercore ISI. Please go ahead.
Jonathan: Thank you good morning.
David: Steve.
Speaker Change: David I wanted to ask about not so much the acquisition that you announced this morning, but more the path forward. It seems like we're in this interesting spot and inland where you're well off the bottom the outlook is still pretty bright, but theres a lot of uncertainty kind of in the broader market and the macro I imagine input costs maintenance costs continued to go up.
David: There are opportunities from.
David: From a trainer where your balance sheet can provide you with a little bit more optionality on the M&A front.
David: Yes, the short answer is yes.
David: I would say the environment is more constructive in terms of acquisition.
David: Opportunities.
John: But as you know John it's really hard to predict those.
John: But the environments better than we've seen in the last three or four years for sure.
John: And obviously from a capital deployment standpoint.
John: That's our first priority, we'd love to do a consolidating marine acquisition.
John: And.
John: As you would expect we're always on the outlook are looking out for those type of opportunities.
John: That said.
John: As you've seen.
John: Absent that we're going to we're going to deploy our free cash and buy back stock.
John: It's pretty easy for us to buy the barge company, we know the most about but that said our first priority would be trying to get a consolidating acquisition if possible and the environment feels a lot better for that right now.
John: Okay, that's clear.
John: Just for my follow up pivoted DNS.
John: And then kind of a two parter here.
John: You mentioned the cost controls and your margins were better than we expected I think probably you expected in the first quarter yet the full year guidance about the same.
So one is there.
John: Some stickiness to those cost controls that can maybe even in a.
John: Kind of protracted soft oil and gas market helped our full year margin and secondly, it just feels like there's always building backlog building backlog and building backlog and the delays.
John: Are we getting close to the point, where this backlog really starts to translate into.
John: Some revenue acceleration across any of the different segments within that category.
Christian: Yeah, Let me, let me take that in pieces and Christian can chime in here as well.
Christian: On the margin improvement look we've taken.
Christian: Some strong lean processes throughout our whole distribution and services business. So the margins should continue to improve.
Christian: There is a mix issue.
Christian: E Frac will be very high margins, where whereas.
Christian: Data center backup power is kind of.
Christian: Thinner margins and Thats because the engine is such a big portion of that and it's hard to Mark up the engine. So we get paid for our service and our engineering and our packaging really on those data center things, but the margin is thinner so there's always a mix issue.
Christian: That said.
Christian: I would be disappointed if we if we're not able to to continue to improve our margin outlook for the full year, but we're just not ready to declare that yet.
Christian: The second part of your question really is.
Christian: The pig in the Python right.
Christian: It's really been very difficult with with.
Christian: Natural gas re sips more than than the standby, we had a pretty good shipment period in the first quarter for data centers, which is diesel standby.
Christian: The natural gas resets have been a little slower, but our second half you should start to see that revenue starts flowing through.
Christian: One of our engine Oems push out deliveries that were supposed to be in the first quarter to the third quarter.
Christian: Sure.
Christian: That sounds really negative, but what it is is demand is pretty high.
Christian: We just need to be higher in the pecking order with our OEM much which we're working on I don't know Christian do you want to add anything no I think.
Christian: You summarized that very well.
Christian: Power Gen continues to grow demand is still really good.
Christian: There are some challenges.
Christian: On the OEM supply side, particularly around engines, we're managing that as well as we can but what you don't see is certainly any cancellations or change in behavior of what we see is just some of this moving out to the right as David said revenue got it yes.
David: Thank you thanks, David Thanks Christian.
John: Take care John.
Christian: Thank you one moment for our next question.
Speaker Change: Our next question comes from Daniel.
Daniel Kimbro: Kimbro from Stephens. Please go ahead.
Christian: Okay.
Speaker Change: Hey, good morning, guys. Thanks for taking my questions Hey, good morning Monday.
Christian: David.
Christian: Maybe on the inland side, if we start there it's good to see barge utilization and spot pricing continue to pick up I guess can you talk about maybe where we exited <unk> on both utilization and spot and then related contract pricing was up mid singles.
Christian: How does that exit the first quarter and how should we expect that to trend just given the strength we've seen in all the pricing and utilization.
Christian: Yes.
Speaker Change: Christian I will tag team this a little bit I'll start.
Speaker Change: Look our utility exited the quarter in the mid nineties.
Speaker Change: Essentially sold out we really cant run much more than $95, 96% and we've been.
Speaker Change: Even through April we've been running in that 95% to 96% so.
Speaker Change: Demand is really strong we are pushing pricing up.
Speaker Change: The fourth quarter, we had a very tiny pulled back we've made that back up.
Speaker Change: Spot pricing was up.
Speaker Change: Sequentially kind of 1% to 3%.
Speaker Change: In some cases, a little higher than that term contracts were up.
Speaker Change: 3% to 5% on a year over year basis, but just remember on the first quarter. The term contracts, there's not a lot of them being repriced. Those are those are typically second half loaded and particularly the fourth quarter, but I'll, let Christian to give you some more color.
Christian: What we're seeing yes, I think David summarized that well first quarters.
Christian: Rather smaller sample set for a contract renewals as he referenced it's kind of a back half of the year loaded when you get a better better sample set however, the market conditions as we emerge out of Q1, you look at the things that we think about and watch every week here at Kirby crack spreads refinery utilization <unk>.
Christian: Tivoli Barometers all of those indicators are in really good shape cracks.
Christian: Crack spreads have spread and expanded back into the mid 20% range, which is great refinery utilization has gone up from the hot high <unk> to the low ninety's and pad III, which is particularly important to us and the kimco parameters that we look at even though you see some pain in the sort of earnings.
Christian: Some of the major chemical manufacturers their domestic operations remain very busy in quite strong and we on the marine transportation side.
Christian: Haven't seen a pullback in volumes. So when you look at that in combination with the supply side.
Christian: Yes.
Christian: Subjective view that we think theres, probably 50, some odd barges on the order book.
Christian: Shipyard capacity is extremely tight if you wanted to build a new 30000 barrel tank barge youre, probably not going to get it delivered until late 2026. So if you take those demand and supply dynamics that we see it's all very positive limited barge construction good fundamentals.
Christian: And the measurable that have always been highly correlated to our success and barge pricing.
Christian: Has gone to a new all time high levels steels back up with some of the macro.
Christian: Tariff activity.
Christian: It will cost you $4 $7 million to go build a plain vanilla 30000 barrel tank barge now we've never seen that $6 7 million or a black oil barge. When you can almost build a towboat through it would cost you to build a single black oil barges at this point and turns are at $2 5 million. So steel has spiked back up that should.
Christian: Keep a lid on new construction and I think the actual shipyard capacity that's out there. It really it really has reduced compared to the air when we were building hundreds of barges a year.
Christian: Our subjective opinion that if you go to the high quality shipyards that can build a good tank barge youre still at about 50 60, a year is the capacity for the U S. Jones Act in the tank barge construction so.
Christian: That's a long answer to your question, but as we exit Q1.
Christian: Coming out of the winter months, which is the most challenging time to be a sailboat or managed tow boats and we emerge a 20% ish margins headed into a good supply demand dynamic.
Christian: I think thats feeling pretty good about the outlook.
Speaker Change: Stop there.
Speaker Change: Okay. That's all really helpful color I appreciate the detail and maybe just from a follow up related to that on the inland margin. If I put all those pieces together it sounds supportive I think <unk> margins were actually flat for <unk>. Despite the big increase in delay days.
Speaker Change: So if utilization and pricing are improving hopefully delay days don't get sequentially worse, how should we expect inland margins to progress after a 20% level in <unk> as you move through the year to get to that full year guide of two to two to 300 basis points.
Speaker Change: Yes, yes.
Speaker Change: Daniel in our prepared remarks, we basically reaffirmed guidance.
Speaker Change: Think inland margins will be up on average for the full year to 300 basis points.
Speaker Change: We feel pretty good about that NAND, even with all the tariff noises, we're basically reaffirming our guidance on margin expansion.
Speaker Change: You know our quarterly cadence usually the third quarter is the best.
Speaker Change: Second quarter is always pretty good in the first and the fourth quarters, where they pulled back a little bit largely because of weather. So.
Speaker Change: Yes.
Speaker Change: Rather not get into quarterly guidance here on margins I would just say again, we like to look at it on a full year basis, we think the full average will be up.
Speaker Change: As we reaffirmed in our guidance.
Speaker Change: Is there some upside to that maybe it is really tight right now, but but there are some macro headwinds out there that we're all watching.
Speaker Change: With the tariffs and does that impact the economy right now we're very confident in where we're at.
I would just add one small piece of that and the fact that spot prices continued to be above term prices and that's where we'd like to be and where we like to see it. This week as we continue to try to grow grow the margin.
Speaker Change: Great I appreciate all the color guys best of luck.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Scott Group.
From Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks, I just wanted to follow up with that last comment you made about spot being above term I know it sounds like theres not a lot of repricing activity in Q1, but why only.
Speaker Change: 3% to 5% increase in contract rate given sort of everything that youre talking about.
Speaker Change: Yes.
Speaker Change: It's just a small set of contracts that renewed in <unk>.
Speaker Change: Sure.
Speaker Change: Every customer has a little different angle, but look we're very positive with where we're at right now.
Speaker Change: And.
Speaker Change: Yes.
Speaker Change: We would always like higher higher contract pricing.
Speaker Change: We do have sophisticated customers in.
Speaker Change: They do tend to play play play us off each other but we are we're very constructive about continued pricing improvements.
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: You mentioned trade flows entire if so I'm just curious how you see this playing out in <unk>.
Speaker Change: You see the risks are there any opportunities and then just more broadly on everything going on like the administration seems to be China Incentivize U S. Shipbuilding I don't know how you think about that impacting you.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Well, let me break down the kind of the tariff potential tariff impacts.
Speaker Change: We're really not seeing much impact other than steel prices up right now I would say.
Speaker Change: There's three buckets short term medium term and long term for us.
Speaker Change: Short term tariffs.
Speaker Change: Pricing on engines could go up we're seeing more.
Speaker Change: Most of our engine suppliers have domestic plants, but theyre still buying parts and pieces from from abroad, and so there is a little impact from that that would be a negative or positive in the short run as steel prices have really popped, which just makes the cost of new barges go up which is really good for us.
Speaker Change: Medium term, obviously would be more of the the economy do we see a pullback in the economy.
Christian: As Christian referenced.
Christian: Our customers are are not pulling back we're not seeing at par.
Christian: Part of that May just be.
Christian: From <unk>.
Christian: Competitive standpoint, particularly in the chemical standpoint from the chemical side.
Christian: These U S plants have a great feedstock position and they're very efficient and theres a lot of new capacity there thats been built in the last five to six years and so they are the third the best assets in the chemical companies portfolio. So when we think about the economy, there could be a little pullback.
Christian: Again, we havent seen signs of it and then the very long term I think onshoring is really good for Kirby, we're essentially 100% domestic.
Christian: Our DNS side, where our manufacturing facilities are all here.
Christian: And then of course on the Jones Act side.
Christian: The more things that they come onshore that's that's better for our Jones Act fleet.
Christian: Now you asked specifically about the administration's effort on shipbuilding that is really all about international Shipbuilding not really Jones Act at all.
Christian: Yes, I think the administration is looking at China in China, and the international ship supply.
Christian: There are about 70% market share on new construction I think.
Christian: The administration is trying to address that and stimulate maybe some more international shipbuilding capabilities here in the U S.
Christian: That's that.
Christian: Not addressed for for the Jones Act it may actually help us.
Christian: We may have more maintenance options from shipyard stemming stimulation, but but we will see when we put all the tariff stuff together, it's probably a modest positive for us.
Christian: There's all kinds of pluses and minuses and some unknowns, but.
Christian: When you run through everything I just did it's probably.
Christian: Small net positive for us.
Christian: I might add one one.
Christian: Positive that we see in the executive order is an investment in marine training for the Mariner and I think Thats I applaud the administration for addressing that and wanted to help U S labor and U S jobs.
Christian: Anything we can do to help help grow the merchant marine and improve the opportunities for our merchant Mariners as a positive and a positive for Kirby and Theres some of that in the in the executive order.
Christian: I appreciate it guys. Thank you.
Christian: Thanks.
Christian: Thank you.
Ken <unk>: Our next question comes from Ken <unk> from Bank of America. Please go ahead.
Ken: Hey, good morning.
Ken <unk>: Hey, good morning Christian.
Ken <unk>: So you did not.
Speaker Change: Kind of directly I guess address your EPS growth target of 25 in the release that you set in the fourth quarter. Just wondering if there was any.
Speaker Change: Any reason for that are you pulling it or are you changing it to 15% to 25% growth target and then secondly, I guess on on rates.
Speaker Change: I understand the delay days in it absorbs capacity so when that capacity gets freed up and you don't have the delay days.
Speaker Change: Will we see additional pressure on yields.
Speaker Change: Is that something that that you see as the capacity gets freed up maybe just.
Speaker Change: I guess can suppress that.
Ken <unk>: Ken I'm glad you asked that question.
Ken <unk>: We are reaffirming our EPS guidance. So we should have probably been more explicit about that but when you add up everything we've said about it's the exact same guidance. So we are reaffirming that that percentage I'll, let Christian talk about the weather.
Ken <unk>: Freeing up capacity.
Ken <unk>: You really honed in on something here, Ken Q1 winter weather conditions artificially tightens the market.
Ken <unk>: Youre waiting to cross and open bake because the winds blow and really hard you trips little longer you chew up available capacity and utility does tend to go up during the winter months. However.
Ken <unk>: We are more profitable and there is more margin on every voyage when youre able to accomplish those voyages.
Ken <unk>: Again, a large contract of affreightment piece of our portfolio becomes highly profitable when the trip times accelerate and were able to make more ton miles. The other thing we do when we come out of the winter months as we actually gain net capacity, but I mean by that is those days spent waiting across the bay.
Ken <unk>: Get through a lot of whatever whatever weather delay it is youre actually gaining barge days to sell as the weather gets better and you accelerate all of your voyages. So your fleet.
Ken <unk>: Yeah.
Ken <unk>: Gross.
Ken <unk>: Because there is more available barges to book in better weather months.
Ken <unk>: The margin on the affreightment trips.
Ken <unk>: The question would be do the competitors get more aggressive look.
Speaker Change: Christian and his ops team are the preferred supplier out there and people agenda want to work with us.
Speaker Change: Reputation Ali and because we do a lot to save our customers money. So there could be a small competitive.
Speaker Change: <unk>.
Speaker Change: Impact but.
Speaker Change: I think having more barge days to sell right now in our outlook.
Speaker Change: We're not worried at all Ken.
Ken <unk>: Okay, and I guess that comes through in your in your contract.
Ken <unk>: Pricing revenue per ton mile was down 811 eight.
Ken <unk>: So it's up one 1% after upper teens last year. That's all just a factor of exactly what youre talking about in terms of mileage and getting jammed at the ports.
Ken <unk>: Just some investors I think don't understand that theyre looking at those numbers and seeing the concern on on pricing. So I don't know if you want to just maybe extrapolate on that and how that turns into maybe accelerating pricing opportunities.
Ken <unk>: That is exactly right great point.
Ken <unk>: That is weather driven.
Ken <unk>: <unk> C driven that gets better as the weather improves and you make more ton ton miles.
Ken <unk>: And more margin and so you will see you will see that improve calm confidence that you've seen that if you followed Kirby for a very long time, you understand that there is a seasonality to that logistics is yes.
Ken <unk>: And then can you relate I guess to the number of delay not the way they ship shipyard days at at Coastwise on what we could see as and the.
Ken <unk>: <unk> into the second quarter and beyond.
Ken <unk>: Yes.
Ken <unk>: We had a very heavy first quarter.
Ken <unk>: Starting to get that equipment back and you will see the coastal margins progress up each quarter.
Ken <unk>: Going forward don't want to give you a specific margin guidance, but.
Speaker Change: Our coastal business is about to really start to to generate margins Christian I kind of joke, but with our team.
Speaker Change: We got to get coastal margins above inland margin. So.
Speaker Change: There is a little healthy competition internally here, but.
Speaker Change: It's <unk>.
Speaker Change: Once we get these big shipyards done.
Speaker Change: You can imagine having a big ATB unit, that's earning $40 $50000 a day and a 120 year 120 day shipyard. That's a lot of revenue that is that's not there, but the cost is still there. So that's about to reverse in each quarter second quarterly a lot better than first quarter third.
Speaker Change: It'll be even better than the second quarter. So the.
Ken <unk>: Progressions there Ken.
Ken <unk>: Yeah that'll be the day I guess, when we see coastwise inland.
Ken <unk>: Last one for me just.
Ken <unk>: M&A.
Ken <unk>: Maybe can you just talk about the process how long was this 14 barge discussion.
Ken <unk>: We're working through and are there other opportunities I would imagine that given some of the financial constraints that we've seen of some of the smaller carriers that would have been maybe more opportunities are you seeing that increase.
Ken <unk>: I think in general Kirby is the logical strategic.
Ken <unk>: Acquirer for companies that want to sell.
Ken <unk>: Particularly liquid marine assets.
Ken <unk>: Those conversations those relationships exist and.
Ken <unk>: If something is going to market.
Ken <unk>: We almost always tend to get a look at it.
Ken <unk>: Those relationships.
Ken <unk>: Exist and those communication lines stay open and so I don't want to comment too much on the deal that we did but.
Ken <unk>: And in general we are the logical choice to at least have a conversation with if youre going to sell a liquid marine asset we tend to see a lot a lot of that.
Ken <unk>: That activity.
Ken <unk>: Yes, and Ken just to add on that I mean, it is a much more constructive environment for acquisitions right now, but yes.
Ken <unk>: Predicting one is is a tough thing to do.
Ken <unk>: Thanks for the time guys I appreciate it thanks.
Ken <unk>: Thanks, Ken Thanks, Ken.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on one of your telephone and wait for your name to be announced.
Speaker Change: Our next question comes from Zarif Mccabe from <unk> BPI. Please go ahead.
Zarif Mccabe: Hey, good morning, Thanks for taking my questions.
Zarif Mccabe: First quick follow up on Scott's question.
Zarif Mccabe: Scott I believe that in the past in the past Q4 has historically been a big quarter for inland fleet repricing.
Zarif Mccabe: Can you just give us an update on is that the case this year or should we expect a different cadence.
Speaker Change: No I mean, our as you might imagine most companies contract portfolios are kind of year end calendar and for US the fourth quarter is always a big quarter for <unk>.
Speaker Change: Term contract renewals, sometimes they slip.
Speaker Change: Somebody will say, hey, give us another month.
Speaker Change: We need to go get some more approvals, but no it hasnt changed.
Speaker Change: You should expect our fourth quarter renewal.
Speaker Change: Portfolio.
Speaker Change: That's the largest renewal, it's probably 40% of of the contract renewals occur in that in that fourth quarter.
Speaker Change: The first quarter is usually one of the lighter ones.
Speaker Change: That's helpful and then.
Speaker Change: You mentioned, some crack spreads are pretty constructive at the moment.
Speaker Change: Last year towards the end of last year, I remember pet Chem activity with an area of support la crack spreads came in.
Speaker Change: So I'm curious about the dynamic the trading one versus the other is it possible to switch some of your tonnage from product focused capacity to carrying <unk> equipment more complicated than that.
Speaker Change: So yes. The answer is yes, there is a large piece of our portfolio that is margin is.
Speaker Change: You can you can wash a barge out and move it from one one service to another.
Speaker Change: Clean clean it and ship services so.
Speaker Change: Your typical 30000 barrel 10000 barrel clean barges are homogenous assets that can chase gasoline as well as they can chase benzene toluene and xylene. So yes. They are flexible the assets themselves. There are certain assets that are more product specific <unk>.
Speaker Change: Black oil barges that have thermal fluid heating systems pressurized gas larger.
Barges specific uses but for the most part the homogenous pool of 30% tens are flexible to go in and out of the services.
Speaker Change: That's great. Thanks for taking my questions.
Speaker Change: Thank you one moment for our next question.
Greg Koski: Our next question comes from Greg Koski from Weber Research and Advisory. Please go ahead.
Greg Koski: Hey, good morning, guys. How are you doing hey, good afternoon, Greg.
Speaker Change: Yes, I wanted to follow up on Ken and John <unk> questions from earlier on the M&A environment.
Speaker Change: What exactly has made it a more construction.
Speaker Change: Sure Mark constructive environment now versus the past few years I would have thought that.
Speaker Change: Given that there hasnt been a ton of struggle in the past few years relative to the past down cycles and prices seem to have gone nowhere, but up I just would've thought it would be harder to find the right opportunity at the right price. So maybe you can just tell me how im wrong there.
Speaker Change: No.
Speaker Change: So.
Speaker Change: Willing sellers.
Speaker Change: They don't want to sell at the bottom right.
Speaker Change: Right now, they're thinking hey look.
Speaker Change: Things are things are.
Speaker Change: Better.
Speaker Change: If I do so I am not selling at the bottom I may be selling.
Speaker Change: Kind of mid cycle.
Speaker Change: That's okay.
Speaker Change: No.
Speaker Change: Look.
Speaker Change: With the.
Speaker Change: The financing market and whatnot.
Speaker Change: Life is more more difficult so.
Speaker Change: Might think that now is a better time to sell.
Speaker Change: But.
Speaker Change: The conversations are up for sure.
Speaker Change: But there is still a bid offer spread there is theres always a bid offer spread and we just needed to narrow.
Speaker Change: But at least the conversations are happening I think.
Speaker Change: <unk> cobot, everybody wanted to kind of get their feedback on the ground, but maybe pay down some debt and now.
It just feels like the <unk>.
Speaker Change: Conversations are just a little more constructive.
Speaker Change: But again, it's so hard to predict acquisitions.
Speaker Change: It is a price discovery type process.
Speaker Change: Lot of people have a lifestyle to the day they are thinking about whether they want to give it up or.
Speaker Change: Cash out so it's you just never know.
Speaker Change: I'm not trying to be cage year of avoid the question it's.
Speaker Change: Everybody's got a little different angle on what Theyre looking for and why they might look for it.
Speaker Change: Okay that makes sense is it is it fair to characterize that market as being.
Speaker Change: Maybe to answer the spectrum one being.
Speaker Change: Distressed sellers, which is I guess, probably what we're more familiar with.
Speaker Change: With your more impactful acquisitions in the past.
Speaker Change: Versus the other end of the spectrum, which would be more like opportunistic exits and the past few years has maybe been somewhere in the middle.
Speaker Change: Where it has been a little bit more money and now it's getting.
Speaker Change: More towards that more positive end of opportunistic exits is that fair to think about it that way.
Speaker Change: It could be I don't think that's that's an unfair characterization at all.
Speaker Change: Okay cool.
Speaker Change: And then one more if you don't mind it just seems.
Speaker Change: It seems like there's been a few more barge orders since the last call mostly appear to be mostly replacement tonnage but.
Speaker Change: Always good to get your viewpoint on it.
Speaker Change: Yes, Scott.
Speaker Change: Again, we subjectively look at the order book, we understand we know who's building, what at what shipyard and I can verify that and in our opinion much of this appears to be replacement tonnage you can look at the age the expiring assets in those portfolios for those that are built.
Speaker Change: And can tell you with some level of confidence that it looks and feels like replacement tonnage not new growth, yes, Greg.
Greg Koski: I actually think we will see a reduction in the overall barge count this year and I would add it's difficult even today to expand your fleet.
Greg Koski: With the pressure in the acute.
Greg Koski: Shortage of Mariners, so even if you wanted to grow your fleet, even if you're willing to invest at these.
Greg Koski: Halcion numbers, which doesn't make sense to invest in it.
Greg Koski: $4 7 million for a clean 30, but say you wanted to do that and you wanted to get a boat and crew it up it's still a challenge to grow your crew complement.
Greg Koski: To effectively significantly grow your fleet. So again most of this looks and feels that replacement tonnage.
Greg Koski: And the.
Greg Koski: Financing is still an issue for a lot of a lot of a lot of the owners.
Greg Koski: Again, one of the benefits of being a publicly traded company and our access to capital, but I think what you see out there is the financial.
Greg Koski: Difficulty and the cost associated with that but with the Mariner shortage.
Greg Koski: Most of this is replacement tonnage.
David: Got it okay, great. Thanks, David Thanks Christian.
Greg Koski: Take care.
Speaker Change: This concludes the question and answer session I will now turn it back to Curt <unk> four.
Greg Koski: For closing remarks.
Speaker Change: Thank you operator, and thanks again for everyone for joining us today as always feel free to reach out to me throughout the day and next week, if theres any follow up questions.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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