Kirby Corp (KEX) 2002 Q1 法說會逐字稿

Good morning and welcome the 2002 first quarter earnings conference call, all participants will be listen only to the question-and-answer session of the call. This conference call is being recorded for instant reply purposes. If you have any objections, you may disconnect at this time. I would now like to introduce the moderator for today, Mr. Steve Holcomb. Sir, you may begin when ready.

Good morning. Thank you for joining us for Kirby's 2002 first quarter conference call. My name is Steve, I am the Vice President and Controller of Kirby, and joining me today is Berdon Lawrence Kirby's Chairman, Joe Pyne our President and CEO, and Norman Nolen Kirby's Executive Vice president and CFO.

Statements contained in this conference with respect to future or forward-looking statements. These statements reflect management's reasonable judgments with to future events. Forward-looking statements involve risk and uncertainties. Actually results could differ materially from those anticipated as a result of various factors. A list of these factors can be found in Kirby's annual report on forms 10-K for the year ending December 31, 2001, filed with the Securities and Exchange Commission. I will turn the call over to Joe, for his comments on our 2002 first quarter.

Thank you Steve, and let me add my welcome to those that are participating today.

This morning we reported, our 2002 first quarter results of 36 cents per share. We earned 8.8 million on revenues of 131.4 million. Earlier this year, in January, we provided earnings guidance to for the first quarter in a range of 36 - 40 cents per share. Although our reported 36 cents per share is at the bottom end of the range, it still represents record earnings for the first quarter.

Sixty percent of what we transport, are chemicals. We've seen our petrochemicals line, lines decline end of 12 percent, since their highs in the second quarter of 2000. products volumes started the quarter strong, but declined during the quarter after the Midwest refinery closed by the fire last summer reopened.

Fertilizer lines were also less, when we compare them to the first quarter of 2001, due to high inventory levels in the Midwest. Centennial Pipeline, that's the new refined products pipeline, that we discussed during our January conference call, is now online. Short term, this pipeline will replace some refine products by as far as - from the golf coast to the Midwest.

Long term the effect on remains unknown and will end, to a large part, on potential closures, inefficient refining capacity in the Midwest, and how quickly demand increases in that area. As I mentioned in January, this business is always exposed to pipeline risk, that's the products up river business.

But there are always many moving parts, which ultimately determine the effect it has on our business. We also experience some navigating delays during the first quarter, principally along the gulf coast, which is driven by fog and winter frontal systems as it of the gulf coast.

success this quarter, given the difficult market conditions, is largely due to managing our horse power better and reducing the number of tugboats we're using in our business.

On marine transportation segments operating margins, for the first quarter, we're 14.6 percent as compared to 14.1 percent, reported same time last year. But, we have to remember that in that number was a - was an expense for goodwill amortization, and we take that out the first quarter of 2001, at of margins of 15.3 percent.

Moving to the diesel engine service side of our business. This segment for 2002 first quarter, generated operating margins of 10.6 percent, compared to 10.5 reported that same quarter last year, and again adjusted to goodwill the 2001 first quarter was 11.1 percent.

Segments nuclear market was very active. The nuclear segment of this business focuses on repairing and selling parts for diesel engines used for auxiliary power units in nuclear power plants. The golf coast oil service market remains soft and this is a market, at least from the golf coast that this business focuses on.

In July 2001 the distributorship agreement that we got from General Motors, electric motor diesel, had to sell replacement parts to the U.S. transit and class two railroads also helped the benefit the 2002 first quarter.

I'll come back to looking at the - our projections for the second quarter of this year and for the full year outlook. Right now I'm going to turn the call over to Norman Nolen to talk about the financial overview for the first quarter.

Thanks Joe. for the first quarter was 17.3 million compared to 15.3 million in the 2001 first quarter. In addition, we purchased a fleet, in the first quarter, 21 inland tank barges from cargo carriers for a net 2.4 million dollars after reselling barges.

In February, we also took delivery of the first of six 30,000, barrel inland tank barges, which will be delivered this year.

Interest expense was at $1.6 million or 32 percent lower than last year, due to lower debt levels and interest rates. During the first quarter we reduced our debt by $7.6 million, reducing our debt to capitalization ratio on March 31, to 43.6 percent from 45.3 at December 31. In January we retired the remaining $50 million medium term note, which was - which cost us - 7.05 percent, and we refinanced the note to our revolving credit facility. In the first quarter our average interest rate, under our revolving credit facility was 3.2 percent.

The effective tax rate for the 2002 first quarter was 38 percent, compared to 41 percent last year. The lower rate was caused by our adoption of FAS-142, under which we will no longer amortize goodwill for book purposes. deductible goodwill amortization expense represented about three percent of our effective rate - effective tax rate in 2001.

I'll now turn the call over to Berdon.

Good morning. I would like to update you on the progress that we've made in enhancing Kirby's financial position since the Hollywood Acquisition in October of 1999.

At the end of September, 1999 and prior to the Hollywood Acquisition, Kirby had debt outstanding of 112 million and equity of 146 million for a debt to capitalization ratio of 43.3 percent. At December 31 '99, after the acquisition of Hollywood, the debt outstanding was 322 million and equity was 240 million, for a debt to capitalization ratio of 57.3 percent.

It's important to note, that in 2000, 2001, and through the first quarter of 2002, we have purchased 12 new tank barges, two diesel engine service companies, as well as the cargo carriers in the fleet Norman just mentioned.

We have spent a lot of money on our equipment through capital upgrades and improvements. We also purchased approximately 100 million shares of our common stock. The total cost for this was approximately $145 million.

After doing all of this we were still able to reduce our debt, by 80 million since January 2000. Today out debt outstanding is 242 million, and our equity is 313 million, for a debt to capitalization ratio of 43.6 percent. Almost identical to the 43.3 percent debt to capilization ratio that Kirby had immediately prior to the Hollywood acquisition.

We feel that Kirby is now in excellent position financially to take advantage of future growth opportunities in our core inland tank barge business, and opportunities in our diesel engine service business.

We feel that the current environment is conducive for further growth of Kirby's inland tang barge business. I will turn the call back to Joe.

Now this morning, we announced earnings guidance for the second quarter in range of 46 to 50 cents per share. This compares with the 2001 second quarter reported earnings of 44 cents a share or just at - or the amortization of goodwill of a 51 cent per share number.

This estimate assumes our core petrochemical market remains - will remain soft and will not improve during the second quarter. There are many mixed messages concerning the petrochemical business and the economy.

It's encouraging that some of our customers are becoming more optimistic. We have not seen this yet expressed in more petrochemical volumes. At our January 31 conference call we predicted that the refined products volumes robust of the last two years would return to more normal levels. Our first order 2002 refined product lines were lower than usual levels due to high Midwest inventory levels experienced in the beginning of the quarter.

However, we do anticipate this market to improve somewhat in the second quarter as the summer driving season approaches and Midwest gasoline inventories and balances begin to occur. We do not anticipate that it will reach 2001 levels, unless there is another unscheduled refinery outage. We don't have much more to say about our 2002 estimate, other than what we have said in the press release. The truth is that we don't know yet if our assumptions are correct. The assumption being that the economy is going to kick in and help petrochemical volumes. To achieve the earnings levels that we forecasted, the 192 - 202 range, petrochemical volumes are going to need to improve.

Although our markets continue to experience the linger effects of the U.S. economic downturn, I can assure you that Kirby is in an excellent position to capture the benefits of any market recovery as well as take advantage of future growth opportunities in both our business segments. Operator, I'll now turn the conference call over to you for questions.

Thank you at this time we're ready for question-and-answer. If you would like to ask a question, please press star one on you touchtone phone. You will be announced prior to asking your question. If you would like to withdraw your question, press star two. Once again to ask a question please press star one now. Sir, your first question comes from .

Hi guys. Could you give us some feel for what the - what's going on as far as the rate environment between the chemical business as far as its . Now obviously, you can't give us precise numbers but - I mean - against historical context, can you kind of give us a feel for what's happening in light of the softer volume.

Yes, rates will go up and down based on really industry fleet capacity, and how much its available, and where its positioned.

Contract rights are driven by really longer term events and - you know where that particular contract right is in relation to other rights in the business.

Currently spot rates are down from last fall 10, 15 percent. Contract rates on the other hand, and remember about 70 percent of what we do is contract. You know - continues to certainly recapture the cost of inflation and in some cases we can get some real increases, but they're not the increases that we achieved last year.

Great, and you give us any feel for the lower fuel expense that you had in the quarter. How much of that helped the margin?

It didn't have a real affect on margins. The market from the stock side of the business is pretty good at recapturing lower fuel. And that's part of what's driven stock rates down. On the contract side of the business, we and fuel, getting it back from our customers when fuel rises, and giving it back when it falls. Now, there is some delay in recovering it. And there's frankly some delay in giving it back. So, when you get an environment with rapidly rising fuel costs, you can be behind - you know - a month or two. And the inverse occurs when you get markets of rapidly fuel costs. That hasn't happened quarter-to-quarter's for the most part fuel is neutral in our numbers.

All right thank you much .

Your next question comes from .

Congratulations on a good quarter, tough environment. Just kind of curious, on the barges you did acquire from cargo, 21 minus five, I guess you sold off. Do I read that right, it's a net purchase to you then of 2.4 million.

Yes, that's correct.

That comes to out to about 150,000 of barge or something like that?

Right, these are, these are 10,000 barrel barges and you know - 70, mid 70 vintage barges - will use the - they were principally in the molasses edible oil trade, some of them will remain in that trade but others will be used in our lube, oil, and business.

Will you have to - because of the relatively low cost of the equipment, will you have to put much back into it since the - our order?

Yea, we'll be putting, we'll put some dollars back into it to bring it, to bring it up to our standards and to modify the equipment where needed for the other trades.

Would you expect that would cost you much at all?

they're gonna be a - it's gonna be really a good deal - even after we put some money in it cause they've got a lot of life left in them.

Yea, they're in good shape. The barges are in good shape.

They've been operating in fresh water all their life.

The follow on question, and until this far, I know you can't comment about it, but it was suggested here, that - we may have more willingness on the part of the seller's to let go of a fleet or so in the next three to six months. Are those conditions getting better as far as, more willingness to sell now that business is a little softer?

Well yeah, we think the environment is pretty good for that. You know you need to go through some softness to make people kind of focus on the realities of this business. You know - whether this last period is that period - you know - time will tell. We do think the environment is pretty good for consolidation.

The fact that the cargo fleet is available, that was more a outsourcing choice by a shipper. But - you know - I think we're going to see more of that frankly.

Does that mean Joe that you are working with cargo on shipping some of their product then, as far as we mentioned as being an outsourcing opportunity there?

Yeah, we're talking to them about moving some of their products. The sale of that fleet wasn't tied to business with cargo. A lot of shipper fleets will look at - will in fact be tied to some volume commitment, some capacity commitments . But in this particular case it wasn't, and frankly, we're fine with that cause we have other uses for the barges.

OK, one other final question. As far as fuel costs are concerned you know - you're going into a seasonal up kick in the business, in the slow period in the first quarter. Is it possible that in your guidance there is some fuel cost impacts, because of where fuel prices are today?

Not purposely. Yeah, I would say yes.

Is it possible the fuel could impact the quarter in this .

Well, if fuel went up sharply, a - then there is a - there is gonna be a lag as we recover it. But we're - you know we're not anticipating that. Fuel is up and if reflects the price of crude oil, it has too. But it's a - it's not - we don't see the same environment that we saw third quarter of 2000, where fuel, in a particular quarter, was up 35 - 40 cents.

OK, I may be back another round, but I'll let you go for now.

Sure.

Thanks.

One again to ask a question, please press star one. Sir, I'm showing no further questions.

OK. , do you have any further questions?

Once again press star one, to ask a question. .

OK, there's just one other follow up question on this chemical recovery. From what you're saying - you indicated the customer rosters just doesn't see that happening at this point in time, despite inventories being relatively - probably below level. What, as you look at the next couple of quarters - it looks more like we may have a steady recovery coming out instead of maybe a recovered even though we've got lower inventories, does that tend to benefit companies like you, where you've got the fleet capabilities, in a more sustained chemical recovery, then maybe may a chemical recovery.

No, I'd have to, have to think about that. Let me just kind of come back to - our customers aren't predicting volume increases - I'm sure that's a consensus out there. What we're saying is that in our second quarter assumptions, we're not predicting volume increases. And we're saying that based on what we're seeing so far and is - I know you, I know you looked at the, at the railroad car loadings, and we're really not seeing it in railroad car loadings either.

Now we do believe that chemical inventories are low. We're being told by a host of economists that inventories, kind of, through out the supply chain are backlogged. Which should mean that when we see volumes move, that those volumes should move up fairly quickly, and the should look at, kind of, our history and I saw some recent information that somebody showed me on railroad car loadings, you see that that could turn very quickly, and you can see a rapid recovery. We certainly saw that - the other way - in mid 2000, when chemical volumes turned down very quickly and we saw our start to decline in a quarter.

That would be, that would be - you know - very beneficial to us. So, in - you know - 60 percent of what we do is chemical related and 70 percent of what we do is contract. So, what we hope to see is suddenly the inventory shortages crank through the supply chain and there's demand on the production side and we begin to move the volumes. If that happens, and it happens - you know - at the middle of the year, I think that - you know - I think we're gonna do fine. If it doesn't happen, then it's gonna be painful.

Well I think one of the things you've got to - one month certainly doesn't make a year signs of improvement last month.

Yeah.

But that would be an indication that there be early signs of that happening .

Yeah, we just - you know - David, the - our crystal ball is as good as anybody else's right now and - you know - what we're, what we're really saying is - you know - we don't know.

Well, let's appreciate your comments.

Yep.

Thanks.

Thank you.

Your next question comes from .

Good morning.

Good morning .

Couple of questions. Norm, can you kind of outline what the program dollar wise looks like for the remainder of the year? nolen: Yeah , we were a little bit higher in the first quarter than typical, but we're probably still gonna be in our range of 45 - 50 million.

OK.

Timing issues - but it's - we're - nothing significantly has changed the pattern this year.

Should that be fairly evenly divided over the rest of the year then, as far as the remainder?

Not necessarily. We're - you know we've got, we've got some more barges coming on line and it really depends on when we take those barges, but generally in the first .

Are they still planning to come on about every six weeks? On delivery?

Yeah, it's - that's the plan and unless there's any delays in the shipping that should be all right.

Some of that will affected by weather . You get, you get a lot of rain and it slows it down a little bit.

It slows down the construction.

Yeah.

And Joe, can you give a little color on how much flexibility you have going forward in terms of you horsepower management and tow boats that you have in your fleet there - you know how much flexibility you'd have to do further reductions in those?

Well, we're working hard on that now. I can tell you this, that in the first quarter of 2001, we operated on average during that quarter 213 tow boats, approximately. In the first quarter of 2002, we're operating 203 and - you know - that's a lot of tow boats to squeeze out of the system.

Now, the thing that you have to be mindful of is that some of that - some tow boat utilization is driven by whether the contract requires a boat or not, and you can have contracts that are just for barges and no boats in a given year and then you can contracts that require boats and some of that happened.

It's also driven by overall business levels, but - you - one thing that we are very pleased with is that the number of tow boats is coming down, the utilization based on tonnage per boat is going up and we're working on other opportunities, particular in the Houston area to try to consolidate power more and continue to squeeze boats out.

It's still premature to quantify that, but I can tell you that had we not worked hard on that last year, I don't think we would have been as successful in this quarter, frankly as we were given the difficult market conditions.

Right, right. Can you reflect, as to a year ago out of the barges that you had there, 213, how many were, kind of, chartered or - you know - charter boats and then what that looks like today. And that offers you further flexibility on that end.

Yeah, charter boats certainly - you know - certainly do because you can turn them off pretty quickly. Now - you know - we're mindful not to do that without a lot of because - you know you - you kind of loose - you sometimes don't get them back when you need them. So, we're actually reducing power boats both chartered power and owned power. But I think that more chartered boats have come out.

OK.

I don't add the mix in front of me. We can get to that number.

OK, thank you.

The next question comes from .

Yeah, , good morning.

Hi Tom.

A couple of questions. First, Joe a lot of parts of the country have had a kind of a dry and warm winter, I was wondering whether you were concerned about low water conditions as we go into the spring and summer.

We are - you know we're always concerned about it. We're actually - the river's pretty high right now. So, the Midwest has gotten some rain. Reservoirs are down a little bit from past levels and that's something that you watch, because if you do have a dry summer, you're really depending on the reservoir system. Up from the Missouri and Ohio to keep the water in river at navigatable levels. I don't think its - you know - it's certainly nothing that we comment on now. A lot of it's going to depend on the rain we get between now and this summer.

And a separately did a big acquisition not long ago, and seems to be in the process of being acquired. I know both of those companies have tank barge fleets. I wondered if you've seen in there competitive behavior?

Really, no change in their competitive behavior. I think the deal is done, and hasn't closed on the enterprise deal yet - I'm hearing - you know - sometime in the summer.

Thanks a lot and good luck.

OK, thanks Tom. operator: Your next question comes from .

Good morning. I just wanted to try and get to grips with whether you an ability to pay a bit more than you have done in the past the Hollywood acquisitions and successful integration of that, aligning you as the biggest player in the industry to better utilize your fleet for an acquisition. Have you got a better - can you pay a bit more for an acquisition than you could a couple years ago?

Yeah, that's an interesting question James. Of course you wouldn't want to but, I think the answer is probably yes, because most fleets in the, in the added with very little incremental G&A. Where prior to Hollywood, we have to add a proportionally more incremental G&A.

Now you know your objective isn't of course not to, not to give that all away, but - you know - at least if you had to, you could give more of it away.

Right, OK. Just looking at the potential acquisition candidates one to ten, what would be 1 - 10, what would be the largest potential deal size?

Oh, I see. Largest potential deal size - oh, I would say less than 100 million.

Right, OK.

Yeah.

thank you.

Once again to ask a question, please press star one. Sir, I'm showing no further questions at this time.

Thank you for participating in our conference call and we bid you a good-day.

Thank you for joining, all participants may disconnect at this time.

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