Kirby Corp (KEX) 2009 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Kirby Corporation Second Quarter Earnings Conference Call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Steve Holcomb. Mr. Holcomb, you may begin.

Thank you for joining us this morning. Joining me today is Berdon Lawrence, Kirby's Chairman; Joe Pyne, President and Chief Executive Officer of Kirby; and Norman Nolen, our Executive Vice President and Chief Financial Officer.

During this conference call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at kirbycorp.com in the Investor Relations section under non-GAAP financial data.

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. Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's annual report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission.

I will now turn the call over to Joe Pyne.

Good morning.

Yesterday we reported net earnings for the 2009 second quarter of $0.63 per share compared with $0.74 per share reported same period last year. Our announced earnings guidance for the second quarter was $0.52 to $0.62 per share. For the first six months of this year, we earned $1.15 per share compared to $1.42 per share last year for the first half of the year.

During our 2009 first quarter, in response to the lower demand in both segments of our business, we took specific steps to reduce overhead and cost by reducing shore staff -- our shore staff by approximately 60% through early retirement staff reductions, taking a $4 million before tax charge or a $0.05 per share charge against earnings.

Just as a reference point, last year at this time, our shore staff headcount was approximately 10% higher than it is today. That's a 6% reduction in shore staff number. I think I misspoke and said 60%.

During the 2009 second quarter, our marine transportation demand across the majority of our markets stabilized but was well below than our prior year levels. We did see some improvement in upriver movements of more finished petrochemical products when compared to the 2009 first and 2008 fourth quarters, when significant de-stocking of inventories occurred.

Demand on the canal stabilized and it appears to be bumping along the bottom. Weekly overall barge utilization for the second quarter ranged from a low of about 80% to a high of 85%, which compares to a low of 90% to a high of 95% in the second quarter of 2008.

During the second quarter we maintained our revenue mix of 80% term and 20% spot, consistent with the 2009 first quarter and most of 2008. Pricing for services continued to be under some pressure. During the first quarter, we were generally able to renew our contracts at the same rates, or in some cases we traded some rate for increased contract terms.

During the second quarter, we experienced spot rates declines on a year-over-year basis in the 10% to 15% range, which included fuel. We had a sharply lower fuel. Fuel would have accounted for about half or maybe slightly more than a half of this spot rate decrease.

Term contracts renewed during the quarter -- or renewals during the quarter were anywhere from renewed at is expiring, which would be 0%, to a maybe 8% reduction.

Time charter or daily rate contracts, which reduce revenue volatility caused by weather and navigating delays and temporary market declines, continued to represent about 55% of our total revenues during the second quarter. The time charter mix was unchanged as decreases in time charter revenue were consistent with the decreases that we saw in our total revenue. We do expect the number of time charters contracts will continue to decline as customer size our time charters to their actual demand.

While our marine transportation revenues declined $64 million during the second quarter and $106 million for the first six months, when you compare revenue to corresponding 2008 periods, approximately $23 million of this revenue decline, or 36% of the second quarter revenue decline, and $39 million, or again approximately 37% of the first six months revenue decline, was due to lower fuel prices as fuel flowed through our contracts being escalated or de-escalated -- de-escalated in this case.

Although we were impacted by high water at both the Ohio River and lower Mississippi Rivers during the majority of the second quarter, overall we experienced favorable weather and operating conditions for the second quarter, as well as the first six months, and the numbers show it. We saw in the second quarter a 40% reduction in delay days and for the first six months a 45% reduction in delay days. So, much lower delay days this year than last year.

The lower delay days did help to reduce operating expenses, offset some of the financial impact of lower demand levels but of course also drives down barge utilization, because you have less delay days, more barges to carry the cargoes out there.

One key element in our business model is the use of charter power for some of our business. Charter power gives us the flexibility to grow during strong markets and contract when the market is weaker. During the first and second quarters, we were able to take out a number of towboats, mostly charter towboats, which helped reduce our costs, operating an average of 219 boats during the second quarter compared to 232 boats for the first quarter of 2009. And then when you go back to the 2008 second quarter, we operated 259 boats.

Additionally, we continue to retire more tank barges than we're building, as we operated 894 tank barges as of June this year compared to 914 at the end of last year and 918 June of 2008.

Being able to quickly and efficiently reduce cost is the reason Kirby was able to increase its operating margins in spite the decline in revenue and volumes. We will continue to aggressively pursue costs that could be removed from our business, providing it doesn't compromise our service levels or safety performance.

Just touching on the diesel engine service segment of our business, demand levels for service and direct parts sales remain weak as our customer base deferred maintenance on equipment in response to lower utilization levels they were experiencing.

The medium-speed power generation market did benefit from several engine generator setup [grade] projects and from some direct parts sales. The medium-speed Gulf Coast marine market also benefited from several international products that we did for the offshore oil service business.

I'll come back at the end of the prepared remarks and talk about our third quarter and full-year outlook, but let me turn the call over to Norman to brief you on the financial side of the business.

Good morning.

In spite of lower revenues, our marine transportation segment second quarter operating margin increased to 24.4% from 22% in the second quarter of 2008. The higher margin reflected a positive impact of the first quarter's early retirements and staff reductions, reduction of charter boats operated, more efficient operations at lower utilization rates, lower insurance claim losses, and better weather and operating conditions.

The operating margin in the diesel engine services segment was 13.6% in the second quarter compared with 15.6% in the 2008 second quarter, reflecting a decline in service and direct parts sales to the Gulf Coast oil services and in our marine transportation markets, which drove lower labor utilization.

Cash flow for the first six months, aided by a decline of accounts receivables, was sufficient to cover $116 million of capital spending and still allowed us to pay down $37 million of debt.

Our debt-to-capitalization ratio declined to 17.9% compared with 21.7% at December 31 and 25.6% a year ago. The average cost of our debt for the first six months of 2009 was 5%.

The $116 million of capital spending in the first half of 2009 included $84 million for new barge and towboat construction and $32.6 million, primarily for upgrades on our existing fleet. Our 2009 capital spending guidance remains at $180 million to $190 million and includes approximately $135 million for new barges and towboats. For the remainder of 2009, we anticipate continued positive cash flow.

I'll now turn the call over to Berdon.

Good morning.

During the first six months, we took delivery of 21 new barges and seven new charter barges with a total capacity of 572,000 barrels.

All participants, please stand by. Your teleconference will resume momentarily. We thank you for your patience.

Can you hear us okay?

Yes, now we can.

Okay.

During the balance of 2009, we expect delivery of an additional 25 owned barges with a capacity of 612,000 barrels and three 1,800 horsepower towboats. The cost of the new equipment is approximately $135 million for 2009. We committed to build this equipment in 2008 when the market was very strong and shipyard space very tight. Based on current market conditions and fleet utilization, we have accelerated the retirement schedule of some of our older tank barges.

Our current plan is to net retirements with new capacity, maintaining our current capacity levels. We will continue to review this over the year and make adjustments as necessary.

Two 10,000 barrel barges, one 30,000 barrel barge and two 1,800 horsepower towboats have been pushed into early 2010 for delivery.

I'll now turn the call back to Joe.

Okay. Thank you, Berdon.

During the second quarter, as we anticipated, we saw overall marine transportation demand stabilize with utilization as indicated earlier week to week somewhere between 80% and 85%.

That Kirby's earnings and cash flow remain healthy, and should remain healthy, our balance sheet will give us the ability to take advantage of opportunities, which should come along in this environment.

Lower utilization levels caused by excess capacity in the tank barge industry may be with us for a while. Given this, we will continue to focus on the things that we can control in the areas of safety, cost, and service levels. And these coupled with right-sizing our operations will help us control margin erosion.

In the diesel engine service segment, we believe the oil service market will remain weak. The medium-speed rail market we also anticipate will continue to be weak. This continued softness is primarily due to deferred maintenance by customers due to reduced utilization of their equipment.

Power generation market, which was the bright spot in the second quarter, is anticipated o be below second quarter levels as several projects have been deferred from the third quarter to the fourth quarter.

Given all of this, yesterday we announced our 2009 third quarter guidance of $0.62 to $0.67 per share, which compares to $0.77 per share for the 2008 third quarter. This forecast anticipates some modest improvement in the marine transportation segment and some continued deterioration in our diesel engine business.

While our visibility in regards to the 2009 second half remains a bit clouded, our low end $0.62 guidance assumes volumes will be consistent with the 2009 second quarter, this last quarter, and the high end, the $0.67 and $0.70 guidance assumes volumes will improve a little bit.

We have not forecasted any impact from hurricanes or tropical storms in our guidance.

As for 2009, for the whole year, we're maintaining our low end guidance which was set at $2.40, but narrowing the high end of our guidance from $2.55 to $2.50.

Let me end the call with this, that Kirby has a very strong balance sheet, low debt levels and favorable interest rates, a very low debt-to-total-capitalization ratio, and we anticipate and project that our second half 2009 cash flow will even be stronger than our first half cash generation. While our capital expenditures for 2009 are high because of our new barge and towboat replacement program, we anticipate that our 2010 capital spending will be at much lower rates. All of these positive factors position Kirby to cope very well in this environment and give us the ability to invest in opportunities that we believe in the long term will bring significant benefit to our shareholders.

Operator, we're now ready to open the call up to questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions).

And our first question comes from Jon Chappell from JPMorgan. Please go ahead.

Thanks. Good morning, guys.

Thanks.

Joe, I want to ask the same question I asked three months ago, I think things have probably changed a little bit, and also your concluding remarks were a perfect lead-in. Given the substantial free cash flow generation and the low debt levels, what are the opportunities that are out there right now?

And maybe if you can talk a little bit about, are there captive fleets that might become available? Are there fleets of any size? Do you have to go for [onesies] and [twosies] as far as assets are concerned? But how do you foresee the balance sheet and the opportunities kind of transpiring over the next six to 12 months?

Yes. Jon, I think that there are going to be a number of opportunities, and it's going to be a range of all of what you just described. I think the important thing is just be patient. Whether they're a captive fleet or independent or whether it's just equipment, we're going to assess those opportunities as they come forward.

I think the advantage that Kirby has that really few companies in our business have is a balance sheet and the ability to borrow money that allows us to be opportunistic and take advantage of the things that we see. And if the economy is -- I think we believe it, that it will be still stable to very modest growth, there's going to be a lot of pressure on various peoples and the businesses that we're in, and hopefully we can take advantage of that.

When you think about the firepower that you have to make acquisitions, is there any growth CapEx for next year? Or is all the CapEx is going to be maintenance CapEx, and what's that type of run rate?

And then also, you have $200 plus million on your credit facility. Do you think that the banks are there to lend even additional facilities given the strength of your balance sheet right now?

Yes. The answer is yes, we do. We'll essentially pay off our revolver. I think as of the end of the month it wasn't fully paid off. I think there was about $8 million left on it, but that will be paid off pretty quickly. So we had all that as -- [dry] power at favorable rates. We believe that there is additional borrowing capability out there. Our banks are telling us that. It's probably going to be a little more expensive though.

Yes. I'll also point out that we have an investment grade rating which is a big help in a market like this. We not only have access to the bank market but also the private placement market is pretty active right now. And we feel comfortable we could tap into that market.

Yes. I don't think it's -- I don't think our problem is going to be money. It's just the, what is the opportunity? Does it fit? How is it priced?

And not to beat the dead horse here, but are there things coming across your desk right now? I mean, is this just a big variance between what you're willing to pay right now given the environment and what people are asking for? Or is it just a complete dearth of opportunities thus far?

Yes. I actually think that it's still a little early. The barge business really didn't start to deteriorate until -- well, for some segments of it, it was late last year, but for the canal segment, for example, it really wasn't until the end of the first quarter.

So I think these opportunities are going to be ahead of us. We don't, for obvious reasons, ever comment on any particular deal that we're looking at or even if we're looking at a deal. But if you just look at the environment today versus let's say the environment a year ago, the environment for continued consolidation in this business is certainly much better.

Our next question comes from Natasha Boyden from Cantor Fitzgerald. Please go ahead.

Thank you, operator. Good morning, gentlemen.

I wanted to -- in your comments in the press release I think you mentioned that there's a small pickup in upriver demand, essentially as a result of some industries restocking their plants. Can you give us more color as to what industries in particular and if you view this as a sustainable development?

Yes. Well, Natasha, we actually talked about that in the first quarter conference call, as you remember. We anticipated that we'd see some improvement on the river. There was such a radical de-stocking that occurred in the -- at the end of the fourth quarter, beginning of the first quarter that the production declines weren't sustainable, and that as inventories cleared, customers restarted their plants, or at least most of them.

We think that what's happening today is that the customers are trying to fine tune their production to what they believe is sustainable demand, and that that has caused inventory rebuilding and plants to be increasing their utilization, their capacity utilization.

I think it's too early to tell where this is going. I don't think that we're going to see any serious decline, but I'd be hesitant to predict that this trend is going to continue once the customers get comfortable kind of where that sustainable demand is.

I think we're -- I think realistically we're in for a period of stable to very slow growth and that the planning that we need to do is kind of around that scenario, that we're not looking for sharp GDP growth, kind of pull us out of this. What's going to pull us out of this is continuing to take capacity out of the system and working very hard on controlling and reducing cost.

Great. That actually is a good segue into my next question. I think you mentioned that currently operating 219 towboats and down from 232 in the first quarter. Essentially how much capacity are you able to perhaps release over the next coming months? And have you laid up any own towboats at all given the hard situation in the market?

We have laid up some Kirby-owned towboats. I think the -- I think it's 12, I think the number is 12. But the towboat fleet today is sized to where utilization levels are.

Yes.

So I wouldn't expect much more power to come out of the system.

What we've done is we've taken the power out of the system that represented 90% to 95% utilization a year ago and taken it to where 80% to 85% utilization is today.

Okay. So you don't really anticipate perhaps not renewing any charter and contracts that you might have? You're pretty comfortable with where you are right now?

Yes, it's going to go up and down by 10, 12 towboats any given period based on utilization. But don't look for the kind of reductions that we've just been through. You need power to move barges and the power is now sized for the utilization that we're seeing.

Our next question comes from Ken Hoexter from Merrill Lynch. Please go ahead.

Great, good morning --

Good morning.

-- Joe and Norman.

When you -- I think you went over some of these numbers in the beginning. Can you just kind of refresh us, where are you on the contract book of business and where are you on as a percent of that -- the take or pays?

Yes, it's -- the contract to spot makes is still 80% contract, 20% spot. And the time charters are still at the 55% level. But I know you understand this, Ken, but for -- just so everybody in the call understands it, that's a relative number to the revenue reduction, total revenue reduction that we've seen.

So when you talk about kind of the rates coming off, where were spot rates during the quarter?

Well, on a year-to-year -- year-over-year basis, they were down 10% to 15%; over half of that we think is fuel-related.

Okay. Alright. Now you talked about the diesel margins actually did quite well, moving up to 13% relative to where I guess last quarter. Are there still costs that could be refined and get that back to where it was at 15% a year or two ago? Or have you done what you, as much as you can now, you have to wait for a bit of the demand to come back on the diesel side as well?

Well, the diesel business is a harder business to take cost out of because you're really, you're selling people in the diesel business. And as you reduce the number of people you have in that segment, you lose that capacity. It's different than just taking charter boats out because you can call the charter boats back. When you start laying off mechanics, they disperse and it's harder to get them back.

Having said that, we're taking a hard look at that business, and kind of going of through the exercise of where we think future sustainable demand is. So there may be some opportunities to continue to take cost out, we're just not ready to declare that, but I'm comfortable telling you that we're taking a hard look at it.

Our next question comes from Alex Brand from Stephens, Inc. Please go ahead.

Hey, guys, how are you doing?

Good. Thank you.

So, you basically, and I apologize, I just missed part of Ken's question, I hope I'm not repeating, but you basically have peak margins when your barge revenue is way down.

Yes.

And so I'm -- how should we think about -- there's no reason I guess that costs should necessarily go up, but should we be thinking about that you can keep a lot of this cost-save in place? And then if you do get some utilization improvement, demand improvement over say the next two or three years, that we can go up from the 24.5% type margin to who knows what, but I mean something that we've never thought of before?

I want to think about that before we answer that. Yes, I think the increased margins are really a tribute to a lot of hard work of Kirby employees really working to get cost out of the business. Frankly if you had asked me end of last year, "Do you think that we'd see margins increase in this environment?" I'd probably would have said, "I doubt it. We'd be lucky to hang out with the margins if we have."

But taking some of the pressure out of the business I think helped, Alex. I think we were -- when you're really busy trying to respond to customers' requirements that maybe are almost beyond your real capabilities, you're -- you probably have some additional costs, that once that pressure comes out, you can really focus on doing that business more efficiently.

Let me think about that. I -- that's a fair question to ask maybe next quarter.

Fair enough. Can you quantify in terms of the help that you got to the margin this quarter, how much the delay days, the lower delay days added, or was it not that meaningful?

I don't think it -- well, it was meaningful in this respect. When you have poor operating conditions, you tend to use more power to meet delivery schedules. And the fact that the delay days are, on a year-on-year basis for the first half, 45% down, I think does reduce your cost and it does help margin.

I'm reluctant to quantify it because it's -- it'd be pretty iffy number, but it helps.

Am I supposed to get back in queue now or can I ask another one?

You can ask one more.

Okay. Thank you.

If it's an easy one.

It's an easy one. I just want to know where we are in the renewal cycle. How much do we have? What percentage is left to renew in the back half?

I think we're a little more than halfway through.

Okay.

Okay? Thank you --

Thanks for the time, guys.

Yes, thank you.

Our next question comes from Chaz Jones from Morgan Keegan. Please go ahead.

Hey, good morning guys. Nice quarter.

Thank you.

Maybe I could ask Alex's question a different way, Joe. How much pricing pressure would you need to see in order for margins to kind of become a little bit more susceptible?

Well, I mean that's probably the key question. Yes, it's going to be a function of how much additional cost you can remove to offset any pricing pressure you have. And I'm not, again, I'm not sure we're prepared to answer that, Chaz, other than to say that as you get downward pricing and you don't get utilization improvement, volume improvement, that it's much more difficult to support the kind of margins that we're seeing today.

So you guys certainly have your pulse on the cost side. Maybe one follow-up question, did you buy back any stock in the quarter? And if so, how much and at what price?

We didn't. And if we had, we would have told you.

Okay.

In the press release, we would have told you.

Our next question comes from [Mike Badenstil] from Stifel Nicolaus. Please go ahead.

Hi, good morning, gentlemen.

Good morning.

I just had a question going back to the prepared remarks where you talked about contracting down that renewed anywhere from 0% to 8%. Are those strictly contracts that are one year in length? You haven't repriced any contracts down mid-single digits that are longer than a year in length, is that correct?

Yes, it's going to vary. But typically if you give a longer-term contract, if you give a price reduction, you're going to try to get it back on the out years because -- and typically you're able to do that. But I can't say that -- and I'm not going to comment on what contracts or where in that 0% to 8% range.

Is there an average duration?

Our average duration is about a year.

Okay, about a year. And if you had any customers who you expected to have rates in place with who have kind of reneged on that and did their business again?

Well, that happens all the time, even in good markets. But I think that we're working very well with our customers. We like to think of our relationship with our customers as kind of long-term relationships that are codified by contracts that reflect the dynamics of the market, sometimes in our favor, sometimes not in our favor. We like --

It happens in all markets, but have you seen a surge in that activity?

Surge in what activity?

Surge in the activity of customers asking for new contracts who are already kind of locked in?

No, we haven't seen that. The rate discussions that we have are rate discussions at the expiration of the contracts. I don't think we've had any customer that has come to us and said, in the middle of a contract, "We want a rate reduction." But we don't come to our customers when we're behind in a good market unless we have a contract reopened or -- and say the same.

What I started to tell you is that I think that for the most part we have a long-term relationship with the customers that we do business that's a give and take relationship and we try to work together in our mutual best interest. Now you always have the outliers, it doesn't work that way. But I think for most of our customer base, these are relationships in some cases that go back 50 years.

Thanks, I appreciate that detail.

I just have one final question. On the press release you have a 19% decline in ton miles. Do you consider that an accurate reflection of the volumes or is there still some -- you see a distortion from length of hull changes?

Yes, actually I think it's a pretty accurate reflection of volumes, and it's consistent with what the chemical companies are saying for the most part. They're saying about a 20% decline in volumes. It's going to vary customer by customer, but overall the chemical business is down about that.

Our next question comes from Jimmy Gilbert from Rice Voelker, LLC. Please go ahead.

Hi, Joe. Thanks for taking my call.

Sure.

Yes, I was going to ask you if you could talk about your refinery customers a little more for just a minute and sort of, as you see demand start to stabilize, are you hearing about any plans from them to restart shut-in capacity?

Well, some of that's been happening over the quarter and over the half of the year.

And when you say refinery customers, are you talking about both plants that make refined products and chemical plants?

Yes. Well, more -- I was more thinking about the chemical plants.

Yes, the chemical -- you'll see fine-tuning going on all the time and it goes back to really the customer base trying to figure out where sustainable demand is. For example, Dow Chemical announced actually some closures very recently. Others will bring up a plant. It's pretty dynamic. And I'm not sure, Jimmy, that we know where it's all going until they figure out what inventory levels they need and what production capacity they have be at to support those inventories.

Yes, I think we're getting closer to it because it, we said earlier, that it just feels to us that they were kind of bumping along the bottom, and it looks like the, at least the national metrics everybody looks at, is also suggesting that.

I think the real issue is what kind of -- you may be -- you're not falling anymore, you're stabilizing, but what's the growth rate coming out of here that is going to pull volumes up, not support current volumes?

Well, if you guys, if you're talking about maybe like is there a certain level of a new normal level of business that you guys are looking at maybe into next year or?

Well, we're assuming that what we've -- what we have is what we're going to have going forward. We're not basing our business decisions on an economy that's going to produce a lot of growth, which means that 80%, 85% utilization is what we're going to see for a while.

So the decisions that we make to run Kirby, and I suspect the industry don't know this for a fact but I suspect that they're thinking along the same lines that we are, that we're really talking about less capacity needed to service our customer base, and that there isn't going to be a lot of growth. So that suggests that capacity is going to have to come out of the system. And we're doing some of that ourselves and I would expect that the industry is also going to do it.

Nobody has asked me about capacity additions, the barges, if they're currently building -- currently being built today or our thoughts on 2010. But I think it helps answer your question. It looks like for the first half of the year, somewhere around 120 barges were added, and that that number sharply slows down towards the end of the year. And the 2010, there's very little construction on the books. Most of that construction is frankly 2009 capacity that was pushed into 2010.

And if I had to project, my guess is that we're going to end the 2009 year with about the same capacity that we came into with -- and remember, about a third of the capacity that was being added this year is Kirby capacity. And Kirby is actually going to end 2009 with less capacity than it had at the beginning of 2009. And my guess is that that's probably going to be true throughout the industry.

And in 2010, we're going to have to figure out what demand is going to support, and I do think that you're going to see capacity come out pretty quickly and the balancing act will be [be on it]. So I think medium term the business is going to be fine. Short term, we just need to get through this period and just figure out what sustainable demand supports.

That's a long answer to your question but I wanted to get that out.

Right. So sort of just --so the feeling is that the, I guess, the aging of the total fleet will work in your favor especially in 2010?

Yes. This is a mature fleet.

Right.

There's -- a third of it is over 30 years old. So the main decisions that you have to make to maintain it are not hard decisions to make.

Not hard decision not to do the maintenance. That's what I mean.

Right. All right, well, thank you very much, Joe.

Our next question comes from David Yuschak from SMH Capital. Please go ahead.

Hey, good morning guys.

You were picking some of my thoughts in the questions. And to sort of follow-up on what your comments were, Joe, about as you look into the second half of this year, you guys have done a good job of holding to that 80% as far as your term loans are concerned, term contracts are concerned, and probably with some pretty good spot pressure here.

As you think about the second half of the year and the customers looking more toward -- are you sensing the customers are thinking more spot term right now even though you're going to hold on to those things, or are the spot rates about as low as where they can potentially go, giving you the ability to negotiate long term contracts?

Yes, I don't -- I'm not sure I know where spot rates can go. It -- they can always go lower, but whether they will or not, I think it's too early to tell.

Our 80% to -- 80% contract, 20% spot mix actually is higher than our traditional levels. As you know, we're typically 70%/30%. And I think we're asked, last quarter we said that, yes, it's going to be probably plus or minus, but I think it's more likely to be minus-5%. So you could find yourself in the 75% contract, maybe even 70% contract.

David, that doesn't particularly bother us. We like to have a spot presence. It was really an unusual decision to let it drift up to 80%. The reason we did is that we knew that -- or we suspected that the things were going to change and we had customers still clamoring for more equipment, so we let it drip up.

I'm not so sure that 75%/25%, 70%/30% isn't actually a better mix for us. We're in the spot market all the time, we have a lot of flexibility, we can lever volumes in the spot market pretty well, take advantages of really other parts of our business. So it -- if it goes well, I don't think it particularly bothers us.

And you can better back up your ton contract.

Yes, that's what I was just kind of curious, with -- when you mentioned that a lot of your capacities come on here, that's going to come on in 2009, in the first half of this year, and yet you've been able to still maintain that 80%/20% mix.

What's some of the dynamics? Maybe is your customer preferring to do that even though he knows a lot of capacity is coming on? Because I would have thought with all the capacity that wouldn't come on in the first half, the ability to hold on to that 80% may have been shown up sooner than maybe later this year.

Well, remember that that's a relative number, David, that's 80%/20% based on revenue that's 20% lower. So --

Yes, that's true too.

Yes. And the number of time charters that we have we do think made it climb a little bit. But again, if you're looking at a company that's going to do well on this environment I mean relatively, everything is relative, Kirby is well positioned to do as well as anybody with more spot exposure.

Just one -- let me follow just one final question. Lowering your guidance at the top by $0.05, is it just more concerns about the economic conditions right now or just maybe some concerns about the pricing?

Well, no, just for clarity of where we think we're going to be. The -- that's kind of, if you do the math, that's -- that kind of is where it works, the math being if we're at the high end of the range, we're closer to $2.50; if we're at the lower end of the range, we're at $2.40.

Our next question comes from Daniel Burke from Johnson Rice. Please go ahead.

Thank you for taking my call. Also thanks for the detail on the volume of revenue that's attributable to the fuel pass-throughs.

I guess if I'm thinking about things correctly, the outright increase in diesel prices over the preceding couple of years could have masked to some extent underlying margin improvement, at least if you look at it on a percent basis. But one related question to that, can you -- you mentioned in the press release the operating margin on the inland tank barge shot is impressive. Can you quantify the lower insurance claim losses? Was that at all meaningful when we look at things year-over-year?

Yes, it's meaningful. I don't know if we -- do we ever publish that?

We haven't.

We haven't published it. But it's not -- it's a meaningful number.

And that's the same for operations, but lower utilization typically will help you in that area.

And Joe, when you say meaningful, is that worth 100 basis points then? I mean, in terms of margin, can I look at it that way?

You'd be qualifying it without me giving you the numbers. So I don't think I want to comment on that.

Fair enough.

And then one other clarifier, the barge utilization statistics you gave, 80% to 85%, I just wanted to clarify, that was company-wide, that wasn't canal-only?

No, that's company-wide.

And is it still the case that canal is higher than river?

No, they're about the same right now.

Okay, great. Thank you.

Yes. Plus or minus a couple of percentage points, they're about the same.

Our next question comes from Justin Maurer from Lord Abbett. Please go ahead.

Good morning, guys.

Good morning.

Joe, most of the questions -- I appreciate that the -- kind of backfill on the guidance, assuming essentially flat utilization, mix and so on, kind of as we move through the year, even though, to your point, things feel like they're kind of bottoming, maybe improving a little bit, right?

Right. Certainly on the river, yes.

Yes. Just looking back to last year, you recall, about at the time, I think it was $0.09 of impact from storms?

Yes. Yes, last year was a pretty miserable year, that's right.

Yes. And that, given your markets particularly hit you guys hard relative to whatever historical storm activity there has been, right? I mean --

Well, the -- what happened was those storms went right into the heart of the refining petrochemical production and it was extraordinarily disruptive to those plants. It was also disruptive to navigation on the intercoastal canal. I think the canal, after Ike, was closed for --

About 11 days.

11 days, yes.

And it came right up to Houston Ship Channel.

Yes. And most of that was encapsulated in the third quarter, right? It was kind of back up and running modestly by the fourth quarter?

End of the fourth quarter. And so it didn't come back until the first quarter.

Okay, all right. So, just -- I'm looking at the sequential kind of assumption moving forward and we just have to think about that kind of year-over-year because that would have --

Yes.

-- hit you pretty hard last year, yes?

Right, right. It would have made last year better.

Yes. Got it. Okay. Thanks a lot, guys.

Yes.

Our next question comes from Carl Rupinski from Maxim Group. Please go ahead.

Yes, good morning, Joe, Norman, Steve. I had a quick question, just a follow-up on your -- I appreciate your comments on the overall supply/demand, the situation. When you talk about capacity being taken out industry-wide over this year and next year and the age of the fleet, is there any idea how to think about how much that might come back? Or is that all basically barges are old enough that they're going to be scrapped or reutilized? Or is there any of that capacity that could be taken out and come back at some point?

Typically when it goes out, it doesn't come back, unless demand really sharply picks up and you can justify some really significant expenditures on an old barge. And intuitively, I don't think that we're going to see that. What you typically see is barges -- and let me speak specifically to Kirby -- Kirby will not sell a barge that can come back and compete with us.

I see.

And I think there are certainly a number of operators that feel the same way we do. So what we do is look for an alternative service either out of the country or as a deck barge or a barge that's used in a fleet. You know, when they were building casinos, a lot of old tank barges were platforms for casinos. They're not building very many of those today.

Yes, I see.

And we're scrapping barges too. The scrap market, not as brisk as it was a year ago, but we still can scrap and make some money doing so.

Great. Just one follow-up. You mentioned that a lot of the -- for 2010, there's not much coming on and a lot of it was pushed out from '09. What about the barge manufacturers, I mean do you have a take on what financial and other position they're in from operating standpoint over the next, say, three or four years? Is the situation where they could be in some kind of distress or a situation where they might not be able to build the barges as quickly in the next cycle? Anything to think about on that?

Yes, I -- I hate to give you a view of that because the two major barge manufacturers are both public companies.

Okay.

So I'd rather have you ask them that.

Fair enough. Well, thank you for your time.

Sure.

And our next question comes from Bill Baldwin from Baldwin Anthony. Please go ahead.

Thank you (inaudible -- background noise) Joe, but just -- we haven't talked for a while about kind of what's going on with Osprey? Can we get a little color and kind of update us to --

Yes. Osprey, you know, Osprey is still going. The economy has -- it's a relatively de minimus part of our business, so we don't talk about it unless somebody asks about it. But the economy has of course affected the containers that are available to transport. And other modes of transportation have tried to get competitive also, so there's always that tug-of-war.

There are some things that are coming out of Washington that are intended to encourage moving containers off of roadways and railroads or railways onto water, and we're watching that. We're also diversifying Osprey a little bit to take advantage of some other markets that they can participate in. And we continue to, where we can, look at taking cost out of that business.

And that was our last question.

Well, good.

Okay. We appreciate your interest in Kirby and participating in our call. If you have any additional questions or comments, you can give me a call. My direct dial number is 713-435-1135.

We wish you a good day.

Thank you, ladies and gentlemen, this concludes today's conference. Thank you for participating. You may all disconnect.