Kirby Corp (KEX) 2013 Q1 法說會逐字稿

Welcome to the Kirby Corporation 2013 first-quarter conference call. My name is Leslie and I will be your operator for today. 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 Steve Holcomb. Mr. Holcomb, you may begin.

Good morning, thank you for joining us. With me today are Joe Pyne, Kirby's Chairman, President, and Chief Executive Officer; David Grzebinski, Kirby's Executive Vice President and Chief Financial Officer; and Greg Binion, Kirby's President, Marine Transportation Group. During this conference call we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the 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 risk 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 10K for the year ended December 31, 2012 filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Thank you, Steve. Late yesterday afternoon, we announced first-quarter earnings of $1 per share. Excluding a $0.05 per share credit which decreased the fair value of the earn-out liability associated with our United acquisition. Our results exceeded our guidance range for the first quarter. The range was $0.82 to $0.92 per share. In the 2013 first quarter our inland tank barge fleet continued to maintain high utilization rates with consistent and healthy levels of demand across all our markets. Greg Binion will have more to say about our inland operations later in the call.

In our coastal tank barge fleet, improvements in demand continued again in all markets during the quarter. The first quarter also is historically a little slower due to some seasonality in that business. All in all it was a good quarter. Driving this improvement was demand for coastal transportation of crude oil and natural gas condensate and some new coastal movements that came out of inland customers that we service. And also strong utilization rates out of the Allied and Penn fleets which were both acquired late last year. The quarter was also helped by a strong heating oil demand associated with cold weather up in the Northeast.

In our land-based diesel engine service business, the market for manufacturing of new pressure pumping units continues to be somewhat challenging. Partially offsetting this decline is -- in making pressure pumping units is the progress that we are making in remanufacturing these units. We remain confident in the long-term strategy of growing the service side of our land-based business, and I think as we do that, the business will be more stable and predictable. We are also making good progress in making this process more efficient and making the supply chain work better. Also I want to remind you that United is only about 5% of the 2013 forecasted EBITDA for Kirby. With respect to our legacy diesel engine business, the Marine business, while market conditions were generally stable across most of the markets they service, the low water conditions on the Mississippi River last year did lead some customers to defer several major projects that we expected to do in the first quarter to later in 2013. The Gulf oil service market has stabilized, it is moving to more normal levels after sharp declines caused by Macondo, and the power generation market in that business is stable with continued good sales and engine generator upgrade projects.

Before turning the call over, I want to comment on an incident that involved some of Kirby equipment last night that has gotten some media attention. At about 8.30 PM yesterday evening, two empty, unmanned tank barges owned by Kirby Inland Marine, which were carrying last cargo natural gasoline, were being cleaned by a Mobile shipyard and caught fire and exploded. These barges were empty when this happened. The barges had been turned over to the shipyard and were in the shipyard's custody when this incident occurred. Three individuals were injured and we understand they are hospitalized with burns. No Kirby employees were injured.

US Coast Guard, the Mobile Fire Department, and Kirby Strike Team responded with its personnel and resources. And Kirby is fully engaged in working with the Coast Guard in determining the cause of this incident. Of course our thoughts and prayers today are with the injured and their families which were affected by this incident. I'm going to turn the call now over to Greg Binion who will discuss our inland tank barge market and then David who will discuss the coastal tank barge business and then give you a financial update. Following their remarks, I will conclude with some closing comments about the second quarter, the year guidance and outlook and talk a little bit about my succession plans, mine and the Board's succession plans with respect to my duties as Kirby's Chief Executive Officer.

Thank you, Joe and good morning to all. For the first-quarter our inland marine transportation business continued to perform well with equipment utilization in the 90% to 95% range and also with continued favorable term and spot contract pricing. The low-water conditions on the Mississippi River system, that began in May of 2012 and persisted through the balance of 2012 and also into the early part of 2013, abated. We generally experienced normal water levels through the end of the first-quarter. However, recently with snow melt and more recent rains, we are currently experiencing some high water conditions on the upper Mississippi and Illinois Rivers. Inland Marine Transportation revenues from our long-term contracts, that is one year in duration or longer, were 75% of the total revenue with time charters comprising 57% of revenue.

Turning to Inland Marine Transportation pricing, term contracts during the first quarter continued to renew at mid-single digit levels when compared with the 2012 first quarter. Spot pricing, which includes the price of fuel, were stable to slightly higher when compared with the 2012 fourth-quarter spot price -- spot market rates. With respect to Inland Marine tank barge capacity, during the 2013 first-quarter, we took delivery of 19 new tank barges totaling 533,000 barrels of capacity. We retired 15 tank barges and transferred one tank barge to the coastal fleet, removing 253,000 barrels of capacity. Net/net during the 2013 first quarter we added three tank barges to our fleet, but increased our inland capacity by 280,000 barrels as the barges that were added were generally larger capacity barges than the ones were that were removed.

As of March 31, we operate 844 inland tank barges with a capacity of 16.9 million barrels. For the remaining nine months of 2013, our inland transportation construction program will consist of 36 inland tank barges with a total capacity of 658, 000 barrels and three towboats. For 2013, the cost of new inland tank barges and towboats delivered throughout the year will be approximately $115 million. At the present time, we expect to finish 2013 with approximately 17.2 million barrels of capacity, or about 500,000 barrels above the 16.7 million barrels where we began the year 2013. I will now turn the call over to David.

Thank you, Greg. Kirby Offshore Marine's overall equipment utilization rate improved to the 90% range during the first quarter.

As Joe mentioned, all of the coastal markets continued to improve driven in part by increased demand for crude and condensate moves, and the cooler weather in the Northeast. The improvements in the coastal business are very encouraging. Although we continue to watch the markets closely and look for opportunities to enhance our results in each region. We also continued to make progress in expanding our coastal business to our inland customers as Joe mentioned. I do want to make a quick comment about the second quarter. It will be impacted by a heavy shipyard schedule for coastal equipment. This is just the timing of planned maintenance for our coastal fleet and the reason for mentioning it is really to highlight a difference between our inland and coastal business. With 82 barges in the coastal business versus 844 in the inland business, shipyards can cause some lumpiness between quarters. But this is in our second quarter guidance and we just wanted to highlight it.

As of March 31, 2013, approximately 70% of our coastal operations revenues were under term contracts. This compares with 60% in the first quarter of 2012. The balance, 30% are in spot contracts, that is contracts less than a year long. The improvement represented the addition of Allied and Penn fleets to our fleet as well as new contracts signed in the fourth quarter of 2012 and in the first quarter of 2013. With respect to coastal marine transportation pricing, term contracts that renewed during the first quarter increased in the high single digit range and in some cases higher than that. When compared to the year ago period in 2012. Spot contract rates during the first quarter increased mid to high single digits when compared with the -- sequentially with the fourth quarter. The integration of Penn into Kirby Offshore Marine is progressing as planned. Penn's accounting has been successfully transitioned to Kirby Offshore Marine and the transition of administrative functions, sales, dispatching, maintenance and operations is well underway and should be completed by the end of the second quarter.

Moving to the financial data, as Joe noted, our 2013 first quarter earnings per share of $1 per share includes a $0.05 credit decreasing the fair value of the contingent earn-out liability associated with the United acquisition. As of March 31, the contingent earn-out liability stands at $14 million. Marine transportation revenues grew at 25% for the quarter. Operating income grew 30%. The inland sector contributed approximately 68% of the first quarter marine transportation segment's revenue. With the coastal sector contributing about 32% of the revenue.

Despite the winter weather conditions our inland operations maintained an operating margin near the mid 20% range for the quarter. The coastal business operating margins, also despite the winter weather conditions, improved significantly to the mid double-digit range when compared to low single digits in the first quarter of 2012. The overall marine transportation segment's first-quarter operating margin was 21.3%, which compares with 20.4% for the first quarter of 2012. Our diesel engine services revenue for 2013 first quarter was 39% below the year ago quarter. Diesel engine services operating income was 40% lower than the 2012 first quarter and the segment's operating margin was 10% compared with 10.2% from the year ago quarter.

Without the adjustments to the earn out, the first-quarter operating margins for diesel engine services segment would have been approximately 7%. The decline in revenue and operating income and operating margin was primarily due to the lower results at United. United contributed 60 -- approximately 65% of the diesel engine services revenue, segment revenue. Excluding the earn out earned a low to mid single digit operating margin in the first quarter. The legacy diesel engine operations contributed approximately 35% of diesel engine services revenue during the quarter and their operating margin was in the low to mid double-digit range.

Total debt as of March 31 for the Corporation was $1.1 billion, and our debt-to-total-cap ratio was 38.4%. In late February we drew the remaining $225 million from our new $500 million private placement senior notes program and we used that to retire the older $200 million private placement that matured on February 28, 2013. As of March 31, we had $148 million outstanding on a revolving credit agreement. This morning our revolver's outstanding balance was $106 million as we continued to delever with our free cash flow. With that, I will turn the call back to Joe.

Thank you, David. Yesterday afternoon we announced our 2013 second-quarter guidance of $1 to $1.10 per share. This compares with $0.85 per share earned in the 2012 second quarter. For the year, we raised our guidance range to $4.10 to $4.30 per share, and again this compares to $3.73 per share earned last year. This annual guidance range includes the $0.05 per share adjustment that we made in the first quarter to the United earn out. Our second-quarter guidance of $1 to $1.10 per share assumes a modest improvement over the 2012 pricing in our inland tank barge business. These markets that we service in this business are currently operating close to full utilization levels for the fleet.

It assumes a continued improvement and coastal utilization and corresponding higher term and spot contract pricing. As David noted earlier, the 2013 second-quarter has a heavy coastal equipment planned maintenance schedule that will impact the results, but this is reflected in our guidance. We feel that we are bumping along the bottom in the land-based oil service market with United. Still believe that this business is going to improve late this year, early 2014. Our guidance assumes the heritage diesel engine service business will remain consistent with the last nine months of 2012.

With respect to our balance sheet, it's strong, our cash flow continues to be excellent. 2013 is a year of lighter capital investment. We are predicting capital expenditure in the $190 million to $200 million range compared to $313 million incurred in 2012. For 2013, we will continue to pay down our debt and remain positioned to take advantage of any acquisition opportunities if they come along during the course of the year.

I want to take a few minutes and discuss the organizational changes we intend to make at Kirby. Which I and the Kirby Board of Directors believe will strengthen Kirby's organization and prepare us for the future. Succession is a responsibility which the Kirby Board takes very seriously. We like to say that we make decisions at Kirby as if we are running the Company into perpetuity. This includes preparing our Management team for the future, our business success is dependent on a confident and motivated Management team employee base. Yesterday, afternoon I announced my intention to step down early next year as Kirby's Chief Executive Officer, but remain as an active and engaged Chairman. I intend to work with David Grzebinski as the next Chief Executive Officer for Kirby and I expect that he will be named to this role in early 2014.

I have been with Kirby for 35 years. I have run Kirby's marine transportation business since 1984, and I have had the honor of being Kirby's CEO since 1995. I do not want to retire, but I would like to be less engaged in the day-to-day running of the business and focus my efforts more on strategic matters and helping develop future talent, which will continue to position this Company well for the future. David Grzebinski will make a great CEO. He has the wisdom and skill sets which will ensure his success and I'm confident that Kirby will continue to thrive under his leadership.

In the past two years, we have significantly expanded our marine transportation business and are now the largest inland and coastal tank barge operator in the United States. We have a diverse geographic footprint. The most diverse in the business. Serving inland and coastal customers from Chicago to Houston and Maine to Hawaii. Because of this business expansion, I have asked Greg Binion, Kirby's current Chief Operating Officer to serve in a new role which focuses on marine transportation as the President of our Marine Transportation Group which will include all our marine operations. I look forward to working with Greg in his new role.

Our Company is in great shape for the future. We are in markets which are growing. We have reinvested in our assets and have a very strong Management team. I look forward to remaining with the team, but in a more strategic capacity beginning early next year. Operator, this concludes our prepared remarks. We are now ready to take questions.

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

(Operator Instructions)

John Chappelle, Evercore Partners.

Thank you, good morning guys. Joe, first question for you regarding the Coastal business and one of the first comments you made. I thought it was pretty interesting given the Penn and the Allied acquisitions, and just your general entrance into this business about the potential synergies you can get from your inland customers. You'd mentioned that you have seen some new coastal movements from some of your inland customers. Maybe you can just talk about where you kind of sit in the process of this right now. Is this kind of the first inning of these cross business synergies and how the customers come to you or you have been marketing for this business practically?

Jon, it's a little bit both. Of course we are marketing both the coastal and inland fleets together to our customers. First inning, I would say we are further along than that because certainly the market understands what our capability is. We are -- when we first entered this business we had a fairly high concentration of traders as customers and it was our objective to move from working essentially for traders to a mix of traders and major oil companies and shipping companies. I would say that we have been quite successful in doing that.

You are never going to completely eliminate the traders because they have some significant volume, but their volumes often are a little more volatile than the shippers who actually control the cargoes. We have a ways to go. I think that we are engaged in conversations with all the people that we need to be engaged with. I think over time you will have many of the inland customers being serviced by Kirby Coastal Equipment.

Okay, that's great. For my one follow-up for David, you also mentioned still looking for opportunities in this Coastal business and I really want to focus on this part of the Business because it's done so well in such a short period of time. Has it moved so fast though and kind of exceeded your expectations that maybe the asset prices have moved a little bit as well? Are there still Penns and Allieds out there for you in 2013 given the rapid improvement in the margins?

Yes, you know as you know it's hard to predict acquisitions and you and you never know why any one company might be ready to sell versus another. Clearly since the market is moving, the likelihood of getting an acquisition done at a reasonable price goes down. Clearly, there could be other drivers in having somebody sell.

I would say that more opportunity exists in potentially building some new equipment for this space. There's over 50, in the 200,000 barrels and less kind of class, there is over 50 barges that are 25 years or older. There is some increased demand here. I think there's been recent news about new crude by rail to new water terminals on the West Coast. There could be, I would characterize it as, there is probably more opportunities for some new build equipment just because of the increased volumes and the aging fleet than through acquisition.

Okay that's very helpful, thanks, guys.

Thanks, Jon.

Michael Webber, Wells Fargo.

Good morning, guys, how are you? My first question is around the coastal fleet and utilization improvement we saw there. Can you maybe kind of pinpoint the kind of commodity exposure that really kind of got that over the hump kind of quarter-over-quarter to the 90% level? And then with that elevated maintenance schedule looking in Q2, Q3, I know that's not going to really be reflected in the numbers, but is there some sort of bleep that we could expect in terms of utilization in that business for Q2?

Let me take that in two different pieces. One in terms of commodity risk. Given the fleet make up, the former KC fleet, or the legacy coastal fleet if you will, was predominantly refined products and then when we added Penn and Allied, Allied we added more chemical capability and with Penn we added more black oil capability.

So in terms of rough capacity in terms of commodities, the fleet's about 50% refined products, probably 30% black oil, the remainder is chemicals and other things. That kind of gives you the feel for commodities. All of those commodity areas are, volumes are picking up a little bit throughout the United States, but in particular the crude and condensate moves have been what has tightened up the market a bit.

In terms of the second quarter maintenance, we only wanted to highlight that just because we -- you may see someone lumpiness between quarters depending on where on where shipyards land. This is just, shipyards are driven by regulatory inspections and we've got different fleets that we've added and it just happens that it hit fairly heavy second-quarter. What really that impacts is some revenue that you can't get because you have those units out in the shipyard. It's all in our numbers. We just wanted to highlight it because typically our second and third quarters are going to be stronger because the weather is better.

Got you, all right. That makes sense. I guess my follow-up along that Coastal business. I guess 70% of the business is already on long-term contracts, it's basically I think flat quarter-over-quarter and it certainly seemed like spot activity picked up there, driving the utilization increase. The question is what do you see from a rate perspective or just from a marketing perspective that will let you go in and fix additional chunks of that business to get to that 80% to 85% long-term run rate you guys are really looking for?

You will see us working on that. You have seen it increase through 2012, you will see it, the amount of term increase through 2013, as well. It's just the way the business goes, and as we look to the long-term major customers and work to meet their needs, you will see that the amount of term go up going forward. I don't know hopefully that answered your question.

If there's any sense of timing, I know that's pretty difficult to gauge but in terms of pace.

I wouldn't want to predict it because I'm sure I'd be wrong whatever I said. It's dependent on where we are with customers. The Spots business, too, it's not day for day kind of spot business. We consider a six month contract, a spot contract.

You're working with the customers to meet their immediate needs. As you might imagine, as Joe mentioned, we are transitioning some of our long-term inland customers in there, so we are being very thoughtful and working very carefully with each customer. The last thing we want to do is abandon a customer at the wrong moment.

Got you, okay. Great. Thanks for the times, guys.

Greg Lewis, Credit Suisse.

Thanks, guys good morning, congratulations on all your new positions. I just had a couple of questions. David, you mentioned in the coastal fleet the potential for new equipment entering the space. From what I gather at least one of your private -- another private barge -- coastal barge operator has either placed or is in the process of placing some new coastal equipments. Is Kirby -- is this something that we could actually see out of KEX over the next couple of quarters? What sort of structure would that look like? If you were to go down a new construction path? Has there been conversations about maybe attaching any sort of coastal barge to a long-term contract? Is there any sort of an appetite for that?

Yes, we are in conversations with several customers about potentially building new equipment. There has been, as you mentioned, one person that has announced that he is building some larger equipment, much larger than the size that we participate in. I am not sure what he did in terms of contracts. He may have just done it on speculation, we are not sure. Our view would try to get a longer-term contract to secure new construction and be thoughtful about it. Again, we are in conversations with customers and it would not be prudent to say too much about it, but I would anticipate that it's likely that the industry will need to build some capacity here in the near term.

Okay great. And then just shifting gears over to United, it sounds like margins in the first quarter were in that sort of low single digit range. As we think about that going forward, I guess firstly, was that flat versus Q4 of last year or was that flat, down, up, and as we think about as the year progresses, could we sort of see margins maybe pick up a little bit through the end of the year?

With respect to the first part of your question, the margins in the first quarter were slightly better than they were in the fourth quarter. We are really not forecasting much improvement in United. Having said that, there's certainly more positive news in that space than there was even in the fourth quarter. It looks like equipments going back to work, inventories are being absorbed, we are getting more inquiries.

But having said that, we are still very focused on making that more of a service model than a manufacturing model. And we think we are making good progress in that area. And we think the demand is there. So, our focus is going to be fixing and overhauling these things less than manufacturing. We are not going to step out of manufacturing altogether, but the emphasis is going to be more in the service area.

Okay, guys. Perfect. Thank you very much for the time.

Thanks, Greg.

Ken Hoexter, Bank of America.

Good morning. Dave and Greg, congratulations and Joe, enjoyed working with you for the past dozen years, look forward to your new role as well. When you passed 90% utilization on the inland barging side, maybe 8 years or, 8 to 10 years ago, you saw pricing scale significantly for few years. Is that what you would expect to occur in the Coastal business? And I guess maybe you can just talk about the opportunities there.

Yes, let me start with that question. What you are see with respect to pricing is the objective of pricing to new construction pricing. 8 or 10 years ago, we had pricing at levels frankly that were significantly below what was required to build new equipment and you saw a more rapid escalation as pricing caught up to those levels. Maybe a way to look at this, Ken, is to, I am going to get David to speak to this, is to look at it from the perspective of the cost per barrel of our fleet compared to kind of a cost per barrel range that you would need to replace that fleet. And you can get a sense for what pricing is going to need to do to really justify a lot of new investment in the offshore fleet.

Ken, if you look back at the, if you will, the dollar cost per barrel of capacity acquired for the KC, the Penn and the Allied fleets and even the sea boats fleet, we spent approximately $150 to $175 per barrel acquired. New build construction, say if you were to build a 150,000-barrel unit or a 185,000-barrel unit for example, it would be north of $400 a barrel in terms of construction costs. So that gives you a feel for how much the rates would have to increase. And the rates have been increasing. But there is still a ways to go to really justify new build construction.

And that's with power.

That's an excellent point. Joe's point is that's on a unit tow basis, that's the barge and the tug together because in offshore they are paired together. So that includes the cost of the tugboat which is a very significant cost for an offshore unit given the high horsepower requirements.

Understood. But to my point, that means you have what would be just like you saw multi years of strong pricing on the inland, we could see that similar occurrence in the Offshore business just to catch up to before you'd have the period of that expected building?

Yes, you will get some preemption of course because you have some operators that are willing to take a bet on what's going to happen. And certainly the conversations that we are having with customers with respect to adding new capacity has increased. That's all encouraging. But current rate levels do not justify building a lot of new equipment. Rates are going to have to continue to rise. Is there some linear comparison to the inland fleet, certainly conceptually that's probably right. What actually happens, how quickly it occurs is yet to be known.

Wonderful. If I can get my follow-up on United. The margin rebound you talk about, obviously I understand what you are talking about in terms of not focusing on manufacturing rebound. But is there something you can do on the cost side at United to continue to scale? Obviously, you scaled it sequentially, but is there something that you can do on the cost side without business coming back that can get those margins at United climbing even faster?

You could, but you would be giving up some of your upside. The premise we are operating under is we are going to build a world-class service model, we are going to work on processes, we are going to work on training, we are going to work on the supply chain. And that those margins will build as we drive more volume through the facility. And that we don't think that that's a long-term issue. We think that you're going to see improvement if not late this year, early next year. You can always short-term make something look better by just cutting costs. But long-term you have to balance that with what your strategy is for the Business.

Wonderful. Thanks for the time.

Thanks, Ken.

Jack Atkins, Stephens.

Good morning guys, thanks for taking my questions. I guess to start off here, if we could maybe talk about any sort of inflationary costs that you may be seeing on the Marine Transportation side of the business. I guess the rationale for the question is I was of a bit surprised we did not see some more strength on the incremental margin side just given the accelerating pricing at coastal, just sort of wondering if maybe you have some wage inflation or healthcare costs that are having an impact there?

Jack, you also have to weigh in that the offshore business, although higher margins, represent a greater percentage. That's going to affect the overall margins of the Business, you understand what I'm saying?

Sure.

As coastal margins rise, the overall margins will improve. I wouldn't read anything into the small increase in margins. It's also in the first quarter which is weather affected.

Sure.

Jack, if you look at our first quarter margins in inland before the Coastwise business you will note that the first quarter is always the lowest operating income margins. Some of that is what you are seeing here too.

Okay absolutely. That makes a lot of sense. I guess, just a follow up on the last question about the diesel engine side, just sort of curious if maybe we could get an update on the progress being made on some of the productivity improvements, I know that we've kind of touched on improving margins sequentially there. I know that improving productivity on the land-based side of the Diesel Engine Services business has been a focus and just wondering if you guys have any updated metrics you'd be willing to share with us.

I don't want to quantify the improvement. I guess I will qualify it. We are very pleased with the time it now takes to move a frac unit that's being remanufactured from the time we receive it to the time it's ready to send out to the customer. Some of our most recent statistics are really excellent, but I want to use the test of time to make sure that we are comfortable with those numbers.

We have recently approached in terms of the time it takes to remanufacture a unit of our ultimate objective. And that's, a lot of things going to that. It's improving your supply chain, it's improving training, it's working with your customer to get him to respond to what he really wants done with the unit, just a lot of things. Just feel -- we feel very good about the direction, but just bear with us before we start throwing metrics out. We want to make sure that they are correct before we put them out.

That's completely understandable. Thanks again for the time and congratulations on a great quarter.

Thanks, Jack.

John Barnes, RBC Capital Markets. John Barnes, your line is open.

Sorry about that, guys. Having a technology issue. Nice quarter. Just a couple of quick questions.

Number one, on the Inland Barge side of the business, I know volumes, obviously, are very good. However there is some discussion about ag volumes that maybe because of the drought conditions that existed last year, there's not going to be as much demand for fertilizer and that type of thing. Understanding that ag volumes are about 8% I think of your revenue, can you just talk a little bit about the outlook there? Is there any concern about that being a little bit weaker in the back half and does that just create capacity for all the stuff that's growing right now?

John, actually the fertilizer volumes are about 3% to 5% of what we carry. We're not -- we're certainly not hearing anything. You want to comment on that, Greg?

Yes, the only thing I would say, John, is the recent rains that we talked about that's causing some of the flooding on the upper is making the fields wet and so, there's, I think there's recently been some concern about are the farmers going to be able to apply some of the fertilizer. Some of our Business that we do in that section is time charter and is long-term contract, so we're really insulated from volumetric changes there.

And the balance of it is really kind of, it is seasonal with really strong spring and fall seasons, and slower summer times, and we have that plugged into our forecast. I don't think you're going to see any surprises that we have not anticipated in our forecast going forward.

Okay all right. The second thing is obviously with all of the growth we have seen in things like crude by rail, and crude by barge and things like that, where do you think the current order book stands for liquid barges today? And are you concerned at all about any overbuilding in the Inland Barge business given how good things have been, how robust pricing has been? Have you seen anything that gives you any concern at all on capacity coming into the market?

John, I think you know that that's something that we watch carefully and we are always concerned. Based on what came in last year it was absorbed and they are still volumes that are going uncovered. So, there is demand. Anytime you add, I think net, we think we added about 200 barges to the fleet last year, anytime you add that number, you watch it carefully. What we hope will happen is that with volumes consistent and growing, if we do overbuild a little bit you will see it in utilization rates and that will be an alarm bell that the industry then will back off from building.

But you have to -- this is a supply and demand game. We like to think that the service that we offer, the fact that we are very transparent and that safety is a very important component of what we do. That combined with great flexibility and the ability to manage power and frankly barges, I think more efficiently than our competition, that our utilization rates when things turn down are going to be higher than the average utilization rates in the fleet. As you look at 2013, I think the order book is where, Greg?

About 260.

About 260, so you're going to retire I would think around 100 barges. So you may add another 150, 175 barges this year. Right now every barge that we have delivered, we are the major builder incidentally. We are building more barges than anybody. We are still replacing a lot. So net net we don't have that much. But every barge that we get delivered we immediately put into service.

All right. Very good. Thanks for your time congratulations on the new roles.

Thanks, John.

Thank you.

Chaz Jones, Wunderlich.

Good morning guys. Thanks for taking my questions. I was just wondering if we maybe could go back to the order book on the coastal side and maybe if you could just remind us sort of what's the lead time on getting coastal assets. And maybe along those lines how much single hull capacity is still slated to come out of the market.

Yes, Chaz, this is David. If you were to put in an order now into a shipyard, you probably wouldn't get delivery until sometime in 2015. It's a long lead time. That's for the bigger units. There are some very small coastwise units that can come out pretty quickly. It's the big units that are, the 100 to 150 that are in higher demand right now.

With that kind of lead time it is going to take a while. In terms of single skin, we think it's still mid single digit in terms of percent or number that are in there. But a good portion of those are the smaller capacity units. They do have to come out by the end of '14. So, that is a factor. It is the smaller amounts of capacity that those, that are predominantly single streams.

I guess the point is that basically over the next two years there's really no capacity on the horizon that's slated to enter the market?

Yes, I would say that's true except for the larger units, the one larger unit that we know of that somebody may be building, but it's in a 250,000-barrels or larger class.

Okay. As a follow-up, sticking with coastal, I know a lot of time's been spent on coastal. Mid teens type margins here, they certainly have come up quickly. I think if memory recalls and correct me if I'm wrong, you guys have talked about that business maybe historically mid to maybe higher teen type margins as peak. Is there anything structurally that prevents you let's say over the next couple years of getting more to a 20% type of operating margins on coastal?

No, and in fact, I think we fully would expect to be up into the low twenties in terms of margins. With our structure.

Great. That's all I had guys, congratulations on a greater quarter, and echo everybody else's comments on your new roles.

Thank you.

Thanks Chaz.

Kevin Sterling, BB&T Capital Markets.

Thank you, good morning, gentlemen. Joe, congratulations on your pending retirement. Joe and David, I'm hearing more and more instances of companies like Tesoro, they are building out coastal transloading facilities to service West Coast refiners, bringing Midwest Bakken crude oil by rail to the West Coast and then putting it on barge. That's happening on the West Coast. Are those same type of opportunities happening on the East Coast and Gulf? Are you seeing those same dynamics as well in the Coastal business?

Yes, your hearing about some things being discussed. But more on the East Coast it's about rail to say Albany, or coming out of the Bakken in unit trains and getting over to Albany. There is some talk about reversing some called the number nine line that would take it into Portland, Maine where it would go to a marine terminal and then move it down. Again a lot of that's talk.

I think this Tesoro joint venture that was recently announced, I think the West Coast is moving a little faster than the East Coast on building marine terminals and offloading facilities. That said, unit trains to Albany has been going on for a while and that continues to do well. That is a marine movement once it gets to Albany.

There's also some inland terminals being built too. Water transportation is going to be a key component to getting shale liquids, crude oil, natural gas condensate, to where they can be processed.

I would add that there's also some pipeline connectivity from the Eagleford to the Corpus Christi area that supports marine transportation movements, as well.

Right. That' s a great follow up, because that was going to be my next question, a lot of talk about the Coastal business. I'm hearing there's more and more Inland Barging business. I heard there are between 250 to 300 inland barges moving crude alone. Are you guys seeing those type of number on the Inland business?

That may be right. We have been saying 200 to 250, I think, and we are adding a little capacity. That sounds about right.

Okay. Great. Really appreciate your time this morning and like everyone else said, congratulations on the pending changes and Joe, once again, congratulations on your upcoming retirement.

Thank you. I'm hopefully not completely retired, I'm going to be an active Chairman for a while.

Matt Young, Morningstar.

Good morning, guys. Thanks for taking my questions. I think most of my questions have been answered. Just a follow up quickly on the coastal cross-selling topic. Perhaps you could provide just a general idea of the mix or the percentage of inland customers that have coastal cargo requirements. Are we talking maybe a quarter, half, just to get an idea of that magnitude.

That's a great question. I'm not sure we know the answer. I think certainly almost all the majors have both inland and coastal requirements. Many of the chemical companies frankly have them, too. As we are working for example, DOW Chemical both coastal and inland, Lyondell, both coastal and inland. And others. So, I just don't know what the percentage is. But a lot --

So, it's pretty broad.

Yes, have both types of requirements.

Great. Thanks. And then just a quick follow-up on United's manufacturing. I think in the last quarter on the previous release you had said something about some deferred business or some equipment orders that were deferred that you thought might provide a boost to the second quarter or the second half of this year. Is that, are you still expecting that?

Yes. Yes, we are, this was equipment that was anticipated in the fourth quarter that was moved into 2013. We do expect to see some of it in 2013.

Okay. Great. That's all I had, thanks.

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