Kirby Corp (KEX) 2014 Q4 法說會逐字稿

Welcome to the Kirby Corp 2014 earnings conference call. My name is Ellen and I will be your operator for today's call.

(Operator Instructions )

Please note that this conference is being recorded. I will now turn the call over to Sterling Adlakha. Sterling, you, you may begin.

Thanks, Ellen. And thank you all for joining us this morning. With me today are Joe Pyne, Kirby's chairman; David Gzebinski's Kirby's President and Chief Executive Officer; and Andy Smith Company's 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 the non-GAAP financial measures to the most directly comparable GAAP measures is available on our website at www.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 on Kirby's form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission. I will now turn the call over to Joe.

Thank you, Sterling and good morning. Yesterday afternoon we announced our fourth-quarter earnings of $1.19 per share. That compares with $1.13 per share reported for the 2013 4th-quarter and is at the upper end of the revised guidance range we provided in December of $1.10 to $1.20 per share.

For the year, we achieved our fourth consecutive year of record earnings of $4.93 per share compared with $4.44 per share in 2013. Our 2013 results also included a $0.20 per share benefit from reducing the earn-out liability associated with the acquisition of United holdings. During the 2014 fourth-quarter, our Marine Transportation Inland and Coastal tank barge fleets experienced healthy levels of demand across all markets and high equipment utilization levels. In the Coastal market, pricing increases remain good. In the Inland market, despite some pressure on stock prices, we continued to be very busy.

As I stated on our guidance call in December, the steep decline in energy prices over the past three months is frankly good for the economy and should translate into more petrochemical and refined product demands and volumes which we will be able to move. US petrochemical business continues to remain globally advantaged which has spurned an unprecedented level of new plant construction. We expect to see substantial increases in domestic petrochemical production over the next several years from these new petrochemical facilities.

In the crude oil and condensate markets, lower oil prices could lead to a decline in volumes. Customers continue to view the real or perceived loss of this volume as a reason to resist Inland Marine price increases particularly since prices are already at historically high levels. Heightened uncertainty has also given some carriers pause when attempting to achieve higher pricing particularly for equipment in the spot market.

With respect to Kirby, we have been very selective concerning who we work for in the crude and condensate markets. Only about 6% of our Inland equipment is dedicated now to carrying these products and all of it is under contract. As the market attempts to decipher how this will all sort out, Kirby is in an ideal position with its strong, investment - grade rated balance sheet, strong cash flow and strong contract base to take advantage of uncertainty. Periods of uncertainty create opportunities for us and we will look to put capital to work which will include buying back our stock.

In our Diesel Engine Service business, our Marine Diesel Engine and Power Generation business performed well with healthy levels of demand in most of its markets. With respect to our Land-based Diesel Engine Service business, it had a good year-over-year growth due to higher levels of demand for oil service equipment including the sale of new and remanufactured pumping units. As we mentioned in our December call, customers have pushed out order deliveries and we have continued to receive cancellations.

Over the course of the year we expect this business to represent less than 5% of our 2015 EBITDA From a strategic standpoint, we continue to emphasize in this business growth in the remanufacturing of part of the business to help dampen the volatility of future oil and gas cycles. We remain committed to improving our capabilities and stabilizing this part of the business. I will now turn the call over to David.

Thank you, Joe and good morning, everyone. In the Marine transportation during the fourth quarter our Inland Marine business continued to its overall strong performance with equipment utilization in the 90% to 95 percent range. We did experience some adverse weather conditions along the Gulf coast that impacted our fourth-quarter performance. Long-term Inland Marine Transportation contracts, those contracts with a term of 1 year or longer, contributed 80% of the revenue for the fourth quarter, with 55% attributable to time charters and 45% of freightment contracts.

Pricing in the Inland Marine Transportation term contracts that renewed in the fourth quarter increased on an average at low single-digit levels when compared with 2013 4th quarter. However, as Joe mentioned pricing momentum slowed towards the end of the quarter due to the drop in crude oil prices. Consequently in the latter part of the fourth quarter and into the first quarter of this year pricing has been flat and spot contracts, which include the price of fuel, have narrowed toward term contract rates.

Moving on to our Coastal Marine Transportation sector. Equipment utilization remained in the 90% to 95% percent range. During the fourth quarter approximately 85 percent of Coastal revenues were under term contracts compared with approximately 75% for the 2013 4th-quarter. Demand for the Coastal Marine Transportation refined products block oil and petrochemicals remain very strong. With respect to Coastal Marine Transportation pricing, term contracts that renewed during the fourth quarter increased in the mid-single-digit range when compared with the 2013 fourth quarter. Spot contracts continued to improve sequentially during the fourth quarter and remained above term contract rates.

In our Diesel Engine Services segment, our Marine, diesel and Power Generation markets experienced stable demand. The Land-based Diesel Engine Service market benefited from strong demand for new parts and equipment prior to the steep decline in oil prices that began to accelerate in late November. We continue to expect market headwinds in this business with oil prices below $50 per barrel, but as Joe mentioned that EBITDA contribution from this business remains relatively small in relation to our total EBITDA.

During the fourth quarter, we also took advantage of a significant pullback in the price of our stock to initiate a share repurchase program. Since beginning the buyback program in mid-December, we have repurchased $100 million of stock or approximately 1.3 million shares at an average price of around $79 per share. You will also note that in our Press Release last night, we announced that our Board has approved the addition of 2 million shares to our existing authorization, which brings our current unused authorization to 3,685,000 shares.

I will now turn the call over to Andy to provide some financial details and I will come back to discuss our outlook.

Thank you, David and good morning. In the 2014 fourth-quarter, Marine Transportation segment revenue declined 1% and operating income declined 3% as compared with the 2013 4th-quarter. The Inland sector contributed approximately 70% of Marine Transportation revenue in the fourth quarter with the Coastal sector contributing approximately 30%. Our Inland sector generated a fourth-quarter operating margin in mid-high 20% range and the coastal sector generated an operating margin in the mid-teens. Overall, the Marine Transportation segment's fourth-quarter operating margin was 24.3% compared with 24.8% for the 2013 4th-quarter.

The decline in the Marine Transportation segment revenue in the fourth quarter, as compared to the prior year, was primarily due to a 13% decline in the average cost of Marine diesel fuel. The cost of fuel is tacked on to our customers through our contracts, but is included in our revenue. Both revenue and operating margin were negatively impacted by the change of a bunkering contract which we mentioned on our third-quarter conference call as well as poor operating conditions that restricted inland barge movement along the Gulf inner-coastal waterway. As a reminder proximally 75 percent of our Inland Marine revenue is generated from operations along the Gulf coast, so delays in this area of our business tend to have a more significant effect on our results.

In our off-shore market we experienced a seasonally normal decline associated with the cessation of winter operations in Alaska. Overall, Inland Marine delay days were down 11% as compared to the 2013 4th-quarter. Better weather and good lock conditions on the Mississippi River and tributary systems led to the decline in delay days and the 16% year-over-year increase in ton miles which, as Inland revenue was little changed from the prior year, drove a 15% decline in revenue per ton mile.

During 2014, we took the liberty of 61 new tank barges with a total capacity of approximately 1.1 million barrels. We retired 33 inland tank barges and returned five lease barges, removing 580,000 barrels of capacity. The net result was an addition of 23 inland tank barges to our fleet constituting a net increase of approximately 500,000 barrels. Of the 61 inland tank barges delivered, 37 were 10,000-barrel barges and 24 were 30,000-barrel barges. In 2015 we expect to take delivery of 9 30,000 barrel inland tank barges and 30 10,000-barrel barges. Including retirements, we expect to add net capacity of approximately 400,000 barrels over the course of the year leading to year-end capacity of approximately 8.2 million barrels versus 17.8 million barrels at the end of 2014.

In the [coastalized] sector, construction of our four coastal articulated tank barge and tugboat units is proceeding as planned with the first unit a185,000-barrel 10,000-horsepower ATB expected to be delivered and in service in the 2015 4th-quarter. We continue to expect the first new unit to deliver in the fall of 2015 followed by deliveries roughly every six months thereafter until the fourth unit is delivered by mid-2017. As we previously announced, the first two units are already committed to operate on a multi-year customer contracts.

Moving on to our Diesel Engine Services business, revenue from the 2014 fourth-quarter increased 79% and operating increased 173% compared with the 2013 4th-quarter. This segment's operating margins came in at 5.4% compared with 3.5% for the 2013 4th-quarter. The marine and power generation operations contributed approximately 25 percent of the diesel engine services revenue in the fourth quarter with an operating margin in the high single digits. Our land-based operations contributed approximately 75 percent of the diesel engine services segment's revenues in the fourth quarter and a mid-single digit operating margin.

The year over year improvement in this business was driven by demand for the sales of parts, engines and transmissions as well as orders for new pressure pumping units. As David mentioned, order cancellations and customers request to delay projects negatively impacted the performance of this business in the latter part of the quarter. In addition, addition, the operating margin was weaker than expected primarily as the result of production inefficiencies related to supply chain issues and difficulties adding qualified productive labor.

On the corporate side of things, our cash flow remains strong during the quarter which helped to fund our Marine equipment construction plant and the $100 million stock repurchase program which we completed yesterday. As such, our March 2015 earnings-per-share guidance is based on approximately 56.2 million shares outstanding as of today. With respect to any further repurchases, we will continue to evaluate all available potential uses of capital. Any future decision to repurchase stock will be based on a number of factors including the stock price in our long-term earnings and cash flow forecasts as well as the alternative opportunities available to deploy capital including acquisitions, capital equipment investments and debt pay-down.

David will discuss our outlook, but I want to briefly address some aspects of our 2015 earnings-per-share guidance. Our expectations in our 2015 guidance is that we will continue to see mid-single-digit pricing in our Coastal market. And that our Inland and Coastal utilization, including the capacity additions in 2014 and those expected in 2015, will remain in the 90% to 95% percent range. Offsetting those increases are expectations for modest pricing pressure in the Inland fleet, a significant decline in the land-based diesel engine services business due to the decline in oil prices. And a year over year increase of $0.15 per share for pension expense and $0.24 per share for increased depreciation and amortization largely related to the aforementioned capacity additions and capital upgrade expenditures in 2014.

Our 2015 capital spending guidance is currently in the $300 million to $310 million range including approximately $75 million for the construction of 39 inland tank barges, and three of them expected to be delivered in 2015, and approximately $85 million in progress payments on the construction of the new ATBs. The balance of $140 million to $150 million is primarily for capital upgrades and improvements to existing Inland and Coastal Marine equipment and facilities as well as diesel engine services facilities.

Total debt at December 31, was $717 million, a $32 million reduction from our total debt of $749 million on December 31st, 2013. As of today, our debt stands at $778 million. Our debt to capital ratio at the end of 2014 was 24% compared with 27% as of December 31st, 2013.

I'll now turn the call back over to David.

Thank you, Andy. In our press release we announced our 2015 first-quarter guidance of $1.05 to $1.15 per share. This compares with $1.09 per share earned in 2014 first-quarter. For the 2015-year we issued guidance of $4.50 to $4.70 per share compared with $4.93 earned last year in 2014.

Our first-quarter guidance assumes normal seasonal operating conditions in our Marine Transportation markets and continued strong Coastal market dynamics with higher term and spot contract pricing. In our Inland markets, our guidance assumes that utilization will remain in the 90% to 95% range and that there may be some potential price weakness as the year progresses. We have seen spot prices come down to contracts levels and, on occasion or two, dip below those levels. Consequently, we are being cautious with our 2015 price expectations.

For our Diesel Engine Services group in our land-based business, given the crude oil environment and announced oil-field capital spending reductions, we expect to see a significant year over year decline as well as sequential declines in earnings throughout the year. We remain focused on servicing our customers, executing on the backlog we have, and on cutting costs. Both our first-quarter and full-year guidance assumes our Diesel Engine Services, Marine and Power Generation markets will remain stable. The difference between the low-end and high-end of our guidance range is related to the activity level and the land-based Diesel Engine Services business and our ability to execute on those projects and backlog, as well as how utilization and pricing trends in the Inland Marine transportation market progress.

While our 2015 earnings guidance is lower than 2014, we expect our cash flow to remain strong. As Andy mentioned, our 2015 guidance includes an increase in pension expense which, as we know, moves around year to year, and increases in depreciation and amortization which are non-cash charges. So depending on working capital levels, our operating cash flow may exceed 2014 -- excuse me, our operating cash flow in 2015 may exceed 2014 levels. Which, combined with lower CapEx, could provide additional free cash flow for potential acquisitions and other opportunities as well as share repurchases.

In summary, as Joe mentioned, 2014 was our fourth consecutive year of record earnings at Kirby. Our balance sheet is strong and our debt to total cap ratio is 24%. As I mentioned, we expect our cash flow to continue to grow in 2015. As such, we remain very well-positioned should any market weakness or disruption open up good investment opportunities including acquisitions and share repurchases.

Operator, that concludes our prepared remarks. We are now ready to take questions.

(Operator Instructions ). Kelly Dougherty, Macquarie.

Just a few questions on pricing. It seems to me that it's really more pricing as opposed to volume and that seems to be our biggest concern for this year, if I'm hearing that right. I just wanted to see what you mean when you mentioned in the release that customers are testing rate levels.

Are they trying to renegotiate current contracts or is that just applicable contracts that are up for renewal and just what you mean by an expectation for modest pricing pressure on inland. I think you were previously talking about inflationary levels and just wondering if you are thinking that prices are actually going to decline. So I just wanted to see what was built into the base case of guidance.

No, they are not trying to open up existing term contracts. This is spot pricing, they're testing rates on spot pricing mostly. And then as term contracts come up for renewal, there is a testing that's going on there as well.

In this environment, nobody wants to push pricing on the carrier side and of course the shippers are always looking to test prices. They do it all the time. But in this environment it makes it particularly difficult.

So in our guidance we have assumed that pricing will come under pressure. We haven't given specific percentage that we might see it go down but we do expect some pressure throughout the year as pricing is tested. The lower end of the range you might assume some reduction in pricing.

Okay. Thank you. On the coastal side we talk about a mid-single-digit increase. That seems to be a little bit lower than what you are talking about before.

I know fuel is factored into the expectations somewhere, but I think that is kind of an ex fuel number. Can you talk about that little bit?

That is an ex fuel number. It is the rule of large numbers here. Pricing's been going up and we are still getting good strong increases. It's just the percentages drop a little bit. So it is down from high single digits to mid single digits but we have been staying it's mid to high single digits and it's now more like mid-single digits.

Kind of the uncertainty and somebody once classified the industry as in a holding pattern to us right now. That is really inland focused. That is not impacting what you are seeing on the coastal pricing side of things?

Correct.

Okay. And then just on the same topic, we've heard these comments about sluggish demand. You mentioned on the pre-announcement that you weren't seeing volumes impacted. Just wondering if operating levels have gotten back to normal again, if customers have started to resume orders? Or if not, what we need to see to get things back on track from a volume perspective.

Chemical volumes and the amount of product we're moving now is flowing more normally now. But there are still some dock congestion issues in some of the high-traffic areas like Corpus Christi and Houston but it's flowing better than it had been in the fourth quarter.

Jack Atkins with Stephens.

Just starting off, you talked David several points in your prepared comments about opportunities for potential M&A. Could you speak to -- are you seeing the dislocations in the marketplace creating M&A opportunities already? Are you seeing what the targets are asking for and what you're willing to pay may become closer to being in line with expectations?

As you know and any time business starts to get a little more challenging, people reassess whether they want to be in the business. It would not be prudent for me to comment on any specific acquisitions. As you've seen with us over the years, when things get a little rough is when we are able to take advantage of our strong balance sheet and put it to work. We look forward to potential opportunities.

That makes a lot of sense and yes, you guys have been very active in the past using downturns like this. Shifting gears and thinking about the inland Marine side of the business. Given, the lack of pricing traction, and I know you guys have talked in the past about potential inflationary pressures just from your labor force, how should we think about inland Marine operating margins trending in 2015?

Well, I think you will see the margins come down a little bit in 2015. With pricing flat to maybe even down a little bit, with labor inflation pressures and, as you heard Andy say, we've got the pension headwinds here too. That will help push margins down a little bit. But we are going to work on our costs which is what we can control. You will see a little margin compression

And then last quick one from me-- on the diesel engine side could you maybe talk to the cost leverage you could pull there to keep the profitability a little more in line with your expectations given the lagging demand?

Yes. Paradoxically we are still pretty busy, in Oklahoma working on our backlog, but we'll look at our cost structure as we work through that. I would just say this. If you think about breakeven levels, our breakeven levels should improve this cycle versus last cycle based on cost containment and the way we are working through things.

Okay. That's helpful. Thanks so much.

John Chappell with Evercore

David just trying to get a little bit of a sense of the magnitude of the rollover in the land-based diesel engine services. In the commentary in the Press Release, there wasn't too much description about that. You said servicing customers, working on costs and then you talked about a decline as year progresses.

Are we going back to 2013 levels were there were a couple of quarters by our estimates of negative profits? Or are we talking right around break-even as we get to the back half of the year?

Hello, John. This is Andy. You know what we will do coming out of year-end as we will continue to execute against our backlog and I think what you will see as the year progresses, at least what we are seeing today, is that you will see profitability coming out of the land-based side take down a little bit in the first quarter, a little bit more in the second quarter. Then we are expecting it to be a very minimal contributor to earnings in the 3rd quarter and 4th quarter. But we don't expect to go negative.

All right. That's good insight. And then for my follow-up. Joe said in his comments that the crude and condensate's only 6% of your inland barge capacities tied up there and all of that is contracted. On the coastal side how much of the business is related to crude and condensate? And I know it's tough to say because CapEx spending cuts are just starting to be enacted. But how does your guidance range think about the potential for US production to slow in the second half of the year as the Capex cuts go into effect.

On the coastwise side, we are less than 15% of our capacities in crude and condensate. You will recall that we are highly levered to refined products in the coastwise business and as you know with the lower gasoline, diesel and jet fuel prices that will stimulate some demand. We're more excited about what's going coastwise because of that dynamic as the economy improves and as the lower prices stimulate demand. We are not concerned about the crude on the coastal side.

You could see some of the Balkan moves up in the northeast of slow down but frankly if they start bringing in Brent they will have to lighter off of the ships coming into the East Coast which will be a different type of barge demand. We're not too concerned about that. It is in our thinking, Jon. We've factored that in. As you know it's a dynamic thing so it's not a precise thing.

John, let me just add one other comment. With respect to that part of the business, we have the largest asphalt fleet active in the US. Lower crude oil significantly expands the ability of municipalities and states to buy asphalt. You can buy a lot more for your budgeted dollars. We think that business is going to be better this year.

Andy, could you repeat the operating margin range that you gave for the inland Marine? You said I think it was high teens for coastal. It just missed the inland barge.

Mid to high 20% range.

Rate that's what I thought. Thanks a lot, guys. Appreciate the help.

Gregory Lewis, Credit Suisse David,

Just real quick if you could provide a little bit of color on here. You mentioned that apparently Kirby has 39 owned barges for delivery in 2015. Do you have any sense for what percentage of the 2015 order book that is across the industry?

It's about 25 percent of the order book. We think the order books are somewhere between 160 to 180 barges for 2015. Which is kind of flattish with what it was for the last four or so months. And, by the way, that order book is mostly 10,000-barrel units not 30,000. So from a capacity added, it's not as significant as if it were 30s.

Okay. Great. And then just shifting gears to the buyback. Clearly that is something with the recent Board increase, it's something you are seriously considering expanding this year. When we think about the buyback, how does the Company approach it? Does the Company approach it on an asset-based analysis? How should we think about Kirby trying to find value and implementing the buyback. I would imagine at certain points it makes to do it and at other points it makes sense to hold off.

Greg, you know that we are very long-term focused and we look at cash flow. That's the way we invest, whether we are looking at capital spending or acquisitions and, quite frankly, Kirby is like an acquisition, right? We look at a discounted cash flow method and when we see value we act on it. At these price levels these kind of multiples are what we pay for acquisitions so it's been attractive. Again it's a very long-term focus. We look at cash flow and that pretty much tells us when and where to put our capital to work.

Okay, guys. Thank you very much.

John Barnes, RBC capital markets.

Look, if I go back to the 2008, 2009 timeframe when you saw some disruption in pricing, your company was able to tap the brakes in terms of capacity and prop the industry up from a pricing perspective. Given your market share and the number of vessels you control, is that still a possibility? If you saw pricing begin to weaken a little bit more, on the inland side during the year than expected, would you be willing or are you capable of doing so again?

John, this is actually a little different. 2008, 2009 you had a collapse in volume. We don't have a collapse in volume. What we have is just a lot of uncertainty that is having both carriers and shippers reassess price levels. Remember that pricing right now is at historical highs.

So taking a lot of equipment out probably doesn't make a lot of sense now. In 2008 and 2009 we had, I think, 917 barges at the top of that period and what we did was we actually took about 100 barges out of service. We scrapped them and sold them into alternative service. That is going to be more difficult now. The fleet is younger and utilization levels are much higher. 2008 utilization, at one point, got down below 80% and today we are looking at utilization in the mid-90s.

Okay. That's great color. Thank you. More importantly, again from a capacity standpoint, the number of barges in the industry that have moved over to crude oil service. I'm really interested in the number of barges that have been sold in MLP, how easy is it for that equipment to get pulled out of that service if you see a decline in the oil volume and condensate volume? How easy it is it for that equipment, especially on the MLP side to reenter the petro-chemical business and cause a disruption in terms of too much capacity.

Some of the barges could be cleaned up. There is a cost to cleaning a barge and redeploying it into clean service. We've seen a very small bit of that so far but we will see, there is still a lot of volume out there and the volume coming out of the Eagleford is still pretty strong.

The Canadian war and not a lot of Balkan was moving on the river anyway but the Canadian has become less competitive. It can be done. You can move some of those barges out of crude service and put them into clean service but there is a cost.

I would also say on the MLPs in particular, a lot of the chemicals, the vast majority of the chemicals don't qualify. They would have some resistance there to do that. They wouldn't be able to do it. At some point it becomes nonqualifying income and would put their MLP at risk.

Okay. Great. Yes, that makes sense. And lastly, just on the shipyard. Trinity had already moved one of their lines from liquid back to dry so there already seem to be some limitation in 2015 in terms of tank deliveries or liquid deliveries versus dry deliveries.

Have you seen any further action at the shipyards or within the order books? You guys took advantage, obviously of a competitor that got a little bit out of there tips last year. Have you seen any kind of that activity on the order books as well?

On the order books, we just have not seen it grow which is very positive. I think this volatility and uncertainty has put the brakes on the orders. Usually, as time goes on, you see the order book fill up a little bit and some carriers taking some slots at shipyards, but frankly we just haven't seen it. The order book has been flat as I said earlier for about four months. From our perspective that's a positive.

Very good. Thanks for your time. I appreciate it.

Thanks, Jon.

Ken Hoexter, MerrillLynch.

If we just follow up on John's question there in terms of adding the 400,000 barrels. Is there thought given the crude freeing up on maybe pulling back on some of that ordering? Is that committed contractual on the barge ordering? Just wondering what your variability on your own order book is.

That's committed. We contracted for that last year in 2014 so it's under contract. So we would not pull back on it.

We have a need for those barges. We are putting them to work as they come out. Again, we are still very busy but we will see how the year progresses.

Okay. Andy, on the buyback is there a time frame on the three million plus second after the initial second million?

No. No. We don't have any timeframe. We will evaluate that going forward.

So it's not like you are committing to doing that within the next year or any particular period? Is just an open-ended plan?

It's open-ended.

Okay. And Joe maybe just some thoughts given the rapid pullback on the oil prices here, you've talked about uncertainty, you talked on the first question was asking you about pricing and it seemed like you were intimating that it's still the customers are having these debates. Are you actually seeing any pullback at this point on the volume and commitments for that? Or is it still just the uncertainty that the customers are facing?

No pullback on volume. The volumes are going to be what they are. They drive utilization rates and utilization rates are still high. You could see going forward in the year as capital expenditures comes rapidly down in the oil-field, volumes decline with that.

Having said that, with respect to Kirby, we think that we are moving the volumes that are sustainable. Both our River volumes and our canal volumes are from fields that are very competitive even at these prices. So we are not so much worried about it in our fleet. There are other fleets that move volumes from less competitive areas. They may be affected but I frankly think it's just too early to tell what is going to happen.

Just a last quick one. You mentioned that land-based customers on diesel engine service is pulling back and Marine has remained stable. Is there a transition there where the Marine customers could feel a little concern on the market and they come back? Or is that more tied to your utilization within the fleet?

Yes. Are you talking Marine diesel engine services?

Diesel engine services, yes

On the Marine and power generation side things are pretty stable and it ebbs and flows. These are a lot of towboat companies and that type of thing which are continuing to work. As you know, we've talked about this in past cycles. On the Marine diesel engine repair side, there is about 25 percent of that that is oil service related. So that may be impacted a little bit. Frankly, some of that is in our guidance for 2015, that it may be impacted. It's the lift boats and supply boats that could be impacted.

Wonderful. Appreciate the time and thought. Thanks.

All right. Thanks.

Steve Sherowski, Goldman Sachs.

You mentioned roughly 6% of your inland capacity is dedicated to crude and condensate transportation. I was just wondering is that fairly representative of the industry as a whole and I'm just trying to gauge what the potential is for equipment switching from crude or condensate transportation into refined products that you had mentioned before?

It depends on whose fleet it is in. In our fleet it's 6% and in other fleets it's higher. It's difficult to estimate what the total percentage is of crude in the inland business. Crude is a relatively new movement and the bulk of what is moved is going to be refined products, chemicals and fertilizers, our traditional business.

But there is equipment out there that is going to be displaced. Some of it's already been displaced. It's being absorbed given the high utilization levels. We will just have to see.

Got it. And thanks. Just as a quick follow-up. The BIS recently provided clarification on what qualifies as a condensate that's allowable for export. How do you think about that and the potential impact on your coastal business, your coastal segment?

Actually we think it may be a slight positive because it's just more volumes. As more volumes get produced and more volumes get moved the likelihood of us touching it increases. So if it comes into a condensate splitter, for example, we may touch some of the [nap] that comes out of the condensate splitter.

We may take it from the splitter to an export terminal, for example. So it is generally the more volumes that move, the better for our business. We are not necessarily opposed to exports of crude or condensate.

And are most of those movements coming out of Corpus Christi into the Houston refinery market?

Yes. Corpus Christi is a hub for most of the Eagleford and a good portion of the Permian. So it comes to Corpus and then it gets over to the Houston and Port Arthur and even over to the Louisiana market.

Got you. That's it for me. Thank you.

Thanks, Steve.

Kevin Sterling, BB&T Capital Markets.

Thank you. David, you guys talked about your utilization in your inland markets being strong and I think you think they're going to remain strong and it sounds like because you haven't seen the drop-off in volumes this cycle that we saw last cycle. Am I thinking about that right?

But I'm also thinking when I hear your pricing commentary that customers may be shifting some of their trade patterns. Could we see a little utilization weakness later in this year or do you think the volume increase on the pet chem side will continue to drive utilization?

It's difficult to say but in the last cycle, in the 2008, 2009 that was an economic contraction and the volumes really dropped. So here, and as Joe said at one point that got down below 80% utilization one quarter, but we haven't seen that and we're still in the 90s, very utilized. So the pricing pressure is coming more from uncertainty than anything else. It's not volume driven. But again, the bottom end of our range does contemplate some negative pricing.

Okay. Thank you, David. My last question here moving to the diesel side of the business. As oil-field services companies tighten their belts, are you seeing some interest in your [reman] business versus new OEM equipment given the favorable cost differential or is it still too early to tell given the huge drop we've seen in oil?

It's still a little early to tell but it's interesting. Some of the customers that don't have a lot of spare capacity and, if they are running, the maintenance becomes more critical. There is interest in reman. Reman does make capital sense.

It saves you a lot of money and if you are short on equipment and you've got a fracks spread unit running which may have 20 pumping units on it and one or two of those fail, you don't want to buy new equipment in this environment. So we are hopeful but it's too early to tell. I would not factor a lot of growth in that in this current environment. But maintenance always could go up.

Okay. Got you. Thanks so much for your time this morning.

John Engstrom, Stifel.

Morning, gentlemen. I was interested in hearing a bit about sort of the spot and contract split across the inland and coastal segments and then, within each of those quadrants if you could talk about the fuel cost impacts and how that is constructed within each of the contracts?

Yes, sure. On the inland side, we are 80% contracted, 20% spot. And coastwise, it's about 85% contract, 15% spot.

Fuel, John, we work to make all of our business fuel-neutral. So fuel is a pass-through whether it's in a term contract or of course spot pricing is embedded at the current fuel price. So fuel we try and be neutral in. What you do see, since it's a pass-through, it does move revenue around a little bit as fuel prices fall. Since it's a pass-through there is no real net income impact.

Okay. Fantastic. That's very helpful. So then I guess when you talk about pricing pressure we're really talking core pricing in that net of any fuel influence because that really doesn't impact your EBITDA.

That's correct.

Fantastic. And then one last question to rehash the acquisition topic. I'm wondering how aggressively are you guys sourcing acquisitions, talking to possible acquirees and things of that sort and any kind of valuation metrics you would be looking for within your targets? Thank you.

John, we are always talking to various companies. You never know when an acquisition can present itself. In the inland side there is 40 different companies and we have relationships and know the principles at all those companies-- they know that Kirby is a logical buyer, so we stay in touch. You know, whether something is actionable are not, will remain to be seen. But typically when there is some volatility and there's some downward pressure is when things start to get interesting.

In terms of metrics, we do everything with a discounted cash flow approach looking at whether we can earn a 12% after-tax return on our investment. That typically means that we would get things in the five to seven times EBITDA. Sometimes we go North of seven times EBITDA if there's a lot of synergies. That is the typical metric range. Again we don't look at it as a multiple EBITDA. We look at it in terms of discounted cash flow.

Fantastic. Thanks very much for your time.

Thanks, John.

David Beard, Iberia capital.

Good morning, gentlemen. I was just hoping to get a little more guidance or a little more color really on the diesel engine land services assumptions behind your guidance. And I know you guys don't really talk about rig count or capital spending but I'm just trying to get a sense of have you really thrown in the kitchen sink in terms of US spending this year in your guidance on that land-based component or you're using a 20% or 30% decline in US capital spending. Just some color there are trying to get a sense of what's in your guidance would be real helpful.

Yes, David, we look at the surveys everybody else does and we are anticipating capital spending cuts 30% and it could even be worse than that. Also on the land-based rig count, I've seen anywhere from 600 down to 850 down. We are probably closer to the latter number.

We think it's going to be pretty sloppy this year. That said, it's hard for us to see that we don't get some rebound at some point down the road. But who knows, predicting crude oil prices is a tough thing to do.

I would probably agree with you on all three of your comments. That's very helpful. Thank you.

Thanks, David.

Kelly Dougherty, Macquarie.

Thanks. It just wanted to follow up on utilization. Is that 90% or 95% outlook driven more by a confidence in volume remaining robust where really the ability to retire some of your older barges if need be?

And then how do you see utilization for the entire industry right now and maybe as we progress throughout the year? Because I imagine there's some people that have barges that are a lot older than yours and have you seen any accelerated retirements at least at this point yet?

That 90% to 95% doesn't factor any retirements That's what we think we will use going forward. As Joe mentioned we don't have a lot of older equipment to retire. We've done a pretty good job lowering the age of our fleet.

We do think that the industry is about the same utilization. As to their retirement plans, it's hard to predict but a number of carriers have some very old equipment and we would expect that that equipment would come out if things get tougher.

Okay, great. Thank you.

Thanks, Kelly.

We have no further questions at this time. I would like to turn the call back over to Sterling for closing remarks.

We appreciate your interest in Kirby Corp and for participating in our call. If you have additional questions or comments you can reach me directly at (713) 435-1101. Thank you and have a nice day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating.