Kirby Corporation (NYSE:KEX) Q2 2019 Earnings Conference Call - Final Transcript

Jul 25, 2019 • 08:30 am ET

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Kirby Corporation (NYSE:KEX) Q2 2019 Earnings Conference Call - Final Transcript

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Executive
David W. Grzebinski

for our full year guidance, the lower end assumes further weakness in the distribution and services, oil and gas market, including limited demand for engines, transmissions and parts, reduced volumes of transmission overhauls and minimal orders for new and re-manufactured pressure pumping equipment. The high end assumes meaningful improvement in inland marine operating conditions and further pricing momentum. It also assumes some improved contribution from the distribution and services, oil and gas related businesses, including incremental orders for pressure pumping equipment and re-manufacturing as well as greater volumes of transmission overhauls and equipment and part sales.

Now to sum things up, overall, we had a good second quarter. Inland marine bounced back nicely, following a challenging first quarter, despite increased delay days. In coastal, we generated a profit, utilization rates improved and term contracts continue to renew higher. As we look forward, despite near-term spending cuts and uncertainty in the oil field, we remain excited about Kirby's long-term outlook and earnings potential. In inland marine, we put our strong balance sheet to work during the downturn, successfully completing and integrating several key acquisitions, which have well positioned Kirby to capitalize on the up-cycle. Today our fleet is nearly 30% larger in barrel capacity than it was at the bottom of the cycle in 2017. We have the largest, youngest and most efficient fleet in our history and our results are starting to show the benefits. With continued strong demand on the horizon and current pricing momentum, inland marine is positioned to continue to deliver increases in revenue and earnings as the market recovery continues.

In coastal, our actions to rightsize the fleet, improve horsepower efficiency and reduce our cost structure have paid off as evidenced by the return to profitability in the second quarter. In the fourth quarter, we will have several vessels in the shipyard for majors, some of which are being brought forward to ready the equipment for new contracts into 2020, with most of our large capacity major shipyards behind us by the end of this year, we anticipate higher term contract renewals in the coming quarters and coastal should be in a position to be more consistently delivering positive earnings in 2020.

In distribution and services, while the US oil field will present some temporary challenges and reduced returns in the near future, we remain optimistic for the long-term outlook for our oil and gas related businesses. Shale oil and gas are a significant contributor to the world's energy supply and we believe it will be so for the next few decades. The near-term minimal levels of investment and maintenance activities on existing equipment is unsustainable and this trend will reverse at some point. Additionally, there continues to be significant customer interest in new horsepower capacity to improve fleet operating efficiencies and reduce environmental footprints. Pipelines from the Permian are expected to start coming online soon and when they do, completion activity should ramp up. Kirby is well positioned to capitalize on these opportunities.

Today, we're