10-K: Kirby Corp Navigates Strong Demand, Supply Chain Hurdles in 2023; Cautious Outlook for 2024

Kirby Corporation reports increased revenues and operating income for 2023 driven by strong demand in marine transportation and distribution services, while acknowledging ongoing supply chain challenges and a cautious outlook for 2024.

Summary

• Kirby Corporation's 10-K filing reveals a year of increased revenues, rising to $3.09 billion in 2023 from $2.78 billion in 2022, and improved net earnings attributable to Kirby, reaching $222.9 million compared to $122.3 million in the previous year.
• The marine transportation segment saw a 6% revenue increase, driven by improved pricing and utilization, while the distribution and services segment experienced a 17% revenue increase due to strong economic activity and higher oilfield activity.
• Despite positive financial results, the company faces challenges including aging waterway infrastructure, potential marine accidents, crewing difficulties, regulatory compliance, and the volatility of natural gas and crude oil prices.
• Looking ahead to 2024, Kirby anticipates continued strong demand and pricing improvements in marine transportation, while distribution and services expects stable demand and a manufacturing backlog, tempered by supply chain uncertainties.
• The company projects net cash flow from operations in 2024 to be between $600 million and $700 million, with capital expenditures ranging from $290 million to $330 million.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong financial performance in 2023, but acknowledges potential risks and uncertainties in the future. The sentiment is cautiously optimistic.

Positives

• Improved term and spot pricing and utilization in the inland marine transportation market.
• Strong economic activity across the U.S. leading to higher business levels in the marine and on-highway businesses within the commercial and industrial market.
• Increased demand for new transmissions and parts in the distribution business due to higher oilfield activity.
• Manufacturing business experiencing increased orders and deliveries of new environmentally friendly pressure pumping equipment and power generation equipment for electric fracturing.
• The company's debt-to-capitalization ratio decreased to 24.2% at December 31, 2023 from 26.2% at December 31, 2022.

Negatives

• Various lock closures along the Gulf Intracoastal Waterway and Illinois River, resulting in higher delay days.
• Several refinery outages impacted utilization.
• Continuing supply chain constraints and delays.
• The company is subject to adverse weather conditions in KMT and KDS.
• Increased prices and inflation could negatively impact the Companys margin performance and financial results.

Risks

• Aging inland waterway infrastructure may result in increased costs and disruptions.
• A marine accident or spill event could close a portion of the waterway system.
• Difficulty in adequately crewing towing vessels.
• Potential modification or waiver of the Jones Act could increase competition.
• Extensive regulation by the USCG, federal laws, and environmental regulations could increase expenses.
• Volatility in natural gas and crude oil prices could impact demand.
• Construction of new tank barges could lead to oversupply.
• Higher fuel prices could increase operating expenses.
• Failure of shipyard vendors to deliver new vessels according to schedule.
• Competition from other tank barge operators, pipelines, railroads, and trucks.
• Future legislation or regulation of oil and gas extraction could impact KDS.
• Loss of a distributorship or other significant business relationship could adversely affect KDS.
• Adverse weather conditions can impair operating efficiencies.
• Inability to make attractive acquisitions or successfully integrate acquired businesses.
• Failure to comply with the FCPA or similar anti-bribery laws.
• Risks associated with possible climate change legislation and international accords.
• Loss of a large customer could adversely affect the Company.
• Reliance on critical operating assets and information systems, which are subject to damage or interruption.
• Limitations on the Companys ability to obtain, maintain, protect, or enforce its proprietary information.
• A deterioration of the Companys credit profile, disruptions of the credit markets or higher interest rates could restrict its ability to access the debt capital markets or increase the cost of debt.
• Corporate responsibility, specifically related to ESG matters, may impose additional costs and expose the Company to new risks.
• Increased prices and inflation could negatively impact the Companys margin performance and financial results.
• The Company could be adversely impacted by materials shortages, delays, and disruptions in supply chain.
• Continuing impacts resulting from actual or threatened health epidemics, and pandemics or other major health crisis could materially and adversely affect the Companys business, financial condition and results of operations.

Future Outlook

The company expects to deliver improved financial results in 2024, with favorable market conditions in inland marine transportation and steady customer demand in coastal marine. KDS anticipates incremental demand for OEM products, parts, and services, with a manufacturing backlog providing stable activity through most of 2024.

Management Comments

• Overall, the Company expects to deliver improved financial results in 2024.
• In KMT, barge utilization and customer demand remain strong, and rates continue to increase.
• In KDS, demand for products and services remains steady, and the Company continues to receive new orders in manufacturing.
• The Company remains mindful of the ever-changing economic landscape related to the impact of higher interest rates, and possible recessionary headwinds as it moves through 2024.

Industry Context

Kirby's performance reflects the broader trends in the marine transportation and distribution services industries, with increased demand driven by economic activity and higher oilfield activity. The company's focus on environmentally friendly equipment aligns with the industry's growing emphasis on sustainability.

Comparison to Industry Standards

• Kirby's inland tank barge fleet represents approximately 27% of the industry's approximately 4,007 inland tank barges.
• The company operates 28 or approximately 11% of the approximately 264 coastal tank barges that operate in the 195,000 barrels or less category.
• United and S&S are two of MTUs top five distributors of off-highway engines in North America, with exclusive distribution rights in multiple states.

Corporate Governance

Legal Proceedings

• The Company was named by the Environmental Protection Agency (the EPA) as a Potentially Responsible Party (PRP) in addition to a group of approximately 250 named PRPs under the Comprehensive Environmental Response, Compensation and Liability Act of 1981 (CERCLA) with respect to a Superfund site, the Portland Harbor Superfund site (Portland Harbor) in Portland, Oregon.
• The Company was served as a defendant in a Complaint originally filed on August 14, 2014, in the U.S. District Court of the Southern District of Texas Houston Division, USOR Site PRP Group vs. A&M Contractors, USES, Inc. et al.
• The Company, as a successor to Hollywood Marine, Inc. (Hollywood Marine), was issued a General Notice under CERCLA by the EPA in which it was named as a PRP for liabilities associated with the SBA Shipyard Site located near Jennings, Louisiana (the Site).
• The tug Nathan E. Stewart and barge DBL 55, an ATB owned and operated by Kirby Offshore Marine, LLC, a wholly owned subsidiary of the Company, ran aground at the entrance to Seaforth Channel on Athlone Island, British Columbia.

Related Party Transactions

• David W. Grzebinski, President and Chief Executive Officer of the Company, is a member of the board of directors for ABS, a not-for-profit that provides global classification services to the marine, offshore and gas industries.
• David W. Grzebinski, President and Chief Executive Officer of the Company, is a member of the board of directors of UK Protection & Indemnity Association (UK P&I), a mutual marine protection and indemnity organization that provides protection and indemnity insurance for third party liabilities and expenses arising from vessel operations.
• Amy D. Husted, Vice President, General Counsel and Secretary of the Company, is a member of the board of directors of Signal Mutual Indemnity Association Ltd (Signal), a group self-insurance not-for-profit organization authorized by the U.S. Department of Labor as a longshore workers compensation insurance provider.
• The husband of Ms. Husted is a partner in the law firm of Clark Hill PLC.
• The brother of Christian G. ONeil, President of Kirby Inland Marine, LP, Kirby Offshore Marine, LLC, San Jac Marine, LLC and Kirby Offshore Wind, LLC, is a partner in the law firm of W. Sean ONeil Attorney at Law.
• Rocky B. Dewbre, a director of the Company, serves as President and Chief Operating Officer of Mansfield Service Partners. Mansfield Service Partners is under the same common control as ORourke Marine Services (ORourke), a distributor of lubricants, fuels, and environmental services.

Stakeholder Impact

• Shareholders: The company's improved financial performance and commitment to creating stockholder value are positive for shareholders.
• Employees: The company provides competitive pay and benefits, training, and a respectful and inclusive culture for its employees.
• Customers: The company's ability to provide reliable and efficient marine transportation and distribution services is important for its customers.
• Suppliers: The company's financial stability and growth are beneficial for its suppliers.
• Creditors: The company's strong financial performance and debt management are positive for creditors.

Next Steps

• The company expects to complete installation of an approved BWMS on the last such barge currently in its fleet during 2024.
• The company expects to make additional pension contributions of $1.8 million in 2024.

Key Dates

Keywords

marine transportation, distribution services, tank barge, oil gas, financial results, kirby corporation, revenues, utilization, fleet, vessels