Bank Of America Downgrades Small-Cap Kirby Corp

In a report published Friday, BofA Merrill Lynch analysts downgraded the rating on

from Buy to Underperform, while reducing the price objective from $86 to $72. The analysts cited pricing pressure as the reason for the company's softer outlook. Kirby posted its 1Q EPS at $1.09, representing a 5 percent y/y decline. Marine revenue, which represents 66 percent of total revenues, at $420 million, down 4 percent y/y. Marine operating income declined 1 percent y/y to $96 million, while Marine operating margin stood at 22.9 percent, up 50 bps y/y. These results were better than BofA Merrill Lynch's estimates. Revenue from Diesel Engine Services, which represents 34 percent of total revenues, was reported at $168 million, with 9 percent y/y growth. DES op income stood at $9 million and op margin at 5.3 percent. These results missed BofA Merrill Lynch's estimates. Kirby reduced its full-year EPS outlook from $4.50-$4.70 to $4.10-$4.40 and set a 2Q15 target of $0.95-$1.10, below the consensus estimate. "The company noted that Inland barge contracts are trending flat to down in 2Q, a shift we anticipated, but apparently at a larger downward pace than we anticipated on declining crude volumes (compounded by oil switching to pipeline and reduced drilling)," the analysts wrote. "…excess capacity is impacting pricing to a greater extent than we had targeted," the analysts added. The EPS estimates for 2Q15, 2015 and 2016 have been reduced from $1.22 to $1.05, from $4.75 to $4.25 and from $5.65 to $4.80, respectively.