Barge Giant Kirby: Signs Of Life But Too Soon To Call Bottom

It's a strange time for public reporting. Companies are posting results for a period – January to March – that's largely irrelevant because it pre-dated peak COVID-19 fallout.

The value of this round of quarterly reporting is in commentary on current conditions, particularly from bigger public players who can provide front-line insights on the U.S. economy.

One of those bigger players is Kirby Corporation KEX, the largest owner of inland tank barges in America and by far the largest listed vessel owner measured by market capitalization (at $3 billion).

Before the market opened on Tuesday, Kirby reported a net loss of $248.5 million for the first quarter of 2020 compared to net income of $44.3 million in the same period last year.

However, Kirby reported a $334.6 million after-tax write-down of its non-maritime distribution and services segment, which serves oil and gas customers. Excluding non-cash items, Kirby reported adjusted net income of $35.3 million or $0.59 per share, above the analyst consensus forecast for adjusted earnings of $0.44 per share.

Inland barge outlook

The utilization rate for Kirby's inland tank barges averaged around 95% in the first quarter but fell to around 90% in recent weeks. Spot rates (for contracts of less than a year in duration) were up 5-7% year-on-year in the first quarter and long-term contracts (for period charters and contracts of affreightment of a year or longer) were up 2-5%.

The company's fleet primarily carries petrochemicals, and to a lesser extent refined products and crude. How that fleet is faring offers a snapshot of the country's consumption patterns amid coronavirus lockdowns and gradual reopenings.

Kirby Corp CEO David Grzebinski. Photo credit: Kirby Corp

The general impression Kirby CEO David Grzebinski gave on the conference call with analysts was that today's market conditions, while highly uncertain, are far from disastrous. He dubbed the current situation "crazy and surreal" but pointed out "we had a pretty good first quarter [in the inland segment]."

"Many refineries have reduced utilization to the 60% range from 90% earlier this year … but refinery utilization bumped up about 2% this week – at least it's going in the opposite direction – and we're starting to see traffic in Houston pick up," he said.

Asked about the core petrochemical sector, he responded, "As we talk to our chemical customers, anything involving consumer packaging is going very strong, just because everybody's buying individual-wrap things nowadays. Obviously, anything that goes into disinfectants or alcohol-type things are also pretty strong. What has been very, very weak is anything related to the auto sector. As you would expect, basically nobody's ordering.

"So, it's a mixed bag. It's literally a day-to-day thing, but some chemical volumes have pulled back," he acknowledged. "They [petrochemical plants] want to run as much as we want them to run, because the higher their utilization, the more efficient they are. They just need demand to come back."

As with ocean-going tankers, Kirby confirmed an increase in liquid-cargo storage opportunities, which is helping keep utilization high as some of the transportation demand from refineries and petrochemical plants pulls back.

"We're seeing storage opportunities across products and crude," Grzebinski said, attributing these deals to both "all the dislocations in the supply chain" as well as "contango plays" (in which traders buy low and hope to sell high). He added, "We're seeing storage put a floor on how far utilization moves down."

Too soon to call

In general, Grzebinski concluded, "We are starting to see signs of things coming back to life. But it's too soon to call.

"If things were to hold where we are right now and this was the bottom, we may not see any margin decline [for inland] at all, but that's a big if. We've pulled our guidance because we don't know how long this will last or how deep it will go.

"I don't know how strong we'll come back from this because I worry about a rolling lockdown," he warned. More FreightWaves/American Shipper articles by Greg Miller  

Chart credit: Kirby Corp