Kirby’s inland-barge consolidation push continues

tank barge

The big gorilla keeps getting bigger. Kirby Corp. (NYSE: KEX), the dominant player in the U.S. inland tank-barge sector, has swung to a profit in the fourth quarter of 2019 and announced yet another fleet takeover.

Kirby reported net income of $2.8 million for the fourth quarter of 2019 versus a net loss of $24.4 million in the same period the previous year. Earnings per share (EPS) excluding one-time items came in at $0.58, in line with analyst consensus.

The company’s inland petroleum-barge division reported utilization in the low 90% range in the latest quarter. Pricing was up, with spot rates rising by the mid-single digits and term contracts increasing by the low- to mid-single digits.

Inland-barge revenues were up 7% year-on-year as a result of both better pricing and a larger fleet due to acquisitions.

Announcing its results on Thursday, Kirby disclosed the acquisition of the inland tank-barge fleet of Savage Inland Barge for $278 million in cash plus the assumption of leases. Savage has 90 tank barges with 2.5 million barrels of capacity and 46 towboats.

The deal brings Kirby’s acquisition spending to over $1.1 billion since 2015, including $244 million for the 63 tank barges of Cenac Marine in March 2019 and $422 million for the 163 tank barges of Higman Marine in 2018.

According to Randy Giveans, the shipping analyst at investment bank Jefferies, “This [Savage] acquisition further solidifies Kirby’s reputation as the industry consolidator and increases Kirby’s share of the inland tank-barge market to 30% — around 1,150 out of around 3,850 barges — which should result in more industry pricing discipline as the market improves in the coming quarters.”

Jon Chappell, the shipping analyst at Evercore ISI, commented, “The inland-barge unit, which contributed about 70% of full-year 2019 EBIT [earnings before interest and taxation], is benefiting from 90%-plus fleet utilization and an ongoing trend of improving spot and term pricing.

“In the prior cycle, from 2012 to 2015, this business posted operating margins in the mid-20% range, but after three years in the teens, the 2020 guidance range is still based on the high-teens operating margin.

“Kirby’s barge fleet is more modern today following well-timed industry consolidation, with more in-house power [tugs], both of which should provide stronger margins through the upturn. If the inland barge business unfolds as in prior cycles, the EPS upside is material,” Chappell affirmed.

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