Friday, February 9, 2018

Kirby's plans

I can't say for sure that Kirby Corp. is operating more boats on the Ohio River than it did a few years ago. I can say that if I see a boat on the river now, it's more likely to be a Kirby boat in part because Kirby doesn't push coal, and the number of boats pushing coal is down, so the odds are more likely to favor Kirby having a higher percentage of boats seen on the river now.

Anyway, Kirby is a publicly traded company. That means you, me or institutional investors can buy and sell its stock on the New York Stock Exchange, where it is listed under the symbol KEX. This past Sunday, Kirby announced it was buying the marine operations of Higman Marine.

There's a lot of detail and background in that post, so I won't repeat it here.

Monday morning, Kirby executives had a conference call with investment analysts to discuss the acquisition. I figured a podcast of the call would be posted later so people could listen to it when they could. I was wrong.

However, last week Kirby released its fourth-quarter and year-end earnings report, which was followed by a conference call, and the podcast of that call was posted on the Kirby website. So I listened in to learn plans what Kirby's leadership has for the company. Among other things, this is what they said:

Kirby intends to be an active player in merger and acquisition activity, just as it has been.

"(W)hile parts of the marine transportation segment remain challenged, the Inland business should begin to improve in 2018 as the industry rightsizes and consolidates. We intend to participate in this rationalization as the opportunities to further expand our franchise in this difficult market are excellent," said Joe Pyne, chairman of the board of directors.

Now is the time to expect M&A's, as the industry is coming out of a down cycle.
People should expect Kirby's M&A activity to be in its inland segment rather than coastal.

There are 40 players in the industry now, and Kirby would like to see that number shrink through M&A.
David Grzebinski, president and CEO: "(W)e've been the biggest consolidator in the industry. From my perspective, any consolidation is good. The more rational approach is to have fewer and fewer competitors, right? In any business, that's better. But there is still, as you know 40 or so players in this market, used to be a lot more than that. But as time marches on, that list will get smaller and smaller, and that's just good for any business as you know."
Kirby has ordered 15 new towboats "of varying horsepower range." It expects to take delivery of the first five, all of 2,000 horsepower, in the third and fourth quarters of this year. The total cost will be $30 million to $35 million.
Grzebinski: "(T)hey will replace older and less-efficient vessels that we retired or sold during the fourth quarter, which did result in a $4.3 million loss on sale. (Grzebinski)

As far as Kirby knows, the tank barge industry will take delivery of 50 to 60 new barges this year. Most will be replacements.

Grzebinki: "Typically — and Joe can give you the history here on all the acquisitions — but typically you have to be emerging from the bottom of the cycle. Nobody really wants to sell at the bottom of the cycle. As we've said in our earlier calls, we're in discussions. Frankly, I'm not at liberty to talk about any acquisitions at this time, but typically you have to be coming out of the bottom in order to get these transactions going."

Remember, these comments were made a few days before the Higman deal was announced.

Pyne: "This isn't something that you go to the store, go to the shelf and take an acquisition off the shelf. These negotiations sometimes take years. There are a lot of different factors that come to bear when a seller is deciding to sell. I think the only thing that I would — I guess add to David's comments — is that we still think that the environment is excellent for a further rationalization in the business and we're clearly going to be a participant in it."

The entire call was more than an hour, and this is but a summary. Still, the question remains of whether more consolidation in the inland towing industry is coming and which names will join those that have disappeared: Ohio Barge Line, Ohio River Co. and others.