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Kirby (KEX) Up 14.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Kirby (KEX). Shares have added about 14.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kirby due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Kirby in Q1

Kirby's earnings of 59 cents per share (excluding $4.74 from non-recurring items) surpassed the Zacks Consensus Estimate of 49 cents. The bottom line however declined 20.3% year over year. Total revenues of $643.9 million lagged the Zacks Consensus Estimate of $654 million and also declined 13.5% year over year. The top line was hurt by reduced sales at the distribution and services division.

Segmental Performance

The marine transportation division is responsible for providing transportation services by tank barge to inland and coastal markets. Revenues at the marine transportation unit increased 9.6% year over year to $403.3 million. Segmental operating income also rose 43.2% to $50.7 million. Segmental operating margin too expanded to 12.6% from 9.6% a year ago.

Inland market revenues rose 13% year over year on contributions from the Cenac acquisition and favorable pricing. The operating margin for the inland business was in the mid-teens, reflecting negative impact from significant delay days. Hurt by planned shipyard days on large capacity vessels, revenues at the coastal market were flat year over year. The coastal operating margin was in the low-single digits.

The distribution and services segment is responsible for selling replacement parts and focuses on oil and gas, and commercial and industrial markets. Segmental revenues dropped 36.1% to $240.7 million due to below-par performance in the oil and gas market. The already weak market conditions were worsened by the COVID-19 pandemic, which reduced business activity in the distribution and services segment. Moreover, operating margin at the segment was 1.5% in the first quarter compared with 10% in the year-ago quarter. The oil and gas market was weak during the quarter under review due to reduction in oilfield activity. Operating margin for oil and gas was in the negative mid-single digits.

In the commercial and industrial market, revenues augmented year over year, benefiting from the Convoy Servicing Company acquisition. During the quarter under consideration, the commercial and industrial operating margin was in the mid-single digits.

Balance Sheet Highlights

Long-term debt (including current portion) for the company increased to $1.7 billion at the end of the first quarter from $1.67 billion at the end of March 2019. Debt-to-capitalization ratio at the end of first-quarter 2020 was 35.3% compared with 33.8% a year ago.

Outlook

With uncertainty looming over the duration of coronavirus and the extent of the global economic slowdown, Kirby has withdrawn its 2020 earnings guidance ($2.60-$3.40 per share).

For 2020, capital spending is expected to be either at or below its previously guided range of $155-$175 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -33.85% due to these changes.

VGM Scores

At this time, Kirby has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Kirby has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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