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Kirby (KEX) Down 2.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Kirby (KEX). Shares have lost about 2.7% in that time frame, outperforming the S&P 500.

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

Earnings Miss at Kirby in Q2

Kirby’s second-quarter 2019 earnings of 79 cents per share lagged the Zacks Consensus Estimate of 81 cents. Weakness in the distribution and services unit as well as subpar inland operating conditions affected results. However, the bottom-line improved year over year on higher revenues.

Although total revenues of $771 million outpaced the Zacks Consensus Estimate of $768.7 million, the same dipped 3.9% year over year. The top line was driven by increased sales at the marine transportation division.

Segmental Performance

Revenues at the marine transportation unit increased 6.9% to $404.29 million. Also, segmental operating income surged 39.3% to $53.24 million. Further, segmental operating margin expanded to 13.2% from 10.1% a year ago.

Inland market revenues rose approximately 8% year over year owing to contributions from last year’s acquisitions, favorable pricing and higher barge utilization. The operating margin for the inland business was in the mid-teens.

Revenues at the coastal market inched up 3% on a year-on-year basis as a result of strong pricing and higher barge utilization. Operating margin for the coastal market was in the low to mid-single digits.

Distribution and services revenues decreased 13.6% to $366.76 million due to below-par performance in the oil and gas market. Also, operating income at the segment plunged 42.5% to $23.13 million in the reported quarter. Further, operating margin deteriorated to 6.3% from 9.5% in the year-ago period.

Revenues and operating income in the commercial and industrial market augmented on a year-over-year basis, driven by higher installations of back-up power systems. Operating margin for the commercial and industrial market was in the mid-single digits during the quarter.

Balance Sheet Highlights

Long-term debt at Kirby (including the current portion) increased to $1.59 billion at the end of the second quarter from $1.44 billion at the end of the year-ago period. Debt-to-capitalization ratio at the end of the second quarter was 32.4% compared with 31.2% in the prior year.

Outlook

The company has lowered its earnings guidance for the full year to $2.80-$3.20 per share from $3.25-$3.75 anticipated previously. The downside is due to softness in distribution and services unit and to a lesser extent, from subdued operating conditions in inland marine.

During the third quarter, inland revenues are expected to increase slightly sequentially. While better weather conditions should lead to higher efficiencies, persistent high water conditions in the Mississippi River among other factors might partly affect results.

Meanwhile, third-quarter coastal revenues and operating income are estimated to be commensurate with the second-quarter figures. However, revenues and operating margin might take a hit in the fourth quarter due to seasonal sluggishness.

Within the distribution and services segment, commercial and industrial market revenues and operating income are forecast to fall in the third quarter due to fewer installations of major back-up power systems and other factors.

Meanwhile, the outlook for capital expenditures in 2019 is unchanged between $225 million and $245 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -25.46% due to these changes.

VGM Scores

Currently, Kirby has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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. It's no surprise Kirby has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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