Welcome to the Kirby Corporation revised 2014 earnings guidance conference call. My name is Paulette, and I will be your operator for today's call. At this time, all participants are in the listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Sterling Adlakha. Sterling, you may begin.
Thank you, operator, and thanks to listeners who have joined us this morning. With me today are Joe Pyne, Kirby's Chairman, David Grzebinski, Kirby's President and Chief Executive Officer, and Andy Smith, Kirby's Executive Vice President and Chief Financial Officer. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at www.kirbycorp.com in the Investor Relations section under Non-GAAP Financial Data. Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors.
A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission. I will now turn the call over to Joe.
Thank you, Sterling. Good morning. Yesterday afternoon, we revised and lowered our fourth quarter guidance to a range of $1.10-$1.20 per share, from our previous guidance of $1.30-$1.40 per share. For the year, we revised our guidance to $4.84-$4.94 per share from the previous range of $1.05-$1.14 per share. David's going to provide more color on what drove these revisions to our guidance. Before he does, I'd like to make some general comments with respect to our business. Energy, crude oil, and natural gas are the basic building blocks for almost every product we move in the marine transportation segment.
As such, for our inland and coastal barge businesses, lower energy prices are positive. In a consumer-driven economy, lower energy costs mean more money in consumers' pockets, which is good for the economy, good for the country, and good for the volumes we transport. At today's oil price, yeah, even, yeah, even at slightly lower oil prices, the U.S. petrochemical business will remain globally advantaged. The recent decline in oil prices has not directly led to any change in the volumes that our marine markets or marine transportation transports, and we don't foresee any significant change near term with oil prices at current levels. With respect to our crude oil exposure, 8% of our inland fleet and 15% of our coastal fleet is engaged in transporting crude oil or crude oil condensate.
Some of you who have followed Kirby for a while will remember that we have been cautious with respect to our approach to the domestic crude oil market. We have always believed the threat to crude oil and condensate, condensate volumes was competing modes of transportations, transportation, pipelines, and to a lesser extent, rail. For those reasons, we have purposely limited our exposure to this market because we recognize that crude oil is more volatile than our traditional chemical, black oil, and refined products markets. We also work for major customers, the integrated oil and chemical companies, transporting the crude oil and condensate that we transport, for the most part, from the cost-advantaged shale formation areas. In our Diesel Engine Services market, the impact from lower oil prices has been more direct.
Customer reaction to lower oil prices has occurred more rapidly than we anticipated when we gave our initial fourth quarter guidance at the end of October. Customers have pushed out order deliveries from the fourth quarter of this year into next year, and we've had some cancellations. In addition, the ramp-up of our production has not progressed as well as we anticipated. From a more strategic standpoint, we continue to expect that over time, the growth in remanufacturing, that part of our business, will dampen the volatility we see in this business of future oil and gas cycles. As it currently stands, our backlog is more heavily weighted towards orders for new equipment, and we are therefore more exposed to swings in energy prices. However, we continue to make progress winning new customers for our remanufacturing business.
We remain committed to improving our capabilities and expanding this part of our business. I'll now turn the call over to David.
Okay. Thank you, Joe, and good morning. As you've seen in the press release, our fourth quarter guidance has been revised down $0.20 per share.
... the majority, about two-thirds of that reduction, is due to the weakness in our land-based diesel engine services business. So let me begin my comments with the engine businesses. First, our performance in our marine and power generation diesel engine services market, if you will, our legacy engine business, has kept pace with our expectations and when we issued our initial guidance. However, as Joe stated, in our land-based diesel engine services business at United, our production ramp-up was not as fast as anticipated, and the sharp decline in oil prices has led to customers deferring deliveries and canceling orders. Our production ramp-up was hindered by production inefficiencies, largely related to supply chain issues and difficulties adding qualified, productive labor.
Unfortunately, as we were working through these issues, the sharp decline in crude oil impacted our customers' planned additions, and we experienced deferrals, cancellations, and requests for price reductions. With respect to cancellations, we have firm purchase order and, in some cases, deposits, but we are working with our customers to manage through this difficult market environment. We continue to expect market headwinds in this business with oil prices below $60 per barrel. The change in oil pricing has occurred very quickly, so we've had little time to determine how significantly our customers will pull back on their capital budgets next year. We will continue to monitor our customers' plans and provide a further update as to our market expectations when we provide our 2015 guidance in January. Moving on to our inland marine business, our utilization remains above 90%.
Supply and demand are largely in balance, and we're operating at a very high level. However, adverse weather conditions along the Gulf Coast have impacted our fourth quarter performance. Additionally, we're seeing a lot of uncertainty creep into the market, driven by the sharply lower energy prices. Energy prices change our customers' economics, and consequently, they delay buying decisions until prices stabilize. Customers are delaying decisions for feedstock purchases and barge movements. This has stopped pricing momentum in our inland marine transportation business. As a result, we expect our inland marine growth rate to moderate going into next year. In our offshore marine transportation market, our coastal fleet utilization remains in the 90%-95% range, and we have not seen a slowdown in customer volumes in this market.
The coastal market remains supply constrained, and we continue to get mid- to high single-digit price increases on crude on contracts that renew. We do expect our fourth quarter results in the coastwise business to reflect a seasonal decline in operating performance from the third quarter, which is related to the normal cessation of winter operations in Alaska. So despite the near-term uncertainty, the long-term fundamental drivers of growth in our marine markets remain intact, with the US having a globally advantaged feedstock position. This position is a result of very low prices for gas-based feedstocks relative to those priced on oil, and there remains a historically high price difference even at today's oil price levels.
We continue to expect an unprecedented level of new petrochemical plant construction to progress within the United States and add significant volumes to our marine markets, when the new plants come on, particularly starting in 2019. As I previously stated, we will update our 2015 guidance in late January when we finalize and report our fourth quarter results. With that, operator, we'd like to open the line for questions.
Thank you. We will now begin the question and answer session. We ask all callers to please limit their questions to one question and one follow-up question. To ask a question, please press star, then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touch-tone phone. Our first question comes from John Chappell from Evercore ISI. Please go ahead.
Thank you. Good morning, guys.
Good morning, John.
I want to ask one kind of short-term and one longer-term question, David. First, on the diesel engine services side, is there any way to kind of break down the impact on the top line versus the margin impact? There's been a pretty significant ramp in the margin over the last couple quarters, just from the way that we've backed into it. How much of this is just completely lost business, and how much of it is the higher margin business kind of falling away?
Yeah, I want to let Andy talk to that.
Yeah. Hey, John, I'll answer this the best I can at this point, and we'll give more color in the fourth quarter call. But the way that I would look at the shortfall coming out of Diesel Engine Services is twofold. One, there's external factors, which I would say are the supply chain, subcontractor delays, customer delays, and cancellations. All of those will affect the top line.
... certainly through our revenue recognition. And that's about half of the shortfall, and the other half would be what I would classify as internal factors, labor shortages that limit our throughput through the shop, labor inefficiencies, production inefficiencies, some of those due to customer scope changes. That's the other half of the shortfall, and that probably has more of an effect on margin rather than revenue. So it's a bit of a mixed bag, but I would say it's sort of about half and half external, internal.
Okay, that's helpful. Then just on the longer term, I wanted some clarification on the comment that you made in the press release related to the inland barge side, you know, about the benefits 2017 and beyond. You know, what Joe talked about, you know, how the low energy prices are good for you and, you know, the petrochemical ramp in the country. I know a lot of new plants are 2017 and beyond, but I'm just trying to think about the pricing dynamic, you know, in the two years in between them, basically 2015 and 2016. You said it's gonna slow a little bit next year. Are we talking low single digits?
And then, you know, how do you think about the remainder of bridging that gap between next year and the ramp and—
Yeah, sure.
- progress?
You know, John, we're still operating at a very high level. We're, you know, 90% plus utilization, and, you know, that's all good. And as barges come out, they're being absorbed, and supply and demand are roughly in balance. But what happens with pricing, when there's uncertainty, and particularly when you're at historical highs like we are now, nobody is willing to push prices when it's uncertain. You know, the customers are more cautious. They're trying to figure out what's going on. You know, we're as an industry, you know, not going to try and push things when there's this much uncertainty out there. No, everybody's kind of taking a wait to see. So you know, that's taken pricing momentum out of the market.
You know, we still have demand that's coming in this 2017 timeframe, which you know, depending on where supply goes, should be a net positive. You know, one good thing here with this uncertainty may slow down some of the building that's going on in the inland markets.
Mm-hmm. All right. That's helpful. Thanks, David. Thanks, Andy.
Thanks, John.
Our next question comes from Andrew Hall from Stephens. Please go ahead.
Thanks, guys. Just a couple quick questions from us. First, on the diesel engine side, what actions can y'all take to kind of reduce costs, given the, you know, decrease in demand?
Yeah. Well, we still have, you know, some backlog that we're working through, and we're gonna have to do that through next year. But as that progress, and as capital spending plans from our customers sort themselves out, we'll look at our labor, the temp side of our labor and figure out. We do employ temporary employees, and we'll look at that. And of course, you know, we'll monitor that throughout next year as it progress. Right now, it's, you know, it's a fluid situation, so we're being cautious. We still have to execute the backlog that we have. So we'll look hard at costs, you know, as things progress.
But right now, we just don't have enough clarity on what 2015 looks like.
Okay. Okay, makes sense. And then this one's kind of more longer-term thinking. You know, if oil remains at current levels, maybe up a little bit from where we're at, do you think that impacts your ability to place the third and fourth coastal barges under contract?
No. We have no concerns about that. We're in discussions with customers now. You know, as we've said in the past, the coastwise business is really supply constrained. You know, the demand's good, and I'll add to the demand here. In the coastwise business, roughly 50% of what we move is refined products, and refined products, as you know, are gasoline, diesel, and jet fuel. And as prices come down, demand, consumer demand, and Joe said this in his comments, consumer demand goes up. So there could actually be more demand on coastwise equipment due to the lower prices stimulating consumer demand.
So with that, and knowing that a good portion of the coastwise fleet is older and nearing retirement, and it takes so long to bring on new equipment, we're in a supply-constrained environment in the coastwise business. So, we have no concerns about placing our new equipment into service.
All right. Thanks for that.
Our next question comes from Kelly Dougherty from Macquarie. Please go ahead.
Thanks for taking the question, guys. You just actually mentioned something that I want to touch on, on the inland side. Can you help us think about the ability to adjust, adjust utilization to protect pricing? You know, I understand there's a good chunk of the fleet, both yours and the industry, that's pretty old, so I guess ripe for retirement. So one, I guess, how quickly can you retire those barges to protect utilization? Two, do you think others are going to do the same? And then would that be enough to prevent further pricing pressure and then keep pricing from turning negative if demand or uncertainty kind of lingers like we have it right now?
... Yeah. No, good, good question. Let me take that in a couple different pieces here. In terms of the barge fleet age, you know, clearly, if, if utilization declines, people will take that opportunity to, to retire older barges. You know, we, we've got one of the younger fleets out there. We've, in the last 5 to 7 years, we've taken our barge fleet age down from 22 years down to probably about 15, maybe even below. But there are some other participants that have some older equipment. So clearly, older equipment will come out. But I wanna, wanna come back to, to the inland demand. You, you know, past cycles have, have been driven by a demand disruption, and, and we really don't have that here. Now, we've just got uncertainty.
And, you know, and in fact, demand in 2017 and beyond may be up. So it's a little different than what you would say is a normal cycle, because normal down cycles usually begin with an economic recession interrupting demand.
So do you guys, you know, maybe pricing momentum has slowed, but you're not expecting pricing to turn negative? Is that what you're saying?
Yeah, I would-- That's our current view, yes.
So if contracts are kind of repricing in the 1%-3% range in the third quarter, you know, how do you expect that to trend going forward?
Yeah, I don't... you know, nobody's gonna push pricing right now. There's too much uncertainty. So it could be flat. Pricing could be flat going through next year.
Okay, thanks. And then just a quick question.
Yeah.
I'm hoping you can get us a little-
Let me, you know-
Sorry.
We will use an inflation argument, too, when we talk to our customers, but you're really not gonna push pricing, particularly with this uncertainty.
Okay, thanks. And then if we could just switch gears, the barges that you've got in crude service, you know, what percentage of them are under contracts and are customers looking to get out? And then if you could kind of, I know you have been more conservative with your crude allocation than the industry overall, so any color you can give us on how much the industry is moving crude, and then generally just, you know, if customers are trying to get out of those contracts.
Yeah, no. Look, crude volumes haven't fallen off, right? If you think about the shale plays, you know, they've, they've got them drilled, they're still producing, they're not shutting in, nobody's shutting in wells. And so volumes are still pretty good. It's the uncertainty that has been more of the impact. You know, people sitting on, sitting with, with barges full of liquid, just kind of in, in, floating storage, as we'd call it. We still see crude doing well. We're about 8% of our fleet, our inland fleet is in crude, and as Joe said, 15% of our coastwise fleet's in crude.
We're aligned with majors and in the low, pretty much the lowest cost shale plays, you know, coming out of Corpus Christi and out of the Utica, up on the upper river. So, we feel pretty good about where we're positioned, and we are not seeing anybody trying to cancel contracts or anything like that, as it relates to crude. Again, I just come back to it's the uncertainty, and everybody's kind of waiting for things to settle out.
Yeah, David, I might just comment that it's kind of going back in the history of the business, that the lower energy prices are good for this business. They stimulate the economy, they stimulate the things that we transport. You know, the concern about crude oil is that now a small portion of our fleet carries crude oil, and it hasn't carried it, you know, in the last 20-odd years. But as you look at, you know, crude oil forecasts, they're actually predicted to increase, not decrease. And that, you know, that has to be moved, and we're gonna participate in the movement of it.
The other thing that this uncertainty does, which I think long term is positive, is that it makes people think about significant infrastructure additions like pipelines, like, like additional barging equipment. We've already seen kind of new orders of barging equipment come to a screeching halt. It's a, you know, it's just a, you know, a signal that, hey, this is, this isn't gonna go on for, forever, and we can't invest these huge sums of money, making the assumption that, there isn't gonna be some volatility in this business.
But, you know, coming back to the point I made in my comments and I'm making now, is that it's not good for the oil service business, but for the barge business, it should be net positive.
Thanks, guys. I'll jump back in the queue.
Thank you, Kelly.
Our next question comes from Ken Hoexter from Merrill Lynch. Please go ahead.
Great. Good morning.
Good morning.
You noted kind of the decrease in orders on the diesel engine services side. Can you talk a little bit about what brings the orders back? If oil stays at this level, should we look at this business as being break even, kind of running into 2015? I know you wanted to step back and look at it, but is that how we should think about it at this point, if oil is this level, we shouldn't expect to see more business on the pumping side?
Yeah, Ken, it is really difficult for us to say. I mean, there is still a lot of equipment out there working, and when it's working, it tends to break down and either need to be replaced or remanufactured. It's just too soon for us to kind of forecast that. You know, we do have some backlog that we're working on in at United on the manufacturing side. We still have, you know, the service and distribution piece, which is okay. But you can imagine that might, depending on how severe this is with our customers, trend down a little bit going into 2015. But it's, you know, we're still looking for things to stabilize before we can really forecast 2015.
So but would there be—I guess, what I'm asking is, if oil stays at this level, would you still see new orders coming in, or is it kind of like you reach a certain level and all business is suspended at that point? Or is it, you're saying it's too early to even tell that?
Yeah. It's probably too early to tell that. But if oil kind of stays where it's at, you know, we'd still get some orders next year, and we would work through our backlog. Because equipment's probably, particularly in some of the very low-cost shale plays, they're gonna still be working on them, even at this price deck level. But the problem is it's still fluid and, you know, our customers are still redoing all their capital spending plans and looking at that. You know, our customers are talking to their customers, and we just don't know what the drilling programs will look like next year, yet.
Yeah, and I would say in 2012 and 2013, Ken, we were still building things.
Yeah.
We weren't building pumping units, but we were building equipment that was associated with the fracking.
Yeah, like blenders and the like, double pumpers and cementers, nitrogen units, and things like that. I mean, the equipment's still gonna run, and it will break down or and/or need replaced. So there will always be some demand. I mean, we even in 2012, when we had the big downturn, we worked through the year off of backlog and some of these one-off orders. Now, I would characterize it this, when we had a tremendous ramp-up here in 2014. It was just, you know, we went from a standing start, really, to run and you know, that doesn't look like it's in the forecast for next year, for sure, given the price.
Yeah, I know you're looking for you know is our manufacturing business gonna be flat next year or down? And we just don't know enough yet to say that. But I don't think given the current price that United will be up next year.
I guess I'm more concerned that the diesel business looks more like third quarter last year, right? As opposed to the kind of $14 million-$20 million run rate, you get a $1 million run rate on income.
Yeah. Yeah, I don't see that in the first half because we should have backlog to work through in the first half. The second half, it will depend on the market conditions and whether prices stabilize, and we begin to get orders again. And, you know, it—we'd know better if we knew for certain kind of where oil's going to settle in at.
Can you talk about the backlog then, maybe in scale or relationship to where it was at that point, just so we can understand how long maybe this some select level can last for into 2015?
Yeah. Hey, Ken, this is Andy. Our backlog is certainly, we think, gonna be well above where it was entering last year. And that's what gives David the confidence when he talks about visibility through the first half of the year. I mean, the market can change quickly, obviously, you know, as it did this year, quite honestly. I mean, we were expecting to do, you know, about a third of the business in our manufacturing shop in the fourth quarter of this year, relative to what we ended up, or what we think we'll end up doing, when we began the year.
So, again, with the oil price environment the way that it is, and with all of our customers sort of reevaluating their capital spend plans, it's hard to talk about the back half of the year. But certainly, we think the backlog going into the first half of the year in our manufacturing shop gives us some confidence that will be pretty stable.
So I guess I'm even surprised by maybe even the language on the edges here, that even some stability. Dave, you mentioned, you threw out there, will it be up? Will it be down? I would've thought, based on the way this call started, that you absolutely would've expected it to be down, just a question of how much.
Yeah. Yeah.
Is that-
Yeah, that's fair. I, I was just saying it wasn't gonna be up.
Okay.
How United looks next year, it just really depends on the, you know, what happens in the back half of the year. But, you know, clearly, if you were to take what we see right now, it will be down next year.
And I'm sorry, I don't think I got it, if there was a direct answer there, Adam. Is there, on the backlog, the size of it now versus, I guess, what you were talking about?
Yeah, yeah. No, no, we expect to be above. Again, the quarter's not over, but we expect that going into next year, we'll be above, certainly in our manufacturing shop backlog, above where we went into 2014.
Okay. Well, but you mentioned that the backlog can be easily canceled and delayed, deferred, negotiated, right?
We haven't talked about it. We can. You know, the market for new pressure pumping equipment is competitive like any other market, and one of the things you negotiate with your customers is price, delivery, and terms and conditions. Our terms and conditions are very similar to what our customers would see in the marketplace, and they do include a cancellation provision. Now, generally, our cancellation provision, actually, what it says is that we'll be reimbursed for any costs that we've incurred on the project, plus a markup. But I can tell you that cancellation is sort of our last preference. We'd prefer to work with our customers if they want to delay, if they want to defer. We would prefer to do that rather than have an outright cancellation. And that's what we're working through with our customers right now.
Okay. It's a great overview. Appreciate the time this morning.
Yep. Thanks, Ken.
Our next question comes from Kevin Sterling from BB&T Capital Markets. Please go ahead.
Thank you. Good morning, gentlemen.
Good morning, Kevin.
David, we talked a little bit about, I know you guys have limited your inland fleet to move crude, and wisely so. But some of that capacity that is currently trafficking, you know, in the crude markets, I think you said you haven't seen volumes slow, but are you starting to see some of that capacity maybe looking to exit the crude markets and come into the core petrochemical trade, maybe looking for a little bit steadier home?
No, we haven't seen that. No, we haven't seen it at all. In fact, you know, it, it's interesting, some of the, like the Utica play, where they've got condensate and crude coming out of Utica, they, there, you know, there's no real pipeline infrastructure up there, and, you know, those are really long barge moves. So we, we haven't seen, you know, a displacement of, of equipment at all. You know, the volumes are ... And, and in fact, some, some of the forecasts are volumes will grow in 2015, crude volumes, and, and maybe even 2016. I think that remains to be seen, but, you know, nobody's shutting in production. They're still producing, and, volumes actually are still pretty strong and, and may even go up this year.
So the short answer is no, we haven't seen any equipment come out of crude and try and reposition.
Okay.
You do see some rotation. You'll see crude oil that was moving from one formation move crude oil for another formation. And that-
Yeah
... that's been the case since really the industry started moving crude oil. There's always some of that going on.
Okay, I guess that makes sense. Given the drop in crude prices, you know, production might be coming out of, lower cost wells. Is that kind of what you're talking about, Joe?
Yeah. Yeah, yeah. There are some formations that are gonna be price disadvantaged. And, you know, that, there, there's always, it, it—or, or a pipeline comes on to service a particular area of a field. You're gonna see and hear about rotation all the time. But in terms of, you know, crude oil equipment coming into clean markets, we haven't seen that.
Okay, gotcha. And then, my last question here. Dave, you talked about, you know, pricing on the marine side, given the uncertainty and the challenges with pushing pricing. And I don't—I'm not looking for specifics next year, but can you maybe help us talk directionally about margins in your marine side, then? If pricing could be challenged, if some cost, we're starting to see some cost inflation creep in, could, is it reasonable to think margins in your marine business might be down slightly year-over-year?
Yeah, I-
in 2015?
You know, we're gonna work very hard to keep the margins from going down, but I think you could see a little of that. I mean, clearly, we're gonna push to cover our inflation with our customers. But look, we are seeing cost inflation, particularly on the labor side. So you know, there may be a little pressure on margins next year, and we'll work on our cost structure to try and maintain it. On the coastwise side, you won't see that. We're still, as I said, getting pretty healthy price increases there in the high single digits.
Right. Okay, thank you for doing the call this morning, and thanks for your time.
Thanks, Kevin.
Thanks, Kevin.
Our next question comes from Jamie Gilbert from Iberia Capital. Please go ahead.
Hey, guys. I just had a couple of questions about, maybe the mechanics of what these, what your customers are thinking. Because you are operating, 25% in spot, and spot is 3-6 months out. So can you kind of talk a little bit how, something short term as these current crude prices falling off has gotten in the heads of your customers and why they're delaying things?
... Yeah, well, let me make sure I understand your question. But, yeah, we are roughly 80% term and 20% spot, in our inland business. And what's happened with this uncertainty is, you know, you've got some traders, you've got even some major integrators that are sitting with barges in, you know, floating storage, so to speak, while they try and figure out, you know, where prices are going and where they can maximize kind of their profit or minimize the pain, as prices move around. You know, that's the uncertainty that's making it very difficult to push prices. In terms of spot, you know, those are the shorter term moves, as you point out.
We still see spot pricing above term contract pricing. So it's still okay there. I don't know if that answers your question, but that's kind of the environment we see right now.
Right. And so if they're delaying feedstock purchases, I mean, I guess it's really kind of upsetting the scheduling matrix. But, I mean, they can't delay forever because they need to run their plants.
Absolutely right. And that's... The delay is hurting our efficiency, right? Because, you know, we don't get the backhauls, particularly on our contract, contracts of affreightment. You know, if they're sitting there, they're just paying the demurrage, which, you know, is a lot less profitable for us than getting backhauls and always moving, you know, loading and unloading. So you're precisely correct. They can only do that for so long, but it just, it slows down the whole efficiency of the system, the uncertainty does.
Okay, thanks for taking my questions, guys.
Thank you, Jim.
Thank you.
Our next question comes from David Beard from Iberia Capital. Please go ahead.
Good morning, guys.
Morning.
Just as a follow-up, maybe help us understand, you know, the dynamics in the coastwise versus the inland, relative to some of these shorter term moves. Because, you know, customers had been moving, or maybe not your customers, but had been moving, around on the coastwise market, and why that really hasn't impacted the coastwise where it did on the inland side.
Yeah. Well, you, you know, on our coast-wise business, again, it's only about a little less than 15% of what we move is crude. And you know, I, I think, we just haven't seen much change in, in the crude movements on the coast-wise business at all. They're still moving around. You still have refineries on the East Coast using crude and, and on the West Coast using the crude that's, that's coming out. You know, that dynamic is, is, is there. It, you know, it can change with, with the movement of crude prices. But on the coast-wise business, again, the majority of what we move is refined products, and demand for that should, should be going up.
Okay. Thank you.
Thanks, David.
Our next question comes from John Mims from FBR. Please go ahead.
Thanks. Good morning, guys. Let me ask, and I know there's been a thousand questions on diesel and United, but let me just come at it from a slightly different angle and then leave it alone. So, you know, in 2013, when you had the big drop in revenues and margins in that business were negative, and my understanding is, you know, you can ratchet expenses down a lot quicker now, if you do see that same type of decline in 2015. So when you look at United itself, is there a better benchmark or something we should be thinking about in terms of what your break-even revenue point is for that?
I mean, can you make it for looking at the quarter, I think $83 million is what it was in the fourth quarter 2013. But is that still kind of where we should be thinking, or can you be at break-even at $50 million, or does it need to be a higher number?
Yeah, I don't think we've put pencil to paper on that, but, you know, clearly, 2013 was kind of the old break even. You know, I would hope that we do a little better than that, for sure. Yeah, 2013, third and fourth quarter was when we were break even. We were still working, as you know, we just couldn't absorb all our fixed costs. I would absolutely hope that our break even would be lower in terms of revenue. So in other words, we would, given that same kind of revenue run rate, we would be positive instead of negative this cycle. You know, we have some temp labor, which we could turn off a lot quicker than we did in the last cycle.
Okay. You know, that's helpful. And then I dialed in late. I had another call before this one was suddenly scheduled. But going to the inland marine business, you know, how much of the drop, because you know, the language has gone from kind of mid-90s% to low 90s%. How much of that is just seasonal swings of contracts being repriced right now versus people, you know, taking a more cautious view?
No, it's. Don't read anything into that. We're still kind of, you know, low 90s, between 90% and 95%, we're still there. It's, you know, maybe it's instead of 94, it's sometimes 93 or 92.5. You know, it kind of bounces around. So don't read much into that.
... Is there much left from an industry backlog standpoint? I know you said that, Joe said that, orders have come to a screeching halt, but what's the delivery outlook look like for 2015?
Yeah. No, we're tracking shipyards, and it sounds like there's about 180 on track for next year, and the bulk of those, you know, probably over 115 are 10,000 barrels, so there's some small or smaller in terms of barrel capacity. But we really haven't seen that grow in the last quarter.
Okay.
Yeah, yeah, just the tens are the older part of the fleet that need to be replaced, the 10,000 barrels. If you look across the industry, that's where the old equipment is.
Net growth should still be pretty de minimis?
Yeah.
Yeah.
I agree.
And then one last one for me. On that same line, in terms of pricing power, and I know you've had a long run in pricing, and it's stabilizing. It's pretty fine. But in terms of utilization, you can theoretically maintain prices where they are as long as utilization's in the 90s? Or, you know, at what point is it 85 or below 85, where pricing power really starts to go against you?
Yeah, it's a psychological thing, too. It's not just the gross utilization number. You know, we've said it, you know, it's 85%, and customers think it's gonna stay busy for a long time. And we'd have to be below 85 before I think you'd start seeing real price declines. But this uncertainty is certainly playing into the psychology, and nobody, including us, wants to really push pricing in a very uncertain market.
Right. And has the dislocation or uncertainty been enough that suddenly, you know, acquisition multiples are much more attractive?
You know, that would be the silver lining for us, for sure. You know, I think it's given a lot of people pause. As Joe mentioned, people are reconsidering their infrastructure investments, whether it's pipelines, but certainly in barges. We're not seeing the barge order book grow. And you know, hopefully, it'll open up some M&A opportunities. As you know, our balance sheet's probably in the best shape it's been in a long time. So we're, we'd be happy to do some M&A.
Right. Okay. Well, thanks so much for the time.
Thank you, John.
Our next question comes from Kelly Dougherty from Macquarie. Please go ahead.
Thanks. Just two quick follow-ups. I guess I'm trying to get a sense of what gives you confidence that what's remaining in the backlog actually stays in there. And then I guess, you know, if it's deferred, how long can they defer it? I mean, or is there perhaps a certain oil price where you think those deferrals would reverse?
Yeah, that's a great question, and unfortunately, we can't answer it. I mean, what we're doing with... We don't want the cancellations, right? We wanna work with our customers. They're going through a lot of change right now, and what we're trying to do is get them to defer it, and that may be even into the third and fourth quarter, rather than a cancellation. So, a lot depends on what they think their equipment utilization will be, going forward and how quickly they'll tear up their existing equipment. So, I mean, it's a good question, Kelly, you know, how secure is that backlog? You know, I think it's very difficult to say, but it feels okay. We're working with our customers. They're going through a lot, too.
We're pretty positive about the backlog, but as you know, that can change. I think it's okay, though.
So have you guys kind of sat down with the customers and, you know, did, okay, there's X dollars or X%? I don't know if you can give us any kind of quantification of maybe, you know, what the backlog looked like when oil was at $100 and, you know, what it looks like now. But, you know, you've gone through and said, "Okay, we're comfortable with this because these guys' equipment is older." Or is it just, you know, this is the absolute dollars in there, and we're kind of hoping that they come through at some point over the next few quarters?
Yeah, each customer is a little different, and we have been sitting with them. We're in that process now. You know, it's a lot depends on the individual customer's frac fleet and where they're working, what basins they're working in, what you know, what's their cost structure, where they have crews, and how easily they can move to the lower-cost frac areas. You know, our goal here is to maintain positive EBITDA through next year, and work to stretch out with our customers to stretch out these deliveries to help them and to keep our operation going well.
Okay, great. Then, thanks. Just one more quick one. You mentioned, I think, Joe, in your comments, that you didn't see any change near term in marine volumes with oil at current levels. Just wondering what might change that view?
What would change that view? I guess if we saw changes, it would change that view.
Right, but I'm saying, like, if oil goes lower or, you know?
Well, you know, the-
... all forecasts are actually having oil volumes increase, not decrease, you know, at least for the next year. I don't think you can be immune from, you know, further drops in oil as it comes to exploration companies investing in finding additional oil. I mean, if you look at the economics of kind of where we're moving oil from, the Utica and the Eagle Ford, the economics are still pretty good at crude oil prices today, you know, mid- to high $50s. And they're okay, even 50, and in some cases below 50. So you're gonna see crude oil move even at those prices.
Now, there are other formations like the Bakken that have much higher costs, and you may see and probably will see reductions in that area. But we really don't move any of that. We move the stuff that isn't serviced by pipelines, that is fairly easily serviced by barge. And I think that, you know, that's gonna continue to move. And as I said, you know, just lower energy generally benefits the U.S. economy. It puts a lot of money in consumers' pockets, and you'll see more driving, you'll hopefully see more spending, all of which, you know, favors the other things that we move.
So, I don't think there's anything that's negative at this point with respect to the inland business other than, you know, nobody wants to push prices. That's a little negative, but, you know, we should get inflationary increases. And then with stability, I think this will all sort out.
Great. Thanks very much.
Once again, for questions, press star one. Our next question comes from Kevin Sterling from BB&T Capital Markets. Please go ahead.
Thank you. Thank you. I think you've already answered my follow-up. I was gonna ask about M&A opportunities, but David, I believe you already addressed that, so, no, no need. Thank you very much, though.
All right. Thank you, Kevin.
Our next question comes from Bill Baldwin from Baldwin Anthony Securities. Please go ahead.
Yeah, thank you. Good morning. Could you update us or refresh us on what your current share repurchase authorizations are at Kirby, David?
Yeah, we have an authorization, I think, about 2.7, 2.6 million share authorization. You know, and clearly, you know, we'll look at share repurchases. You know, a lot depends on what other alternative uses of capital we have available, you know, get to get to the M&A market again, that we just talked about. But, you know, clearly, over the years, we have been opportunistic repurchasers of our share, and we do have an authorization. But we've got, you know, we're sorting out other uses of capital in this process as well.
Is there a term on that authorization or is it open-ended time-wise?
It's open-ended.
Thank you very much.
Thanks, Bill.
Our next question comes from John Engstrom from Stifel. Please go ahead.
Good morning, gentlemen. Thank you very much for your time. I had a question regarding production demand in the oil space. You commented that you anticipated 2015 production to continue to increase, while last week we had heard the IEA scale back their demand estimates for world consumption, which would lead us to believe that pricing could still move. Similarly, on our last call, I think the price was in the 80s, and you had given us a breakdown of what it meant for you in the 70s, in the 60s, and below the 60s. I'm wondering if you could talk to us about what it looks like now being around 56, what it looks like at 55, 50, 45, that kind of thing.
Yeah.
Thank you.
Yeah, let me talk a little bit about it. My view is the current shale plays that are already drilled, they're not gonna shut in production. They've already sunk, you know, their finding development costs are already sunk costs, so they've got it. They're gonna produce because the incremental cost to produce is very, very low, right? I mean, it's gotta be, you know. I don't know what it is, but you know, once you've drilled the well, you know, all your real capital costs are done, and the incremental cost to produce is very low. I mean, it could be down in the tens and twenties. I'm not, I don't have good data on that.
So our view is if they've got the wells drilled, they're gonna continue to frack them and continue to produce.
... I think the question for crude growth really is, you know, at what price deck does it still make sense to drill? We have seen, you know, in different basins, you know, that price deck goes down, you know, at the lowest in Eagle Ford, we've seen it in the 40, you know, below 40, it's still breakeven. And by breakeven, I mean, that's inclusive of finding and development costs, right? So Utica is down in the 30s, and some of the wet gas plays and the liquid rich plays. So, you know, do we start shutting in production? No. So I think whatever's been drilled now will continue to produce, and that may be part of what's driving volume growth this year. At what point do they stop drilling for new?
I think it's basin dependent, and I still think in some of these basins, some parts of the Eagle Ford and some parts of the Utica, it still makes sense, even at this price deck. Now, you go start getting down into the forties, you know, I think it gets a lot tougher.
Mm-hmm. Okay, thank you for that color. Just as one follow-up, you had mentioned that the Bakken had a significantly higher breakeven point relative to the Utica and Eagle Ford that you mentioned. I'm wondering if you're speculating that, with declining prices, there could potentially, over a longer term period, be a major shift in domestic production to favor sort of your operations?
Yeah, that's a good question. Yeah, yeah, Bakken, as you know, is not on a river. So that's a good question. It's landlocked up in North Dakota. Clearly, Utica, Utica is very close to the river, and, and as is the, well, the Permian's kind of a little different than the, than... it's a little further away from the water than the Eagle Ford. But, yeah, that's an interesting view. And it could be the case. Sorry for the non-answer there, but-
Yeah. No, I don't anticipate you to have a robust economic analysis of that. It just seems like if there were to stabilize in that level for a specified period of time, eventually those wells will come offline, and that supply will be replaced elsewhere, which could potentially be a tailwind. Thank you very much for your perspective.
Thank you, John.
We're showing no further questions. I will now turn the call back over to Sterling Adlakha for closing comments.
Thank you, operator. To everyone on the call, we appreciate your interest in Kirby Corporation and for participating in our call. If you have additional questions or comments, you can reach me directly at 713-435-1101. Thank you, and have a nice day.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.