Kirby Corporation 2026 Q3 Earnings Call

Please go ahead. Good morning, and thank you for joining the Kirby Corporation 2026 third quarter earnings call.

With me today are David Grzebinski, Kirby's Chief Executive Officer, Christian O'Neil, Kirby's President and Chief Operating Officer, and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's call as well as the earnings release, which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the investor relations section under financials. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgments with respect to future events.

Forward-looking statements involve risks and uncertainties, and 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 latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David.

Thank you, Donnie, and good morning, everyone. Earlier today, we announced record third-quarter earnings per share of $2.09, up 27% year over year. Our results reflected strong continued momentum across both businesses and solid execution throughout the organization. In marine transportation, strong barge utilization and favorable pricing trends supported performance during the quarter. In Distribution & Services, results benefited from robust demand in power generation and strong growth on behind-the-meter power solutions. Overall, the company executed well during the quarter and delivered solid financial and operating results reflecting our continued focus on safety and operational excellence. In inland marine, market fundamentals remained constructive during the quarter. Strong refinery operating rates, healthy petrochemical activity, and limited new industry capacity supported barge utilization in the low 90% range.

Spot market rates improved sequentially in the low to mid-single-digit range, while term contract renewals increased in the low single-digit range compared with the prior year. Increased levels of Venezuelan crude imports resulted in heavier refinery feedstock slate and more byproduct moves. However, rising fuel costs remained a near-term headwind as higher costs were only partially mitigated by cost escalators and rate recovery mechanisms during the quarter. The inland business delivered margins in the 20% range, driven by a combination of steady demand, disciplined execution, and limited industry capacity additions. In coastal marine, customer demand remained stable with barge utilization in the high 90% range, and third quarter coastal revenues increased 3% year-over-year while operating margins were in the mid-teens range. There was only one contract renewal in the third quarter, which increased in the low double-digit range.

Turning to Distribution & Services, our performance reflected favorable market conditions for power generation and strong execution by our commercial and operations team. Segment revenues increased 6% year-over-year, driven by strong demand for behind-the-meter and backup power solutions in a healthy environment for commercial and industrial. For the quarter, operating margins were in the low double digits and up 200 basis points sequentially, reflecting the growing share of behind-the-meter power solutions in our power generation business as well as operational improvements throughout the segment. Overall, the segment delivered solid results across the portfolio, demonstrating the strength of the company's positions across multiple end markets. In summary, Kirby delivered a strong quarter underscoring the strength of our portfolio and the disciplined approach that we bring to our operations every day. In marine transportation, inland delivered strong revenue growth year-over-year, and coastal utilization remained high.

In Distribution & Services, power generation remained a key growth driver, commercial industrial activity performed well, and oil and gas remained stable. Taken together, these trends reinforce our confidence in the outlook for the remainder of the year, which I will discuss in more detail later in the call. First, I'll turn it over to Raj to walk through the segment results, balance sheet, and capital allocation.

Thank you, David, and good morning, everyone. In the third quarter of 2026, marine transportation segment revenues were $569 million and operating income was $112 million with an operating margin of 20%. Compared to the third quarter of 2025, total marine transportation revenues increased $84 million or 17%.

While operating income increased $23 million or 26%. The operating margin improvement came from strong utilization and improved pricing despite continuing inflationary pressures. Compared to the second quarter of 2026, total marine revenues increased 6%, while operating income increased 27%. Looking at the inland business in more detail, inland contributed 81% of marine transportation segment revenue, with average barge utilization in the low 90% range for the quarter. Long-term contracts, or those with a term of one year or longer, contributed approximately 65% of inland revenue, with 56% from time charters and 44% from contracts of affreightment. Improved market conditions resulted in average spot market rates increasing in the low to mid-single digit range sequentially and increasing in the mid-single digit range year-over-year. Term contracts that renewed during the third quarter increased in the low single-digit range year-over-year.

Compared to the third quarter of 2025, inland revenues increased 21%, while operating margins were in the 20% range. Moving to the coastal business. Coastal represented 19% of revenues for the marine transportation segment, with average barge utilization in the high 90% range, in line with the second quarter of 2026 and the third quarter of 2025. For the quarter, the percentage of coastal revenue under term contracts was approximately 95%, of which approximately 100% were time charters. Coastal had one term contract renewal during the third quarter, which increased in the low double-digit range year-over-year. Coastal revenues increased 3% year-over-year, with operating margins in the mid-teens range, driven by fewer shipyard days compared to the second quarter of 2026.

With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes during the quarter, as well as projections for the full year. This is included in our earnings call presentation posted on our website. At the end of the third quarter, the inland fleet had 1,148 barges, representing 25.7 million barrels of capacity, and is expected to be flat in the fourth quarter of 2026. Coastal marine is expected to remain unchanged from the third quarter of 2026. Now, I will review the performance of the Distribution & Services segment. Revenue for the third quarter of 2026 was $408 million, with operating income of $48 million and operating margin of 12%. Compared to the third quarter of 2025, the KDS segment revenues increased by $22 million or 6%, with operating income increasing by $6 million or 13%.

This growth was driven primarily by continued strength in the power generation business, especially in our behind-the-meter applications and higher marine repair activity. Compared to the second quarter of 2026, revenue increased by $23 million or 6%, and operating income increased by $10 million or 27%, reflecting improved activity levels, favorable mix, and stronger performance across several end markets. Moving through the segment in more detail. In power generation, we continue to see strong demand for behind-the-meter and backup power solutions. Our backlog increasingly reflects a greater share of behind-the-meter power solutions, which will be a tailwind for margins going forward. However, OEM engine availability remains constrained and limits the rate at which we can convert backlog into revenue. Overall, power generation revenues increased 8% year-over-year, with operating margins in the low double-digit range. Power generation represented approximately 46% of total segment revenues.

In commercial and industrial, strong marine repair activity contributed to an 8% year-over-year increase in revenues and a 23% increase in operating income. The business represented approximately 44% of segment revenues and generated operating margins in the low double-digit range. In oil and gas, activity remained stable during the quarter. Revenues were flat sequentially, and operating income increased by 54% sequentially, driven by higher margin parts and service activity and ongoing cost management efforts. Oil and gas represented approximately 10% of segment revenues and generated operating margins in the low double-digit range. Now I'll move on to the balance sheet. As of quarter end, we had $38 million of cash and total debt of $1.07 billion, with a debt-to-capitalization ratio of 23.7%. We ended the third quarter with $530 million of available liquidity.