Kirby Corporation (KEX, Financial) is the largest barge operator in the country (second largest worldwide) and operates in two segments: Marine Transportation and Diesel Engine Services. Marine Transportation (70% of sales) carries bulk products through barges and towing vessels, while the Diesel Engine segment offers a suite of mechanic and repair services to energy and agricultural businesses. Collectively, this produces $281 million in profit on $2.5 billion in sales.
Kirby secured a leading market position based on its fleet size in both the inland and coastwise waterway systems and enjoys a durable competitive advantage based on scale, efficiency and flexibility of its fleet size.
While most tanker companies' financial statements show a very sporadic business, Kirby Corp. has a history of steady upward growth.
In 2005
- $796 million in sales
- $69 million in net profit
- $9.53 book value per share
In 2010
- $1.11 billion in sales
- $116 million in net profit
- $21.59 book value per share
TTM
- $2.56 billion in sales
- $281 million in profit
- $39.78 book value
In fact, over the last decade, Kirby has never posted a net profit loss for a full year and kept its gross margins and return on equity well above industry norms. Yet, since the end of 2014, the stock price has decreased from the $120s to around $75 a share.
Low oil prices are taking a bite out of Kirby’s inland business with customers being frugal about their crude and condensate movements. Kirby has reported delays and cancellations from energy customers reducing their CapEx. However, when the price of oil is low, it’s time to buy stocks like this one.
Short term, I think you could see 10 points from the stock based on the recent increase in the Baltic Dry Index, a possible rebound in the price of oil and gas, and new tanker delivers coming online.
Longer term (five years), the stock could easily see a double. Despite having a very high capital expenditure rate, Kirby is able to still keep moving its book value higher because it employs very little debt based on its net income – about 3x – and it DOES NOT have a dividend to support. In my opinion, this actually works in its favor, allowing all the profit coming in to be used to build shareholder value and profitability.
The other two largest tanker companies, Teekay (TK, Financial) and Golar LNG (GLNG, Financial), must use up to 5 times the debt that Kirby does just to generate a net loss in recent years and a sporadic, even declining revenue base over the last decade. To me, this is a strong indication of KEX’s economic moat.
In recent years, Kirby has grown through acquisitions, buying United Holdings in 2011 to expand its diesel engine operations into land-based oilfield services, and coastal tank barge operator K-Sea (also in 2011), allowing KEX to expand its total territory.
In the last 10 years, growth of sales (222%), net profit (308%) and book value (313%) have all been astounding. If KEX can continue its financial trend, the stock will easily produce 15% a year for shareholders. However, even at 50% of the historic rate of growth, stocks worth $188 a share, 155% move from its current trading price.
The trouble with being a long-term investor is that you have to buy and hold, not blindly, but with a proper understanding that markets fluctuate and that at some point in the life of your holding, chances are good that it will be cut in half. Even Berkshire Hathaway (BRK.A)(BRK.B) suffers years where its price drops 50%.
For more information:
Kirby Corporation
55 Waugh Drive
Suite 1000
Houston, TX 77007
Phone: 713-435-1000
Fax: 713-435-1464
www.kirbycorp.com
