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Bear of the Day: Kirby (KEX)

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Kirby Corporation (KEX - Free Report) is trying to get through this coronavirus year. This Zacks Rank #5 (Strong Sell) is expected to see sales decline 17% in 2020.

Kirby Corporation operates tank barges which transports bulk liquid products throughout the Mississippi River System, on the Gulf Intracoastal Waterway, along all three U.S. coasts and in Alaska and Hawaii.

They transport petrochemicals, black oil, refined petroleum products and agricultural products.

It also has a distribution and services segment with after-market service and parts for engines, transmissions, reduction gears and related equipment used in oilfield services, marine, power generation and other industrial applications.

Kirby Meets Estimates in the Second Quarter

On July 30, Kirby reported its second quarter results and met the Zacks Consensus of $0.42.

Revenue fell to $541.2 million from $771 million in the second quarter of 2019.

In marine transportation, its largest segment, the economic slowdown really hit their business.

Revenue was $381 million down from $404.3 million a year ago.

Demand for barge transportation fell as demand for liquid products and chemical plant utilization dropped to near 70%. Demand weakened as the quarter progressed and barge utilization fell into the mid-70% range in inland and the low 70% range in coastal by the end of the quarter.

Kirby cut costs to offset the weakness.

Distribution and services also got hit in the quarter as the oil industry shut rigs and reduced business.

Sales came in at $160.2 million versus $366.8 million a year ago.

As a result, Kirby's oil and gas business experienced minimal manufacturing orders, parts sales or service throughout the quarter. Additionally, one of its large oilfield clients went bankrupt and Kirby incurred a bad debt expense of $0.04 per share.

With oil and gas remaining weak heading into the third quarter, Kirby did furloughs and aggressive reductions in general and administrative expenses.

Earnings Estimates for 2020 and 2021 Cut

While Kirby didn't give guidance, it did say there has been a "slight increase in demand" across the company which it believed represented the initial recovery.

But since the future of the virus remains unclear, Kirby said it would aggressively manage costs.

It has ample liquidity with $537 million in cash and liquidity available as of June 30, 2020.

Kirby expects free cash flow in 2020 between $250 million and $350 million.

But the analysts are bearish.

4 estimates have been cut for 2020 in the last 2 months. That has pushed the Zacks Consensus down to $1.97 from $2.18 during that time.

That's a decline of 32% compared to $2.90 it made a year ago.

4 estimates were also cut for 2021 which has pushed the Zacks Consensus down to $2.42 from $2.79 in the last 60 days. But that would be a rebound of 23.1% in earnings.

Shares Still Down Big in 2020

Given its ties to the oil and gas industry, it's not surprising that investors are treating Kirby similar to those companies.

Shares are down 54.6% year-to-date.

Given the cuts in earnings, they're not super cheap with a forward P/E of 21.

But Kirby does believe the bottom in demand has been hit.

Is the worst behind them?

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