Kirby Corporation (KEX) Q1 2013 Earnings Report, Transcript and Summary

Welcome to the Kirby Corporation 2013 First Quarter Conference Call. My name is Leslie, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I’ll now turn the call over to Steve Holcomb. Mr. Holcomb, you may begin.

Good morning. Thank you for joining us. With me today are Joe Pyne, Kirby’s Chairman, President and Chief Executive Officer; David Grzebinski, Kirby’s Executive Vice President and Chief Financial Officer; and Greg Binion, Kirby’s President Marine Transportation Group. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to most directly comparable GAAP financial measures is available on our website at 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 risk 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 Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission. I will now turn the call over to Joe.

Thank you, Steve. Late yesterday afternoon, we announced first quarter earnings of a $1 per share excluding a $0.05 per share credit, which decreased the fair value of the earn out liability associated with our United acquisition. Our results exceeded our guidance range for the first quarter. The range was $0.82 to $0.92 per share. In the 2013 first quarter, our inland tank barge fleet continues to maintain high utilization rates with consistent and healthy levels of demand across all our markets a Greg Binion will have more to say about our Inland operations later in the call. In our coastal tank barge fleet improvements and demand continued again in all markets during the quarter. The first quarter also is a historically a little slower due to some seasonality in that business. So overall it was a good quarter. Driving this improvement was demand for coastal transportation of crude oil and natural gas condensate and some new coastal movements that came out of Inland customers that we serve as. And also a strong utilization rates share of the Allied and Penn fleets, which were both acquired late last year. The quarter was also held by a strong heating oil demand associated with cold weather up in the North East. In our land-based diesel engine service business the market for manufacturing of new pressure pumping units continues to be somewhat challenging a partially offsetting this decline is in making pressure pumping units is a progress, it were making and remanufacturing these units. We remain confident in the long-term strategy of growing the service side of our land-based business, and I think as we do that the business will be more stable and predictable. We’re also making good progress in making this process more efficient and making the supply chain to work better. Also want to remind you that United is only about 5% of the 2013 forecasted EBITDA for Kirby. With respect to our legacy diesel engine business, the marine business, while market conditions were generally stable across most of the markets they service. The low water conditions on the Mississippi river last year did lead some customers to differ several major projects that we expected to do in the first quarter to later in 2013. The Gulf Oil service market has stabilized, it is moving to more normal levels after sharp declines caused by Makanda. And the power generation market in that business in stable with continued good sales and engine generator upgrade projects. Before turning the call over, I want to comment on an incident that Bob some Kirby equipment last night, which gotten some immediate attention. It about 8.30 PM, yesterday evening two empty unmanned tank barges owned by Kirby and the Marine, which were carrying last cargo natural gasoline were being cleaned by a mobile shipyard and caught fire and exploded, these barges were empty when this happened. The barges had been turned over to the shipyard and marine in the shipyards custody, when this incident occurred. Three individuals were injured and we understand they’re hospitalized with burns. No Kirby employees were injured. U.S. Coast Guard the Mobile, Fire Department and Kirby Strike Team responded with its personnel and resources, and Kirby is fully engaged in working with the coast guard in determining the cause of this incident. Of course our thoughts and prayers today are with the injured and their families, which were affected by this incident. I’m going to turn the call now over to Greg Binion who will discuss our Inland Tank Barge market, and then David who will discuss the coastal tank barge business, and then give you a financial update. Following their remarks, I’ll conclude with some closing comments about the second quarter. The year guidance and outlook, and talk a little about my succession plans mine, and the board’s succession plans with respect to my duties as Kirby’s Chief Executive Officer.

Well, thank you, Joe, and good morning to all. For the first quarter, our Inland Marine Transportation business continue to perform well with equipment utilization in the 90% to 95% range and also with continued favorable term and spot contract pricing. The low water conditions on the Mississippi River system that began in May of 2012 and persisted for the balance of 2012 and also into the early part of 2013 abated and we generally experienced normal water levels through the end of the first quarter. However, recently with snowmelt and more recent rains, we are currently experiencing some high water conditions on the upper Mississippi and Illinois rivers. Inland Marine Transportation revenues from our long-term contracts that is one year in duration or longer were 75% of the total revenue with time charters comprising 57% of revenue. Turning to the Inland Marine Transportation pricing, term contracts during the first quarter continued to renew at mid single-digit levels when compared with the 2012 first quarter. And spot pricing, which includes the price of fuel were stable to slightly higher when compared with the 2012 fourth quarter spot price spot market rates. With respect to Inland Marine tank barge capacity, during the 2013 first quarter, we took delivery of 19 new tank barges totaling 533,000 barrels of capacity. We retired 15 tank barges and transferred one tank barge to the coastal fleet are removing 253,000 barrels of capacity. So net-net during the 2013 first quarter, we added three tank barges to our fleet, but increased our inland capacity by 280,000 barrels as the barges that were added were generally larger capacity barges than the ones that were removed. As of March 31, we operate 844 inland tank barges with a capacity of 16.9 million barrels. For the remaining nine months of 2013, our inland transportation and construction program will consist of 36 inland tank barges with a total capacity of 658,000 barrels and three towboats. For 2013, the cost of new inland tank barges and towboats delivered throughout the year will be approximately $115 million. At the present time, we expect to finish 2013 with approximately 17.2 million barrels of capacity or about 500,000 barrels above the 16.7 million barrels where we began the year 2013. I will now turn the call over to David.

Thank you, Greg. Kirby Offshore Marines overall equipment utilization rate improved to the 90% range during the first quarter. As Joe mentioned, all of the coastal markets continued to improve driven in part by increased demand for crude and condensate moves and the cooler weather in the North East. Improvements in the coastal business are very encouraging. Although, we continue to watch the markets closely and look for opportunities to enhance our results in each region. We also continue to make progress in expanding our coastal business to our inland customers as Joe mentioned. I do want to make a quick comment about the second quarter. It will be impacted by a heavier shipyard schedule for coastal equipment. This is just the timing of plan maintenance for our coastal fleet and the reason for mentioning it is really to highlight a difference between our inland and coastal business. With 82 barges in the coastal business versus 844 in the inland business, shipyards can cause some lumpiness between quarters. But this is in our second quarter guidance and we just wanted to highlight it. As of March 31, 2013 approximately 70% of our coastal operations revenues were under term contracts and this compares with 60% in the first quarter of 2012. The balance 30% are in spot contracts that is contracts less than a year long. The improvement represented the addition of Allied and Penn fleets to our fleet, as well as new contract signed in the fourth quarter of 2012 and in the first quarter of 2013. With respect to Coastal Marine Transportation pricing, term contracts that renewed during the first quarter increased in the high single-digit range and in some cases, higher than that, when compared to the year ago period in 2012. Spot contract rates during the first quarter increased mid to high single-digits when compared sequentially with the fourth quarter. The integration of Penn into the Kirby Offshore Marine is progressing as planned. Penn’s accounting has been successfully transitioned to Kirby Offshore Marine and the transition of administrative functions, sales, dispatching, maintenance and operations as well underway and should be completed by the end of the second quarter. Moving to the financial data, as Joe noted, our 2013 first quarter earnings per share of $1 per share includes a $0.05 credit decreasing the fair value of the contingent earn out liability, associated with the United acquisition. As of March 31, the contingent earn out liability stands at $14 million. Marine Transportation revenues grew at 25% for the quarter, operating income grew 30%. The Inland sector contributed approximately 68% of the first quarter Marine Transportation’s segments revenue, with the coastal sector contributing about 32% of the revenue. Despite the winter weather conditions, our Inland operations maintained an operating margin near the mid 20% range for the quarter. The coastal business operating margins also despite the winter weather conditions improved significantly to the mid double-digit range when compared to low single-digits in the first quarter of 2012. The overall Marine Transportation segment’s first quarter operating margin was 21.3% which compares with 20.4% for the first quarter of 2012. Our Diesel Engine Services revenue for 2013 first quarter was 39% below the year ago quarter. Diesel Engine Services operating income was 40% lower than the 2012 first quarter and the segment’s operating margin was 10% compared with 10.2% from the year ago quarter. Without the adjustments to the earn-out the first quarter operating margin for Diesel Engine Services segment would have been approximately 7%. The decline in revenue and operating income and operating margin was primarily due to the lower results at United. United contributed approximately 65% of the Diesel Engine Services segment revenue and excluding the earn-out, earned a low-to-mid single-digit operating margin in the first quarter. The Legacy diesel engine operations contributed approximately 35% of diesel engine services revenue during the quarter and their operating margin was in the low-to-mid double-digit range. Total debt as of March 31 of the corporation was $1.1 billion and our debt to total cap ratio was 38.4%, in late February we drew the remaining $225 million from our new $500 million private placement Senior Notes Program and we use that to retire the older $200 million private placement that matured on February the 28 of 2013. As of March 31, we had a $148 million outstanding on a revolving credit agreement. This morning our revolvers outstanding balance was a $106 million as we continue to de-lever with our free cash flow. With that I’ll turn the call back to Joe.

Okay. Thank you, David. Yesterday afternoon we announced our 2013 second quarter guidance of a $1 to a $1.10 per share. This compares with $0.85 per share earned in the 2012 second quarter. For the year, we raised our guidance range to $4.10 to $4.30 per share and again this compares to $3.73 per share earned last year. This annual guidance range includes the $0.05 per share adjustment that we made in the first quarter to the United earn out. Our second quarter guidance $1 to a $1.10 per share assumes a modest improvement over the 2012 pricing in our inland tank barge business the markets what we service in this business were currently operating close to full utilization levels for the fleet. It assumes the continued improvement in coastal utilization and corresponding higher term and spot contract pricing. As David noted earlier, the 2013 second quarter has a heavy coastal equipment plan maintenance schedule that will impact the results, but this is reflected in our guidance. We feel that we’re bumping along the bottom in the land-based oil service market with United, still believe that this business is going to improve late this year early 2014. Our guidance assumes the heritage Diesel Engine Service business will remain consistent with the last nine months of 2012. With respect to our balance sheet, its strong, our cash flow continues to be excellent 2013 as a year of lighter capital investment. We’re predicting capital expenditures in the $190 million to $200 million range compared to $313 million incurred in 2012. For 2013, we will continue to pay down our debt and remain positioned to take advantage of any acquisition opportunities if they come along during the course of the year. I want to take a few minutes and discuss the organizational changes that we intend to make at Kirby. The Kirby Board of Directors believes will strengthen Kirby’s organization and prepare us for the future. Succession is a responsibility, which the Kirby Boards takes very seriously. We like to say that we make decisions at Kirby as if we are running the company into perpetuity. This includes preparing our management team for the future; our business success is dependent on a confident and motivated management team employee base. Yesterday afternoon, I announced my attention to step down early next year as Kirby’s Chief Executive Officer, but remain as an active engaged Chairman and tend to work with David Grzebinski as the next Chief Executive Officer for Kirby and I expect that he will be named to this role in early 2014. I have been with Kirby for 35 years. I’ve run Kirby’s Marine Transportation business since 1984 and have had the honor of being Kirby’s CEO since 1995. I do not want to retire, but I like to be less engaged in the day-to-day running of the business and focus my efforts more in strategic matters and helping developing future talent which will continue to position this company well for the future. David Grzebinski will make a great CEO. He has the wisdom and skill sets, which will ensure his success and I am confident that Kirby will continue to thrive under his leadership. In the past two years, we have significantly expanded our Marine Transportation business and are now the largest inland and coastal tank barge operator in the United States. We have a diverse geographic footprint, the most diverse in the business serving inland and coastal customers from Chicago to Houston and Maine to Hawaii. Because of this business expansion, I have asked Greg Binion, Kirby’s current Chief Operating Officer to serve in a new role, which focuses on Marine Transportation as President of our Marine Transportation Group, which will include all our marine operations. I look forward to working with Greg in his new role. Our Company is in great shape for the future. We are in markets which are growing, we have reinvested in our assets and have a very strong management team. I look forward to remaining with the team but in a more strategic capacity beginning early next year. Operator, this concludes our prepared remarks, we are now ready to take questions.

Thank you. We’ll now begin the question-and-answer session. (Operator Instructions) Your first question comes from Jon Chappell with Evercore Partners. Please go ahead. Jonathan Chappell – Evercore Partners Inc.: Thank you. Good morning, guys.

Good morning

Good morning, Jon. Jonathan Chappell – Evercore Partners Inc.: Joe, first question for you regarding the coastal business and one of the first comments you made was pretty interesting given the Penn and the Inland acquisitions and just your general entrance into this, brief us about the potential energies you can get from your inland customers. So you had mentioned that you’ve seen some new coastal movements from some of your inland customers and may be you can just talk about where you kind of sit in the process of this right now? Is it kind of first innings of these cross business synergies and how the – did the customers to you or you’ve been marketing for this business practically?

Jon, it’s a little above but of course we’re marketing both the coastal and the inland fleets together to our customers. First inning, I would say we’re farther along than that because certainly the market understands what our capability is. We are – when we first entered this business, we had a fairly high concentration of traders as customers and it was our objective to move from working essentially for traders to a mix of traders and major oil companies and shipping companies. And I would say that we’ve been quite successful in doing that. You’re never going to completely eliminate the traders because they have some significant volume. But their volumes often are a little more volatile than the shippers who actually control the cargos. Yeah, we have ways to go, but I think that we’re engaged in conversations with all the people that we need to be engaged with. I think over time you will have many of the inland customers (inaudible) Kirby coastal equipment. Jonathan Chappell – Evercore Partners Inc.:

Yeah. As you know it’s hard to predict acquisitions and you never know why any one company might be ready to sell versus another. But clearly, since the markets moving, the likelihood of getting an acquisition done at a reasonable price goes down. But clearly there could be other drivers and having some body sell. That’s it, I would say that more opportunity exists in potentially building some new equipment for the space, I think there is over 50 in the 200,000 barrels and less kind of classes, over 50 barges that are 25 years or older. And there is some increased demand here. So, I think there has been recent news about new crude by rail to new water terminals on the West Coast. So, there could be, probably characterize it as there are probably more opportunities for some new build equipment just because of the increased volumes and the aging fleet than through acquisition. Jonathan Chappell – Evercore Partners Inc.: Okay. That’s very helpful, thanks guys.

Thanks, John.

Our next question comes from Michael Webber with Wells Fargo. Please go ahead. Michael Webber – Wells Fargo: Hey, good morning guys. How are you?

Good morning. Michael Webber – Wells Fargo: My first question is around the coastal fleet and then utilization improvement we saw there. Can you maybe kind of pinpoint the kind of commodities that really kind of got that over the hump, kind of quarter-over-quarter to the 90% level and then with that elevated maintenance schedule looking in Q2, Q3, I know that’s not going to really be reflected in numbers. But is there some sort of bleep that we could expect in terms of utilization in that business for Q2?

Yeah. Let me, take that in two different pieces. Once one and in terms of commodity risk, given the fleet make up, the former Casey Fleet or the Legacy Coastal Fleet if you will is predominantly refined products and then when we added tendon ally, the allies, we added more chemical capability and within, we added more black oil capability. So, in terms of rough capacity, in terms of commodities, the fleet is about 50% refined products, probably 30% black oil, the remainder is we use chemicals and other things. So that kind of gives you a feel for the commodities. But all of those commodity areas that are, volumes are picking up a little bit throughout the United States, but in particular, the crude and condensate moves has tightened up the market a bit. In terms of the second core maintenance, we only wanted to highlight that just because you may see some lumpiness between quarters depending on where shipyards land. This is just – shipyards are driven by regulatory inspections. And we’ve got different fleets that we’ve added in and it just happens that it hits fairly heavy second quarter. What really that impacts is some revenue that you can’t get to because you have those units out in the shipyard. It’s all in our numbers. We just wanted to highlight it because typically our second and third quarters are going to be stronger because the weather is better. Michael Webber – Wells Fargo: Okay, all right, that makes sense. And then, I guess as my follow-up along that coastal business area. I guess 70% of that business is already on long-term contract is basically I think flat quarter-over-quarter and it certainly seems like productivity picked up. They’re driving the utilization increases. My question is what you just see from a rate perspective or just from a marketing perspective that will let you go and fix additional chunks of that business kind of get to that 80% to 85% long-term run rate that you guys are really looking for.

Well, you’ll see us working on that. You’ve seen it increased through 2012 and you’ll see that the amount of term increased through 2013 as well. It’s just the way the business goes and as we look to the long-term major customers and work to meet their needs. You will see that the amount of term go up going forward. I don’t know if – hopefully that answers your question. Michael Webber – Wells Fargo: Now, is there any sense of timing, I mean, I know it’s pretty difficult to gauge but in terms of pace?

Yeah, it’s hard. I wouldn’t want to predict it, because I am sure I would be wrong whatever I said, but its dependent on where we are with customers, the spot business too is in – it’s not day-for-day kind of spot businesses. We can consider a six-month contract, a spot contract, so, you are working with the customers to meet your immediate needs as you kind of imagine – as Joe mentioned, we are transitioning some of our long-term inland customers in there, so, we are being very thoughtful and working very carefully with these customers. The last thing I want to do is abandon a customer at the wrong moment. Michael Webber – Wells Fargo: Okay, great. Thanks for the time guys.

Our next question from Greg Lewis of Credit Suisse, please go ahead. Gregory Lewis – Credit Suisse Group: Hey, thanks guys. Good morning. Hey, congratulations on all your new positions. I just had a couple of questions. David, you mentioned in the coastal fleet, the potential for new equipment entering the space, from what I gather at least one of your private – another private barge, coastal barge operator has either placed this in the process of placing some new coastal equipment. I mean, is Kirby – is this something that we can actually see out of tax over the next sort of couple quarters, and then, what sort of structure would that look like. If you were to go down a new construction path, I mean, has there been conversations about maybe attaching any sort of new coastal barge to a long-term contract. Is there any sort of appetite for that?

Yeah. No, we are in conversations with several customers about potentially building new equipment. There has been as you mentioned one person that has announced that he is building some larger equipment much larger in the size that we participate in. And I’m not sure what he did in terms of contracts. He may have just done it on speculation we are not sure. Our view would to try to be get a longer-term contract to secure new construction and we be thoughtful about it. Again, we are in conversations with customers and it wouldn’t be prudent to say too much about it. But I would anticipate that it’s likely that the industry will need to build some capacity here in the near-term. Gregory Lewis – Credit Suisse Group: Okay, great. And then just shifting gears over to United, it sounds like I guess margins in the first quarter were in that sort of low single-digit range. As we think about that going forward, I guess firstly, was that flat versus Q4 of last year or was that flat down, up and as we think about as the year progresses, could we sort of see margins maybe pickup a little bit through the end of the year.

With respect to the first part of your question, the margins in the first quarter were slightly better than they were in the fourth quarter. We are really not forecasting much improvement in United. Having said that, there is certainly more positive news in that space than there was even to the fourth quarter looks like equipments don’t exactly work, inventories are being absorbed. We are getting more inquiries. But having said that we are still very focused on making that more of a service model than a manufacturing model, and we think we’re making good progress in that area, and we think the demands there. So, our focus is going to be fiction and overhauling these things, less in manufacturing. We’re not going to step out of the manufacturing altogether, but the emphasis is just going to be more in the service area. Greg Lewis – Credit Suisse: Okay, guys, perfect. Thank you very much for the time.

Thanks, Greg.

Our next question comes from Ken Hoexter with Bank of America, please go ahead. Ken Hoexter – Bank of America: Hey, great. Good morning. Dave and Greg, congratulations. And Joe is working with you for the past dozen years; I look forward to see your new role as well. When you passed 90% utilization on the inland barging side, maybe eight to 10 years ago, you saw pricing scale significantly for a few years, is that what you would expect to occur in the coastal business? And I guess maybe you could just talk about the opportunities there.

Yeah, let me start with that question. What you are seeing with respect to pricing is the objective of pricing to new construction pricing. Eight, 10 years ago, we had pricing at levels frankly that were significantly below what was required to build new equipment and you saw a more rapid escalation is pricing hard up to those levels. Maybe a way to look at this can is to I’m going to get David to speak to this use to look at it from the perspective of the cost per barrel of our fleet compared to kind of a cost per barrel range that you’ve would need to replace that fleet. And you’ll pay and get a sense for what pricing is going to need to do to really justify a lot of new investment in the offshore fleet.

Now I can. If you look back at the – if you will the dollar cost per barrel of capacity required for the Case C that the Penn and the Allied fleets and even the seaboat fleet. We spent approximately a $150 to a $175 per barrel acquired. New build construction say if you were to build a 150,000 barrel unit or a 185,000 barrel unit for example, it would be north of $400 a barrel in terms of construction cost. So that gives you a feel for how much the rates would have to increase and the rates have been increasing. So, it’s the – but there is still ways to go to really justify new build construction.

Yes, and that’s with the power of the…

Yes, now that’s an excellent point. Joe’s point is that on a kind of a unit total basis that’s the barge and that’s all together, because on offshore they’re payer together. Ken Hoexter – Bank of America: Right.

So it includes the cost of the tugboat, which is very significant cost for an offshore unit, given the high horse power requirement. I understood, and so but to my point, that means you have, what would be, just like you saw multi-years of strong pricing on the inland, we could see that similar currents in offshore business just to catch up that before you’d have the period of that, that expected building?

Yeah, you’ll get some preemption, of course, could you have, if you had some operators that are willing to take it, take a bet on what’s going to happen. And certainly, the conversation is that we’re having with customers with respect to adding new capacity has increased, so that’s all encouraging, but current rate levels do not justify building, building a lot of new equipment, rates you’re going to have to continue to rise. Is there some linear comparison to inland fleet, certainly conceptually that, that’s probably right, what actually happens, how quickly it occurs is yet to be known. Wonderful, if I can get my follow-up on United, the margin rebound you talked about, obviously I understand what you’re talking about in terms of not focusing on manufacturing rebound. Is there something you can do on the cost side of United to continue to scale, I mean obviously you scale that sequentially, but is there something that you can do on the cost side without business coming back that can get those margins on United claiming even faster.

Well you could, but should be giving up some of your upside. However, the premise that we’re operating under is that we’re going to build a world-class service model. We’re going to work on processes. We’re going to work on training. We’re going to work on the supply chain and that those margins will build as we drive more volume through the facility and that we hope think that that’s a long-term issue. We think that you’re going to see an improvement, if not late this year or early next year. You can always short-term, make something look better by just cutting cost, but long-term you have to balance that with what your strategy is for the business. Ken Hoexter – Bank of America: Wonderful, thanks for your time.

Thanks Ken.

Our next question comes from Jack Atkins at Stephens. Please go ahead. Jack Atkins – Stephens Inc.: Good morning guys and thanks for taking my questions. So I guess to start off here, if we can maybe talk about any sort of inflationary cost that you maybe seeing on the Marine Transportation side of the business. And I guess the rationale for the question is I was a little bit surprised, we didn’t see some more strength on the incremental margin side, just giving the accelerating pricing at coastal. And just sort of wondering, maybe you have some wage inflation or healthcare cost that are having an impact there.

Yeah, Jack, you also have to weigh in that the offshore business although higher margins represent a greater percentage, so, that’s going to affect the overall margins in the business. Can you understand what I am saying? Jack Atkins – Stephens Inc.: Sure, sure.

As coastal margins rise, the overall margins will improve. I wouldn't read anything kind of the small increase in margins it's also in the first quarter which is weather affected. Jack Atkins – Stephens Inc.: Sure.

Jack, if you look at our first quarter margins before the coast line you will note that the first quarter is always the lowest operating income margin, so some of that is what you're seeing here too. Jack Atkins – Stephens Inc.: Okay. Absolutely. That makes a lot of sense. And then I guess just to follow-up on the last question about this northern side just sort of curious if you can give an update on the progress being made on sort of the productivity improvements. I know that you kind of touched on improving margins sequentially there, but just I know that improving productivity on the land base side of the diesel engine services business has been a focus and just wondering if you guys have any updated metrics you do want to share with us.

I don't want to quantify the improvement. I guess I'll qualify it. We are very pleased with the time that now takes to move a frac unit that's being manufactured from the time we received it to the time it's ready to standout for the customer. If some of our most recent statistics are really excellent, but I want to use the test time to make sure that we are comfortable with those numbers, but we have recently approached in terms of the time attached to remanufacture unit are our ultimate objective. So we think that and that’s a lot of things go into that, it’s improving your supply chain. It’s improving training, it’s working with your customer to get into respond to, what he really wants to done with the unit, just a lot of thing and we feel very good about the direction, but just bear with us before we start throwing metrics out, we want to make sure that they are correct before we put them out. Jack Atkins – Stephens Inc.: That’s fully understandable, thanks Jim for the time and congratulations on a great quarter.

Thanks Jack.

The next question comes from John Barnes with RBC Capital Markets. Please go ahead. John Barnes your line is now open to ask question. John L. Barnes – RBC Capital Markets LLC: Sorry about that guys have a technology issue, hey nice quarter just a couple of quick questions; number one on the inland barge side of the business, I know volumes obviously are very good, all over there is some discussion about and volumes are that may be because of the drought conditions that existed last year. There is not going to be as much demand for fertilizer and that type of thing, understand as volumes are about 8% I think of your revenue, can you just talk a little bit about the outlook. Is there any concern about that being a little bit weaker in the back half that just create capacity for all the stuff that’s growing right now.

John, actually the fertilizer volumes were about 3% to 5% of what we carry, and we are certainly not hearing anything, you want to comment on that Greg?

Yeah, the only thing I would say John is recent range that we talked about has called some of the flooding on the upper is making the fields wet. And so there is, I think there has recently been some concern about our farmers going to be able to apply some of the fertilizer. So some of the business that we do in that section is time charter, is long-term contracts, really isolated from volumetric changes there, and the balance of it is really kind of, it is seasonal with really kind of strong spring and fall seasons and slower summer times and we have that plugged into our forecast. So I don’t think you have seen surprises that we haven’t anticipated in our forecast going forward. John L. Barnes – RBC Capital Markets LLC: Okay, all right. The second thing is, just obviously with all of the growth, we’ve seen and things like crude-by-rail and crude-by- barging and things like that. Where do you think the current order book stands for liquid barges today? and are you concerned at all about any overbuilding in the inland barge business, given how good things have been, how robust pricing has been? Have you seen anything that gives you any concern at all on capacity coming into the market?

About 260.

About 260. So you’re going retire, I would think around 100 barges. So you may add another 150, 175 barges this year. Right now, every barge that we have delivered, we’re the major builder incidentally. We’re building more barges than anybody and we’re still replacing a lot, so net-net we don’t have that much. But every barge that we get delivered, we immediately put into service. John L. Barnes – RBC Capital Markets LLC: Good, thanks for your time guys. Congrats on all the new roles.

Thanks, John.

Our next question comes from Chaz Jones with Wunderlich. Please go ahead. Chaz Jones – Wunderlich Securities: Yeah. Hey, good morning guys. Thanks for taking my question. I was just wondering if we could maybe go back to the order book on the coastal side and maybe if you could just remind us sort of what’s the lead time on getting coastal assets and maybe along those lines, how much single-hull capacity is still slated to come out of the market.

Yeah, Chad, this is David. If you report in our order now into a shipyard you probably wouldn’t get delivery until sometime in 2015. So it’s a long lead time. That’s for the bigger units. There are some very small coastwise units that can come out pretty quickly, but it’s the big units, the big, the 100 to 150 that are in a higher demand right now. With that kind of lead time it’s going to take a while. In terms of single skin, we think it’s still mid single digit in terms of percent or number that are in there. But a good portion of those are the smaller capacity units. They do have to come out by the end of 2014. So that is a factor, but it is the smaller amount of capacity that are predominately single streams. Chaz Jones – Wunderlich Securities: And I guess the point is that basically over the next two years there’s really no capacity on the horizon that’s slated to enter the market?

Yeah. I would say that’s true expect that the larger units that, the one larger unit that we know that somebody maybe building, but its 250,000 barrels or larger class. Chaz Jones – Wunderlich Securities: Okay. And then as a follow-up, just speaking with coast [line] a lot of times since it’s bee on coastal, mid-teens type margins here, they certainly have come up quickly. I think if memory recalls and correct me if I’m wrong. You guys have talked about that business maybe historically made to maybe higher team, high margins as peak. Is there anything structurally that prevent you, but say over the next couple of years of getting more to 20% type operating margins on coastal?

No and in fact I think we fully would expect to be up into the low 20s in terms of margins with our structure. Chaz Jones – Wunderlich Securities: Great. That’s all I have guys. Congratulation on the greater quarter, and thank you everybody also as comments on your new roles.

Thank you.

Thank you, Chaz.

Next question comes from the line of Kevin Sterling with BB&T Capital markets. Please go ahead. Kevin Sterling – BB&T Capital Markets: Thank you. Good morning gentlemen.

Good morning Kevin. Kevin Sterling – BB&T Capital Markets: Joe congratulations on your pending retirement. Joe and David, I’m hearing more and more emphasis of companies like the (inaudible) building that coastal translating facilities service what goes refiners bringing Midwest Bakken crude oil by rails in the West Coast and then putting it on barge. That’s happening on the West Coast. Are those same type of opportunities happening on the East Coast and Gulf. Are you are seeing those same dynamics as well in the coastal business?

Yes, you’re hearing about some things we discussed, where more on the East Coast. It’s about rail to say Albany or it coming out of the Bakken and unit trains and getting over to Albany. There is some talk about reversing some the number nine line that would take it into Portland, Maine where you would go to a marine terminal and then move it down. But again a lot of that talk it’s I think this Tesoro joint venture that was recently announced. I think the West Coast is moving a little faster than the East Coast on building marine terminals and offloading facilities, but that said, unit trains to Albany has been going on for a while and that continues to do well, and that is a marine movement, once it gets to Albany.

Yeah, There is also some inland terminals being built too, so, it’s – water transportation is going to be a key component of getting shale liquids, crude oil and natural gas condensate to where they can be processed.

I would add that there is also some pipeline connectivity from the Eagle Ford to the Corpus Christi area that supports marine transportation in this as well. Kevin Sterling – BB&T Capital Markets: Right. That’s great, that’s a great follow-up, because that could be my next question, and you all talked about the coastal business, because I am hearing there is more and more kind of inland barging business offer other, between 250 to 300 inland barges moving crude alone. Are you guys seeing those type of numbers on the inland business?

That maybe right now. We’ve been saying 200 to 250 I think, and we are adding a little capacity. So, that sounds about right. Kevin Sterling – BB&T Capital Markets: Okay, great. I really appreciate your time this morning, like everyone else, congratulations on the many changes and Joe, my congratulations on an upcoming retirement.

Thank you. I am hopefully not completely retired. I am going to be an active Chairman for a while. Kevin Sterling – BB&T Capital Markets: Okay.

And our last question comes from Matt Young with Morningstar. Please go ahead. Matthew Young – Morningstar Equity Research: Good morning, guys, thanks for taking my question. I think most of my questions have been answered, but just a follow-up quickly on the coastal [cargoes] in topic perhaps you could provide just a general idea of the mix of the percentage of in line customers that have coastal cargo requirements are we talking may be a quarter half just to get an idea of that magnitude?

That a great question, I’m not sure we know the answer, I think certainly almost all the majors and both in line and close to requirements and many of the chemical companies frankly have them too as we are working for example down chemical both costal in inland, Lynndale but costal in inland and others so I just don’t know what the percentage is but a lot of them in line in both types of requirements. Matthew Young – Morningstar Equity Research: Great thanks and then just a quick follow-up on the united manufacturing, I think in the last quarter the previous release you have said something about some differed business or equipment orders that were differed that you saw it might provide a boost to the second quarter and second half of this years is that, are still expecting that?

Yeah, that, yes we are this was the equipment that was anticipated in the fourth quarter that was moved into 2013, so we do expect to see some of it in 2013. Matthew Young – Morningstar Equity Research: Okay great, that’s all I had thanks

(Inaudible) question question-and-answer session I’ll turn it back to the speakers for final remarks.

We appreciate your interest in Kirby, and for participating in our call. If you have any additional questions, please give me a call. My direct dial number is 713-435-1135 and we wish you a good day.

Thank you. Ladies and gentlemen that concludes today’s conference. Thank you for participating. You may now disconnect.