Kirby's Q3 2025: Contradictions Emerge on Inland Market Utilization, Power Generation Growth, and M&A Opportunities

Date of Call: October 29, 2025

Financials Results

• Revenue: Marine Transportation revenues $485M (total marine revenues down $1.2M vs Q3 2024); Distribution & Services revenues $386M, up 12% YOY; company total revenue not disclosed
• EPS: $1.65 per diluted share, up 6% YOY
• Operating Margin: Marine Transportation operating margin 18.3% (marine operating income down $11M or 11% YOY); Coastal ~20%; Distribution & Services operating margin 11% (D&S operating income up 40% YOY)

Guidance:

• Inland: revenues and margins expected to improve modestly from Q3; utilization entered Q4 in the high‑80% range (87.6%) though spot may face near‑term pressure.
• Coastal: revenues and margins expected in line with Q3; utilization mid‑ to high‑90% and term pricing strengthening.
• Distribution & Services: full‑year revenues expected to grow mid‑single digits with operating margins in the high single digits; power generation backlog at a record and driving near‑term growth.
• Financials: 2025 operating cash flow target $620M–$720M; CapEx $260M–$290M (marine maintenance $180M–$210M; growth up to $80M); majority of free cash flow to share repurchases absent acquisitions.

Business Commentary:

• Marine Transportation Market Dynamics:
• Inland Marine Transportation experienced a mid-80% average barge utilization rate due to favorable weather conditions, improved navigational conditions, and a lighter feedstock mix for refinery and chemical customers.

• The company is seeing constraints in long-term barge construction, which helps keep new supply in check.

• Coastal Marine Transportation Strength:

• Coastal Marine Transportation maintained high 90% barge utilization rates, supported by steady customer demand and limited supply of large capacity vessels.

• This strong demand dynamic continued to drive meaningful pricing gains with term contract renewals increasing by approximately 15% year-on-year.

• Power Generation Growth:

• The Distribution and Services segment's power generation revenues increased by 56% year-over-year, with operating income up 96%.

• The growth was driven by robust demand for backup and prime power applications, and a strong backlog of power generation projects.

• Free Cash Flow and Share Repurchases:

• Kirby generated $160 million in free cash flow in Q3 and used cash to repurchase $120 million in stock.
• The company remains positioned to allocate significant free cash flow towards share repurchases in the absence of acquisitions, indicating a strong financial position.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted Q3 EPS of $1.65 (+6% YOY) and said 2025 will be a record earnings year; coastal utilization/high pricing and D&S power‑generation growth (revenues +56% YOY; D&S operating income +40% YOY) were emphasized; balance sheet and free cash flow targets ($620M–$720M OCF) and continued share repurchases were reiterated.

Q&A:

• Question from Jonathan Chappell (Evercore ISI): On power generation growth — will the business remain lumpy quarter-to-quarter or is backlog transitioning to steadier revenue and EBIT contribution?
  Response: Some lumpiness will remain due to OEM engine delivery schedules, but backlog is a record (mid‑teens % growth YoY and sequentially) and management expects continued full‑year growth.

• Question from Jonathan Chappell (Evercore ISI): What has improved entering Q4 for inland — can utilization move from mid‑80s to high‑80s/90s and what are chemical customers saying?
  Response: Q3 weakness reflected weather, light feedstocks and less maintenance; early Q4 shows improvement (first cold front, heavier crude slates, modest chemical demand pickup) with inland utility at ~87.6%.

• Question from Reed Seay (Stephens): How did spot rates trend in October vs September and year‑over‑year, and what's the gap between spot and contract on the inland side?
  Response: Spot pricing was down ~4%–5% in Q3, term contracts were flat; spot began firming into Q4 though modest near‑term pressure possible, and spot remains above term pricing.

• Question from Reed Seay (Stephens): Any update on prior guidance and ability to hit the low end given Q3 softness?
  Response: No change — management expects to be around the low end of the previously stated guidance range.

• Question from Scott Group (Wolfe Research): Where did utilization trough in Q3 and are market conditions stable, improving, or mixed?
  Response: Utilization troughed at ~80% in Q3 and has improved to 87.6%; direction is positive but management remains cautious given macro and petrochemical uncertainty.

• Question from Scott Group (Wolfe Research): Is spot pricing moving higher or lower?
  Response: Spot pricing has moved higher since its Q3 trough.

• Question from Scott Group (Wolfe Research): Can you quantify the power generation backlog (size and change vs last quarter)?
  Response: Backlog is at a record, up mid‑teens YoY and sequentially, and management estimates it in the ~$0.5B–$1B range with book‑to‑bill >1.

• Question from Ken Hoexter (BofA): Given power gen's growth, is Kirby a major supplier, is customer concentration a concern, and is equipment supply a constraint?
  Response: Customer base is broadening beyond a few customers; supply from OEMs can create delivery lumpy patterns, but Kirby's service and integration capabilities differentiate it and pipeline demand is large.

• Question from Ken Hoexter (BofA): Should we model mid‑teens sequential growth in power gen or expect continued lumpiness?
  Response: Expect average full‑year growth ~10%–20% (mid‑teens), but quarter‑to‑quarter outcomes will be lumpy based on engine deliveries.

• Question from Ken Hoexter (BofA): What will lead inland recovery and what's the status of the fleet (adding or stable)?
  Response: Recovery drivers include improving chemical demand and heavier crude slates increasing byproduct flows; fleet is stable at ~1,100+ barges after maintenance cycle.

• Question from Gregory Wasikowski (Webber Research): What percentage of inland term contracts roll over in Q4 versus other periods?
  Response: About 40% of the term contract portfolio typically renews in the fourth quarter (70% of revenue is contracts ≥1 year; ~30% spot).

• Question from Gregory Wasikowski (Webber Research): For data centers, what's the typical order‑to‑revenue timing and can Kirby participate in larger (gigawatt) projects?
  Response: Delivery cycles generally run 1–2 years depending on OEM lead times; Kirby is developing higher‑power node offerings and leveraging e‑frac experience to address larger projects.

• Question from Sherif Elmaghrabi (BTIG): Has inland softness created strategic M&A opportunities?
  Response: Yes, some owners may reevaluate; Kirby is actively engaged in market conversations, has a strong balance sheet and is prepared to pursue acquisitions if attractive opportunities arise.

• Question from Sherif Elmaghrabi (BTIG): Is the coastal business sensitive to crude slate similar to inland?
  Response: No — coastal is less sensitive; the market is concentrated (~<200 large units), shipyard capacity constrained, and coastal supply/demand is tight for years.

• Question from Bascome Majors (Susquehanna): In prior cycles what triggers sellers to transact and would deeper weakness create more M&A opportunities?
  Response: Triggers have included cash‑flow stress and owners choosing to transact before worse conditions; management reiterated strong liquidity, active share repurchases, and readiness to pursue deals when they meet strategic criteria.

Contradiction Point 1

Inland Market Demand and Utilization

It involves differing perspectives on the state of the inland market and barge utilization, which can impact expectations for revenue and operational efficiency.

What are the expectations for utilization and pricing trends in the inland market? - Scott Group (Wolfe Research, LLC)

2025Q3: Barge utilization troughed at 80% in Q3 and has improved to 87.6%. - Christian O'Neil(COO)

What are your views on current barge utilization, spot pricing, and contract pricing? - Daniel Imbro (Stephens)

2025Q1: Barge utilization is strong. - David Grzebinski(CEO)

Contradiction Point 2

Power Generation Segment Growth

It highlights differing views on the growth trajectory of the power generation segment, which is a key strategic area for the company.

Will growth in power generation be consistent or lumpy? How will backlog convert to revenue? - Jonathan Chappell (Evercore ISI Institutional Equities, Research Division)

2025Q3: The growth will be lumpy due to delivery schedules from OEMs, but the backlog is at a record high, up mid-teens year-over-year and sequentially. - David W. Grzebinski(CEO)

How do cost controls and backlog in Distribution & Services drive margin improvements? - Jonathan Chappell (Evercore ISI)

2025Q1: Top line growth is expected to be primarily driven by power generation, although we anticipate stronger second half revenue acceleration. - David W. Grzebinski(CEO)

Contradiction Point 3

M&A and Strategic Acquisition Opportunities

It reflects differing stances on the strategic importance and potential for acquisitions, which can impact the company's growth strategy and financial positioning.

Are there strategic acquisition opportunities in the current market weakness? - Sherif Elmaghrabi (BTIG, LLC, Research Division)

2025Q3: Potential opportunities exist but depend on individual company situations. Kirby is well-positioned financially to pursue acquisitions if needed. - David W. Grzebinski(CEO)

Are you seeing more M&A opportunities with increased balance sheet flexibility? - Jonathan Chappell (Evercore ISI)

2025Q1: The environment is more constructive for acquisition opportunities. - David Grzebinski(CEO)

Contradiction Point 4

Power Generation Growth

It involves the expected growth trajectory of the power generation segment, which is a significant part of Kirby's strategy, impacting investor expectations.

What is the status of the power generation segment and its role in the company's overall strategy? - Ken Hoexter (BofA Securities, Research Division)

2025Q3: Power generation is a significant part of Kirby's growth. The customer portfolio is expanding, and the segment is expected to continue growing with strong demand from various industries. - David W. Grzebinski(CEO)

Can you explain the power business backlog and its expected growth this year? - Benjamin Nolan (Stifel)

2024Q4: Power gen is growing, driven by data centers and e-frac needs. Backlog is strong, with a significant increase in the last year. We expect large deliveries in the second quarter. - David W. Grzebinski(CEO)