Kirby Corporation (KEX) Earnings

Management highlights

### Core Operational Performance - Solid second quarter 2026 results with EPS of $1.67, up 11% sequentially and flat YoY, driven by strong execution across both segments, healthy asset utilization, and improving market fundamentals for inland marine. - Inland marine: Market fundamentals strengthened amid strong refinery utilization, higher Venezuelan heavy crude imports (well above H1 2025 levels), increased cargo movements, healthy petrochemical activity, and limited industry capacity additions. Spot rates have recovered to 2025 levels after hitting a 2025 Q4 low, though rising fuel costs created a temporary Q2 margin headwind that is expected to reverse in Q3 via contractual pass-through mechanisms. - Coastal marine: Customer demand remains healthy with utilization in the high 90% range, though low single digit term renewal rate declines were seen for the 80,000 to 100,000 barrel ATB segment due to market-specific dynamics; overall conditions remain favorable supported by tight large vessel capacity and strong refinery utilization. - Distribution and services: D&MS results benefited from a favorable product mix, with strong growth in high-margin behind-the-meter power solutions driving a 300 basis point sequential margin improvement. Power generation demand is supported by durable secular trends, while marine repair activity boosted commercial and industrial results. ### Balance Sheet and Capital Allocation - End-of-quarter cash: $39 million, total debt: $1.04 billion, debt-to-capitalization ratio: 23.1%, total available liquidity: $566 million. - Q2 operating cash flow: $72.2 million, capital expenditures: $71.5 million. Elevated Q2 working capital requirements are expected to normalize in H2, driving meaningful free cash flow improvement. - Capital allocation strategy prioritizes long-term shareholder value, balancing disciplined organic and acquisition investment with consistent capital return. Kirby returned $59.7 million to shareholders via Q2 share repurchases (average price $142), with an additional $29 million in repurchases completed quarter-to-date in Q3 (average price $140). Management views repurchases as an attractive use of free cash flow at current price levels, and continues to evaluate targeted acquisition opportunities in core businesses.

Guidance

- Full-year 2026 EPS growth guidance of 5% to 15% is reaffirmed, and management now expects full year results to trend toward the upper end of this range. - Inland marine: Full year revenues are expected to grow mid to high single digits, with operating margins expected in the high teens to low 20% range. The Q2 fuel headwind makes reaching the very top of this margin range unlikely. - Coastal marine: Full year revenues are expected to increase mid single digits, with operating margins expected in the mid to high teens range, reflecting the Q2 impact of elevated shipyard activity and small segment pricing dynamics. - Distribution and services: Full year segment revenues are expected to increase mid single digits, with operating margins expected in the mid to high single digit range. Power generation backlog is now guided to $1 billion to $1.5 billion, up from the prior $500 million to $1 billion guidance, with most new backlog coming from high-value behind-the-meter power projects. - Full year 2026 capital expenditures are maintained at $220 million to $260 million: $170 million to $210 million for marine maintenance capital, and ~$65 million for growth capital. Full year operating cash flow guidance of $575 million to $675 million is reaffirmed.

Segment performance

1. Marine Transportation Segment: - Revenue: $537 million (up 9% YoY, +8% sequentially), contributing 58.3% of total company revenue. Operating income was $88 million, for an operating margin of 16.4% (down 11% YoY and 2% sequentially due to temporary higher fuel costs and elevated coastal shipyard activity). - Inland Marine: Contributed 80% of marine transportation segment revenue. Inland revenues increased 9% YoY, with average barge utilization in the low 90% range, and operating margins in the high teens range. 65% of inland revenue comes from long-term (1+ year) contracts, with 57% from time charters and 43% from contracts of appraisement. Spot rates rose low to mid single digits sequentially, while term contract renewals increased low single digits YoY. - Coastal Marine: Represented 20% of marine transportation segment revenue. Coastal revenues increased 10% YoY, with average barge utilization in the high 90% range, and operating margins in the low to mid teens range. 93% of coastal revenue comes from term contracts (100% time charters), and term contract renewals saw low single digit YoY declines due to market dynamics in the 80,000 to 100,000 barrel ATB segment. 2. Distribution and Services Segment: - Revenue: $385 million (up 6% YoY, +11% sequentially), contributing 41.7% of total company revenue. Operating income was $38 million (up 8% YoY, +63% sequentially), for an operating margin of 10%. - Power Generation: Represents ~40% of segment revenue, with revenues up 8% YoY and operating margins in the high single digit range. Growth is driven by strong demand for behind-the-meter and backup power solutions, though order-to-revenue conversion is limited by OEM engine availability. - Commercial and Industrial: Represents ~50% of segment revenue, with revenues up 12% YoY and operating income up 11% YoY, for operating margins in the low double digit range. Growth is supported by strong marine repair activity. - Oil and Gas: Represents ~10% of segment revenue. Revenues increased 20% sequentially and operating income increased 67% sequentially, though results remain below prior year levels amid still subdued activity, with operating margins in the mid to high single digit range.

Risks & headwinds

- Broad forward-looking statement risk: Actual results could differ materially from guidance due to unforeseen factors, with key risks outlined in Kirby's SEC filings including Form 10-K. - Geopolitical and crude market volatility: Ongoing global conflicts and unpredictable crude market dynamics create uncertainty for demand and pricing, leading management to take a more conservative long-term outlook for margin expansion after unexpected weakness in 2025. - Persistent inflation: Ongoing inflationary pressure on labor, steel, paint, and other input costs continues to pressure margins, requiring gradual price increases to offset. - Jones Act Waiver risk: A potential extension of the blanket Jones Act waiver could create modest pressure for spot-exposed coastal competitors, though Kirby has minimal exposure to date. A blanket waiver also creates workforce retention challenges for American mariners. - OEM supply chain constraints: Limited OEM engine availability constrains the pace of order-to-revenue conversion for the fast-growing power generation segment, delaying near-term revenue growth from strong backlog. - New build risk: While current new build economics do not justify widespread capacity additions, any future large-scale industry capacity expansion could disrupt tight supply-demand balance and pressure pricing.

Analyst Q&A

• Q: Can the company still achieve the previous peak inland margin level of 28%, and what is the expected timeline? /

  A: Management confirms it still expects to reach the prior peak margin level, but this will be a slow, multi-year march rather than a rapid increase. Supply and demand are already tight with no meaningful new capacity planned, as new build economics are still 40% below the threshold needed to justify new construction. The next major planned maintenance cycle starting in 2027-2028 will further reduce available capacity, supporting gradual price increases through the next five years, with the 2026 Q4 renewal season expected to set up strong gains for 2027.

• Q: What impact have Jones Act waivers had on Kirby's coastal business, and is the waiver expected to be extended beyond mid-August? /

  A: Jones Act waivers have had no material impact on Kirby, with only trivial volume impact at the edges, as the company is almost fully contracted. While a small number of spot-exposed competitors have lost some contracts, overall impact remains benign. The current waiver expires in mid-August, and the administration is considering an extension amid Middle East tensions. Management opposes the current blanket waiver, which they note has primarily benefited trader profits rather than reducing consumer fuel costs, and argues any extension should be limited to specific trade lanes where domestic capacity is actually constrained.

• Q: What is driving management's confidence that results will hit the upper end of the full year guidance range, and what is the outlook for fleet capacity additions? /

  A: Confidence comes from multiple tailwinds: Venezuelan heavy crude imports are up more than 300% from 2025 lows, refinery crack spreads are at record levels, petrochemical demand is improving, and the 2026 Q4 renewal season (when ~40% of inland term contracts renew) is setting up favorably. On the capacity side, the average age of Kirby's inland barge fleet is 17-18 years, with typical retirement at 30-35 years, leaving the fleet well positioned. Industry-wide, only ~60 barges are scheduled to be built this year, which only replaces retired capacity, and new build economics remain 40% too low to justify a large new build cycle, keeping capacity tight for the foreseeable future.

• Q: What is the long-term value creation outlook for the distribution and services segment, particularly the power generation business's long-term aftermarket opportunity? /

  A: Management is very positive on D&S and power generation, which has consistently outperformed internal expectations. Power generation backlog has grown to $1 billion to $1.5 billion, mostly from high-value 24/7 behind-the-meter natural gas projects for data centers. As this installed base grows over the next 18 months (it is expected to double), a large recurring aftermarket service annuity will emerge over the next 4-5 years. The company has launched a new dedicated operation, Kirby Integrated Power Systems, to capture this aftermarket opportunity, which management expects to generate more long-term value than the original equipment sales.

• Q: Is the recent low single-digit coastal pricing decline for 80,000-100,000 barrel ATBs related to Jones Act waivers, and is this a sign the coastal cycle is peaking? /

  A: The small average pricing decline is not related to Jones Act waivers, and is just normal ebb and flow after four straight years of coastal pricing increases. This dynamic is limited to the 80,000-100,000 barrel ATB segment, which represents only ~20% of the total coastal fleet, concentrated in the competitive Northeast trade. All other coastal vessel classes have seen year-to-date rate increases, no new capacity is being built (and any new build would take three years to deliver), and management remains constructive on long-term coastal margin expansion, expecting margins to move above 20% over the next few years.