Kirby (KEX) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, July 29, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Matthew P. Kerin
• Chief Executive Officer - David W. Grzebinski
• President and Chief Operating Officer - Christian G. O'Neil
• Executive Vice President and Chief Financial Officer - Raj Kumar

TAKEAWAYS

• Earnings Per Share -- $1.67, representing a 11% sequential increase and finishing in line with the prior year quarter.
• Total Revenue -- $922.4 million, increasing 8% year over year from $855.5 million reported in the second quarter of 2025.
• Marine Transportation Revenue -- $537 million, growing 9% year over year driven by strengthening inland market fundamentals and high asset utilization.
• Marine Operating Income -- $87.8 million, declining 11% year over year due to temporary fuel cost headwinds and elevated shipyard activity in the coastal segment.
• Inland Marine Utilization -- Low 90% range, supported by strong refinery utilization and increased refined product and crude-related movements.
• Inland Pricing -- Spot market rates rose in the low to mid-single-digit range sequentially, while term contract renewals increased in the low-single-digit range year over year.
• Coastal Marine Utilization -- High 90% range, reflecting healthy customer demand and limited availability of large-capacity vessels.
• Coastal Pricing -- Term contract renewals declined in the low-single-digit range year over year, primarily affected by specific market dynamics in the 80,000 to 100,000 barrel capacity vessel market.
• Distribution and Services Revenue -- $385.4 million, increasing 6% year over year behind sustained growth in power generation and commercial activity.
• Distribution and Services Operating Income -- $38.2 million, growing 8% year over year with operating margins improving more than 300 basis points sequentially to 9.9%.
• Power Generation Revenue -- Up 8% year over year, representing 40% of segment revenues with demand driven by behind-the-meter and backup power solutions for data centers.
• Commercial and Industrial Revenue -- Increased 12% year over year, contributing 50% of segment revenues and supported by healthy marine repair activity.
• Oil and Gas Revenue -- Improved 20% sequentially but remained down 17% year over year, representing 10% of total segment revenue.
• Power Generation Backlog -- Management increased guidance to a range of $1 billion to $1.5 billion, reflecting robust inbound orders for data center applications.
• Full-Year EPS Guidance -- Reaffirmed at 5% to 15% growth, with management currently expecting results to trend toward the upper end of that range.
• Operating Cash Flow Guidance -- $575 million to $675 million for the full year, supported by an expected normalization of working capital in the second half.
• Capital Expenditures -- Totaled $71.5 million for the quarter, with the full-year range expected to be between $220 million to $260 million.
• Marine Maintenance Capital -- $170 million to $210 million allocated for improvements to existing inland and coastal marine equipment and facilities.
• Share Repurchases -- $59.7 million returned to shareholders in the second quarter at an average price of $142.38, with an additional $29 million repurchased quarter-to-date in the third quarter.
• Debt and Liquidity -- Total debt stood at $1.04 billion with a debt-to-capitalization ratio of 23.1% and $566 million in available liquidity.
• Fuel Cost Headwind -- Estimated at $0.05 to $0.10 per share during the second quarter, which management expects to recover through contractual mechanisms in the third quarter.
• Inland Revenue Guidance -- Expected to grow in the high-teens to 20% range for the full year, although the fuel-related headwind may make the upper end challenging.
• Coastal Revenue Guidance -- Projected to increase in the mid-single-digit range for the full year with operating margins in the mid to high-teens range.

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RISKS

• Grzebinski stated, "rising fuel costs created a temporary margin headwind during the quarter," noting that while contractual recovery mechanisms exist, there is a time lag before these costs are reimbursed.
• Grzebinski noted that in the coastal business, "market-specific dynamics affecting certain small capacity ATBs in the 80,000- to 100,000-barrel range resulted in low-single-digit declines in term contract renewal rates."
• Kumar indicated that "the timing of OEM engine deliveries continues to govern how quickly we can fulfill orders" in the power generation segment, creating variability in revenue conversion.

SUMMARY

Management at Kirby Corporation (NYSE:KEX) reported second quarter results characterized by strengthening fundamentals in inland marine transportation and continued demand for data center power solutions. The company experienced a temporary margin headwind due to a rapid increase in fuel costs and elevated shipyard maintenance in the coastal fleet, though management indicated these impacts are expected to reverse in the second half of 2026. The distribution and services segment reached a new backlog record, driven by secular trends in behind-the-meter power generation. Based on these factors, the company reaffirmed its annual earnings growth outlook with a bias toward the upper end of the range, supported by a constructive supply-demand balance and ongoing share repurchases.

• CEO Grzebinski indicated that inland marine margins could eventually reach past peaks of 28%, stating, "I absolutely believe we will get there. It is slow and steady... I think we are set up for a multiyear, slow march up."
• Management noted that newbuild barge economics remain unattractive, with Grzebinski stating, "newbuild economics are still 40% away. So nobody's really or should be building equipment, at these prices."
• COO O'Neil addressed the Jones Act waiver, stating, "the effect of it is I do not think, as advertised. And it is time for the waiver to end," while noting that Kirby's specific fleet has been largely unaffected due to high utilization and term contracts.
• The company announced a new initiative called Kirby Integrated Power Systems to target the aftermarket opportunity for data centers, with O'Neil stating the goal is to "generate value exceeding the original product value in the aftermarket and the out years."
• The inland barge fleet ended the quarter at 1,034 vessels representing 25.2 million barrels of capacity, with management projecting the fleet to be slightly up by the end of 2026.
• Management expects third quarter performance to be stronger than the fourth quarter, according to CFO Kumar, due to the timing of fuel cost recoveries and seasonal factors.
• Backlog for behind-the-meter power applications is expected to drive long-term service and parts revenue, as Grzebinski noted the installed base is projected to double in the next 18 months.

INDUSTRY GLOSSARY

• ATB (Articulated Tug Barge): A vessel consisting of a barge and a tug that are joined by a mechanical system, allowing them to function as a single unit in open seas.
• Behind-the-meter: Power generation systems located on the customer's side of the electric utility meter, typically used for onsite primary or backup power.
• Contract of Affreightment: An agreement where a carrier agrees to transport a specific volume of cargo over a specified period rather than using a specific designated vessel.
• Jones Act: A federal law requiring that all goods transported by water between U.S. ports be carried on U.S.-flagged ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens.
• PADD 3: The Petroleum Administration for Defense District covering the Gulf Coast region, a major hub for refining and petrochemical activity.
• Time Charter: A contract for the hire of a vessel for a specific period of time; the owner manages the vessel but the charterer selects the ports and directs the vessel.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the Kirby Corporation Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matthew P. Kerin, Vice President of Investor Relations. Please go ahead.

Matthew P. Kerin: Good morning, and thank you for joining the Kirby Corporation Second Quarter 2026 Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Christian G. O'Neil, Kirby's President and Chief Operating Officer and Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer. A slide presentation for today's conference call as well as the earnings release which was issued earlier today, can be found on our website. During this conference call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section under Financials.

As a reminder, 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 risks 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 latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David.

David W. Grzebinski: Thank you, Matthew, and good morning, everyone. Earlier today, we announced second quarter earnings per share of $1.67 up 11%, sequentially and in line with the prior year quarter. Our results reflected solid execution across both our businesses supported by constructive marine transportation fundamentals, high asset utilization, and ongoing momentum in key distribution and services end markets. In marine transportation, customer demand remained healthy. Utilization levels were strong, and inland marine pricing continued to improve. In distribution and services, results benefited from continued demand growth in Power Generation and strong marine repair activity. Overall, our businesses performed well during the quarter, supported by healthy end-market conditions. Disciplined execution, and our continued focus on operating safely and efficiently.

In inland marine, market fundamentals strengthened during the quarter. Supported by strong refinery utilization, increased refined product and crude-related movements, and healthy petrochemical activity. These factors combined with limited industry capacity additions supported barge utilization in the low 90% range. We continued to see positive pricing momentum during the quarter with spot market rates improving sequentially and term contract renewals increasing year-over-year. Notably, current spot market pricing has improved from recent lows in the fourth quarter of last year and has returned to levels last seen a year ago. You will recall that in mid-2025, a sharp reduction in heavy crude imports into the Gulf Coast primarily from Venezuela, weighed on refining activity and related byproduct movements.

Those conditions have since improved with Venezuelan imports now well above first-half 2025 levels. However, as previously communicated, rising fuel costs created a temporary margin headwind during the quarter. Although we expect this impact to reverse in the third quarter, as contractual recovery mechanisms take effect. Overall, the inland business delivered operating margins in the high-teens range, reflecting healthy demand, strong utilization, and improving pricing. In coastal marine, customer demand remained healthy during the quarter with barge utilization in the high 90% range. Market-specific dynamics affecting certain small capacity ATBs in the 80,000- to 100,000-barrel range resulted in low-single-digit declines in term contract renewal rates.

However, overall market conditions remain favorable supported by strong refinery utilization, strong customer demand, and limited availability of large-capacity vessels. Our coastal business delivered operating margins in the low to mid-teen range, reflecting the impact of elevated shipyard activity as previously disclosed. Turning to distribution and services. Our performance reflected the strength of our positioning across a diverse set of end markets. Segment revenues increased 6% year-over-year supported by sustained growth in Power Generation and continued strength in our commercial and industrial business. Operating margins improved more than 300 basis points sequentially reflecting a favorable mix including greater activity on behind-the-meter power solutions in our Power Generation business.

In Power Generation, revenues increased 8% year-over-year with demand for behind-the-meter and backup power solutions continuing to be driven by durable secular trends. While demand remains robust, the timing of OEM engine deliveries continues to govern how quickly we can fulfill orders. In commercial and industrial, revenues increased 12% year-over-year supported by healthy marine repair activity and continued growth across several end markets. In oil and gas, revenues improved sequentially from the first quarter but were still down year-over-year. As the activity remains subdued despite modest improvement in market conditions from recent lows. Overall, the segment delivered solid results across the portfolio, demonstrating the strength of the company's market positions and the momentum in several key growth areas.

In summary, Kirby delivered a solid second quarter, underscoring the strength of our operating model, and the momentum we are seeing across both businesses. In marine transportation, inland performance continued to improve driven by pricing gains and healthy barge utilization. While coastal demand and utilization remained strong despite market-specific pricing pressure in certain areas of the fleet. In distribution and services, Power Generation remained a key growth driver. Commercial and industrial activity performed well. And oil and gas showed sequential improvement from recent lows. Taken together, these trends reinforce our confidence in the outlook for the remainder of the year which I will discuss in more detail later in the call.

But first, I will turn it over to Raj to walk through the segment results, balance sheet, and capital allocation.

Raj Kumar: Thank you, David, and good morning, everyone. In the second quarter of 2026, Marine Transportation segment revenues were $537 million and operating income was $88 million with an operating margin of 16.4%. Compared to the second quarter of 2025, total Marine transportation revenues increased $44 million or 9%, while operating income decreased $11 million or 11%. The year-over-year decline in operating income primarily reflected the temporary impact of higher fuel costs before contractual recovery mechanisms take effect, as well as elevated shipyard activity in coastal marine. Compared to the first quarter of 2026, total Marine revenues increased 8% while operating income decreased 2%.

Looking at the inland business in more detail, inland contributed 80% of Marine Transportation segment revenue, with average barge utilization in the low 90% range for the quarter. Long-term contracts or those with a term of one year or longer contributed approximately 65% of inland revenues, with 57% from time charters and 43% from contracts of affreightment. Improved market conditions resulted in average spot market rates increasing in the low to mid-single-digit range sequentially while remaining down in the low-single-digit range year-over-year. Term contracts that renewed during the second quarter increased in the low-single-digit range year-over-year. Compared to the second quarter of 2025, inland revenues increased 9% while operating margins were in the high-teens range. Moving to the coastal business.

Coastal represented 20% of revenues in the marine transportation segment with average barge utilization in the high 90% range above both the first quarter of 2026 and the second quarter of 2025. For the quarter, the percentage of Coastal revenue under term contracts was approximately 93% of which approximately 100% were time charters. Renewals of term contracts were down in the low-single-digit range year-over-year due to previously mentioned market dynamics in the 80,000- to 100,000-barrel ATB market. Coastal revenues increased 10% year-over-year with operating margins in the low- to mid-teens range. Coastal was impacted by elevated shipyard activity as anticipated and modestly lower year-over-year term pricing.

With respect to our tank barge fleet, for both the inland and coastal businesses, we have provided a reconciliation of the changes during the second quarter as well as projections for the full-year. This is included in our earnings call presentation posted on our website. At the end of the second quarter, the inland fleet had 1,034 barges representing 25.2 million barrels of capacity, and is expected to be slightly up in 2026. Coastal Marine is expected to remain unchanged from the second quarter of 2026. Now I will review the performance of the distribution and services segment. Revenues for the second quarter of 2026 were $385 million with operating income of $38 million and an operating margin of 10%.

Compared to the second quarter of 2025, Distribution and Services segment revenues increased by $23 million or 6% with operating income increasing by $3 million or 8%. This growth was primarily driven by continued strength in the Power Generation business and higher marine repair activity. Compared to the first quarter of 2026, revenues increased by $39 million or 11% and operating income increased by $15 million or 63% reflecting improved activity levels, favorable mix, and stronger performance across several end markets. Moving through the segment in more detail, in Power Generation, we continue to see meaningful order activity for the behind-the-meter and backup power solutions for data centers and other industrial applications. This has supported continued growth in backlog.

However, OEM engine availability continues to influence the pace at which demand converts to revenue. Overall, Power Generation revenues increased 8% year-over-year, with operating margins in the high-single-digit range. Power Generation represents approximately 40% of total segment revenues. In Commercial and Industrial, strong marine repair activity contributed to a 12% year-over-year increase in revenues and an 11% increase in operating income. The business represented approximately 50% of segment revenues and generated operating margins in the low-double-digit range. In oil and gas, activity improved sequentially during the quarter, driven by better demand for parts and services.

Revenues increased 20% sequentially, and operating income increased 67% sequentially although results remain below prior year levels, despite the modest improvement we have seen in market conditions from recent lows. Oil and gas represented approximately 10% of segment revenues and generated operating margin in the mid- to high-single-digit range. Now I will move on to the balance sheet. As of quarter end, we had $39 million of cash on hand, and total debt of $1.04 billion with a debt-to-capitalization ratio of 23.1%. We ended the second quarter with $566 million of available liquidity. During the quarter, net cash provided by operating activities was $72.2 million and capital expenditures were $71.5 million.

The second quarter included elevated working capital requirements, primarily associated with stronger business activity and the timing of collections, as well as higher fuel rebills in our marine business. We expect these working capital requirements to normalize during the second half supporting a meaningful improvement in free cash flow. With respect to capital expenditures, we continue to expect full-year capital spending to range between $220 million to $260 million. Approximately $170 to $210 million is associated with marine maintenance capital including improvements to existing inland and coastal marine equipment and facilities. Approximately $65 million is associated with growth capital spending across both businesses.

For the full-year, we remain on track to generate cash flow from operations of $575 million to $675 million. Our capital allocation strategy remains focused on maximizing long-term shareholder value balancing disciplined investment in our businesses with consistent return of capital to shareholders. In the second quarter of 2026, we returned $59.7 million to shareholders through share repurchases at an average price of $142 and we have repurchased approximately $25 million to $29 million of additional shares quarter-to-date in the third quarter at an average price of $140. These repurchases reflect our confidence in the long-term earnings power of the business and our view that at recent levels, share repurchases represent an attractive use of free cash flow.

At the same time, we continue to evaluate disciplined acquisition opportunities within our core businesses. Particularly in marine, where we see the potential to enhance our service capabilities, drive fleet efficiency and generate attractive long-term returns. Taken together, our balanced approach allows us to invest in high-return opportunities across our portfolio, while consistently returning capital to shareholders. With that, I will now turn the call back to David to discuss our outlook for the second half of the year.

David W. Grzebinski: Thank you, Raj. As we look at the balance of the year, we remain encouraged by the direction of the business. Across our portfolio, we are seeing the continuation of many of the same tailwinds that supported our second quarter results, including healthy demand, solid asset utilization, and continued inland pricing improvement. While the broader operating environment remains dynamic, we believe our market-leading businesses and disciplined operating approach position us well for the second half of 2026. As a result, we have reaffirmed our full-year earnings per share growth guidance of 5% to 15%, and currently expect results to trend toward the upper end of that range.

Our confidence is supported by continued inland pricing momentum, the expected recovery of fuel cost timing impacts, healthy utilization across marine transportation, and improving second-half conversion of Power Generation backlog as OEM engine availability improves. In inland marine, we continue to see a favorable operating environment. Demand from refining and petrochemical customers remains healthy, supported by strong refinery utilization and steady petrochemical activity, while barge availability across the industry remains relatively tight and pricing momentum continues to build. With spot pricing continuing to lead term pricing, we believe the setup remains constructive as additional contracts renew through the balance of the year, particularly during the seasonally heavy fourth quarter renewal period.

Together, these factors give us confidence in our outlook for the inland business. Overall, inland revenues are expected to grow in the high-teens to 20% range for the full-year, although the fuel-related headwind in the second quarter may make the upper end of that range difficult to achieve. In coastal marine, underlying market conditions remain supportive with healthy customer demand and strong barge utilization. Overall, revenues are expected to increase in the mid-single-digit range for the full-year with operating margin in the mid to high-teens range, reflecting the impact of lower margins in the second quarter due to elevated shipyard activity and the market-specific pricing dynamics for the 80,000- to 100,000-barrel portion of our fleet.

In distribution and services, growth in Power Generation and strong marine repair activity are expected to continue driving segment results. In Power Generation, customer demand remains exceptionally strong particularly for behind-the-meter power solutions serving data centers and other industrial applications. While OEM engine availability continues to affect the timing of customer deliveries, our backlog and customer conversations continue to support a strong multiyear outlook. Importantly, growth in behind-the-meter power applications also creates longer-term service and parts opportunities as our growing installed base begins to operate at higher utilization levels. Within commercial and industrial, marine repair demand is expected to remain healthy while on-highway activity remains constrained.

In oil and gas, activity is expected to remain subdued but has modestly improved from recent lows. Overall, we expect segment revenues to increase in the mid-single-digit range for the full-year with operating margins in the mid- to high-single-digit range. To conclude, we delivered solid second quarter results and remain well positioned for the second half of the year. Marine transportation fundamentals remain favorable, supported by healthy demand, strong utilization, and improving inland pricing. In distribution and services, Power Generation continues to be a key growth driver, while commercial and industrial activity remains healthy.

Supported by our market-leading positions, enhanced service capabilities, fleet efficiency, and disciplined operating approach, we remain confident in our outlook and our ability to deliver toward the upper end of our full-year earnings per share growth guidance. Operator, this concludes our prepared remarks. Christian, Raj, and I are now ready to take questions.

Operator: Thank you. As a reminder, to ask a question, please press star one. To withdraw your question, please press star one again. And our first question comes from John Chappell of Evercore ISI. Your line is open.

Jonathan Chappell: Thank you. Good morning. Hey, good morning, gentlemen. David, last quarter, you spoke to the potential from inland margins to exceed the last peak. Given what has been happening with the rate of change on both term and spot, what you are seeing from a demand perspective and also from a capacity add perspective, would you say that still holds? And if so, can you kind of help with your path on timing? Is that kind of a 12- to 18-month return to those types of levels, or is it more of a prolonged kind of steady, move higher?

David W. Grzebinski: Yeah. It is the latter, John. Right now, you know, the supply and demand are in balance and tight. Nobody's really building any equipment. We are pursuing and getting slow, steady increases. You heard low to mid-single-digit increases. It is going to take a while to get up to the past peak in margins, which was about 28%. I absolutely believe we will get there. It is slow and steady. As you heard in our prepared remarks, we are setting up for a good, you know, fourth quarter renewal season. And that will bode well for 2027. And we just see that continuing. You will recall we had the maintenance bubble, that rolled off last year.

Well, that maintenance bubble's gonna start again in late 2027 and 2028. So I think we are set up for a multiyear, slow march up. Yeah. I would say this. Newbuild economics are still 40% away. So nobody's really or should be building equipment, at these prices. So it should be a good, long five-year march up. Yeah. I do not know exactly when we will hit peak margins, but, it is set up for a good long run.

Jonathan Chappell: Awesome. That is great. Hate to ask about this, but have to. The Jones Act waiver, have you seen any impact either in coastal, I would imagine more in coastal than inland, from the waivers. And I guess maybe more importantly, from some of your contacts in DC, do you have a sense for if the waivers will continue to be extended? Obviously, the war headlines kind of change from day to day, but, just any sense as we approach mid-August with the potential for another waiver extension. Anything you are hearing on that?

David W. Grzebinski: Sure. You know, There has been no impact at all in the inland side, just a tiny bit on the coastwise side. You know, for us, we are pretty termed up. And we do not even have much exposure. Christian can chime in on that. But some of the industry participants have seen it. The waiver, you know, there has probably been 150 non-Jones Act moves, maybe a little more. I you know, the vast majority, 85%-plus of those have been really nothing to do with national security or homeland resilience. It is really just been traders making profits. And, so we do not think the waiver makes sense.

We understand what the administration's trying to do, which is trying to help the consumer. But, frankly, the Jones Act really does not add much cost at all, maybe a penny a gallon. So, it is not achieving what I think the waiver was intended, which was to help, prices at the pump. It is a blanket waiver. That is what we do not like. I mean, we support the administration. But we think it should be a specific waiver. You know? In other words, if Jones Act equipment's not available, then sure. Use non-Jones Act equipment. We certainly do not want to stand in the way of supporting the administration's goals.

The, you know, the waiver was extended, another 90 days to August 16, I think, is the last day of the waiver. Obviously, with the conflict in the Middle East and the Strait of Hormuz, the administration's considering extending the waiver. You know, we are hopeful that if they do extend it, it will be a specific waiver. You could even see it being as specific as Gulf Coast to the West Coast. Because the West Coast is where there may be a problem if there is a problem. So we will see. You know, the administration has not done anything yet. I know they are contemplating it.

Our view is it-- you know, we would prefer if they do it, it should be a specific waiver, not a blanket waiver. You know, we have not really seen a big impact for Kirby. You know, we have heard of a couple participants losing some contracts because of non-Jones Act equipment. You know, so far, it is benign. I do not know, Christian, if you want to tell them about our exposure? No.

Christian G. O'Neil: I think, secularly, Kirby's really been unaffected. You know, maybe some barrels on the edges, particularly in the offshore space. We are fully utilized at Kirby Offshore Marine. And David hit it on the head. There has been, you know, perhaps some ripples for some other competitors that are more exposed to the spot market. We have been in a good spot. We remain in a good spot. In our utility and our contract portfolio. However, the waiver does need to go away. If not alone for the benefit of the hardworking American mariner, the hardworking workforce that supports the American mariners.

What is going on here is just while we understand the intentions in supporting the war effort, the effect of it is I do not think, as advertised. And it is time for the waiver to end. David and I have the pleasure of meeting with 50-plus captains here in the next day or so. And we gotta look them in the face and explain this and explain why the administration's made this decision. It is just very difficult on the workforce. We are out there recruiting and retaining. And trying to motivate mariners, and they see their jobs being taken by foreign mariners. It is just not fair. So time for it to end.

I got a little political there. Sorry. But from a supply-demand perspective, we have not really felt it, but I think there are some competitors who have felt some pressure.

David W. Grzebinski: Yep. Makes sense. Thanks, Christian. Thanks, David.

Jonathan Chappell: Yeah. Thanks, John.

Operator: Thank you. And our next question comes from Benjamin Mohr of Citi. Your line is open.

Benjamin Mohr Mok: Hi, good morning, David, Christian, Raj and Matthew. Congrats on the beat and raise. Thanks for taking the questions. I wanted to see if we could discern the drivers behind your raise towards the upper end. Can you maybe talk to rank and maybe kind of the Impact On Your Rates On The Marine Side From The Venezuela heavy crude imports perhaps stepping up further Calcasieu Lock, maybe a higher impact than maybe what you thought before. Crack spread widening, maybe sustained longer even after an eventual, end the Iran war. And then petrochem's exports with you being a part of the inland supply chain?

And then on the D&S side, any impact from trucking capacity exits driving, trucking spot rates?

David W. Grzebinski: Yeah. Well, hey. Good morning, Ben. Let me start with marine and go to D&S, and Christian can chime in here with some more specifics as well. Look, we are comfortable with the high end of the range. We did not bring up the low end because just the geopolitical dynamics out there could give us a curveball that we have not anticipated. But we feel very positive as we enter the second half, and many of the things you mentioned are the reasons. You know, Venezuelan crude is up over 600,000 barrels a day. From lows of, you know, 200,000. Calcasieu Lock is coming into play, and Christian can give you some color on that.

Crack spreads are pretty much at a record even our petrochemical customers are doing a little better. So you know, we are seeing good, solid demand, in the inland space in particular. And you know, given that, we are capacity-wise and nobody's really adding new capacity, you know, rates are going up. And they are slow and steady. These are not big double-digit raises. These are, low to mid-single-digit, which is what we are comfortable with. We are happy at those kind of price increases. They offset inflation a little bit. You know, when inflation has been real, by the way. But you hit on most of it. That is giving us a very solid backdrop in the inland side.

It gives us a lot of comfort as we head into the second half. And, you know, that is a very important fourth quarter renewal period where about 40% of our term contracts renew, is setting up nice, and that you know, that sets up for 2027. You know, D&S is very similar. We are seeing really healthy demand for behind-the-meter power systems, and we like that. Obviously, we are still getting standby diesel for backup, but the behind-the-meter has been the bulk of our inbound, and that we like because behind-the-meter is gonna run 24/7 to generate power.

There is going to be a very nice service component that starts to kick in a few years once that equipment has seen a lot of, duty cycles. So we are excited that Power Gen is obviously a big part of why we are comfortable in the second half. But in commercial and industrial, you know, on-highway, I would say the trucking sector has bottomed finally, and we are starting to see a little sign of life there. Marine repair has been very solid. So, you know, a lot of things are going right now, and we feel really good about it.

I do not know, Christian, if you want to dive into a little more detail about some of the crack spreads and Venezuela.

Christian G. O'Neil: Yeah, Benjamin. When I think about the four items you just referenced, I think about why PADD 3 refining and chemical manufacturing wins globally every quarter. Crack spreads, pet chem improving, Venezuelan crude imports, and the Calcasieu Lock. All of those things baked together to represent why PADD 3 and why servicing PADD 3 is a marine transportation vendor is important and profitable and has a lot of momentum right now. Crack spreads, want to say they touched $16.09 a barrel, an all-time record high last week. The Calcasieu Lock that you referenced, work continues on Calcasieu. It should wrap up September 18. Calcasieu Lock closes every day from 7:00 a.m. to 7:00 p.m.

It creates a small traffic jam on the intercoastal waterway where there is a lot of traffic. Between Texas and Louisiana. Right now, they are working inside the gate. When they work inside the gate, it is a bit more disruptive. You have to have an assist boat to get through the lock. And so we will see that increase here, but it will wrap up, you know, hopefully, in September. You know, we are always battling something whether it is weather, locks, ice, or storms. You know? So those types of delays are kind of par for the course in the industry. But, Calcasieu is an issue today.

But, yeah, I think you hit all those tailwinds well, and I think it is just all part of being blessed to work in PADD 3 like we do every day.

Benjamin Mohr Mok: Thanks so much for the great insights there. What is assumed for your buyback and other income as part of your guide.

David W. Grzebinski: Yeah. Well, you have seen we have continued to buy back our stock. We were fairly aggressive, in the second quarter. We like the stock price where it is at, and we are happy to continue to buy it. You know, you have heard Raj, talk that we like using our free cash flow to buy back stock when we do not have acquisitions. You know, we are always looking for acquisitions, particularly in our core businesses. But in the absence of those, we are very happy to use our free cash flow. I would say this, you know, free cash flow was a little lower, in the second quarter than we expect.

We still think our full-year, guidance on free cash flow is going to be there. What has happened is that we have had a lot of working capital build, principally around receivables because business has been good. Big portion of that is related to Power Gen receivables and then we also have a lot of fuel rebills that have built up in the receivables. So, you know, as that working capital frees up, we will have more free cash flow and you know, we are happy to buy back our stock with our free cash flow. So now that said, again, we always prefer to do an acquisition or to buy assets, and we will take those as they come.

They are hard to predict. In the absence of those, we are very excited to buy back shares. You know, in terms of our guidance, we really you know, do not include the benefits of the share buyback. But as you know, it is an average for the year, so as you get into the second half, it matters less in terms of this year's earnings, but certainly matters for next year's earnings.

Benjamin Mohr Mok: Appreciate that. Last one from me. You have noted the supply side is still very favorable with very low newbuilds. A concern is that it could increase eventually with the strong market you mentioned that maybe roughly five years of continued spot rate increases. What is the range of your age of fleet, if you could share that currently, versus kind of, you know, historical average? And then at what age do you typically currently retire your fleet?

David W. Grzebinski: Yeah. Yeah. There are two ways to look at this, both the barge and the boat side. You know, our average barge age is maybe 18 years old somewhere in that ZIP code. You know, we have 1,100 of them. So that is on the inland side. They typically can run until about age 30. You can stretch it to 35, but it starts to make less sense from a maintenance, upkeep standpoint. So we are quite comfortable with the age of our fleet. And then you have the towboat side, which is also important. The towboats can go 35 years roughly speaking. You know, the average age of our towboat fleet has come down a lot.

From our purchases over the last three to five years. So we are very comfortable with the age of our fleet. I would say, you know, from an industry standpoint, as I have mentioned before, pricing has to be 40% higher to justify new capital deployment. We are not seeing-- Christian could share the actual number we think is in the shipyards, but it does not make sense to build right now. I think we need those price increases for a number of years to get there. And Christian can comment on the shipyard capacity as well.

Christian G. O'Neil: Yeah. You know, we think it is an inexact science, but we think we have line of sight of about 60 barges getting built this year. That represents pretty much replacement capacity for us and our competitors that are retiring equipment. Construction remains very much in balance with current capacity. David nailed it. The economics simply do not work. To build a two-barge tow, a new boat, two new barges, you are still 40% below where you need to be to earn an adequate return. Also, shipyard capacity is somewhat reduced from the pre-COVID era when you saw a lot of construction. It is just expensive labor in the shipyard, and the price of steel itself remains highly elevated.

You know, a lot of these inflationary pressures that weigh on our transportation business labor, paint, steel, electronics, those remain very high. And so we still face some pretty tough inflationary pressures. And so the rates still have a way to go, I mean, 40% more before you really get to the economics that would justify it, a newbuild cycle in earnest.

Benjamin Mohr Mok: Wonderful. Appreciate the time and insights always.

Operator: Thanks. Thank you. And our next question comes from Bascome Majors of Stephens. Your line is open.

Bascome Majors: Yep. Thanks for taking my questions. David, I know There is not much that you can say in specificity, but I was wondering if you could walk us through your thoughts on you know, the high level value creation for yourselves and shareholders. From, from the D and S segment, including Power Generation? Like, you know, what is the long-term thought process on, you know, capitalizable earnings when you get to the point where the aftermarket's really started to flow through. In that business versus and how do you balance that nearer term versus the ability to or interest in something that is growing really heavily, along with any know, cash flow or tax leakage considerations on that side?

Thank you.

David W. Grzebinski: Yeah. Tough question, but good question to ask them. I appreciate it. Look, we always look at our portfolio and our capital deployment. Look over the years, you have seen Kirby do a lot of acquisitions in the marine side, probably in the last I think Christian and I have worked on 25 marine acquisitions in the last 10, 15 years and probably a dozen D&S acquisitions. We are always looking to add, but, look, we have got 2 very different businesses here. So at the board level, we talk about, you know, what makes sense. I would say what drives us and the board is shareholder value.

If there is a way to increase shareholder value, we are gonna do it. We are gonna look at it. That said, we are very happy with our portfolio. You know, the marine business is rock solid. The Power Gen business just continues to surprise to the upside from our expectations. I think you hit on it. There is gonna be a massive service annuity that is gonna emerge from this installed base. I think you have heard us talk about our Power Gen installed base doubling in the next 18 months. That is absolutely gonna happen when we look at our backlog and our deliveries. You know, I will use this opportunity to update our backlog.

I think that I said on the last call, we were between $500 million to $1 billion, and then I will update it when we go through the top end and we have. So, you know, our new backlog guidance is a $1 billion to $1.5 billion. And the good news is most of the inbound has been behind-the-meter power. Which is what we like.

David W. Grzebinski: You know, if you think about the engine business, standby diesel, they are not really running. They are sitting at data centers waiting for a blip in the power, and they do not run a lot. There is still service related to them. But it is not as real. As much service as you get with natural gas recips that are running 24/7 to provide prime power. You know, though those engines will run. They will have a lot of what we call balance of plant equipment around them, which would be things like cooling systems, after-treatment systems, sound attenuation systems. And they are all gonna get duty cycles.

So, you know, in about four years, maybe five years, all those engines that we are putting out, in the behind-the-meter space will need some service. You know, we are working hard, and you know, I think Christian's got a project he should tell you about right now.

Christian G. O'Neil: You know, when you look at the opportunity in the aftermarket, our data center and our power service customers are looking for turnkey solutions for uptime. Downtime is the absolute enemy. Chad, Jost, and his team are putting together an enhancement, an operation called Kirby Integrated Power Systems, I am very excited to announce on this call. We will be going after that aftermarket. We believe that the CapEx cycle is amazing. We are enjoying it now, but we think we can generate value exceeding the original product value in the aftermarket and the out years. And so you look at the urgency of data centers, the uptime required for data centers there is an outstanding service opportunity here.

We do this every day. We are just enhancing it with some talented techs and a focused management team. You know, the job site for these techs will be the data center and we are gonna go after that aftermarket opportunity that you referenced on a high-level value-creation through the cycle. And so this is just one little piece of it that we are highly focused on.

Bascome Majors: Thank you both. Thank you.

Operator: And our next question comes from Scott Group of Wolfe Research. Your line is open.

Scott Group: So a couple of things on pricing I wanted to ask. Where are we on spot relative to contract in inland right now? When do you think we start? Do you think we can accelerate out of this low-single-digit contract range? And then, I guess, I understood you had the Jones Act question earlier. All the stuff that you are talking about in terms of the Q2 issue with coastal pricing down, is this related to this Jones Act waiver, or is this a separate issue? I just want to understand exactly What is going on in Coastal right now.

Christian G. O'Neil: Yeah. Let me take your Coastal question right now. I think we spoiled everybody with four years of continuous rate increases at coastal. Let me frame this up. So what we talked about in the announcement is just the normal ebb and flow of negotiation. We had a couple of units trade off their all-time highs. This is what happens. Fundamentally, the fleet remains in a great spot. We are fully utilized. This is not a Jones Act associated issue on price pressure. This was just normal ebb and flow negotiation. And a slight tick down from all-time highs ever earned while we have owned these 10% to 15% above term contracts right now.

David W. Grzebinski: We like that. That is the way to hand into the contract-heavy renewal in the second half. You know, we are very constructive around that. You know, I hear you about double-digit increases instead of single-digit increases. You know, we are all for increases, but, you know, slow and steady, kind of wins the race. We have very sophisticated customers. They know, you know, what kind of inflation hedge we have, and they know the supply-and-demand market. And so we like the slow and steady, because it is, you know, it is easier to achieve. That does not mean we are not trying to push for higher price increases.

It is just, you know, the market is the market, but we are not unhappy with slow and steady.

Scott Group: Yeah. And just follow-up on Coastal. So what percentage of the market is this 80,000- to 100,000-barrel market and is this-- I do not know, is this your view? Is this a temporary? We had a couple things that sort of renewed down slightly. And this is sort of a blip, or is this sort of like it is coastal getting to a peak around this 20% margin, which we have really never been at before. So maybe we are peaking. I do not know. I am curious your thoughts.

Christian G. O'Neil: No. You know, I think when you break down the offshore fleet, you have different sizes, different classes. You have a class of equipment that is 150,000 to 180,000. And we compete against MR tankers that are 330,000. All of those rate renewals this year have increased. We called out a very small subsection here, 20% to 25% of the market-ish. That is the 80,000s and 100,000s. These trade in refined products many of them in the Northeast, it is a very competitive part of the world. There has been some supply dynamics changing with European imports that get moved around in the New York Harbor and up on the Northeast.

That impacted these particular trade lanes and these particular deals. So you know, I would not read too much into these two renewals that we are talking about as far as the whole fleet. The rest of the fleet did enjoy rate increases year-to-date.

David W. Grzebinski: Yeah. And when we give the rate increases, it is an average. Remember, it is an average. It is a simple average, not a weighted average. You know, we actually did have a couple eighties that renewed higher. But, you know, the simple average brought the 80,000s and 100,000s down a little bit. So I think it is a temporary thing. Nobody's building capacity in the offshore side. Even if they started now, it would be 3 years before any capacity is delivered. So we are still very constructive about the long-term for Coastal. Yeah.

We do not like price declines, but this is kind of, as Christian described it, the, you know, the ebb and flow of renewals after four years of up-renewals.

Scott Group: Okay. And if I can just ask Raj one quick one. You know, some years, we get the full-year guide. In some years, Q3 is higher than Q4. Some years, Q4 is higher than Q3. Any just, like, thoughts on, like, the cadence of the back half of the year?

Raj Kumar: Yeah. You know, Scott, I probably do not want to get into the, you know, the quarterly flows here. Just, you know, what I am gonna say is the second half is looking really strong. Right? With everything that is happening right now and the comments that David and Christian made, I mean, pricing should continue to go up. The supply dynamics are very favorable. You know, if I could give you some color, I will say Q3 is probably better than Q4. But, overall, very excited as to what we are seeing in the second half of the year.

Scott Group: Thank you, guys. Appreciate the time.

David W. Grzebinski: Thanks. Thanks, Scott.

Operator: Thank you. And our next question comes from Gregory Lewis of BTIG. Your line is open.

Gregory Lewis: Morning. Christian, hey. I was hoping you could talk a little bit about the impact in the higher diesel prices and the fuel pass-throughs. I mean, I guess, just looking at diesel prices, I guess they ripped, like, 30%, like, March and April. Just kind of curious, how should we be thinking about just if we are going to be in a more volatile oil price market given I guess, you know, who knows? But, like, how should we think about the time lag of that and just, you know, as we think about where we are now, I mean, I guess, you know, just looking, is the New York diesel price a good proxy to be looking at?

You know, just as we try to understand this. And then, you know, I do not know how much color you can provide, but kind of curious how much of a headwind that you know, the higher fuel prices was the Q2 numbers.

David W. Grzebinski: Yeah. Gregory, it is we, you know, we did talk a little bit about it in the second quarter call. I think we said $0.05 to $0.10. Yeah. Headwind to second quarter, and that and that is about what it was, probably on the higher end of that. That we will catch all that up in the third quarter or the fourth quarter, most of it in the third quarter. Yeah. We work really hard to make fuel a pass-through. We do not want to make money on fuel. We do not want to lose money on fuel. You know, our customers by and large are they trade in fuel. They are best able to absorb fluctuations in fuel.

So we work really hard with them on our contract escalation and deescalation clauses to make sure we come in neutral. There is a lag. You know, some of them reset 30 days, some 60, some 90, and we have a one or two that are longer than 90, which we should probably look at. But, we can get pencil whipped. You know, we buy it, and then there is a lag to get reimbursed for it. But by and large, we think we will come out neutral on fuel this year. Third quarter is gonna be a good third quarter. And part of that is the fuel coming back in and collecting that.

I would not use New York fuel prices, though. Gulf Coast prices are a better proxy because that is where we buy the bulk of our fuel, and you know, it has been pretty sporty, as you said. We will see what happens with the war and where fuel prices go. But we work, you know,, just to keep reiterating it, we work hard to be neutral and we do not want to make money on fuel. We do not want to lose money on fuel. And you know, in our history, we have actually gone back to customers and said, hey. We need to adjust the fuel cost because we made a little money in fuel.

So they get it. They work with us. And we try and stay neutral. That is a long-winded answer to say that, we are pretty neutral.

Gregory Lewis: Sounds . Alright. Thanks for the time.

David W. Grzebinski: Thanks, Gregory.

Operator: Thank you. And our next question comes from Ken Hoexter of Bank of America. Your line is open.

Ken Hoexter: Good morning. So kind of a big change of tone, I guess, in two directions on the call. Right? So the outlook seems to jump to the top this quarter, but it sounds like you are now talking about five years to get to peak at inland versus, you know, I think what was expected to be maybe a faster move given the tight supply-demand. Why do you think the changing thought process here just given from quarter to quarter? It seems like this may be a longer lead time to get to those peaks.

David W. Grzebinski: Maybe some conservatism, but also the realization of what we saw last year, Ken. I mean, you saw us lose a little pricing even though we were, you know, in a supply-demand kind of balance situation. We got a little more conservative, because last year was a bit of a surprise to us. And really what drove it was you know, the lack of heavy crude into the Gulf Coast refineries, and it just hit us. And you know, spot pricing was down in the second half of last year. We got a little more conservative here. You know, could it go faster? For sure. We would certainly be in favor of that.

But slow and steady is also okay with us. It is a funny way to look at slow and steady for us, you know, free cash flow just continues to come in, and we use it to buy back stock. So slow and steady feels pretty good to us. We do get, you know, the urgency to try and get margins up. But, I would tell you the change in tone is really driven by what we saw last year, and we do not think that will repeat, but you never know, particularly given the, global, you know, political and crude market dynamics right now.

They are just I do not want to say unpredictable, but certainly can get a curveball thrown here or there. Yeah. I know there is a management team across the nation that does not struggle with some of the geopolitical and administrative challenges. Yeah. There is just more volatility. Ken, when you try to get the crystal ball out. But I mean, fundamentally, things are very, very good in all the businesses, as you know. And we are still fighting inflation. I mean, that, you know, that continues to be an issue. We keep pushing price, but you are still fighting inflation.

Ken Hoexter: Yeah. So what is leading to the improving outlook? Right? If we are I am hearing things are at peak at coastal and maybe rolling a bit, margin pressure inland, got the fuel contracts are going slower than expected. You know, this issue with the 80,000- to 100,000-barrel on the coastwise water. Right? In terms of seeing some of the all-time peaks going down. So where is the upside in confidence? And by the way, Power Gen seems to be a big deceleration in growth this quarter, right, from 45% to single digits. So what is giving you the confidence that the top of your target given all that commentary?

David W. Grzebinski: Well, let me take each one of those, and Christian and I will tag team this. But certainly do not believe we are at peak on margins on coastal. Gosh. I fully expect coastal margins to get north of 20% in the next couple of years. There is no equipment being built. It is a very tight market. There is some noise around the 80s and the 100s. The 80,000s and 100,000s are probably the most commodity kind of area in coastal that is the one that has the most noise in it. But certainly believe, strongly that coastal margins are gonna continue marching up.

You know, look at it from a year-over-year standpoint, and I fully expect coastal margins to go up next year. You know, inland, is not decelerating. We, you know, we got through the second half of last year. There was a little headwind there. If anything, I think inland's improving. Certainly the war helps a bit, but it is it is, It is really more a supply-demand picture, and I do not see that changing. In the near term or-- and I only see it improving in the longer-term. Power Gen is-- look, I mean, the backlog grew a lot. You know, we have gotta ship to produce the revenue, and we will. You will notice margins improved.

We are working on margins. We are constrained by engine deliveries, but I would tell you that the inbound is the key. That inbound continues to grow, and It is the right inbound. It is the behind-the-meter stuff that is gonna have a service deal. So yeah, we are not, we are not dour at all. We are quite the opposite. We are very excited about what is in front of us. Thanks, Ken.

Ken Hoexter: Thanks, Ken.

Operator: Thank you. And our next question comes from Gregory Wasikowski of Webber Research. Your line is open.

Gregory Wasikowski: Hey, guys. Good morning. How are you doing? Good morning. Just a higher-level one on inland. I am just curious your overall thoughts on efficiency gains in the market over the years. Just from an asset performance perspective, overall technology, AI, whatever it is. I am just curious. Do you think that has had a material impact on, like, the net demand or impacted the rate of improvement that we have seen in spot and term markets and maybe this is a contributing factor to Ken's question on the dichotomy between the you know, sentiment improving, but the slope seems to be flattening. And maybe that is not a bad thing as you have outlined in the past.

David, but I am just curious in your overall thoughts there.

Christian G. O'Neil: While we do see every customer you know, trying to gain efficiency, using AI in various ways. One of the wonderful things about the Kirby value proposition is we bring that efficiency every day with our scale, with the diversity of the bottoms of our barges, with our line-haul network, with our ability not to dedicate as much horsepower as our competitors. And so we deliver this efficiency and this value proposition every day. It is a big part of what we do, our geographic footprint, and just the depth of our relationships and the range of cargoes we are capable of moving.

So you know, you might think there is always optimization when you are running a refinery or a chemical plant. You know, you are always optimizing. You are always messing with the inputs, looking at the right crude oil to run. And barging is an essential part of sort of balancing the refineries and servicing the chemical plant. So I think, you know, in my opinion, we have not seen any major reduction in you know, the need for barges because we already are really, really highly efficient at Kirby. That is the value proposition that we deliver every day.

And then when you get to the sort of the technology side, you know, fuel, Tier 4 engines, are a little more fuel efficient than their ancestors. You see some efficiencies like that and in technology. You know, electronics are better, safer. The industry as a whole is safer. You know, there are some gains like that when it comes to technology.

Gregory Wasikowski: And then another one, just going back to the maintenance schedule that you guys brought up a little bit. Can you give your thoughts on the other end of that, the redelivery schedule? I know we are getting out into, like, the 2030s here, so it is a bit of crystal ball. But I think just this past redelivery cycle seemed to impact the market. A little bit more than we were expecting at least, and maybe that is just because it was combined with other factors. But with this next one coming up in a few years, it is back half of the decade, just wanted to get your thoughts on that chunk versus what we saw last year.

Christian G. O'Neil: Yeah. You know, what you get into in 2027 to 2028, is barges that are five years older. And so the intensity of the work and the level of the U.S. Coast Guard major that you have to do is higher. And so you could see the barges will be in the shipyard for longer periods of time. They will require more steel replacement. They will require more paint. And so, you know, in theory, not knowing the subjective condition of everybody's barges that is going in, you should see a cycle where the length of the shipyard stay is increased. Meaning more available days are consumed. Yeah.

Gregory Wasikowski: Okay. I appreciate that color. Alright, guys. Thanks for fitting me in. Appreciate it.

Christian G. O'Neil: Thanks, Gregory. You bet, Gregory.

Operator: Thank you. I am showing no further questions at this time. I would like to turn it back to Matthew P. Kerin for closing remarks.

Matthew P. Kerin: Thank you, David, and everyone on the call for participating in our call today. If you have any additional questions or comments, please feel free to contact me. Thank you, and have a good day.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

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