Kirby - Q3 2013
October 28, 2013
Transcript
Operator (participant)
Good morning, and welcome to the Kirby Corporation 2013 third quarter earnings conference call. My name is Sherry, and I'll be your operator for this call. At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A session. Please note that this conference is being recorded. I would now like to turn the call over to Steve Holcomb. Steve, please go ahead.
Steve Holcomb (VP of Investor Relations)
Thank you for joining us this morning. 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, President of Kirby's 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 the 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 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 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.
Joe Pyne (Chairman, President, and CEO)
Okay, thank you. Thank you, Steve, and good morning. Earlier this morning, we announced third-quarter earnings of $1.21 per share, which included an $0.8per share credit to the contingent earn-out liability, thereby eliminating all the remaining earn-out liability associated with our acquisition of United Holdings in April of 2011. Our inland and coastal tank barge fleets continued to maintain high equipment utilization levels and favorable pricing trends during the quarter. We continue to benefit from strong petrochemical production, stable refinery production levels, export of refined products and fuel oils, which remain strong, and, of course, the movement of crude oil and gas condensate, from shale formations in the United States. Our land-based diesel engine business remains challenging, but we do think that this business will be stronger next year.
In our marine diesel engine business, the medium-speed engine business was busy during the quarter, servicing both inland and coastal customers. The high-speed market was softer during the quarter, as well for the year. As a result of this continued softness, we incurred a $500,000 charge for a reduction of force during the third quarter. With respect to the power generation market, it continues to be stable. I'll now turn the call over to Greg, who will discuss our marine transportation markets, and then David will give you a financial update. Following those remarks, I'll conclude with some comments about our 2013 fourth quarter and year guidance and outlook.
Greg Binion (President of Marine Transportation Group)
Thank you, Joe, and good morning to all. I will address the inland business and then the coastal business. Our inland business. Our inland marine transportation business continued its overall strong performance, with equipment utilization in the 90%-95% range and favorable term and spot contract pricing. The 2013 third quarter saw improved operating conditions compared with the high water conditions on the Mississippi and Illinois River that persisted throughout the second quarter. Additionally, the Algiers Lock was closed from late March until mid-July, creating heavy congestion and multi-day delays in the New Orleans area and along the alternate route to the Mississippi River at the Bayou Sorrel and Port Allen Locks. The congestion and delays were cleared by late July.
We also experienced seasonably typical low water on the upper Mississippi and Illinois rivers during September, which resulted in the light loading of barges transiting those areas. For the 2013 third quarter, inland transportation revenues from our long-term contracts, that is one year or longer in duration, were 75% total revenue, with 59% from time charters and 41% from affreightment contracts. Moving to inland marine transportation pricing, term contracts renewed during the third quarter continued to renew at the mid-single digit levels when compared with the 2012 third quarter. Spot contract pricing levels, on average, remained 5%-8% higher than term contract pricing. Moving to new inland tank barge and towboat construction, during the 2013 first nine months, we took delivery of 55 new tank barges, totaling 1.2 million barrels in capacity and 3 towboats.
We retired 37 tank barges and returned 4 leased tank barges, removing approximately 630,000 barrels of capacity. So net, net, our 2013 first nine months, we added 14 tank barges to our fleet, increasing our inland capacity by approximately 570,000 barrels. As of September 30th, we operated 855 inland tank barges with a capacity of 17.2 million barrels. For the 2013 fourth quarter, we expect to place in service 13 inland tank barges with a capacity of approximately 175,000 barrels. The cost of the new inland tank barges and towboats, as well as the 2 offshore dry bulk towed barge units delivered throughout 2013, will be approximately $143 million.
At this present time, we expect to finish 2013 with approximately 17.3 million barrels of inland capacity, slightly above our present level, and approximately 650,000 barrels above the 16.7 million barrels at the beginning of 2013. Kirby Offshore Marine continued its strong performance, with equipment utilization remaining about 90% during the third quarter, consistent with the 2013 first six months, and significantly above the 75%-80% utilization range for the 2012 third quarter.
All of our coastal markets, with the exception of the New York area market, remained strong, driven in part by increased demand for crude and condensate, continued progress in expanding our coastal business to our inland customers, and the expansion of our coastal fleet during 2012 fourth quarter into the movement of petrochemicals with the acquisition of Allied and black oil products with the acquisition of Penn. As of 2013, approximately 75% of coastal revenues were under term contracts, compared with 60% for the 2012 third quarter, with the balance coming from spot contracts. The improvement represented the addition of Allied and Penn, as well as new contracts signed in the 2012 fourth quarter and the 2013 first nine months.
With respect to coastal marine transportation pricing, term contracts that renewed during the third quarter increased in the high single digit range, and in some cases higher when compared with the 2012 third quarter. With that, I'll turn the call over to David.
David Grzebinski (EVP and CFO)
Thank you, Greg, and good morning to those on the call. As Joe noted, our 2013 third quarter earnings of $1.21 per share included an $0.08 per share credit from decreasing the fair value of the contingent earn-out liability associated with United. As of September 30th, the contingent earn-out liability is zero. We have reversed $0.20 per share during 2013, making the liability zero, and we certainly don't expect to make any more adjustments to the liability. For those of you running models, this $0.20 per share addition to our 2013 earnings will not be repeated in 2014. Marine transportation revenues grew 25%, and operating income grew 39% over the third quarter of 2012.
The inland sector contributed approximately 70% of the third quarter marine transportation revenue, with the coastal sector contributing approximately 30%. Despite the lock issues in July and the low water issues in September that Greg had discussed, our inland sector earned a third quarter operating margin in the upper 20% range. The coastal sector operating margin improved to the upper teens, compared with high single digit margin from the third quarter last year. The overall marine transportation segment's third quarter operating margin was 26.1%, compared with 23.4% for the 2012 third quarter. Our diesel engine services revenue for the 2013 third quarter declined 33%, and operating income was down 38%, compared with the third quarter of last year.
However, without the $7.9 million earn-out credit, the operating income would've declined around 90%, compared with the third quarter of 2012. This segment's operating margin was 7.9%, compared with 8.5% from a year ago. The decline in revenue and operating income was primarily due to the lower results in our land-based operations at United. Our land-based operations contributed approximately 60% of the diesel engine services revenue, the segment revenue, and excluding the earn-out credit, we reported a... Excuse me, yeah, excluding the earn-out credit, we reported an operating loss in that business, but that included some, some expenditures, one-time expenditures, with the, the retirement and hiring of a new president for at United, as well as some warranty-related expenses.
The marine and power generation operations contributed approximately 40% of the diesel engine services revenue, with an operating margin in the 10% range. Moving on to corporate items, we are increasing our 2013 capital expenditure guidance to $240 million-$250 million range, which is up from the previous guidance of $230 million-$240 million. This primarily reflects a $10 million increase to capital upgrades and improvements of marine equipment. Thanks to our strong cash flow during the 2013 first nine months, we continued to pay down debt. Total debt as of September 30th was $861 million. That represents a $274 million reduction from our total debt of $1.14 billion at the end of last year.
And that debt was up, as you know, from the acquisitions of Allied and Penn. Our debt to total cap ratio fell to 31% as of, as of the quarter end, and that compared with 39.9% at the end of 2012. As of September 30th, we had $49 million outstanding under our revolving credit agreement, which compares to $185 million outstanding at the end of 2012. As of this morning, we had 0 outstanding under our revolver, and our invested cash was at $16 million, and total debt as of this morning is $812 million. And that yields a debt to total cap of about 29.8%.
Our term loan balance as of September 30th was $312 million, compared to $468 million at the end of the year, and that's the summary of the corporate balance sheet. I'll now turn the call back to Joe.
Joe Pyne (Chairman, President, and CEO)
Okay, thank you. Thank you, David. In our press release this morning, we announced our 2013 fourth quarter guidance of $1.05-$1.15 per share. This compares to $1.03 per share earned in the 2012 fourth quarter, which included a $0.9 per share credit to the United earn-out contingent liability. For the 2013 year, we raised and narrowed our guidance range to $4.37 to an upper end of $4.47 per share, compared to the $3.73 per share for 2012. This 2013 annual guidance range includes an accumulative $0.20 per share credit to the United contingent liability earn-out, which David talked about.
Our fourth quarter guidance range does not have any additional adjustment to this contingent earn-out liability, as we've eliminated this liability from our balance sheet with the action in the third quarter. Our fourth quarter guidance assumes a modest improvement over 2012 fourth quarter pricing for our inland marine transportation markets, markets that continue to operate at close to full utilization. It also assumes a continued strong coastal market with higher term and contract pricing. However, we're also assuming normal seasonality associated with poorer operating conditions that are typical for the quarter. We feel that we're at the bottom of the cycle with respect to our land-based market, that's the United business, and we should begin to see improvement in 2015.
Our fourth quarter guidance assumed our diesel engine service, marine, and power generation markets will continue to be stable, and our land-based market will continue to struggle. Operator, this concludes our prepared remarks. Now we're ready to take questions.
Operator (participant)
Thank you. We will now begin the Q&A session. If you would like to ask an audio question, please press star and then one on your touch tone phone. If you wish to be removed from the queue, you can press the pound or hash key. If you're using a speakerphone, you may need to pick up your handset first before pressing the numbers. The host of the call requests that you limit yourself to one question and one follow-up question. Once again, if you have a question, please press star and then one on your touch tone phone. Then our first question comes from John Chappell of Evercore Partners.
John Chappell (Senior Managing Director)
Thank you. Morning, guys.
Joe Pyne (Chairman, President, and CEO)
Morning, John.
John Chappell (Senior Managing Director)
David or Joe, my first question revolves around the cyclicality of the core marine businesses. They've obviously been carrying the flag for you guys and posting significant strong utilization pricing gains, while the diesel engine services business continues to be somewhat of a drag. So as you kind of think about the cycles on both of those businesses, and I know they're a little bit different, what innings would you assess, you know, the current strength of the cycle for both inland and coastal?
Then I'll give you my follow-up right away, which is: you know, as you think about earnings growth in 2014, how much of that would be the continued strength of those two businesses versus the bounce off the bottom in diesel engine versus, you know, potential non-organic growth, in terms of M&A?
Joe Pyne (Chairman, President, and CEO)
Well, why don't I take a jab at that, John? This is Joe. You know, the marine business is a cyclical business. I've been in it over 35 years, and I've seen, you know, not a number of cycles, but several cycles. You know, what we're seeing today is different, and it's different because for about 30 of those years, we were essentially in a very slow growth business. Business would grow at about, you know, at best, GDP, and maybe a little less than GDP. With the energy renaissance in the U.S. and the need to move crude oil, gas condensate, and the...
The significantly improved competitiveness of the chemical business on a global basis, you have demand that frankly, I don't think that we've seen in this business for 30+ years. So, your, you know, your typical cyclicality trends are gonna be different here because you've got volumes that are actually growing. Now, with respect to which inning you're in, I think that you could make a pretty good argument that you're at the beginning innings in the coastal business, and maybe a little further along on the inland business. The only qualifier I'd put there is that, on the coastal side, you're really not building much equipment. On the inland side, you are adding capacity, and that capacity is being absorbed.
It's being absorbed as we speak. But you know, you just have to look at what's coming in, balanced by the volumes that are out there. Not particularly concerned about it at this point, but we certainly watch it. Do we have the ability to maybe add a little too much capacity? We probably do, but hopefully, the industry is watching it like we are, and will reduce the construction quickly if they see utilization begin to taper off. Now, as for the 2014 earnings, I think that with respect to our earnings, the biggest driver is always gonna be the marine side.
You've got more revenue with significantly higher margins, you know, a lot of power in those earnings. United can produce some nice earnings growth, but they... You know, those earnings are gonna be, you know, really a fraction of the total of marine earnings. We do expect that the land-based business is gonna improve. We expect the marine business is gonna improve too, in 2014. But I think that, you know, your real earnings driver is gonna continue to be marine transportation.
And depending on how, you know, quickly United is lifted off the bottom, that's gonna help, but it's not gonna help the way that continued pressure on rates and high utilization levels are gonna help on the marine side. David, do you have anything to add to that?
David Grzebinski (EVP and CFO)
No, I think that's a great summary of it.
Joe Pyne (Chairman, President, and CEO)
Okay.
John Chappell (Senior Managing Director)
Yeah, very thorough. Incredibly helpful. Thanks, Joe.
Operator (participant)
Thank you. And then our next question comes from Greg Lewis of Credit Suisse.
Gregory Lewis (Oil Service Analyst)
Yes, thank you, and good morning.
Joe Pyne (Chairman, President, and CEO)
Morning, Greg.
Gregory Lewis (Oil Service Analyst)
Morning. David, could you provide a little bit more color around marine transportation's EBITDA margins? It looks like they hit a record north of 26%. Was there anything specific in terms of timing that drove that margin uplift? Or and is this something that we think is potentially sustainable, where it's more of a mid-20s margins as opposed to a low 20s margins?
David Grzebinski (EVP and CFO)
Yeah, no, I mean, as we said in our prepared remarks, the inland business was in the kind of high 20% range, and the coastwise business was in the high teens. Clearly very high, and that gave the segment you know, 26.1% margins. You have to recall this, Greg, that you know, the third quarter is almost always our best quarter. That's when the weather's the best. Things, you know, tend to go really well in the third quarter. We’ve been making progress on coastwise business. You know, that margin continues to expand as rates go up and utilization steady. In the second quarter, you'll recall we had pretty high shipyard days in the coastwise business.
That's come down a little bit, and we'll continue to work on that over time. But yeah, you know, hopefully margins stay in this range for a while, but you know that our third, excuse me, our fourth and first quarters are impacted by weather. That's when things slow down. You know, even as we speak, we're pulling equipment out of the Alaska market because it shuts down about this time of the year. So you get impacted by weather. On the inland space, we can start to get fog in the wintertime here, and you can get ice in the upper. So you have to be careful with the seasonality, so to speak.
Gregory Lewis (Oil Service Analyst)
Okay.
Joe Pyne (Chairman, President, and CEO)
Does that-
Gregory Lewis (Oil Service Analyst)
Yeah, I mean, it does. I guess what I was wondering is the sale of those, you know, the assets in New York Harbor, I mean, that those, I guess it doesn't sound like those were much of a drag on margins?
David Grzebinski (EVP and CFO)
Well, I mean, yeah, we were essentially losing money in New York Harbor with those assets, and, you know, we kind of stemmed the bleeding a bit there. So that was certainly helpful, but that should continue, you know-
Gregory Lewis (Oil Service Analyst)
Okay, great. And then just I guess, as a follow-up to this, when we think about where the existing fleet is. Are there any potential assets either on the coastal side of the business that we potentially could see sold going forward? Or at this point, where the fleet is sort of sized in terms of the equipment, the management team's comfortable with all the assets in the fleet right now?
David Grzebinski (EVP and CFO)
Yeah, no, I'd say we're comfortable with the fleet now. We don't see any sales coming up that make sense, so we're pretty pleased with the composition of the fleet right now.
Gregory Lewis (Oil Service Analyst)
Okay, guys. Hey, thank you for the time. Congratulations on a good quarter.
David Grzebinski (EVP and CFO)
Thank you, Greg.
Operator (participant)
Thank you. And then our next question comes from Michael Webber of Wells Fargo.
Michael Webber (Managing Director)
Hey, good morning, guys. How are you?
David Grzebinski (EVP and CFO)
We're good. Thank you.
Michael Webber (Managing Director)
Oh, sorry. Yeah, I think it's a phone interference. I just wanted to first kind of maybe dig in a little bit more specifically around around the coastal business. And, you know, earlier this year, both on, you know, kind of off and online, and we've kind of talked about the fact that kind of new build prices for larger scale coastal assets kind of had moved in advance a bit of rates and returns weren't quite there yet to kind of justify some of the new build prices. So I'm just. I'm curious as to just your general thoughts around that market, around, you know, first of all, whether returns have kind of caught up and whether either, you know, charter prints or indications from charterers have kind of caught up with where new build prices are.
Your thought process around adding, you know, adding larger scale, be it ATBs or other assets around the coastal business in 2014, and then shipyard capacity in that space and whether or not we see any new entrants?
David Grzebinski (EVP and CFO)
Yeah. Well, let me kind of take that one at a time. Several questions embedded in there. Yeah, coastal pricing, as you know, since, since essentially the third quarter of last year, third quarter, fourth quarter of 2012, pricing started to increase. We've had basically high single digits and in some cases, double-digit price increases on term contracts each quarter since then. So, so pricing has moved up, significantly, but it's, you know, it still, still has some, some room to run, particularly if you, if you view that, any new builds probably wouldn't hit the market till 2015.
Michael Webber (Managing Director)
Sure.
David Grzebinski (EVP and CFO)
So there should be some room. Pricing isn't where it needs to be to justify new builds and get a good return or, you know, our required return on new builds. But, you know, we're making progress towards that. We continue to speak with our customers about their needs. You know, we're positioned well in that, we'll continue to monitor it. In terms of announced construction, we know we talked about one competitor that's building some very large equipment. We've heard a rumor that one person is gonna build 100,000 or 200,000 barrel units, but, you know, that's kind of swirling around out there.
Michael Webber (Managing Director)
Mm-hmm.
David Grzebinski (EVP and CFO)
But that the competitor we've heard is, he owns his own shipyard, so there may be a little self-serving going on there. But you know, it's still, it's still early days, as Joe indicated in his comments, in the coastwise market.
Michael Webber (Managing Director)
Mm-hmm.
David Grzebinski (EVP and CFO)
You know, even if we were to start tomorrow, you know, you're talking almost 2 years before you get delivery of a unit. So we've got some lakes yet to go on this.
Michael Webber (Managing Director)
Sure. And then I guess just the likelihood that we see additional shipyard capacity really open up, granted it would be delivering into 2015 and 2016. You think that's likely at this point? And granted, that's just an opinion, but in your view, do you think that's likely?
David Grzebinski (EVP and CFO)
I don't think additional shipyard capacity. There's plenty of coastwide shipyard capacity out there now.
Michael Webber (Managing Director)
Mm-hmm.
David Grzebinski (EVP and CFO)
It's not being used. That's different than the inland shipyard capacity.
Michael Webber (Managing Director)
Sure.
David Grzebinski (EVP and CFO)
So I don't see—I don't think you'd see any new coastwide shipyard capacity. They're all, you know, looking for business now. So I think we're okay there.
Michael Webber (Managing Director)
Great, thanks. And just as a follow-up around actually diesel engine services, and you know, you guys have talked, I think this is the second quarter in a row, you kind of referenced a turn potential in potentially in 2014. And I'm just curious, maybe if you can kind of walk us through the mechanics of what would drive that turn. And then if we think about, you know, a recovery in that market relative to the previous peak in that cycle that was really driven by a lot of new equipment, you know, how that recovery in that business might look relative to the last peak, and how it would kind of get phased into your results?
Joe Pyne (Chairman, President, and CEO)
Yeah. This is Joe. I'll take that.
Michael Webber (Managing Director)
Okay.
Joe Pyne (Chairman, President, and CEO)
You know, I don't think that you're gonna see, for a number of years, the ramp-up of new orders that you saw kind of in the 2010 through early 2012 years, where you're adding really millions of horsepower into the pressure pumping market. What you'll see going forward will be some replacement building, some additional capacity, where some domestic capacity gets exported. You're beginning to see pressure pumping in other parts of the world... and you're gonna see a lot of reman. And, as I think you know, we have focused on the reman. We think that that's a steadier, more predictable business.
We think that the service business should provide a higher, more consistent operating margins than the manufacturing side. Manufacturing, you know, for 2-4 quarters can be terrific, and then for the next 2-4 quarters, they can be very painful, where we think that servicing that equipment is gonna be a requirement that will be much more consistent. And it's also harder to do, so we've spent a lot of time building the organization, building the processes that we think position us well for that reman activity.
Which, as we frankly listen to our customers, listen to some of the analysts that follow the pressure pumping business, you know, looks pretty good for 2014. There should be a lot of maintenance that needs to be done. As for new construction, one of the things that is comforting is we are seeing the level of inquiries increase. There's significantly more customers asking for availability and pricing on business. Not so much for pressure pumpers, it's more for the auxiliary equipment that is used in that business. So we just sense that 2014 is gonna be a better year for our business.
I think the pressure pumping business in general thinks it's gonna be a better year. Will pricing come back to the 2010, 2011 levels? You know, who knows?
Michael Webber (Managing Director)
Mm-hmm.
Joe Pyne (Chairman, President, and CEO)
But, there should be, there should be more demand than.
Michael Webber (Managing Director)
Great. Thanks a lot for the time, guys. I appreciate it.
Operator (participant)
Thank you. And then our next question comes from Jack Atkins of Stephens.
Jack Atkins (Research Analyst)
Good morning, guys. Thanks for the time.
Joe Pyne (Chairman, President, and CEO)
Good morning, Jack.
Jack Atkins (Research Analyst)
So I guess my first question here is on diesel engine services, just kind of going back to that for a moment. Just sort of curious if you could maybe walk us through on the land-based side, you know, what sort of drove the significant step down there sequentially and profitability? Because, you know, by my math, I think you lost between $3 million-$3.5 million on the land-based side. So just if you could kind of walk us through the quarter there, I think that'd be helpful to understand.
David Grzebinski (EVP and CFO)
Yeah, there, there's a couple things going on. You know, one, just business fundamentals, Jack. You know, we've been working off backlog and, you know, there's a fixed cost spread that doesn't get absorbed as your volume goes down. But again, you know, we don't want to cut costs per se, because we're preparing for next year. We are, on the margin, taking some costs out. But we also had some, as I mentioned in my prepared remarks, some, I don't want to call them one time, but the kind of issues that generally don't reoccur. We replaced our the president of United and hired a new one, so the gentleman that was there before retired.
And, as you know, with transitions, there's always costs related to that. And then we had a warranty issue in particular that was rather significant. But, you know, that's in the number and, you know, those items contributed to the lower results.
Jack Atkins (Research Analyst)
Okay, that's helpful. And then, I guess, could you quantify those costs for us just so we can understand sort of the underlying profitability there? And then, would you expect, like, the land-based side of the diesel engine services to be profitable in the fourth quarter? I guess, is that... Does your guidance assume profitability there in the 4Q?
David Grzebinski (EVP and CFO)
Yeah, I think it's. Well, let me quantify it, and then the kind of those one-time issues, if you will, they're around $2 million, so that shouldn't repeat in the fourth quarter. So, but we don't see the base business, you know, we don't see much change in the base business between kind of sequentially from the third to fourth quarter-
Jack Atkins (Research Analyst)
Okay, good.
David Grzebinski (EVP and CFO)
other than those,
Jack Atkins (Research Analyst)
Okay, that's-
David Grzebinski (EVP and CFO)
Issues not recurring.
Jack Atkins (Research Analyst)
That's very helpful. Thanks again for the time.
Operator (participant)
Thank you. And then our next question comes from Kevin Sterling of BB&T Capital Markets.
William Horner (Analyst)
Thanks, guys. This is actually William Horner on for Kevin.
Joe Pyne (Chairman, President, and CEO)
Hi, William.
William Horner (Analyst)
Joe, following up on your comments earlier regarding industry capacity on the inland side, I know you've noted that all the new builds are getting absorbed. Could you talk a little bit about how the order book is shaping up for next year? What's your confidence level that the industry is gonna stay pretty, pretty well balanced between supply and demand in the next year?
Joe Pyne (Chairman, President, and CEO)
The order book for 2014 is. It does not absorb all the shipyard capacity. So at least now we're projecting less barges built in 2014 than 2013. But, you know, there's still time. If I had to guess, I would suspect that about the same amount of barges are gonna be built in 2014 as in 2013, if demand, you know, continues at these levels. What's my expectation? Well, my expectation is that that the equipment is gonna continue to be absorbed.
You have new volume that, you know, continues. It needs to be serviced both the liquids out of the shale formations and chemical plants that will begin to come on stream late 2014, 2015, 2016 and 2017. So, you know, I do expect that, you know, at some point you'll see the backlog decline a bit because you can't build at these levels forever. But I'm not ready to define what forever means yet.
William Horner (Analyst)
Okay. Thanks, Joe. That's very helpful. And then going back to coastal pricing for a second. I believe y'all mentioned that it was in the high single digit range during the quarter, but did you, and I may have missed it, and I apologize if I did, did you mention what spot pricing was on the coastal side relative to contract?
David Grzebinski (EVP and CFO)
No, no, we didn't. As you, as you've noted, William, we, we've kind of increased our contract level, and even the stuff that's we consider spot, which is contracts less than a year, they're all kind of longer in nature. They're not like day-to-day spots. These are kind of six-month type deals. And then what's happening in the spot market, you know, there's just less and less equipment in the spot market, and it's so different from different geographies. You know, you could have a different piece of equipment on the West Coast versus the East Coast. So we didn't generalize it this quarter. But, you know, spot pricing is above contract pricing, and that, you know, that's part of a healthy market.
It was just, you know, the amount of spot equipment in the market now is less, so it was something we didn't wanna quantify.
William Horner (Analyst)
Okay. Thanks, David. Appreciate y'all's time.
Operator (participant)
Thank you. Our next question comes from Ken Hoexter of Merrill Lynch.
Ken Hoexter (Analyst)
Great. Good morning. Hey, Dave, just following through on those thoughts there on pricing on the coastwise. Should we continue to see that accelerate now that you've gotten over that 90%? Do you see it stabilizing? I mean, you noted you're still not at reinvestable return levels, so how much farther do you think we need to get and how fast in order to get to reinvestable levels?
Greg Binion (President of Marine Transportation Group)
Ken, it's hard to predict, you know, how fast anything's gonna be. But, you know, clearly, rates need to continue to rise to get to levels that support new investment. And, we think that there's a need for new capacity. And, you know, remember, let me back up a little bit. Remember that in the inland business, you essentially have two standard-sized barges. You've got 10,000-barrel barges, and you've got 30,000-barrel barges. In the coastal sector, you have a wider range of barges. You have 50s, 80s, 100s, 120s, 150s, 185s, 250s. I mean, they're all over the place.
So, and depending on the requirement, you're gonna get, you know, demand differences in those capacities. So, where you, you know, where you have demand, for example, for a 150,000-barrel barge, you may see rates escalate quicker there than, for example, an 80,000-barrel barge. So it's kind of hard to predict. Having said that, you know, this is a business where, you know, kind of all boats are lifted, so rate pressure in one area will tend to bleed over into another, but it won't be as consistent as you would like. We think that coastal rates in 2014 will continue to improve.
And they'll improve, also, you know, based on where a particular contract was. If you've got a contract that's under market, it's gonna adjust more significantly than one that was renewed this year, that's renewing again next year, that's more at market. So when you get to kind of these levels, you know, probably the velocity is gonna slow down a little bit. But it's still there. There's still pressure on rates, and you know, I would think that you are going to see some new construction in the next, you know, twelve to eighteen months, and that's going to be very positive for the long-term trend of coastal rates.
Ken Hoexter (Analyst)
So thanks for that insight. Just if we look at, you know, you've got a lot on the inland, diesel engine side of the United business, but, I guess I don't really see when you talk about, you know, having gone through the cutbacks and the other things, but without metrics, you know, whether it's contracts in development or what have you, it's kind of hard to see and measure the business other than kind of what you're leading us on in terms of how it's developing. But I guess, can you maybe give us some insight into, are you seeing more customers come to you with initial contract discussion? Are you guessing in terms of that it's going to improve or bouncing off the bottom based on rig counts and what's going on, the reman business getting more insight?
Maybe if there's any more insight into how we can visibly see, since we don't have any kind of real metrics on that business, how we see it turn.
Greg Binion (President of Marine Transportation Group)
Yeah, right. And you're, you're talking about the land-based diesel engine business?
Ken Hoexter (Analyst)
I am, yes.
Greg Binion (President of Marine Transportation Group)
Yeah. Unfortunately, a lot of it is what you're hearing from your customers and, you know, reading in the trade press, because there aren't a lot of metrics. You know, the backlog is down. It's not declining anymore, but it's not growing in any significant degree either. Backlog would be a nice metric to look at. When it's growing, we'll share it with you. It's pretty stable right now.
David Grzebinski (EVP and CFO)
Yeah. If, if, if I might jump in here very, you know, in terms of external market factors to look at, Ken, yeah, I think if you look at the pressure pumpers' margins, you know, they, they talk about their EBITDA margins, whether it's, you know, whether it's Baker or Schlumberger or Halliburton. Some of the other pure plays can also, you can get some information from them in terms of, of their pressure pumping margins. And right now, those margins are kind of, you know, they're pretty low. They're kind of at bottom. If they start moving again, that should be a positive. Now, with them at the, at the bottom, it's interesting. They're still all working. You know, I don't know what the capacity utilization may be in the 80% range out there.
So that equipment, a good portion of it's still working, and it's working hard. They're working the equipment, you know, 24/7 in some cases. So the maintenance cycle that's going to happen is inevitable. And with margins as thin as they are, the non-large pressure pumpers, so in other words, the tier below the Halliburton, Schlumberger, and Baker, you know, they're scrimping along, so they're scrimping on maintenance, too. And sooner or later, you can't do that forever, right? So I know it's not a direct indication, but if you started to see margins moving up a little bit from the majors, that would be a good indication.
As you look at the oil field sector, frack intensity, as long as it stays as high, it's inevitable that there's going to have to be a maintenance cycle. I don't know if that helped or hurt, but it's kind of the way we think about it.
Ken Hoexter (Analyst)
No, it's absolutely helpful. I mean, just to understand kind of what your drivers are for that, anything outside of just, yeah, we think we're in a turn, right? I mean, it's going to help understand how we finally get to that bottom. Appreciate the insight.
Operator (participant)
Thank you. And then our next question comes from John Barnes of RBC Capital Markets.
John Barnes (Managing Director and Senior Research Analyst)
Hey, good morning, fellas. Dave, you mentioned, well, I think in your prepared comments, you talked about a reduction in force, I guess, at the land-based business, you know, and then you commented about the change in senior management there. Was the amount of money that you, you talked about in terms of the incurred charges, was that a combination of those two events, or was that just isolating senior management?
David Grzebinski (EVP and CFO)
Yeah, those, John, are two separate. Let me clarify. The reduction in force was at our high-speed business, which is a legacy business, and that was about $500,000 in severance costs. The change in management, or, you know, the retirement of the former president at United and hiring his replacement, was the other item that I quantified as around $2 million, but that also included a warranty issue, as I mentioned.
John Barnes (Managing Director and Senior Research Analyst)
Okay. Thank you.
David Grzebinski (EVP and CFO)
So those are two separate numbers. If you add them together, it would be $2.5 million.
John Barnes (Managing Director and Senior Research Analyst)
Okay. All right. Thank you for that. I just got a little confused on where that reduction to force was hitting as well. Okay. Let's see, the other thing I just wanted to ask you about, I mean, you know, obviously, 4Q tends to be a little bit of a wildcard because of the weather conditions and the like. Joe, could you give us maybe just a little bit of a reminder as to where, you know, river and weather conditions were a year ago? Are you up against an easier comp or a tougher comp in terms of those issues as you look at this fourth quarter?
Joe Pyne (Chairman, President, and CEO)
You know, I think, let me, let me... I think it, it may be slightly easier, based on what we're seeing today, because,
...There were some river issues, fourth quarter 2012, that, hopefully, be 2013. In terms of the weather itself, and it's still really too early, you mid-November through the end of the year is where you're gonna see the bulk of your weather. Are you looking at weather delays?
John Barnes (Managing Director and Senior Research Analyst)
Yeah, I was just looking at delays. Last year, fourth quarter, delay days were right around 1,500-
Joe Pyne (Chairman, President, and CEO)
Yeah.
John Barnes (Managing Director and Senior Research Analyst)
in the fourth quarter, which is.
Joe Pyne (Chairman, President, and CEO)
Yeah, it's
John Barnes (Managing Director and Senior Research Analyst)
Not too bad.
Joe Pyne (Chairman, President, and CEO)
Not too bad, but not great either. We're, you know, at least at this point, we're on track for less delays, but we, you know, we still have... It's still early. We still have a few months. Yeah.
John Barnes (Managing Director and Senior Research Analyst)
Okay. All right. Thanks. And then just one question around the balance sheet. You know, debt continues to come down. You've got a very clean balance sheet at this point. You know, just looking at, you know, kind of the strategy from a historical basis, you've never been one to really buy at the top. You guys typically are very good acquirers. You know, so if we're kind of at the top of some of the markets and maybe acquisition opportunities are gonna be, you know, fewer in this kind of environment, you know, can you just talk about, you know, prioritizing your uses of cash? Are we going to see further debt reduction? And how much lower do you think that those levels can go?
Joe Pyne (Chairman, President, and CEO)
Yeah. Well, you know, we're, as you know, John, we're very patient, right? So in terms of acquisitions, so in the absence of an acquisition, we'll probably continue to delever. You know, the fourth quarter is always a good quarter for cash generation. So you could see us drop another couple percent in terms of debt to total cap by year-end. The first half of next year is usually, you know, the first half, there's always, it's more, it's not a big cash generation half. The back half is usually the big cash generation. But, you know, absent an acquisition, we'll probably delever. You know, we do look at, you know, share buybacks, and we've discussed dividends before.
So, you know, those are always in the mix of discussions. You know, even though we're maybe at the higher end of the cycle on inland, you know, you never know with acquisitions. There's 45+ inland operators and, you know, sometimes... Well, the vast majority of them are privately held and sole proprietorships, and you never know, you know, what a sole proprietor might do in terms of his estate planning and in terms of, you know, his personal needs. So it's hard to predict acquisitions, and the same stance on the coast-wide. So, you know, we just stay disciplined. We continue to work and look at, you know, returns on capital and making sure that we don't overpay.
But, you know, we're always, we're always in the hunt. There's always something that we're working on. You just never know whether you're gonna get where you need to be to get it done.
John Barnes (Managing Director and Senior Research Analyst)
Okay. Thanks for your time, guys. Nice quarter.
David Grzebinski (EVP and CFO)
Thank you.
Operator (participant)
Thank you. And then our next question comes from Chaz Jones of Wunderlich.
Chaz Jones (SVP)
Yeah. Hey, good morning, guys. You know, just curious on the New York bunkering fleet, was there any sort of material revenue associated with that?
Joe Pyne (Chairman, President, and CEO)
Well, I wouldn't call it material. But I mean, clearly, there was revenue, but we just weren't... You know, we were losing money on that fleet. But you know, it's not material. You haven't seen our, in terms of, in the quarter, you didn't see a big revenue hit to our marine business. In fact, you know, revenues are still up, right? So, you know, I think you know in total it wasn't very material, Chaz.
Chaz Jones (SVP)
Okay. Yeah, that's exactly what I was looking for. And then on the land-based engine service, I know that you spent quite a bit of time on the call talking about that, but I guess I'm trying to get a sense when you talk about, you know, maybe a recovery for next year, you know, is that getting back to sort of mid-single-digit margins, or is that, you know, sort of getting back to high single digit margins?
Joe Pyne (Chairman, President, and CEO)
Well, yeah, we would, we would hope it would be at least the latter, Chaz.
Chaz Jones (SVP)
Yeah.
Joe Pyne (Chairman, President, and CEO)
But, you know, it depends on how quickly it moves. We, you know, the reman business, if that's predominantly what it's gonna be, you know, should see low double-digit margins. Just have to see how it unfolds.
Chaz Jones (SVP)
Okay. That's all I had. Congratulations on a nice quarter, guys
Operator (participant)
Thank you. And then our next question comes from David Tamburrino of-
Speaker 14
Yay! Good morning, and thanks for fitting me in here at the end. My question revolves around kind of movements of crude oil and gas condensate during the quarter. Did you see any variability in the movements by month, based on where spreads were? Maybe, maybe speak to it on the inland side as well as the coastal side. Thanks.
David Grzebinski (EVP and CFO)
Yeah, a good question, because apparently, I guess the railroads did see some variability.
Speaker 14
Mm-hmm.
David Grzebinski (EVP and CFO)
We really didn't. But, again, our-
Joe Pyne (Chairman, President, and CEO)
...Our fleet is essentially at capacity. Yeah, I think maybe what, if there was any variability, the availability, the variability was on the demand side. And given the fleet operating at capacity and barges as they come in and were absorbed, they continued to be absorbed. So we didn't see what the railroad saw.
Speaker 14
Okay, so there wasn't a noticeable dip in maybe mid-July when the spreads were at the tightest on either the inland or coastal?
Joe Pyne (Chairman, President, and CEO)
No. And you know, I guess if maybe we were better balanced, you would've seen it if it was there, but it... Now, nobody was really releasing equipment.
Speaker 14
Okay.
Joe Pyne (Chairman, President, and CEO)
Hanging on to it, and it, it stayed pretty busy.
Speaker 14
Okay. Thank you.
Steve Holcomb (VP of Investor Relations)
Sherry, let's take one more question, please.
Operator (participant)
Perfect. We actually only have one more question left in the queue. David Beard from Iberia.
David Beard (Analyst)
Great, thank you, guys. Maybe if you would care to quantify what the industry, in terms of the inland barge industry, additions and scrappings may be for the year. I don't know if you'd care to take a shot at next year's, or maybe even give us a sense of where your capital spending may go next year. That'd be appreciated. Thank you.
Joe Pyne (Chairman, President, and CEO)
Yeah, we'll tag team that question. Yeah, we don't know what scrapping is for 2013. We kind of know what we did, but don't know what the industry has done, and we won't know until they publish that industry survey. But if I had to guess, I would think it's, you know, somewhere between 100 and 130 barges were scrapped. Now, with respect to the total number of barges that are going to be built in 2013, it really depends on who you're listening to. There are, you know, some industry sources are predicting as many as 300.
I think our number is less than that, you know, 260, 270, something like that. You know, again, we'll know when that survey is done. 2014, you know, the order book right now is a little less. We'll just have to see.
Steve Holcomb (VP of Investor Relations)
Well, we certainly appreciate your interest in Kirby Corporation and for participating in our call. If you have any additional questions or comments, please give me a call. My direct dial number is 713-435-1135, and we wish you a good day.
Operator (participant)
Thank you, ladies and gentlemen. This concludes today's call. Thank you for participating. You may now disconnect.