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Kirby Slashes Guidance as Customers Cancel Plans, Request Project Delays

Houston oilfield services (OFS) operator Kirby Corp. on Wednesday cut fourth quarter and full-year guidance following a slump in demand for land-based diesel engine services, and in particular, the market for new pressure pumping units.

Kirby, among other things, supplies engines and transmissions that drive U.S. hydraulic fracturing equipment, such as pressure pumping units. Net earnings for 4Q2014 were reduced to $1.10-1.20/share from $1.30-1.40. For the full year, Kirby expects to earn $4.84-4.94, down from a previous forecast of $5.04-5.14.

"Our fourth quarter performance to date has been disappointing relative to our earlier expectations," said CEO David Grzebinski. "The majority of the change in our earnings guidance is a result of changes in our land-based diesel engine services market.

"Our production ramp-up in that market has not gone as well as expected, and demand across our product and service portfolio is being impacted by the sharp decline in crude oil prices, which have led to customer cancellations and requests to delay delivery of projects. Customers have recently begun to reduce their capital spending plans in light of the decline in oil prices and we expect this to continue into 2015."

The reduction in revenue and profits within the land-based diesel engine services market, primarily pressure pumping unit manufacturing, "was the most significant factor in the change in anticipated fourth quarter results," the company said.

In addition to customer cancellations and requested order deferrals, "inbound orders in the land-based diesel engine services business have slowed," the CEO noted. "The service portion of the land-based diesel engine services business is expected to have less volatility through oil and gas cycles."

In addition to its manufacturing business, Kirby is considered one of the largest U.S. tank barge operators, with bulk liquid product transports throughout the Mississippi River system, the Gulf Intracoastal Waterway, along all three U.S. coasts and in Alaska and Hawaii. It transports petrochemicals, black oil, refined petroleum products and agricultural chemicals by tank barge.

The inland marine utilization "is in the low 90% range," Grzebinski said. "However, adverse weather conditions along the Gulf Coast have impacted our fourth quarter performance. In addition, the recent drop in crude oil has affected our customers' feedstock purchasing and trading decisions, which impacts not only our efficiency, but also imposes enough uncertainty in the market to reduce transportation pricing momentum. As a result, we expect our inland marine growth rate to moderate going into next year.

"The globally advantaged feedstock price of domestic producers has not changed with the drop in oil prices, however, the majority of expected benefits from new petrochemical plant openings is likely to occur in 2017 and later."

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