Kirby (KEX)

Marine transportation service company Kirby (NYSE:KEX) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 2.8% year on year to $785.7 million. Its GAAP profit of $1.33 per share was 4.5% above analysts’ consensus estimates.

Company Overview

Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.

The growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for marine transportation companies. While ocean freight is more fuel efficient and therefore cheaper than its air and ground counterparts, it results in slower delivery times, presenting a trade off. To improve transit speeds, the industry continues to invest in digitization to optimize fleets and routes. However, marine transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins. Geopolitical tensions can also affect access to trade routes, and if certain countries are banned from using passageways like the Panama Canal, costs can spiral out of control.

Competitors offering similar products include SEACOR (NYSE:CKH), Marine Products (NYSE:MPX), and Gulf Island (NASDAQ:GIFI).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Kirby’s 3.4% annualized revenue growth over the last five years was sluggish. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Kirby.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Kirby’s annualized revenue growth of 5.3% over the last two years is above its five-year trend, but we were still disappointed by the results. We also note many other Marine Transportation businesses have faced declining sales because of cyclical headwinds. While Kirby grew slower than we’d like, it did do better than its peers.

Kirby also breaks out the revenue for its most important segments, Marine Transportation and Distribution and Services, which are 60.6% and 39.4% of revenue. Over the last two years, Kirby’s Marine Transportation revenue (petroleum products and chemicals) averaged 7.1% year-on-year growth while its Distribution and Services revenue (aftermarket parts and equipment) averaged 3.5% growth.

This quarter, Kirby missed Wall Street’s estimates and reported a rather uninspiring 2.8% year-on-year revenue decline, generating $785.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 7.4% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

Kirby’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 29.1% gross margin over the last five years. That means Kirby paid its suppliers a lot of money ($70.94 for every $100 in revenue) to run its business.

This quarter, Kirby’s gross profit margin was 34.8%, up 2.9 percentage points year on year. Kirby’s full-year margin has also been trending up over the past 12 months, increasing by 1.1 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Kirby was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Kirby’s operating margin rose by 7.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Kirby generated an operating profit margin of 13.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Kirby’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Kirby’s EPS grew at an astounding 44.6% compounded annual growth rate over the last two years, higher than its 5.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Kirby’s earnings can give us a better understanding of its performance. While we mentioned earlier that Kirby’s operating margin was flat this quarter, a two-year view shows its margin has expanded by 5.2 percentage pointswhile its share count has shrunk 4.9%. Improving profitability and share buybacks are positive signs for shareholders as they juice EPS growth relative to revenue growth.

In Q1, Kirby reported EPS at $1.33, up from $1.19 in the same quarter last year. This print beat analysts’ estimates by 4.5%. Over the next 12 months, Wall Street expects Kirby’s full-year EPS of $5.05 to grow 34.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Kirby has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.6% over the last five years, better than the broader industrials sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Kirby’s margin dropped by 10.2 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Kirby burned through $42.2 million of cash in Q1, equivalent to a negative 5.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Kirby has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.2%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Kirby’s ROIC has increased over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Kirby reported $51.08 million of cash and $1.10 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $713.9 million of EBITDA over the last 12 months, we view Kirby’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $25.44 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Kirby beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, its Marine Transportation revenue missed and its total revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.7% to $92.71 immediately following the results.

Updated: May 22, 2025 at 11:23 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Kirby, you should also grasp the company’s longer-term business quality and valuation.

Kirby’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last five years. And while its expanding operating margin shows the business has become more efficient, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its cash profitability fell over the last five years.

Kirby’s P/E ratio based on the next 12 months is 15.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $126.60 on the company (compared to the current share price of $107.19).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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