A month has gone by since the last earnings report for Kirby (KEX Quick QuoteKEX - Free Report) . Shares have lost about 7.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kirby due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Kirby's Q2 Earnings In-line

Kirby’s second-quarter 2020 earnings of 42 cents per share were in line with the Zacks Consensus Estimate. The bottom line plunged 46.8% year over year.

Total revenues of $541.2 million lagged the Zacks Consensus Estimate of $618.4 million and declined 29.8% year over year. The top line was hurt by a decline in revenues at the marine transportation, and distribution and services segments due to coronavirus-induced weak economic conditions.

Segmental Performance

The company through its subsidiaries operates via the segments marine transportation, and distribution and services.

The marine transportation division is responsible for providing transportation services by tank barge to inland and coastal markets. In the second quarter, revenues at the marine transportation unit decreased 5.8% year over year to $381 million. Segmental operating income also dipped 3.4% year over year to $51.4 million. However, operating margin expanded to 13.5% from 13.2% in the year-ago period.

Inland market revenues decreased 2% year over year due to reduced barge utilization and low fuel rebills. The operating margin for the inland business was in the mid-to high teens.

Revenues at the coastal market fell 17% year over year due to reduced spot market activity, retirement of two large capacity vessels and planned shipyard activity. The coastal market recorded break-even operating margin during the quarter.

The distribution and services segment is responsible for selling replacement parts and focuses on the oil and gas, and commercial and industrial markets. Segmental revenues dropped 56.3% to $160.2 million due to below-par performance in the oil and gas market. Moreover, the segment reported a negative operating margin of 8.8% in the reported quarter against 6.3% in the second quarter of 2019.

The oil and gas market was weak during the second quarter due to reduction in oilfield activity and low oil prices. Operating margin for oil and gas came in negative.

In the commercial and industrial market, revenues slipped year over year due to reduced economic activity and disruptions in the on-highway and power generation businesses. The commercial and industrial operating margin was in low single digits in the quarter under review.

Balance Sheet Highlights

Long-term debt (including current portion) for this company increased to $1.64 billion at the end of the second quarter from $1.59 billion at the end of June 2019. Debt-to-capitalization ratio at the end of second-quarter 2020 was 35% compared with 32.4% a year ago.

Outlook

Kirby believes that it has reached the bottom of coronavirus-led weakness in the activity and utilization levels. Lately, the company has been seeing modest improvement in demand. In inland marine, refinery and petrochemical plant utilization rates have improved. However, given the significant softness in economic activity, the company anticipates average barge utilization to be lower sequentially in the third quarter. This in turn is expected to hurt revenues and operating margins. The company estimates inland revenues and operating income to decline sequentially in the current quarter.

Meanwhile, the coastal market is expected to benefit from reduced shipyard maintenance in the third quarter in a challenging spot market. Despite anticipating reduced activity in the coal transportation business, the company expects sequential improvement in third-quarter coastal revenues and operating income. On the whole, Kirby anticipates the coastal business to be stable for the remainder of this year.

With most customers reducing spending for 2020, the oil and gas market’s activity is expected to remain weak, which in turn is likely to weigh on the distribution and services segment’s performance. The commercial and industrial market continues to be plagued by reduced economic activity. Yet, there has been some improvement in the on-highway and power generation businesses. To mitigate the adversities in the distribution and services segment, the company has controlled costs through workforce reductions, furloughs and a strict check on general and administrative expenses. Benefits of these cost reduction initiatives are expected to be better realized in the third quarter. On the whole, the company expects segment operating margins to improve in the third quarter but will still be below break-even levels.

With stringent control, the company estimates capital expenditures to be approximately $150 million in 2020, indicating a year-over-year reduction of roughly 40%. Free cash flow is predicted in the range of $250-$350 million for the current year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -32.72% due to these changes.

VGM Scores

At this time, Kirby has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Kirby has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.