Kirby (KEX) Q1 2020 Earnings Call Transcript

Kirby (KEX 0.88%)
Q1 2020 Earnings Call
May 05, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Kirby Corporation's 2020 first-quarter earnings conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Eric Holcomb, Kirby's vice president of investor relations.

Please go ahead, sir.

Eric Holcomb -- Vice President of Investor Relations

Good morning, and thank you for joining us. With me today are David Grzebinski, Kirby's president and chief executive officer; and Bill Harvey, Kirby's executive vice president and chief financial officer. A slide presentation for today's conference call as well as the earnings release that was issued earlier today can be found on our website at kirbycorp.com. 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, and our actual results could differ materially from those anticipated as a result of various factors, including the impact of the COVID-19 pandemic and the related response of governments on global and regional market conditions and the company's business.

A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2019, and subsequent quarterly filings on Form 10-Q. I will now turn the call over to David.

David Grzebinski -- President and Chief Executive Officer

Thank you, Eric, and good morning, everyone. Earlier today, we announced 2020 first-quarter adjusted earnings of $0.59 per share, which excludes several onetime items totaling $4.74 per share. On a GAAP basis, we reported a net loss of $4.15 per share for the first quarter. We'll talk more about the first quarter and the onetime items in a few moments.

First, and most importantly, I'd like to express my sincere sympathy to all of those that have been affected by the present pandemic, and I hope all of you and your families are safe and well. My deepest gratitude goes out to all of the healthcare workers and first responders who are dealing with this crisis on the front lines. I'd like to start today by discussing our response to the virus and the impact it is having on our businesses. All of Kirby's businesses have been deemed essential, therefore, our boats, barges, distribution, and service operations have continued to fulfill their roles transporting and providing essential goods and services.

Kirby had in place a pandemic response plan designed to ensure business continuity, uninterrupted customer service, and for the safety of our employees. We activated our plan in early March, and through the dedication and commitment of our employees, all of our businesses have continued to operate despite the challenging circumstances. During this crisis, we have implemented many safeguards to protect our employees, including working remotely where possible, enhanced PPE and medical protocols, limited mariner interaction with shoreside personnel, modified crude change timing, and modified procedures. We also immediately quarantined employees as a precaution whenever risks of potential exposure were identified.

Further, in an effort to support the fight against the virus, a team of engineers from our Stewart & Stevenson subsidiary have worked together with Rice University to design a prototype low-cost ventilator. This project has moved with rapid speed, going from design to prototype in a matter of weeks, and we are currently awaiting emergency use approval from the FDA. In summary, I'm extremely proud and humbled by the dedicated Kirby employees who have stepped up during these challenging times to ensure continuous operations without compromising safety or customer service. Looking at our segments.

In marine transportation, although the first quarter was impacted by near-record delay days in inland and planned shipyard maintenance and coastal, the year started strong with high barge utilization, robust customer demand, and improved pricing. Throughout March and the first part of April, activity remained very tight, and our inland barge utilization surpassed the mid-90% range, as many of our customers readied their supply chains, reallocated products and secured storage. However, as the national shutdown and stay-at-home orders slowed the economy, many refineries and some chemical plants have cut production, and our barge utilization has declined in recent weeks. In Distribution and Services, first-quarter activity was stable with a slight improvement in transmission sales and service to oil and gas customers.

And in manufacturing, we constructed some new pressure-pumping units. However, as oil prices collapsed in March, our customers responded by cutting their 2020 capital spending budgets dramatically, and activity levels in our businesses were reduced. In commercial and industrial, activity levels were good in the first quarter, particularly for our marine repair business, which benefited from a very active barge market. Since the onset of COVID-19 in the U.S., nationwide stay-at-home orders have curtailed demand, especially in our power generation business, which has significant operations in some of the major metropolitan areas hardest hit by the pandemic.

We also experienced activity reductions in our on-highway business, particularly related to bus transportation. However, our Thermo-King refrigeration business has continued to see steady activity levels supporting grocery supply chain distribution systems. In response to the expectations that oil and gas markets will not rebound anytime soon, we have made some tough but necessary decisions to further realign this segment's cost structure. Recent actions include workforce reductions, furloughs, and reduced work schedules.

We are limiting discretionary spending, reducing capital expenditures, and consolidating facilities. In a few moments, I'll talk more about how we think COVID-19 could impact our businesses for the balance of the year. But before I do, I'll turn the call over to Bill to discuss our first-quarter results, our liquidity, and the balance sheet.

Bill Harvey -- Executive Vice President and Chief Financial Officer

Thank you, David, and good morning, everyone. Before I review our segment results, I want to provide a little more detail on the first quarter's onetime items. As a result of the sharp decline in oil prices during the first quarter, uncertainties surrounding COVID-19, and a weak longer-term demand outlook for the oilfield, we recorded a $433.3 million before tax or $5.59 per share after tax noncash impairment of goodwill, intangible assets, long-lived assets, and inventory related to our Distribution and Services segment. We also realized a tax benefit of $50.8 million or $0.85 per share.

Under the recent U.S. CARES Act legislation, Kirby can carry back net operating losses generated in 2018, 2019, and 2020, to offset against taxable income generated in the higher tax rate years of 2013 through 2017. The $0.85 benefit relates to the carryback of net operating losses from the 2018 and 2019 tax years. In 2020, this will also lower our effective tax rate to approximately 15%.

Turning to our segment results. In the 2020 first quarter, marine transportation revenues were $403.3 million with an operating income of $50.7 million and a margin of 12.6%. Compared to the same quarter in 2019, this represents a 10% increase in revenue and a 43% increase in operating income. The improvements are primarily due to a 13% increase in inland revenue driven by the Cenac acquisition and higher pricing.

Compared to the 2019 fourth quarter, revenues were stable with increased inland barge utilization being offset by increased shipyard activity. Operating income decreased by $3.8 million sequentially primarily due to the near-record delay days in inland and the impact of shipyards on coastal revenues. During the quarter, the inland business contributed approximately 79% of segment revenue, and had an average barge utilization in the low to mid-90% range. Long-term Inland Marine transportation contracts or those contracts with a term of one year or longer, contributed approximately 60% of revenue with 65% from time charters and 35% from contracts of affreightment.

Term contracts that renewed during the first quarter were higher in the low single digits. Spot market rates increased in the mid-single-digit range sequentially and year on year. During the first quarter, the operating margin in the inland business was in the mid-teens and was adversely impacted by poor weather conditions, high water, and significant lock outages. In the coastal business, market conditions were good, resulting in a barge utilization in the low to mid-80% range.

With respect to pricing, average spot market and term contract rates improved approximately 10% to 15% year on year. During the first quarter, the percentage of coastal revenues under term contracts was approximately 85%, of which approximately 90% were time charters. Coastal's operating margin in the first quarter was in the low single digits and was impacted by planned shipyard activity. With respect to our tank barge fleet, a reconciliation of the changes in the first quarter and full year 2020, as well as projections for 2020, are included in our earnings call presentation posted on our website.

Moving to Distribution and Services. Revenues for the 2020 first quarter were $240.7 million with operating income of $3.7 million. Compared to the 2019 first quarter, revenues declined approximately 36% with a $33.9 million reduction in operating income. This was primarily due to lower activity in our oil and gas-related businesses.

In commercial and industrial, the contribution from the recent Convoy Thermo-King acquisition was partially offset by COVID-19-related demand reductions in the power generation in on-highway markets. Sequentially, revenues declined 5%, with reduced oil and gas manufacturing deliveries and COVID-19-related demand reductions in commercial and industrial being partially offset by the revenue contribution from the Convoy Thermal-King acquisition. Despite the revenue decline, segment operating income improved $6.4 million as a result of improved sales mix and lower costs. During the first quarter, the oil and gas businesses represented approximately 33% of segment revenue and had an operating margin in the negative mid-single digits.

The commercial and industrial businesses represented approximately 67% of segment revenue and had an operating margin in the mid-single digits. Turning to the balance sheet. As of March 31st, total debt was $1.7 billion and our debt-to-cap was 35%. We also had cash totaling $323 million, a portion of which we used to fund the $278 million Savage Inland Marine acquisition, which closed on April 1.

During the quarter, we used cash flow to fund capital expenditures of $49 million, the acquisition of Convoy for $40 million and the purchase of three inland pressure barges under construction by another operator for $20 million. Capital spending will trend down significantly for the balance of the year as the first quarter had significant regulatory shipyards expenditures in coastal. As of this week, we had available liquidity and cash of approximately $435 million. Our balance sheet is sound, and we have good liquidity that we expect will significantly increase the balance of the year.

We do not have debt maturities due until 2023, and we have substantial room available under our debt covenants. We also plan to reduce capital expenditures to a level at or below the lower end of our previous guidance range of $155 million to $175 million for the full year. As well, during the year, we will carry back NOLs to obtain tax refunds of approximately $125 million. I'll now turn the call back over to David to discuss our outlook for the remainder of 2020.

David Grzebinski -- President and Chief Executive Officer

Thank you, Bill. In our press release this morning, we announced that we are withdrawing our 2020 full-year guidance. There are many unknowns surrounding COVID-19, including the duration or possible recurrence of stay-at-home orders, the magnitude of the U.S. and global recession and the depth of demand destruction for our products and services.

This is an unprecedented situation that changes by the day. You can be assured our management team is focused on taking the actions necessary to manage this situation and to protect the wellbeing of our employees, our customers, our suppliers, and our shareholders. Looking at our segments. In marine transportation, declining consumer demand for refined products has resulted in many refineries reducing or, in some cases, idling production.

As of this week, refinery utilization has declined into the 60% range, which compares to rates in the 90% range earlier in the year. We have also seen a modest decline in U.S. chemical plant utilization, albeit the most significant reductions have incurred in other parts of the world. With these developing trends, our barge utilization levels have declined.

And we expect this will likely continue as economic activity remains at reduced levels. Despite these challenging circumstances, we believe that our marine transportation business is well-positioned to deal with this environment. In Inland Marine, there are a number of factors that should help to mitigate the reduction in our activity levels. First, looking at the industry.

Barging is an essential service and provides considerable flexibility to the industrial supply chain. For example, we're currently seeing a significant number of opportunities for crude and refined product storage, and some of our customers are also seeking to use barges to relocate various products to different geographies. Further, upcoming locked maintenance projects, including the full closure of the Illinois River this summer, will create some additional demand for barges. On the supply front, we believe new barge construction for 2020 is limited with approximately 130 barges believed to be on order or under construction throughout the industry.

This is very different from the last downturn, which saw more than 260 barges enter the market in 2015. With the industry typically retiring 75 to 150 barges each year, we expect minimal net barge additions for 2020. Within Kirby, the long-term nature of our customer relationships and our term contracts will help to protect our revenue stream. As well, many of our spot contracts are multi-month in length and often six months or more.

With respect to costs, we are aggressively implementing cost-saving measures across the business, including managing our horsepower to align with demand and ensure our boat utilization is maximized. Lastly, as you are aware, we closed on the acquisition of Savage at the beginning of April. To date, this integration is going extremely well despite some challenges being presented by COVID-19 and social distancing. We are aggressively pursuing cost synergies, integrating our fleets together, and I expect that Savage will have a favorable contribution to earnings this year.

Overall, for inland, while there are currently many unknowns and circumstances are changing by the day, if this downturn is similar to the 2008, 2009 downturn, we could see a decline in barge utilization of approximately 10% from the level seen in the first quarter. In that downturn, in 2008, 2009, the utilization decline negatively impacted our inland margins by approximately three percentage points, but it did take a period of time for margins to fall as we benefited from the cost savings as our charter boat count declined, and it took time for the term contract portfolio to roll. In the coastal market, we do expect revenues and barge utilization to decline in the coming quarters. However, approximately 85% of coastal revenue is under long-term contract, which will help to insulate the business from material reductions in revenue.

Since the end of March, reduced demand for refined products has resulted in an increase of available barges in the industry. As a result, Kirby's spot barge utilization has declined slightly. Additionally, labor constraints in the shipyard industry as a result of COVID-19 have resulted in some delays in extended shipyard periods for some of Kirby's larger-capacity vessels. As previously announced, Kirby's retirement of four aging coastal barges, which is planned to occur starting in the second quarter, as well as anticipated activity reductions in coast -- in coal transportation will have an adverse impact on the full year for coastal.

In Distribution and Services, we expect that activity in the oil and gas market will be extremely challenged for the duration of 2020 and likely through most of 2021, with many of our customers cutting their capital spending by 50% or more as compared to 2019. With oil inventories rapidly growing and increasing coalsfor well shutdowns across the U.S., analysts have predicted that onshore rig counts could decline to as few as 250 to 300 rigs, representing a 65% reduction from 2019 levels. In this environment, the active frac fleets working in the U.S. could decline to as little as 50 to 75 fleets, which corresponds to a reduction of 75% or more as compared to 2019 average.

With this backdrop, we expect our oil and gas distribution and manufacturing businesses will see minimal activity levels in 2020. In commercial and industrial, we expect that our businesses will see some reduced demand as a result of the recessionary environment. However, the commercial marine and trucking repair markets as well as the Thermal-King refrigeration businesses are expected to remain relatively stable for the near term. The most significant impacts in this market are expected to be on the -- in the on-highway sector with reduced demand for bus repair, particularly in our markets in the Northeast and at major tourist destinations in Florida.

We also expect that power generation will be impacted as customers defer spending for these large capital-intensive projects. Kirby is actively managing the Distribution and Services cost structure, and we continue to make adjustments to reduce the financial impact of COVID-19 and lower oil prices. In the near term, we expect the second quarter will be the most impacted as it will take some time to fully implement our cost savings and restructuring plans. For the full year, we will endeavor to maintain segment margin at a small loss to breakeven levels, but it will be dependent on the state of the economy and the magnitude of activity reductions in commercial and industrial.

However, it's important to remember that the D&S business requires very little capital. Despite reduced earnings expectations as a result of our actions, we believe the D&S segment will not be a cash drain for the year. In summary, Kirby is well-positioned to manage through the impact of coronavirus. Our pandemic preparedness and history of handling emergency situations like hurricanes and waterway emergencies allowed us to quickly implement business continuity plans throughout our operations and focus on the safety of our employees.

We have a strong marine transportation business with solid term contracts and a cost structure that can be quickly adjusted to changing market conditions. Although activity has declined in recent weeks, customer demand remains sound for now, with storage needs and an upcoming major lock outage on the Illinois River helping. In D&S, we have taken -- we have and are taking swift and aggressive actions to adjust our cost structure for low oil prices and falling demand. We will continue to manage our costs to counter the impact of any further activity in revenue reductions.

From a cash flow perspective, we are in a very strong position with ample liquidity. Kirby has a proven history of generating free cash flow throughout the cycle. We believe we have clear line of sight to $250 million to $350 million in free cash flow generation this year, which we will use to enhance liquidity and reduce our bank debt. Operator, this concludes our prepared remarks.

We're now ready to take questions.

Questions & Answers:

Operator

Ladies and gentlemen, we are now ready to begin our question-and-answer session. [Operator instructions] Our first question or comment comes from the line of Ken Hoexter from Bank of America. Your line is open.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Great. Good morning, Bill and Eric. All the best in these trying times. Maybe I can jump into the inland.

First quarter is typically your low margin for the year. And so, you're talking about being in the mid-teens, up from the low to mid-teens a year ago. Can you talk about your thoughts on scale of impact given utilization falling to the low 90s? Maybe given your historical experience, Dave, on your thoughts on how -- you know, what kind of margin impact this could have?

David Grzebinski -- President and Chief Executive Officer

Yeah. Sure. Good morning, Ken. I hope you and your family are all well in this crazy and surreal times.

Yes. So, we had a pretty good first quarter in inland, given the weather and delay days that we had. If you look at the number of delay days, it was pretty close to the -- what we had in 2019, which was a record. So, we're at -- we were very, very pleased with the first quarter.

Utilization was kind of in the mid-90s. And, you know, in a couple of days, it spiked up above to 97% or so. You know, we've seen a little pullback, maybe 5% or so in utilization, but pricing has been holding here in April, which is pretty good. There's one or two deals that maybe didn't -- that did decline a little bit, but mostly, it's held firm.

Part of what's helping there is storage, Ken. We're seeing some storage opportunities. And with all the dislocations, there's just a lot of supply chain moving around. So, you know, if things were to hold right now, if this was the bottom, to say it another way, you know, we may not see any margin decline at all.

And in fact, as the weather gets better, we could see margins improve from this point. But that's a big if. And you know, you saw us pull our guidance because we just don't know how long this is going to go on, how deep it will go. You know, if you used '08 or '09 as one proxy for this, you know, we saw, as I said in my prepared comments, a volume decline of about 10%.

And it took about a year, but we lost about three percentage points in margins -- in margin. Now we just don't know. You know, if it goes deeper, you know, it could be like the '08, '09. You know, if it goes, you know, through the end of the year, it could even go further than that.

But conversely, if this is the bottom, you know, maybe we don't see much decline at all in terms of margin. It's just hard to say. You know, one encouraging piece of news we did hear that I think refinery utilization bumped up about 2% this week, which, you know, at least is going in the opposite direction. And just looking at Houston traffic, we're starting to see it pick up.

So, it's just really hard to say, Ken. But, you know, we kind of like where we're at right now, given the circumstances, but we just don't know how long this is going to last and how deep it will go.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Well, that's true. We can say the same for traffic up here, and the first thing everybody can do is get in their car because they're not going to get on general commutation. Thanks for that, Dave. But maybe I could follow-up, I don't know, for you or Bill, just for my follow-up question on the writedown.

Looking at the scale of what you paid for S&S, in kind of that same range as the $433 million writedown, is there -- is that a mix of S&S in United? Is it all one or the other? Are you closing off? Maybe you can kind of -- I know you wrote-down some inventory, maybe you can detail a little bit about what you're doing with the noncash writedowns.

Bill Harvey -- Executive Vice President and Chief Financial Officer

Yeah. No, that's the whole segment, Ken, so it includes the United and S&S, and we did it the normal way. You start with fixed assets, go through intangibles, and then to goodwill. So, it really is a combination of everything.

We determined there was a triggering event. As you looked around the world, this is -- but we see oil prices at negative for a period. And you see the oil field as it was and as it is. It was the right thing to do to look at the -- we brought in a third party, but to look at the segment and write down the assets.

David Grzebinski -- President and Chief Executive Officer

Yeah, I mean, when you look at the outlook for the oilfield sector for the next -- well, certainly for 2020 and probably well through '21, we just felt that it was prudent to look at that carrying value.

Bill Harvey -- Executive Vice President and Chief Financial Officer

Yeah. I'd say that there are parts of the business, of course, Ken, that had no impact in D&S, like KES, the engine system. It stands alone. And Thermo-King, for instance, is a business that has had no impact on the oilfield.

And so, none of those -- nothing was done in those areas, of course.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

All right. I appreciate your time and thoughts, guys. Thanks.

David Grzebinski -- President and Chief Executive Officer

Thanks, Ken.

Operator

Thank you. Our next question or comment comes from the line of Jon Chappell from Evercore ISI. Your line is open.

Jon Chappell -- Evercore ISI -- Analyst

Thank you. Good morning, everybody.

David Grzebinski -- President and Chief Executive Officer

Hey. Good morning, Jon.

Jon Chappell -- Evercore ISI -- Analyst

David, the 60% term in the inland business is at a little bit the lower end of your historical range. As you think about going forward and the uncertainty, do you think that it continues to kind of fade lower as customers may be reluctant to sign term contracts in the current environment? And if that were to be the case, if you were to get to around 50% term, 50% spot, what would that pricing mix do to the margin of that business?

David Grzebinski -- President and Chief Executive Officer

Yeah. Well, typically, in a healthy market, spot pricing is above term. And in that -- that's the case right now. But to your point, we're about 60% term.

That's a little lower than -- historically, we would have been about 75% term. But I'll be honest, a lot of our spot deals are, you know, three-, six-, nine-month deals, so they're a little longer. What happened, as you're aware, is that the accounting changed. And anything a year or longer, people have -- any lease or contract a year or longer, you have to put it on your balance sheet.

So many people now try and get under a year in terms of what they contract for. So, there's a little bit of artificial things going on in terms of what's actually term versus spot. Many of those spot deals are a little longer. But to your question, you know, typically, spot's above term in a decent market or in a stable market, and that's the case right now.

So, you know, we actually feel pretty good about where we are with our contract portfolio right now.

Jon Chappell -- Evercore ISI -- Analyst

Great. And then for the follow-up. You mentioned the slight uptick in refinery utilization, which we've noted as well. I mean, don't want to make a trend off one week.

But petrochemicals are obviously a much bigger part of your mix. So, have you heard anything similar or just maybe any signs of optimism from your petrochemical customers? Obviously, no one knows the timing of these shutdowns, but it seems like there's more and more momentum behind reopenings. So just any commentary from the big petrochemical guys on when you may see an uptick there similar to the refinery system?

David Grzebinski -- President and Chief Executive Officer

Yeah. You know, it's a mixed bag. As we talk to our chemical customers, you know, anything with consumer packaging, just because everybody's buying individual wrapped things nowadays, consumer packaging and all the chemicals that go into that are very strong. Obviously, anything that goes into disinfectants or alcohol-type things are pretty strong.

What's been very, very weak is anything related to the auto sector, as you would expect. You know, they were basically -- nobody is ordering. So, it's a mixed bag. We've seen some chemical volumes pulled back.

You know, they want to run as much as we want them to run, right? The more they -- the higher the utilization, the more efficient they are. Yeah, we -- they just need demand to come back. But yeah, no real anecdotes to share but that. It's just a mixed bag.

We have seen a little pullback in chemical volumes. But by the same token, there's a lot of supply chain disruption, and that's causing some moves and some storage opportunities as well. Just -- it's, you know, literally a day-to-day thing as we watch things change. But like you prefaced, you know, we are starting to see signs of things coming back to life, but I think it's just too soon to call that.

Jon Chappell -- Evercore ISI -- Analyst

Yeah. I completely understand. Thank you, David. Be well.

David Grzebinski -- President and Chief Executive Officer

Take care, Jon.

Operator

Thank you. Our next question or comment comes from the line of Jack Atkins with Stephens. Your line is open.

Jack Atkins -- Stephens Inc. -- Analyst

Hey, guys, Good morning. Thanks so much for taking my questions.

David Grzebinski -- President and Chief Executive Officer

Good morning, Jack.

Jack Atkins -- Stephens Inc. -- Analyst

So, David, I guess, maybe quickly just start with the inland business for a moment. You know, if we can kind of go back to that 90% utilization rate, which I think is probably much better than folks feared in terms of what you've been seeing over the last couple of weeks, to what degree is that maybe being inflated a bit by the fact that you've got a lot of your business under contracts? Or I guess, I'm just trying to think about how is that number reflecting sort of what's happening in terms of underlying demand for services. It sounds like there's quite a bit of storage activity that's taking place as well. So just trying to kind of put all the bits and pieces together to kind of understand, you know, what's happening in the underlying business today.

David Grzebinski -- President and Chief Executive Officer

Yeah, you know, it's bouncing around is the way I would say it. The -- if -- we were kind of mid-90s and, you know, dropped to sometimes high 80s, low 90s, bouncing around. Every day is a little different. You'll get inbound inquiries for true moves.

You'll get inbound inquiries for some storage. And it's, you know -- and some of those storage deals will come and go based on contango or whether they're storing it for future use or just as a financial play. And it just -- it literally bounces week by week. But you know, the base load is still pretty good.

And part of that, as you mentioned, is our contract construct. We've got pretty decent contract support through there. You know, it's -- Jack, I wish I had more to tell you. It's day-to-day.

And as I've said earlier, if this was the bottom, we'd feel pretty darn good right now because we wouldn't see any margin degradation, if this was the bottom. We just don't know if it is, right, and how long this will last. You worry about, you know -- we start opening up, and then we get a spike back up in a number of cases and then we go back to lockdown. I'm hearing this called -- instead of the Great Recession, they're calling it the Great Lockdown.

And we just don't know. But there are signs of life here. You know, we're seeing it in Texas. I know some states are opening up and others are still locked down.

So, it's really hard to say what the underlying volume demand will do from this point.

Jack Atkins -- Stephens Inc. -- Analyst

No, that makes sense, and I appreciate that additional context there. I guess for my follow-up question, maybe if we can shift gears to D&S for a moment. You know, I think it's encouraging that you guys are talking about running around breakeven still there despite all the challenges that you're facing really across that business. Maybe a slight loss.

We'll see. But I guess if we could kind of, for a moment, step back and talk about how you view the future for the D&S segment. What's left in terms of, you know, your capabilities on the oil and gas side after these cost reduction actions? And you know, I guess as you -- David, as you sort of think about this segment moving forward, does oil and gas have a place within D&S in the future? Or you know, is the plan to kind of think about this as being a smaller but, you know, profitable and less cyclical industrial and commercial levered business, you know, when we think about 2021 and beyond?

David Grzebinski -- President and Chief Executive Officer

Yeah. I would say it's more of the latter, what you just said, a smaller but more -- perhaps more profitable business. Let me back up a bit and put D&S in some more context here. You know, commercial and industrial, we had thought would be about 65% of revenue this year, with 35% oil and gas.

I mean, clearly, oil and gas is going to be rough, you know, with the rig count dropping 65%, 70%. And we've heard estimates that the number of working frac spreads will go from about 250 to 275, down to maybe 50 to 100 working frac spreads. So, you know, it's very clear, there's not going to be a lot of new manufacturing of frac equipment, and probably very little maintenance as some of these pressure pumping companies fight for survival. So, you know, we're very intellectually honest about the outlook for the oil and gas sector, and that's why we did the impairment, to be honest.

You know, what we're -- our goal is for all of D&S during this very trying year will be to be kind of slight loss to breakeven on a P&L standpoint and cash-flow-positive, slightly cash-flow-positive. So, you might expect that there's small loss in the oil and gas side, but commercial and industrial should have some operating profit. We are seeing -- prior to COVID, we had seen commercial and industrial growing. You know, it's been doing well.

Our Thermo-King business there has grown. We had a small acquisition. Power generation was doing OK, and we've seen a little pullback on that right now because people are deferring major capital projects. But the marine repair business, the old KES business is doing very well right now given the activity in the barge business.

So, as we put it all together, you know, commercial and industrial, slight profit, offsetting some losses in that oil and gas business. And you know, we're going to just run it as tightly as we can. And it's painful because we've had to lay off a number of people and we're consolidating some facilities and doing some furloughs. That part's painful, but that -- we've got to do that to get this to where it needs to be.

Longer term, do we exit the oil and gas part of it or, you know, do we do something with KDS in general? I don't know. But clearly, given, you know, our carrying value now, we've got more optionality.

Jack Atkins -- Stephens Inc. -- Analyst

OK. Thank you again for the time.

David Grzebinski -- President and Chief Executive Officer

OK. Thanks, Jack.

Operator

Thank you. Our next question or comment comes from the line of Michael Webber from Webber Research. Your line is open.

Michael Webber -- Webber Research -- Analyst

Hey. Good morning, guys. How are you?

David Grzebinski -- President and Chief Executive Officer

Good morning, Michael.

Michael Webber -- Webber Research -- Analyst

David, I wanted to touch base on the comp you threw out from, you know, looking at '08 and '09. That's -- you've kind of thrown out to the -- in the past, kind of two of the recent troughs and try to get a better sense of scale here. And if I look at what happened in inland or marine brand rather in '08, '09, and that 10% slide, that was off of a higher base because it was entirely inland at that point as opposed to kind of broader mix of services. If I apply that to where we're at or where we kind of peaked at the most recent cycle, we're talking about, you know, something in the very low single digits on a margin basis.

So, is that -- how realistic do you think that is over the next six to nine months? And then I'll follow-up with a [Inaudible]

Bill Harvey -- Executive Vice President and Chief Financial Officer

Yeah. I'm not sure I followed you on that, Michael.

Michael Webber -- Webber Research -- Analyst

If I just -- if I take 10% off of your most recent, you know, peak margins, you're talking about something in the low single digits.

Bill Harvey -- Executive Vice President and Chief Financial Officer

No, no. Yes. Look, let me be clear. Ten percent revenue, right, or volumes, only 3% decline in margins.

Sorry if I wasn't clear on that.

Michael Webber -- Webber Research -- Analyst

Yeah. That's far. If I look at the '14 to '16 cycle, it actually works out to about a little bit more than 10%, about 12%, 13% when you get to early '17. And you look at 20 -- 2008, 2009, a little bit more resilient there.

But again, that was a different business mix. So, the 10% on a margin basis seems, you know, at least relative to the most recent cycle, seemed appropriate. I'm just curious whether you think that's in play here. And I guess I can layer in my follow-up.

I know that these cycles are all different, but this -- the initial impacts, right, we kind of saw a lag quarter -- kind of a lag effect this quarter, right, where you saw some slowing. Quarter-to-date, Q1 results are actually pretty strong. I'm just curious how that -- you know, maybe the early innings how this feels relative to both '08 and '09 and the '14, '15 comp, which, again, looks like it's probably the most comparable?

David Grzebinski -- President and Chief Executive Officer

Yeah. I would say, you know, how does this feel from '08, '09, I would say the refinery cutbacks were faster this year than they were in that '09 period, which actually may be healthier for the overall situation. But you know, right now, we're seeing things like storage that are kind of helping put a floor on how far utilization would -- is going down. You know, that's helping the whole industry to be fair.

You know, ultimately, that stuff in storage is going to have to move again. So, it's just really hard to say, you know, how parallel '08 and 09 is to this. You know, '09 came back pretty strong toward the end. You know, I don't know how strong we'll come back from this because I worry about just kind of a rolling lockdown.

Michael Webber -- Webber Research -- Analyst

Sure.

David Grzebinski -- President and Chief Executive Officer

Yeah, it's probably the big difference in the 2015 time, that cycle when we pulled back, there was a bunch of new barges coming in. You know, that's when crude prices collapsed in 2015, and all the pipelines came on, but there are also 260 barges brand-new coming in. Here, you know, it's half that in terms of number of barges. and I would think the retirements would be a little higher this time.

So, a lot of moving parts. Sorry I'm not being more helpful here, Michael, but...

Michael Webber -- Webber Research -- Analyst

Well, that's fair. I can follow-up on it offline. I did want to ask about the storage trade. And we've seen some mineral operators offering barges on storage.

And I'm just curious what the pricing is like on that kind of business. My understanding is it's happening on a single-barge basis, so you're talking about pricing in a couple of thousand dollars as opposed to the $7,500 you'd be looking at for [Inaudible]. So, I'm just curious, what kind of quality -- kind of can you kind of assess the quality of that storage business versus just simply kind of soaking up capacity on like a last-resort basis?

David Grzebinski -- President and Chief Executive Officer

Yeah. Well, I think it's probably not appropriate for me to discuss pricing directly. But I would say, you know, that storage business is as good as our normal business in terms of margin.

Michael Webber -- Webber Research -- Analyst

OK. All right. I'll turn it over. Thanks, guys.

David Grzebinski -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Greg Lewis from BTIG. Your line is open.

Greg Lewis -- BTIG -- Analyst

Yes. Hey. Thank you. Good morning, everybody.

I hope everybody's staying safe and staying sane. Yeah, Dave, just following up on the storage question. You know, clearly, it's something that is happening – you know, not talking about pricing, but is there any way to quantify -- I guess I have a couple of questions around that, and if that -- one is, is there any way to think about the duration of these storage contracts, like in the -- in some markets, you hear, three-month transactions, six-month transactions? Are these like -- how would you kind of classify them in terms of duration? And then, I don't know if you even have this information, but is there any way to tell what type of cargoes are, like, any kind of thoughts around the cargoes on these barges? And then is this something where there's options to extend those kinds of contracts? And is this just inland? Or are we seeing some opportunities in coastal as well?

David Grzebinski -- President and Chief Executive Officer

Yeah. Let me take your last question first. It's been all inland so far. You know, there's been some inquiries in coastal, but it's been more inland focused.

And I think that's because the increments of capacity are pretty low, and you've just got a lot more flexibility given the fungibility of the barges and whatnot. But to your question, we're seeing storage opportunities across products. You know, rude is certainly one of them. Those are really contango plays.

And those can be three months to six months long. Some of the product storage ones, whether it's chemical or other refined products, you know, they could be as short as one month, going out to six to nine months. It runs the gamut. And you might imagine that some of these have options to extend because if they don't have places to go at the end of those, you know, shorter-duration things.

But I would say they range anywhere from one to six months on average. And you know, I think that's pretty good. It'll help with this period of suppressed demand.

Greg Lewis -- BTIG -- Analyst

Yeah. I mean, it does sounds like you're kind of locking in a decent amount of fleet [Inaudible] or at least in some of the fleet to get -- kind of get you through this kind of soft patch. And then just kind of following up on that train of thought. I mean, yes -- I mean, I'm assuming that the lot -- the scheduled lot closures upriver are still happening regardless of COVID-19.

So, any kind of update there? And then have we started to see barges be positioned in regards to that lot closures that -- any kind of thought -- update on that because it should have an impact this summer?

David Grzebinski -- President and Chief Executive Officer

Yeah. No, we -- to my knowledge that log maintenance is still on schedule and still going to occur. And we're starting to position, you know, some moves for that outage. Just starting.

A little early.

Greg Lewis -- BTIG -- Analyst

OK, OK. But that's something that we should see kind of happen throughout the quarter?

David Grzebinski -- President and Chief Executive Officer

Yeah, probably toward the end of the quarter, you'll see more of that. Yeah, we think it can be -- it could absorb up to 100 or so barges, so it's meaningful.

Greg Lewis -- BTIG -- Analyst

Yeah, absolutely. OK, guys. Thank you very much for your time.

David Grzebinski -- President and Chief Executive Officer

Take care, Greg.

Operator

Thank you. Our next question or comment comes from the line of Randy Giveans from Jefferies. Your line is open.

Randy Giveans -- Jefferies -- Analyst

Hi, gentlemen. How's it going?

David Grzebinski -- President and Chief Executive Officer

All right, Randy. How are you doing?

Randy Giveans -- Jefferies -- Analyst

Good, good. All right, so we're hearing, obviously, a multiple kind of Jones Act tanker fixtures for floating storage in even some international voices. So, how is that impacting the coastal market? And what is your expectations for kind of coastal utilization and even pricing here in the upcoming quarters?

David Grzebinski -- President and Chief Executive Officer

Yeah. Good question, Randy. Yeah, our utilization has dipped in coastal. You'll recall that about 50% of our volumes are refined products in coastal.

So, we've seen our spot utilization drop a bit in the coastal business. You'll recall, we're about 85% term contract, 15% spot. In the last week or so, we've seen our spot utilization dip as those refined product moves have slowed down. We are not seeing storage opportunities there as of yet.

Again, it's -- the inland has more fungibility and it's easier to get prior cargo compatibility, etc. So, we haven't really seen the storage opportunities. Now to your question about MR tankers, I think the busier they are, it typically helps our ATB market because the MR tankers don't drop down into our size area and compete against us. So, the busier the MRs, it's generally better for our coastwise business.

Randy Giveans -- Jefferies -- Analyst

Sure. All right. And then switching over to kind of D&S. Your press release stated you're aggressively reducing costs there.

Can you quantify this for 2020? And what kind of oil and gas and then non-oil and gas revenue assumptions are you assuming when you're targeting that full-year D&S operating margins at breakeven levels?

David Grzebinski -- President and Chief Executive Officer

Yeah. It's hard for me to get too specific there, and not because I'm trying to avoid it, it's just -- it's so dynamic right now. But we had -- we thought our oil and gas revenue for D&S would have been about 35% of total revenue. Clearly, that's going to fall significantly from there.

I mean, we -- when you look at '19 versus '20, yeah, I could -- it could be 75% lower versus '19 levels. So maybe you can play with the numbers there. Eric can follow-up with you on that. Oil and gas is just going to be hammered.

You can imagine, you know, if you were an E&P company and you got nowhere to put the crude, why you'd go ahead and complete a well. So, we're being sober about, you know, oil and gas opportunities there. That said, again, as I said earlier, commercial and industrial, but for COVID, was marching up nicely. And we're pretty excited about the diversification benefits of C&I expanding.

But we'll see. You know, I -- follow-up with Eric, and maybe he can give you some more detail on -- or how to frame those costs and revenue opportunities.

Randy Giveans -- Jefferies -- Analyst

OK. No problem. Will do. Thanks for your time.

David Grzebinski -- President and Chief Executive Officer

Thanks, Randy.

Operator

Thank you. Our next question or comment comes from the line of Ben Nolan from Stifel. Your line is open. Mr.

Nolan, you may need to unmute your phone.

Frank Galanti -- Stifel Financial Corp. -- Analyst

Hi. This is Frank Galanti, on for Ben. Thanks for taking my question. I wanted to follow-up on the D&S business impairments.

Were those kinds of like kitchen-sink type writedowns? Is it kind of safe to expect, unless the world gets kind of materially worse than what you laid out, that there'd be no more writedowns in the D&S business?

Bill Harvey -- Executive Vice President and Chief Financial Officer

Well, it's -- I don't paraphrase a kitchen sink. It's a pretty rigorous exercise with the right people involved. So, we will go through the whole fair value exercise as a third party in that. We are very comfortable with where we ended up.

We're very comfortable that the writedowns are the right amount for the present circumstances. And -- but it's definitely not kitchen sink. It's just everything. I don't want to make it look like we're -- I don't want anybody to believe that we would do kitchen-sink type of writedowns.

Frank Galanti -- Stifel Financial Corp. -- Analyst

No, no. That's fair. I guess, that was more representative, but that's fair. And then kind of moving on, I wanted to ask about the barge supply.

So, you had mentioned in the call -- in the prepared remarks, that it should be -- supply coming on should be lower than the last barge recession. But has there been any changes with the kind of current weak market conditions around barge ordering? Or any changes in expectations to barge supply?

David Grzebinski -- President and Chief Executive Officer

Yeah. I don't have real current data. You know, our last kind of survey and thinking about the number of orders, we think there are 130 barges scheduled for delivery in 2020. We do know that barge pricing has declined, you know, because of the -- what's going on in the world, steel prices are declining, et cetera.

So, we know new barge pricing is down. But I think you can look at the large public barge manufacturing company, and I think they said on their call that new barge orders in Q2 are going to be minimal. Hey, you would expect that in this environment, every company is trying to preserve cash because they just don't know what's in front of them. So, I would imagine capital expenditures, at least for the near term and the second quarter, are going to be minimal.

So, as we look at it, 130 for delivery this year, 75 to 150 retirements. You know, we feel pretty good about the supply picture on barging.

Frank Galanti -- Stifel Financial Corp. -- Analyst

All right. Great. Thanks very much.

Eric Holcomb -- Vice President of Investor Relations

All right, Howard. We'll take one more call.

Operator

Yes, sir. Our next question or comment comes from the line of Bill Baldwin from Baldwin Anthony Securities. Your line is open.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Thank you. Appreciate you fitting me in here. I wanted to ask, Dave, when you do -- made the Cenac acquisition, or any acquisition for that matter, you have, I'm sure, some inefficiencies in terms of integrating the horsepower into your existing fleet. I was just going to try to get a feel.

Do you think the integration of the Savage fleet into the Kirby fleet as far as integrating the horsepower is going about as good as the Cenac, better than, or slower than? You know, how would you kind of describe that?

David Grzebinski -- President and Chief Executive Officer

Yeah. I would say it's going as good if not better than the Cenac integration. You know, their horsepower-to-barge ratio is a little lower than our average horsepower-to-barge ratio. So, we've already taken that up.

You know, it's working well. I would say it's similar to Cenac, but maybe a little better. You know, every acquisition, we learn a little more about how to do it better, right? So, it's -- and we've been very, very pleased with, well, with both acquisitions, to be honest. They've just been -- they've fit really well in our equipment, and great mariners and great people across the board from shoreside on.

And the horsepower synergies are, to your point, some of the best synergies we get. And we're really excited about where that is with Savage right now.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

How longer will it take, I mean, let's say, to get a "normal demand environment?" How long will it roughly take, Dave, to get -- begin to realize some of the synergies on the integration of the, you know -- with the horsepower into your fleet?

David Grzebinski -- President and Chief Executive Officer

Yeah. We...

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Is that something that's realized right upfront? Or does that take place over a longer period of time?

David Grzebinski -- President and Chief Executive Officer

No, it takes -- I'm just -- to throw a number out there, six to nine months. I'd say we're a little in front of that, even given with social distancing right now, the -- our teams are -- it's amazing how well they're performing given this environment. I mean, it's just incredible. So, I'd – yeah, I'd say we're a little faster than that six- to nine-month normal integration process.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

OK. And just one quick follow-up, Dave. I know some companies, due to the virus, have had some staffing issues due to absenteeism and so forth. Has that been anything that's affected your vessel personnel, you know, vessel staffing?

David Grzebinski -- President and Chief Executive Officer

You know, not at all. Not at all. Our -- boy, our mariners have stepped up. They've been working with us.

Crew changes, we stretched out crew changes a little bit. We've asked people to ride a little longer. And our -- we've had no absenteeism. And you know, just the way it's all worked out, we've been very fortunate.

We've only had a handful of COVID cases in the company, and that's with 6,000 employees. So, we've been very fortunate. And -- but that's a credit to our entire team, both on the vessels and shore staff, making sure we keep social distancing, use masks. We use quarantine very effectively.

If we have any doubt at all that somebody has a fever or whatnot, we quarantine people. And of course, we've continued to pay them through that. So, we've had no crewing issues. But I want to just credit the team for that because it's truly remarkable.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Well, congratulations to the team and to the management. That's outstanding to hear that.

David Grzebinski -- President and Chief Executive Officer

Well, thanks, Bill.

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

Thank you.

Eric Holcomb -- Vice President of Investor Relations

All right. Thanks Bill, thanks Howard, and thank you, everyone, for your interest in Kirby and for participating in the call today. If you have any questions, or comments, feel free to reach me today at (713) 435-1545. Thanks, everyone.

Stay well.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Eric Holcomb -- Vice President of Investor Relations

David Grzebinski -- President and Chief Executive Officer

Bill Harvey -- Executive Vice President and Chief Financial Officer

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Jon Chappell -- Evercore ISI -- Analyst

Jack Atkins -- Stephens Inc. -- Analyst

Michael Webber -- Webber Research -- Analyst

Greg Lewis -- BTIG -- Analyst

Randy Giveans -- Jefferies -- Analyst

Frank Galanti -- Stifel Financial Corp. -- Analyst

Bill Baldwin -- Baldwin Anthony Securities -- Analyst

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