Kirby (NYSE:KEX) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.
Access the full call at https://edge.media-server.com/mmc/p/dcpn8cad/
Summary
Kirby Corporation reported record third quarter earnings per share of $2.09, a 27% increase year over year, driven by strong performance in both marine transportation and distribution and services.
Marine Transportation saw strong barge utilization and favorable pricing trends, with inland revenues increasing 21% year over year and operating margins in the 20% range.
Distribution and Services segment revenues increased 6% year over year, with notable growth in power generation and marine repair activities.
The company entered into an agreement to acquire inland marine assets for approximately $115 million, enhancing its network in South Texas.
Kirby Corporation raised its full-year earnings growth guidance to 10-15%, expecting results toward the upper end of this range, supported by favorable market conditions and operational execution.
Full Transcript
OPERATOR
Good day, and thank you for standing by. Welcome to Kirby 2026 third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.
Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Donnie Chia, Vice President of Finance and Investor Relations. Please go ahead.
Donnie Chia (Vice President of Finance and Investor Relations)
Good morning, and thank you for joining the Kirby 2026 third quarter earnings call. With me today are David Grudzvinsky, Kirby’s Chief Executive Officer; Christian O’Neill, Kirby’s President and Chief Operating Officer; and Raj Kumar, Kirby’s Executive Vice President and Chief Financial Officer. A slide presentation for today’s call, as well as the earnings release which was issued earlier today, can be found on our website. 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 judgments 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. A list of these risk factors can be found in Kirby’s latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David.
David Grudzvinsky (Chief Executive Officer)
Thank you, Donnie, and good morning, everyone. Earlier today we announced record third quarter earnings per share of $2.09, up 27% year over year. Our results reflected strong continued momentum across both businesses and solid execution throughout the organization. In marine transportation, strong barge utilization and favorable pricing trends supported performance during the quarter. In distribution and services, results benefited from robust demand in power generation and strong growth on behind-the-meter power solutions. Overall, the company executed well during the quarter and delivered solid financial and operating results, reflecting our continued focus on safety and operational excellence.
In inland marine, market fundamentals remained constructive during the quarter. Strong refinery operating rates, healthy petrochemical activity, and limited new industry capacity supported barge utilization in the low 90% range. Spot market rates improved sequentially in the low- to mid-single-digit range, while term contract renewals increased in the low-single-digit range compared with the prior year. Increased levels of Venezuelan crude imports resulted in heavier refinery feed slate and more byproduct moves.
However, rising fuel costs remained a near-term headwind, as higher costs were only partially mitigated by cost escalators and rate recovery mechanisms. During the quarter, the inland business delivered margins in the 20% range, driven by a combination of steady demand, disciplined execution, and limited industry capacity additions. In coastal marine, customer demand remained stable with barge utilization in the high 90% range, and third quarter coastal revenues increased 3% year over year, while operating margins were in the mid-teens range. There was only one contract renewal in the third quarter, which increased in the low double-digit range.
Turning to distribution and services, our performance reflected favorable market conditions for power generation and strong execution by our commercial and operations team. Segment revenues increased 6% year over year, driven by strong demand for behind-the-meter and backup power solutions in a healthy environment for commercial and industrial. For the quarter, operating margins were in the low double digits and up 200 basis points sequentially, reflecting the growing share of behind-the-meter power solutions in our power generation business as well as operational improvements throughout the segment.
Overall, the segment delivered solid results across the portfolio, demonstrating the strength of the company’s positions across multiple end markets. In summary, Kirby delivered a strong quarter, underscoring the strength of our portfolio and the disciplined approach that we bring to our operations every day. In marine transportation, inland delivered strong revenue growth year over year, and coastal utilization remained high. In distribution and services, power generation remained a key growth driver, commercial industrial activity performed well, and oil and gas remained stable. Taken together, these trends reinforce our confidence in the outlook for the remainder of the year, which I will discuss in more detail later in the call.
But first, I’ll turn it over to Raj to walk through the segment results, balance sheet, and capital allocation.
Raj Kumar (Executive Vice President and Chief Financial Officer)
Thank you, David, and good morning, everyone. In the third quarter of 2026, Marine Transportation segment revenues were $569 million and operating income was $112 million, with an operating margin of 20%. Compared to the third quarter of 2025, total Marine Transportation revenues increased $84 million, or 17%, while operating income increased $23 million, or 26%. The operating margin improvement came from strong utilization and improved pricing despite continuing inflationary pressures.
Compared to the second quarter of 2026, total marine revenues increased 6% while operating income increased 27%. Looking at the inland business in more detail, inland contributed 81% of Marine Transportation segment revenue, with average barge utilization in the low-90% range for the quarter. Long-term contracts, for those with a term of one year or longer, contributed approximately 65% of inland revenue, with 56% from time charters and 44% from contracts of affreightment. Improved market conditions resulted in average spot market rates increasing in the low- to mid-single-digit range sequentially and increasing in the mid-single-digit range year over year.
Term contracts that renewed during the third quarter increased in the low single-digit range year over year. Compared to the third quarter of 2025, inland revenues increased 21% while operating margins were in the 20% range. Moving to the coastal business, coastal represented 19% of revenues for the Marine Transportation segment, with average barge utilization in the high-90% range, in line with the second quarter of 2026 and the third quarter of 2025. For the quarter, the percentage of coastal revenue under term contracts was approximately 95%, of which approximately 100% were time charters. Coastal had one term contract renewal during the third quarter which increased in the low double-digit range year over year.
Coastal revenues increased 3% year over year with operating margins in the mid-teens range, driven by fewer shipyard days compared to the second quarter of 2026. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes during the quarter as well as projections for the full year. This is included in our earnings call presentation posted on our website. At the end of the third quarter, the inland fleet had 1,148 barges representing 25.7 million barrels of capacity and is expected to be flat in the fourth quarter of 2026. Coastal marine is expected to remain unchanged from the third quarter of 2026.
Now I will review the performance of the Distribution and Services segment. Revenue for the third quarter of 2026 was $408 million with operating income of $48 million and operating margin of 12%. Compared to the third quarter of 2025, the KDS segment revenues increased by $22 million, or 6%, with operating income increasing by $6 million, or 13%. This growth was driven primarily by continued strength in the power generation business, especially in our behind-the-meter applications, and higher marine repair activity.
Compared to the second quarter of 2026, revenue increased by $23 million, or 6%, and operating income increased by $10 million, or 27%, reflecting improved activity levels, favorable mix, and stronger performance across several end markets. Moving through the segment in more detail, in Power Generation, we continue to see strong demand for behind-the-meter and backup power solutions. Our backlog increasingly reflects a greater share of behind-the-meter power solutions, which will be a tailwind for margins going forward. However, OEM engine availability remains constrained and limits the rate at which we can convert backlog into revenue. Overall Power Generation revenues increased 8% year over year with operating margins in the low double-digit range.
Power Generation represented approximately 46% of total segment revenues. In Commercial and Industrial, strong marine repair activity contributed to an 8% year-over-year increase in revenues and a 23% increase in operating income. The business represented approximately 44% of segment revenues and generated operating margins in the low double-digit range. In Oil and Gas, activity remained stable during the quarter. Revenues were flat sequentially and operating income increased by 54% sequentially, driven by higher-margin parts and service activity and ongoing cost management efforts. Oil and Gas represented approximately 10% of segment revenues and generated operating margins in the low double-digit range.
Now I’ll move on to the balance sheet. As of quarter end, we had $38 million of cash and total debt of $1.07 billion, with a debt-to-capitalization ratio of 23.7%. We ended the third quarter with $530 million of available liquidity. During the quarter, net cash provided by operating activities was $143.5 million and capital expenditures were $69.5 million, resulting in free cash flow of $74 million. Working capital remained elevated during the quarter, reflecting higher revenues in both segments, timing of collections, and higher fuel-related receivables in Marine Transportation.
We expect these working capital requirements to normalize during the remainder of the year, supporting meaningful improvement in free cash flow in Q4. In the third quarter, Kirby entered into an agreement to acquire certain inland marine assets from undisclosed sellers for approximately $115 million. The acquisition includes nine inland towboats, 14 inland tank barges, nine bow thrusters, and the Rockport, Texas, fleeting operation. The acquired assets are expected to enhance Kirby’s inland marine network in South Texas and further highlight our focus on a disciplined acquisition strategy.
With respect to capital expenditures, we continue to expect full-year capital spending to range between $220 to $260 million. Approximately $170 to $210 million is associated with marine maintenance capital, including improvements to existing inland and coastal marine equipment and facilities. Approximately $65 million is associated with growth capital spending across both businesses. For the full year, we remain on track to generate cash flow from operations of $575 million to $675 million.
Our capital allocation strategy remains focused on maximizing long-term shareholder value, balancing disciplined investment in our businesses with consistent return of capital to shareholders. In the third quarter of 2026, we returned $112 million to shareholders through share repurchases at an average price of $137. These repurchases reflect our confidence in the long-term earnings power of the business and our view that at recent levels, share repurchases represent an attractive use of free cash flow.
Having said that, we continue to prioritize and evaluate acquisition opportunities within our core businesses, particularly in marine, where we see the potential to further enhance our service capability, drive fleet efficiency, and generate attractive long-term returns. Taken together, our balanced approach allows us to invest in high-return opportunities across our portfolio while consistently returning capital to shareholders. With that, I will turn the call back to David to discuss our outlook for the remainder of the year.
David Grudzvinsky (Chief Executive Officer)
Thank you, Raj. As we look at the balance of the year, we remain encouraged by the direction of the businesses across our portfolio. We are seeing the continuation of many of the same tailwinds that supported our third quarter results, including healthy demand, solid asset utilization, and continued inland pricing improvement. While the broader operating environment remains dynamic, we believe our market-leading businesses and disciplined approach position us well in the fourth quarter of 2026 and for a good 2027.
As a result, we have narrowed our 2026 full-year earnings growth guidance to 10% to 15% and currently expect results toward the upper end of that range. Our confidence is supported by continued inland pricing momentum, the expected recovery of fuel cost timing impacts, healthy utilization across Marine Transportation, and solid execution on our growing Power Generation backlog. In Inland Marine, we continue to see a favorable operating environment. Demand from refining and petrochemical customers remains healthy, while barge availability across the industry remains relatively tight, and pricing momentum continues to build. With spot pricing continuing to lead term pricing, we believe the setup remains constructive as additional contracts renew in the seasonally heavy fourth-quarter renewal period. Overall, inland revenues are expected to grow in the low double-digit range, with operating margins in the high-teens to low-20% range for the full year.
In Coastal Marine, underlying market conditions remain supportive with healthy customer demand and strong barge utilization. Overall, revenues are expected to increase in the mid- to high-single-digit range for the full year, with operating margins in the mid-teens range. The margin is reflective of elevated shipyard activity in the fourth quarter and the market-specific pricing dynamics we mentioned last quarter, as well as ongoing cost pressures.
In Distribution and Services, strength in Power Generation and marine repair is expected to continue driving segment results. In PowerGen, customer demand remains exceptionally strong, particularly for behind-the-meter power solutions serving data centers and other industrial applications, while OEM engine availability continues to affect the timing of customer deliveries. Our backlog and customer conversations continue to support a strong multi-year outlook.
Importantly, growth in the behind-the-meter power applications that operate continuously creates longer-term aftermarket parts and service opportunities as our growing installed base continues to expand. Within Commercial and Industrial, marine repair demand is expected to remain healthy, while on-highway activity remains constrained. In Oil and Gas, activity is expected to remain stable, subject to changes in the market environment. Overall, we expect segment revenues to increase in the high single-digit range for the full year, with operating margins in the high single-digit range.
To conclude, we delivered solid third quarter results and remain well positioned for the remainder of the year. Marine Transportation fundamentals remain favorable, supported by strong utilization, improving inland pricing, and limited new capacity. In Distribution and Services, Power Generation continues to be a key growth driver, while Commercial and Industrial activity remains healthy. Supported by our market-leading positions, enhanced service capabilities, fleet efficiency, and disciplined approach, we remain confident in our outlook and our ability to deliver our narrowed EPS growth guidance range.
Operator, this concludes our prepared remarks. Christian, Raj, and I are now ready to take questions.
OPERATOR
As a reminder, to ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from Tomo Sato with JPMorgan. Your line is open.
Tomo Sato (Analyst)
Good morning, everyone.
David Grudzvinsky (Chief Executive Officer)
Hey, good morning, Tomo.
Raj Kumar (Executive Vice President and Chief Financial Officer)
Good morning, Tomo.
Tomo Sato (Analyst)
Thanks for having us and congrats on a strong quarter. Maybe starting with Marine, how are you thinking about pricing over the next 12 months, and how sustainable is that pricing power over the medium term, please?
David Grudzvinsky (Chief Executive Officer)
Yeah, sure. Tom, this is David. I’ll start and turn it over to Christian for some more detail. Look, in the third quarter we had low single to mid-single-digit spot pricing increases, but it was a small portfolio that repriced in the third quarter. Term pricing was up low single digits, both. But importantly, momentum is building into the fourth quarter here and we think the pricing should be north of what we saw in the third quarter, which is really important because it sets up for a good 2027.
And longer term we still see supply and demand in really good balance right now. Nobody’s really building new equipment and the retirements continue. So we don’t see much in terms of net new adds to the industry fleet over the next several years. But let me turn over to Christian, who’s got a lot more color on particularly the fourth quarter renewal season that’s ongoing right now.
Christian O’Neil
Yeah, thank you, David. I think you characterized it well as we have a lot of momentum going into the fourth quarter and going into now next year. It was a very small sample set in Q3, single-digit term contracts that actually renewed. We will definitely see stronger momentum, improvement in everything, all things inland. Supply remains tight. There’s only 65-ish barges being delivered this year. It feels like most of that’s replacement capacity.
Our utilization remains high, below 90% range to exit the quarter. We actually touched 95-plus percent utility a couple of times in the last few weeks. Refinery utilization is near record levels. And, you know, the spread between spot and term pricing, when you bake all this together, remains about 10 to 15%. And I will tell you it’s on the higher end of that, on the 15% range. And when spot is outpacing term at those levels, we really get the opportunity to get some good bites at the term pricing.
Chemical volumes are also improving, supported by global rationalization. The Gulf Coast Pad 3 chemical plants are busy. Middle East infrastructure is taking a lot of damage, a lot of capital discipline out there from our competitors. New-build econs remain a challenge. We don’t see supply growing in the near term, as David said. And again, to restate it, contract pricing continues to improve. And I’ll stop there,
Tomo Sato (Analyst)
Thank you. David and Christian, follow up on KDS power generation, please. How quickly can service and parts become a more meaningful part of the mix and how much margin upside could that create over time, please?
David Grudzvinsky (Chief Executive Officer)
Yeah, great question again, Tomo. I’ll tag team this here a bit. Look, the pace of orders has been great, and particularly for behind-the-meter, or bring your own power, which is what everybody’s talking about now because with the NIMBY, or not in my backyard, and the concerns that a lot of the data center pushback is talking about is about power. So this bring-your-own-power move is real. As we look at our order inbound and even our backlog right now, which is probably two-thirds behind-the-meter power, bring your own power, that’s really good for us because those are natural gas systems.
They’re complex. They have a lot of what we call balance-of-plant equipment, which we’re the OEM for. We don’t make the engine, but we put everything around the engine, whether it’s a cooling system, an air intake system, sound attenuation system, as well as power distribution systems that link it all together. All that’s our equipment and we’re the OEM. And importantly, as the OEM, we end up getting the service and parts there. Now Christian will describe a little more on how long that takes to start converting service.
Christian O’Neil
Yeah, thank you, David, and Tomo, thanks for the question. We are highly focused on the aftermarket opportunities here. Our data center customers, our powers-as-a-service customers, they demand uptime, they demand turnkey solutions. The aftermarket opportunity will provide a nice stability for us after this capex cycle starts to fade a little bit or slow down a little bit. We think the aftermarket opportunity can exceed the original product value, and so we are aggressively going after that.
We built a new part of our team led by Chad Jost, who leads our power service team, to chase this aftermarket opportunity vigorously. As David said, we have the right to win on a lot of the behind-the-meter equipment that we’re producing and we’re highly focused on it, highly excited about it. You know, we think in three to four years you’ll begin to see the maintenance cycle. We describe it internally as the new-car effect. You know, you buy a new car, it works great, it smells great, it operates smoothly. In about year four, the mechanic down the street’s licking his chops. You know, we see that big ramp-up in aftermarket about, you know, three, four years out. You know, it’ll be a $100 million-plus business for us. You know, again, don’t hold me to that, but that’s what we’re scoping it out and budgeting it out to be today as we build the team and build techs.
Very excited about the aftermarket opportunity.
Tomo Sato (Analyst)
Thank you very much.
David Grudzvinsky (Chief Executive Officer)
I would just add you asked about margins. Obviously aftermarket has higher margins. I think everybody realizes that. You know, the behind-the-meter bring-your-own-power equipment has higher margin than just backup diesel. So the margin profile should continue to improve. Just a little caution on quarterly progression: we do have lumpiness in both manufacturing and shipments, and that swings around the margin a bit quarter to quarter. So really the focus on margin should be on an annual basis.
What’s the average annual? Our view is that’s going to improve and continue. We’ll be in the double-digit margin range in a year or two, if not before.
Tomo Sato (Analyst)
Thanks again.
David Grudzvinsky (Chief Executive Officer)
Thanks, Tomo.
OPERATOR
Thank you. Our next question comes from Bascom Majors with Stevens. Your line is open.
Reed C (Analyst)
Hey guys, this is Reed C on for Bascom. If we could start on the marine side. Just some wording in the release around coastal and on the call as well. If we look at the margins, I understand there’s some heightened shipyards and there’s some pricing dynamics. One, if you could give us an update on the pricing dynamics with those specific size ships that you called out last quarter, and then you also called out some, I believe it was ongoing cost pressures.
Is that just the shipyards, or are there some other dynamics that we should be aware of?
David Grudzvinsky (Chief Executive Officer)
Yeah, we’ll handle this together again, Reid. Look, the fourth quarter, we’ve got some larger units coming into the shipyard. And as you’ve heard us describe before, these large units, you know, they have high day rates, and when they’re out of service, we still have all the cost that goes with it, and we just don’t have the revenue. But that’s just part of the business. You know, you saw our margin in the second quarter was lower than what we saw in the third quarter.
The fourth quarter will be more like the second quarter in terms of margin, principally because of the shipyard cadence. That’s just a normal part of the business. I’ll let Christian talk about the rest of the cost structure and the contracts.
Christian O’Neil
Thank you, David. Thank you, Bascom. Yeah. You asked about the market dynamic piece of that that we alluded to and spoke about last quarter. You do see a bit of that flow-through of the net effect of what was European barrels that imported into the Northeast, and our smaller barges, our 80s and 100s, get the opportunity to move those European barrels and redistribute them on the East Coast. With the low amounts of European imported refined products, we have seen that impact those margins on those contracts that service that piece.
And so what you see now is just a little bit of that flow-through that we talked about last quarter as those 80s and 100s felt a little bit of the pricing pressure. The good news is the bigger units, the thermal oil units, the chemical units, those other pieces of the business we are very, very bullish about. There is a high demand for them. The rates are very good, and we do see improving rates. As you saw, the single contract that renewed this quarter, I think it was in the double-digit range.
You also asked about cost pressures. You know, inflation is real. We see it across various buckets in the marine companies in general. Skilled labor, not just for us, but even in the DNS companies. When it comes to engineers and others, there’s a lot of pressure on skilled labor, particularly around the mariner and the inflation there. And the other piece is the price of steel and a lot of the other inputs that go into a major yard period or shipyard period.
You see inflationary pressures around those, and maybe those are eating into the margin a little bit here.
Reed C (Analyst)
Got it. That makes a lot of sense. And then if I could just ask on power gen as well, could you provide an update on what that backlog looks like on a quarter-over-quarter basis, what it looks like versus 1Q, and when we should start to see some backlog harvesting or how much of that is going on right now? Just any color there would be helpful.
David Grudzvinsky (Chief Executive Officer)
Sure. I think in the first quarter I said our backlog was 500 to a billion. In the second quarter I said a billion to 1.5 billion. And I would just tell you right now we’re north of 1.5 billion in terms of backlog. The important thing is book-to-bill. Book-to-bill is well above one right now. We’re continuing to take orders. The inquiry level is still very high. You know, you hear about all the delays and stuff and ups and downs in the daily news.
But I would just tell you the demand is still there, it’s robust. Everybody needs power. If you’re going to build a data center, particularly with the political pressure nowadays that you’re seeing across the United States, they’re calling it bring your own power. And, you know, if you’re going to build a data center, you better bring your own power, which is music to our ears, frankly. You know, with the low cost of natural gas, that’s perfect for our natural gas reset systems that we build.
So we’re excited about it, Reid. You know, we don’t want to really get into telling our backlog every quarter because you guys know what that game’s like. But we’re trying to give you direction.
Reed C (Analyst)
Makes sense and we appreciate that. If I could sneak in a bigger picture one just on inland. You’ve had some demand headwinds in the past year or more. Can you talk about some of what you expect on the come in terms of demand, particularly on the chem side, which we saw struggle a little more last year?
David Grudzvinsky (Chief Executive Officer)
Yeah, again, Christian and I—Christian can give you a lot more detail than I can—but you know that third quarter of last year the feedstocks slate got really light. There was not a lot of heavy coming in. Part of that was tariff-driven. Part of it was just some of the global political dynamics. But now that Venezuelan crude’s coming back in, the feedstock slate’s heavy. Other heavy feedstocks are getting discounted because of the competition from Venezuelan, which is really good for our refinery customers.
Similarly, in the chemical side we’ve seen some strength. I don’t know if Christian can give you a lot more detail. Yeah, no, I think when you compound record refinery utilization with what’s finally for us, we’re beginning to see some strengthening, you know, chemical markets, particularly in the Gulf of America that we service, you know, in part driven by global rationalization. I think you’re finally seeing the European less efficient, you know, PE and chemical producers, they’re closing the doors on some of those less efficient plants. You’ve seen the Middle East infrastructure taking a lot of damage, frankly, in the conflict over there.
And then you just have the natural competitiveness of PADD 3 with its proximity to cheap natural gas and its feedstock advantage. And I think when you compound all those together, you know, we’re beginning to see our chemical customers more optimistic. We’re beginning to see the opportunity to move some pricing on, on the chemical side. And in general, chemical volumes are improving. We definitely see that. And so when you compound that with record refinery utilization.
Hey, that’s a great cake to bake over here at Kirby.
Reed C (Analyst)
Great to hear. Thanks for taking my questions, guys.
David Grudzvinsky (Chief Executive Officer)
Thanks, Reed.
OPERATOR
Thank you. Our next question comes from Scott Group with Wolfe Research. Your line is open.
Ivan Yeon (Analyst)
Hey, good morning, guys. This is Ivan Yeon for Scott. Thanks for taking my questions. First, on margins, both inland and coastal margins seem to be down this year. Can margins in both segments start growing again in 2027? Thank you.
David Grudzvinsky (Chief Executive Officer)
Yeah, the short answer is absolutely. We just talked about the weakness we saw in 2025 that had set up the fourth quarter when that heavy term contract renewals came in. And that puts some headwind on margins. We are definitely crawling out of that, that hole and making real progress. Now, you know, inland margins were in the 20% range this quarter. As you heard Christian describe the fourth quarter renewal cycle. It is going to be really strong.
So it, you know, margins should definitely improve from here.
Ivan Yeon (Analyst)
Great, thank you. And then you seem bullish on pricing next year. But what about the cadence of cost? Can the price-cost spread accelerate from 26 to 27, especially if fuel prices start moderating next year? Just want to get an update on the cost side as well. Thank you.
David Grudzvinsky (Chief Executive Officer)
Yeah, we should have real price increases over inflation here. Fuel has been a headwind as I’m sure everybody’s aware of. Anybody that’s using diesel nowadays is probably talking about that headwind. We work really hard. Christian and his team make sure we have fuel adjustment clauses in all our contracts. But there’s a lag. Some of them have 120-day lag, others are very short. We saw a pretty big headwind in the second quarter on fuel. We thought we would recover it all, but you know, fuel did another tick up.
You know, I think we got north of $4 a gallon. So, you know, there’s a little bit of a headwind in our margins on fuel this quarter as well. You know, assuming fuel doesn’t take another leg up, you know, that should start to roll through here as all our contract clauses adjust here in the fourth quarter. Some of that will roll into the first, but that fuel headwind should mitigate. But fuel moves around. Our goal again with our customers is to not take any risk on fuel or make any money on fuel.
They are best able to bear that. In terms of other inflation, you heard Christian talk about the mariners and mariner inflation. Wage inflation for any skilled worker these days is real. And then steel is definitely a headwind. You know, we use a lot of steel. All our boats and barges use steel. And even on the D&S side, you know, there’s a heavy steel component. That said again, we think pricing will definitely be north of inflation. You know, the good news is some of the other inflationary items that we had seen over the years has mitigated some, but it’s still real.
But the upshot is we’ll be over inflation in terms of rate adjustments.
Ivan Yeon (Analyst)
Thank you guys.
OPERATOR
Thank you. Our next question comes from Ken Hexter with Bank of America. Your line is now open.
Adam Raskowski (Analyst)
Hi. Hey Dave, Raj and team, good morning. This is Adam Raskowski on for Ken Hexter, maybe just into the 4Q repricing season. Could you just remind us what percentage of the book reprices in 4Q and maybe just clarifying you had noted inland term renewals were up low single digits in 3Q. Is that above the inflationary pressures you are seeing? Was that behind? It sounds like you expect the price cost to get better into next year. So just thoughts there.
David Grudzvinsky (Chief Executive Officer)
Yeah, no, usually the fourth quarter is probably 35% to 40% of the portfolio. Third quarter was, as you heard Christian mention, a handful of contracts. So it was low. But, you know, it was in line with inflation. Maybe a little better than inflation. But I would tell you with what we’re seeing in terms of term-spot spread and the way fourth quarter is lining up, it’ll easily be over inflationary levels and it needs to be. Look, the big picture here in terms of supply and demand is pricing still 40% below new build economics.
So, you know, there is some building for replacement but nobody’s really building equipment to expand. So, you know, as demand continues to grow, and you know, demand generally grows with GDP, right now, obviously with what’s going on in the refinery world in terms of refined products globally, you know, we’re very busy. But if new equipment’s going to get built, prices have to go up in a meaningful way. So it’s a good backdrop for the next three to five years for sure.
And, you know, we’re pretty excited about it. And, you know, I know Ken had asked in the past about peak margins. We’re going to, in my view, with this cycle, we’ll be setting new peak margin records. It may take a little bit, but this is set up for a good long run.
Adam Raskowski (Analyst)
Thanks for the color there. And then just last one. Following the recent or upcoming inland asset acquisition, are you seeing more opportunities like this, you know, from smaller operators or private fleets?
David Grudzvinsky (Chief Executive Officer)
Yeah, and it’s not just the smaller operators as well. I mean, we’re probably in more active discussions than we’ve been in a long time. But look, we are very disciplined. We don’t overpay. We stay disciplined. We always look at everything on a DCF point and acquisitions are hard to predict. You know, there’s a bid-offer spread process, but we stay disciplined. The good news is there’s enough conversations happening that we’re excited about and, you know, this is just another little tuck-in that Christian was able to get done.
Yeah, we don’t talk about it, but this had a big fleeting operation which is really important for our customer service. You know, these fleets, we don’t talk about them much, but they add tremendous customer service value. And that was the key. With this one acquisition, we got some great equipment, but it’s also that fleet that really can make a big difference. I don’t know if you want to add any.
Christian O’Neil
No, well said. The acquisition is great. Modern fleet, good mariners, well-run company. As David mentioned, the infrastructure in Corpus Christi area is very strategic. Sixty-five acres of fleeting. Ability to fuel our vessels, ability to get potable water. We got craneage to do topside repairs. It checks a lot of boxes. In addition, this was unique in that it’s a fleet that operated with bow thrusters, which adds to the efficiency of unit tows operating on the west end, particularly in the high winds that you see down there.
So all in all, a great acquisition that we’re very excited about and if any of that new team is listening. Welcome to Kirby.
Adam Raskowski (Analyst)
Thanks for the time.
David Grudzvinsky (Chief Executive Officer)
Thanks, Ed.
OPERATOR
Thank you. Our next question comes from Ben Moore with Citi. Your line is open.
Ben Moore (Analyst)
Hi, good morning. Thanks David, Christian, Raj and Donnie for taking the question. Congrats on the beat and raise. Wanted to ask a question maybe to get your thoughts on timing. I see that you raised your inland revenue growth to low double digits from the mid to high single digits on some of the key drivers. Great to see it looks like there’s a pretty good long tail. If you combine each of these drivers that I think we’ve talked about in the past.
The Venezuela imports, Chevron this past quarter in a public forum estimates around lasting around 10 to 15 years for the Venezuela heavy coming in, you’ve got Iran where even if the war ends, we could be another several quarters or a couple of years of benefit for you in crack spread widening beyond the eventual end of the war. You’ve got Calcasieu that benefited 3Q and 4Q maintenance bump, late ’27, early ’28, and then kind of beyond all this, the risk of returning to the chems recession.
Just wanted to get your thoughts on sort of what I’ve laid out there in timing. Would you agree? Would you adjust some of these numbers? It does seem like the long tail is very supportive.
David Grudzvinsky (Chief Executive Officer)
You know, I think you summarized it really well. We’ve got some really good tailwinds here. We’re very excited about where we are in this cycle. It almost feels like a super cycle here. Everything you mentioned is true. Calcasieu did help a little bit. But I will tell you, on Calcasieu in particular, the Corps of Engineers managed that very well. We didn’t see the industry backup that we normally see. So with our utilization as sporty as it is, it could have been even tighter with Calcasieu, but they managed it well.
Those short-term lock disruptions and weather disruptions are going to happen, but systemically the stuff you outlined is pretty bullish for us. We know a maintenance cycle is coming in ’28, it’ll start. You know, we’ll see it with our fleet and then the whole industry fleet and it’ll be significant. Again we see our refinery customers. Look, the U.S. refinery complex is the best in the world, is the most efficient. They’re running flat out too. And given what’s in Iran and we didn’t—I don’t know if you mentioned Russia, but the Russia-Ukraine situation is not good either.
So, you know, that doesn’t look like it’s going to change in the near term for sure. You know, there’s some talk of peace with Russia and Ukraine, but, you know, that could be midterm election driven. So we’ll see. We’re very excited about the outlook here for the marine companies. Not even to mention the distribution services power, power gen stuff as well. But it’s a good time for Kirby. We’re very excited about the outlook for the next several years.
Christian O’Neil
Yeah, I think you described all those macro items very, very well, Ben. I think when you compound that with the industry capital discipline that we see now post COVID, you know, really what could derail all those great things you mentioned, you know, it would be the undisciplined overbuilding of the market and we don’t see that type of behavior at all. And the pricing of inland tank barges prevent that. You know, you’re looking at $4.6–$4.7 million for a clean, $35.86 million for black oil, $2.5 million for 10,000.
So you just don’t see that undisciplined overbuilding risk in the short run, longer run. So combined with your macro description, things look really good. Thanks Ben.
Ben Moore (Analyst)
Great. Really, really appreciate that, Dave and Christian. My next question, I wanted to get a sense of sort of maybe discerning between benefiting from mix versus core rate. You mentioned the low single digits, low mid-single digits contracting spot gains in inland this quarter from some of the small contracts renewed in the quarter. And so, you know, when we look back at 2022 when Russia invaded Ukraine, we saw some very, very strong contract and spot rates for you guys during that time.
As we calculate our model, looking at your implied inland revenue per utilized barge per day, that we estimate looks like it was up 7.5% 2Q and it’s accelerated to up 8% here in 3Q even though your contract spot rate kind of mix is low single digits or so. Would you say you’re seeing good strength in mix as well as some rate gain, maybe more in mix versus rate gain kind of versus what you experienced in 2022?
Christian O’Neil
Yeah, it’s a complicated question. The interesting thing is these are portfolio of contracts. We have, you know, literally hundreds of contracts, and a lot depend on when they were last renewed. So it’s difficult to answer your question. I think in terms of revenue per ton-mile maybe is what you’re looking at. I would just be careful because ton-miles move around a lot depending on what moves we’re doing. So just to give you an example, if it’s crude oil from West Virginia, goes all the way down the Ohio to the Mississippi, down to the Gulf Coast refineries — those are a lot of ton-miles. May not be as much revenue as, say, a chemical cross-channel machine move here in the Houston Ship Channel, which would be very low ton-miles but high revenue. So I’m not sure what you’re looking at.
You know, I think maybe Donnie and Raj can follow up with you and make sure we understand fully what you’re looking at.
Raj Kumar (Executive Vice President and Chief Financial Officer)
I think, Ben, I’ll just add and just say that, you know, as we look into Q4, everything’s set up really nicely for the marine companies — you know, inland marine. You know, as you know, and we’ve talked about this, you know, 35 to 40% of our term book gets renewed in Q4. And given the dynamics that we’re seeing with, you know, the supply situation being in such a favorable position, we’re set up to have a really good renewal cycle. I’ll let Christian add some color to that because I think it’s important.
Important for that message to come across.
Christian O’Neil
No, we’re very bullish in going, finishing our Q4 renewals. John Hallmark and the commercial team are doing a great job. We’ve already had some nice wins as we sit here today at the end of October, and we look forward to continuing that momentum. I mean, momentum is the word I would use. It’s a mix of high utility and, you know, you combine that with the winter weather that always, you know, helps tighten things up. That’ll add to the ability to, you know, push rates here in the fourth quarter.
But we feel very positive about it, very encouraged. We’re in a great spot and momentum is the word.
Raj Kumar (Executive Vice President and Chief Financial Officer)
And, you know, I’ll just add on Q3. As we entered Q3, I mean, we saw fuel was actually quite favorable. And as Q3 progressed, fuel started to be a headwind for us. Right. And even in that situation, given the, you know, the few contracts that we renewed — you know, and these were not a large number of contracts that we renewed from a term perspective in Q3 — we still got that price increase and it helped mitigate a lot of that fuel impact, as you can see in the results.
Ben Moore (Analyst)
Really appreciate the insights as always. Thank you.
Raj Kumar (Executive Vice President and Chief Financial Officer)
Thanks, Ben.
OPERATOR
Thank you. As a reminder to ask a question, please press Star 11 on your telephone. Again, that is Star 11 to ask a question. Our next question comes from Greg Wasikowski with Weber Research. Your line is open.
Greg Wasikowski (Analyst)
Hey, good morning.
David Grudzvinsky (Chief Executive Officer)
How you doing? Hey, Greg.
Greg Wasikowski (Analyst)
Good. Yeah, thanks. I’m just going to combine mine into one, so a two-parter here, going back to chemicals. Firstly, what’s driving some of that strength that you’re seeing? Last year we talked about some European plants starting to shut down. Are we starting to see some of the effects of that now? And then, secondly, can we extend some of that optimism to the 10k market or any other notable differences that you’re seeing between the 10k and 30k market, either on the demand or supply side? Thanks.
Christian O’Neil
Yeah, thank you, Greg. Yes, you are seeing the rationalization of the chemical capacity in Europe closing and shutting down combined with the U.S. Gulf chemical manufacturers filling that gap globally. And so when we talk to our chemical customers, their pricing has improved, their exports have improved, and they’re exporting to markets historically that might have been supported by Middle East chemical manufacturing capacity. So the combination of the damage from the war in the Middle East, Gulf Coast being super competitive, cheap natural gas, and being the highest-tech, best assets in the manufacturing space, and the global rationalization of capacity have all compounded to strengthen our chemical book. Probably some room to go still to get back to sort of peak chemical demand, but we feel really good about it. It’s definitely stronger than it was a year ago.
And I’m very glad you asked about the 10k market. In recent weeks we have seen our 10,000 barrel barge utility reach, I’m going to say, you know, near record, near record levels. We’re very busy. The 10Ks are nearly fully deployed and the team is doing a great job of marketing those barges. You know, we’ve won some new contracts and grown our book and, you know, all in all we just got a lot of momentum there and it’s nice to see the chemical volumes back.
And again, when you combine that with record refinery utilization, you begin to have the perfect storm for Kirby.
Greg Wasikowski (Analyst)
Yeah, that’s great to hear. All right, appreciate the color, guys. I’ll turn it over.
Christian O’Neil
Thanks, Greg.
OPERATOR
Thank you. Our next question comes from Ben Moore with Citi. Your line is open.
Ben Moore (Analyst)
Hey guys, thanks for bringing me back in. Just one last question on power gen. Revenue’s up 8% this quarter. You mentioned OEM availability being constrained still, but your backlog growth is still very strong. You mentioned in the past up 10 to 20% as sort of your longer-term outlook for power gen revenue growth. How do you see that trending into that? Do you maintain that outlook, or are we maybe kind of looking at a lower end of that outlook given sort of OEM capacity build constraints?
So why don’t I just get your thoughts on that, please?
David Grudzvinsky (Chief Executive Officer)
No, I would say we’re going to maintain that outlook — you know, 10 to 20% growth. I mean, that’s a big range, so, yeah, we’ll maintain that. I would say, you know, the OEM stretching out is okay. That just kind of means that there’s more time to absorb and produce this equipment and for us to ramp up our capabilities. You know, good news is, you know, Christian started an expansion at one of our plants a year and a half ago, and we’ve got a new, what we call generator assembly building, which has increased our capacity.
And, you know, right now we’re hiring probably 200 to 300 people. So, you know, you can imagine the OEMs are doing that at even a greater scale to get their stuff ramped up. So it’s an interesting dynamic. The OEMs are struggling — unprecedented demand — but, you know, they’re all very quality conscious, too. So as you ramp up these new plants, they’re making sure it works. The last thing they want is a bad reputation. So it’s an interesting dynamic.
We like where it is right now. It’s a strong ramp. So having it slow down a little bit is not really bothering us. It’s actually allowing us to execute a little better. But it’s still within that range. Still within that range you gave, Ben.
Ben Moore (Analyst)
Yeah. Wonderful. Thanks so much.
OPERATOR
Thank you. I’m showing no further questions at this time. I would now like to turn it back to Donnie Chia for closing remarks.
Donnie Chia (Vice President of Finance and Investor Relations)
Thank you, operator, and thanks to everyone for participating on our third quarter 2026 earnings call. If you have any additional questions or comments, please feel free to contact me directly. Thank you and have a good day.
OPERATOR
This concludes today’s conference call. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.