Kirby’s KEX first-quarter revenue fell 1% from last year. The decline was driven by anemic demand for United’s pressure pumping units, tempered by solid inland trends and improvement in coastal operations. The marine transportation business (75% of first-quarter sales) saw revenue increase 25%, thanks to persistent petrochemical and crude oil shipment demand, which is supporting 90%- plus inland-fleet utilization and favorable pricing.

Market conditions in the coastal business (Kirby Offshore Marine) continued to improve. While acquisitions provided a boost, the coastal fleet reported solid progress in both utilization (near 90% versus 75% a year ago) and pricing– rate gains on term-contract renewals were once again in the high-single-digits. Overall, the strong performance came from recovering demand for the coastal transport of crude oil, condensate, and heating oil (cooler weather in the Northeast). New coastal business from existing inland customers also contributed.

Revenue in Kirby’s diesel engine services operations (25% of revenue) declined 39%, mostly because of deterioration in United’s manufacturing and servicing operations. Essentially, low natural gas prices have reduced the incentive for customers in land-based hydraulic fracturing end markets to invest in new equipment, thereby tempering demand for new pressure pumping units. The firm appears to be improving United’s operational efficiency, and is still seeing decent remanufacturing activity for older fracturing equipment, though not enough to offset anemic newequipment sales.

Marine transport operating margins improved 90 basis points, to 21.3%, driven by solid inland tank-barge utilization and related pricing strength. Impressive gains in coastal fleet utilization and pricing also contributed. Excluding the favorable impact of an earnout adjustment related to the United acquisition, diesel engine segment margins fell to 7% (from 10.2% last year) because of the weakness in United’s land-based operations.

We’re increasing our revenue growth assumptions for the marine segment given better-than-expected improvement in the firm’s coastal operations in recent quarters. As a result, we expect to modestly raise our fair value estimate. We’re maintaining our economic moat rating.