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American Commercial Lines (ACLI) |
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WIKI ANALYSIS
ACLI was acquired by Platinum Equity Partners in December 2010 for $33 per share, translating into a total enterprise value of $777 million, and a 7.4 X TEV/EBITDA ratio on LTM EBITDA of $104.9 million, a prevailing multiple of the cargo barge sector at that time. By May 2010, the prevailing multiple of this sector has risen to ~10X on strong recovery of cargo barge demand..
CEO Mike Ryan will continue to manage the company.
Pre-Acquisition Information
American Commercial Lines (NYSE: ACLI) is the second largest owner and operator of cargo barges in the United States. It owns 14.8% of the country's dry inland transportation barges, which it uses to ship grain, coal, rand steel, and 13.2% of the liquid transportation barges, which it uses to move petrochemicals on inland waterways.[1] 24.8% of ACLI's transportation revenues come from the shipment of grain on its inland barges, but rates have been rising more quickly in the liquid transportation business, leading ACLI to focus on this segment for its future expansion.[2]
ACL's subsidiary Jeffboat LLC accounts for 22.8% of its total revenue, and is the second largest domestic manufacturer of dry cargo and tank barges.[3] Jeffboat operates in a virtual duopoly, as its market share added to that of competitor Trinity is 99%.[4] Jeffboat is in the early stages of replacing many of the old, outdated barges in the dry cargo industry, and it has a backlog of orders worth over $2 billion.[5] The smaller liquid barge industry is soon to follow, as the average age of a fleet has increased by more than 20% in the past 10 years. [6]
Vertical integration provides ACL's transportation segment with priority in Jeffboat's manufacturing schedule and the opportunity for collaboration between barge architects and barge operators. This will help the firm as it expands its fleet of liquid barges to meet the demand created by rising oil prices. While the rise in oil's price has its benefits for ACL, it also has a negative effect on the company's overall balance sheet since it signs long-term contracts with customers that prevent it from recovering fuel costs when these costs are rising.
Business Overview
Business & Financial Metrics[7]
In 2009, ACLI incurred a net loss of $12.1 million on revenues of $846.0 million. This represents a turnaround from 2008, when the company earned $48.0 million on $1.16 billion in revenues.
Business Segments[8][7]
ACLI operates through two business segments:
- Transportation (74.5% of total revenues): This segment provides dry cargo barge transportation and liquid cargo barge transportation on the Mississippi River, its connecting waterways, and the Gulf Intracoastal Waterway.
- Manufacturing (25.5% of total revenues): This segment manufactures dry cargo and tank barges in the United States.
Trends and Forces
Both ACL's Barging and Manufacturing Operations Can be Disrupted by Adverse Weather and River Conditions
Like other shipping and transportation companies, ACLI is hurt by adverse weather and river conditions. Both of the company's business segments are vulnerable to unfriendly weather, especially the impact of hurricanes on its revenues. Equipment and facilities will be damaged, and transportation delayed. A number of Jeffboat's manufacturing operations are conducted outdoors, leaving them subject to weather delays, flooding, and damages.[9]
Rates and Volume for Grain Shipments Are Volatile, Pressuring Operating Margins and Profitability
Each grain shipment is made under a spot market contract, which is based on current market prices. All future shipments are made under their own contracts. Grain prices and volume are influenced by a number of factors, including global economic conditions, domestic and international agricultural production, and weather conditions that affect harvest volumes. If grain prices fall or volume continues to decrease, the company's dry cargo transportation segment will suffer. Predicting future prices and volume of such a volatile commodity is difficult, which is why ACL has set the goal of earning no more than 10% of its total revenue from grain transportation in the unspecified future. [10]
Competition
American Commercial Lines is the second largest company by revenue in each of the three industries in which it operates: bulk inland liquid and dry cargo transportation, and dry cargo and tank barge construction.
Ingram Barge Company
Within the dry cargo transportation industry Ingram Barge Co. is the largest inland barge operator, with about 33% more barges than ACL. The two companies compete primarily over prices. Ingram, like ACL, intends to expand in the liquid transportation industry.[11] However, the average age of Ingram's fleet is 4 years younger than that of ACL, so ACL will use this opportunity to retire 20% of its dry cargo fleet and increase liquid transportation capacity by 15%. Within the liquid transportation industry ACL already has more than double the barges than Ingram, and the average age of Ingram's liquid fleet is 28.5, approximately 26% higher than ACL's. This gives ACL an advantage over its competitor in this fast-growing sector. Ingram's liquid fleet is in a replacement cycle, but faces a delivery delay of over a year. ACL, on the other hand, owns its own barge manufacturing company.
Kirby Corp.
Within the liquid bulk transportation industry Kirby Corp. is the largest inland barge operator, with twice the number of barges as ACL. Its large fleet lets Kirby capture customers that want a single source for barge services, and lets the company quickly reposition ships to meet short deadlines. However, the average age of Kirby’s fleet is 33% greater than that of American Commercial Lines, meaning the company is likely to incur significant maintenance and replacement costs in the next decade. Due to barge construction backlogs it will take Kirby at least 2 years to replace all of its older barges.[12][13] As ACL increases its position in the liquid bulk industry competitive pressures will increase. However, as long as demand continues to rise competition will not significantly impact margins.
Trinity Inland Barge Group
Trinity has 58% of the barge manufacturing industries market share, compared to 41% for ACL's subsidiary Jeffboat. The two companies compete on the quality of manufacturing, design capabilities, speed of delivery, and price.[14]
References
- ↑ ACLI 2007 10-K, Item 1, Page 4
- ↑ ACLI 2007 10-K, Item 1, Page 5
- ↑ ACLI 2007 10-K, Item 1, Page 4
- ↑ American Commercial Lines Investor Presentation May 21, 2007
- ↑ JPMorgan Presentation March 19, 2008
- ↑ American Commercial Lines Investor Presentation May 21, 2007
- ↑ 7.0 7.1 ACLI 2009 10-K pg. 35
- ↑ ACLI 2009 10-K pg. 5
- ↑ The Courier-Journal
- ↑ ACLI 2007 10-K, Item 7, Page 44
- ↑ Ingram Investor Relations
- ↑ KEX 2007 10-K, Item 1, Page 2
- ↑ American Commercial Lines JPMorgan Presentation March 19, 2008
- ↑ ACLI 2007 10-K, Item 7, Page 46
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