Matson Reports Increase in Third-Quarter Profits
Matson, the the state’s largest ocean cargo carrier, reported a jump in profits for the third quarter of the year to $41.5 million, up from the $21.5 million reported in the same quarter last year.
The cargo carrier attributes the boost in business to continued high demand for its expedited China service, a full quarter of its new Alaska business, and volume improvements in Hawai‘i.
Year-to-date, the 2015 results were negatively impacted by $10.0 million of additional selling, general and administrative expenses related to the Company’s acquisition of Horizon Lines Inc., and additional selling and expenses related to the company’s settlement with the state to resolve claims arising from the discharge of molasses into Honolulu Harbor in September 2013.
“Third quarter results were strong, led by continued high demand for our expedited China service, a full quarter of our new Alaska business, volume improvements in Hawaii, and improved performance at SSAT and Logistics,” said Matson President and Chief Executive Officer Matt Cox.
“The integration of our new Alaska operations continues to progress well and the business is on track to achieve our earnings and cash flow accretion expectations. Looking ahead, Matson is well-positioned to generate significant cash flow to pay down debt, fund growth initiatives, including our new vessel investments, and return capital to shareholders via both dividends and the share repurchase program announced today.”
Third Quarter SUMMARY
- Hawai‘i container volume up 14.8% compared to last year
- Ocean transportation operating income of $68.9 million, up 61.7% compared to last year
- Net income of $41.5 million, up 93.0% compared to last year
- Diluted EPS of $.94, negatively impacted by acquisition SG&A costs of $.14 per share
- EBITDA of $100.8 million, up 49.1% compared to last year
- Announces share repurchase program for up to 3 million common shares over next three years
Third Quarter 2015 Discussion and Outlook for Fourth Quarter
Alaska Operations Integration
Matson continues to expect the integration of its Alaska operations to be completed within two years post-closing of the acquisition of Horizon Lines on May 29, 2015, at which point incremental run-rate selling, general and administrative expenses are expected to be approximately $15.0 million per year.
Matson’s results for the third quarter 2015 were negatively impacted by approximately $10.0 million of additional selling, general and administrative expenses related to the acquisition of Horizon Lines in excess of the company’s incremental run-rate target, consisting primarily of integration costs and corporate overhead expenses. In the fourth quarter 2015, Matson expects to incur approximately $7.5 million of selling, general and administrative expenses related to the Acquisition in excess of its incremental run-rate target.
In the third quarter 2015, Matson’s Hawai‘i trade experienced modest westbound market growth. In addition, the company experienced volume gains and deployed additional vessels in response to a competitor’s service reconfiguration and vessel mechanical failure. The company expects these trends to continue in the fourth quarter 2015, resulting in Hawai‘i container volume growth similar to the 14.8 percent growth realized in the third quarter 2015.
In the China trade, despite a continued decline in commodity freight rates for other ocean carriers, Matson’s freight rates were higher in the third quarter 2015 than in the prior year period, reflecting a continuation of rate gains made by the company in the latter half of 2014 and in 2015.
For the fourth quarter 2015, Matson expects its expedited service to continue to realize a sizeable premium relative to commodity ocean carrier market rates, achieving average freight rates that approximate the rates achieved in the fourth quarter 2014. However, Matson expects its China volume in the fourth quarter 2015 to be moderately lower than the prior year period due to one fewer sailing, the absence of the extraordinarily high demand experienced in the fourth quarter 2014 during the US West Coast labor disruptions, and recent market softness.
In Guam, stable economic activity is expected in the fourth quarter 2015. On Aug. 29, 2015, the US Department of the Navy signed the Record of Decision to relocate approximately 5,000 US Marines plus approximately 1,300 dependents from Okinawa to Guam by 2022, which is expected to result in higher freight demand to Guam during this period of relocation. However, in October 2015, a competitor announced the intention to launch a bi-weekly US-flagged containership service to Guam starting in late November 2015. As a result, Matson expects to experience some volume losses after this service is launched.
The Company’s operating results for the third quarter 2015 reflect the first full quarter of Alaska operations post-closing of the Acquisition on May 29, 2015. In the third quarter 2015, Alaska container volume increased by approximately two percent year-over-year primarily due to stronger seafood volume which was partially offset by muted economic activity related to the steep decline in energy prices and lower building supply volume. The Company expects muted economic activity to persist through the end of 2015 and, as a result, expects Alaska container volume for the fourth quarter 2015 to be lower than volume achieved by Horizon in the comparable period in 2014.
In the fourth quarter 2015, exclusive of the previously mentioned $7.5 million of additional selling, general and administrative expenses in excess of the Matson’s incremental run-rate target, the company expects ocean transportation operating income to approximate the $46.3 million achieved in the fourth quarter 2014.
Matson continues to expect full year 2015 operating income to approximate the 2014 level of $8.9 million.
Matson expects its interest expense in the fourth quarter 2015 to be approximately $5 million.
Income Tax Expense
Matson expects its effective tax rate for the fourth quarter 2015 to be approximately 40 percent.
In the first nine months of 2015, Matson had maintenance capital expenditures of approximately $30.3 million. In the fourth quarter 2015, the company expects maintenance capital expenditures to be approximately $30 million and scheduled contract payments relating to its two vessels under construction to be $20.9 million.
For the full third-quarter report, including results by segment, go online.