Matson, Inc. Announces Third Quarter 2019 Results; Maintains Full Year 2019 Operating Income Outlook

Matson, Inc., a leading U.S. carrier in the Pacific, reported net income of $36.2 million, or $0.84 per diluted share, for the quarter ended September 30, 2019. Net income for the quarter ended September 30, 2018 was $41.6 million, or $0.97 per diluted share. Consolidated revenue for the third quarter 2019 was $572.1 million compared with $589.4 million for the third quarter 2018.

For the nine months ended September 30, 2019, Matson reported net income of $67.1 million, or $1.55 per diluted share, compared with $88.4 million, or $2.06 per diluted share, in 2018. Consolidated revenue for the nine month period ended September 30, 2019 was $1,662.4 million, compared with $1,657.9 million in 2018.

Matt Cox, Matson’s Chairman and Chief Executive Officer, commented, “Our results in the quarter came in as expected. Within Ocean Transportation, our China tradelane service performed well, but we saw continued weakness in our Hawaii market and experienced softer-than-expected volume in our Alaska service. Within our Logistics segment, we continued to perform well with positive contributions to operating income from nearly all of the service lines.”

Mr. Cox added, “Given the performance year-to-date and our expectations for our businesses in the final quarter of the year, we maintain our 2019 consolidated operating income outlook. As we near the end of this transition year with Lurline expected to enter service this quarter, we take a significant step towards realizing our previously-mentioned approximately $30 million in financial benefits in 2020, when compared to 2019, driven primarily from the reduction in Hawaii fleet deployment to nine vessels.”

Third Quarter 2019 Discussion and Outlook for 2019

Ocean Transportation: The Company’s container volume in the Hawaii service in the third quarter 2019 was 2.1 percent lower year-over-year primarily due to negative container market growth. Hawaii’s GDP continues on a slowing growth trajectory despite resilience in key economic factors, such as construction activity and visitor traffic. However, the containerized freight market volume has not been keeping pace with GDP growth. The Company expects volume in 2019 to be lower compared to the level achieved in 2018, reflecting less containerized freight volume in Hawaii and stable market share.

In China, the Company’s container volume in the third quarter 2019 was 3.4 percent lower year-over-year primarily due to the timing of an additional sailing in the year ago period. Matson continued to realize a sizeable rate premium in the third quarter 2019 and achieved average freight rates that approximated the level achieved in the third quarter 2018. For 2019, the Company expects volume to approximate the prior year level. In the fourth quarter of 2018, the Company experienced unusually strong performance as a result of the U.S.-China trade situation. For the full year 2019, the Company expects average freight rates to approach the levels achieved in 2018.

In Guam, the Company’s container volume in the third quarter 2019 was 2.1 percent lower on a year-over-year basis. For 2019, the Company expects volume to approximate the level achieved last year and expects the highly competitive environment to remain.

In Alaska, the Company’s container volume for the third quarter 2019 was flat year-over-year. The Company experienced slightly lower northbound volume including the impact from the timing of an additional northbound sailing in the year ago period. Southbound volume was modestly higher year-over-year. For 2019, the Company expects volume to be modestly higher than the level achieved in 2018 with higher northbound volume and approximately flat southbound volume compared to the levels achieved in 2018.

The contribution in the third quarter 2019 from the Company’s SSAT joint venture investment was $0.8 million lower than the third quarter 2018. For 2019, the Company expects the contribution from SSAT to be lower primarily due to higher terminal operating costs, partially offset by higher lift volume.

As a result of the performance in the first nine months and the outlook trends noted above, the Company expects full year 2019 Ocean Transportation operating income to be approximately 25 percent lower than the $131.1 million achieved in 2018 after taking into account a full year net operating expense impact of $7.2 million associated with the sale and leaseback of MV Maunalei.

Logistics: In the third quarter 2019, operating income for the Company’s Logistics segment was $1.4 million higher compared to the operating income achieved in the third quarter 2018 with positive contributions from nearly all of the service lines. For 2019, the Company is maintaining its outlook and expects Logistics operating income to be approximately 15 to 20 percent higher than the level achieved in 2018 of $32.7 million.

Depreciation and Amortization: For the full year 2019, the Company expects depreciation and amortization expense to be approximately $135 million, inclusive of dry-docking amortization of approximately $35 million.

Other Income (Expense): The Company expects full year 2019 other income (expense) to be approximately $1 million in income, which is attributable to other component costs related to the Company’s pension and post-retirement plans.

Interest Expense: The Company expects interest expense for the full year 2019 to be approximately $25 million.

Income Taxes: In the third quarter 2019, the Company’s effective tax rate was 25.4 percent. For the full year 2019, the Company expects its effective tax rate to be approximately 26.0 percent, which excludes a positive non-cash adjustment of $2.9 million in the first quarter of 2019 related to the reversal of an expense adjustment in 2018 arising from the enactment of the Tax Cuts and Jobs Act of 2017.

Net Income and EBITDA: The Company expects net income in 2019 to decline year-over-year and expects EBITDA in 2019 to be approximately $270 million.

Capital and Vessel Dry-docking Expenditures: For the third quarter 2019, the Company made other capital expenditure payments of $24.3 million, capitalized vessel construction expenditures of $78.1 million, and dry-docking payments of $11.0 million. For the full year 2019, the Company expects to make other capital expenditure payments, including maintenance capital expenditures, of approximately $90 million, vessel construction expenditures (including capitalized interest and owner’s items) of approximately $215 million, and dry-docking payments of approximately $20 million.

Ocean Transportation revenue decreased $0.1 million during the three months ended September 30, 2019, compared with the three months ended September 30, 2018. The decrease was primarily due to lower fuel surcharge revenue and lower Hawaii container volume, partially offset by higher freight revenue in Alaska and higher average rates in Hawaii.

On a year-over-year FEU basis, Hawaii container volume decreased 2.1 percent primarily due to negative container market growth; Alaska volume was flat with slightly lower northbound volume, including the impact from the timing of an additional northbound sailing in the year ago period, and modestly higher southbound volume; China volume was 3.4 percent lower due to the timing of an additional sailing in the year ago period; Guam volume was 2.1 percent lower; and Other containers volume decreased 2.2 percent.

Ocean Transportation operating income decreased $4.8 million, or 9.9 percent, during the three months ended September 30, 2019, compared with the three months ended September 30, 2018. The decrease was primarily due to higher terminal handling costs, higher vessel operating costs (including MV Maunalei lease expense), and lower volume in Hawaii.

The Company’s SSAT terminal joint venture investment contributed $8.4 million during the three months ended September 30, 2019, compared to a contribution of $9.2 million during the three months ended September 30, 2018. The decrease was primarily due to higher terminal operating costs, partially offset by the timing of some of the additional expense related to the early adoption of the new lease accounting standard in the second quarter and higher lift volume.

Ocean Transportation revenue increased $27.3 million, or 2.2 percent, during the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018. The increase was primarily due to higher revenue in Alaska, higher average rates in Hawaii, and higher revenue in China, partially offset by lower Hawaii container volume.

On a year-over-year FEU basis, Hawaii container volume decreased 2.2 percent primarily due to negative container market growth and weather-related impacts in the first quarter of 2019; Alaska volume increased by 0.7 percent primarily due to higher northbound volume, partially offset by lower northbound volume related to the dry-docking of a competitor’s vessel in the year ago period; China volume was 3.7 percent higher primarily due to stronger volume post Lunar New Year; Guam volume was 0.7 percent higher; and Other containers volume increased 12.4 percent primarily due to the Okinawa service.

Ocean Transportation operating income decreased $36.7 million, or 33.5 percent, during the nine months ended September 30, 2019, compared with the nine months ended September 30, 2018. The decrease was primarily due to higher vessel operating costs (including MV Maunalei lease expense), higher terminal handling costs, a lower contribution from SSAT, and lower container volume in Hawaii, partially offset by a higher contribution from the Alaska and China services.

The Company’s SSAT terminal joint venture investment contributed $17.8 million during the nine months ended September 30, 2019, compared to a contribution of $28.8 million during the nine months ended September 30, 2018. The decrease was primarily due to higher terminal operating costs and the absence of favorable one-time items in the year ago nine months period.

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Source: Matson Inc.