Matson reports first quarter results

MAY 4, 2016 — Matson, Inc.  reported net income of $18.1 million, or $0.41 per diluted share for the quarter ended March 31, 2016, compared with $25.0 million, or $0.57 per diluted share, in the same quarter last year. Consolidated revenue for the quarter 2016 was $454.2 million ($398.2 million reported for the 2015) first quarter 2015. 

“Our core businesses performed largely as expected in the first quarter, with operating results declining year-over-year in the absence of last year’s extraordinarily strong demand for our China service,” said President and CEO Matt Cox. “Our core businesses performed largely as expected in the first quarter, with operating results declining year-over-year in the absence of last year’s extraordinarily strong demand for our China service.  Market conditions in the China trade have deteriorated further in 2016 as international ocean carriers have continued to lower rates in an attempt to attract cargo in this heavily over-supplied trade lane.  This dynamic has spilled over into the annual contracting cycle with freight rates being offered at historically low levels.  Despite this downward pressure on Matson’s freight rates, we expect to continue to earn a substantial rate premium, and given our dual-headhaul route structure, we expect our China service to remain solidly profitable.”  

Mr. Cox added, “While these challenging dynamics in China will weigh on our 2016 results, we continue to see solid fundamentals and performance in our other core trade lanes, and also SSAT and Logistics. In Hawaii, where we recently deployed an 11th ship, we expect to benefit from continued market growth and a stronger market position.  Our integration activities in Alaska are progressing well, and are on-track to be complete by the end of the third quarter.  Overall, we remain confident that our businesses will continue to generate strong cash flows to fund our fleet renewal program, invest in equipment, and pursue growth investments, while continuing to return capital to shareholders.”

First Quarter 2016 Discussion and 2016 Outlook

Ocean Transportation:In the first quarter 2016, the company’s Hawaii service achieved 8.4 percent container volume growth compared to the first quarter 2015, the result of competitive gains and modest market growth. For the full year 2016, the company continues to expect its Hawaii container volume to be moderately higher than 2015 with substantially all of the relative increase occurring in the first half of 2016.

In China, Matson’s container volume in the first quarter 2016 was 18.1 percent lower year-over year due to the absence of the exceptionally high demand experienced in the first quarter 2015 during the U.S. West Coast labor disruptions and continued market softness amid a slower than normal post-lunar new year recovery. The company continued to realize a sizeable rate premium for its expedited service in the first quarter 2016, but as expected, average freight rates were significantly lower than the first quarter 2015.  For the remainder of 2016, the company expects increasingly challenging market conditions in the transpacific trade with underlying market rates at historic lows amid chronic over-capacity.  As a result, the company expects its China rates to trend lower than the declines factored into its previous outlook.

In Guam, a new competitor launched its bi-weekly U.S. flagged containership service at the beginning of the first quarter 2016, resulting in modest competitive volume losses for the company compared to the first quarter 2015. For the full year 2016, Matson expects to experience continued modest competitive volume losses to this new service.

In Alaska, the Company’s container volume for the first quarter 2016 approximated the level carried by Horizon Lines in the first quarter 2015, primarily due to muted economic activity.  For the full year 2016, the company expects Alaska volume to be modestly lower than the total 67,300 containers carried by Horizon and Matson in 2015.

For the full year 2016, the company’s terminal joint venture, SSAT, is expected to contribute modestly lower profits than the $16.5 million contributed in 2015, primarily due to the absence of factors related to the clearing of international cargo backlog in the first half of 2015 that resulted from the U.S. West Coast labor disruptions.

Matson expects full year 2016 Ocean Transportation operating income to be approximately 15 to 20 percent lower than the $187.8 million achieved in 2015. 

In the second quarter 2016, the company expects operating income to approximate the second quarter 2015 level of $31.4 million, which was negatively impacted by $13.5 million of additional selling, general and administrative expenses related to acquisition of Horizon Lines in excess of the company’s incremental run-rate target and by $11.4 million of costs related to the company’s settlement with the State of Hawaii.

Logistics: The company expects 2016 operating income to modestly exceed the 2015 level of $8.5 million, driven by volume growth and continued expense control.Interest Expense: Matson expects its interest expense in 2016 to be approximately $19.0 million.

Income Tax Expense: The company expects its effective tax rate for the full year 2016 to be approximately 39.0 percent.

Capital Spending and Vessel Dry-docking: In the first quarter 2016, the Matson made maintenance capital expenditures of $30.6 million and dry-docking payments of $13.2 million.  For the full year 2016, the company expects to make maintenance capital expenditures of approximately $65 million, scheduled new vessel construction progress payments of $67.2 million, and dry-docking payments of approximately $60 million. 

For the full year 2016, the company expects depreciation and amortization to total approximately $133 million compared to $105.8 million in 2015, inclusive of dry-docking amortization of approximately $35.0 million expected in 2016 and $23.1 million in 2015.

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