Matson, Inc. (“Matson” or the “Company”), a leading U.S. carrier in the Pacific, yesterday (Nov. 05) reported net income of $41.6 million, or $0.97 per diluted share, for the quarter ended September 30, 2018. Net income for the quarter ended September 30, 2017 was $34.1 million, or $0.79 per diluted share. Consolidated revenue for the third quarter 2018 was $589.4 million compared with $543.9 million reported for the third quarter 2017.
For the nine months ended September 30, 2018, Matson reported net income of $88.4 million, or $2.06 per diluted share compared with $65.1 million, or $1.50 per diluted share in 2017. Consolidated revenue for the nine month period ended September 30, 2018 was $1,657.9 million, compared with $1,530.8 million in 2017.
Matt Cox, Matson’s Chairman and Chief Executive Officer, commented, “Our performance in the quarter was in line with our expectations with Ocean Transportation results approaching the level achieved last year and continued strong execution across all service lines in Logistics. We are pleased to see the exceptional performance of our Logistics segment for the quarter and year-to-date. For the quarter within Ocean Transportation, we saw a favorable rate environment in China and continued strong performance from SSAT, but we also faced unfavorable timing in fuel surcharge collections relative to fuel cost increases and lower volume in Alaska primarily due to a weaker-than-expected seafood season.”
Mr. Cox added, “We expect our businesses to continue to perform well in the fourth quarter, and, as a result, we are raising our outlook for Ocean Transportation and maintaining our outlook for Logistics. For the full year 2018, we expect Ocean Transportation operating income to be modestly higher than the level achieved in 2017. For the full year 2018 in Logistics, we are maintaining our higher outlook for operating income given the strong trends across all service lines.”
Third Quarter 2018 Discussion and Outlook for 2018
Ocean Transportation: The Company’s container volume in the Hawaii service in the third quarter 2018 was 1.1 percent lower year-over-year primarily due to one less sailing. The Hawaii economy continues to be strong, supported primarily by healthy tourism activity and low unemployment. The Company expects volume in 2018 to approximate the level achieved in 2017, reflecting a solid Hawaii economy and stable market share.
In China, the Company’s container volume in the third quarter 2018 was 3.3 percent lower year-over-year largely due to a dry-dock return sailing in the year ago period. Matson continued to realize a sizeable rate premium in the third quarter 2018 and achieved average freight rates higher than the third quarter 2017. For 2018, the Company expects freight rates to be higher than the average rate achieved in 2017 and volume to be modestly lower than the level achieved in 2017.
In Guam, the Company’s container volume in the third quarter 2018 was flat on a year-over-year and sequential basis. For 2018, the Company continues to expect a heightened competitive environment and lower volume than the levels achieved in 2017.
In Alaska, the Company’s container volume for the third quarter 2018 was 2.0 percent lower year-over-year, primarily due to lower southbound volume as a result of a weaker-than-expected seafood season compared with the very strong seafood harvest levels in 2017, partially offset by an increase in northbound volume. For 2018, the Company expects volume to be modestly higher than the level achieved in 2017 with improvement in northbound volume largely due to the dry-docking of a competitor’s vessel, partially offset by lower southbound volume primarily due to a weaker-than-expected seafood season compared with the very strong seafood harvest levels in 2017.
As a result of the performance in the first nine months and the outlook trends noted above, the Company expects full year 2018 Ocean Transportation operating income to be modestly higher than the $126.4million† achieved in 2017.
Logistics: In the third quarter 2018, operating income for the Company’s Logistics segment was $2.6 millionhigher than in the third quarter 2017 due to improved performance across all of the service lines. The Company continues to expect Logistics’ operating income for the full year 2018 to approximate $30 million.
Depreciation and Amortization: For the full year 2018, the Company expects depreciation and amortization expense to be approximately $132 million, inclusive of dry-docking amortization of approximately $36 million.
EBITDA: The Company expects full year 2018 EBITDA to be modestly higher than the $296.0 million achieved in 2017.
Other Income (Expense): The Company expects full year 2018 other income (expense) to be approximately $2.5 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 2018 to be approximately $19 million.
Income Taxes: In the third quarter 2018, the Company’s effective tax rate was 24.2 percent. For the fourth quarter of 2018, the Company expects its effective tax rate to be approximately 26.0 percent.
Capital and Vessel Dry-docking Expenditures: In the third quarter 2018, the Company made maintenance capital expenditure payments of $19.2 million, capitalized vessel construction expenditures of $55.8 million, and dry-docking payments of $5.4 million. For the full year 2018, the Company expects to make maintenance capital expenditure payments of approximately $77 million, vessel construction expenditures (inclusive of capitalized interest and owner’s items) of approximately $350 million, and dry-docking payments of approximately $19 million.
† As reclassified retrospectively in 2018 to reflect the Company’s adoption of a new accounting standard. Refer to page 11 of the second quarter 2018 earnings release dated July 31, 2018 for more information about this reclassification.
Results By Segment
| Ocean Transportation — Three months ended September 30, 2018 compared with 2017 | ||||||||||||
| Three Months Ended September 30, | ||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | |||||||||
| Ocean Transportation revenue | $ | 437.3 | $ | 419.2 | $ | 18.1 | 4.3 | % | ||||
| Operating costs and expenses | (388.6) | (368.2) | (20.4) | 5.5 | % | |||||||
| Operating income | $ | 48.7 | $ | 51.0 | $ | (2.3) | (4.5) | % | ||||
| Operating income margin | 11.1 | % | 12.2 | % | ||||||||
| Volume (Forty-foot equivalent units (FEU), except for automobiles) (1) | ||||||||||||
| Hawaii containers | 37,500 | 37,900 | (400) | (1.1) | % | |||||||
| Hawaii automobiles | 13,900 | 17,400 | (3,500) | (20.1) | % | |||||||
| Alaska containers | 19,400 | 19,800 | (400) | (2.0) | % | |||||||
| China containers | 17,600 | 18,200 | (600) | (3.3) | % | |||||||
| Guam containers | 4,800 | 4,800 | — | — | % | |||||||
| Other containers (2) | 4,500 | 3,300 | 1,200 | 36.4 | % | |||||||
| (1) | Approximate volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period. | |||
| (2) | Includes containers from services in various islands in Micronesia and the South Pacific, and in Okinawa, Japan. | |||
Ocean Transportation revenue increased $18.1 million, or 4.3 percent, during the three months ended September 30, 2018, compared with the three months ended September 30, 2017. This increase was primarily due to higher fuel surcharge revenue and higher average freight rates in China.
On a year-over-year FEU basis, Hawaii container volume decreased 1.1 percent due to one fewer sailing; Alaska volume decreased by 2.0 percent primarily due to lower southbound volume as a result of a weaker-than-expected seafood season compared with the very strong seafood harvest levels in 2017, partially offset by an increase in northbound volume; China volume was 3.3 percent lower primarily due to an additional sailing in the year ago period; Guam volume was flat; and Other container volume increased 36.4 percent largely due to the new Okinawa, Japan service.
Ocean Transportation operating income decreased $2.3 million, or 4.5 percent, during the three months ended September 30, 2018, compared with the three months ended September 30, 2017. This decrease was primarily due to the unfavorable timing of fuel surcharge collections and higher terminal handling costs, partially offset by higher rates in China and Hawaii.
The Company’s SSAT terminal joint venture investment contributed $9.2 million during the three months ended September 30, 2018, compared to a $7.5 million contribution during the three months ended September 30, 2017. The increase was primarily attributable to higher lift volume.
| Ocean Transportation — Nine months ended September 30, 2018 compared with 2017 | ||||||||||||
| Nine Months Ended September 30, | ||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | |||||||||
| Ocean Transportation revenue | $ | 1,223.2 | $ | 1,181.9 | $ | 41.3 | 3.5 | % | ||||
| Operating costs and expenses | (1,113.5) | (1,075.6) | (37.9) | 3.5 | % | |||||||
| Operating income | $ | 109.7 | $ | 106.3 | $ | 3.4 | 3.2 | % | ||||
| Operating income margin | 9.0 | % | 9.0 | % | ||||||||
| Volume (Forty-foot equivalent units (FEU), except for automobiles) (1) | ||||||||||||
| Hawaii containers | 111,800 | 112,900 | (1,100) | (1.0) | % | |||||||
| Hawaii automobiles | 46,700 | 47,700 | (1,000) | (2.1) | % | |||||||
| Alaska containers | 54,200 | 53,100 | 1,100 | 2.1 | % | |||||||
| China containers | 45,400 | 50,400 | (5,000) | (9.9) | % | |||||||
| Guam containers | 14,500 | 15,600 | (1,100) | (7.1) | % | |||||||
| Other containers (2) | 11,300 | 7,900 | 3,400 | 43.0 | % | |||||||
| (1) | Approximate volumes included for the period are based on the voyage departure date, but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period. | |||
| (2) | Includes containers from services in various islands in Micronesia and the South Pacific, and in Okinawa, Japan. | |||
Ocean Transportation revenue increased $41.3 million, or 3.5 percent, during the nine months ended September 30, 2018, compared with the nine months ended September 30, 2017. This increase was primarily due to higher fuel surcharge revenue and higher average freight rates in China, partially offset by lower revenue in Guam.
On a year-over-year FEU basis, Hawaii container volume decreased by 1.0 percent primarily due to lower eastbound volume; Alaska volume increased by 2.1 percent primarily due to an increase in northbound volume related to the dry-docking of a competitor’s vessel, partially offset by a decrease in southbound volume as a result of a weaker-than-expected seafood season compared with the very strong seafood harvest levels in 2017; China volume was 9.9 percent lower primarily due to fewer sailings and lower volume during the Lunar New Year period; Guam volume was 7.1 percent lower due to increased competition; and Other container volume increased 43.0 percent largely due to the new Okinawa, Japan service.
Ocean Transportation operating income increased $3.4 million, or 3.2 percent, during the nine months ended September 30, 2018, compared with the nine months ended September 30, 2017. This increase was primarily due to lower vessel operating costs, higher rates in China and Hawaii and a higher contribution from SSAT, partially offset by higher terminal handling costs and a lower contribution from Guam.
The Company’s SSAT terminal joint venture investment contributed $28.8 million during the nine months ended September 30, 2018, compared to a $19.3 million contribution during the nine months ended September 30, 2017. The increase was primarily attributable to higher lift volume.
| Logistics — Three months ended September 30, 2018 compared with 2017 | ||||||||||||
| Three Months Ended September 30, | ||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | |||||||||
| Logistics revenue | $ | 152.1 | $ | 124.7 | $ | 27.4 | 22.0 | % | ||||
| Operating costs and expenses | (142.2) | (117.4) | (24.8) | 21.1 | % | |||||||
| Operating income | $ | 9.9 | $ | 7.3 | $ | 2.6 | 35.6 | % | ||||
| Operating income margin | 6.5 | % | 5.9 | % | ||||||||
Logistics revenue increased $27.4 million, or 22.0 percent, during the three months ended September 30, 2018, compared with the three months ended September 30, 2017. This increase was primarily due to higher transportation brokerage revenue.
Logistics operating income increased $2.6 million, or 35.6 percent, for the three months ended September 30, 2018 compared with the three months ended September 30, 2017. The increase was due primarily to higher contributions from transportation brokerage.
| Logistics — Nine months ended September 30, 2018 compared with 2017 | ||||||||||||
| Nine Months Ended September 30, | ||||||||||||
| (Dollars in millions) | 2018 | 2017 | Change | |||||||||
| Logistics revenue | $ | 434.7 | $ | 348.9 | $ | 85.8 | 24.6 | % | ||||
| Operating costs and expenses | (411.1) | (332.7) | (78.4) | 23.6 | % | |||||||
| Operating income | $ | 23.6 | $ | 16.2 | $ | 7.4 | 45.7 | % | ||||
| Operating income margin | 5.4 | % | 4.6 | % | ||||||||
Logistics revenue increased $85.8 million, or 24.6 percent, during the nine months ended September 30, 2018, compared with the nine months ended September 30, 2017. This increase was primarily due to higher transportation brokerage revenue.
Logistics operating income increased $7.4 million, or 45.7 percent, for the nine months ended September 30, 2018 compared with the nine months ended September 30, 2017. The increase was due primarily to higher contributions from transportation brokerage and freight forwarding.
Liquidity, Cash Flows and Capital Allocation
Matson’s Cash and Cash Equivalents decreased by $7.7 million to $12.1 million during the nine months ended September 30, 2018. Matson generated net cash from operating activities of $203.0 million during the nine months ended September 30, 2018, compared to $147.0 million in the nine months ended September 30, 2017. Capital expenditures, including capitalized vessel construction expenditures, totaled $267.3 million for the nine months ended September 30, 2018, compared with $215.5 million in the nine months ended September 30, 2017. Total debt increased by $51.0 million during the nine months to $908.1 millionas of September 30, 2018, of which $866.0 million was long-term debt.
For the twelve months ended September 30, 2018, Matson’s Net Income and EBITDA were $255.3 million and $295.4 million, respectively. The ratio of Matson’s Net Debt to last twelve months EBITDA was 3.03 as of September 30, 2018.
As previously announced, Matson’s Board of Directors declared a cash dividend of $0.21 per share payable on December 6, 2018 to all shareholders of record as of the close of business on November 8, 2018.
