– Net Income of $25.0 million versus $41.5 million in 3Q15;EPS of $0.58 vs $0.94 in 3Q15
– EBITDA of $80.8 million versus $100.8 million in 3Q15
– 3Q16 Hawaii and Alaska volume lower than expected due to weaker market conditions
– 4Q16 Ocean Transportation operating income expected to be approximately 15 percent lower YOY
For the nine months endedSeptember 30, 2016, Matson reported net income of$61.1 million, or$1.40per diluted share compared with$76.4 million, or$1.74per diluted share in 2015. Results for the nine months endedSeptember 30, 2015were negatively impacted by$23.5 millionof additional selling, general and administrative expenses related to the Horizon Acquisition and by$11.4 millionfor the Company’s settlement with theState of Hawaiito resolve all of the State’s claims arising from the discharge of molasses intoHonolulu HarborinSeptember 2013(the “Molasses Settlement”), which together reduced earnings per diluted share by$0.46.Consolidated revenue for the nine-month period endedSeptember 30, 2016was$1,422.3 million, compared with$1,390.1 millionin 2015.
Matt Cox, Matson’s President and Chief Executive Officer, commented, “Matson’s third quarter results came in below our expectations. In Hawaii, there was a lull in container volume following healthy market growth in the first half of the year. In Alaska, energy sector related macroeconomic headwinds and a lower seafood harvest drove Matson’s container volume below our expected levels. Despite these challenges, we are encouraged by the strong demand for our highly differentiated expeditedChinaservice and our steady performance in Guam.We made sizeable investments during the quarter that underscore our commitment and confidence in the long-term prospects for bothHawaiiand Alaska.Our acquisition of Span Alaska significantly expandedMatson Logistics’platform into freight forwarding and solidified Matson’s position as a critical freight transportation provider to Alaska.Following that we ordered two new ConRo ships, the Kanaloa Class, for delivery by mid-2020, that along with our Aloha Class containerships already under construction, will complete the renewal of ourHawaiifleet and allow for an optimal nine-ship deployment with significantly lower operating costs while ensuring superior reliability.”
Mr. Coxadded, “For the balance of 2016, we expect our core businesses to continue generating strong cash flow which, combined with available capacity under our$400 millionrevolving credit facility and additional debt financings, will provide for our fleet renewal investments and the return of capital to shareholders.”
Third Quarter 2016 Discussion and Outlook for Fourth Quarter 2016
Ocean Transportation:
The Company’s third quarter 2016 Hawaii container volume declined year-over-year, primarily due to the absence of volume gains associated with a competitor’s service reconfiguration and service issues in the third quarter 2015, and a slower than expected growth environment.Despite the lull in market volumes during the third quarter 2016, the Company continues to believe that theHawaiieconomy is healthy and expects construction activity to support market growth in the future.For the fourth quarter 2016, the Company expects itsHawaiicontainer volume to be lower than the fourth quarter 2015, which benefitted from volume gains associated with a competitor’s service reconfiguration and related issues.
InChina, the Company’s container volume in the third quarter 2016 was slightly lower year-over-year, as continued market softness in the first two months of the quarter was partially offset by increased demand for the Company’s expedited service offering related to the market dislocation that followed Hanjin Shipping’s bankruptcy filing onSeptember 1, 2016.The Company realized a sizeable rate premium in the third quarter 2016, but as expected, average freight rates were significantly lower than the third quarter 2015. In the fourth quarter 2016, the Company expects higher container volume as its expedited service offering remains highly differentiated amid a challenged international container shipping market that continues to be plagued by chronic over-capacity.
InGuam, as expected, the Company’s container volume in the third quarter 2016 was modestly lower on a year-over-year basis, the result of competitive losses to a bi-weeklyUSflagged containership service that commenced inJanuary 2016.In the fourth quarter 2016, the Company expects to experience continued modest competitive volume losses.
InAlaska, the Company’s container volume for the third quarter 2016 was lower than expected, declining more than 10 percent year-over-year as northbound freight volume was challenged by energy sector related macroeconomic headwinds and southbound volume was impacted by an unexpectedly lower seafood harvest in 2016. For the fourth quarter 2016, the Company expects the ongoing muted economic activity inAlaskato result in container volume that approximates the level achieved in the fourth quarter 2015.
For the full year 2016, the Company’s terminal joint venture, SSAT, is expected to contribute profits lower than the$16.5 millioncontributed in 2015, primarily due to the absence of factors related to the clearing of international cargo backlog in the first half 2015 that resulted from theUS West Coastlabor disruptions.
As a result, the Company expects fourth quarter 2016 Ocean Transportation operating income to be approximately 15 percent lower than the fourth quarter 2015 level of$43.6 million.
Logistics: OnAugust 4, 2016,Matson Logisticscompleted its previously announced acquisition of Span Alaska, a market leading provider of less-than container load freight consolidation and forwarding services toAlaska, for total consideration of$199.1 million(the “Span Alaska Acquisition”).As a result, the Company expects its Logistics segment operating income for the full year 2016 to be approximately$11 million.
Interest Expense: The Company expects its interest expense in 2016 to be approximately$24 million, including interest related to the issuance of$200 millionof 15-year senior unsecured notes onSeptember 14, 2016, bearing interest at 3.14 percent.
Income Tax Expense: The Company expects its effective tax rate for the full year 2016 to be approximately 39 percent.
Capital Spending andVessel Dry-docking: OnAugust 25, 2016, Matson signed a contract with General Dynamics NASSCO to build two new combination container and roll-on/roll-off vessels for itsHawaiifleet at a contract price of$511 millionfor both vessels, with deliveries scheduled for the end of 2019 and mid-year 2020. In the first nine months of 2016, the Company made capital expenditure payments of$67.3 million, capitalized vessel construction expenditures of$39.2 million, and dry-docking payments of$43.7 million.For the full year 2016, the Company expects to make capital expenditure payments of approximately$90 million, capitalized vessel construction expenditures of approximately$96 million, and dry-docking payments of approximately$57 million.For the full year 2016, the Company expects depreciation and amortization to total approximately$136 millioncompared to$105.8 millionin 2015, inclusive of dry-docking amortization of approximately$38 millionexpected in 2016 and$23.1 millionin 2015.
Results By Segment
|
Ocean Transportation — Three months endedSeptember 30, 2016compared with 2015 | |||||||||
|
Three Months EndedSeptember 30, | |||||||||
|
(dollars in millions) |
2016 |
2015 |
Change | ||||||
|
Ocean Transportation revenue |
$ |
398.0 |
$ |
444.8 |
(10.5) |
% | |||
|
Operating costs and expenses |
355.3 |
375.9 |
(5.5) |
% | |||||
|
Operating income |
$ |
42.7 |
$ |
68.9 |
(38.0) |
% | |||
|
Operating income margin |
10.7 |
% |
15.5 |
% | |||||
|
Volume (Forty-foot equivalent units (FEU) except for automobiles) (1) | |||||||||
|
Hawaiicontainers |
40,500 |
44,000 |
(8.0) |
% | |||||
|
Hawaiiautomobiles |
17,700 |
17,800 |
(0.6) |
% | |||||
|
Alaskacontainers |
18,300 |
20,500 |
(10.7) |
% | |||||
|
Chinacontainers |
16,300 |
16,800 |
(3.0) |
% | |||||
|
Guamcontainers |
6,200 |
6,500 |
(4.6) |
% | |||||
|
Micronesia/South Pacificcontainers |
2,700 |
2,400 |
12.5 |
% | |||||
|
(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. |
Ocean Transportation revenue decreased$46.8 million, or 10.5 percent, during the third quarter 2016 compared with the third quarter 2015. This decrease was primarily due to lower fuel surcharge revenue, lower freight rates in the Company’sChinaservice, and lower container volume inHawaii,AlaskaandGuam, partially offset by higher freight rates inHawaiiandGuam.
On a year-over-year FEU basis,Hawaiicontainer volume decreased by 8.0 percent primarily due the absence of volume gains attributed to a competitor’s service reconfiguration and vessel mechanical failure in the prior year;Alaskavolume decreased by 10.7 percent due to ongoing macroeconomic headwinds related to energy prices and a lower seafood harvest;Chinavolume was 3.0 percent lower due to continued market softness;andGuamvolume was 4.6 percent lower due to competitive losses associated with the launch of a competitor’s bi-weeklyUSflagged containership service inJanuary 2016.
Ocean Transportation operating income decreased$26.2 million, or 38.0 percent, during the third quarter 2016 compared with the third quarter 2015. The decrease was primarily due to lower freight rates inChina, and lower container volume inHawaiiand Alaska.Partially offsetting these unfavorable year-over-year comparisons were the absence of selling, general and administrative expenses related to the Horizon Acquisition, and higher freight rates inHawaiiandGuam.
The Company’s SSAT terminal joint venture investment contributed$3.6 millionduring the third quarter 2016, compared to$4.5 millionin the third quarter 2015. The$0.9 millionyear-over-year decrease was primarily due to an increase in SSAT’s allowance for doubtful accounts receivable, partially offset by improved lift volume.
|
Ocean Transportation — Nine months endedSeptember 30, 2016compared with 2015 | |||||||||
|
Nine Months EndedSeptember 30, | |||||||||
|
(dollars in millions) |
2016 |
2015 |
Change | ||||||
|
Ocean Transportation revenue (1) |
$ |
1,135.0 |
$ |
1,097.0 |
3.5 |
% | |||
|
Operating costs and expenses (1) |
1,025.4 |
952.8 |
7.6 |
% | |||||
|
Operating income (1) |
$ |
109.6 |
$ |
144.2 |
(24.0) |
% | |||
|
Operating income margin (1) |
9.7 |
% |
13.1 |
% | |||||
|
Volume (Forty-foot equivalent units (FEU) except for automobiles) (2) | |||||||||
|
Hawaiicontainers |
118,700 |
116,100 |
2.2 |
% | |||||
|
Hawaiiautomobiles |
56,200 |
51,500 |
9.1 |
% | |||||
|
Alaskacontainers (1) |
52,500 |
26,000 |
101.9 |
% | |||||
|
Chinacontainers |
43,400 |
48,400 |
(10.3) |
% | |||||
|
Guamcontainers |
18,300 |
18,700 |
(2.1) |
% | |||||
|
Micronesia/South Pacificcontainers |
6,900 |
6,300 |
9.5 |
% | |||||
|
(1) |
IncludesAlaskaoperations from the date of Horizon Acquisition onMay 29, 2015. |
|
(2) |
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. |
Ocean Transportation revenue increased$38.0 million, or 3.5 percent, during the nine months endedSeptember 30, 2016compared with the nine months endedSeptember 30, 2015.This increase was primarily due to the inclusion of revenue from the Company’s acquiredAlaskaservice for the full nine-month period and higher container volume and yield inHawaii, partially offset by lower freight rates and container volume in the Company’sChinaservice and lower fuel surcharge revenue.
On a year-over-year FEU basis,Hawaiicontainer volume increased by 2.2 percent due to competitive gains associated with a competitors’ service reconfiguration in 2015 and modest market growth;Alaskavolume increased due to the inclusion of a full nine-month period in 2016;Chinavolume was 10.3 percent lower due to market softness and the absence of the high demand experienced in the first half of 2015 related to theUS West Coastlabor disruptions;andGuamvolume was 2.1 percent lower primarily due to competitive losses associated with the launch of a competitor’s bi-weeklyUSflagged containership service inJanuary 2016.
Ocean Transportation operating income decreased$34.6 million, or 24.0 percent, during the nine months endedSeptember 30, 2016compared with the nine months endedSeptember 30, 2015.The decrease was primarily due to lower freight rates and volume in theChinaservice, higher vessel operating expenses related to the deployment of additional vessels in theHawaiitrade in the first half of 2016, and higher terminal handling expenses.Partially offsetting these unfavorable items were the absence of selling, general and administrative expenses related to the Horizon Acquisition and costs related to the Molasses Settlement, and container volume and yield improvements inHawaii.
The Company’s SSAT terminal joint venture investment contributed$9.2 millionduring the nine months endedSeptember 30, 2016, compared to$13.1 millionin the nine months endedSeptember 30, 2015.On a year-over-year basis, SSAT’s lift volume improved during the first nine months of 2016;however, the positive impact of lift volume was more than offset by the absence of the benefits related to the clearing of international cargo volume after theUS West Coastlabor disruptions in the first half 2015 and by an increase in SSAT’s allowance for doubtful accounts receivable.
|
Logistics — Three months endedSeptember 30, 2016compared with 2015 | |||||||||
|
Three Months EndedSeptember 30, | |||||||||
|
(dollars in millions) |
2016 |
2015 |
Change | ||||||
|
Logistics Revenue (1) |
$ |
102.4 |
$ |
99.5 |
2.9 |
% | |||
|
Operating costs and expenses (1) |
98.9 |
96.6 |
2.4 |
% | |||||
|
Operating income (1) |
$ |
3.5 |
$ |
2.9 |
20.7 |
% | |||
|
Operating income margin (1) |
3.4 |
% |
2.9 |
% | |||||
|
(1) |
Logistics operating results include Span Alaska operating results from the date of acquisition onAugust 4, 2016. |
Logistics revenue increased$2.9 million, or 2.9 percent, during the third quarter 2016 compared with the third quarter 2015. This increase was primarily due to the inclusion of freight forwarding revenue from the Span Alaska Acquisition effectiveAugust 4, 2016, partially offset by lower fuel surcharge revenue and lower volume.
Logistics operating income increased$0.6 millionduring the third quarter 2016 compared with the third quarter 2015. The increase was primarily due to the inclusion of freight forwarding operating results effectiveAugust 4, 2016attributable to the Span Alaska Acquisition, partially offset by lower intermodal yield.
|
Logistics — Nine months endedSeptember 30, 2016compared with 2015 | |||||||||
|
Nine Months EndedSeptember 30, | |||||||||
|
(dollars in millions) |
2016 |
2015 |
Change | ||||||
|
Logistics Revenue (1) |
$ |
287.3 |
$ |
293.1 |
(2.0) |
% | |||
|
Operating costs and expenses (1) |
280.0 |
286.9 |
(2.4) |
% | |||||
|
Operating income (1) |
$ |
7.3 |
$ |
6.2 |
17.7 |
% | |||
|
Operating income margin (1) |
2.5 |
% |
2.1 |
% | |||||
|
(1) |
Logistics operating results include Span Alaska operating results from the date of acquisition onAugust 4, 2016. |
Logistics revenue decreased$5.8 million, or 2.0 percent, during the nine months endedSeptember 30, 2016compared to the nine months endedSeptember 30, 2015.The decrease was primarily the result of lower fuel surcharge revenue, largely offset by the inclusion of freight forwarding revenue from of the Span Alaska Acquisition.
Logistics operating income increased by$1.1 millionduring the nine months endedSeptember 30, 2016compared to the nine months endedSeptember 30, 2015, primarily due to the inclusion of freight forwarding operating results from the Span Alaska Acquisition, higher intermodal volume, and higher highway yield, partially offset by lower intermodal yield.
Liquidity, Cash Flows and Capital Allocation
Matson’s Cash and Cash Equivalents decreased by$9.1 millionto$16.4 millionduring the nine months endedSeptember 30, 2016.Matson generated net cash from operating activities of$87.5 millionduring the nine months endedSeptember 30, 2016, compared to$159.0 millionin the first nine months of 2015. Capital expenditures for the first nine months of 2016 totaled$106.5 millioncompared with$30.3 millionin the first nine months of 2015. In addition, during the third quarter 2016, Matson made net cash deposits of$110.9 millionto itsCapital Construction Fund(“CCF”) which is expected to be used to fund vessel construction progress payments.Total debt increased by$382.5 millionduring the first nine months of 2016 to$812.4 millionas ofSeptember 30, 2016, of which$786.1 millionwas long-term debt.OnSeptember 14, 2016, Matson issued$200 millionin privately placed 15-year final maturity senior unsecured notes (the “Notes”) pursuant to a previously announced commitment letter.The Notes have a weighted average life of approximately 8.5 years and bear interest at a rate of 3.14 percent, payable semi-annually.Proceeds from the Notes were used to pay down the Company’s revolving credit facility and for general corporate purposes.
For twelve months endedSeptember 30, 2016, Matson’s Net Income, Cash Flow from Operations, and EBITDA were$87.7 million,$173.8 million, and$292.4 million, respectively.The ratio of Matson’s Net Debt to last twelve month EBITDA was 2.3 as ofSeptember 30, 2016.
During the third quarter 2016, Matson repurchased 137,311 shares of common stock at an average price of$34.91per share.Since the inception of the share repurchase program inNovember 2015and as ofNovember 4, 2016, Matson had repurchased a total of 1,127,612 shares of common stock at an average price of$37.94per share.An additional 1,872,388 shares are authorized for repurchase under the program.
Subsequent Events
OnOctober 27, 2016, the Company entered into a private placement commitment letter under which it expects to issue$75 millionof 11-year final maturity senior unsecured notes (the “11-year Notes”) within 90 days, subject to entering into definitive documentation and satisfying other customary closing conditions.The 11-year Notes are expected to have a weighted average life of approximately 8 years, a fixed interest rate of 3.37 percent, and financial and other covenants that are substantially the same as the covenants in the Company’s existing outstanding senior unsecured notes.Proceeds of the 11-year Notes are expected to be used to pay down the Company’s revolving credit facility and for general corporate purposes.
Also onOctober 27, 2016, Matson’s Board of Directors’ declared a cash dividend of$0.19per share payable onDecember 1, 2016to all shareholders of record as of the close of business onNovember 10, 2016.
Teleconference and Webcast
A conference call is scheduled today at5:30 pm ESTwhenMatt Cox, President and Chief Executive Officer, andJoel Wine, Senior Vice President and Chief Financial Officer, will discuss Matson’s third quarter 2016 results.
|
Date of Conference Call: |
Monday, November 7, 2016 | ||
|
Scheduled Time: |
5:30 pm EST/2:30 pm PST/12:30 pm HST | ||
|
Participant Toll Free Dial In #: |
1-877-312-5524 | ||
|
International Dial In #: |
1-253-237-1144 | ||
The conference call will be broadcast live along with a slide presentation on the Company’s website at www.matson.com ;Investor Relations.A replay of the conference call will be available approximately two hours after the call throughNovember 14, 2016by dialing 1-855-859-2056 or 1-404-537-3406 and using the conference number 98030786. The slides and audio webcast of the conference call will be archived for one full quarter on the Company’s website at www.matson.com ;Investor Relations.
About the Company
Founded in 1882,Matson(NYSE: MATX) is a leadingUScarrier in the Pacific.Matson provides a vital lifeline to the economies ofHawaii,Alaska,Guam,Micronesiaand selectSouth Pacificislands, and operates a premium, expedited service fromChinato Southern California.The Company’s fleet of 22 owned vessels includes containerships, combination container and roll-on/roll-off ships and custom-designed barges.Matson Logistics, established in 1987, extends the geographic reach of Matson’s transportation network throughout the continentalUSIts integrated, asset-light logistics services include rail intermodal, highway brokerage, warehousing, and less-than-container load freight consolidation and forwarding to Alaska.Additional information about the Company is available at www.matson.com .
GAAP to Non-GAAP Reconciliation
This press release, the Form 8-K and the information to be discussed in the conference call include non-GAAP measures.While Matson reports financial results in accordance withUSgenerally accepted accounting principles (“GAAP”), the Company also considers other non-GAAP measures to evaluate performance, make day-to-day operating decisions, help investors understand our ability to incur and service debt and to make capital expenditures, and to understand period-over-period operating results separate and apart from items that may, or could, have a disproportional positive or negative impact on results in any particular period.These non-GAAP measures include, but are not limited to, Earnings Before Interest, Depreciation and Amortization (“EBITDA”) and Net Debt/EBITDA.
Forward-Looking Statements
Statements in this news release that are not historical facts are “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation those statements regarding earnings, operating income and cash flow expectations, fleet renewal progress, expenses, rate premiums and market conditions in theChinaservice, trends in volumes, construction activity inHawaii, economic conditions inAlaska, vessel deployments, the absence of an international cargo backlog that existed in 2015, tax rates, the expected costs and benefits of the acquisition of Span Alaska, and effective tax rates.These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement, including but not limited to risks and uncertainties relating to regional, national and international economic conditions;new or increased competition or improvements in competitors’ service levels;fuel prices and our ability to collect fuel surcharges;our relationship with vendors, customers and partners and changes in related agreements;the actions of our competitors;our ability to offer a differentiated service inChinafor which customers are willing to pay a significant premium;timing of the installation of exhaust gas scrubbers on vessels and the operation of such scrubbers;the ability of the shipyards to construct and deliver the Aloha Class and Kanaloa Class vessels on the contemplated timeframes;consummating and integrating acquisitions, including the continuing integration of Span Alaska;failure to realize the synergies and other benefits expected from the transaction;changes in general economic and/or industry-specific conditions;changes in the economic condition ofAlaska;competition and growth rates within the logistics industry;freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight;changes in relationships with existing truck, rail, ocean and air carriers;changes in customer base due to possible consolidation among customers;fuel prices and availability;conditions in the financial markets;changes in our credit profile and our future financial performance;the timing, amount and manner of share repurchases and the ability to return capital to shareholders through the share repurchase program;the impact of future and pending legislation, including environmental legislation;government regulations and investigations;the potential for changes in the Company’s operations or regulatory compliance obligations and potential governmental agency claims, disputes, legal or other proceedings, fines, penalties, natural resource damages, inquiries or investigations or other regulatory actions relating to the removal of the molasses tank farm and pier risers atSand Island Terminal;repeal, substantial amendment or waiver of the Jones Act or its application, or our failure to maintain our status as aUnited Statescitizen under the Jones Act;relations with our unions;satisfactory negotiation and renewal of expired collective bargaining agreements without significant disruption to Matson’s operations;and the occurrence of marine accidents, poor weather or natural disasters.These forward-looking statements are not guarantees of future performance.This release should be read in conjunction with our Annual Report on Form 10-K and our other filings with theSECthrough the date of this release, which identify important factors that could affect the forward-looking statements in this release.We do not undertake any obligation to update our forward-looking statements.
