Matson forecasts lower net income and EBITDA for 2019

by Michael Hansen, Hawaii Shippers Council, August 8, 2019

Matson Inc. (NTSE: MATX) reported second quarter 2019 results on August 7, 2019. Matson is a holding company whose primary subsidiary is Matson Navigation Company Inc. (MNC).

The Company said it experienced marginally higher consolidated revenues and one-third lower net income for the first six months of 2019 on a year-over-year basis, and forecasted lower EBITDA (earnings before interest, taxes, depreciation and amortization) for the calendar year 2019 as compared to their first quarter forecast.

Their second quarter 2019 financial reporting was accomplished by contemporaneous filing of a 10-Q report with the U.S. Securities and Exchange, issuing a press release and a slide presentation, and holding a public financial results conference call with questions from financial analysts who follow the company.

There is some ambiguity in the way Matson stated their second quarter EBITDA projection for the calendar year 2019. Their instant press release states, ". . . we are lowering our outlook for EBITDA in 2019 by approximately $18 million . . .” and “. . . expect EBITDA in 2019 to be approximately $270 million.” Although Matson didn’t state it, that decline in forecasted EBITDA is in reference to their earlier forecast of $288 million made in the first quarter.  This is not a more informative year-over-year comparison. The year-over-year difference would be minus $27.3 million or a drop of approximately 9% based on the actual 2018 EBITDA of $297.3 million stated in their annual report.

Matson's share price fell from $41.98 at the close on July 30 to $36.74 on August 5, 2019. As it closed at $36.04 on August 8, 2019, it would seem Matson’s adverse financial news released on August 7th was largely included in investor’s outlook.

The company attributes its losses in net income and EBITDA in the second quarter 2019 primarily to two sources: lower Hawaii trade container volume by 1,700 FEU (forty-foot equivalent units) or 2.3% on a year-over-year basis; and, lower contributions from their SSAT joint venture of $0.9 million, or a drop of $8.2 million from $9.1 million during the same period in 2018 due to a charge in accounting standards for leases.

SSAT is a U.S. West Coast container terminal operator, which among other things operates container terminals for Matson at Seattle, Oakland and Long Beach. The company expects to recover $5.8 million from the SSAT JV in the second half of 2019 as adjustments are made in accordance with the accounting standards.

The American Shipper magazine published on August 8, 2019, a news article “Matson lowers 2019 EBITDA projection by $18 million,” reporting:

Matson, the largest U.S. domestic container carrier, said it is lowering its operating income projection for 2019.

Matson operates liner services to Hawaii, Alaska, Guam and other islands in the Pacific Ocean as well as an express container service from China to the U.S. West Coast. It also has a logistics business.

The company now expects operating income for the ocean transportation segment for all of 2019 will be approximately 20% lower than the $131.1 million achieved in 2018 after adjusting the 2018 result for full year impact of a vessel sale-leaseback.

Operating revenue in the ocean transportation segment as $415.4 million in the second quarter, up 2.2% from $406.6 million in the second quarter of 2018.

However, operating income in the ocean segment was $19.7 million, a 46% drop from the second quarter of 2018. Matson said the decrease in operating income “was primarily due to higher vessel operating costs (including MV Maunalei lease expense), a lower contribution from SSAT, higher terminal handling costs and lower volume in Hawaii, partially offset by a higher contribution from the Alaska service and higher average rates in China.

Matson has been renewing its fleet. Two ships, the Daniel K. Inouye and the Kaimana Hila have entered into service in the past year. With capacity of 3,600 TEU each, they are the largest in the Matson fleet.

With demand weak in the Hawaii trade, Matson has redeployed the Kaimana Hila into its CLX string that calls not only Hawaii, but also Guam and China as it may do the same with the Daniel K. Inouye.

Note: CLX is China Long Bach Express which is the Eastbound half of Matson’s Transpacific service that operates Westbound from long Beach calling at Honolulu, Apra Harbor (Guam), Naha (Okinawa) before calling at Ningbo and Shanghai in China.

The Honolulu Star Advertiser published on August 8, 2019 a news article, “Matson earnings nearly halved by extra costs,” reporting as follows:

Higher costs cut down the second-quarter profit of Hawaii’s largest ocean cargo transportation firm, Matson Inc., by almost half.

Matt Cox, Matson chairman and CEO, said in a statement that this year is a “transition year” on the path to achieving annual cost savings from investments in the new ships.

Cox said he expects a roughly $30 million financial benefit next year and $40 million a year thereafter from the new ships, which are bigger, more efficient and less costly to operate.

In the second quarter, Matson’s Hawaii container volume slipped 2.3% to 37,700 containers from 38,600 containers a year earlier.

This business, Cox said, was weaker than expected. “Containerized freight market volume has not been keeping pace with (gross domestic product) growth,” Matson said in its report.

Matson’s two other big service areas, China and Alaska, showed improvements in the second quarter. Matson’s China container volume was up 2.5% and the company said it continues to realize a significant rate premium for that service.

In Alaska, Matson container volume rose 8% due primarily to the timing of two port arrivals.