Matson Declares 2Q EPS Of $0.23

 

Matson, Inc., a U.S. carrier in the Pacific, reported net income of $9.9 million, or $0.23 per diluted share for the quarter ended June 30, 2015. 

The company said its second quarter results were negatively impacted by $13.5 million of additional selling, general and administrative expenses related to the company's acquisition of Horizon Lines, Inc. 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 to resolve all claims arising from the discharge of molasses into Honolulu Harbor in September 2013, which together reduced earnings per diluted share by $0.33.  Net income for the quarter ended June 30, 2014 was $18.1 million, or $0.42 per diluted share.

Consolidated revenue for the second quarter 2015 was $447.6 million compared with $436.4 million reported for the second quarter 2014.

For the six months ended June 30, 2015, Matson reported net income of $34.9 million, or $0.79 per diluted share compared with $21.5 million, or $0.50 per diluted share in 2014.  Year-to-date 2015 results were also negatively impacted by the additional selling, general and administrative expenses related to the Acquisition and the costs related to the Molasses Settlement. 

Consolidated revenue for the six-month period ended June 30, 2015 was $845.8 million, compared with $828.9 million in 2014.

Matt Cox, Matson's President and Chief Executive Officer, commented, "Our core businesses delivered strong results in the second quarter, led by continued levels of exceptional demand for our premium expedited China service, yield improvements in Hawaii and Guam, further improvements at SSAT, and, for the first time, operating results from our Alaska acquisition.  However, these favorable operational gains were offset by costs related to our Alaska acquisition and, more recently, the resolution of the molasses incident."

Mr. Cox added, "In Alaska, we're off to a good start and our integration is progressing as planned.  We are on track to achieve our earnings and cash flow accretion expectations for this business within two years.  Looking ahead to the balance of 2015, we expect Ocean Transportation operating income to moderately exceed 2014 levels and we expect our core businesses to continue to generate significant cash flow to pay down debt, fund growth initiatives, including our new vessel investments, and return capital to shareholders."

Second Quarter 2015 Discussion and Outlook for Second Half 2015

Alaska Operations Integration:

On May 29, 2015, the Company completed its previously announced Acquisition, of which the primary business was the Alaska operations.  The Company expects to complete its integration of the Alaska operations within two years post-closing, at which point incremental run-rate selling, general and administrative expenses are expected to be approximately $15.0 million per year or $3.8 million per quarter. The Company's results for the second quarter 2015 were negatively impacted by approximately $13.5 million of additional selling, general and administrative expenses related to the Acquisition in excess of the Company's incremental run-rate target, consisting primarily of transaction costs, integration costs, and corporate overhead expenses.  In the second half 2015, the Company expects to incur approximately $25 million of selling, general and administrative expenses related to the Acquisition in excess of the Company's incremental run-rate target.

Ocean Transportation:

In the second quarter 2015, the Hawaii trade experienced modest westbound market growth; however, the Company continued to experience competitive losses in eastbound backhaul freight.   For the second half 2015, the Company expects market growth in the Hawaii trade to continue, with its Hawaii volume expected to be higher than the second half 2014.

In the China trade, freight rates were higher in the second quarter 2015 than in the year earlier period, reflecting a continuation of rate gains made in the latter half of 2014.  For the second half 2015, the Company expects to maintain its volume and average freight rates with high vessel utilization levels, as its expedited service continues to realize a sizeable premium to market rates.  In Guam, stable economic activity is expected and the Company envisions its volume to be modestly better than 2014, assuming no new competitors enter the market.

The Company's operating results for the second quarter 2015 included the operating results from Alaska for the period from May 29 to June 30, 2015.  For the second half 2015, the Company expects Alaska container volume to approximate the 35,000 loads achieved by Horizon in the comparable period in 2014.

On July 29, 2015, the Company reached a settlement with the State of Hawaii to resolve all civil, criminal and administrative claims that the State may have had arising from the molasses release.  The Company paid $5.9 million in cash to the State and agreed to remove the molasses tank farm and pier risers at Sand Island Terminal in Honolulu, which is estimated to cost between $5.5 million and $9.5 million.  The Company's results for the second quarter 2015 were negatively impacted by approximately $11.4 million of costs related to the Molasses Settlement.

In the second half of 2015, exclusive of the aforementioned $25 million of additional selling, general and administrative expenses in excess of the Company's incremental run-rate target, the Company expects Ocean Transportation operating income to moderately exceed the $88.9 million achieved in the second half of 2014.  However, the Company expects operating income contribution for each of the third and fourth quarters 2015 to be considerably different than the comparable periods in 2014.  Specifically, third quarter 2015 operating income is expected to be approximately 50 percent higher and fourth quarter 2015 operating income is expected to be considerably lower than the comparable periods in 2014.   With the second half of 2015 now expected to moderately exceed the second half of 2014, Ocean Transportation operating income for the full year 2015 is now expected to be substantially higher than 2014, exclusive of approximately $38.5 million of full year selling, general and administrative expenses in excess of the Company's incremental run-rate target and the impact of the Molasses Settlement.

Logistics: The Company expects full year 2015 operating income to approximate the 2014 level of $8.9 million.

Interest Expense: The Company expects its interest expense in the second half 2015 to increase to approximately $10 million, primarily due to the incremental borrowings required to fund the Acquisition.

Income Tax Expense: Net income and earnings per share in the second quarter 2015 were adversely impacted by an effective tax rate of 66 percent as compared to 42 percent in the second quarter 2014.  Income tax expense for the second quarter 2015 included a $4.8 million non-cash adjustment to deferred tax assets, which increased the effective tax rate by 16.5 percentage points and negatively impacted earnings per share by $0.11. The second quarter 2015 effective tax rate was further negatively impacted by changes in the value of deferred taxes and non-deductible expenses as a result of the Acquisition. The Company expects its effective tax rate for the second half 2015 to be approximately 40 percent.

Other: In the first half 2015, the Company had maintenance capital expenditures of approximately $12.2 million.  In the second half 2015, the Company expects maintenance capital expenditures to be approximately $35 million and scheduled contract payments relating to its two vessels under construction to be $33 million. The Company also expects to make additional contributions to its CCF in 2015, which are expected to exceed the $65.5 million net contribution made in 2014.