Matson, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023; MatNav’s period ended September 29, 2023. The unaudited filing covers Ocean Transportation and Logistics. Matson provides ocean freight, terminal, stevedoring, and logistics services serving Hawaii, Alaska, Guam, China, Micronesia, and other markets.
Financial Performance and Liquidity
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Operating revenue | $827.5 million | $1,114.8 million | $2,305.7 million | $3,541.4 million |
| Operating income | $132.1 million | $335.3 million | $267.5 million | $1,261.0 million |
| Net income | $119.9 million | $266.0 million | $234.7 million | $985.9 million |
| Diluted EPS | $3.40 | $6.89 | $6.56 | $24.65 |
| Operating margin | 16.0% | 30.1% | 11.6% | 35.6% |
| Operating cash flow | Not separately provided | Not separately provided | $399.1 million | $1,102.5 million |
- Ocean Transportation revenue was $669.4 million in Q3, down 27.1%, and $1,837.3 million for the nine months, down 36.9%. Segment operating income was $118.2 million in Q3, down 62.5%, with a 17.7% margin, and $228.4 million for the nine months, down 81.0%, with a 12.4% margin.
- Logistics revenue was $158.1 million in Q3, down 19.5%, and $468.4 million for the nine months, down 25.6%. Segment operating income was $13.9 million in Q3, down 30.8%, with an 8.8% margin, and $39.1 million for the nine months, down 34.4%, with an 8.3% margin.
- Cash and cash equivalents were $156.5 million at September 30, 2023, compared with $249.8 million at December 31, 2022. Including restricted cash, ending cash was $160.4 million.
- Net cash used in investing activities was $270.7 million, including $52.1 million of vessel construction expenditures, $135.4 million of other capital expenditures, and net $70.9 million of Capital Construction Fund deposits and withdrawals.
- Net cash used in financing activities was $221.7 million, including $67.2 million of debt repayments, $33.8 million of dividends, and $108.2 million of share repurchases.
- Total debt was $450.3 million, down from $517.5 million at year-end 2022. The company had no revolving-credit borrowings and $642.6 million of remaining availability under its $650 million facility, which matures March 31, 2026.
- Working capital surplus was $65.2 million, down from $178.0 million at December 31, 2022.
- The Capital Construction Fund held $591.6 million of cash at September 30, 2023, with $213.2 million of assigned accounts receivable. These funds are intended primarily for milestone payments on three new Jones Act vessels.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined 25.8%, operating income declined 60.6%, net income declined 54.9%, and diluted EPS declined 50.7% year over year.
- For the first nine months, revenue declined 34.9%, operating income declined 78.8%, net income declined 76.2%, and diluted EPS declined 73.4%.
- The primary Ocean Transportation driver was substantially lower average freight rates in China, together with lower China volumes and reduced SSAT contribution. The company continued to earn a significant premium to the Shanghai Containerized Freight Index.
- Q3 Ocean Transportation volumes decreased 1.9% in Hawaii, 9.1% in Alaska, 1.3% in China, 1.9% in Guam, and 28.3% in other services. Hawaii automobile volume decreased 10.6%.
- SSAT contributed $1.3 million in Q3 2023 versus $23.4 million in Q3 2022, and generated a $1.9 million loss for the nine months versus $82.1 million of income in the prior-year period. The decline reflected lower demurrage revenue and lift volume.
- Interest income increased to $9.3 million in Q3 and $26.2 million for the nine months, reflecting higher interest rates and larger cash and CCF balances. Lower debt and capitalized interest reduced interest expense.
- The effective tax rate was 14.5% in Q3 and 18.7% for the nine months, benefiting from return-to-provision adjustments, primarily related to foreign-derived intangible income deductions.
- Share repurchases totaled approximately 301,000 shares for $25.8 million in Q3. Approximately 3.0 million shares remained available under the program at quarter-end.
Outlook, Risks, Contingencies, and Unusual Items
- Management expects Hawaii growth to moderate as tourism and visitor arrivals recover from the August 2023 Maui wildfires; tourism recovery and rebuilding may take several years.
- Management expects 2024 transpacific trade dynamics to be comparable to 2023 absent a U.S. economic hard landing, with consumer-related spending expected to remain stable. The company expects to maintain a significant rate premium to the SCFI through its fast and reliable services.
- Management expects near-term improvement in Guam, supported by low unemployment and modest tourism recovery. Alaska is expected to benefit from low unemployment and increased energy-related activity associated with elevated oil prices.
- The filing states that no material changes were made to expected 2023 or 2024 capital expenditures. Future milestone payments for the three Aloha-class containerships totaled $899.1 million as of September 30, 2023, after $99.9 million had been paid; $422.0 million was scheduled for 2024–2025 and $464.0 million for 2026–2027.
- Goodwill and intangible assets were not considered impaired during the quarter. Future impairment charges remain possible if cash-flow forecasts, discount rates, market valuations, or industry conditions deteriorate.
- The company reports environmental remediation risks and ordinary-course legal contingencies, but management does not expect current matters to materially affect financial condition, results, or cash flows. No material changes to previously disclosed risk factors were reported.
- The board declared a $0.32-per-share dividend payable December 7, 2023 to shareholders of record November 9, 2023.
Investor Verification Checklist
- Verify the sustainability of China freight-rate premiums and the effect of lower transpacific demand on 2024 revenue and margins.
- Track Maui tourism and rebuilding activity, Hawaii volumes, and potential effects on Ocean Transportation demand.
- Review SSAT operating trends, including demurrage revenue, lift volume, profitability, and cash distributions.
- Confirm the timing, cost, and financing of the three Jones Act vessel projects, including the $899.1 million of remaining scheduled milestone payments.
- Assess liquidity after CCF funding, capital expenditures, dividends, share repurchases, and scheduled debt maturities.
- Monitor the Logistics segment’s transportation brokerage and supply-chain-management contribution.
- Evaluate potential goodwill or intangible-asset impairment and environmental or legal contingencies as market conditions change.