Matson, Inc. 2023 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
Matson provides ocean transportation and logistics services through two reportable segments: Ocean Transportation and Logistics. Ocean Transportation serves Hawaii, Alaska, Guam, Micronesia, China, Okinawa, Japan, and South Pacific markets, and includes the company’s 35% equity investment in SSA Terminals, LLC (SSAT). The report covers the quarter and six months ended June 30, 2023, with comparative periods ended June 30, 2022. The financial statements are unaudited.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|---|---|
| Total revenue | $773.4 million | $1,261.1 million | $1,478.2 million | $2,426.6 million |
| Operating income | $96.7 million | $493.1 million | $135.4 million | $925.7 million |
| Operating margin | 12.5% | 39.1% | 9.2% | 38.2% |
| Net income | $80.8 million | $380.7 million | $114.8 million | $719.9 million |
| Diluted EPS | $2.26 | $9.49 | $3.19 | $17.69 |
| Operating cash flow | Not separately provided | Not separately provided | $246.5 million | $691.1 million |
Ocean Transportation revenue was $616.9 million in the second quarter and $1,167.9 million for the first six months. Segment operating income was $82.4 million and $110.2 million, respectively, with margins of 13.4% and 9.4%. Logistics revenue was $156.5 million and $310.3 million, with operating income of $14.3 million and $25.2 million and margins of 9.1% and 8.1%.
At June 30, 2023, cash and cash equivalents were $122.0 million, restricted cash was $3.9 million, and accounts receivable were $285.0 million. The Capital Construction Fund held $583.9 million in cash and investments, intended primarily to fund milestone payments for three new Jones Act vessels.
Total debt was $462.4 million, including $41.7 million classified as current. The company had no borrowings outstanding under its $650 million revolving credit facility and had $642.5 million of remaining availability, net of letters of credit. Working capital surplus was $28.8 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue declined 38.7% and six-month revenue declined 39.1%, primarily because of lower China freight rates and volumes.
- Second-quarter net income fell 78.8% and six-month net income fell 84.1%. Diluted EPS decreased 76.2% for the quarter and 82.0% for the six-month period.
- Ocean Transportation revenue decreased 41.2% in the quarter and 41.4% year to date. China container volume declined 24.6% in the quarter and 29.9% year to date.
- Ocean Transportation operating margin decreased from 44.8% to 13.4% in the quarter and from 44.5% to 9.4% for the six-month period.
- Logistics revenue declined 26.1% in the quarter and 28.4% year to date; operating income declined 38.1% and 36.2%, respectively.
- SSAT shifted from income contributions of $24.7 million in the second quarter of 2022 and $58.7 million in the first six months of 2022 to losses of $1.4 million and $3.2 million, respectively, primarily due to lower demurrage revenue and lift volume.
- Operating cash flow decreased $444.6 million to $246.5 million. Cash, cash equivalents, and restricted cash declined to $125.9 million from $614.3 million at June 30, 2022.
- Investing cash outflows increased to $201.8 million, driven by $100.0 million of CCF deposits, $15.6 million of CCF interest, $50.8 million of vessel construction expenditures, $75.5 million of other capital expenditures, and a $12.4 million intangible-asset acquisition payment.
- Total debt declined $55.1 million from year-end 2022, including $26.4 million of Title XI debt prepayments and scheduled repayments.
Guidance, Outlook, Risks, and Unusual Items
- Management expects continued improvement in the Hawaii economy during the second half of 2023, supported by visitor arrivals and low unemployment. Guam is expected to see modest tourism improvement, and Alaska is expected to benefit from low unemployment and energy-related activity.
- Management expects a muted Transpacific peak season but expects Matson’s China service to be near full. The company expects trade dynamics to gradually improve absent a U.S. economic “hard landing” and expects to maintain a significant rate premium to the Shanghai Containerized Freight Index.
- Key operating risks include weaker consumer demand, retailer inventory management, lower freight rates, reduced volumes, fuel costs, vessel dry-dock capacity constraints, and the performance of SSAT. Management stated that no material changes occurred to previously disclosed risk factors.
- The company is constructing three new Jones Act vessels. Total estimated milestone payments under the construction agreements were $999.0 million, of which $99.9 million had been paid by June 30, 2023. Future payments include $422.0 million in 2024–2025 and $464.0 million in 2026–2027.
- The company acquired customer-relationship intangible assets for $16.5 million on February 27, 2023, amortized over seven years.
- No goodwill or intangible-asset impairment triggering event was identified during the quarter, although future changes in forecasts, market valuations, discount rates, or industry conditions could require a non-cash impairment charge.
- The company repurchased approximately 617,660 shares during the quarter for $42.4 million and had approximately 3.3 million shares remaining under the authorization at June 30, 2023. The repurchase program was expanded to 12.0 million total authorized shares and extended through December 31, 2025.
- A quarterly dividend of $0.31 per share was paid June 1, 2023. The board declared a $0.32 per-share dividend payable September 7, 2023.
- Management reported no material environmental or other legal proceedings, no material changes in market risk, and effective disclosure controls as of June 30, 2023.
Important Facts for Investors to Verify
- Whether China freight rates and volumes recover as anticipated and whether the expected peak season materializes.
- The sustainability of rate premiums over the Shanghai Containerized Freight Index amid normalized Transpacific capacity and demand.
- The timing and total cost of the three-vessel Jones Act construction program, including the $899.1 million of remaining estimated milestone payments.
- The effect of SSAT’s lower demurrage revenue and lift volume on future Ocean Transportation results.
- Liquidity after CCF deposits, capital expenditures, vessel construction payments, dividends, share repurchases, and scheduled debt repayments.
- Potential impairment risk for goodwill and intangible assets if market conditions or future cash-flow assumptions deteriorate.
- The filing’s statement that interim results are not necessarily indicative of full-year results and that forward-looking statements remain subject to material risks and uncertainties.