Matson, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Matson provides ocean transportation and logistics services through its Ocean Transportation and Logistics segments. Ocean Transportation serves Hawaii, Alaska, Guam, Micronesia, China, Japan and the South Pacific and includes Matson’s 35% equity investment in SSA Terminals, LLC. The filing covers the quarter and nine months ended September 30, 2021; MatNav’s reporting period ended September 24, 2021. Results are unaudited.
Financial Highlights
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Operating revenue | $1,071.6 million | $645.2 million | $2,658.3 million | $1,683.2 million |
| Operating income | $377.9 million | $98.4 million | $712.0 million | $162.6 million |
| Net income | $283.2 million | $70.9 million | $532.9 million | $107.5 million |
| Diluted EPS | $6.53 | $1.63 | $12.19 | $2.48 |
| Operating margin | 35.3% | 15.2% | 26.8% | 9.7% |
| Net cash from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $583.3 million | $270.8 million |
- Q3 revenue increased 66.1%, operating income increased 284.0%, and net income increased 299.4% year over year.
- For the first nine months, revenue increased 57.9%, operating income increased 337.9%, and net income increased 395.7%.
- Ocean Transportation generated Q3 revenue of $863.5 million and operating income of $361.9 million, compared with $498.3 million and $86.5 million, respectively, in the prior-year quarter. Its operating margin increased to 41.9% from 17.4%.
- Logistics generated Q3 revenue of $208.1 million and operating income of $16.0 million, compared with $146.9 million and $11.9 million, respectively. Its operating margin was 7.7%, down from 8.1%.
- SSAT contributed $13.0 million in Q3 and $35.0 million for the nine months, versus $7.7 million and $15.4 million in the comparable periods.
Cash Flow, Debt and Liquidity
- Cash, cash equivalents and restricted cash totaled $81.2 million at September 30, 2021, compared with $19.7 million at December 31, 2020. Cash and cash equivalents alone totaled $75.9 million.
- Accounts receivable increased to $328.6 million from $253.4 million, primarily reflecting higher operating activity and timing of collections.
- Net cash used in investing activities was $242.5 million, including $244.7 million of other capital expenditures. Spending included equipment and container acquisitions, scrubber installations, other capital projects and the $95.8 million purchase of the Maunalei vessel.
- Net cash used in financing activities was $279.3 million, including $41.1 million of debt repayments, $33.3 million of dividends and $115.7 million of share repurchases.
- Total debt declined to $647.2 million from $760.1 million at year-end 2020. No borrowings were outstanding under the revolving credit facility at September 30, 2021, and remaining availability was $641.9 million, subject to $8.1 million of letters of credit.
- Working capital remained negative at $65.6 million, but improved from a $205.6 million deficit at December 31, 2020. Management states that short-term needs are managed partly through the revolving credit facility.
Material Changes Versus the Prior Comparable Period
- Ocean Transportation benefited from higher China revenue, fuel-related surcharges, and recovering Hawaii and Alaska demand. China container volume increased 21.7% in Q3 and 67.1% for the nine months.
- Q3 container volumes increased 11.5% in Hawaii, 10.7% in Alaska, 14.6% in Guam and 17.4% in other markets. Hawaii automobile volume declined 2.3%.
- Logistics growth reflected higher transportation brokerage, freight forwarding and supply chain management activity, supported by elevated goods consumption, inventory restocking and favorable market conditions.
- The company’s effective tax rate declined to 24.4% in Q3 from 25.4% and to 23.7% for the nine months from 25.7%. The nine-month rate benefited from discrete adjustments related to foreign tax net operating losses and stock compensation.
- Matson repurchased 1.5 million shares for $115.7 million during the nine months. It repurchased an additional 0.4 million shares for $33.1 million from October 1 through November 2, 2021; approximately 1.1 million shares remained authorized at November 2.
- On July 7, 2021, Matson terminated the Maunalei bareboat charter for $95.8 million and acquired the vessel, increasing property and equipment by $94.7 million net.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide a specific quantitative earnings or revenue forecast.
- Management expected Transpacific supply-chain congestion, elevated consumption, inventory restocking and transportation bottlenecks to remain largely in place at least through mid-2022, supporting continued strong China demand and rate premiums.
- Hawaii freight demand softened modestly late in Q3 as the state responded to the COVID-19 Delta variant. Management noted potential for a brief tourism-related slowdown, while Guam and Alaska recovery trajectories remained uncertain.
- COVID-19, economic conditions, tourism trends, fuel costs, congestion, market valuations, future cash flows and discount rates could affect results and asset valuations.
- No goodwill or intangible-asset impairment trigger was identified during Q3. Management cautioned that a prolonged or more severe pandemic or other adverse changes could result in a non-cash impairment charge.
- The company plans approximately $35 million of LNG-related equipment installation on Daniel K. Inouye beginning in Q1 2023 and is evaluating additional LNG projects. Re-engining Manukai for LNG and conventional fuels is estimated at approximately $60 million.
- Matson declared a $0.30-per-share dividend payable December 2, 2021. Management reported no material changes to disclosed risk factors, legal contingencies or market-risk exposure.
- The company implemented financial modules of a new ERP system during Q2 2021. Management concluded disclosure controls were effective as of September 30, 2021, while continuing post-implementation monitoring.
Investor Verification Checklist
- Verify whether elevated China freight rates and congestion persist beyond the company’s stated mid-2022 expectation.
- Assess the sustainability of the unusually high Ocean Transportation margins and the contribution from China and SSAT.
- Monitor Hawaii tourism, Guam recovery and Alaska demand for evidence of normalization or renewed pandemic-related weakness.
- Reconcile capital spending, Maunalei acquisition costs and planned LNG investments with future free cash flow and debt reduction.
- Review debt maturities, including $65.0 million due in 2022 and $400.3 million thereafter, together with revolving-credit availability and covenant requirements.
- Evaluate working-capital needs, accounts-receivable collections and the effect of higher prepaid fuel and operating costs.
- Confirm the effect of tax-rate benefits and whether discrete tax adjustments recur.
- Track share repurchases and dividends against liquidity, vessel investment and long-term capital-allocation priorities.