Matson, Inc. — FY2021 Form 10-K 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, while Logistics provides transportation brokerage, freight forwarding, warehousing and supply-chain services.
The filing covers the fiscal year ended December 31, 2021. MatNav’s 2021 fiscal year included 53 weeks, compared with 52 weeks in 2020. The filing includes fourth-quarter commentary, but the principal financial statements present full-year results.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total operating revenue | $3,925.3 million | $2,383.3 million | +64.7% |
| Ocean Transportation revenue | $3,132.8 million | $1,853.9 million | +69.0% |
| Logistics revenue | $792.5 million | $529.4 million | +49.7% |
| Operating income | $1,187.5 million | $280.3 million | +323.7% |
| Net income | $927.4 million | $193.1 million | +380.3% |
| Diluted EPS | $21.47 | $4.44 | +$17.03 |
| Net cash from operating activities | $984.1 million | $429.8 million | +$554.3 million |
| Capital expenditures | $325.3 million | $192.3 million | +$133.0 million |
| Cash and cash equivalents | $282.4 million | $14.4 million | +$268.0 million |
| Total debt | $629.0 million | $760.1 million | -$131.1 million |
| Shareholders’ equity | $1,667.4 million | $961.2 million | +$706.2 million |
Reported operating income margin was approximately 30.3% in 2021 versus 11.8% in 2020; net margin was approximately 23.6% versus 8.1%. Segment operating margins were 36.3% for Ocean Transportation and 6.3% for Logistics in 2021.
Ocean Transportation volumes increased year over year: Hawaii containers 8.2%, Alaska containers 7.7%, China containers 55.4%, Guam containers 15.9% and other containers 15.4%. The China service benefited from materially higher freight rates, higher volume and the CLX+, CCX and other expanded services. The SSAT joint venture contributed $56.3 million of income, compared with $26.3 million in 2020.
Logistics operating income increased to $49.8 million from $35.5 million, although its margin declined to 6.3% from 6.7% as operating costs increased broadly in line with revenue.
Material changes versus the prior comparable period
- Revenue and profitability rose sharply, led by elevated demand, freight rates and supply-chain congestion in the China trade, along with recovery in Hawaii, Alaska and Guam from pandemic-affected 2020 levels.
- Ocean Transportation operating income increased $892.9 million, while Logistics operating income increased $14.3 million.
- Operating costs increased 30.2%, substantially below the 64.7% revenue increase, producing significant operating leverage.
- Interest expense declined to $22.6 million from $27.4 million as debt declined.
- The effective income tax rate decreased to 20.8% from 25.4%, benefiting from the foreign-derived intangible income deduction and other discrete adjustments.
- Cash generation improved materially. The company used $323.4 million in investing activities and $392.7 million in financing activities, including $198.3 million for share repurchases and $45.9 million for dividends.
- The revolving credit facility was fully repaid at year-end, leaving $642.0 million of available capacity under the facility maturing March 31, 2026. Fixed-rate debt outstanding was $629.0 million, with $65.0 million due in 2022.
- Matson repurchased approximately 2.5 million shares for $200.1 million during 2021. The board added three million shares to the repurchase authorization in January 2022.
Guidance, outlook, commentary, risks and unusual items
Management expected elevated demand and supply-chain congestion in Ocean Transportation to remain largely in place through at least the October 2022 peak season, particularly in the China service. Management was cautiously optimistic about recovery in Hawaii and Guam and expected improving but uncertain economic trends in Alaska. The filing does not provide a specific full-year 2022 earnings or revenue forecast.
Matson expects 2022 capital expenditures of approximately $160 million to $180 million and 2023 capital expenditures of approximately $130 million to $140 million. Planned projects include terminal modernization, equipment supporting new trade-lane services, a new neighbor-island barge and LNG installations. Additional vessel-replacement and LNG projects under review are excluded from these estimates.
- Demand, freight rates and margins could decline as pandemic-related consumption, congestion and supply constraints normalize. Certain fixed costs, including chartered-vessel commitments, would remain.
- COVID-19 variants, port congestion, equipment shortages, labor constraints and supply-chain disruptions could impair service and increase costs.
- Fuel prices, the ability to recover fuel surcharges and compliance with IMO, EPA, California and other environmental requirements remain material risks.
- Matson announced LNG-related fleet upgrades, including planned installations on Daniel K. Inouye and re-engining of Manukai. Delays, cost overruns, LNG availability and uncertain emissions benefits could affect returns and climate objectives.
- Collective bargaining agreements, including the Pacific Maritime Association and International Longshore and Warehouse Union agreement, were subject to renegotiation in 2022. Work stoppages or other labor disruptions could materially affect operations.
- Multi-employer pension withdrawal obligations were estimated at $202.9 million, although no withdrawal from the relevant plans was anticipated. A separate Horizon-related withdrawal liability had a $54.9 million present value at year-end.
- California Air Resources Board issued a notice of violation concerning shore-power and auxiliary-engine requirements at the Port of Long Beach. Potential penalties for 2020 and 2021 could exceed $1 million in aggregate but were not expected to be material.
- No impairment charges were recorded for goodwill, intangible assets or long-lived assets. Span Alaska goodwill of $78.6 million remains sensitive to forecasts of Alaska revenue, operating performance and discount rates.
- The company reported effective disclosure controls and internal control over financial reporting. Deloitte & Touche issued unqualified audit opinions and identified Span Alaska goodwill valuation as a critical audit matter.
Important facts for investors to verify
- Whether China freight rates, volumes and the temporary CCX service remain elevated after congestion and pandemic demand normalize.
- The sustainability of the 2021 Ocean Transportation margin and the extent to which results benefited from the extra fiscal week.
- Debt maturities, covenant compliance, fixed-rate debt service and the availability of the $642.0 million revolving facility.
- The timing and total cost of LNG conversions, terminal modernization, new-trade-lane equipment and potential vessel replacements.
- Outcomes of labor negotiations and exposure to strikes, port disruptions and multi-employer pension liabilities.
- Resolution and potential penalties associated with the CARB notice of violation and the company’s 2022 compliance plans.
- Customer concentration, including the top ten customers’ approximately 15% share of Ocean Transportation revenue and 25% share of Logistics revenue.