Business Context and Reporting Period
This filing is a Form 10-Q for the quarter and nine months ended September 30, 2011, filed November 9, 2011. The registrant identified in the filing is Alexander & Baldwin, Inc. (A&B), not Matson, Inc. Matson is described as a wholly owned subsidiary and operates A&B’s Ocean Transportation and Logistics Services segments.
A&B operates across Transportation, Real Estate, and Agribusiness. The financial statements are unaudited and interim results may not be indicative of full-year performance.
Financial Highlights
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Operating revenue | $440.2 million | $437.3 million | $1,262.1 million | $1,176.0 million |
| Operating income | $36.4 million | $43.0 million | $94.4 million | $94.6 million |
| Income from continuing operations | $18.3 million | $25.6 million | $51.1 million | $50.5 million |
| Discontinued operations, net of tax | $(9.6) million | $0.1 million | $(18.5) million | $21.4 million |
| Net income | $8.7 million | $25.7 million | $32.6 million | $71.9 million |
| Diluted EPS | $0.21 | $0.62 | $0.77 | $1.74 |
| Operating cash flow | Not separately provided | Not separately provided | $42 million | $81 million |
Q3 operating margin was approximately 8.3%, compared with approximately 9.8% in the prior-year quarter. Nine-month operating margin was approximately 7.5%, compared with approximately 8.0% in 2010. The filing does not provide a consolidated adjusted EBITDA figure.
Segment Performance
- Ocean Transportation: Q3 revenue increased 8% to $281.8 million, but operating profit declined 33% to $28.6 million; margin decreased to 10.1% from 16.2%. Nine-month operating profit fell 32% to $61.1 million, with margin declining to 7.7% from 12.0%.
- Logistics Services: Q3 revenue rose 7% to $99.2 million and operating profit increased 11% to $2.0 million. Nine-month revenue increased 14% to $293.6 million, while operating profit rose 8% to $5.6 million.
- Real Estate Leasing: Nine-month revenue increased 6% to $75.7 million and operating profit rose 12% to $30.2 million, supported by improved Mainland occupancy.
- Real Estate Sales: Nine-month revenue declined 27% to $63.4 million and operating profit declined 19% to $26.1 million. Results are episodic and depend on the timing and mix of property sales.
- Agribusiness: Q3 revenue declined 36% to $38.5 million, primarily because of the timing of sugar deliveries and the coffee asset sale, while operating profit increased to $3.8 million from $0.8 million. Nine-month operating profit increased to $14.9 million from $1.5 million.
Liquidity, Debt, and Other Financial Metrics
- Cash and cash equivalents were $17 million at September 30, 2011, compared with $14 million at December 31, 2010.
- Total debt was $570 million at September 30, 2011, compared with $522 million at year-end 2010. The fair value of long-term debt was $615 million versus a carrying value of $570 million.
- Available capacity under revolving credit and term facilities was approximately $272 million. On August 5, 2011, A&B and Matson renewed revolving facilities with aggregate commitments of $355 million, expiring in August 2016.
- Working capital was $1 million at September 30, 2011, compared with negative working capital of $89 million at December 31, 2010. Management attributed the improvement primarily to reclassification of revolving debt as non-current following the facility renewal.
- Capital expenditures were $51 million for the first nine months, including $40 million for transportation assets, $6 million for real estate, and $5 million for agricultural operations.
- Cash dividends were $0.315 per share for the quarter and $0.945 per share for the nine-month period.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly in Q3 and 7% for the first nine months, but operating income was essentially flat for the nine-month period because costs increased at approximately the same rate as revenue.
- Ocean Transportation revenue benefited from higher fuel surcharges and Hawaii volume, but profitability was pressured by lower yields and cargo mix, competitive pricing, higher terminal handling costs, and other operating costs.
- Matson discontinued its CLX2 China-Long Beach service in August 2011. Q3 discontinued-operations losses were $14.0 million after tax, and nine-month losses were $33.1 million after tax. Additional shutdown costs of $3.7 million after tax were recorded in continuing operations.
- Management continued to estimate total after-tax CLX2 shutdown losses of $20 million to $25 million, with additional costs expected primarily from excess container off-hiring.
- Net income and EPS declined sharply because 2010 included substantial income from discontinued operations, whereas 2011 included CLX2 shutdown losses and other discontinued-operation losses.
- Real estate leasing improved, while real estate sales declined due to timing and sales mix. Agribusiness profitability improved substantially despite lower reported revenue.
Guidance, Outlook, Risks, and Unusual Items
- Management expected a slow U.S. economic recovery and modest Hawaii growth, supported by recovery in tourism.
- Ocean Transportation operating profit, excluding CLX2, was expected to be lower than comparable 2010 periods for both Q4 and full-year 2011. Key uncertainties included fuel prices, Transpacific freight rates, competitive pressure, Guam demand, and economic conditions.
- Logistics Services performance was expected to be relatively flat for full-year 2011. Real Estate Leasing was expected to show modest improvement, while fourth-quarter real estate sales were expected to be minimal because of transaction timing.
- Agribusiness was expected to remain strong, supported by higher sugar production and pricing, although Q4 performance was expected to approximate 2010 despite the absence of a prior-year federal disaster relief payment.
- Material contingencies included East and West Maui water-rights proceedings, which could suppress future sugar yields; a Department of Justice investigation into domestic-trade pricing practices; an EEOC lawsuit involving alleged labor practices at a former coffee operation; and potential environmental costs related to boiler-emission standards and climate-change regulation.
- Off-balance-sheet commitments included $19 million of standby letters of credit, $31 million of performance and customs bonds, and $99 million of multiemployer pension-plan withdrawal obligations. Management did not expect to be required to advance funds under these commitments.
- A&B expected 2011 pension contributions of approximately $4 million. Effective January 1, 2012, its traditional defined-benefit pension formula was scheduled to transition to a cash-balance formula.
- On October 27, 2011, the board declared a $0.315 per-share fourth-quarter dividend and authorized repurchases of up to two million shares beginning January 1, 2012.
Important Facts for Investors to Verify
- Confirm the requested issuer: the supplied filing is for Alexander & Baldwin, Inc., while Matson is a subsidiary rather than the registrant.
- Assess the effect of CLX2 termination, including the remaining $20 million to $25 million estimated after-tax loss range and costs extending into 2012.
- Evaluate whether Ocean Transportation margin pressure from pricing, fuel, capacity, and cargo mix is temporary or structural.
- Review debt maturities, revolving-credit covenants, available borrowing capacity, and the effect of higher debt on liquidity.
- Monitor Maui water-rights proceedings and potential impacts on sugar production and agribusiness assets.
- Track the DOJ pricing investigation, EEOC litigation, environmental requirements, pension obligations, and other contingencies because the filing does not provide clear estimates of their ultimate financial impact.
- Separate continuing operations from discontinued operations when comparing 2011 with 2010, particularly for CLX2 and real estate dispositions.