Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009, for Alexander & Baldwin, Inc. (A&B). Although the request metadata referenced Matson, Inc., the filing is for the parent company, Alexander & Baldwin, which operates through three primary industries: Transportation (including its subsidiary Matson Navigation Company), Real Estate, and Agribusiness. The company is headquartered in Honolulu, Hawaii, and is a large accelerated filer.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Operating Revenue | $319.9 million | $578.7 million |
| Operating Income | $1.7 million | $56.2 million |
| Net Income | $3.0 million | $42.1 million |
| Diluted EPS | $0.07 | $1.01 |
| Cash Flow from Operations | $8 million | $160 million |
| Total Debt | $493 million | $504 million (Dec 31, 2008) |
| Cash and Equivalents | $10 million | $19 million (Dec 31, 2008) |
| Working Capital | $58 million | $46 million (Dec 31, 2008) |
Material Changes vs. Prior Period
- Revenue Decline: Operating revenue decreased 45% ($258.8 million) year-over-year. The primary driver was a $186.1 million drop in Real Estate Sales revenue, largely due to the absence of the 300-unit Keola La'i condominium sales that occurred in Q1 2008.
- Transportation Weakness: Ocean Transportation revenue fell 17% due to reduced volumes (Hawaii containers down 14%, automobiles down 44%) and lower fuel surcharges. Logistics Services revenue dropped 26% due to economic weakness affecting intermodal and highway volumes.
- Profitability Collapse: Operating income plummeted 97% to $1.7 million. While costs decreased 39%, they did not fall as sharply as revenue. The Transportation segment reported an operating loss of $0.5 million, compared to a $15.9 million profit in 2008.
- Discontinued Operations: Net income was bolstered by $5.0 million from discontinued operations (primarily real estate asset sales), compared to $1.6 million in the prior year. Without this, continuing operations would have resulted in a net loss of $2.0 million.
- Pension Impact: Pension expenses increased significantly, rising from a net income of $1.2 million in Q1 2008 to an expense of $4.9 million in Q1 2009 due to a decline in plan assets.
Guidance, Outlook, and Risks
- Economic Outlook: Management expects continued adverse impacts from the contraction in the U.S. and Hawaii economies, specifically citing reduced shipping volumes and a dramatic decline in residential real estate sales.
- Cost Containment: The company is implementing workforce reductions (including a 15% cut in Matson's non-union workforce), salary freezes, and deferral of non-essential capital expenditures to preserve cash flow.
- Agribusiness Challenges: Sugar operations are expected to post significant operating losses in 2009 due to a historic two-year drought and lower power prices. Management is evaluating strategic alternatives, including a potential transition to an energy-centric model.
- Legal Risks: The company is a defendant in a consolidated class-action lawsuit alleging antitrust violations. Additionally, the Department of Justice is investigating competitive practices in domestic trades. The company states it cannot predict the financial impact of these proceedings.
- Liquidity: The company maintains $416 million in available capacity under credit facilities and believes current resources are sufficient for the next fiscal year, though it notes no assurance of maintaining borrowing ability.
Investor Verification Checklist
- Real Estate Sales Volatility: Verify the extent to which Q1 2008 results were inflated by the one-time Keola La'i sales to accurately assess the underlying trend in the Real Estate Sales segment.
- Discontinued Operations: Confirm the classification of real estate assets as "discontinued operations" and the sustainability of the $5.0 million income derived from them.
- Pension Liability: Review the actuarial assumptions regarding the defined benefit pension plans, as the shift from income to expense ($6 million swing) significantly impacts earnings.
- Antitrust Litigation: Monitor the status of the consolidated class-action lawsuit and the DOJ investigation for potential material financial liabilities.
- Agribusiness Viability: Assess the long-term viability of the sugar operations given the drought conditions and the company's stated review of strategic alternatives.