Matson, Inc. — Form 10-Q Summary
Business context and reporting period
Matson provides ocean transportation and logistics services, primarily serving Hawaii, Alaska, Guam, Micronesia, China and other Pacific markets. The company operates through Ocean Transportation and Logistics segments and owns a 35% interest in SSAT, a terminal and stevedoring joint venture. This unaudited report covers the quarter and six months ended June 30, 2020; MatNav’s reporting period ended June 26, 2020.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $524.1 million | $557.9 million | $1,038.0 million | $1,090.3 million |
| Operating income | $51.2 million | $31.0 million | $64.2 million | $48.5 million |
| Operating margin | 9.8% | 5.6% | 6.2% | 4.4% |
| Net income | $32.8 million | $18.4 million | $36.6 million | $30.9 million |
| Diluted EPS | $0.76 | $0.43 | $0.85 | $0.72 |
| Net cash from operations | Not separately provided | Not separately provided | $140.6 million | $108.2 million |
- Q2 revenue declined 6.1%, while operating income increased 65.2% and net income increased 78.3% year over year.
- Ocean Transportation revenue declined 1.1% to $410.8 million, while operating income rose 114.7% to $42.3 million; the segment margin increased to 10.3% from 4.7%.
- Logistics revenue declined 20.5% to $113.3 million, and operating income declined 21.2% to $8.9 million; the segment margin was unchanged at 7.9%.
- For the six months, Ocean Transportation revenue was essentially flat, while operating income increased 72.5% to $50.2 million. Logistics revenue declined 18.3% and operating income declined 27.8% to $14.0 million.
- SSAT contributed $3.7 million in Q2 and $7.7 million year to date, compared with $0.9 million and $9.4 million, respectively, in the prior-year periods.
- At June 30, 2020, cash and cash equivalents were $19.5 million, restricted cash was $3.0 million, and accounts receivable were $215.2 million.
- Total debt was $890.0 million, including $50.5 million current debt and $178.0 million outstanding under the revolving credit facility. Revolving-facility availability was $433.2 million, with $8.1 million used for letters of credit.
- Working capital was negative $176.0 million at June 30, 2020, compared with negative $147.1 million at December 31, 2019.
Cash flow, capital spending and liquidity
- Operating cash flow increased $32.4 million year over year to $140.6 million for the six months ended June 30, 2020.
- Investing activities used $35.1 million, including $16.5 million of vessel construction expenditures and $34.0 million of other capital expenditures. Capital Construction Fund deposits and withdrawals were each $97.1 million.
- Financing activities used $111.4 million, including $19.1 million of dividends, $192.8 million of debt repayments and $18.5 million of financing costs.
- Cash, cash equivalents and restricted cash declined to $22.5 million from $32.7 million at June 30, 2019.
- The company issued $325.5 million of Title XI vessel financing debt, redeemed $169.5 million of private placement term loans, and reduced revolving-credit borrowings by $201.1 million during the six months.
Material changes versus the prior comparable period
- COVID-19 mitigation measures materially reduced tourism and retail-related demand in Hawaii, Guam and Alaska. Q2 Hawaii container volume declined 4.0%, Alaska volume declined 9.0%, and Guam volume declined 12.5%; Hawaii automobile volume declined 50.9%.
- China container volume increased 68.1% in Q2, driven by the supplemental CLX+ charter service and higher CLX volume. Higher China contribution, lower vessel operating costs and timing of fuel-surcharge collections more than offset weakness in other markets.
- Logistics was adversely affected by lower retail-related transportation brokerage and freight-forwarding volumes.
- Interest expense increased to $8.2 million in Q2 and $16.8 million year to date, primarily because less interest was capitalized in connection with vessel construction.
- The newly constructed vessel Lurline entered service, with $308.2 million transferred from vessel construction in progress to vessels.
- The company entered into a five-year sale-and-leaseback of chassis and container equipment, receiving net proceeds of $14.3 million.
Guidance, outlook, risks and unusual items
- Management expects consolidated operating income, net income, diluted EPS and EBITDA in the third quarter of 2020 to exceed third-quarter 2019 results.
- Management expects the CLX+ service to continue through the peak season ending in October and potentially longer, depending on customer demand.
- COVID-19-related restrictions, near-zero Hawaii tourism, weaker retail demand, lower oil prices and economic weakness in Hawaii, Alaska and Guam remain significant risks. Logistics transportation brokerage and freight forwarding were expected to remain negatively affected in the near term.
- Management determined that COVID-19 did not trigger a goodwill or intangible-asset impairment as of June 30, 2020, but a more prolonged or severe pandemic could require a non-cash impairment charge.
- The company adopted the expected-credit-loss standard effective January 1, 2020; the initial impact was not material, although COVID-19 effects on future credit losses will continue to be monitored.
- Title XI debt issued in April and June 2020 carries interest rates of 1.22% and 1.35%, is guaranteed by the U.S. Maritime Administration, and is secured by vessel mortgages and related assets.
- The company paid a $0.22-per-share second-quarter dividend and declared a $0.23-per-share dividend payable September 3, 2020.
- Management reported no material changes to previously disclosed legal proceedings, risk factors, contractual obligations or market-risk exposures. Environmental remediation and ordinary-course litigation remain contingencies, but management does not expect them to have a material effect.
Important facts for investors to verify
- Whether the third-quarter 2020 performance exceeded the company’s stated year-over-year expectations and whether CLX+ demand remained sustainable after peak season.
- The duration and economic impact of COVID-19 restrictions on Hawaii tourism, Alaska and Guam retail activity, and Logistics volumes.
- Revolving-credit availability, covenant compliance and refinancing needs as the June 29, 2022 facility maturity approaches.
- Future cash requirements for vessel construction, lease obligations, debt service and dividends relative to operating cash flow.
- Potential goodwill, intangible-asset or accounts-receivable credit-loss impacts if pandemic-related conditions worsen.
- The filing’s warning that interim results are not necessarily indicative of full-year results.