Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, for Alexander & Baldwin, Inc. (A&B). Although the request metadata referenced "Matson, Inc.," the filing is for the parent company, A&B, which operates in 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 2010 | Q1 2009 |
|---|---|---|
| Operating Revenue | $345.0 million | $315.3 million |
| Operating Income | $12.3 million | ($1.0) million |
| Net Income | $17.3 million | $3.0 million |
| Diluted EPS | $0.42 | $0.07 |
| Cash Flow from Operations | $5 million | $8 million |
| Total Debt | $504 million | $471 million (Dec 31, 2009) |
| Cash and Equivalents | $20 million | $16 million (Dec 31, 2009) |
| Working Capital | $40 million | $10 million (Dec 31, 2009) |
Segment Performance (Operating Profit):
- Ocean Transportation: $10.4 million (vs. loss of $0.5 million in Q1 2009).
- Logistics Services: $1.9 million (vs. $1.5 million in Q1 2009).
- Real Estate Leasing: $9.1 million (vs. $12.0 million in Q1 2009).
- Real Estate Sales: $21.4 million (vs. $5.6 million in Q1 2009).
- Agribusiness: Loss of $1.1 million (vs. loss of $1.9 million in Q1 2009).
Discontinued Operations: Contributed $13.2 million to net income, primarily driven by the sale of the Mililani Shopping Center.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 9% ($29.7 million) year-over-year, driven by a 14% increase in Ocean Transportation revenue and a 139% increase in Real Estate Sales revenue.
- Profitability Turnaround: Operating income swung from a $1.0 million loss in Q1 2009 to a $12.3 million profit in Q1 2010. This was largely due to the absence of a $6 million workforce reduction charge recorded in the prior year and improved volume in the China trade lane.
- Discontinued Operations Impact: Income from discontinued operations rose 86% to $13.2 million, significantly boosting net income compared to the prior year.
- Agribusiness Decline: Agribusiness revenue fell 20% due to the absence of bulk raw sugar sales as the 2010 harvest started later than planned.
- Debt Levels: Total debt increased to $504 million from $471 million at year-end 2009, primarily due to borrowings on revolving credit facilities.
Guidance, Outlook, and Risks
Management Outlook:
- Transportation: Matson expects stability in Hawaii trade volumes and rates. China trade volumes are projected to remain strong due to reduced capacity, though fuel price increases remain a risk. Guam volumes are expected to grow modestly later in 2010 due to military buildup.
- Real Estate: The outlook for development sales remains tempered with only nominal sales expected in 2010. The commercial leasing portfolio continues to face downward pressure on rents and renewal rates in the Mainland, while Hawaii occupancies remain strong at 94%.
- Agribusiness: Performance is expected to improve in 2010, with over 70% of the 2010 sugar crop forward-priced at favorable levels. The long-term focus is on converting the sugar plantation to an energy farm.
Key Risks and Contingencies:
- Water Rights Litigation: Critical rulings by the Hawaii Commission on Water Resource Management regarding water allocations for East and West Maui are expected by mid-2010. Adverse rulings could materially impact sugar-growing operations.
- Legal Investigations: Matson is cooperating with a Department of Justice investigation into pricing practices in domestic trades. The outcome and potential financial impact are currently unpredictable.
- Environmental Compliance: Costs associated with "cold ironing" (shore power) requirements for vessels at California ports are estimated at $13.7 million for vessel modifications, with additional infrastructure costs potentially falling on the company if ports do not provide them.
- Climate Change Legislation: Potential "cap and trade" systems could impose significant additional costs on energy and equipment.
Investor Verification Checklist
- Discontinued Operations: Verify the sustainability of the $13.2 million gain from discontinued operations, which was driven by the one-time sale of the Mililani Shopping Center.
- Water Rights Rulings: Monitor the mid-2010 decisions by the Hawaii Water Commission regarding East and West Maui water allocations, as these are existential risks to the Agribusiness segment.
- Real Estate Reinvestment: Track the reinvestment of the $86 million in tax-deferred proceeds from property sales to ensure they are deployed into assets with higher appreciation potential.
- DOJ Investigation: Watch for updates on the Department of Justice investigation into Matson's pricing practices, which could result in civil or criminal sanctions.
- China Trade Capacity: Assess whether competitors increase capacity in the China trade lane, which could erode the rate increases negotiated in April 2010.