Alexander & Baldwin, Inc. (including Matson) — Q1 2011 Form 10-Q Summary
Reporting period: Three months ended March 31, 2011; filed May 3, 2011. The supplied filing is for Alexander & Baldwin, Inc. (A&B), not Matson, Inc. Matson is a wholly owned subsidiary comprising the Ocean Transportation and Logistics Services segments. Financial statements are unaudited.
Business context
A&B operates in Transportation, Real Estate, and Agribusiness. Transportation includes Matson’s ocean shipping and logistics operations, including a 35% interest in SSAT terminal operations. Real Estate includes leasing and sales, while Agribusiness includes sugar, coffee, molasses, and related activities.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Operating revenue | $405.6 million | $343.1 million | +18% |
| Operating income | $2.7 million | $11.1 million | -76% |
| Income from continuing operations | $1.3 million | $3.2 million | -59% |
| Net income | $5.2 million | $17.3 million | -70% |
| Diluted EPS | $0.12 | $0.42 | -71% |
| Operating cash flow | $(11) million | $5 million | Declined $16 million |
| Capital expenditures | $15 million | $8 million | +$7 million |
| Total debt | $554 million | $522 million at Dec. 31, 2010 | +$32 million |
Operating margin declined to approximately 0.7% from 3.2%. Net margin declined to approximately 1.3% from 5.0%. The company paid a quarterly dividend of $0.315 per share, or approximately $13 million in total.
Cash and cash equivalents were $17 million at March 31, 2011, compared with $14 million at year-end 2010. Current assets were $283 million versus current liabilities of $383 million, producing a $100 million working-capital deficiency. Management attributed the deficit primarily to revolving debt classified as current because of a December 2011 maturity. Available capacity under credit facilities was $324 million.
Material changes versus the prior comparable period
- Ocean Transportation: Revenue increased 17% to $269.6 million, but operating results moved to a $7.4 million loss from a $10.4 million profit. Higher fuel prices, vessel charter costs, and operation of the second China service more than offset higher cargo volumes and yields.
- Hawaii container volume increased 8%, China container volume more than doubled, Hawaii automobile volume declined 18%, and Guam container volume declined 6%.
- Logistics Services: Revenue increased 18% to $91.3 million, while operating profit decreased 21% to $1.5 million. The prior-year period benefited from a large military project.
- Real Estate Leasing: Revenue increased 10% to $26.0 million and operating profit increased 16% to $10.6 million. Mainland occupancy improved, while Hawaii occupancy declined.
- Real Estate Sales: Revenue declined 61% to $23.4 million and operating profit declined 44% to $12.0 million, reflecting the episodic timing and mix of property sales. Q1 2010 included the sale of the Mililani Shopping Center.
- Agribusiness: Revenue increased 13% to $16.1 million; operating results improved to a $2.6 million profit from a $1.1 million loss, mainly due to higher molasses margins and the absence of a prior-year coffee inventory adjustment.
- Discontinued operations: Net income declined to $3.9 million from $14.1 million, primarily because Q1 2010 included significant property-sale gains.
- In March 2011, A&B sold coffee inventory and related assets for approximately $14 million and leased the related land to Massimo Zanetti Beverage USA. No material gain or loss was recognized, and A&B will no longer operate the coffee plantation.
Guidance, outlook, risks, and unusual items
- Management assumed a slow U.S. recovery, modest Hawaii growth, and continued recovery in visitor activity. The March 2011 Japanese earthquake and related events were expected to reduce Japanese visitation temporarily.
- Ocean Transportation’s 2011 outlook was moderated. Management expected operating profit to approximate 2010 levels because of sharply higher fuel prices and a challenging transpacific freight environment.
- Logistics Services was expected to show modest improvement; Real Estate Leasing was also expected to improve overall despite possible softening in Hawaii occupancy and rents. Real estate sales remained difficult to forecast because of their opportunistic and episodic nature.
- Agribusiness was expected to remain profitable, supported by higher sugar production and sugar prices locked in for approximately 85% of the expected crop.
- Management expected to renew or refinance revolving debt by the end of Q3 2011, but stated that continued cash generation and access to credit facilities were not assured.
- Material contingencies included East and West Maui water-rights proceedings, which could suppress future sugar yields; a Department of Justice investigation into domestic water-carriage pricing and competitive practices; an antitrust appeal involving Matson; and an EEOC lawsuit involving McBryde Resources.
- New EPA boiler-emission standards could require changes at Hawaiian Commercial & Sugar Company by early 2014. The financial impact was not yet determinable because the rules were subject to reconsideration.
- 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 fund these commitments under current circumstances.
- Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: the filing is A&B’s 10-Q, with Matson reported as a subsidiary, rather than a standalone Matson filing.
- Review the causes and sustainability of the Ocean Transportation loss, particularly fuel costs, the second China string, freight rates, and volume trends.
- Verify the planned renewal or refinancing of revolving debt maturing in December 2011 and the company’s available borrowing capacity.
- Assess the effect of discontinued real estate operations and episodic property sales on year-over-year comparability.
- Monitor Maui water-rights proceedings, EPA boiler requirements, antitrust and DOJ matters, and the EEOC litigation for potential operational or financial effects.
- Evaluate operating cash-flow weakness, increased debt, capital expenditures, and dividend coverage in light of the working-capital deficiency.