Matson, Inc. 2022 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Matson provides ocean transportation and logistics services. Its Ocean Transportation segment serves Hawaii, Alaska, Guam, China, Micronesia, the South Pacific and other markets, and includes the company’s 35% equity investment in SSA Terminals, LLC (SSAT). Its Logistics segment provides transportation brokerage, freight forwarding, warehousing and supply-chain services.
The filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. MatNav and its subsidiaries used an April 1, 2022 period end. The financial statements are unaudited.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total operating revenue | $1,165.5 million | $711.8 million | +63.7% |
| Operating income | $432.6 million | $120.2 million | +259.9% |
| Operating margin | 37.1% | 16.9% | +20.2 percentage points |
| Income before taxes | $429.8 million | $114.3 million | +276.0% |
| Net income | $339.2 million | $87.2 million | +289.0% |
| Diluted earnings per share | $8.23 | $1.99 | +313.6% |
| Cash flow from operations | $273.9 million | $122.9 million | + $151.0 million |
- Ocean Transportation: Revenue was $943.9 million, up 68.4%. Operating income was $416.2 million, up 264.8%, and the operating margin increased to 44.1% from 20.4%.
- Logistics: Revenue was $221.6 million, up 46.5%. Operating income was $16.4 million, up 168.9%, and the operating margin increased to 7.4% from 4.0%.
- SSAT contribution: Equity income was $34.0 million versus $9.2 million, primarily due to higher other terminal revenue.
- Cash and liquidity: Cash and cash equivalents were $392.8 million at March 31, 2022, compared with $282.4 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $398.1 million.
- Working capital: The working-capital surplus was $264.6 million, compared with $92.1 million at December 31, 2021.
- Debt: Total debt was $614.7 million, down from $629.0 million at year-end 2021. The company had no revolving-credit borrowings and $642.0 million of remaining availability under its $650 million facility, which matures March 31, 2026.
- Capital allocation: The company repurchased approximately 681,400 shares for $68.6 million, paid $12.9 million in dividends and made $14.4 million of scheduled debt repayments.
- Cash investment: Investing cash outflows were $46.4 million, including $9.4 million of capitalized vessel construction expenditures and $37.4 million of other capital expenditures.
Material Changes Versus the Prior Comparable Period
- Ocean Transportation benefited from substantially higher China freight rates, increased China volume, higher fuel-related surcharge revenue, stronger Alaska volume and increased SSAT earnings.
- China container volume increased 13.4%, Alaska volume increased 20.2% and Guam volume increased 10.0%. Hawaii container volume declined 0.6%, while Hawaii automobile volume declined 19.6%.
- China revenue benefited from five more eastbound voyages and considerably higher average freight rates. Management stated that rates remained at a significant premium to the Shanghai Containerized Freight Index.
- Logistics results improved across all service categories, supported by elevated goods consumption, inventory restocking and favorable supply-and-demand conditions.
- Interest expense declined to $4.8 million from $7.3 million because of lower outstanding debt.
- The effective tax rate declined to 21.1% from 23.7%, partly due to a 2.6-percentage-point benefit from the foreign-derived intangible income deduction.
- Operating cash flow increased significantly, although accounts receivable, prepaid expenses, accounts payable and operating lease movements reduced the year-over-year increase.
Guidance, Outlook, Risks and Unusual Items
- Management was cautiously optimistic about continued economic recovery in Hawaii and Guam and improving economic trends in Alaska, while noting uncertainty around the recovery trajectory.
- For the China service, management expected elevated demand to continue through at least the October peak season and expected favorable supply-and-demand conditions to remain largely in place through most of 2022.
- Risks identified by management included COVID-19 variants, China supply-chain disruptions, U.S. West Coast congestion, inflation, higher interest rates, the loss of federal stimulus and potential pressure on discretionary income.
- The company reported no material changes to the risk factors in its 2021 Form 10-K or to its market-risk position.
- California’s Air Resources Board issued a Notice of Violation concerning alleged shore-power compliance failures by chartered vessels at the Port of Long Beach in 2020. Potential penalties for 2020 through 2022 could exceed $1 million in aggregate, but management does not expect them to be material.
- No goodwill or intangible-asset impairment triggering event was identified during the quarter, although future changes in market conditions, forecasts, discount rates or industry trends could result in a non-cash impairment charge.
- The filing states that there were no material changes to expected 2022 and 2023 capital expenditures or other material cash requirements compared with the 2021 Form 10-K.
- The board declared a $0.30 per-share dividend payable June 2, 2022. Approximately 2.8 million shares remained available for repurchase at March 31, 2022.
Important Facts for Investors to Verify
- Whether elevated China freight rates, demand and margins persist beyond the 2022 peak season.
- The sustainability of the unusually large year-over-year increase in Ocean Transportation operating income and the effect of fuel costs, surcharges and congestion.
- Future SSAT earnings and the timing and amount of any cash distributions from the joint venture.
- Actual capital expenditures, vessel-construction spending and debt maturities, including $50.6 million due during the remainder of 2022 and $60.4 million in 2023.
- The outcome and potential penalties associated with the CARB Notice of Violation and the company’s 2022 compliance plans.
- Exposure to COVID-19 disruptions, inflation, higher interest rates, changing tourism and discretionary spending, and China or U.S. port congestion.
- Whether share repurchases and dividends remain consistent with liquidity needs and planned capital investments.