Matson, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Matson provides ocean transportation and logistics services through two reportable segments: Ocean Transportation and Logistics. Ocean Transportation serves Hawaii, Alaska, Guam, Micronesia, China, Okinawa, Japan and the South Pacific; Logistics provides transportation brokerage, freight forwarding, warehousing and supply-chain services. The filing covers the quarter and six months ended June 30, 2021, with MatNav reporting through June 25, 2021.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Operating revenue | $874.9 million | $524.1 million | $1,586.7 million | $1,038.0 million |
| Operating income | $213.9 million | $51.2 million | $334.1 million | $64.2 million |
| Net income | $162.5 million | $32.8 million | $249.7 million | $36.6 million |
| Diluted EPS | $3.71 | $0.76 | $5.70 | $0.85 |
| Operating cash flow | Not separately provided | Not separately provided | $238.8 million | $140.6 million |
- Q2 revenue increased 66.9%, operating income increased 317.8% and net income increased 395.4% year over year.
- Six-month revenue increased 52.9%, operating income increased 420.4% and net income increased 582.2%.
- Consolidated operating margin was approximately 24.4% in Q2 2021 versus 9.8% in Q2 2020, and approximately 21.1% for the first six months versus 6.2% in the prior-year period.
- Ocean Transportation Q2 operating income was $201.0 million, with a 29.4% margin, compared with $42.3 million and a 10.3% margin in Q2 2020. Six-month operating income was $315.1 million, with a 25.3% margin.
- Logistics Q2 operating income increased to $12.9 million from $8.9 million, while its margin declined to 6.7% from 7.9% due to revenue growth outpacing operating income growth. Six-month operating income was $19.0 million, with a 5.5% margin.
- SSAT equity income was $12.8 million in Q2 and $22.0 million for the six months, compared with $3.7 million and $7.7 million, respectively, in the prior-year periods.
Liquidity, Debt and Capital Allocation
- Net cash provided by operating activities was $238.8 million for the first six months, up $98.2 million year over year.
- Investing cash use was $99.6 million, including $101.3 million of other capital expenditures. There were no capitalized vessel construction expenditures because the fleet renewal program was completed in 2020.
- Financing cash use was $136.2 million, including $26.8 million of debt repayments, $20.2 million of dividends and $14.4 million of tax withholding on vested restricted stock units.
- Cash and cash equivalents were $17.4 million at June 30, 2021, and total cash, cash equivalents and restricted cash was $22.7 million. Accounts receivable was $313.6 million.
- Total debt declined to $661.5 million from $760.1 million at December 31, 2020. There were no borrowings under the revolving credit facility at June 30, 2021, and remaining availability was $641.9 million, subject to $8.1 million of outstanding letters of credit.
- Working capital remained negative at $(129.6) million, improving from $(205.6) million at year-end 2020. Management relies on operating cash flow and the revolving facility to manage working capital needs.
- The company paid a $0.23-per-share dividend in June and declared a $0.30-per-share dividend payable September 2, 2021. It also approved a repurchase program for up to 3.0 million shares from August 3, 2021 through August 2, 2024.
Material Changes Versus the Prior Comparable Period
- Ocean Transportation benefited from reopening-related demand in Hawaii, Alaska and Guam, substantially higher China volumes and increased capacity from the CLX+ service. China container volume increased 59.1% in Q2 and 110.2% for the six months.
- Q2 container volume increased 9.9% in Hawaii, 15.2% in Alaska, 35.7% in Guam and 33.3% in other markets; Hawaii automobile volume increased 54.9%.
- Ocean Transportation revenue increased 66.2% in Q2 and 53.2% for the six months. Higher contributions from China, Hawaii and SSAT were partly offset by higher vessel operating, terminal handling and depreciation costs.
- Logistics revenue increased 69.5% in Q2 and 51.7% for the six months, primarily from transportation brokerage, freight forwarding and supply-chain management.
- Interest expense declined to $5.5 million in Q2 and $12.8 million for the six months, reflecting lower average debt.
- The effective tax rate decreased to 22.6% in Q2 and 23.0% for the six months, versus 26.3% and 26.1%, respectively, primarily due to discrete adjustments related to foreign tax-loss valuation allowances and stock compensation.
Outlook, Risks and Unusual Items
- Management reported continuing transpacific supply-chain congestion, elevated consumption and strong demand. It expected these conditions to persist at least through Lunar New Year in the first quarter of 2022.
- Matson initiated the seasonal CCX service from China to the U.S. West Coast and expected its CLX, CLX+ and CCX services to operate at capacity at least through Lunar New Year 2022.
- Hawaii's recovery was described as cautiously optimistic, while recovery trajectories in Alaska and Guam remained uncertain because of tourism and broader economic conditions.
- On July 7, 2021, after quarter-end, a subsidiary paid approximately $95.8 million to terminate a bareboat charter and acquire the vessel Maunalei. The payment was funded with cash and revolving-credit borrowings, and the company was released from a related guaranty.
- The company identified COVID-19 duration and severity, demand and freight-rate normalization, supply-chain congestion, fuel and operating costs, economic recovery, and impairment assumptions as important uncertainties. No goodwill or intangible-asset impairment trigger was identified during the quarter.
- Management stated that environmental matters and ordinary-course legal proceedings were not expected to have a material effect. No material changes were reported to the risk factors in the 2020 Form 10-K.
- The company implemented financial modules of a new ERP system during the quarter. Disclosure controls were deemed effective, but management noted inherent implementation and monitoring risks.
Important Facts for Investors to Verify
- Whether exceptionally strong China/transpacific freight demand and rate premiums persist beyond Lunar New Year 2022.
- The cash-flow, leverage and capacity impact of the $95.8 million Maunalei charter termination and related revolving-credit borrowing.
- Whether higher vessel, terminal, fuel, labor and equipment costs pressure Ocean Transportation margins.
- Working-capital requirements, accounts-receivable collections and reliance on the revolving credit facility despite the improved liquidity position.
- Execution and internal-control monitoring associated with the new ERP implementation.
- Potential COVID-19-related impairment, environmental, legal and other contingent liabilities, none of which had a material recorded impact in this filing.