Matson, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, although fourth-quarter results are also disclosed. Matson operates through Ocean Transportation and Logistics segments, serving Hawaii, Alaska, Guam, China, Micronesia, Japan, the South Pacific and North American logistics markets.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total operating revenue | $2,383.3 million | $2,203.1 million | 8.2% |
| Operating income | $280.3 million | $129.1 million | 117.1% |
| Net income | $193.1 million | $82.7 million | 133.5% |
| Diluted EPS | $4.44 | $1.91 | 132.5% |
| Operating margin | 11.8% | 5.9% | Up approximately 5.9 points |
| Net margin | 8.1% | 3.8% | Up approximately 4.4 points |
| Cash flow from operations | $429.8 million | $248.8 million | 72.7% |
| Capital expenditures | $192.3 million | $310.3 million | Down $118.0 million |
| Total debt at year-end | $760.1 million | $958.4 million | Down $198.3 million |
| Cash and cash equivalents | $14.4 million | $21.2 million | Down $6.8 million |
| Unused revolver capacity | $570.1 million | Not clearly provided | Revolver matures June 29, 2022 |
Ocean Transportation revenue increased 11.2% to $1,853.9 million, while operating income increased 169.6% to $244.8 million. The segment margin expanded to 13.2% from 5.4%. Logistics revenue declined 1.3% to $529.4 million and operating income declined 7.3% to $35.5 million, with the margin decreasing to 6.7% from 7.1%.
Fourth-quarter 2020 revenue was $700.1 million, operating income was $117.7 million, net income was $85.6 million and diluted EPS was $1.96. Compared with fourth-quarter 2019, revenue increased from $540.7 million, operating income from $25.4 million, net income from $15.6 million and diluted EPS from $0.36.
Material Changes Versus the Prior Comparable Period
- The principal earnings driver was the China service. Full-year China container volume increased 85.8%, supported by the CLX+ service launched in May 2020 and increased CLX capacity.
- Matson launched the Alaska-Asia Express service in September 2020, using CLX+ vessels to transport seafood from Dutch Harbor to China.
- Ocean Transportation benefited from higher China freight revenue, increased SSAT terminal activity and lower vessel operating costs. SSAT contributed $26.3 million of income in 2020 versus $20.8 million in 2019.
- Hawaii container volume was broadly stable, but Hawaii automobile volume declined 25.9% and tourism remained materially below prior-year levels because of COVID-19.
- Alaska container volume increased 4.6%, while Guam volume decreased 2.6%. Logistics performance weakened primarily because of lower freight-forwarding contribution.
- Matson completed its $1.024 billion fleet renewal program, with the Matsonia entering active service in December 2020. The Sand Island, Honolulu terminal modernization first phase was also completed.
- Debt declined through $325.5 million of new Title XI financing, repayment of private debt and a $307.3 million net repayment under the revolving credit facility. The company remained in compliance with debt covenants at year-end.
- Quarterly dividends increased from $0.21 in the first quarter of 2019 to $0.23 in the fourth quarter of 2020. The board declared a $0.23 per-share dividend for the first quarter of 2021.
Liquidity, Debt and Commitments
Operating cash flow of $429.8 million exceeded capital expenditures of $192.3 million. Year-end cash, cash equivalents and restricted cash totaled $19.7 million, while accounts receivable were $253.4 million. The company reported a working-capital deficiency of $205.6 million, compared with $147.1 million in 2019, largely reflecting debt repayment timing and current liabilities.
Total contractual obligations were estimated at $1.496 billion, including $760.1 million of debt, $302.3 million of operating lease payments, $148.8 million of qualified pension obligations, $86.7 million of multi-employer withdrawal obligations and $69.1 million of vendor and other obligations. The company also had an estimated $260.0 million of multi-employer pension plan withdrawal exposure, which was not recorded because management does not intend to withdraw from those plans.
Guidance, Outlook, Risks and Unusual Items
- Management expected China demand, freight rates and e-commerce-related consumption to remain favorable in the first half of 2021, while acknowledging uncertainty as the pandemic and supply-demand conditions normalize.
- Tourism-related weakness was expected to continue affecting Hawaii and Guam. Alaska was expected to recover slowly but remain challenged by COVID-19 and low oil prices.
- Planned 2021 capital expenditures totaled approximately $160 million to $170 million, comprising maintenance, CLX+/AAX equipment, a new barge and scrubber installations. Management expected to fund these expenditures with operating cash flow and the revolver.
- Key risks include COVID-19 effects, port congestion and equipment shortages, fuel prices and IMO 2020 compliance costs, labor disruptions, weather and maritime accidents, cybersecurity, competition, changes to the Jones Act, environmental regulation and refinancing or covenant risk.
- There were no impairment charges for long-lived assets, goodwill or indefinite-lived intangible assets in 2020. Goodwill related to the Span Alaska reporting unit was a critical audit matter because of sensitivity to Alaska economic conditions, revenue forecasts and discount rates.
- The company adopted expected-credit-loss accounting and cloud-computing implementation-cost guidance in 2020; management stated that the credit-loss adoption was not material and capitalized $2.4 million of cloud-computing costs.
- Management and Deloitte & Touche concluded that the financial statements and internal control over financial reporting were effective, and the audit opinion was unqualified.
Important Facts for Investors to Verify
- Whether elevated China volumes and freight rates persist after pandemic-related supply-chain disruptions and consumer demand normalize.
- The sustainability of the unusually large 2020 Ocean Transportation margin expansion and the extent to which it reflects recurring versus temporary factors.
- Progress and total cost of the 2021 capital program, terminal modernization, scrubber installations and CLX+/AAX equipment deployment.
- Liquidity headroom, covenant compliance and refinancing plans before the June 2022 revolver maturity.
- Exposure to the $260.0 million estimated multi-employer pension withdrawal obligation and other long-term pension, lease and environmental liabilities.
- Potential effects of Jones Act changes, labor negotiations, COVID-19 resurgences, port congestion, fuel-price volatility and IMO 2020 compliance.
- The sensitivity of Span Alaska goodwill and other intangible assets to weaker Alaska economic conditions or lower future cash flows.