Yahoo Finance Matson, Inc. (NYSE:MATX) Q1 2024 Earnings Call Transcript
Matson, Inc. (NYSE:MATX) Q1 2024 Earnings Call Transcript April 30, 2024
Matson, Inc. beats earnings expectations. Reported EPS is $1.04, expectations were $0.99. Matson, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the Matson’s First Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Justin Schoenberg, Director of Investor Relations. Please go ahead.
Justin Schoenberg: Thanks, Liz [ph]. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call.
These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 13 to 25 of our Form 10-K filed on February 23, 2024, and in our subsequent filings with the SEC. Please also note that the date of this conference call is April 30, 2024, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.
Matt Cox: Okay. Thanks, Justin, and thanks to those on the call. I’ll start on Slide 3. Matson is off to a solid start for the year with Ocean Transportation performing better than expected and Logistics meeting our expectations for the first quarter of 2024. In Ocean Transportation, operating income was roughly flat year-over-year reflecting an improvement over our outlook provided in late February. Our China service experienced healthy demand coming out of a more traditional post-Lunar New Year period with higher year-over-year freight rates but with lower year-over-year volume. We have lower year-over-year volumes in Hawaii and Alaska. And in Guam, the volume was flat year-over-year. In Logistics, operating income declined year-over-year due to continued market softness in transportation brokerage.
As a result of the performance in the first quarter, and expected improving demand for our CLX and MAX services, we are raising our full year outlook. For 2024, we now expect consolidated operating income to be modestly higher than the $342.8 million achieved in 2023, with a higher contribution from Ocean Transportation than in our previous outlook from February. Joel will go into more detail on our updated outlook later in the presentation. I will now go through the first quarter performance of our trade lanes, SSAT and Logistics; so please turn to the next slide. Hawaii container volume for the first quarter decreased 1.7% year-over-year due to lower general demand. Tourist arrivals in the first quarter were comparable year-over-year despite the continued impact to Maui tourism from last year’s wildfires.
For the full year 2024, we expect volume to approach the level achieved last year. Please turn to Slide 5. According to UHERO’s first quarter 2024 Economic Report, the Hawaii economy is projected to grow modestly in 2024 underpinned by low unemployment rate and increasing construction activity. Construction jobs are projected to increase due to large federal and state contracts, and homebuilding on Oahu [ph]. Tourism is projected to increase modestly as the industry continues to recover from the Maui wildfires last year, and the gradual return of international visitors. While UHERO projects modest economic growth in 2024, our outlook is a little more cautious reflecting feedback from our retail related customers that saw tepid demand for consumer goods in the first quarter and expect to see this sluggish environment continue in the near term.
Moving to our China service on Slide 6; Matson’s volume in the first quarter of 2024 was 4% lower year-over-year, with lower volume for both CLX and MAX. We achieved average freight rates that were higher year-over-year. Please turn Slide 7. Our China service experience healthy demand coming out of a more traditional post-Lunar New Year period, with a gradual recovery of volume after factories reopened, and workers return compared to a more accelerated increase in volume experienced post-Lunar New Year last year. The ramp in volume in the post-Lunar New Year period met our expectations but our freight rates in the post-Lunar New Year period were higher than we expected. Currently in the TransPacific marketplace, we continue to see steady US consumer demand.
For 2024, we expect improving demand for CLX and MAX services in 2024 as compared to 2023. We also expect average freight rates to be higher than the 2023 levels. We're in a good position with CLX and MAX, and our primary focus with these two service is to consistently demonstrate the speed and reliability that our customers have enjoyed. Please turn to the next slide. In Guam, Matson’s container volume in the first quarter of 2024 was flat year-over-year. In the near term, we expect continued improvement in the Guam economy with low unemployment rate and a modest increase in tourism. For 2024, we expect container volume to approximate the level achieved last year. Please turn to the next slide. In Alaska, Matson’s container volume for the first quarter 2024 decreased 5.1% year-over-year, primarily due to one less northbound sailing compared to last year.
Adjusting for one less sailing, North-bound volume was roughly flat, and overall Alaska volume decreased 1.7%. In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, jobs growth and a lower level of inflation. For 2024, we expect Alaska volume to approximate the level achieved last year. Please turn to Slide 10. Our terminal joint venture, SSAT, increased $2.2 million year-over-year to $0.4 million. The higher contribution was primarily due to higher lift volumes. In 2024, we expect the contribution from SSAT to be higher than 2023 due to an expected increase in lift volumes. Turning now to slide to Logistics on Slide 11. Operating income in the first quarter came in at $9.3 million, or approximately $1.6 million lower than the result in the year ago period.
The decrease was primarily due to lower contribution from transportation brokerage. For 2024, we expect challenging business conditions for the transportation brokerage to continue and as such, we expect operating income to be lower than the level achieved in 2023. I will now turn the call over to my partner Joel for a review of our financial performance. Joel?
Joel Wine: Okay. Thanks, Matt. Now on to our financial results on Slide 12. For the first quarter, consolidated operating income decreased $1.8 million year-over-year to $36.9 million with Ocean Transportation declining $0.2 million, and Logistics declining $1.6 million. Ocean Transportation operating income in the first quarter experienced higher vessel operating costs, including fuel related expenses and the timing of fuel related surcharge collections, partially offset by higher freight rates in China. As Matt noted, the decrease in Logistics operating income was primarily due to a lower contribution from transportation brokerage. We had an interest income of $8.8 million in the quarter, an increase of $0.6 million year-over-year due to higher interest rates on our cash and cash equivalents and CCF cash deposits and investments in fixed rates and fixed rate US Treasuries.
Interest expense in the quarter decreased $2.3 million year-over-year due to the decline in outstanding debt in the past year. Net income increased 6.2% year-over-year, and diluted earnings per share increased 10.6% year-over-year with a difference between the two due to a 4.7% increase or decrease [ph] in the diluted weighted average shares outstanding. Please turn to Slide 13. This slide shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of approximately $450.4 million, from which we used $46.2 million to retire debt, $214.2 million on maintenance and other CapEx, $53.6 million on new vessel CapEx including capitalized interest and owners items offset by $20.9 million withdrawn from our capital construction fund, $14.2 million on other cash outflows while returning approximately $207.3 million to shareholders via dividends and share repurchase.
Please turn to Slide 14 for a summary of our share repurchase program and balance sheet. During the first quarter, we repurchased approximately 4.4 million shares for a total cost of $48.9 million including taxes. Since we initiated our share repurchase program in August of 2021 through March of this year, we have repurchased approximately 10 million shares or 23% of our stock for a total cost of approximately $804 million. As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities. Turning to our debt levels; our total debt at the end of the first quarter was $430.5 million, a reduction of $10.1 million from the end of the fourth quarter.
Last on April 19, 2024, Matson received a federal tax refund related to the company's 2021 federal tax return of $118.6 million, as well as $10.2 million in interest income earned on the tax refund. The tax refund was placed into cash and cash equivalents and is expected to be used for general corporate purposes. With that, let me now turn to Slide 15 and walk through our outlook for the full year and the second quarter of 2024. For the full year 2024, we expect year-over-year growth in Ocean Transportation operating income and for it to be higher than the outlook from the February earnings call based on the performance of Ocean Transportation in the first quarter, and expected improving demand for the CLX and MAX services. After a significant change in the trajectory of the US economy, we expect trade demand dynamics across most of our trade lanes in 2024 to be comparable to 2023 as consumer related spending is expected to remain largely stable.
For Logistics, we expect challenging business conditions for transportation brokerage, which we expect to lead to lower year-over-year business segment operating income. As a result, we now expect consolidated operating income to be modestly higher than the level achieved in the prior year with quarterly seasonality patterns similar to 2023. In addition to this full year operating income outlook we expect the following for the full year; depreciation and amortization to be approximately $180 million, inclusive of $27 million for drydock amortization. Interest income to be approximately $45 million and interest expense to be approximately $8 million. Other income to be approximately $7 million, and effective tax rate of approximately 22% and drydocking payments of approximately $35 million.
The interest income outlook we are providing is based on current CCF deposits, and cash and cash equivalents invested at current short-term government money market rates, as well as the CCF fixed rate portfolio yielding 4.53%. This outlook includes the $10.2 million and the interest income received on April 19, 2024 with respect to our federal tax refund. For the second quarter of 2024, we expect Ocean Transportation operating income to be moderately higher than the $82.4 million achieved in the second quarter of 2023 and Logistics operating income to be lower than the $14.3 million achieved in the second quarter of 2023. As such, we expect consolidated operating income in the second quarter to be modestly higher than the prior year. We expect interest income to be approximately $18 million, including $10.2 million of interest earned on our 2021 federal tax return that I mentioned before.
Moving to Slide 16; the table on the slide shows the CapEx projection for 2024 to 2026. This outlook remains unchanged from what we provided on our fourth quarter call in February. Again, milestone payments for new vessel construction are expected to be paid from the Capital Construction Fund, which already covers two-thirds of the remaining obligations. I will now turn the call back over to Matt.
Matt Cox: Okay, thanks Joel. Matson had a solid start to the year. We have a great balance sheet and are well funded on our Aloha Class legal [ph] program as Joel just described. We are positioned well in all of our markets to capitalize on opportunities as they arise. So far, 2024 is shaping up to be another good year for Matson. And with that, I will turn the call back to the operator and ask for your questions.
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