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American ShipperCompany earningsContainerFinanceMaritimeNewsOcean shippingShipping

Matson lowers 2019 EBITDA projection by $18 million

Largest U.S. domestic carrier cites weakness in the Hawaii trade, terminal operating costs.

Matson, the largest U.S. domestic container carrier, said it is lowering its operating income projection for 2019.

Matson operates liner services to Hawaii, Alaska, Guam and other islands in the Pacific Ocean as well as an express container service from China to the U.S. West Coast. It also has a logistics business.

Matt Cox, the company’s chairman and chief executive officer, said the company “expects net income in 2019 to decline year-over-year, and we are lowering our outlook for EBITDA in 2019 by approximately $18 million as a result of continued weakness in the Hawaii trade lane and the unexpected higher operating costs at SSAT in the second quarter.” SSAT is the company’s container terminal joint venture on the West Coast.

In the second quarter ending June 30, net income was $18.4 million or 43 cents per share, compared to $32.6 million or 76 cents per share in the second quarter of 2018. Operating income was $31 million in the second quarter this year, compared to $46 million in the second quarter of 2018.

Total operating revenue in the second quarter of 2019 was $557.9 million, about the same as the $557.1 million recorded in the second quarter of 2018. 

Cox said while the companys ocean transportation performed below expectations, the logistics business did better than expected..

The company now expects operating income for the ocean transportation segment for all of 2019 will be approximately 20% lower than the $131.1 million achieved in 2018 after adjusting the 2018 result for full year impact of a vessel sale-leaseback. However, in its logistics business, it expects operating income in 2019 will be 10 to 15% higher than the 2018 level of $32.7 million. 

Operating revenue in the ocean transportation segment was $415.4 million in the second quarter, up 2.2% from $406.6 million in the second quarter of 2018. The company said, “The increase was primarily due to higher freight revenue in Alaska, higher fuel surcharge revenue and higher average rates in China, partially offset by lower container volume in Hawaii.”

However, operating income in the ocean segment was $19.7 million, a 46% drop from the second quarter of 2018. Matson said the decrease in operating income “was primarily due to higher vessel operating costs (including MV Maunalei lease expense), a lower contribution from SSAT, higher terminal handling costs and lower volume in Hawaii, partially offset by a higher contribution from the Alaska service and higher average rates in China. The company’s SSAT terminal joint venture investment contributed $0.9 million during the three months ended June 30, 2019, compared to a contribution of $9.1 million during the three months ended June 30, 2018.”

Matson has been renewing its fleet. Two ships, the Daniel K. Inouye and the Kaimana Hila have entered into service in the past year. With capacity of 3,600 TEU each, they are the largest in the Matson fleet. With demand weak in the Hawaii trade, Matson has redeployed the Kaimana Hila into its CLX string that calls not only Hawaii, but also Guam and China as. It may do the same with the Daniel K. Inouye. Cox explains this has the benefit of increasing capacity in the CLX string at a time when some of the ships in that service are going into dry dock to have scrubbers installed. He also notes that it increases capacity on its express service from China, which he says does well at times of uncertainty.

Matson also has two additional ships under construction at the General Dynamics NASSCO shipyard in San Diego and plans this fall when the first of those ships comes into service to shift from a 10-ship to a nine-ship deployment for its services to Hawaii. Cox said this will lead to a $30 million annual financial benefit initially and eventually a $40 million benefit.

Operating revenue in its logistics segment was $142.5 million in the second quarter, 5.3% less than the $150.5 million in the second quarter of 2018. The decrease was “primarily due to lower transportation brokerage revenue, partially offset by higher freight forwarding revenue,” Matson said.

Operating income in the logistics segment was up 18.9% year-over-year to $11.3 million in the second quarter of 2019, compared to $9.5 million in the second quarter of 2018.

Cox said, “Within logistics, we continue to expect solid performance in the second half of the year.”

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Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.

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