Matson, Inc. (“Matson” or the “Company”), a leading U.S. carrier in the Pacific, has reported net income of $7.3 million, or $0.17 per diluted share for the quarter ended December 31, 2013 which was negatively impacted by the Litigation Charge (as defined below) of $0.14 per share. Net income for the quarter ended December 31, 2012 was $15.6 million, or $0.36 per diluted share. Consolidated revenue for the fourth quarter 2013 was $410.9 million compared with $398.3 million reported for the fourth quarter 2012.
For the full year 2013, Matson reported net income of $53.7 million, or $1.25 per diluted share compared with $45.9 million, or $1.08 per diluted share in 2012. Full year 2013 results were also negatively impacted by the Litigation Charge of $0.14 per share. Consolidated revenue or the full year 2013 was $1,637.2 million, compared with $1,560.0 million in 2012.
Matt Cox, Matson’s President and Chief Executive Officer commented, “Excluding the litigation charge, our operating income results were in line with our outlook as we had another solid quarter of core operational performance driven by continued stability in our Ocean Transportation business and marked improvement in our Logistics unit warehouse operations. Unfortunately, our financial results were impacted by the litigation charge, which while a very difficult decision, was the most prudent path forward. For the full year, we achieved improved operating results, attributable to Hawaii freight volume growth in the first half of the year, continued strong demand for our expedited China service and improvements in Logistics operations. Cash generation continued to be strong, with $195.7 million of cash flow from operations and only $35.2 million of capital expenditures for the full year - the net of which produced free cash flow per share of $3.72.”
Cox continued, “Looking out to 2014, we expect Ocean Transportation operating income to be near or slightly above 2013 levels and Logistics operating income to show modest improvement. We expect our core businesses to continue to generate significant cash flow to support our dividend, fund construction of new vessels and pursue attractive growth opportunities. We remain focused on continued operational excellence, maintaining a strong, flexible balance sheet, and growing shareholder value through strong returns from the capital we put to use. We are ready for the year ahead.”
Fourth Quarter 2013 Discussion and 2014 Outlook
Ocean Transportation: Following year over year volume growth in the first half of 2013, Hawaii container volume contracted in the third and fourth quarters. Despite the lull in container volume that has continued into early 2014, the Company believes that the Hawaii economy is in a multi-year recovery and is anticipating modest market growth in the trade in 2014. Containership capacity is projected to increase in the second half of 2014 as a competitor is expected to launch an additional, new vessel into the trade. Overall, the Company anticipates a slight year over year increase in its Hawaii container volume for 2014.
In the China trade, freight rates eroded in the fourth quarter 2013, a reflection of the ongoing vessel overcapacity in the market and the international carriers’ inability to sustain general rate increases. In 2014, overcapacity is expected to continue, with vessel deliveries outpacing demand growth, leading to modest freight rate erosion. However, the Company expects its ships will remain at high utilization levels, and its service will continue to realize a premium to market rates for its expedited service in 2014.
In Guam, the Company’s container volume contracted in the fourth quarter due to general market conditions. Muted growth is expected in Guam for 2014 and therefore the Company expects its volume to be relatively flat compared to 2013, assuming no new competitors enter the market.
The Company plans to maintain its core nine-ship fleet deployment throughout 2014 for the trade lanes referenced above.
Additionally, in 2013 the Company incurred start-up costs and service reconfiguration expenses in the South Pacific trade. The Company expects performance improvement in the trade as these costs are not expected to recur in 2014.
The Company’s terminal operations joint venture, SSAT, had year over year improvement in operating results during the fourth quarter, primarily due to new customer activity and improved lift volume at its expanded Oakland terminal. The Company expects modest profit at SSAT for 2014.
In addition to its Ocean Transportation service lines, Matson incurred response costs, legal expenses and third party claims of $1.7 million and $3.0 million in the fourth quarter and second half of 2013, respectively, in connection with the molasses incident at Honolulu Harbor that occurred in September 2013. At this stage in the proceedings, the Company is not able to estimate the future costs, penalties, damages or expenses that it may incur related to the incident.
And, as referenced above, the Company accrued $9.95 million for a proposed litigation settlement in the case entitled United States of America, ex rel. Mario Rizzo v. Horizon Lines, LLC et al. (the “Litigation Charge”). The full settlement of all of plaintiff’s claims was reached at a non-binding mediation and was approved by the Company’s Board of Directors on February 23, 2014. The settlement is contingent upon approval of the United States government, and the dismissal of the case with prejudice by the District Court.
The Company’s outlook for 2014 excludes any future impact of the molasses incident and is being provided relative to the prior year’s operating income excluding the Litigation Charge. For the full year 2014, Ocean Transportation operating income is expected to be near or slightly above levels achieved in 2013 which was $104.3 million excluding the Litigation Charge. Operating income for the first quarter of 2014 is expected to be approximately one half the prior year’s level of $18.5 million due to the timing of fuel surcharge collections, lower Hawaii volume and lower China freight rates.