Matson (MATX) 1 May 182018 Q1 Earnings call transcript

Good day, ladies and gentlemen, and welcome to the Matson First Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference Mr. Lee Fishman.

You may begin, Sir.

Kevin. you, Thank

available the Chief on President are Cox, tab. presentation Matt Chief www.matson.com, our Joining the under Officer; call and and Investors are this from Executive Officer. Vice download Joel Chairman at Financial website, me Slides today for Wine, and Senior

fully of today of any forward-looking make on These now will risk or Before are expectations, the XXXX, XX-K over that this Matt. differ XX X, in caution will assumptions events. the on that the call no press and to filings statements our under this date We make future the you we within caption Please like risk reasonable. those are predictions, detailed to We with release February the federal call. of presentation our course from the you date. on cause I to and forward-looking filed our based forward-looking remind would of Factors to call factors assumptions consider results securities are the we the forward-looking that conference statements. I in regarding laws Risk this in the and release, undertake projections begin, statements meaning that factors and believe is to as described of during obligation this these call, May that actual XXXX, We statements we SEC. in XX, could slides materially conference update are turn our expectations press the note the and subsequent to XX XXXX more also pages Form

surcharge from collections. X ahead costs, turn opening volume and those call. in our and Please were primarily contributions favorable Offsetting for performing expectations. Matson with Transportation’s volume fuel lower segments operating lower a our contribution these both and on had from of was thanks in improvement due to a the Guam. to Thanks, vessel quarter good contribution timing my Ocean year-over-year lower service Alaska of Lee, positive to operating higher remarks. the China SSAT, higher a Slide

Our net EBITDA last quarter, $XX.X in $X.XX with in performance of of of million In million earned per year-ago improved $X.XX year. generated we versus million $XX.X segment the the almost $X of its service $XX.X income the share per or lines. first or logistics saw period. share in quarter million quarter the We in compared all

vessel the our front, remains track. On operational new on build program

in expect Inouye in are the the be to and remaining the third K. Daniel service to progressing quarter continue newbuilds We well. three

higher to achieved segments modestly Moving in performance XXXX. the for be for quarter, consolidated the we're year. operating the our expect in income operating Based both to on of XXXX. raising on outlook now first the the We level outlook than

We expect other offset coming continued China pressure off Guam our an businesses. face in year, lower in in strong modest to improvements competitive volume by and exceptionally core modestly

logistics operating the on approach the presentation. level and into to financials moderately and the will Joel quarter For Transportation income the XXXX, level we go achieved income outlook Ocean in more second the last prior-year expect than achieved period. in the operating be later detail higher in second the to And, year quarter

Now we'll move trade-lane on to services. our

X.X% anomaly as volume not in which market modest volume share, an declined in our year-over-year. Turning decline we uptick The was service primarily to due eastbound Hawaii or Slide container economic and trend. Despite to and Hawaii a view conditions a return our X. lower on volume, stable

into We that the second also sailing the a quarter had the westbound of at pushed first quarter. end was

to on if modestly year-over-year increased activity progresses. were condo Oahu included. as the in the relatively in have this developments year-over-year was quarter transition would flat volumes construction communities service sailing Construction master-planned from westbound core large Our related

we feel our we flattened core flat-to-modest expectations volume XXXX westbound where is volume with So, see has out, which total the for growth. consistent market

expectation growth volume the some forecast breaking and we reflect forecast, near on provides XXXX towards Hawaii respect pickup versus construction in term. largely the a trend and we data projects our beyond. ground. GDP conditions. Hawaii industry, economic discretionary view by the by conversations expects meaningful effects forecast volumes by is are economic continue relatively global in in UHERO driven key According supported short-term in X strength the foresee UHERO's Based Tax the term. well which completion and growth, economic to is for don't working metrics also developers, offset to a overview cautious trend favorable XXXX, of flattened growth Our related spending construction on indicators economic pickup Cuts low share an and latest an including continued in and view of related environment. but in stable Slide XXXX flattish a market the prior of activity to unemployment. take as by inflation construction new in growth recent Federal real low construction in tourism economic the suggest improvement on With The medium with activities activity projects in the activity maintain UHERO any

the April was Slide the XXXX to China two Nearly decline in of our XX.X% Service We due quarter period. a year-ago was quarter. voyage Matson's Moving a year-over-year. first fewer sailing return quarter the that into two the pushed was dry-dock on XXXX in at on first the X. lower end in of sailings thirds to and the volume was there had of

XXXX. versus in Year SCFI experienced a trend quarter, the rate we period the downward quarter during during the average higher saw quarterly eastbound versus the last. first also We volume this year New lower the Despite Lunar

that the season, expect For level we transpacific of highly with backdrop, rate freight achieved to renewals we expedited relatively Despite as which differentiated negative contract with effect the demand lower is expected. an remain return service concluded for largely demand, pricing XXXX, exceptional view the this expected achieved excess favorable modestly the which the of in approximates for lead for we be increase XXXX. SCFI. level annual to the expect capacity we in likely in in the last softness includes strong average to is macro Volume year, comparison to than we volume due to voyage dry-dock recently XXXX XXXX. This Matson's the

note We the could demands. expect rest China trade States. arise United inventory CLECs account full of does be for also supply year outlook from that service risks sensitive for to uncertainties time fulfill a like not the our our to vessels and chains any for up and as the that seasonal ramp between China I to war the

are would respect with implemented trade SSAT, extent, the the two for that apply you, the we outlook in a direct To trade to cautionary Just countries. note flow between by policies country. mode wait-and-see given lesser it's to this also like either the a to formally are ties

Slide to X. Turning

the Guam As essentially quarter year-over-year Matson's primarily due The losses in volume container competitive market expected, first flat X.X% was further to APL. year-over-year. declined overall to

is XXXX to business. container continue every to in fight single retain to of strategy Our our customer’s

long and outsized dramatically our expect the performance of a share strong record, retain times ties, superior transit market. of customer Given an Guam, on-time we better the to history in service

period attributable X. XXXX TOTE pushed and its to XX.X% of first In from the volume into Slide in volume quarter Matson's primarily quarter dry-dock one due year-over-year put was vessels for higher to fourth is Alaska, of northbound from Moving volume quarter first and that now container sailing a a increased of primarily to volume the that XXXX that the XXXX.

to modest occurred. recession saw adjusting We're that Excluding in a extra beginning we the the beginning stabilize first has sailing economy to the but XXXX. quarter, await bottom and further the data that signs the increase quarter some TOTE see for volume Alaska's compared confirm is volume in in to of

seafood-related we moderation be in modestly very seafood the volume to offset improvement level the by levels volume partially XXXX. in expect lower XXXX, northbound to due For a to in strong than be higher from with harvest volume XXXX achieved southbound

one-time million Long of to year-over-year Pier the partnership due in in new items. was to effect a to $X.X one-time was volume of SSA the to first Nearly Turning next the remainder sole SSAT Terminals compared the lift as X, attributable The period. in with half $XX.X reflect dissolution our of higher venture to XXXX terminal to involving in Slide quarter are increase SSA to the related created partnership The contributed the items change majority prior-year A the million with owner. Beach. ownership dissolution of the joint

the contribution in the Given the quarter in higher our level the XXXX, Ocean income now to XXXX better-than-expected beneficial performance SSAT's be of expect to Transportation items one-time we operating than XXXX. and in achieved first

are SSAT to flows global new the the and West terminals. Coast from expect continue of to shipping container as alliances chains benefit launch between adjusted supply We

of as in prior greater lines. income Operating in ahead XX. Logistics $X.X XXXX million our $X.X to in million performance was of expectations all the period. first now on improved contribution well result a of service came Turning saw across Slide almost the We quarter the year than

business to Alaska strength as to Span Our early relative plays Matson service. period showed market, Alaska performed customer the Logistics’ the shows brokerage well-documented of signs improvement economy the well, due trucking which stabilizing. tightness primarily in transportation the And to in meaningful prior-year

Logistics XXXX, in quarter Logistics performance the moderately income increase operating quarter, XXXX. in the achieved for for the XXXX outlook And $XX.X of expect our in Given million first the to of raising from higher we're over second XXXX. level Joel? our call achieved I and moderately operating income than outlook. our Joel quarter And be performance will now a to to the second in for the review of turn the we

Thanks, Matt.

versus a volume. Logistics financial of million higher for on $XX.X venture and in year-over-year quarter of million. Transportation to depreciation primarily The increased favorable due reduction with the volume year-over-year a quarter due volume The first freight million brokerage increase by $X.X year-over-year Ocean of increased nearly China, increased consolidated lower by Partially Turning company's prior-year improved and and year-over-year income the collections, SSAT The increase and increase terminal quarter operating EBITDA was income attributable million, and results surcharge these one-time meaningfully from contribution higher costs, period. million in operating of lower equally and higher operating were partially million for to favorable the from to in timing in joint income contribution lower to million favorable highway revenue was in at to $X.X Slide was increase dry-docking $XX.X our million due operating Guam amortization higher vessel $X.X primarily higher the Alaska million $X.X fuel income SSAT amortization. higher lift to handling to XX. items. $X.X contributions offset quarter million in offsetting the comparisons for the $XX.X other costs. $X.X $X.X including a forwarding.

higher was than Tax and share wanted moving in due noncash have Before effective quarter refunds reductions item, in tax receivable on the tax tax resulting I one-time million Act reduced guidance on, in to to Adjusting expected $X.XX. a a in the expected $X.X earnings quarter minute legislation. of AMT This XX.X%. this it Cuts from per tax other regarding the for rate period the adjustment Jobs spend under March rate tax released late diluted item would the expense for and effective the by been as

flow our $XXX.X a shows on allocated sheet, of the summary Slide times million in $XXX.X total will note was based at was of cash and Turning quarter LTM X.X we of summary a ratio to the million. which net Slide our debt our XX manner XX our debt-to-LTM that EBITDA of the for generation. end you EBITDA balance

capitalized For to of $X.X and from the $XXX $XXX.X interest $XX.X the expenditures, and net flow million including million, items million cash owners other also shareholders capital million on generated operations undertook LTM new via and from flow million items share million from $XX.X we million withdrew while $XXX.X dividends borrowings capital maintenance vessel fund on $XX.X returning and on which repurchases. used CapEx we of period, construction cash

to to we to financing strong our balance ample as consider expect renewal access vessel healthy attractive While shareholders. progresses, sources Hawaii program capacity growth new fund investments operating capital continued leverage sheet, return provide to increase and construction, cash our fleet and flows

a of vessel review to XX Slide our Turning payments. for new

$XX.X had of expenditures For Kaimana percent million capital new the new million. $X.X cash capitalized of The vessels on interest capitalized on quarter, of complete The vessel the Hila chart million $XX for four of as is – of currently the is we as completion is the complete. graving and of end noted and Daniel the today first quarter-end, in as Inouye the XX% of updated the expenditures total vessel of dock Slide. XX% construction K. in is and an

NASSCO as on are yard vessels Class Kanaloa in the of cut on just the two stages the ago shifts, early Matsonia San of see, a in the month can April X you the about second the As construction at steel first the Diego.

recently which The change we year payments payment you is of based milestone report million. moved the items and are XXXX, schedules we at and into progress showed presentation, owners’ full recent have of call last of vessel result from was In the the we and end approximately new new activity reflect to early the construction from $XXX the we magnitude regarding upon progress timing vessel to subject information milestone payment shipyards, million, For quarterly of the that the interest. excludes $XXX XXXX. of earnings XXXX most payments XXXX The estimate that our capitalized payments material difference yard. for estimated

With the in to let capitalized XX discuss to project outlook. currently on million. we first outlook the be raised both now Slide operating we the me good rates, performance year to full turn call, interest noted quarter, $XX current we on our that, our outlook. based of have interest positive approximately Based in segments Lastly, have and XXXX this on full trends year

the Ocean now to higher the operating achieved in to modestly operating Logistics income in than XXXX expect to increase and XXXX. income million Transportation compared million $XXX.X For we moderately year, $XX.X the be

is depreciation expect expects in amortization million, interest inclusive year, tax $XX remaining to we of the to $XXX an which approximately the million The to be P&L effective for in approximately three approximately the rate XX%. We million and $XX expect lastly dry-docking quarters expense of approximately and decline amortization. company of

to Transportation second quarter expect the Ocean moderately in than higher the to quarter income we be level for For achieved And level period. income XXXX, logistics, we approach operating of the last in year. the the the year-ago expect achieved second operating

fuel on in XXXX, collections XXXX on the the in earnings we in related call had surcharge period. strong that relatively fourth to seasonality impacts we third surcharge our the We February, want quarters. commented prior-year last collections the in Lastly, in fuel expected to reiterate and

consider the call in So the to his the should XXXX Matt fuel this year-over-year I comparisons timing turn now final periods. will of prior-year the in back remarks. for second half surcharge over collections of

Joel. Thanks

vessel pleased intensely managing and and as selective flow of with Without progress logistics be to of benefits off continue this new your turn geographically program and the the for to will transportation on that, financial efforts Island start. built busy call our be Sand with set cash organically through We will acquisitions. I near diverse think good I the on to and and We point expand a operationally and a ask a for services, investments crane year. result of the we a doubt, back Operator? remain operator focused we're a us our questions. XXXX leverage from And midway generation to our year

[Operator Instructions] Our Atkins from with first Jack Stephens. question comes

your for could of as on those Andrew mentioned Hoping in actually in from I during contractual expected. a the little Congrats comments provide CLX came Matt, prepared is quarter with. there This you guys. start think Jack. the to maybe from perspective? it rates you rates maybe business, direction a color bit a year-over-year and on Hi, good that

I Yes, comment on quarter. thanks and Andrew, the can. for the

you know cycle from the formal As period. see today to – is end contract to X May contract the X, XX April really of so May runs

XXX have We contracts. about

year-over-year. understanding is the an that finished in of we're signed increase with flat contracts are it the either contracts will actual an is expect and that the reduction we that number year-over-year. two seeing but with and each show saw of where is no increase or And either of modest contract one but what cases we've sign the that all market we're have We the a to a way that extension

in so was came we And we my said came comments about us. and that that – what exactly in as I where expected about expected for it

that's so positive. And

significant but expect like will set We some of SCFI its the it to is I own last just course – lower, traditional two. in while as look has that quite note continue the in taken very market think of sort of increase – go to market year. year, dynamics and we increases was spot week every different heads a the spot we or the

that peak hopeful spot on market through side, the more we're market and at will into so least season. between now And turn a traditional, the

and those our about are those So for expectations again, our embedded are outlook thoughts in operating income the our year.

well-documented the pretty of with go able get in thanks your in right costs guess that. to U.S. Or given for the cost said transportation that of you follow-up inland kind it's in impact Should your higher for think does your I ability Okay, price And push you up some to contracts? are that just How high now. does price? you customers? allow U.S.? I that through just here transportation push to customers, you a those to to that costs, Are that,

Yes. each costs increasing The increases allowances and delivery very dynamics are little as a market allowances. of we are but our mindful I can transportation that that are contracts trucking and we sure making inland inland in in the include say different

do not other likes any pricing. to would market. we the Matson the disruption market in say a that in generally from in in that Andrew, note So when And expect increases erosion do Matson a tends is margin there to I make is our well

our the allows relationships So that own have we the containers, shine disruptions with terminal might control own and others shortages. long-term and we assets Matson that operating own fact significant have both our providers trucking chassis our own we very that when fleet, to fact over

to just highly service this differentiated credence it So to lend continues product.

turn on I'll you the high will what kind out? do I reasons, to several say you a quarters do level Or we of I it just where Got market share we're in But that. And go reach to begin you to kind one that a market point have a for share on limited In now. guys it. think can that. over. you're or for point? understand settle wise, been competitive and for Guam, battle guess more Thanks way have should there before nearing we still And

fight to stops when to continue great an until kind in is really it to exactly we're I a occurs competitor. question. continues It's main It's we'll like axe that that it mean and Yes. our feel hard know, up of and

a to with is and both continue them the leader. will leave advantage long-term role dug market we're to as but this service market here So for and for to retain in that I answer us other important the

Got you. Thanks for the guys. time,

Okay, Andrew. Thanks.

question next Ben Nolan from comes Stifel. with Our

thanks. Matt Hey, Yes, and Joel.

Hi Ben.

I So well. obviously, Logistics, things handful moving questions. have are pretty a of along On

expecting quarter, to than be were to the the numbers guided quarter for You’d of year. the little second in second better a they last

that I of this guys is But particular. previous already over is represents how improvement there you quarter. pretty a that? play assume Is seasonality Although does the in what that shifts? the seasonal did Alaska with just Span some difference, role – in there a much strong preponderance

I think seeing things. you're two I mean Yes.

you is big middle which the in the with year. think our majority the season, said the is done during are bolt-on it Alaska I business the of business two the Span of quarters construction Logistics right summer difference that's Ben, of the

the and thing. that logistics where but A increase providers made rail the we we're have things margins to look some are different earn move on to see there in their same of their is market truck an lot and opportunity this market, So are of too we're and return the the taking been that and books repricing business thin shortages. a done to feel in we've of at adequate like fact look just – we not related counting

more some for market levels. think, this I which allowed to are pricing sustainable So reset of has really

the So quarter second think logistics. second comments caused a two made that quarter for we've the will combination us the it's of – to to the in

to otherwise blowout but doesn't just volumes That’s like the of your and know seems of And sticky. attribute that in really part a quarter Is Okay. you weren't then in that volume sort do improvement it it in are it their that what your was be – part – seem on basis? I nature able margins of of kind of business? more helpful. SSAT up on was or and obviously, a you're Is of one-time was it bit static relatively in now sort margin kind spot sweet to it tremendously maximize and

out it of think part A in we dissolution to that a this that once this of changes a container joint to volume and the over point the breakeven, Pier right margin because of volumes. you of provides saying is over additional which before the is forward. – SSAT was part only that bring on expect call moving operating was to fixed terminal remain increases get sensitive ongoing of an Yes, business. we I we make margin it point we've about should one-time, And nature the is MSE. you an you're would related ongoing made story terminal every subsidiary to extremely venture be And excess our the with large a increased of SSAT relative cost That business or in part the of

So us use we’ve is as think out incremental SSAT drive volume out, business, we They're leader, Coast. many you the West want that allows operator margin terminal. to which said excess the is to proven SSAT best on a people the of because times as sustainable. That point

lastly I that little appreciate competition for of that helpful. too a bit. cargo And and you add? should Hawaii That's that? down driver. anything Or your a Is thing? big shifting just eastbound they a volumes quarterly How think was then about and were I revenue kind aren't mentioned to there from Okay. of eastbound But

we onetime market looked have our worry in Again, and share episodic, shifts market know there The didn't West more and that and obviously to Yes, believe were our decline. the we just lanes trades think any in backhaul we from to eastbound position. are We again, about. mean back nothing I nature. Coast market us for our the the is, Hawaii, all trades, are in to focused trade of share on we very

before, the helpful I track nice trace appreciate as is answers quarter that and said I and the be to back on Okay, nice beat and sort and here.

Okay, great thanks, Ben

Thanks Ben.

comes question with from Stephen next Our Sidoti. O'Hara

afternoon. good Hi

Steve. Hi,

Steve. Hi,

Just – relative full your to it guess it I than improvement was? is full the know Or is year kind quarter before, first bit that it not the, in this guess? saying quarter year the to of I'm was point better of a is is but the and necessarily outlook higher I'm outlook it was more most yet the rest I you're just that of little I outlook, raising the guidance. the year where relative and you're ready at to the there not wondering worse but maybe one was go

it lanes good trade the is business had and Transportation well. logistics Stephen first quarter It's both, performed we Ocean and Yeah, a on Joel.

And most trends commented businesses. of so in Matt there on that also were positive our

the us And year. a it's rest raising and continuing to of years those QX outlook the the it's so both good trends for really first – in the combination of quarter

alright. Okay,

your your today, can outlook Just into those just – year. Guam, China were outlooks in for just of, they haven't commenting far that markets? and was relative as Or the that things have gotten worse on say Is expectation the coming correct? those you as – kind changed

Matt. is this Steve Yes,

premium don't we – as about we relates an strong China fight earn very to it both Guam any what like China expect up dramatic do to axe we markets see a improvement be any expecting and reduction is in nor continues see the think up I expected. the from demand. It We are and to significant expectations we're Guam, where our internal shaping shipping for both quarter.

between and improvements Our look and a is performance as kind were end Matson start. of we of encouraged The are now volumes, with to ships to beginning the and Matson a at the peak those and their be previously. noted going by so off a like potentially are consistent year. normal strong Alaska SSAT to full we're And Logistics and season of it's of Logistics expectations Hawaii in flattening terrific all

thinking now end the we're and how are about were between of those we year. it, framing the way So

very you thank Okay, much.

Okay, Steve thanks.

next [indiscernible] Wells Instructions] comes Fargo. Our question [Operator from with

dry-dock flat questions. the normalize guys be Alaskan I those that time. for with year-over-year. could Hey, I quick your thanks mentioned for you Two think trade, that you if you guess volumes

guess incremental kind is I can expect that kind so is, to or that of share something you of And normalcy? we market return to the of kind expect did retain question to

ways This to is two Matt. There look that. at are

drive market market what what frame onetime the was we – of deducted when was The overall factors. the first to is expense trying we those were

And end so is right to their that around returned expectation volume the is our carried ended TOTE's of with relatively Once carried the quarter, their respect we it share vessel during dry-dock, which that we period. is TOTE. TOTE out first on behalf that that of for that dry-dock stable, the volume to

it. related there's are their permanent is we shift So about say not service out what it but a saying to of period. That's we're to trying

segment? the And of contributor if Or that's expect supply of what kind I give your back but think kind that management new to the kind – early we've stability we that team is and you’ve you with should should we general been of of segment. that growth this main for this an of you I an Where tightness? kind case, in the kind committed that the then the the on are that this open achieving once result briefly you to guess has that? this guys of noticed Is touched that growth expect segment, we are of And market placing focus, if describe of in cycle resettles? in area logistics that could

a several Sure, yes factors. of combination it is

has Logistics. which earning is other that the businesses That of core base to recent to expect that We years, business factor is Matson truck, part warehouse, is, in first additive new for this a acquisition remain. see we provided XX complementary and it's – The over correlation the services. brokerage, Matson been complementary our highly the to Span rail, comprised second Alaska,

as that tightness been see customers. do that healthy. I as market actually that is loads carry that mentioned asked have We ensure in by also reset earlier the to our the a We general see capacity causing pricing there to of

We're we market do see the this continues that into grow do this segment. for to ways future also foreseeable scalable. there's business organically We growth term in to longer believe that and be that in looking significant a

the some well. are they partially may one too there but element drive would extent when in That growth or are market be it's recede we and that there that three will think call and as to them four other to value continue So to of core happen. that tend early income factors – factors that could

guys. thanks Great,

bet. You

questions call to turn over further [Operator Instructions] showing final I'm remarks. back Matt And to at time. Cox for the any not this his I'd like

operator. you. with in. Thanks the catching next Aloha. look you Thank Okay forward to quarterly listening for everyone We call. at up

Ladies and now today’s a disconnect gentlemen you and presentation, have wonderful concludes that day. may