Q1 2024 Matson Inc Earnings Call
Operator: Thanks Justin, and thanks to those on the call. I'll start on slide three.
Thanks, Jess and thanks to those on the call.
I'll start on slide three.
Matthew J. Cox: Matson's 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. For 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 had 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 brokers.
Mats 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 had lower year over year volumes in Hawaii and Alaska.
One the volume was flat year over year.
Logistics operating income declined year over year due to continued market softness and transportation brokerage.
Matthew J. Cox: As a result of the performance in the first quarter and expected improved 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.
As a result of the performance in the first quarter and expected improving demand for our <unk> and Mac 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.
Hi.
With a higher contribution from Ocean transportation.
In our previous outlook from February Joel will go into more detail on our updated outlook later in the presentation.
Matthew J. Cox: 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. However, tourist arrivals in the first quarter were comparable year-over-year, despite the continued impact of Maui tourism from last year's wildfires.
Joel: I will now go through the first quarter performance of our trade lanes SSAT and logistics. So please turn to the next slide.
Joel: Hawaii container volume for the first quarter decreased one 7% year over year due to lower general demand too.
Joel: Tourist arrivals in the first quarter were comparable year over year. Despite the continued impact to Maui tourism from last year's wildfires.
Matthew J. Cox: 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 a low unemployment rate and increasing construction activity. Construction jobs are projected to increase due to large federal and state contracts, and Home Building on O'ahu.
Joel: For the full year 2024, we expect volume to approach the level achieved last year. Please.
Joel: Please turn to slide five.
Joel: Accordingly, you heroes first quarter 2024 economic report the Hawaii economy is projected to grow modestly in 2024 underpinned by low unemployment rate and increasing construction activity.
Joel: Instruction jobs are projected to increase due to the large federal and state contracts and homebuilding on Oahu.
Matthew J. Cox: 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 You Hero projects modest economic growth in 2024, our outlook is a little more cautious, reflecting feedback from our retail-related customers that saw a tepid demand for consumer goods in the first quarter and expect to see this sluggish environment continue in the near term. Moving on to our China service on slide six.
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.
Joel: While you hero projects modest economic growth in 2024.
Speaker Change: Our outlook is a little more cautious reflecting feedback from our retail related customers. It's 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 six.
Matthew J. Cox: Matson's volume in the first quarter of 2024 was 4% lower year over year. With lower volumes for both CLX and MAX, we achieved average freight rates that were higher year over year. Please turn to slide 7. Our China service experienced healthy demand coming out of a more traditional post-lunar New Year period, with a gradual recovery of volume after factories reopened and workers returned compared to a more accelerated increase in volume experienced post-lunar New Year last year.
Speaker Change: <unk> volume in the first quarter of 2024 was 4% said lower year over year with lower volume for both <unk> and Max.
Speaker Change: We achieved average freight rates that were higher year over year.
Speaker Change: Please turn to slide seven.
Speaker Change: Our China service experienced healthy demand coming out of a more traditional post lunar new year period with the gradual recovery of volume after factories have reopened and workers return compared to a more accelerated increase in volume experienced post lunar new year last year.
Speaker Change: 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.
Matthew J. Cox: The rampant 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 Trans-Pacific Marketplace, we continue to see steady U.S. consumer demand.
Currently in the Transpacific marketplace, we continue to see steady U S consumer demand.
Matthew J. Cox: 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 level. We're in a good position with CLX and MAX, and our primary focus with these two services is to consistently demonstrate the speed and reliability that our customers have enjoyed. Please turn to the next slide.
Speaker Change: For 2024, we expect improving demand for <unk> and Mac services in 2024 as compared to 2023.
Speaker Change: We also expect average freight rates to be higher than the 2023 levels.
Speaker Change: We're in a good position with <unk> 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.
Matthew J. Cox: 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 a 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 of 2024 decreased 5.1% year over year, primarily due to one less northbound sailing compared to last year.
Speaker Change: In Guam Madison's container volume in the first quarter of 2024 was flat year over year.
Speaker Change: In the near term, we expect continued improvement in the Guam economy with low unemployment rate and a modest increase in tourism for.
Speaker Change: For 2024, we expect container volume to approximate the level achieved last year.
Speaker Change: Please turn to the next slide.
Speaker Change: At Alaska Mattson container volume for the first quarter 2024 decreased five 1% year over year, primarily due to one less northbound sailing compared to last year adjusting for one less selling north bound volume was roughly flat and overall Alaska Volte.
Speaker Change: <unk> decreased one 7%.
Matthew J. Cox: Adjusting for one less sailing, northbound 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, job growth, and a lower level of inflation. For 2024, we expect Alaskan volume to approximate the level achieved last year. Please turn to slide 10.
Speaker Change: In the near term, we expect continued economic growth in Alaska supported by a low unemployment rate.
Speaker Change: <unk> growth and a lower level of inflation.
Speaker Change: For 2024, we expect Alaska volume to approximate the level achieved last year.
Speaker Change: Please turn to slide 10.
Joel M. Wine: 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 volume. In 2024, we expect the contribution from SSAT to be higher than in 2023 due to an expected increase in lift volume. Turning now 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 is primarily due to lower contribution from transportation brokerages.
Speaker Change: Our terminal joint venture SSAT increased $2 $2 million year over year to zero point $4 million.
Speaker Change: <unk> 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.
Yeah.
Speaker Change: Turning now to slide to logistics on slide 11.
Speaker Change: Operating income in the first quarter came in at $9 3 million.
Speaker Change: Or approximately $1 $6 million lower than the results in the year ago period the.
Speaker Change: The decrease was primarily due to lower contribution from transportation brokerage.
Joel M. Wine: 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.
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.
Speaker Change: I will now turn the call over to my partner Joel for a review of our financial performance John.
Joel M. Wine: 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 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 brokers.
Joel: Okay. Thanks, Matt now onto our financial results on slide 12.
Joel: For the first quarter consolidated operating income decreased $1 $8 million year over year to $36 9 million with ocean transportation declining $2 million and logistics declining $1 6 million.
Joel: 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.
Joel: As Matt noted the decrease in logistics operating income was primarily due to a lower contribution from transportation brokerage.
Joel M. Wine: 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-rate U.S. Treasuries. Interest expense in the quarter decreased $2.3 million year-over-year due to the decline in outstanding debt in the past year.
Joel: We had interest income of $8 8 million in the quarter an.
Joel: An increase of $6 million year over year due to higher interest rates on our cash and cash equivalents and CCF cash deposits and investments and fixed rates and fixed rate U S. Treasuries.
Joel: Interest expense in the quarter decreased $2 3 million year over year due to the decline in outstanding debt in the past year.
Joel M. Wine: 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% decrease 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 and $214.2 million on maintenance and other CapEx.
Joel: Net income increased six 2% year over year and diluted earnings per share increased 10, 6% year over year with the difference between the two due to a four 7% increase or decrease in the diluted weighted average shares outstanding.
Please turn to slide 13.
Joel M. Wine: $53.6 million on new vessel CapEx, including capitalized interest and owner's items, offset by $20.9 million withdrawn from our capital construction fund and $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 tax.
Joel: 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 $454 million from which we used $46 2 million to retire debt to.
Joel: $214 2 million on maintenance and other capex.
Joel: <unk> $53 6 million on new vessel, capex, including capitalized interest and owners' items offset by $29 million withdrawn from our capital construction fund.
Joel: $14 2 million on other cash outflows.
Joel: While returning approximately $207 $3 million to shareholders via dividends and share repurchase.
Joel: Please turn to slide 14 for a summary of our share repurchase program and balance sheet.
Joel: During the first quarter, we repurchased approximately 4.4 million shares.
Joel: For a total cost of $48 $9 million, including taxes.
Joel M. Wine: 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.
Joel: 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.
Joel: 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.
Joel: 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.
Joel M. Wine: 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.
Joel: Last on April 19th 2024, Madison 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.
Joel: The tax refund was placed into cash and cash equivalents and.
Joel: And is expected to be used for general corporate purposes.
Joel M. Wine: 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. Absent a significant change in the trajectory of the U.S. economy, we expect trade dynamics, and 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.
Joel: With that let me now turn to slide 15, and walk through our outlook for the full year in the second quarter of 2024 for.
Joel: 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 an expected improving demand for the <unk> and Max services.
Joel: Absent a significant change in the trajectory of the U S economy, we expect trade dynamics.
Joel: 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.
Joel M. Wine: 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 a filing for the full year, appreciation and amortization to be approximately $180 million, inclusive of $27 million for dry dock amortization, interest income to be approximately $45 million and interest expense to be approximately $8 million, other income to be approximately $7 million, an effective tax rate of approximately 22%, and dry docking payments of approximately $35 million.
Joel: As a result, we now expect consolidated operating income to be modestly higher than the level achieved in the prior year with quarterly seasonality pattern similar to 2023.
Joel: 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 dry dock amortization.
Joel: Interest income to be approximately $45 million and interest expense to be approximately $8 million.
Joel: Other income to be approximately $7 million.
Joel: And effective tax rate of approximately 22% and.
Joel: And dry docking payments of approximately $35 million.
Joel M. Wine: 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 in 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.
Joel: 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 folio, yielding 453%.
This outlook includes the $10 2 million in interest income received on April 19, 2024 with respect to our federal tax refund.
Joel: 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.
Joel M. Wine: 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 tape 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.
Joel: Such we expect consolidated <unk>.
Joel: <unk> operating income in the second quarter to be modestly higher than the prior year.
Joel: 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.
Joel: 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.
Joel: 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 Okay. Thanks, Joe.
Matthew J. Cox: Matson had a solid start to the year, we have a great balance sheet and are well funded on our Aloha class new build 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.
<unk> had a solid start to the year, we have a great balance sheet and are well funded on our Aloha class Newbuild program as Joel just described.
Matt: We are positioned well.
Matt: All of our markets to capitalize on opportunities as they arise so far 2024 shaping up to be another good year for medicine, and with that I will turn the call back to the operator and ask for your questions.
Matthew J. Cox: And with that, I will turn the call back to the operator and ask for your questions.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Jacob Lacks, with Wolfe Research.
Matt: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Matt: Please standby, while we compile the Q&A roster.
Matt: Okay.
Matt: Our first question comes from the line of Jacob Blacks with Wolfe Research.
Jacob Gregory Lacks: Hey, Matt. Hey, Joel. Thanks for your time.
Jacob Gregory Lacks: Hey, Matt. Thank you all thanks for your time.
Matthew J. Cox: Thank you. Thank you.
Okay.
Speaker Change: Thank you.
Jacob Gregory Lacks: I hear you're on your second quarter ocean even, which implies a pretty big sequential ramp from 1Q. Is that all volume, or is there pricing there too? And then, any way you can give us a bit of a sense of what you're thinking when you say up modestly for consolidated even in the second quarter?
Jacob Gregory Lacks: You're on your second quarter, <unk> implies a pretty big sequential ramp from <unk> is that all volume or is there pricing there.
Speaker Change: And then.
Speaker Change: Any way you can give us a bit of a sense of what youre thinking when you say up modestly for consolidated EBIT in the second quarter.
Matthew J. Cox: Yeah, Jake, let me answer part of it and then I'll turn it over to Joel for his comment. So I think what we're seeing, Jacob, is a.
Speaker Change: Yes, Jay let me let me.
Speaker Change: Answer part of it and then I'll turn it over to Joel for his comments. So I think what we're see Jay is a.
Matthew J. Cox: We said this in our prepared comments, a more traditional first quarter, and by that, I mean a little bit longer period of ramping back up after the Lunar New Year holiday. And in some ways, 2024 was the first year since the pandemic that we saw kind of a longer period as the factory workers went to their home provinces and didn't need to rush back to fill orders, and so in some ways, it feels like this is going to I think we're returning to that, but we saw nice volumes coming out of, you know, the Lunar New Year period as volume started to ramp back up.
<unk>.
Joel: We said this in our prepared comments are more traditional.
Joel: The first quarter and by that I mean.
Joel: Eight a little bit longer period of ramping back up after the lunar new year holiday and in some ways 2024 was the first year.
Joel: Since the pandemic.
Joel: We saw kind of a longer period.
Joel: Factory workers went to their home provinces and didn't need to rush back to fill orders and so in some ways. It feels like this is going to be normal moving forward seasonality.
Joel: And so traditionally the first is the weakest quarter.
Joel: In our business I think we're returning to that but we saw nice volumes coming out of.
Joel: From the lunar new year period as volumes started to ramp back up.
Matthew J. Cox: We also noted in our commentary that freight rates will be higher than they were in the year-ago period, so all in all, separate from the comment that Joel made below the line on interest income, which was this interest on the tax refund that's a one-time benefit, we are expecting to see ocean transportation be better, and I'll let Joel comment on the specific wording there.
Joel: We also noted in our commentary that freight rates will be higher than they were in the year ago period. So all in all.
Joel: Separate from the comment that Joe made below the line on interest income which was this <unk>.
Joel: Interest on the tax refund Thats, a one time benefit we are expecting.
Joel: To see Ocean transportation B.
Joel: Better and I'll, let Joel comment on the specific.
Joel M. Wine: Yeah, Jake, when we say modestly, we just mean a little bit more, you know, it's meant to be just nothing more than regular plain English, so not dramatic, and then when we say the word moderately, that's a little bit more than modest, so that's how we use those words.
Joel: Wording there yes.
Joel: When we say modestly we just mean a little bit more it's meant to be just nothing more than regular plain English so not dramatic.
Joel: And then when we say the word moderately that's a little bit more.
Joel: Then modestly so that's that's how we use those words.
Jacob Gregory Lacks: Okay, makes sense. And then last quarter when we spoke, you mentioned you hadn't seen any real impact from the Red Sea disruptions with spot rates remaining elevated. Is that still the case, or is some of that starting to bleep through to your business? Yeah.
Speaker Change: Okay makes sense and then last quarter. When we spoke you mentioned that you haven't seen any real impact from the Red Sea disruptions with spot rates remaining elevated is that still the case or is some of that starting to.
Matthew J. Cox: Yeah, I would say I'll answer the question more generally and then I'll answer it specific to our business but I think what we have seen is that the Carriers that are have traditionally used the Red Sea and the Suez Canal most of that capacity now has gone as you know around the Africa and what we there's been additional capacity deployed on all those trades in order to accommodate the longer transits. I would say that's been relatively painless from a customer's supply chain perspective, so of course the transits are longer, but from a delivery, from a port deployment, and whether that's cargo that's destined for the Med or Europe or the U.S. East Coast, so we haven't really seen much disruption as an industry, and we haven't really seen much routing, other than very much on the margin, there are a few countries like Vietnam or places in Southeast Asia that can look at if cargo is destined for the East Coast, but that's been, I would say, single percentage changes in routing, so it continues to be relatively small in terms of its impact on the map.
Speaker Change: Great through to your business.
Speaker Change: Yes, I would say.
Speaker Change: I'll answer the question more generally and then I'll answer it specific to our business.
Speaker Change: But I think what we have seen is that.
Speaker Change: The carriers that are traditionally used the red sea in the Suez Canal.
Speaker Change: Most of that capacity now has gone as you know around the Africa.
Speaker Change: And there has been additional.
Speaker Change: Capacity deployed on all those trades in order to accommodate the longer transits I would say that's been.
Speaker Change: Relatively painless from customer supply chain perspectives of course, the transits are longer but from a delivery from a port deployment and whether thats cargo that's destined for the med or Europe or the U S East coast via net this so we haven't really seen much disruption.
Speaker Change: As an industry.
It certainly haven't really seen.
Speaker Change: Much routing other than very much on the margin there were a few countries like Vietnam or places in southeast Asia.
Speaker Change: That can look at if cargo was destined for the east coast, but that's been I would say single percentage changes in routing. So it continues to be relatively small in terms of its impact on Madison.
Jacob Gregory Lacks: And then, as we think about SSAT, it was slightly profitable in the quarter; it contributed around $4 million in the fourth quarter. Is there any reason why this can't sort of, I mean, clearly there's the Lunar New Year affecting volumes in the first quarter; is there any reason it can't get back to 4T profitability levels as we progress through the year?
Speaker Change: Got it.
Speaker Change: That's helpful and then as we think about <unk> it was slightly profitable in the quarter.
Speaker Change: Contributing around 4 million in fourth quarter is there any reason why this can sort of.
Speaker Change: I mean, clearly the lunar new year affecting volumes in the first quarter is there any reason that can't get back to four key profitability levels as we progressed through the year.
Matthew J. Cox: Yeah, I think we're going to see continued improvement in SSAT. I think that it's probably going to take us into 2025 before we see a more normalized level of profitability. I'm speaking to full-year profitability rather than any individual quarter.
Speaker Change: Yes.
Speaker Change: I think we're going to see continued improvement in SSAT.
Speaker Change: I think that it's probably going to take us into 2025 before we see a more normalized level of profitability I'm speaking to full year profitability rather than any individual quarter. We've seen improvement I think we believe we've hit bottom from the volume perspective, and we're going to see steady.
Jacob Gregory Lacks: We've seen improvement. I think we believe we've hit bottom from the volume perspective, and we're going to see steady improvement from here based on our views of the market on the U.S. West Coast. So it's probably just going to take a little bit longer than some of our other businesses that have recovered more quickly.
Speaker Change: The improvement from here based on our views of the market in the U S. West coast. So, it's probably just going to take a little bit longer than than some of our other businesses that have recovered more quickly.
Matthew J. Cox: Alright, thanks for the time. OK, thank you.
Speaker Change: Alright, thanks for the time.
Matthew J. Cox: Okay, thank you. Thank you, Jake.
Speaker Change: Okay. Thank you. Thank you Jake.
Daniel Imbrough: Our next question comes from the line of Daniel Imbrough with Stevens.
Speaker Change: Our next question comes from the line of Daniel <unk> with Stephens.
Daniel Imbrough: Hey, good evening guys. Thanks for taking our questions. Oh, you're welcome.
Daniel: Yeah, Hey, good evening guys. Thanks, taking my questions.
Matthew J. Cox: I want to also start maybe on the demand side for Ocean. I think you sound a little bit better than others, maybe on US demand and kind of what you're hearing. I'm curious, how much of that is with your existing customers? Is this more of a secular shift from air freight to expedited ocean that you think you're seeing with your shippers? And then, you know, how does the growth of new, maybe e-commerce players or just any change in your customer outlook that's kind of informing that demand view? Because I think the slides they do expect better pricing and demand year over year. Yeah,
Daniel: You're welcome.
Daniel: I wanted to ask to start maybe on the demand side for Osha and I think you sound a little bit better than others, maybe on U S demand and kind of what Youre hearing I'm curious how much of that with your existing customers or is this more of a secular shift from air freight to expedited Ocean that you think youre seeing with your shippers and then how does the growth of new maybe E. Commerce players if there's any change in your.
Daniel: Our customer outlook kind of informing that demand because I think the slide that you expect better pricing and demand year over year.
Matthew J. Cox: Yeah, sure. Let me let me take a crack at that.
Speaker Change: Yeah sure let me, let me take a crack at that so I would say that if you look at it.
Matthew J. Cox: So I would say that if you look at Let me start by talking about macro supply and demand factors that inform the Trans-Pacific Trade and then I'll talk about Matson specifically. So if you look at volumes coming into the West Coast, we're seeing improvement year over year. We've seen growth year over year in those volumes, and partly this is because, in our view, and in talking to our customers, the U.S. consumer continues to hang in there.
Speaker Change: Let me, let me start by talking about macro supply and demand factors that inform the trans Pacific trade and then also talk about mattson specifically, so if you look at volumes coming into the West Coast, we're seeing improvement year over year, we've seen growth year over year in those volumes and partly is in our view in talking to our customers.
Speaker Change: The U S consumer continues to hang in there the economy is still plugging along.
Matthew J. Cox: The economy is still plugging along. In the absence of some significant disruption that we don't foresee, we're going to continue to see strong and steady consumer demand. So if you use that as the starting point, you see volume growing year over year on the U.S. West Coast for all of the international ocean carriers, which is positive. I think on the international ocean side, not specific to Matson, you've seen rates that are higher than the previous year.
Speaker Change: And absent some significant disruption that we we don't foresee we're going to see continue to see strong and steady consumer demand. So if you use that as the starting point you see volume growing year over year on the U S. West coast for all of the International Ocean carriers. Those are positive I think on the <unk>.
Speaker Change: International Ocean side, not specific to match and <unk> seen rates that are higher than the previous year, but if you pivot to maxon and look at some of the fundamentals that will drive our expedited market demand. We see the fundamentals continue to be very much in place and what are those and we've described those previously of course the macro.
Matthew J. Cox: But if you pivot to Matson and look at some of the fundamentals that will drive our expedited market demand, we see the fundamentals continue to be very much in place. And what are those? We've described those previously.
Matthew J. Cox: Of course, macro U.S. consumer demand is a significant factor. But if you look at healthy and expensive air freight markets, continued growth of e-commerce, healthy customer inventory levels, meaning no big overhangs of inventory, normal adjustments for late orders, production problems, all of those factors go towards what we believe to be continuing strong demand for our CLX and MAX services, our two expedited services. So our position was and continues to be if we can be the fastest and second fastest and most reliable carrier, we're going to get the lion's share of this expedited market and give us reason to be confident in raising our outlook somewhat.
Speaker Change: No.
Speaker Change: U S consumer demand as a significant factor, but if you look at healthy inexpensive airfreight markets continued growth of e-commerce healthy customer inventory levels, meaning no big overhangs of inventory.
Speaker Change: Normal.
Adjustments for late orders production problems all of those factors go towards what we believe to be continuing strong demand in our.
Speaker Change: C election, Mac service or to expedited services. So our position was and continues to be if we can be the fastest and second fastest and most reliable carrier we're going to get the lion's share of this expedited market and gives us reason to be confident in raising our outlook.
Speaker Change: What.
Joel M. Wine: Helpful, I appreciate the review. And then, maybe Joel on the cash flow side, just wanted to follow up. Looks like obviously maintenance and other CapEx is going to drop off pretty materially in the next couple of years. I'm just kind of curious, with most of the new vessel payments already funded, what are your capital priorities for the accelerating free cash flow, and how do you anticipate maybe the cadence of that spending, whether it's buyback or debt pay down or what have you?
Helpful. I appreciate the overview and then maybe Joe on the cash flow side I just wanted to follow up it looks like obviously maintenance and other capex is it going to drop off pretty materially and a couple of years.
Joe: Just kind of curious with most of the new vessel payments already funded what are your capital priorities for the accelerated accelerating free cash flow and how do you anticipate maybe the cadence of that spending whether it's buyback or debt paydown or what have you.
Joel M. Wine: Thanks, Daniel, for that. So, I mean, the debt paid, not much debt paid out because the debt that we have, the $430 million, $150 million of that is pretty attractively priced long-term private placements, around 3.2% interest expense fixed. And then the other $280 million is a very attractive Title XI at 1.2% fixed rates. They have really low fixed cost rate debt. It only amortizes $40 million a year.
Joe: Thanks, Daniel for that so.
Speaker Change: I mean, the debt paid not much debt paydown because the debt that we have the $430 million 150 of that is pretty attractively priced long term private placements around three 2%.
Interest expense fixed and then the other $280 million is a very attractive titled 11 at one 2% fixed rates have really low fixed cost rate that they normally amortized is $40 million a year. So we'll continue to do that.
Joel M. Wine: So we'll continue to do that. And so I wouldn't expect a lot of change with that overall program from a debt perspective. So, and you're right, the maintenance CapEx should be coming down. Most of that goes towards equipment replacement and our overall network of operations. We don't have, in the forecast, a continued number of new engine projects or LNG projects.
Speaker Change: And so I wouldn't expect a lot of change with that overall program from a debt perspective, so and youre right. The maintenance capex should be coming down most of that goes towards the equipment replacement and our overall network of operations we.
Speaker Change: We don't have any of the forecast continued number of.
Joel M. Wine: That really cycles through the next year to 18 months. So you're looking at a more normalized environment of regular CapEx for the company, putting aside the new vessels. So that does lead to a lot of free cash flow, and the prioritization there will continue to be primarily towards just a steady dividend policy. And we've raised dividends every year over 12 years as we've earned them. So we continue to use that as a tool to reward shareholders as we earn free cash flow over time.
Speaker Change: New engine projects or LNG projects that really cycles through the next year to 18 months. So youre looking at a more normalized environment of regular capex for the company, putting aside the new vessels. So that so that does lead to a lot of free cash flow and the prioritization. There will continue to be primarily towards this is steady.
Speaker Change: Evidently policy and we've raised dividend every year over 12 years as we've earned it. So we continue to use as a tool to reward shareholders. As we've earned in free cash flow over time, but then the majority of it will be going towards.
Joel M. Wine: But then the majority of it would be going towards share repurchase, which is what we've been doing. Absent any kind of large investments in M&A or organic opportunities, Daniel, that's what we would expect to continue. And that's all we've talked about, share repurchasing on a pretty steady basis for a long, long time because that's the picture that we see.
Speaker Change: Share repurchase which is what we've been doing.
Any kind of large investments in M&A or organic opportunities Daniel that we would expect to continue that and that's how we've talked about share repurchasing on a pretty steady basis for a long long time, because thats the picture that we see.
Daniel Imbrough: And then as a clarification on that, with the tax payment of $119 million you received, I guess how much of the new vessel payments you need over the coming years is either pre-funded in the CCF or is that covered? I'm curious how much is now just already accounted for as you look forward.
Speaker Change: And then just a clarifier on that with the tax payment of $119 million you received I guess, how much of the new vessel payments you need over the coming years, either pre fund it had been the Tcf worried that covered I'm curious how much is now just already accounted for as you look forward.
Joel M. Wine: Yeah, we paid about $100 million of the total billion, so we have about $900 million more to go, and the CCF currently has about $606 million, so in this rough order, that's about $300 million more that we would need to fund. We are earning interest at this cash investment rate, so there's a lot of interest income that we'll earn over the next 24 to 36 months that will help, but then also, ultimately, over time, as we get into 2026, some time in Q2, Q3 of 2026, we'll have probably used all the CCF funds to apply those towards milestone payments. And then around that time, we'll probably put more money into the CCF to take care of the remaining milestone payments in 2026 and 2027.
Speaker Change: Yes, we paid about $100 million of the total $1 billion. So we have about $900 million more to go and the CCF. Currently has about 606, so rough order that's about $300 million more than we would need to find we are earning interest.
Speaker Change: Cash investment right. There's a lot of interest interest income that will earn over the next 24 months to 36 months that will help but then also ultimately over time as we get into 2026. Some time in Q2 Q3 of 2026, we'll have probably used all the CCF fund to apply those towards <unk>.
Milestone payments and then around that time will probably then put more money into the CCF to take care of the remaining milestone payments in 2026, and 2027 and that will be funds that will come from our cash and cash equivalents on the balance sheet. There today. So right now we had $25 million of cash at the end of this quarter, we received 118 plus the <unk>.
Joel M. Wine: And that'll be funds that will come from our cash and cash equivalents on the balance sheet there today. So right now, we have $25 million in cash at the end of this quarter. We received $118 million plus the $10 million on interest, so that's $128 million. So around $160 million of cash and cash equivalents, plus the 600s, that leaves us at 760, and interest expense on that gets us up to 800. So there's not that much more cash that needs to go into the CCF, but that will begin to happen in 2026, from a timing perspective.
Speaker Change: On interest so that is 128, so we're around 100 $160 million of cash and cash equivalents plus the $600 that leaves us at seven.
Speaker Change: 760, <unk> and interest expense on that gets us up to 800, so there's not that much more cash that needs to go into the CCF, but that will begin to happen in 2026 from a timing perspective.
Daniel Imbrough: Great. I appreciate all the color. Best of luck.
Speaker Change: Great I appreciate all the color best of luck.
Speaker Change: Thanks.
Operator: As a reminder, that is star 1-1 to ask a question. Our next question comes from a line from Ben Nolan with Stiefel.
Speaker Change: As a reminder, that is star one one to ask a question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Ben Nolan with Stifel.
Speaker Change: Thanks.
Benjamin Joel Nolan: So I've got a handful here, but first and foremost I wanted to start off a bit.
Benjamin Joel Nolan: Big deal to finally get that tax refund. After all this time I was curious if you guys are.
Benjamin Joel Nolan: Thanks, so I've got a handful here, but first and foremost, I wanted to start by saying I know it's a big deal to finally get that tax refund after all this time, but I was curious if you guys are Joel modestly or moderately excited to get that.
Benjamin Joel Nolan: Joe modestly or moderately excited to get that.
Joel M. Wine: We were pleased to get it, it took a long time, then, but I tell you we also got the proper amount of interest income on that. It was per IRS rules on when we had filed for the refund and received all of that over two years, so it was nice actually also not to have any kind of back and forth on how much interest income was due. I would say we were modestly pleased on both factors.
Benjamin Joel Nolan: We are pleased to get it.
Benjamin Joel Nolan: It took a long time then.
Benjamin Joel Nolan: We also got the proper amount of interest income on that it was.
Benjamin Joel Nolan: For IRS rules and when we had filed for the refund received all of that over two years. So it was nice actually also not to have any kind of back and forth on how much interest income was there so I would say modest.
Benjamin Joel Nolan: Modestly pleased on both on those factors.
Benjamin Joel Nolan: I've got a handful, but my first question, I guess, and it came up a little bit earlier, there are certainly segments of the transportation universe at the moment that are struggling, and there are areas like you guys seem to be doing fine, but I'm curious in this sort of environment where, again, not everything is good for everybody. Are you starting to see, finally, maybe some more opportunities for inorganic activity, given that maybe not everybody can demand top dollar these days?
Benjamin Joel Nolan: Joe.
Speaker Change: But honestly there.
Speaker Change: Hi, I've got a handful, but my first question I guess.
Speaker Change: And it came up a little bit earlier, there is certainly segments of the transportation universe at the moment.
Speaker Change: That are struggling and there is areas like you guys seem to be doing fine but.
Speaker Change: I'm curious in this sort of environment, where again there is not everything is good for everybody.
Speaker Change: Or are you starting to see finally, maybe some more opportunities for inorganic activity.
Given that.
Speaker Change: And maybe not everybody want or cannot demand top dollar these days.
Matthew J. Cox: You know, it's a great question, Ben, we're seeing, I think, more companies potentially put themselves on the market after a very slow M&A market, and sellers really sitting on their hands for appropriate reasons, as we saw at the end of COVID in a very difficult transportation environment last year. Some sellers are looking to test the market now.
Speaker Change: It's a great question, Ben we're seeing I think more companies potentially put themselves at explore the market and after after a very slow M&A market and sellers really sitting on their hands for appropriate reasons as we are and of Covid in a very difficult transportation environment last year.
Speaker Change: Some sellers are looking to test the market now so we've seen an uptick in that but there's also continues to be pretty high expectations for multiple so it's tough to get those two things together.
Matthew J. Cox: So we've seen an uptick in that, but there are also, and continue to be pretty high expectations for multiple. So it's tough to get those two things together. You know, the way we've heard us say many times, the way we look at it, though, is we don't just want assets that fit our profile from a fit perspective. And so I wouldn't say there's been a dramatic increase, or even a very significant change in the increase in the number of assets becoming for sale that fit our profile. In other words, the things that we're looking at are not a greater number now because we're trying to maintain the discipline of what we actually look at. I got it.
Speaker Change: You've heard us say many times the way we look at it though is we don't we just want assets that fit our profile from a from a.
Speaker Change: Fit perspective.
Speaker Change: And so I wouldn't say, there's been a dramatic increase or even a very significant change in increase of number of assets, becoming for sale that fit our profile and.
Speaker Change: In other words, the things that we're looking at it as not greater number now.
Speaker Change: Because we're trying to maintain the discipline of what we actually look at.
Benjamin Joel Nolan: Switching gears to China, obviously, it's great to see more volume, more price, or, in particular, more price. I'm curious though, Matt, if you could talk a little bit about the competitive landscape.
Speaker Change: Got it.
Speaker Change: Okay, and then switching gears to to China.
Speaker Change: Obviously, it's great to see more volume more.
Speaker Change: More price.
Speaker Change: Yes.
Speaker Change: Or in particular more price I'm curious, though Matt if you could talk a little bit to the competitive landscape.
Matthew J. Cox: I know passenger airlines that are going back and forth from China, but still, it's only like 20% of what it was pre-COVID. It would seem as though there would be plenty of demand for that expedited service, but port infrastructure is operating generally in the way that it should. Are you starting to see any other of your competitors trying to test or mimic the kind of service that you guys have?
Speaker Change: The.
Speaker Change: I know passenger airlines that are going back and forth from China is still it's only like 20% of what it was pre COVID-19. So would seem as though there would be plenty of demand for that expedited service, but port infrastructure is operating generally in the way that it should.
Speaker Change: Or are you starting to see any other of your competitors kind of trying to test or mimic.
Speaker Change: The kind of service that you guys have.
Matthew J. Cox: I think, and the way I'd answer that is, there is a developed secondary expedited market. And there are, I would say, three or four carriers that are not Matson that will offer a discount to Matson's pricing but above the generic ocean market. And so there are three or four, and those carriers have been in place. They will continue to be in place.
Speaker Change: Yes, I think.
Speaker Change: And the way I'd answer that is there is a develop secondary expedited market.
And it's.
Speaker Change: There are I would say three or four.
Speaker Change: Carriers.
Speaker Change: Or not Max and that will.
Speaker Change: That will offer a discount to match since pricing but.
Speaker Change: The generic ocean market and so there are there are.
Speaker Change: Three or four.
And those carriers have been in place.
Matthew J. Cox: CMA is one that has been in the market for the last few years. We have Zim that was in the market, had left the market, and is back in the market, and then there's a couple of others that compete for the cargo that either can't get onto our service or that are sensitive. They can take a longer transit time on the margin, so not as good as Matson's service, but a little bit cheaper than our rates.
They continue in place.
Speaker Change: CMA is one that has been in the market for the last few years.
Speaker Change: We have zim.
Speaker Change: It was in the market had left the market and is back in the market and then Theres a couple of others that compete for.
The cargo that either can't get onto our service or.
Speaker Change: Our sensitive they can take a longer transit on the margins are not as good as Max in service, but.
Matthew J. Cox: And so that market will be there. It has already been there. It's not just us and then everyone else. There are gradations that exist in this market that have kind of developed over the last few years, especially going into the pandemic. And it reinforces our business strategy, which is as long as we remain the fastest and second fastest and the most reliable, we're going to get the lion's share of that market. And so I think this is just the development of this in-between market, which we see, we watch, but we just continue to focus on our service dimensions, and the rest will take care of itself, is the way we're thinking about it.
Speaker Change: A little bit cheaper than our rates and so that market will.
Speaker Change: We will be there it has been there.
Speaker Change: It's not just us and everyone else there are gradations that exist in this market thats kind of developed over the last few years, especially going into the pandemic.
Speaker Change: It reinforces our business.
Speaker Change: Strategy, which is as long as we remain the fastest and second fastest and most reliable we're going to get the lion's share of that market.
Speaker Change: And so I think this is just the development of this in between market, which we see we watch it but we.
Speaker Change: We just continue to focus on our service dimensions and the rest will take care of itself is the way we are thinking about that.
Benjamin Joel Nolan: Right, okay. And then lastly for me, you guys, I think now I have a handful of your assets that have the capacity to be able to use LNG as a bunker fuel. And I'm curious, if you're doing that, and if so, are you finding it as a sort of a fuel advantage and maybe another little way to enhance margins and all?
Speaker Change: Right Okay.
Speaker Change: And then lastly for me you guys I think now I have a handful of your assets that have the have the capacity to be able to use LNG as a bunker fuel.
Speaker Change: Im curious if youre doing that and if so.
Speaker Change: Is it are you finding it is a sort of a fuel advantage and maybe in another little way to.
Matthew J. Cox: Yeah, so the answer, Ben, is yes. We have a single vessel that has been delivered. We have two other vessels that are in the final stages or in intermediate stages of being converted. And then, of course, you know that there are three new vessels.
Speaker Change: Enhanced margins at all.
Speaker Change: Yeah.
So the answer is yes, we have.
Speaker Change: A single vessel that has been delivered we have two other vessels that are in the final stages or intermediate stages are being converted and then of course, you know that there are three new vessels when they arrive will all be LNG ready upon delivery and so we have been taking bunkers Elena.
Matthew J. Cox: When they arrive, we'll all be LNG ready upon delivery. And so we have been taking bunkers, LNG bunkers, both in China and in Southern California. And the vessels are operating well on this alternative fuel. And we have other mechanisms that will allow us to continue to get fuel in places where we need it.
Speaker Change: Buffers, both in China and in Southern California.
Speaker Change: And they are.
The vessels are operating well on this alternative fuel.
Speaker Change: And we have other mechanisms that will allow us to continue to get fuel in places, where we need it that market is really expanding as the number of LNG vessels in the in the Pacific trade.
Matthew J. Cox: That market is really expanding as the number of LNG vessels in the Pacific trade comes in. From a pricing standpoint, well, from a performance standpoint, we see it, of course, as a cleaner burning fuel, but we've seen it performing well in our engines and able to maintain our speed and other characteristics, so that's been positive. LNG is, at the moment, a bit more expensive than bunker fuels, although that will change from time to time. They were a bit lower beforehand,
Speaker Change: Come into place from.
Speaker Change: From a pricing from a performance standpoint, we see it of course this is a cleaner burning fuel, but we've seen it performing well and our engines and able to maintain our speed and other characteristics. That's been positive LNG is at the moment a bit more expensive than bunker fuels although.
Speaker Change: Those those will change from time to time, they were a bit lower beforehand prices have risen, but LNG prices more recently it has come off so from a price standpoint.
Matthew J. Cox: Prices have risen, but LNG prices have more recently come off. So from a price standpoint, we have not seen a significant either penalty or cost advantage related to that. We also periodically use other types of fuels that are like hydrogenated vegetable oils and clean diesel and other products, and we'll experiment with those. Many of those we expect through our existing fuel surcharge mechanisms to be able to recover most or all of those higher costs as just part of our routine amount of our business, which I know you know well.
We have not seen a significant either penalty or cost advantage related to that we also periodically we will use other types of.
Speaker Change: Fuels that are like.
Speaker Change: Hydrogenated vegetable oils, and clean diesel and other products and we will experiment with those many of those are we.
Speaker Change: We expect through our existing fuel.
Surcharge mechanisms.
Speaker Change: To be able to recover most or all of those higher costs as just part of our routine amount of our business that I know well so I don't see it as at this point as a significant advantage nor a disadvantage in the market as we achieve our sort of climate emission reduction goals along with the rest of the participants in our industry for which this is a priority.
Matthew J. Cox: So I don't see it, at this point, as a significant advantage or a disadvantage in the market as we achieve our sort of climate emission reduction goals, along with the rest of the participants in our industry, for which this is a priority.
Benjamin Joel Nolan: Sure. All right. Well, I appreciate it. Thanks, guys.
Speaker Change: Sure.
Speaker Change: Alright, well I appreciate it thanks guys okay.
Benjamin Joel Nolan: Okay, Ben. Thanks.
Speaker Change: Thanks.
Matthew J. Cox: That concludes today's question and answer session. I'd like to turn the call back to Matt Cox for his closing remarks.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Matt Cox for closing remarks.
Matthew J. Cox: Okay, well, thanks for tuning in today. We look forward to catching up with everyone on our second quarter call. Aloha.
Matthew J. Cox: Okay, well thanks for tuning in today, we look forward to catching up with everyone on our second quarter call Aloha.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
Matthew J. Cox: Okay.
Matthew J. Cox: [music].