Q3 2024 Matson Inc Earnings Call
Matt: In Ocean Transportation, our China service saw significantly higher year over year freight rates and was the primary driver of the increase in consolidated operating income.
Matt: for our domestic trade lanes. We saw higher year over your volume in Alaska, but lower year over your volume in Hawaii and Guam.
Matt: in logistics, operating income increased your over year due to higher contributions from supply chain management and transportation brokerage services.
Matt: as a result of our performance in the third quarter and the expected strength of our China service in the fourth quarter. We're raising our outlook for 2024. Joel will go into more detail on our updated outlook later in this presentation.
Matt: I will now go through the third quarter performance of our trade lanes SSAT and logistics. So please turn to the next slide.
Matt: Container volume in our Hawaii service decreased to 0.2% in the third quarter, year over year. The decrease was primarily due to lower general demand.
Matt: Hawaii's economy continues to grow slowly with stalled growth in statewide tourist arrivals.
Matt: Tourism continues to be impacted by declines in Maui Tourism following last year of wildfires and by the sluggish pace of the recovery in Japanese tourist arrivals which have been impacted by weakness in the end to the US dollar exchange rate.
Speaker Change: I will go through our full year outlook on the next slide, so please turn to slide five.
Speaker Change: According to Heroes 3rd Quarter, 2024 Economic Report, the Hawaii economy is projected to grow slowly in 2024, supported by a low unemployment rate, increasing construction activity, and low growth in tourist arrivals.
Speaker Change: For 2024, we expect volume to be modestly lower than the level achieved last year primarily due to low or no growth in tourism.
Speaker Change: Continued challenges in population growth and lower discretionary income as a result of higher inflation in interest rates.
Speaker Change: Moving to our China Service on slide 6.
Speaker Change: That's in volume in the third quarter of 2024 was 2.6% higher year over year due to two additional saylings. We continue to see strong demand for our CLX and Mac services and to achieve significantly higher average freight rates year over year.
Speaker Change: Please turn to slide seven.
Speaker Change: The elevated freight rates in the third quarter 2024 were primarily due to a traditional peak season with strong freight demand.
Speaker Change: and Resilient U.S. Economy and a stable consumer-demand environment coupled with tighter supply chain conditions supported these elevated rates.
Speaker Change: from a demand perspective. US retail sales during the quarter were solid. And e-commerce continued to grow faster than overall retail market.
Speaker Change: Ecommerce continued to be an underlying driver of freight demand for both our transphacific services during the third quarter as well as seasonally strong categories like garments and e-goods. We also continued to see conversion of air freight to the CLX and Max.
particularly in the e-goats vertical.
with respect to tighter supply chain conditions.
Speaker Change: The traditional peak was augmented by some shifting of consumer routing through the US West Coast in response to continued disruptions in the Red Sea, as well as to risk managers against impacts from the ILA negotiations on the East and Gulf Coast.
Looking ahead?
Speaker Change: For the fourth quarter, we expect our China service freight raids to be significantly higher than the levels achieved in the year ago period, as long as the underlying economic...
Supply Chain and Geopolitical Consistence persist, but lower than the average rate to achieve in the third quarter as the peak season demand eases.
Speaker Change: Regardless of the economic and geopolitical uncertainties, we remain focused on continuing to deliver a differentiated value proposition as compared to air-fraid with CLX and Mac services as the two fastest and most reliable expedited ocean services in the Trans-Pacific.
Please turn to the next slide.
Speaker Change: In Guam, Matthews container volume in the third quarter of 2024 decreased 9.4% year over year due to lower demand for retail and food and beverage segments.
Speaker Change: In the near term, we expect the Guam Economy to remain stable with a low unemployment rate, but slow growth in tourism.
Speaker Change: Similar to Hawaii, the Guam Tourist arrivals have been impacted by the slow recovery in Japanese visitors.
Speaker Change: for 2024, we expect container volume to be lower than the level achieved last year.
Speaker Change: Police turned to the next slide. In Alaska, Matthew's container volume for the third quarter of 2024 increased 1.4% year over year due to higher retail-related demand.
In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth, and lowered levels of inflation.
For 2024, we expect Alaska volume to approximate the level achieved last year.
Speaker Change: Police turned to slide 10.
Our Terminal Joint Venture, SSAT, increased $5.6 million, year over year, to $6.9 million. The higher contribution was primarily due to higher lift volume.
For full year 2024, we expect the contribution from SSAT to be higher than 2023 due to an expected increase in lift volume.
Turning now to logistics on slide 11, operating income in the third quarter came in at $15.4 million, or approximately $1.5 million higher than the result in the year ago period.
The increase was primarily due to higher contributions from supply chain management and transportation brokerage.
Speaker Change: Our Supply Chain Management Service benefited from a similar market condition to those in our China service. While our transportation brokerage business benefited from stronger, international, intermodal demand.
for the fourth quarter of 2024, we expect upering income to be modestly higher than the level achieved last year. I'll now turn the call over to Joel for a review of our financial performance.
Thanks Matt, please turn to slide 12 for a review of our third quarter results.
For the third quarter, consolidated operating income increased 110.2 million year over year to 2.423 million with higher contributions from ocean transportation and logistics of 108.7 million and 1.5 million respectively.
The increase in ocean transportation operating income in the third quarter was primarily due to significant higher freight rates in China and higher freight rates in the domestic trade lanes, partially offset by higher vessel operating costs.
Speaker Change: As Matt noted, the increase in logistics operating income was primarily due to higher contributions from supply chain management and transportation brokerage.
Speaker Change: We had Interest in Comma of 10.4 million in the quarter
and the quarter-deacreased by 0.6 million year-over-year due to the decline in outstanding debt in the past year.
net income increase 66.1% year a year and deluded earnings per share increase 73.2% year over year with a difference between the two due to a 4.2% decrease in the deluded weighted average shares outstanding.
Speaker Change: Please turn to slide 13.
This slide shows how we allocated our Tritling 12 months of cash flow generation.
Speaker Change: For the LTM period, we generated cash flow from operations of approximately 74.5 million from which we used 39.7 million to retired debt, 205 million on maintenance and other gap-ups.
Speaker Change: 40.6 million on new vessel cat backs, including capitalized interests and owners items.
35.5 million in cash deposits and interest income in the CCF, net of withdrawals from milestone payments.
12.3 million on other cash outflows, while returning approximately 259.1 million to share holders via dividends and sharing purchase.
Speaker Change: Please turn this slide 14 for a summary of our Sherry purchase program in Balanced Sheep.
During the third quarter, we repurchased approximately 400,000 shares for a total cost of 48.1 million including taxes. Here today, we repurchased approximately 1.4 million shares for a total cost of 169.2 million including taxes.
Since we initiated our shared purchase program in August of 2021 through September of this year, we have repurchased approximately 11 million shares or 25.2% of our stock for a total cost of approximately 925 million.
As we have said before, we are committed to returning access capitals, shareholders and plans to continue to do so in the absence of any large organic or inorganic growth investment opportunities.
Turning to our dad levels, our total debt at the end of the third quarter was 426 million, a reduction of 10.1 million from the end of the second quarter and 30 million year to day.
with that. Let me now turn to slide 15 and walk through our outlook for the fourth quarter of 2024 on the left-hand side of this page.
We expect Ocean Transportation, operating income for the fourth quarter, 2024, to be meaningfully higher than the 66.4 million achieved last year.
Speaker Change: We expect our China service to continue to see elevated rates in the fourth quarter and for the rates to be significantly higher than the levels achieved in the year ago period. But lower than the average rates achieved in the third quarter of this year as peak season demand eases.
For our domestic trade lanes in aggregate, we expect full-year volumes to approach the levels achieved in 2023, and we will be able to create a new and more efficient and more efficient way to reach the level of the economy.
for logistics. We expect offering income in the fourth quarter of 2024 to be modestly higher than the level achieved last year.
Lashley, we expect to have an effective tax rate of 22% in the fourth quarter of 2024.
On the right-hand side of this slide, we expect to follow out look items for the full year.
Speaker Change: Depreciation and Amorization to approximate 180 million, inclusive of 27 million for dry dock amorization.
Interest income to be approximately 47 million and has noted in the second quarter this includes 10.2 million and interest income earned on our federal tax refund that was received on April 19th of this year.
Speaker Change: Interest expense to be approximately 8 million, other income to be approximately 7 million, and
Moving to slide 16, the table on this slide shows our capex projections for the full year 2024.
Compared to what we said previously, provided on our second quarter call in August, arranged for maintenance and other capital expenditures is the same at 110 to 120 million.
Speaker Change: We tightened our range for our LNG and re-engineering projects to 85 to 90 million versus 85 to 95 million previously. And our new vessel milestone payments increased slightly by 2 million to 77 million.
So, overall for the year, we now expect total catbacks of 272 to 287 million. I would like to note that we completed all of our LNG projects with Kamani Hila exiting the dry dock in October and we expect that vessel to be back in service starting next week. Please turn to the next slide.
Speaker Change: We are excited to share the update that on September 30th construction officially began on the first of our three new Aloha class vessels with the first cutting of steel at the fillet shipyard in Pennsylvania.
Upon delivery, these new vessels will have dual fuel engines capable of operating on both conventional marine fuels and LNG. As a reminder, we expect to carry approximately 15,000 more containers per year in our China service once all three vessels are in service.
We currently expect the first vessel to be delivered in the fourth quarter of 2026 and the remaining two vessels to be delivered in 2027. Please now turn to slide 18.
The table on the slideshow's art, expected milestone payments for the new vessel build program.
As of September 30th, we had cash deposits of 635 million in the CCF and cash and cash equivalent of 270 million. These two balances combined exceed our remaining milestone payments, so we are in a great funding position on the Newville program.
Speaker Change: Lastly, I would like to point out that in October, we made the reference fourth quarter milestone payment of approximately 36 million. I will now turn the call back over to Matt for closing remarks.
Matt: Thanks Joel. Our year-to-date results were very strong, primarily driven by elevated rates in the last two quarters in our China service.
and in the fourth quarter, we expect our consolidated operating income to be meaningfully higher year over year as our China service freight raids remain elevated.
Although lower than those achieved in the third quarter. As a result, we expect to close out 2024 on a high note.
As I said on the last earnings call, we had some point expected elevated freight rates in the specific trade lane to moderate.
But the timing will depend on the persistence of the underlying economic, supply chain, and geopolitical conditions.
At this moment, it is unclear if any of the elements of risk will normalize during 2025.
We will wait until our burning skull in February to provide our outlook for the year ahead.
and with that I will turn the call back to the operator and ask for your questions.
Speaker Change: Certainly, and our first question for today comes from the line of Daniel in Pro from Stephen's. Your question, please.
Hey, good afternoon guys, thanks for your questions. Hi, I know.
and once or maybe on a New Yorkshire, one of the race-side obviously topical and Matt Sturker Backs off the rate was strong. It sounds like you're expecting the moderation in Bork U, but...
Maybe Howard Reach trended as we love the ocean peaks season. Ocean race broadly has fallen, but it looks like the air market, air freight market remain tight. So how should we think about your pricing and maybe a second part of that question is, I know you guys typically don't like to quantify it, but anyway, you can help investors think about.
and what year anticipating from this question will rate that down at the end point just as a journey of calibrating expectations.
Yeah, I would say the first point to note is that we expect overall to see a moderation.
and more in the line with traditional, you know.
Q3 versus Q4 in the opportunities for earnings. If you look, I'll answer more specifically your question in a moment about what we're seeing, but if you just take a step back.
Matt: The third quarter is always our strongest quarter.
followed by the second quarter and then the fourth quarter and the first is the weakest. And so there's a pattern that we expect to be repeating itself. But on a base that is higher than we initially expect to go into the quarter.
If you look at the trade dynamics, now we're a lot of them.
Product that is carried in the Trans-Pacific and frankly globally.
where you get into the festive season of Thanksgiving.
and Christmas is largely on the water or on its way into the various warehouse and distribution systems of our large customers. So they have product on hand for the selling seasons. There are, and so we're seeing sort of a traditional moderation there.
There's a couple of uncertainties and a couple of structural changes that have been occurring over the last five years.
and we see more e-commerce sales as compared to traditional retail. That cargo tends to be a little less seasonal. And so that's an element that's happened over the last three, four, five years and we expect that to continue.
Matt: Um...
There are some continued questions about a...
the ILA contract renewal mid January we haven't thoroughly loon or new year this year.
and so there's a lot of fact, there are some things that are happening on the margin that may impact the fourth quarter. But those are all factors of course the president and to election.
Potential Terrace. Lots of things up in the year that would.
and the fourth quarter. As we look back on the fourth quarter, once these events have occurred, to be able to give more color on it. But overall, I think we still feel that we're going to be performing well in the fourth quarter above the fourth quarter, well above the fourth quarter.
and the previous year. So that's, and then with regard to the questions about trying to be more specific, I'm going to turn that one over to Joel to see if he can provide any color. But you know, I think he ate all the key points Matt. So I mean...
Daniel, we expect because of the rate environment Matt just discussed, we're going to have meaningfully higher earnings, this fourth quarter versus vice-year's fourth quarter, and it's due to a lot of the trends and strengths that Matt just mentioned, so nothing really doubt there.
Girl, a pop.
Speaker Change: and then maybe the follow-up question on the sealist, Max Lines. I think you guys have shorter these ships. Last few years and you've noted you've locked in a boat market rate because when you locked in men, I mean, when do those ships reprise as we think about the back half of this year in 25? And what kind of operating margin tailwind could that be next year as you begin to reprise some of those shorter costs?
Speaker Change: Yes, Daniel. So, thanks that question. So we've actually extended all of our charters now for the six ships in the Max service into 2026.
and a couple actually into 2027.
So I can tell you that the charter market is still pretty tight right now, so rates have moved up relative to where the charter market rates were, let's say nine or 12 months or so ago. But there will be a little bit of favorable cost for us, it won't be huge, but we're looking at a number around $8 million in 2025.
Speaker Change: of lower charter costs than 2024. So a little bit of benefit there on the cost side. The most important thing does was to lock in these vessels that really meet our service requirements. And we feel really good that we have that now into 2020, 6th of 2020.
Speaker Change: Hope, hope, like us.
Daniel Pro: Thanks Daniel.
Thank you and our next question comes from the line of Jake Lacks from Wolf's Research. Your question please.
Hey, man, hey, draw up. Thanks for your time. Hi, Jake.
So I guess big picture feels like the import data we looked at remains pretty robust and contrast to a lot of domestic freight data we get. How sustainable do you think this is? And is it just a lot of pull forward or is there some reason that maybe import levels should be structurally higher here?
Yeah, I think it's Jacob combination of the two. I think if you look at and we look at the health of the US consumer, which has, you know, we've talked about the consumer hanging in there, and we expect that to continue, you know, I know,
U.S. GDP, Pranth just came out and the economy remains.
Strong, and that's one of the main factors in what we're seeing in terms of underlying demand.
Daniel Pro: as far as the elements that are maybe more structural. I do believe that we're seeing we, Mattson, in our expedited segment in the Trans-Pacific, are seeing the benefit of really two things that we've talked about before. One I talked about a moment ago which is a conversion.
Speaker Change: of...
Ecommerce relative to traditional commerce. Ecommerce wants to move faster and we see that Ecommerce is growing faster than traditional retail sales. We think that's a positive. We also see ongoing conversion of air freight into our expedited product for those customers.
who are taking advantage of a significantly lower cost and for some customers significantly reduced CO2 footprint. We think those also are factors. Then the other factor that I think we saw.
is a route, some uncertainty around the ILA.
Speaker Change: Contract Extension, questions about its renewal and some of our customers we were told has de-ricks by moving it over West Coast routings.
and we understand it now given the January 15 contract renewal, making sure that they have adequate inventory, not access inventory, but adequate inventory to find their way through any potential disruption until that's finally settled. Those are some of the factors that I think they're playing into.
the strength that we're seeing in our business.
and that's helpful. And then in the past, I think you've called 2023 maybe more of a normal year.
Has anything changed over the past year and sort of?
Speaker Change: and what respect you view as a good baseline of operating income, if we want to start think of more normalcy in 2025 and beyond.
Yeah, I mean a year ago the question just taking a step backwards during the pandemic we had extraordinary earnings we knew they were going to last.
We saw 2023 and we thought this could be our new normal and then events of overtaken our actual performance in 2023 to show significantly higher performance in 2024. I don't want to abandon an idea of one happy day when everything is working as it should, or when that could occur. I do think that they're...
Speaker Change: Um...
I would make two comments. I think given Matthew's positioning,
Speaker Change: and Control of our supply chain and our product offering, we can react better than other carriers to meet changing market conditions and we're really feel good about our positioning.
Speaker Change: We do think that at some point, some of these uncertainties, whether it's the Red Sea or other geopolitical uncertainties, will...
Change, or normalize, that would likely have a reduction in freight rates both in the entire transphasific market and ours would be taking down somewhat in sympathy to those.
but it's really hard to know when that would occur. Whether 23 turns out to be our new normal or whether it's something a bit higher, it's really hard to say but we do like our positioning.
Speaker Change: We like our performance, we continue to believe that in the China service if we can remain the fastest and most reliable with CLX being the number one and max being number two, we're going to have the ability to harvest more of the economics of that expedited market than anybody else. So...
That's a long winded answer but those are just some of the thoughts.
and then maybe just a couple of quick follow-ups on the charter question from earlier. Are you going to continue with six vessels in the max lead or will you move back to five? And then I think a couple of at least a few of the contracts were at least scheduled to.
625 could there be another step down in Causton?
26th Ann, or is that it? Is that 8 million just a good run rate to keep in mind?
So on the first question, Jake, so yes, six is what we feel is the adequate number for that service. That provides us flexibility to maintain on-town departures and on-time arrivals.
So we think of that as really a permanent six ship fleet.
Speaker Change: So that's the number that we focus on. And so yeah, 825 or 24 is the number for 2026. We've got a couple coming up in 26 and then the rest in 2027 and they won't be dramatically different. So there's not going to be a meaningful step down between
Speaker Change: 26 and 25.
The second part of your question, Jake, but again, I want to underscore the most important thing to us is having vessels that meet our really unique service requirements, not all the vessels in the world of this size. Fit that so it's important for us to find the right vessels, lock them in, we've done that.
and that was the most important objective we've had in the last quarter or two. It was we looked at our fleet for the max service in 25, 26 and 27.
Speaker Change: and Jake, this is Matt, I would just add one other comment. We are the only ocean carrier in the world that we know of. That adds an extra shift into a 35 day rotation.
because we are so committed to delivering this on time. We think it's a big differentiator and allows us to significantly outperform our rivals.
and Charger Premium for that extra cost that we incur. So more than recover in the cost. So the model is different and we think it's essential to our branding and to be able to deliver because if there's a...
Fog and a port closure, that affects everyone. Our ability to respond faster than everyone puts us in a better position. So, we can't control the weather or other kinds of things, but we certainly think this is an investment that more than pace for itself.
Speaker Change: Make sense, really appreciate the time. Yep, thanks, sure, thanks, Jake.
Thank you and our next question. Come to the line of Ben Nolan from Steephal. Your question, please.
Alright, and I say what, I've already, you have a voice for the job. The...
Ben Nolan: I've got two questions, well I guess I'm only allowed to questions but my first is on SSAT was meaningful better I think last quarter you'd said that there was sort of a lag effect because SSAT is sort of over-leveraged to Oakland and the Pacific Northwest relative to Southern California.
Ben Nolan: First of all does that mean that it does look like Oaklandis?
Had a lot more volume and so there's more volume in that category but then the second part of the first question is As you think about that, is M. more volume coming into Northern California? Is there any thinking about resurrecting the CCAxidol?
Yeah, I've been this Matt, and I agree with you, this...
Speaker Change: and a person who's helping us with this conference call has got an awesome voice, so 100% agree with you. With regard to your more important comments.
I think when we talked about SSAT in the JV, we were talking about its recovery, likely taking
Beyond 2024 that we've got through the pandemic and got to the other side.
Speaker Change: Relative to what we said at the beginning of the year, we've seen a little bit better performance.
Speaker Change: and there were no service changes, you know, new strings added that are calling our customer terminals anywhere.
but we saw Justin orderly transition of slightly larger vessels that are moving over our operating terminals. We also said that the PNW where we had surplus terminal capacity.
was in particular lighter than we hoped it would be.
Speaker Change: So I think what's happened is we take a step back and have the benefit of a little bit of hindsight. I thought we saw more volume in the trans-specific and through our joint venture terminals.
Speaker Change: as a result of...
Speaker Change: the return of cargo.
Speaker Change: through the trans-specific that had migrated elsewhere during the ILWU West Coast contract renewal. And then we, that's we mentioned, we saw some incremental cargo.
that moved over trans-specific vessels associated with the ILE contract renewal that currently in process. So I think those were both factors. There was incrementally more volume in Oakland, but not materially. There was a threat of a Canadian...
Strike that brought some PNW cargo down or individual calls for concerns about that. So there were little things that have happened. But I think our feeling at SSAT is it's hit bottom. It's on its way to recovery. You know, how quickly that occurs will be subject to lots of things. But I think we definitely feel like we've hit bottom and we've come off that bottom. If that provides enough color for you.
and then anything on Resurrection, the CEO. Oh, sorry, yeah. I blocked that question out of my mind. Yeah, no. I would say it's a good question.
are always asking ourselves where and how can we grow.
and how are we going to leverage this wonderful brand we've created. And I think as we look at it, first of all there's no announcements or anything, but what we have to do as we think about it is...
Speaker Change: Fine.
and Market in which we can be competitive with airframe that we can find five or six fast vessels on charter.
that we have the ability on the US West Coast through our Shippers Transport.
Infrastructure to be able to handle that, whether that's current sites or new sites or whatever. And if we can't be satisfied that we can't provide a highly differentiated service.
Speaker Change: and earned a reasonable premium for it relative to the other market rates. Those are all going to be factors in our decision and just, you know...
Speaker Change: One item at this point, there are very few, as Joel mentioned in the discommence on the chartering, very few vessels of our speed and size on the market available for charter. So obviously charter markets, all markets change. We will continue to look at...
Can we expand our significant brand into other markets around the world? And I think that Tosh feels like a good long-term something to keep an eye on as we figure out how we're going to grow.
Speaker Change: Okay. So for my next question, you were talking about some of the e-commerce stuff and it's been pretty topical within broader transport lately, especially around some of the Chinese companies like Xi'in and T.M. and they're doing mostly air freight and it has been sort of a problem for some of the parcel guys trying to get away from them a little bit. Curious where you sit in that.
Speaker Change: and that spectrum and with respect to that type of shipper is that.
Speaker Change: Something you're doing is an opportunity is it something that maybe doesn't fit what you're doing. Just any color around that, this sort of new dynamic. Sure, yeah. And the market itself is evolving the players are evolving obviously. Amazon is the 600 pound gorilla, but you mentioned trying to team with who have said publicly.
The Minimus Trade Exemption
Speaker Change: that allows for a lower cost terror structure. They raise the dominimist threshold.
2016 from $200 to $800 and that has created that segment of that market. The shiny team move today almost all of their freight, the air freight in those markets. They themselves have said they expect this de-minimumous trade exemption at some point to go away. Their products are really low-priced and their model is going to be evolving for, but if and when this de-minimumous exemption closes,
Speaker Change: We also think that over time.
that China team will, while we see very small amounts of their cargo moving into our network through our freight forwarder customers.
We expect that air-free country.
Speaker Change: and Conversion of those customers, especially with the de minimus exemption going away to look more closely at expedited ocean, as all of our air freight customers are looking at whether or not our product would solve their need. And again, we like the macro of...
Ecommerce, and we're regular discussion with all of our Ecommerce customers.
Speaker Change: and those customers who sell into the Amazon and...
Speaker Change: and the other networks.
Lots of opportunity, I think, generally, there are different paths for each of these people because they're in their own...
and a different journey and trying to tackle different parts of the e-commerce market, which is not one thing that probably ten things. But generally we're feeling good about where we're positioned, relative to all the dynamics that are at work right now.
and I appreciate it. Thank you.
Speaker Change: Okay, thanks Ben.
Thank you and answer a minor ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone.
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and I'm not showing any further questions in the queue at this time. I'd like to hand the program back to Max Ceele, Freddie Freddy for the remarks. Okay, thanks very much, operator. I just want to say thanks for everybody who's listed in on the call. We'll look forward to catching...
Speaker Change: up with everyone after the holidays on our urine call.
Speaker Change: Have a wonderful holiday thanks.
Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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