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With Horizon Gone, Matson Profits Soar
By Michael Hansen @ 12:12 AM :: 2957 Views :: Jones Act

by Michael Hansen, Hawaii Shippers Council, November 4, 2015

The financial service Seeking Alpha posted the transcript of Matson Inc. (NYSE: MATX)’ earnings conference call held at 4:30 p.m., November 4, 2015, and covering their third quarter 2015 results. The financial analysts, who are invited to participate in the conference call, ask the company’s executives questions that provide additional insight into the company’s reported results.

The Matson executives who participated in the earnings conference call were: Matt Cox, President, Chief Executive Officer; Joel Wine, Senior Vice President, Chief Financial Officer; and, Jerome Holland, Director of Investor Relations.

The Analysts were: Jack Atkins, Stephens; William Horner, BB&T Capital Markets; and Steve O'Hara, Sidoti & Company.

The most revealing questions and answers were in the order of which they were made:

Jack Atkins of Stephens asked, “Could you talk about your current fleet deployment?”

Matt Cox answered, “Basically the Hawaiian market, we have seen as we noted an increase in demand for our service; immediately prior to the close you may recall, we were in a nine ship deployment. We were 95% plus utilization. The additional volume that we received associated with Pasha’s deployment changes that you may recall involve them no longer calling the Northwest, choosing an indirect service from Oakland, but adding more capacity to the southern California market . . . . .

We then moved to a 10 ship deployment and then as a result of a mechanical failure of one of the Pasha vessels we deployed an 11 vessel. The 11 vessels in operation, we do expect before the end of the year to revert back to a 10 ship deployment and our overall utilization has been if you look at the entire fleet, right now the 11 ship probably in the low 90% utilization.

Atkins asked, “You all mentioned the softening and demand coming out of China. I think the first time I’ve heard you guys talk about that in a while. Could you maybe speak to what’s driving that . . . . .”

Cox replied, “You’ll note that we called it out third of the three conditions under mix. We are seeing lower China volumes, the first being the one fewer sailing, the second being the absolutely unbelievably strong demand in the fourth quarter of last year associated with all the frustrated cargo around the labor disruptions of last year, but it was notable that we did see a little bit of softness.

William Horner of BB&T Capital Markets asked, “. . . . . going back to Hawaii . . . . ., obviously you have the 10th and the 11th vessel deployed temporarily at the moment. I’m just trying to get a better sense on looking at next year and how we should think about the Hawaii market in terms of the construction activity ramping up and things like that.

Cox answered, Yes, so we are definitely seeing a continuation of market growth. The overall market is growing we think in the 2% to 3% range.. We see it as sustainable. There’s a significant round of construction activity that we think is going to continue.

Horner asked, “Can you remind us, obviously the construction cycle has been the theme for the past couple of quarters and it seems to be accelerating. Can you remind us how much of your container volumes are currently comprised of building materials and where this is relative to the recent peak.”

Joel Wine Mason Senior Vice President and Chief Financial Officer, replied, “Right now we are about 7% William and the previous peak was the high teens around 18% or so, and that would have been 10 years ago in 2005.”

Steve O’Hara, Sidoti & Company, asked, “ I was wondering . . . . . if there was a way to . . . . . quantify the . . . . . impact from having an additional ship . . . . . Is there a way to kind of tease that out from whatever the impact was from the service changes they had other than that.”

Cox answered, “. . . . I would say that clearly we saw an increase in volume associated with the service changes and as a result of the mechanical failure, you will recall that we do have reserve ships. Those ships are our least efficient ships and so when we deploy them there is additional volume, but the cost and fuel cost and other things are disproportionally higher, which eats into the margin on addition volume we are carrying.”

O’Hara asked, “I think in the past you had said that Alaska had more I guess, was more peakey than Hawaii and that the margins in the lets say the wear periods or 1Q and 4Q weren’t as strong. Maybe a little bit more in terms of the way they ramp versus the Hawaii business.

Wine replied, “So you are touching upon seasonality there at Alaska and we have commented that it is a more seasonal business than our Hawaii business. So the weakest quarter tends to be the first quarter and the second weakest quarter is the fourth quarter, and then you have a stronger second and third quarter than you do on a relative basis to Hawaii.”

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