Journal of Commerce: Horizon Loses $126.4 Million, Expects Stabilization
Carrier expects better results after refinancing, ending trans-Pacific service
by Joseph Bonney Nov 7, 2011
Horizon Lines lost $126.5 million from continuing operations in the third quarter, compared with a $8.2 million net profit a year earlier, but expects its recent refinancing and exit from the trans-Pacific market to stabilize future results despite “challenging” economic conditions.
The results, announced after the market’s close Friday, included a $117.5 million goodwill impairment charge stemming mainly from the shutdown of the trans-Pacific service and deteriorating earnings. Horizon said the amount of the goodwill impairment is an estimate that may be adjusted during the fourth quarter.
Horizon announced last month it would discontinue its services between the U.S. West Coast and Guam and from China to the United States. The service’s last scheduled sailings are this week.
The company said it expects the shutdown of the trans-Pacific service to produce a pretax restructuring charge of $105 million to $110 million in the fourth quarter, following negative adjusted earnings before interest, taxes, depreciation and amortization of approximately $43.7 million for the year’s first nine months.
Horizon launched the trans-Pacific service last December after Maersk Line did not renew a take-or-pay agreement for eastbound capacity on the backhaul of Horizon’s service from the U.S. mainland to Guam. Horizon is laying up the service’s five chartered ships, each with capacities of 2,824 20-foot-equivalent units, and seeking to subcharter them.
The new trans-Pacific business helped boost Horizon’s operating revenue 8.2 percent to $321.9 million in the third quarter and 5.9 percent to $914.8 million through the year’s first nine months.
But operating expenses rose 16.1 percent to $280.9 million in the third quarter and 14.3 percent to $830.3 million during the years’ first three quarters. Horizon’s vessel fuel costs increased $46.4 million through September.
Horizon’s continuing operations produced negative earnings before interest, taxes, depreciation and amortization of $98.6 million in the third quarter, compared with positive $33.2 million a year earlier. Adjusted EBITDA fell to $21.9 million from $36.6 million.
Horizon said economic conditions in its domestic markets are continuing “at a slow and uneven pace.” The carrier serves Puerto Rico, Hawaii and Alaska in addition to the discontinued Guam service.
The company said it expects to be in compliance with its debt covenants through 2012 as a result of its recently completed $652.8 million refinancing that staved off the threat of defaults.
“We believe the refinancing, together with the decision to terminate our trans-Pacific service, positions us on solid financial footing with adequate liquidity to fund both the shutdown (of the trans-Pacific service) and continuing operations, and with the opportunity to deliver a more predictable financial performance in the future,” Horizon said in a filing with the Securities and Exchange Commission.
American Shipper: Horizon reports $126 million loss in 3Q