Matson, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Consolidated operating income increased $45.2 million year-over-year to $82.1 million. Ocean Transportation up $46 million, Logistics down $800,000. Interest income $9.4 million, $600,000 higher year-over-year. Interest expense down $500,000. Net income up 100.3% to $72.3 million, EPS up 109.6% to $2.18 per share.
• China Service Insights: Tariffs and global trade uncertainties impact; 30% year-over-year container volume decline since April. China Plus One strategy continuing. New direct service from Ho Chi Minh; expect disruptive transpacific conditions; retailers will need to restock.
• Logistics Update: Operating income lower year-over-year due to freight forwarding and transportation brokerage; supply chain management partially offset.
• CapEx and Cash Flow: Maintenance and other CapEx range lowered to $100M-$120M for full year 2025. New vessel construction milestone payments unchanged at $305M; next cash contribution to CCF not until 2028.

Segment Performance

• Hawaii: First quarter container volume increased 3.2% year-over-year. Excluding competitor vessel dry docking, volume would have been flat. Full year 2025 expected comparable to 2024.
• China Service: Volume 1.4% lower year-over-year in Q1. Freight rates higher from Q4 2024 carryover. Since April tariffs, container volume down ~30% year-over-year. Expect lower volume and rates in Q2 and full year 2025. New direct service from Ho Chi Minh to CLX and Mac Shanghai departures launched.
• Guam: Container volume decreased 14.3% year-over-year in Q1. Near term expected stable with slow tourism recovery.
• Alaska: Container volume increased 4.8% year-over-year in Q1. Near term expected continued economic growth.
• SSAT: First quarter contributed $6.6 million, down $6.2 million year-over-year. 2025 expected lower than 2024.
• Logistics: Operating income $8.5 million in Q1, down $800,000 year-over-year. Lower contribution from freight forwarding and transportation brokerage, partially offset by supply chain management. 2025 expected lower than 2024.

Guidance

• Lowered 2025 outlook due to tariffs, global trade, economy, geopolitics.
• Expect Ocean Transportation operating income lower year-over-year; Logistics operating income lower. Q2 Ocean Transportation operating income meaningfully lower than Q2 2024. Full year 2025 consolidated operating income lower. Maintenance and other CapEx range lowered; new vessel milestone payments unchanged.

Risks

• Uncertainty regarding tariffs and global trade.
• Regulatory measures.
• Trajectory of U.S. economy.
• Geopolitical factors.
• Potential higher container equipment costs.
• Lower volume and merchandise tariffs impacting customers.

Question and Answer

Q: Maybe a couple starting on the ocean side. Obviously, a lot of moving pieces here quarter-to-date, Matt. But if we think about Vietnam and the Catch Mid Basin, you've built out, just curious how much capacity is down there? I think you said you set up a second direct service in the quarter? I guess if we think about the infrastructure down there being less familiar, how much volume could you pick up if those 2 direct services really ramped relative to offsetting maybe what's coming out of China as we just think about what you're building and the ability to maybe expand into new markets to offset the China weakness?

A: Yes. Good question. Thanks, Dan. The first thing I would say today out of Vietnam, approximately 20% of our current volumes week-by-week with the recent introduction of Ho Chi Minh, is originated in Vietnam. We have the ability to increase that volume to the extent that they're pretty significantly -- we're in regular dialogue with our feeder partners in Asia. They have the ability to swap out for larger vessels if needed. And meet our requirements for connection over Shanghai. So we have pretty good ability to size that up if that's where the market goes. I think it's interesting as we reflected on it because Vietnam itself, of course, has grown very rapidly in part in my prepared comments, we're talking about the increase on the China Plus One strategy that was implemented under the first Trump administration as people tended to de-risk. And Vietnam has grown rather significantly, but Vietnam has some of the same issues as many fast-growing Asian economies, they've got shortages of power, they have shortages of labor, both in the north and south. And they're pretty busy before this significant tariff change to begin with. So it's not obvious to what extent the country itself and scale over such a short period of time. But as I said in my comments, we're going to follow our customer. If our customers are able to shift some of their production there, we will be following them. So that maybe I've over-answered your question, but we do have the ability to scale. The only other thing I would say is Ho Chi Minh, our newly started service also has pretty good connection into Cambodia, where quite a bit of production is -- has been growing rather quickly as well. So as I said, we're going to follow our customers as this evolves.

Q: So with China volumes down so dramatically, does it make sense at some point to start temporarily canceling some MAX sailings similar to what we see during Lunar New Year?

A: Yes, it's a very good question. I think our view -- I think there's a duration question here. I think our brand is to not blank any sailing at any point in time because it's our view that in 4 to 8 weeks when a lot of inventory runs out, that our customers had tried to preload or whatever the individual circumstance of our customers, cargo's going to need to move. There's a lot of activity going on right now as we understand between the manufacturers of product, the importers and the retailers about how to cover the cost of these tariffs. Our customers are loath to have empty shelves to the extent that they can help it. And we think that a significant amount of cargo will be moving at the last minute, and we've seen lots of changing patterns of demand as all of this capacity and supply and demand come into balance. And so it is really our goal to -- when our customers look back at this very disruptive period to know Matson and our franchise stands for on-time arrival, no blank sailings. If economic circumstances come to pass it. We need to evaluate that, then we'll evaluate it. We'll cross that bridge, but that's not at all where our heads are at right now.

Q: Good discussion and a couple of questions or a couple of follow-ups from my end. And maybe just on this last point of the de minimis exemption. I know it's still very early, but do you think maybe perhaps longer term, indeed, that this could be an opportunity to grab market share, perhaps more permanently from airfreight? Is that kind of the tough process? I know it's, again, still early, but is that kind of the thinking here long term?

A: Yes. I mean I think the de minimis exemption in my personal view, is not going to be negotiated away with an eventual settlement with China. I think that's just -- that's not coming back. And so there will be -- those business models were sort of built on this exemption. And now that they're gone, it necessarily will have the effect of increasing the ocean market through the closure of this loophole. To -- and a certain portion of that e-commerce, just like our other e-commerce category, we're going to get a shot at a portion of it wants to or needs to move quickly to replenish. And so I do think that's an opportunity. It will be interesting to see exactly how the air freight markets reset because there's going to be, at least in the short term, significant excess capacity for air freight that market itself will need to -- the capacity will need to move and get reoriented. So yes, but I think that change is here to stay and will produce more opportunity for the ocean carrier.

Q: I appreciate it. And I also appreciate you guys being forthright with respect to sort of how this is happening. So first of all, can you maybe talk through, are there anything that you can do to sort of help mitigate. I mean, obviously, there's the catchment basin thing and picking up volumes from Vietnam, and it doesn't sound like you're going to be doing any blank sailings. But are there other things on the cost side or just anything else that can maybe a toggle that can be pulled to help offset the impact of what's going on here?

A: Yes. I think, Ben, the question for us is what's the duration of this and what does it look like when we get back. So we've done what I think every company in the United States has done, which is we've looked at our capital spending to see which can be deferred. We've put a head count freeze in place. We've curtailed our spending levels. We're doing everything we can. And while we determine where the new -- once things settle out, the hope here is that the U.S. economy can avoid a recession. If we find ourselves in when there are other changes in costs that we could undertake. And certainly, having done this for a long time, we know how to do it. Our view now is to do those things which are obvious, but allow us to retain the optionality to recover. And you'll recall from the pandemic that when the normalization occurs, there's likely to be a snapback of activity, and we want to be ready with our deployments to be able to take advantage of that when it occurs. And the bigger the snapback will be the longer that this goes on. So I think we don't want to downsize and reduce our ability if we can't put it back in place relatively quickly. And I think we get brand points for having looked back and said we didn't blank any sailings. We were there as a trusted partner. And I think that for the long-term value creation is there. So we'll watch this as it goes. We're not making any permanent decisions. Everybody is kind of flexing and we're -- obviously, every company, including ours, has been doing a lot of planning and strategic planning and scenario planning. So we're not going to -- we're going to act when it's appropriate, and it's obvious that we need to do something and are not afraid to do that.