Matson, Inc. Q2 FY2025 earnings call

• Second quarter financial performance exceeded expectations despite market uncertainty and volatility from tariffs and global trade. • Ocean Transportation operating income lower YOY due to lower China volume; domestic trade lanes had mixed volume trends. • Logistics operating income lower YOY due to lower transportation brokerage contribution. • Expect uncertainty regarding tariffs, global trade, etc. to continue, but raised full year 2025 outlook. • Hawaii economy stable but faces headwinds; China service volume down due to market uncertainty; Guam and Alaska have mixed volume trends; SSAT terminal JV contribution up; Logistics operating income expected comparable to prior year for full year.

In Ocean Transportation, operating income was lower YOY primarily due to lower volume in China service. Domestic trade lanes: Hawaii and Alaska saw higher YOY volume, while Guam had lower. Container volume in Hawaii service increased 2.6% YOY. China service volume decreased 14.6% YOY. Guam volume down 2.2% YOY. Alaska volume up 0.9% YOY. SSAT terminal joint venture contributed $7.3M, a $6.1M YOY increase. In Logistics, operating income was $14.4M, $1.2M lower YOY primarily due to lower transportation brokerage contribution.

• Raised full year 2025 outlook. • Third quarter Ocean Transportation operating income expected to be meaningfully lower YOY. • Logistics operating income in third quarter comparable to prior year, and full year 2025 expected comparable to prior year. • Maintenance and other capital expenditures range $100M-$120M for full year 2025. • New vessel construction milestone payments in 2025 unchanged at $305M, with milestone payments expected from capital construction fund covering ~92% of remaining obligations.

• Uncertainty regarding tariffs and global trade, regulatory measures, trajectory of U.S. economy, and other geopolitical factors.

Q: You discussed expectations for lower volumes in 3Q. I think you had a couple of extra sailings a year ago. So is this just reflecting lapping those extra sailings? Or is there a bit of a utilization headwind that we should be keeping in mind as well?

A: Yes. I think it's -- there's 3 or 4 factors going on here, Jake. I think the first one, we noted that in last year's numbers, there was some extra demand, as you point out in your question. Those resulted in some extra sailings as well as a very healthy freight rate environment. I know we're talking about volume here. And then the other primary factor, although we see the consumer holding up reasonably well in this environment, retail sales are holding their own. We are understanding that many of our customers are in pretty good shape on their inventory, some of whom took advantage of these pauses to if they could work a deal with their manufacturers to bring in inventory early. And so our view is that we're going to see a peak season, but it will be relatively muted. And so those are some of the factors that are going into our thinking about Q3 year-over-year comparisons.

Q: I want to start a little higher level. Maybe just on the developments happening in Southeast Asia. I think last quarter, you talked about the Vietnamese service doubled pretty quickly. I'm sure it grew here further in 2Q. Just as you're seeing the catchment basin develop, like what kind of infrastructure investments are needed in those markets? I guess what does the path forward look like as we figure out whatever this post-tariff or new tariff world is and how Matson can continue to maintain its leadership in that Southeast Asia part of the world?

A: Yes. Okay. It's a good question. I think from us in our approach to these markets, we're really going to be first listening to our customers. Where are they going to be moving their production if they're going -- if their goal is to move a larger percent of their manufacturing capability out of China? And where are they going next? And then part of our strategy is we believe that over the long term in various countries, if we can have the fastest and most reliable services, not just from our main Shanghai destination and Ningbo, but from these other origins. So we're looking closely at working with feeder partners, those that have existing services or those that are willing to establish new services that have and can share, we'll do a survey in each of these country origins, who's the fastest out of those services directly to the West Coast? And can we beat them. So we're not going to -- our goal is not to become a generic average service offering in terms of days, it's really important for us to be fast. So once we've heard from our customers, once we've determined whether we can make a competitive origin transit, if we can find a new partner or the same partner in different markets that would give us that differentiated service, and we're going to grow in those ways. The other thing I would note is, for example, in our Vietnam services, we do see cargo that moves over land from other locations like Cambodia into Vietnam. So it's not just those that can serve, but those that are in close land proximity, including a cross-border from those origins. So I think it's going to be a combination of those things. But long term, we -- our strategy is to be the most reliable and fast out of each of these origins as we evolve.

Q: Obviously, things have progressed quite a bit better than initially expected, at least relative to, say, 3 months ago. I did want to maybe just follow up a little bit on how things are progressing here quarter-over-quarter. I understand it's a little too short term. But just maybe in general, there's been a lot of volatility this year, especially in 2Q where things started slow, they ramped. You mentioned initially last quarter that April volumes were down 30% from China. They ended up being down 14.6%. Obviously, we know 3Q, as you said, is going to be lower on a year-over-year basis. But given that you're seeing so far a muted peak season, can we assume that the run rate volumes for China in this coming quarter are going to be somewhat similar to the run rate that we saw for the final 2 months of this past quarter?

A: Yes. Omar, it's Joel. Yes, that's a fair assumption. We do have a slightly different number of vessels in capacity this year versus last year. So there's a little bit of each weekly departure capacity that we offer compared to last year. But the overall trend of what we're calling this third quarter that we continue to see here in July is consistent with the last, call it, 6 weeks or so from mid-May through June in terms of the demand that we're seeing. So yes, I think that's a fair way to look at it.