Matson Q4 2024 Earnings Report

Matson EPS Results

• Actual EPS: $3.80
• Consensus EPS: $3.20
• Beat/Miss: Beat by +$0.60
• One Year Ago EPS: N/A

Matson Revenue Results

• Actual Revenue: $890.30 million
• Expected Revenue: $851.78 million
• Beat/Miss: Beat by +$38.52 million
• YoY Revenue Growth: N/A

Matson Announcement Details

• Quarter: Q4 2024
• Date: 2/25/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 25, 2025
• Conference Call Time: 4:30PM ET

Matson (NYSE:MATX) (NYSE: MATX) is a U.S.-based provider of ocean transportation and supply chain logistics services with a focus on Pacific trade lanes. The company operates a fleet of container ships that regularly service Hawaii, Alaska, Guam, Micronesia and other Pacific islands, as well as mainland U.S. ports. Matson’s ocean transportation segment offers scheduled liner services, expedited shipping options and specialized project cargo handling for industries ranging from retail to heavy machinery.

In addition to its core liner operations, Matson offers ocean transportation services between Asia and the U.S. West Coast. The company’s Pacific service network connects key Asian manufacturing centers—such as China, Japan and South Korea—with major U.S. import gateways. Matson employs modern containerships designed for fuel efficiency and environmental performance, enabling on-time delivery of consumer goods, bulk commodities and industrial supplies.

Matson Logistics, the company’s dedicated logistics and distribution arm, provides end-to-end supply chain solutions across North America. Services include drayage, cross-dock and transloading operations, warehouse management, inventory control and real-time shipment visibility. By integrating ocean freight with inland transportation and warehousing, Matson Logistics helps customers streamline sourcing, distribution and inventory flows.

Founded in 1882 by maritime entrepreneur William Matson and headquartered in Honolulu, Hawaii, Matson has grown into one of the largest U.S.-flag carriers in the Pacific. The company is led by President and Chief Executive Officer Matthew J. Cox, supported by a senior management team overseeing operations, finance and strategic development. Matson’s long-standing heritage and emphasis on safety, reliability and sustainability underpin its role as a critical link in Pacific and trans-Pacific supply chains.

Matson Q4 2024 Earnings Call Transcript

Key Takeaways

• Strong Q4 performance: Oce an Transportation operating income rose sharply, driven by seasonally higher demand and significantly elevated freight rates on Matson’s CLX and MAX China services, while Logistics saw higher earnings from its supply chain management business.
• SSAT impairment charge: Matson’s share of an $18.4 million SSAT joint venture write-down cut fourth-quarter diluted EPS by $0.42 and reduced consolidated operating income.
• 2025 outlook hinges on macro factors: First-quarter operating income is expected to be meaningfully higher on sustained China rates, while full-year Ocean Transportation earnings may be moderately lower than 2024 if Red Sea shipping normalizes, or hold near last year’s level if disruptions persist.
• Capital allocation strategy: In 2024 Matson repurchased 1.6 million shares for $199.1 million, plans ongoing buybacks alongside $425 million–$445 million in 2025 CapEx for new vessels and maintenance.

Presentation

[Operator]

Thank you for standing by, and welcome to the Matson Fourth Quarter twenty twenty four Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schunderberg, Investor Relations. Please go ahead, sir.

[Justin Schoenberg, Director, Investor Relations & Corporate Development at Matson]

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer and Joel Winnie, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable.

[Justin Schoenberg, Director, Investor Relations & Corporate Development at Matson]

We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward looking statements in the press release, the presentation slides and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on pages 13 to 25 of our Form 10 K filed on 02/23/2024, and in our subsequent filings with the SEC. Please also note that the date of this conference call is 02/25/2025, and any forward looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward looking statements. I will now turn the call over to Matt.

[Matthew Cox, Chairman & CEO at Matson]

Thanks, Justin, and thanks to those on the call. Starting on Slide three, Matson had a very strong fourth quarter that exceeded our expectations, capping off a strong year. For the fourth quarter, our China service was the primary driver of the year over year increase in ocean transportation operating income and consolidated operating income. We saw seasonally stronger freight demand with significantly higher year over year freight rates for our CLX and MAX services. In logistics, operating income increased year over year primarily driven by a higher contribution from supply chain management.

[Matthew Cox, Chairman & CEO at Matson]

In the fourth quarter within Ocean Transportation, the SSAT joint venture recorded an impairment charge related to the write down of a terminal operating lease asset. Matson's share of this impairment charge was $18,400,000 which resulted in a reduction in our fourth quarter diluted earnings per share of $0.42 For the full year 2024, our consolidated operating income increased year over year, primarily driven by significantly higher freight rates in our China service. The higher freight rates, which started in the middle of the second quarter and remained throughout the year, were supported by a resilient U. S. Economy, a stable consumer demand environment and coupled with tighter supply chain conditions.

[Matthew Cox, Chairman & CEO at Matson]

I'll now go through the fourth quarter and full year performance of our trade lanes, SSAT and Logistics. So please turn to the next slide. Hawaii container volume for the fourth quarter decreased 1.7% year over year due to lower general demand. For the full year 2024, container volume decreased 2.3% year over year, primarily due to lower general demand. For the full year 2025, we expect volume to be comparable to the level in 2024, reflecting modest economic growth in Hawaii and stable market share.

[Matthew Cox, Chairman & CEO at Matson]

Please turn to Slide five. According to UHERO's December economic report, the Hawaii economy is expected to continue to grow slowly in 2025, supported by modest gains in tourism, a low unemployment rate and increased construction activity, but partially restrained by continued challenges in population growth and lower discretionary income from higher inflation and interest rates. Growth in tourism is expected to be driven from our domestic visitors, while international tourist arrivals remain challenged by a strong dollar. Maui tourism remains significantly below prior levels and the full recovery in visitor traffic is expected to take years. Moving to our China service on Slide six.

[Matthew Cox, Chairman & CEO at Matson]

Matson's volume in the fourth quarter of twenty twenty four was 7.2% higher year over year due to seasonally stronger freight demand. We also saw significantly higher freight rates year over year for both the CLX and MAX services. The elevated freight rates were supported by a resilient U. S. Economy and a stable consumer demand environment coupled with tighter supply chain conditions.

[Matthew Cox, Chairman & CEO at Matson]

For the full year 2024, container volume increased 2.4% year over year, primarily due to seasonally stronger freight demand in the fourth quarter and one additional sailing compared to the prior year. Please turn to Slide seven. The stronger seasonal demand we experienced in the fourth quarter was in part due to customers advancing freight ahead of a potential ILA disruption and proposed tariff increases. We also saw some customers in late December moving freight ahead of the earlier Lunar New Year this year. During the post Lunar New Year period in the first quarter of twenty twenty five, we saw a traditional low demand environment with the factories closed for a few weeks.

[Matthew Cox, Chairman & CEO at Matson]

As such, we didn't sail the Mac service for three weeks and carried the combined frame package on the CLX. This is the same schedule we had in place for 2024 for this period of low demand. We expect the post lunar new year period to show a traditional ramp up of demand for the remainder of the first quarter, but volumes may be a bit softer than normal for the first few weeks due to the advancing of cargo we saw late in the fourth quarter. Please turn to the next slide. Where our China freight rates ultimately settle out in 2025 will depend on a number of macro factors, including geopolitical conditions, supply chain activity and The U.

[Matthew Cox, Chairman & CEO at Matson]

S. Economy. For example, the Red Sea situation significantly reduced the supply of container vessels and impacted supply chains, both of which were major drivers in our elevated freight rates in 2024. Although Phase one of the ceasefire has begun, there's considerable uncertainty as to the duration of the ceasefire. There's also uncertainty about the timing of the normalization of trade in the Red Sea and how this will affect global trade flows and supply chain activity.

[Matthew Cox, Chairman & CEO at Matson]

The magnitude and product range of the proposed tariffs could have an impact on our freight demand for our services as the additional costs are absorbed throughout the supply chain by manufacturers, shippers, transportation providers, retailers and consumers. If the incremental tariff costs are significant, it is possible that some manufactured goods may migrate from China to other Asia origins. It's also possible that manufactured goods currently shipped by air from China will become even more expensive and shippers may look to our expedited ocean services, which are significantly less expensive for only a few extra days of transit time. As of today, we haven't seen an impact yet on our rates for the 10% tariff implemented three weeks ago, which is on top of the 25% tariff in 2019. The impact to our China freight rates may ultimately depend on the level and scope of the tariffs, how much the tariffs may be absorbed by the supply chain and currency devaluations versus passed on to U.

[Matthew Cox, Chairman & CEO at Matson]

S. Consumers, how other countries may respond to the tariffs and the potential impact on downstream supply chains and how much air cargo shifts from ocean to shipping as a means to lower costs and lastly, the health and trajectory of The U. S. Economy is an important pillar of support in the demand for our consumer goods. A recession or prolonged period of high interest rates and inflation could negatively impact The U.

[Matthew Cox, Chairman & CEO at Matson]

S. Consumer and the appetite for consumer goods. Given these factors, we expect the elevated freight rates in our China service to continue into the first quarter of twenty twenty five. Beyond the first quarter, we expect freight rates will largely be driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity and the trajectory of The U. S.

[Matthew Cox, Chairman & CEO at Matson]

Economy. With respect to the impact of the Red Sea specifically, if trade conditions normalize by the middle of the year, we expect freight rates to moderate in the second half of the year. However, if the Red Sea remains disrupted through year end, we expect freight rates to remain elevated throughout the year. As I mentioned earlier, there are a number of uncertainties regarding tariffs, U. S.

[Matthew Cox, Chairman & CEO at Matson]

Macroeconomic conditions and other factors that could ultimately impact our China freight rates, and it's too early to tell how these uncertainties may play out. Before moving on, I'd like to note that when comparing year over year freight rates in 2025, we began to see our freight rates rise significantly in the middle of the second quarter last year and remain elevated through the end of twenty twenty four. So we will be lapping this significant positive step up. Please turn to the next slide. In Guam, Matson's container volume in the fourth quarter of twenty twenty four decreased 10% year over year.

[Matthew Cox, Chairman & CEO at Matson]

The decrease was primarily due to lower demand from the retail and food and beverage segments. For the full year 2024, container volume decreased 6.5 year over year, primarily due to lower general demand. In the near term, we expect Guam's economy to grow modestly supported by low unemployment and an increase in construction activity. As such, for 2025, we expect container volume to be modestly higher than the level achieved last year. Please turn to the next slide.

[Matthew Cox, Chairman & CEO at Matson]

In Alaska, Matson's container volume for the fourth quarter of twenty twenty four increased 1.1% year over year. The increase was due to higher northbound volume, partially offset by an additional sailing in the year ago period. For the full year 2024, container volume increased 0.6% year over year due to higher general demand, partially offset by one less northbound sailing. For the full year 2025, we expect Alaska volume to approximate the level achieved last year. Please turn to Slide 11.

[Matthew Cox, Chairman & CEO at Matson]

The Alaska economy continues to show good economic growth and improvement in key economic indicators despite flattish growth in population. In 2024, the state saw widespread job growth across almost every industry, bringing job count in many industries above pre pandemic levels. For 2025, low unemployment, jobs growth and continued oil and gas production activity are expected to support economic growth. Please turn to Slide 12. In the fourth quarter, our SSAT terminal joint venture incurred a loss of $9,500,000 representing a year over year decrease of $13,600,000 The decrease was due to a $18,400,000 impairment charge related to the write down of a terminal operating lease asset, partially offset by higher year over year lift volume.

[Matthew Cox, Chairman & CEO at Matson]

As you know, our SSAT JV operates eight marine terminals on The U. S. West Coast with two terminals in Long Beach, Two in Oakland, Three in Seattle and one in Tacoma. We have previously mentioned that SSAT has surplus capacity in the Pacific Northwest. The impairment charge relates to the consolidation of SSAT's business onto one less terminal in Seattle.

[Matthew Cox, Chairman & CEO at Matson]

We can't elaborate further on the situation with this terminal operating lease as SSAT is in active negotiations with the Port Authority about consolidating into two terminals in Seattle. The impairment charge impacted fourth quarter twenty twenty four net income and diluted earnings per share by $14,000,000 and $0.42 per share respectively. For full year 2024, our SSAT terminal joint venture incurred a loss of $1,000,000 compared to income of $2,200,000 in the prior year. The decrease was due to the same $18,400,000 impairment charge and again partially offset by higher lift volume. In 2025, we expect income from our SSAT terminal joint venture to approximate the level achieved in 2024 without taking into account the fourth quarter twenty twenty four impairment charge.

[Matthew Cox, Chairman & CEO at Matson]

The macro factors I commented on earlier on Slide eight could also have a negative impact on imports into The U. S. West Coast and lift volume at SSAT. Turning now to logistics on Slide 13. Operating income in the fourth quarter came in at $10,100,000 or $1,200,000 higher than the operating result in the year ago period.

[Matthew Cox, Chairman & CEO at Matson]

The increase was primarily due to a higher contribution from supply chain management. For the full year 2024, operating income was $50,400,000 reflecting a year over year increase of $2,400,000 The increase was primarily due to a higher contribution from supply chain management. For 2025, we expect operating income to be modestly lower than the level achieved in 2024, reflecting challenging business conditions for transportation brokerage and a lower contribution from supply chain management. The factors I mentioned previously could also have a negative impact on volumes in our supply chain management business. I'll now turn the call over to Joel for a review of our financial performance. Joel?

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Thanks, Matt. Please turn to Slide 14 for a review of our fourth quarter and full year '20 '20 '4 results. For the fourth quarter, consolidated operating income increased $72,200,000 year over year to $147,500,000 with higher contributions from Ocean Transportation and Logistics of $71,000,000 and $1,200,000 respectively. The increase in Ocean Transportation operating income in the fourth quarter was primarily due to significantly higher freight rates in China, the timing of fuel related surcharge collections and higher volume in China, partially offset by a lower contribution from SSAT and higher direct cargo expense, primarily in the China service and higher general and administrative expenses. As Matt noted, the decrease in SSAT equity income was due to the $18,400,000 impairment charge.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

The increase in logistics operating income was primarily due to a higher contribution from supply chain management. We had interest income of $10,300,000 in the quarter due to higher balances of cash and cash equivalents and deposits in the CCF as compared to the prior year. Interest expense in the quarter decreased $1,000,000 year over year due to the decline in outstanding debt in the past year. The effective tax rate in the quarter was 19.1% compared to 26% in the year ago period. The effective tax rate was lower than our outlook of 22% due to discrete year end tax items.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

In the fourth quarter, net income and diluted earnings per share were 128,000,000 and $3.8 respectively. The $18,400,000 impairment charge impacted our net income and diluted earnings per share by $14,000,000 and $0.42 per share respectively. For the full year, consolidating operating income increased $208,500,000 year over year to $551,300,000 with higher contributions from Ocean Transportation and Logistics of $206,100,000 and $2,400,000 respectively. The increase in Ocean Transportation operating income for the year was primarily due to significantly higher freight rates in China, higher freight rates in the domestic trade lanes and higher volume in China, partially offset by higher operating costs and higher general and administrative expenses. The increase in logistics operating income was primarily due to higher contribution from supply chain management.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Please turn to the next slide. This slide shows how we allocated our trailing twelve months of cash flow generation. For the full year 2024, we generated cash flow from operations of approximately 767,800,000 from which we used $39,700,000 to retire debt, $214,500,000 on maintenance and other CapEx, $95,600,000 on new vessel CapEx, including capitalized interest and owners items, $31,100,000 in cash deposits and interest income into the CCF, net of withdrawals from milestone payments, $12,500,000 on other cash outflows, while returning approximately $243,900,000 to shareholders via dividends and share repurchase. Please turn to Slide 16 for a summary of our share repurchase program and balance sheet. During the fourth quarter, we repurchased approximately 200,000.0 shares for a total cost of $31,800,000 For the full year 2024, we repurchased approximately 1,600,000.0 shares for a total cost of $199,100,000 Since we initiated our share repurchase program in August 2021 through the end of twenty twenty four, we repurchased 11,200,000.0 shares or 25.7% of our then outstanding shares for a total cost of approximately $956,000,000 As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Turning to our debt levels, our total debt at the end of the fourth quarter was $400,900,000 a reduction of $9,700,000 from the end of the third quarter. For the year, we reduced total debt by $39,700,000 Please turn to Slide 17. The table on this slide summarizes our $310,100,000 in capital expenditures in 2024. We had capitalized vessel construction expenditures on our new Aloha class vessels of $95,600,000 which consisted of $89,600,000 in milestone payments and $6,000,000 in capitalized interest and other costs. Maintenance and other capital expenditures were $214,500,000 of which $90,500,000 was for the LNG installations on the Daniel K.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Inouye and Kamanahila and the LNG installation and reengineering of the Mauna Kei 20 8 Million Dollars was for equipment to support network requirements and growth $14,700,000 was for the early lease buyouts of equipment and $81,300,000 was for other maintenance CapEx across a variety of projects. Please turn to the next slide. The table at the top of Slide 18 shows the key capital expenditures planned over the next three years. For 2025, we expect a total CapEx of $425,000,000 to $445,000,000 of which $3.00 $5,000,000 for new vessel construction expenditures including capitalized interest and owners items and $120,000,000 to $140,000,000 dollars is for maintenance and other CapEx to support our vessels, Shoresight operations and logistics businesses. This includes approximately $20,000,000 in equipment lease buyouts.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

The timeline of our new build capital expenditures is different than what we had previously provided as we were recently notified by Hanwha Philly Shipyard that our new build program is facing a delay of approximately four months. As such, we are now expecting each of our three new Aloha class vessels to be delivered in the first quarter of twenty twenty seven, the third quarter of twenty twenty seven and the second quarter of twenty twenty eight. The table on the bottom right of the slide shows the expected milestone payments by quarter in 2025. In the first quarter, we expect to pay approximately $65,000,000 in milestone payments with corporate cash. Post this use of corporate cash, we estimate approximately $103,000,000 remaining to satisfy the milestone payments not covered by the current balance of CCF deposits and treasury investments.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Please note that this figure excludes all future interest income and accretion earned within the CCF, which we expect to be a significant contributor over the next couple of years. Before we move on, I'd like to touch upon U. S. Tariffs on steel imports as it relates to our new vessel project. There is still uncertainty about how any potential tariff changes may be implemented and what the impact may be to our overall project costs.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

And therefore, it is not possible today to estimate what impact steel tariffs changes may have on the total cost of our new vessels. That said, direct steel purchases are a relatively small percentage of the overall $1,000,000,000 project costs for the three Aloha class vessels. Additionally, we have already completed all of the direct steel purchases for vessel number one and approximately 30% for vessel number two. With that, let me now turn to Slide 19 and walk through our outlook for the first quarter and full year 2025. For the first quarter of twenty twenty five, we expect Ocean Transportation operating income to be meaningfully higher than the $27,600,000 achieved in the year ago period as we expect elevated freight rates in our China service to continue into the first quarter.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

We expect logistics operating income in the first quarter to be modestly lower than the $9,300,000 achieved in the first quarter of twenty twenty four. As such, we expect consolidated operating income in the first quarter to be meaningfully higher than the prior year. For the full year 2025, we expect Ocean Transportation operating income to be largely driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity and the trajectory of The United States economy. Assuming trade conditions in the Red Sea normalize by the end of the first half of the year and there are no significant changes from today with respect to other geopolitical factors, supply chain activity and the trajectory of The U. S.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Economy, we expect full year 2025 Ocean Transportation operating income to be moderately lower than the $500,900,000 achieved in 2024. However, if trade conditions in the Red Sea remain disrupted through the year and through year end and there are no significant changes from today with respect to other geopolitical factors, supply chain activity and the trajectory of The U. S. Economy, we expect full year 2025 Ocean Transportation operating income to approach the level achieved in 2024. For logistics for the full year 2025, we expect modestly lower operating income due to challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

As such, we expect consolidating operating income for the full year 2025 to range from moderately lower than the $551,300,000 achieved in 2024 to approaching the level achieved last year. In addition to this full year operating income outlook, we expect the following for the full year: depreciation and amortization to approximate $200,000,000 including approximately $26,000,000 for drydock amortization interest income to be approximately $31,000,000 and interest expense to be approximately $7,000,000 other income to be approximately $9,000,000 effective tax rate of approximately 22% and drydocking payments of approximately $40,000,000 Lastly, today's fourth quarter twenty twenty four earnings release will be the last time we report the volume of automobiles in our Hawaii trade lane as this metric is not a meaningful driver of the financial performance of our Ocean Transportation segment. I will now turn the call back over to Matt.

[Matthew Cox, Chairman & CEO at Matson]

Thanks, Joel. Please turn to Slide 20, where I'll go through some closing thoughts. 2024 proved once again that our China service delivers during periods of uncertainty. Speed, reliability and service, our core differentiators, are highly sought after by shippers when supply chain disruptions occur. While true, it's only part of our story.

[Matthew Cox, Chairman & CEO at Matson]

Today, our China service appeals to an even broader set of customers than when we first started moving freight in the Trans Pacific trade lane nearly twenty years ago. As supply chains have become more complex, customers have placed a greater emphasis on speed to market and schedule integrity. It is within this new paradigm that our China services remains unparalleled. Our CLX and MAX service continue to be the two fastest and most reliable Transpacific transits, which are complemented by unique destination services for a seamless customer experience. We apply the same principles used in our domestic trade lanes that have been refined over decades.

[Matthew Cox, Chairman & CEO at Matson]

There will always be uncertainty across the global supply chain and we're clearly facing significant uncertainties like the Red Sea and tariffs, but we remain focused on what we can control. We will continue to be focused on maintaining vessel schedule integrity, reliability of all of our logistics and ocean transportation operations and delivering high quality service for all of our customers. We remain committed to look for ways to grow, either organically or periodically through acquisition. Since we became public, we had a good track record of organic and inorganic growth and we've been nimble on growth opportunities during periods of uncertainty. And last, we expect to continue to return capital to shareholders through dividends and our share repurchase program.

[Matthew Cox, Chairman & CEO at Matson]

Our share repurchase program remains a core element of our capital allocation strategy and we expect to continue to be steady buyers of our shares. And with that, I will turn the call back to the operator and ask for your questions.

[Operator]

Certainly. Our first question comes from the line of Daniel Imbro from Stephens Inc. Your question please.

[Brady Lierz, Senior Research Associate at Stephens Inc]

Okay, great. Thanks guys. This is Brady on for Daniel and thanks for taking our questions. I wanted to start on the outlook. You noted in the slides you're expecting 1Q EBIT to be meaningfully higher than the previous year, but could you just help us kind of break out the drivers behind this outlook?

[Brady Lierz, Senior Research Associate at Stephens Inc]

Is that largely just a function of higher rates or are there certain cost initiatives you guys have executed on to improve the EBIT outlook as well?

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Yes, Brady, thank you for that question. So it's a variety of factors. So in our domestic trade lanes, really steady performance is the way we describe it consistent with the outlook, as we talked about those trade lanes. In logistics also, steady performance, but a little bit more challenging environment. And then the one where there's a more significant change driving the outlook is in China.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

So last year, as we talked about rates really moved in May and June and they've remained elevated since then. So as we come into the first quarter this year, we have higher more elevated rates than we had last year. And that's the biggest piece driving the outlook towards that meaningfully higher outlook that we've given for the first quarter.

[Brady Lierz, Senior Research Associate at Stephens Inc]

Okay, great. Thanks. That's helpful. Maybe just if I can follow-up there on the rate commentary. I think you've touched on it a bit in your remarks that you're expecting elevated freight rates and you're trying to service to continue in 1Q.

[Brady Lierz, Senior Research Associate at Stephens Inc]

But is there any way to help investors kind of level set how rates have trended sequentially? From what we can see, it seems like Transpacific rates are only slightly below 4Q levels so far. Is that the right way to think about how it's trended so far this year? Just any color there would be helpful. Thanks.

[Matthew Cox, Chairman & CEO at Matson]

Yes, Brady, this is Matt. Thanks for your question. I would say that as we've experienced our freight rate sequentially, as Joel mentioned, starting in the second quarter and then extending through the end of calendar twenty twenty four, what typically happens to has happened in Matson's rate levels, Our rate levels remained relatively steady from the second, third and fourth quarter. Towards the end of the fourth quarter, we did step our rates down, and reduced our peak season surcharge as we have done every quarter for the last in that period for the last eighteen, nineteen years. And our levels have then been reset or the peak season surcharge substantially reduced or eliminated consistent with our historic practice and remain relatively steady from that point on through.

[Matthew Cox, Chairman & CEO at Matson]

So I would not think it would be a good indicator for you to be following some of the spot rates on the SCFI, But I would acknowledge that our rates did take a step down when we removed the seasonal peak season surcharge. So I know that's not specific, but that's as specific as I can get.

[Brady Lierz, Senior Research Associate at Stephens Inc]

Okay, got it. That's helpful. Maybe just as a final follow-up here on capital allocation. In the near term, it sounds like the primary focus is repurchases. But just taking a big step back, could you talk about some opportunities?

[Brady Lierz, Senior Research Associate at Stephens Inc]

What do you see out there in the market for additional services just kind of in the future? Any update there would be helpful.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Sure, Brady. So on the Ocean Transportation side, we've been open discussing that there's not that many opportunities that really fit our profile. So we expect on the Ocean side there to be more of the organic growth opportunities where we leverage our existing capabilities, network, brand, etcetera. And then on the logistics side, there's organic there's a combination of both organic and M and A type opportunities. So organic, flow of acquisition opportunities we looked at for years.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

The challenge is just finding those that really meet our strict criteria of niche defensible businesses that are differentiated, good return on capital that fit our profile of businesses today. So that's how we think about it. That's the range of alternatives that we look at.

[Brady Lierz, Senior Research Associate at Stephens Inc]

Okay. Awesome, guys. Thanks for the time tonight. I'll leave it there.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Okay. Thanks, Brady.

[Matthew Cox, Chairman & CEO at Matson]

Thanks, Brady.

[Operator]

Thank you. And our next question comes from the line of Jacob Lacks from Wolfe Research. Your question please.

[Jacob Lacks, Analyst at Wolfe Research, LLC]

Hey, Matt, Pedro, thanks for your time.

[Matthew Cox, Chairman & CEO at Matson]

Yes. Good afternoon.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Good afternoon.

[Jacob Lacks, Analyst at Wolfe Research, LLC]

So a lot going on in the world right now. I guess, could we start maybe on the USTR proposed rule on China shipbuilding? How are you viewing this as it relates to potential changes in the ocean industry and Matson's positioning within it? And I think a couple of the MAX vessels were built in China. Would you expect to pay charges under this proposed rule?

[Matthew Cox, Chairman & CEO at Matson]

Yes. Thanks, Jake. Yes, I agree with your sentiment that there's a lot going on at the moment. And I think this USTR proposal that dropped on Friday is one of a number of changes. I think I'll answer your question in two ways.

[Matthew Cox, Chairman & CEO at Matson]

The first is to answer it more generally and then I'll answer it more specifically. But generally, our feeling is that we're in the early innings of a discussion to be had between The U. S. And Chinese governments. We saw the 10% rollout of the tariff and we see this USTR proposal as the next step in a discussion that it's going to have with China.

[Matthew Cox, Chairman & CEO at Matson]

There may be others that follow, but it's all to set a stage to be consistent with President Trump's efforts to try to reset trade balances. And I also think that whether it's in Europe or whether it's in other Asia origins, this is one of a number of steps that we think are going to come out over these next few months. So I think the short answer for our perspective is it's too early to tell. It's too early to tell exactly what tariffs are going to be implemented in China and in the countries that compete with China. It's too early to tell what retaliatory tariffs, if any, rollout.

[Matthew Cox, Chairman & CEO at Matson]

So I would just say stay tuned. I would say more specifically to your questions about if this USTR proposal is enacted, Matson has a fleet of 30 vessels. And of those 30 vessels, three of those are chartered foreign Chinese built ships that operate in our MAX service as you correctly point out. And one we operate one Chinese built vessel, we operate in our South Pacific service. So we have four vessels out of a total of 30 that are manufactured in China.

[Matthew Cox, Chairman & CEO at Matson]

And of course, we have three ship vessels as you know under construction. Those are being built in U. S. Yards. We have no vessels under construction in Chinese yards.

[Matthew Cox, Chairman & CEO at Matson]

But let me just repeat what I said from the beginning. I think it's really these are opening salvos. We're in the early innings. We could use different analogies, but we're watching this closely. I would also say, I've said it in my prepared comments, but I think it's important also to stay here.

[Matthew Cox, Chairman & CEO at Matson]

That said has tended to do well in periods of disrupted supply chain environments. We continue to believe strongly and have heard from our customers loud and clear that operating R2 expedited China services in the way that we do given the continuing uncertainty for all participants in the supply chain puts us in a pretty good spot. So that's kind of the way we're thinking about it at this point, Jake.

[Jacob Lacks, Analyst at Wolfe Research, LLC]

Makes a lot of sense. Thanks. And maybe let's stick with macro policies for now. I don't think you have a lot of exposure, direct exposure to the de minimis exemption, but to the extent you compete with airfreight, are you thinking about any indirect impacts if this goes away?

[Matthew Cox, Chairman & CEO at Matson]

Yes. I mean, I think that the unanswered question, we don't aren't directly impacted. I think the place that we tangentially could be impacted are two of the largest companies that are taking advantage of this de minimis exemption, who are Timu and Sheen. They're today moving virtually 100% of their cargo, this is The U. S.

[Matthew Cox, Chairman & CEO at Matson]

Portion of their cargo via airfreight. And so it's a question either about the de minimis or new tariffs. Does that create some of that cargo to migrate into a fast ocean product? That could be an upside for those that operate in the expedited. None of that has been announced, but it's a neutral to positive to us, I guess is how we would look at it at this point.

[Jacob Lacks, Analyst at Wolfe Research, LLC]

Got it. Thanks. And then one on the guide for me. I guess it feels like if earnings are just moderately lower this year, even in a Red Sea normalization scenario, you aren't really expecting earnings in the back half to return to 2023 levels. So do you think that pricing is just structurally higher for you now compared to pre Red Sea trends?

[Jacob Lacks, Analyst at Wolfe Research, LLC]

Or is this more a reflection that it will take some time for Ocean Networks to normalize once these changes are made?

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Yes, Jake, it's really a reflection of a continued improvement in our rate and rates that we charge in those services and a lot of that has been finding more and more customers that convert from airfreight, and then the other piece is e commerce. So as the years pass and we look at this year 2025 compared to two years ago 2023, we just tend to have a higher mix of our overall demand coming from those segments that are willing to pay higher rates. So I guess you could call that a structural issue that we benefited from as those portions of our demand grow over time.

[Jacob Lacks, Analyst at Wolfe Research, LLC]

Yes. That's helpful. Thanks for the time guys. Appreciate it.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Okay. Thanks, Jade.

[Matthew Cox, Chairman & CEO at Matson]

Thanks.

[Operator]

Thank you. And our next question comes from the line of Ben Nolan from Stifel. Your question please.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

All right. Thank you. Hey, Manjil. First of all, good quarter. And I did want to say I appreciate that you guys did not take out the impairment charge.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

That level of transparency is not something that I see very often, but I think hats off to you for being straight shooters on that. The my question really has to do a little bit with the guidance and sort of thinking through the financial impact of the Red Sea and whether it goes away or not and the implications for you guys. And appreciating that you don't necessarily want to put numbers to it, but is it simply as straightforward as if the Red Sea opens up, average voyage durations go down and international freight rates fall? Is that all that's being implied there? Or is there something else in the math?

[Matthew Cox, Chairman & CEO at Matson]

Yes, Ben. So it's as simple as you state. I mean, I think our thinking is we saw a reset up when the Red Sea absorbed that 2,000,000 TEU of capacity as the international ocean carriers adjusted their deployments to accommodate for that longer transit, that when that ends I say if and when or when that ends, then we'll see that capacity being freed up into these transportation networks and that on the margin could erase some of the rate increase we saw at the time. It's a little difficult to put everything on a single factor given some of the trade reset that President Trump is seeking to roll out, where the world economy is, consumer demand and expectations of consumer confidence. So obviously nothing is in a vacuum, but to us that seemed to be one singular event that could drive international ocean freight rates lower.

[Matthew Cox, Chairman & CEO at Matson]

And as you know, Ben, our pricing mechanisms are not directly tied to the international ocean carriers, but move in sympathy with the rates. And so that's the thought process behind that.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Got you. And as you explained in the last question, it sounds like structurally, even if there were a reset, you're not all of your business would reset effectively or it would be less impacted. So I appreciate that. My next question relates to the three new buildings in Philadelphia. Saw that there was a four month delay. First of all, any color on why that is? But then secondly, do you feel pretty comfortable that that encapsulates the whole risk of potential delays?

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

And then also is there any beyond steel, is there any risk that there might be some other level of repricing if I don't know if wage inflation at the shipyard increases or something like that? And is there any recourse on your part for the fact that they're already late?

[Matthew Cox, Chairman & CEO at Matson]

Okay. Yes, good. This is Matt. I will take a crack at it and then I'm going to turn it over to Joel to mop up here for anything that I've missed. So I think the first thing I would say is there is a specific initiative.

[Matthew Cox, Chairman & CEO at Matson]

There was a five vessel project that was ahead of our project. And effectively, there was a delay in the construction of the last of the vessels. The graving dock in which these vessels are constructed in Philly was effectively tied up with the last of these vessels. And at this point, with this delay and Hanwha looking carefully at other materials and around it and their construction of the fourth and fifth, one of the earlier vessels is at an outfitting dock and is not in the critical path. This last one is the remaining, they believe, critical path item.

[Matthew Cox, Chairman & CEO at Matson]

So as to your question about the reason behind it, that's the reason. It also, they believe, gives them some confidence that they're not aware of any other significant changes at this point, which could cause further delays. But you rightly point out that there could be delays depending on other things. But at this point, it's best it's Hanwha's best thinking that this will be around the delivery dates. Although as you know from our previous construction, these are not exact science.

[Matthew Cox, Chairman & CEO at Matson]

And in the history of shipbuilding, whether things slip another quarter, that's not a significant surprise to us. I would say with regard to the delay, the primary impact to Matson would be the delay in getting the benefits of the additional capacity that comes with these larger vessels on our CLX service. And so it's just a delayed benefit or opportunity cost there. There are could there be further increases? We have a fixed price contract.

[Matthew Cox, Chairman & CEO at Matson]

There are some escalators for steel cost. There are some liquidated damages. But at the end of the day, none of those are significant drivers to us getting the benefit of our new ships. And we continue to feel reasonably confident in our ability to get these ships in 2027 and 2028. And everything looks continues to look like a go other than the acknowledgment of a four month split. And what did I miss, Joel?

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

No, that's it. I mean, you got Ben, part of your question was to the overall potential for cost inflators. If you look at the overall program, it's $1,000,000,000 The piece of it that's tied to steel and the steel index change is a very, very small percentage of the overall $1,000,000,000 and it is a fixed price contract. There are some things that Matt alluded to that where the price can go up or down based upon different factors. But the bottom line is we don't expect the overall price tag to be a material change in the $1,000,000,000 negotiated price.

[Matthew Cox, Chairman & CEO at Matson]

Yes. And then this is Matt again. One last comment. Although with the existing tariffs and how they get rolled out, there remains some uncertainty just about how all that flows its way through. So we're not saying it's there's no impact, but what we're saying is a lot of the factors are pretty lined up at this point.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

Okay. I appreciate it. And then lastly, and I hate to ask this, but I've been asked already multiple times today. Any changing in how you're thinking about Jones Act protection and support?

[Matthew Cox, Chairman & CEO at Matson]

Yes. Thanks, Ben.

[Matthew Cox, Chairman & CEO at Matson]

Ben. There really is no change to our thinking, which I'll articulate now, which is to say, we obviously have a change of administration, The Trump administration and it was a supporter of the Jones Act in its last administration. We expect them to continue to be a supporter of the Jones Act. This America First strategy of the incoming administration is very consistent with the Jones Act. We continue to have wide bipartisan support in Congress.

[Matthew Cox, Chairman & CEO at Matson]

We have a number of the President's cabinet on record, incoming cabinet as strongly supporting the Jones Act. So at this point, while we acknowledge there's some uncertainty around tariffs and things that are going on, I think it continues to enjoy wide bipartisan support and we don't see any changes to the Jones Act.

[Benjamin Nolan, Managing Director at Stifel Financial Corp]

All right. I appreciate that and good quarter again. Thanks for answering questions.

[Matthew Cox, Chairman & CEO at Matson]

Thanks, Ben.

[Joel Wine, Executive Vice President & Chief Financial Officer at Matson]

Thanks, Ben.

[Operator]

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks.

[Matthew Cox, Chairman & CEO at Matson]

Okay. Well, thanks for your participation in today's call. We'll look forward to catching up with everyone at the quarter one call. Thank you very much. Aloha.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.

Participants

Executives

• Justin Schoenberg, Director, Investor Relations & Corporate Development
• Matthew Cox, Chairman & CEO
• Joel Wine, Executive Vice President & Chief Financial Officer

Analysts

• Brady Lierz, Senior Research Associate at Stephens Inc
• Jacob Lacks, Analyst at Wolfe Research, LLC
• Benjamin Nolan, Managing Director at Stifel Financial Corp