Matson Q1 2025 Earnings Call Transcript

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May 5, 2025
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Operator

you for standing by and welcome to Matson's First Quarter twenty twenty five 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 session. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Investor Relations and Corporate Development at Matson.

Operator

Please go ahead, sir.

Justin Schoenberg
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 Joe 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
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 12 to 23 of our Form 10 ks filed on 02/28/2025, and in our subsequent filings with the SEC. Please also note that the date of this conference call is 05/05/2025, 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
Matthew Cox
Chairman, Director & CEO at Matson

Thanks, Justin, and thanks to those on the call. Starting on Slide three, our first quarter financial performance was as expected with significantly higher year over year consolidated operating income. The year over year increase was primarily driven by our China service, which benefited from the carryover of elevated freight rates from the fourth quarter of twenty twenty four combined with healthy freight demand following a traditional post lunar New Year period. In our domestic trade lanes, we saw higher year over year volume in Hawaii and Alaska and lower year over year volume in Guam. In logistics, our operating income was lower year over year primarily due to a lower contribution from freight forwarding and transportation brokerage, partially offset by a higher contribution from supply chain management.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Looking ahead, we are lowering our 2025 outlook due to the significant uncertainty regarding tariffs and global trade, regulatory measures, the trajectory of The US economy, and other geopolitical factors. I will now go through the first quarter performance of our trade lanes, SSAT, and logistics. So please turn to the next slide. Hawaii container volume for the first quarter increased 3.2% year over year due to the drydocking of a competitor's vessel. Excluding the volume related to the drydocking of a competitor's vessel, Hawaii container volume would have been roughly flat year over year.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

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. Please turn to slide five. According to UHERO's February economic report, the Hawaii economy remained stable with a low unemployment rate, strong construction activity, and stable tourism, offset by challenging population growth and high inflation and interest rates. Hawaii is experiencing solid construction activity from both public and private sector projects, including rebuilding efforts on Maui following the wildfires in 2023 with elevated demand for construction workers. With respect to tourism, international tourist arrivals continue to be well below pre pandemic levels, and tourist arrivals to Maui remains on a slow recovery path.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Moving to our China service on slide six, we saw significantly higher freight rates year over year as the elevated freight rates from the fourth quarter of twenty twenty four carried into the first quarter. Matson's volume in the first quarter of twenty twenty five was 1.4% lower year over year. Please turn to slide seven. Currently, there is significant uncertainty regarding tariffs and global trade, regulatory measures, the trajectory of The US economy, and other geopolitical factors. Since the tariffs were implemented in April, our container volume has declined approximately 30% year over year.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Given the pronounced market decline in demand in the Transpacific in April, coupled with limited visibility to our container demand, we expect container volume and average freight rates in the second quarter to be lower year over year. At the moment, it's difficult to know if these lower volume levels are transitory or or will persist for a longer time in 2025. And the duration of this lower demand period will likely depend on active negotiations taking place across the supply chain and the timing of potential amendments to the tariffs. As such, for the full year 2025, we also expect container volume and average freight rates to be lower year over year. We continue to work closely with our Asia transshipment partners as our customers look at options to diversify and grow their manufacturing locations.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Many of our customers moved to a China plus one strategy a few years ago to diversify their operations, and we expect this trend to continue. We will continue to follow our customers as they reposition and expand their manufacturing footprint in response to changing tariffs as part of our catchment basin strategy in Asia. During the first quarter, we announced a new direct service connecting Ho Chi Minh to our CLX and MAX Shanghai departures. This development is a testament to our brand recognition in Asia and our ability to provide the fastest connecting times out of Vietnam. Ho Chi Minh will be our second direct connection in Vietnam, and our expansion is based on the success and customer feedback we received since launching our inaugural direct service connection from Hai Phong Two Years ago.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

As a result, in the near term, we expect higher volume from Vietnam from transshipments as our customers manage their freight in an unsettled environment. We believe we are well positioned with multiyear transshipment relationships to scale up the services as expedited freight volume grow in the region. We expect the uncertain environment to accelerate the diversification of our catchment basin in Asia. And in addition to Vietnam, we are already carrying freight originating in Cambodia, Thailand, Indonesia, Malaysia, India, and The Philippines. Please turn to the next slide.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

We believe we're in the early innings of US China trade negotiations and expect disruptive conditions in the Transpacific with ocean carriers blanking China sailings and implementing service changes due to lower volume in response to the tariffs. We have also seen some carriers add port calls and increase capacity and allocation and strings from other Asia origins. At some point though, retailers will need to restock their shelves or risk significant inventory issues. We also expect that consumer demand for ecommerce goods will continue to grow. In the meantime, we remain a trusted supply chain partner to our customers and expect to run our business like we always have with a focus on speed, on time arrivals, early access to cargo, and customer service.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

As I mentioned earlier, our solid relationship with transshipment partners in the region provide opportunities for further diversification of where our freight is originated. And lastly, we have the resources and assets to move quickly to adapt to a changing environment and find opportunities. For the last twenty years, our China service has gone through many significant disruptive environments. And time and time again, it has shown to be a critical provider of expedited ocean service to existing and new customers. I see this period of uncertainty and disruption as an opportunity for Matson to do what it does best for its customers, meeting the evolving challenges and delivering freight fast and reliably given our competitive advantages.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Please turn to the next slide. On April 17, the USTR finalized its notice of action under section three zero one as a follow-up to the president's executive order on April 9. The announcement confirmed that new targeted port fees will be applied to Chinese vessel owners and operators and Chinese built vessels. Based on our review, we believe that Matson is part of a group of small vessel operators who received exemptions from the USTR. The USTR also proposed additional duties on ship to shore cranes, containers, and certain chassis.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

The proposal is open to comment and depending on its final form may impact how we procure our equipment. In summary, we believe that we are exempt from the USTR for now based on the size of our vessels, but will likely face higher container equipment costs in the future. We also remain negatively impacted directly by lower volume and indirectly by merchandise tariffs paid by our customers. Please turn to the next slide.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

In Guam,

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Matson's container volume in the first quarter of twenty twenty five decreased 14.3% year over year. The decrease was primarily due to lower demand from retail and food and beverage segments. In the near term, we expect Guam's economy to remain stable with a slow recovery in tourism, a low unemployment rate, and some increase in construction activity. As such, for 2025, we expect container volume to approach the level achieved last year. Please turn to the next slide.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

In Alaska, Matson's container volume in the first quarter of twenty twenty five increased 4.8% year over year. The increase was due to higher northbound volume, partially offset by an additional sailing in the year ago period. In the near term, we expect continued economic growth in Alaska supported by low unemployment rate, jobs growth, and continued oil and gas exploration and production activity. As

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

such,

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

for 2025, we expect container volume to be comparable to the level achieved last year. Please turn to Slide 12. In the first quarter, our SSA terminal joint venture contributed $6,600,000 representing a year over year decrease of $6,200,000 The increase was primarily due to higher lift volume. For 2025, we expect the contribution from SSAT to be lower than the $17,400,000 achieved last year without taking into account the $18,400,000 impairment charge at SSAT during the fourth quarter of twenty twenty four. Turning now to logistics on slide 13.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Operating income in the first quarter came in at $8,500,000 or $800,000 lower than the result in the year ago period. The decrease was primarily due to a lower contribution from freight forwarding and transportation brokerage, partially offset by a higher contribution from supply chain management. For 2025, we expect operating income to be lower than the level achieved in 2024 due to a challenging environment for all of our business lines. I will now turn the call over to Joel for a review of our financial performance. Joel?

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Thanks, Matt. Please turn to Slide 14 for a review of our financial results. For the first quarter, consolidated operating income increased $45,200,000 year over year to $82,100,000 with ocean transportation increasing $46,000,000 and logistics declining 800,000 The increase in ocean transportation operating income in the first quarter was primarily due to significantly higher freight rates in China and a higher contribution from SSAT, partially offset by higher direct cargo expense and operating overhead costs. The decrease in logistics operating income was primarily due to a lower contribution from freight forwarding and transportation brokerage, partially offset by a higher contribution from supply chain management. We had interest income of $9,400,000 in the quarter or $600,000 higher than last year, primarily due to higher balances of cash and cash equivalents.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Interest expense in the quarter decreased $500,000 year over year due to the decline in outstanding debt. Net income increased 100.3% year over year to $72,300,000 and diluted earnings per share increased 109.6% year over year to 2.18 per share. Diluted weighted average shares outstanding decreased 4% year over year. Please turn to the next slide. This slide shows how we allocated our trailing twelve months of cash flow generation.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

For the LTM period, we generated cash flow from operations of 820,200,000 from which we used $39,700,000 to retire debt, 182,800,000.0 on maintenance and other CapEx, dollars 161,200,000.0 on new vessel CapEx, including capitalized interest and owners items, dollars 65,500,000.0 in cash deposits and interest income into the CCF, net of withdrawals for milestone payments and $13,500,000 on other cash outflows, while returning $263,700,000 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 first quarter, we repurchased approximately 500,000 shares for a total cost of 69,200,000.0 Turning to our debt levels, our total debt at the end of the first quarter was $390,800,000 a reduction of $10,100,000 from the end of the fourth quarter of twenty twenty four. With that, let me now turn to Slide 17 and walk through our outlook for the second quarter of twenty twenty five on the left hand side of the page. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income to be meaningfully lower than the $109,000,000 achieved in the second quarter of twenty twenty four.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

We also expect logistics operating income to be lower than the $15,600,000 achieved in the second quarter of twenty twenty four. As such, we expect consolidated operating income in the second quarter to be meaningfully lower than the prior year. On the right hand side of the slide, we have our expectations for full year 2025, starting with ocean transportation. We expect year over year operating income to be lower than the level achieved in the prior year with the amount dependent on the impact and timing of the global trade and macroeconomic uncertainties we have discussed on this call. For Logistics, we also expect operating income to be lower than the level achieved in the prior year due to a challenging environment for all business lines.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

As a result, we now expect consolidated operating income to be lower than the level achieved in the prior 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 inclusive of 26,000,000 for dry docking 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, an effective tax rate of approximately 23%, and dry docking payments of approximately $40,000,000 Moving to slide 18, the table on the slide shows our CapEx projections for the full year of 2025. Compared to what we previously provided on our fourth quarter call in February, our range for maintenance and other capital expenditures has been lowered by $20,000,000 to 100,000,000 to $120,000,000 for full year 2025.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Our estimate for expected new vessel construction milestone payments in 2025 remains unchanged at $3.00 $5,000,000 Again, milestone payments for new vessel construction are expected to be paid from our capital construction fund, which already covers approximately 91% of the remaining obligations, excluding future interest income and accretion earned on cash deposits and treasury securities. We currently expect our next cash contribution into the CCF for milestone payments to not be until 2028. In the second quarter, we expect to make approximately $36,000,000 in milestone payments from the CCF. And then in the third and fourth quarters, we expect to make milestone payments of approximately $71,000,000 and approximately $118,000,000 respectively. With that, let me turn the call back over to Matt for closing remarks.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Thanks, Joel. Please turn to slide 19, where I'll go through some closing thoughts. We are navigating like many in an unsettled and rapidly evolving environment. For the last two decades, we've operated our expedited ocean service through significant periods of uncertainty and disruption. And we've come out of those periods better for it as we demonstrate what we do best for our customers, which is to be a trusted supply chain partner with a consistent, reliable, and fast service.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

We believe we are in the early innings of US China trade negotiations and expect the deal to be reached although timing is unclear. At some point, the largest and second largest economies will find a way of working together. The stakes are too high for both countries. Despite the current uncertainties, we remain quietly confident in our long term prospects due to the diversification of our business and cash flows, our focus on serving niche markets where we're an integral part of the supply chain and the strength of our balance sheet. Our businesses are durable and capable of withstanding short term fluctuations while creating long term shareholder value.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

We remain committed to maintaining the reliability of our vessel operations and providing high quality service to our customers and the communities that rely on us. Matson has over a hundred and forty years of operating history and has historically performed well during periods of supply chain disruption given our competitive advantages and the reliability of our services. We remain committed to looking for growth either organically or via acquisition and are prepared to act quickly if an opportunity presents itself during this period of uncertainty. And last, we expect to continue to return capital to shareholders through dividends in our share repurchase program. Our share repurchase program remains a core tenant of our capital allocation strategy and we continue to expect to be steady buyers of our shares.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

And with that, I will turn the call back to the operator and ask for your questions.

Operator

Certainly. And our first question for today comes from the line of Daniel Ambrose from Stephens Inc. Your question please.

Daniel Imbro
Managing Director at Stephens Inc

Yeah, hey, good evening guys. Thanks for taking our questions. Sure. Maybe a couple starting on the ocean side. Obviously, lot of moving pieces here quarter to date, Matt.

Daniel Imbro
Managing Director at Stephens Inc

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, much volume could you pick up if those two 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?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, good question. Thanks, Daniel. 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.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

They have the ability to swap out for larger vessels if needed, and to 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 as, in my prepared comments, we're talking about the increase in Vietnam, 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.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

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 can 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 maybe I've over answered your question, but we do have the ability to scale.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

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 has been growing rather quickly as well. So as I said, we're going to follow our customers as this evolves.

Daniel Imbro
Managing Director at Stephens Inc

That's helpful. And these transship shipments that are going through Shanghai show up in the China containers. Maybe just a clarifier, that down 30 on the quarter to date China volume, is that directly out of China? Or is that including the positive effect of seemingly some probably more growth out of Vietnam?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, I think, initially, and again, we have so few data points with which to extrapolate. But, in Vietnam, initially, we saw actually out of all origins, a reduction of volume in that period, as there was some uncertainty with regard to whether tariffs are going to be rolled back and even the temporary ones were, it was not obvious exactly how long those were going to stay in place. We saw reductions out of all origins initially. In the weeks that have followed, we've seen volume out of Vietnam grow, again, partly because of the addition of our Ho Chi Minh service. But we've seen them grow back to sort of the general levels that we experienced before the discussion of tariffs.

Daniel Imbro
Managing Director at Stephens Inc

Great. And then maybe last one for me. Sorry for being more near term here. But I know you're want to quantify maybe pricing movements historically. But given the volatility and also the increased disclosure around 2Q volume so far, can you talk about rates and maybe how those have developed?

Daniel Imbro
Managing Director at Stephens Inc

What kind of rate pressures or actions have you seen in the market in response to these tariffs and subsequent volume drop off?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, so I would say it's been a little bit all over the place. I think what you've seen, and I'll touch on market dynamics, and then I'll comment on maps. And but I think what we've seen, the international ocean periods have blanked a significant amount of sailings in response to the lower, as they attempt to resize their fleets for the lower shipments and capacity that is in demand. We've seen some ocean carriers hold the line on rates as they have seen their efforts to reduce capacity. I think we've seen in some cases, ocean carriers have increased the rates in other non Chinese origins.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

And we've also seen some cases where we've seen lower rates in the market and those are tracked through the SCFI. So you can kind of see, but it's interesting, we've kind of, since it's all happening in real time, the market is still in the early parts of readjusting to whatever the new normal is. So it's quite disrupted. I would say from Mattson's perspective, and we said this in, or Joel said it, in his comments, we expect both lower rate and lower volume, out of, for the second quarter, and for the full year. So we expect, again, not to be immune, to these.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

We still command a very significant premium to the market, but our rates will move in sympathy with the overall market direction.

Daniel Imbro
Managing Director at Stephens Inc

Great, appreciate all the color. I'll hop back in the queue, thanks.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Jacob Lakes from Wolfe Research. Your question please.

Jacob Lacks
Analyst at Wolfe Research, LLC

Hey Matt. Hey Joel. Thanks for your time.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yes.

Jacob Lacks
Analyst at Wolfe Research, LLC

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?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, it's a very good question. 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 four to eight weeks when a lot of inventory runs out, that our customers had tried to preload or whatever the individual circumstance of our customers, cargo is 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 these costs of these tariffs. Our customers are loathe to have empty shelves to the extent that they can help it.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

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 in our franchise stands for on time arrival, no blank sailings. If economic circumstances come to pass, if we need to evaluate that, then we'll evaluate it if we cross that bridge. But that's not at all where our heads are at right now.

Jacob Lacks
Analyst at Wolfe Research, LLC

Got it. That all makes a lot of sense. Thanks. And I know it's just been a few days here, but have you seen any changes from the elimination of the de minimis exemption from last week? And any changes you expect to see?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah. Mean, I think we understood, and you may have seen the announcements of, with Timu, who has, canceled, or discontinued its direct shipments from China. Those are all I guess their strategy is really to convert itself from outwardly looking in to more of an Amazon like model, where they're going to have cargo that is going to be available in The US, and to be shipped from US based, warehouses and distribution centers, different from air freighting. So there's been a significant reduction, as we understand it, in air freight demand and carriage associated with Timu's change in business model. So I think we do see more of that air cargo now converting into ocean.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

And that may be a long term opportunity for us as e commerce continues to grow. So that's the most obvious one that we've understood this happened just over the weekend with the ending of the de minimis exemption.

Jacob Lacks
Analyst at Wolfe Research, LLC

Got it,

Jacob Lacks
Analyst at Wolfe Research, LLC

thanks for your time. Okay, thank you.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Thanks, Jake.

Operator

Thank you. And our next question comes from the line of Omar Nokta from Jefferies. Your question please.

Omar Nokta
Managing Director at Jefferies LLC

Thank you. Hey guys, good afternoon. 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 thought process?

Omar Nokta
Managing Director at Jefferies LLC

I know it's again, still early, but is that kind of the thinking here long term?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, 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. 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.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

And so I do think that's an opportunity. It'll be interesting to see exactly how the airfreight markets reset, because there's going to be, at least in the short term, significant excess capacity for air freight. And that market itself will need to with the capacity will need to move and get reoriented. So, yeah, but I think that change is here to stay and will produce more opportunity for the ocean carriers.

Omar Nokta
Managing Director at Jefferies LLC

Okay, thank you. And then just a follow-up. Just back to the 30% decline you've seen in China volumes since the tariffs were announced in April. Obviously everything's moving very quickly. It's only been maybe four or five weeks since that Liberation Day.

Omar Nokta
Managing Director at Jefferies LLC

But for maybe your vantage point, have you noticed any I know you're talking about Vietnam in the prior question, but from your perspective, have you noticed any changes from say on the China volume specifically for say the first couple of weeks of April when things seem to have come to a standstill globally to now maybe over the past week or two, have you noticed any changes specifically on the China US?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Well, yeah, I can make some general comments and I want to be careful not to bring my 30% forward. These are just sort of the average few weeks, but what we understand are there are significant activities underway between our retail customers and the importers or manufacturers of this product. As I mentioned earlier about resetting pricing, what can move at what price, how does the burden get shared between those three actors and ultimately gets passed through to the end consumer. And as more time has passed in having these negotiations, more cargo will begin to move. We also had noted in the trade press that some of the largest customers in the market, the big box guys who initially just held or shipped nothing, are beginning now to direct cargo to move again.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

So I do think we'll see an eventual, cargo needs to move. There needs to be cargo on shelves to sell. And so our view is that we will, I don't think we'll see a normalization until the tariffs are set at a more permanent level, which, you know, it's hard to know exactly how long that process is going to take. But there is cargo moving, and more cargo is moving for two reasons. One, as we get into the more traditional busier times of year, I would just give you one example.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

For example, if you're a manufacturer of swimsuits, the swimsuit season is a very short one. And if you don't reach agreement over a very short period of time, whether it's that season or it's back to school, cargo moves and it's ordered months in advance. And so people still need to move and try to negotiate between the retailer and the different parties. And that's all going to happen. It's happening urgently.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

And some cargo will move, although it'll be lower until we get to a normalization of the tariffs, which we hope happens soon.

Omar Nokta
Managing Director at Jefferies LLC

Got it, very good. Well, thank you. I'll pass it back.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Okay. Thank you.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Thank you, Omar.

Operator

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

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

I appreciate it. And I also appreciate you guys being forthright with respect to sort of how all of 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 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?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, 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 headcount freeze in place. We've curtailed our spending levels. We're doing everything we can while we determine where the new once things settle out.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

The hope here is that The US economy can avoid a recession. If we find ourselves in one, there are other changes and costs that we could undertake. 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.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

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 long term value creation is there.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

So we'll watch this as it goes. We're not making any permanent decisions. Everybody's 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 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

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

that.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Okay. And I think I know the answer, but is it possible I know you said 30% volume decline in April. Is it possible to contextualize what that would mean with respect to your operating income in the Marine Transportation business?

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Ben, it's Joel. I'll take that one. So we won't give anything specific, but the 30% decline, you can look at our numbers. That's a year over year phenomenon that we quoted in April. So the best way I can contextualize it for you is to say, look at our second quarter numbers last year, assume April's down 30% year over year, and then make your own estimates of what you think the rest of the quarter will be for our China business.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

And then, of course, layer on it what you think the incremental contribution would be, and that would be the consolidated operating income impact of it. So that's the best way to think through it and conceptualize it.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

But the only other thing, Ben, this is Matt, that I would say is, at this point, we don't know if this 30 won't gradually get better. We don't know if China and The US may pause these tariffs or take a big step backwards or to some other level before the end of the quarter. So, and that may cause some changes. So it's frankly, you know, everyone's crystal ball is a little cloudy at this point. But as Joel mentioned, that's the approach that you should take algebraically to try to figure out, how you might, how we might look.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Right, okay. And then if I could sneak one last minute. You talked about 20% of the volume that's running through China originating in Vietnam. Is there any thinking about maybe running a direct shipment from Vietnam?

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Yeah, I think Ben, think that the feeder strategy with our trusted partners, feeder partners in the region, give us the ability out of Hai Phong and Ho Chi Minh to have the fastest service to The US West Coast, even with the feeder connections, because the feeder connections in Shanghai arrive immediately before our departure. So do we have the ability to move ships around? Certainly we do, by definition we do. But I think we have, we can have our cake and eat it too, in the sense that we still will have the fastest connections in Haifeng and Ho Chi Minh through our feeder network and still retain the capacity to depart from those ports on which we have very longstanding relationships. And they provide us simply outstanding service.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Okay, I appreciate it. Thank you, guys.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Let me answer it a different way, too. There is significant congestion at the large ports in Vietnam. And we have, we don't have a long standing relationship. So our own vessels may go there and we may not be able to move as effectively or as reliably as we do these smaller ports for the feeder vessels that we're currently operating. So that's just another way to say the same thing.

Benjamin Nolan
Benjamin Nolan
Managing Director at Stifel Financial Corp

Got it. All right, I appreciate it guys.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Thank you, Ben.

Joel M. Wine
Joel M. Wine
Executive VP & CFO at Matson

Okay, 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 management for any further remarks.

Matthew Cox
Matthew Cox
Chairman, Director & CEO at Matson

Okay, well, thanks for your attention today. We look forward to connecting with you at the end of the next quarter. Thank you.

Operator

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

Executives
    • Justin Schoenberg
      Justin Schoenberg
      Director, Investor Relations & Corporate Development
    • Matthew Cox
      Matthew Cox
      Chairman, Director & CEO
    • Joel M. Wine
      Joel M. Wine
      Executive VP & CFO
Analysts
    • Daniel Imbro
      Managing Director at Stephens Inc
    • Jacob Lacks
      Analyst at Wolfe Research, LLC
    • Omar Nokta
      Managing Director at Jefferies LLC
    • Benjamin Nolan
      Managing Director at Stifel Financial Corp
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Key Takeaways

  • First-quarter consolidated operating income increased by $45.2 million to $82.1 million, driven by elevated China freight rates, higher volumes in Hawaii and Alaska, and partially offset by lower Guam volumes and logistics results.
  • Matson is lowering its full-year 2025 outlook due to significant uncertainty around tariffs, global trade, regulatory actions and U.S. economic trends, and now expects year-over-year declines in volumes and average freight rates in Q2 and beyond.
  • Since April, China service volumes have fallen ~30% year over year following new tariffs, prompting Matson to accelerate its Asia catchment basin strategy by expanding transshipment services from Vietnam, Cambodia and other markets.
  • Logistics operating income declined $0.8 million in Q1 as weaker freight forwarding and brokerage were only partly offset by supply chain management gains, and the SSAT terminal JV contributed $6.6 million, down $6.2 million year over year.
  • Matson generated strong cash flow, used $39.7 million to retire debt, invested $243 million in CapEx (including new vessels), and returned $263.7 million to shareholders through dividends and buybacks, repurchasing $69.2 million of shares in Q1.
AI Generated. May Contain Errors.
Earnings Conference Call
Matson Q1 2025
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