Matson, Inc. (MATX) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary indicates a decline in financial performance, with significant drops in operating income, net income, and EPS. Despite increased container volumes in Alaska and Hawaii, the overall outlook is weak due to decreased volumes in China and Guam. The Q&A session revealed management's uncertainty and lack of clarity regarding potential refunds of port fees. While share repurchases and reduced debt are positives, the overall sentiment is negative, especially with the market cap suggesting moderate sensitivity to these factors.

Key Financial Performance

Ocean Transportation Operating Income Decreased $79.5 million year-over-year to $161 million, primarily due to lower freight rates and volume in China.

Logistics Operating Income Decreased $1.8 million year-over-year to $13.6 million, primarily due to lower contributions from freight forwarding, transportation brokerage, and supply chain management.

Net Income Decreased 32.3% year-over-year to $134.7 million, driven by lower operating income in Ocean Transportation and Logistics.

Diluted Earnings Per Share Decreased 28% year-over-year to $4.24 per share, reflecting the decline in net income.

Container Volume in Hawaii Service Increased 0.3% year-over-year, reflecting modest economic growth in Hawaii and stable market share.

Container Volume in China Service Decreased 12.8% year-over-year, primarily due to uncertainty and volatility arising from tariffs and global trade.

Container Volume in Guam Decreased 4.2% year-over-year due to lower general demand.

Container Volume in Alaska Increased 4.1% year-over-year, primarily due to one additional northbound sailing and higher AAX volume.

SSAT Terminal Joint Venture Contribution Increased $2.4 million year-over-year to $9.3 million, primarily due to higher lift revenue.

Cash Flow from Operations Generated $544.9 million over the trailing 12 months, exceeding the aggregate spend on maintenance CapEx, dividends, and share repurchases by $55.8 million.

Share Repurchases Repurchased approximately 0.6 million shares in the third quarter for $66.4 million, and 2 million shares year-to-date for $229.3 million.

Total Debt Reduced by $10.1 million from the end of the second quarter to $370.9 million.

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Operating Highlights

Hawaii service: Container volume increased 0.3% year-over-year in Q3 2025. Full-year volume is expected to remain comparable to 2024 levels due to modest economic growth and stable market share.

China service: Container volume decreased 12.8% year-over-year in Q3 2025 due to tariff uncertainties and global trade volatility. Freight rates were also lower year-over-year. A trade deal between the U.S. and China announced on October 30 is expected to stabilize the trading environment in Q4 2025.

Guam service: Container volume decreased 4.2% year-over-year in Q3 2025 due to lower general demand. Full-year volume is expected to be modestly lower than 2024 levels.

Alaska service: Container volume increased 4.1% year-over-year in Q3 2025, driven by an additional northbound sailing and higher AAX volume. Full-year volume is expected to be modestly higher than 2024 levels.

Port entry fees: Matson absorbed $6.4 million in port entry fees in Q3 2025 without passing costs to customers. A trade deal on October 30 suspended these fees for one year starting November 10, 2025.

SSAT terminal joint venture: Contributed $9.3 million in Q3 2025, a $2.4 million year-over-year increase due to higher lift revenue. Full-year contribution is expected to exceed 2024 levels.

Logistics operating income: Decreased by $1.8 million year-over-year in Q3 2025 due to lower contributions from freight forwarding, transportation brokerage, and supply chain management. Q4 2025 income is expected to be modestly lower than 2024 levels.

New vessel construction: Matson is progressing on a $1 billion new vessel program, with milestone payments funded primarily through its capital construction fund. Delivery of three vessels is scheduled for 2027 and 2028.

Share repurchase program: Repurchased 0.6 million shares in Q3 2025 for $66.4 million. Year-to-date repurchases total 2 million shares for $229.3 million. Since 2021, 30.2% of outstanding shares have been repurchased for $1.2 billion.

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Risk or Challenges

Ocean Transportation: Lower year-over-year operating income due to reduced freight rates and container volume in China service. Anticipated continued lower freight rates and volume in the fourth quarter due to cautious inventory management by customers.

Logistics: Lower year-over-year operating income due to reduced contributions from freight forwarding, transportation brokerage, and supply chain management. Expected continued decline in operating income in the fourth quarter.

Hawaii Economy: Softening economy due to slowing tourism, high inflation, and interest rates, despite stronger construction activity. Decline in tourist arrivals and spending, partly due to tariff uncertainties.

China Service: 12.8% year-over-year decrease in container volume in the third quarter due to tariff and global trade uncertainties. Muted demand in the Transpacific tradelane due to businesses advancing cargo ahead of tariff deadlines.

Port Entry Fees: Initial $20 million in port entry fees expected in Q4 2025 and $80 million annually in 2026 and 2027. Suspension of fees for one year following U.S.-China trade deal, but uncertainty remains regarding long-term agreements.

Guam Economy: 4.2% year-over-year decrease in container volume in the third quarter due to lower general demand. Anticipated moderation in Guam's economy due to a challenging tourism environment.

Financial Performance: Consolidated operating income decreased 30% year-over-year in the third quarter. Net income decreased 32.3%, and diluted earnings per share dropped 28% year-over-year.

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Guidance & Outlook

Consolidated Operating Income: For the fourth quarter 2025, consolidated operating income is expected to be approximately 30% lower year-over-year.

Trading Environment: A more stable trading environment is anticipated for customers starting in the fourth quarter of 2025 due to the reduction in uncertainty regarding tariffs, port entry fees, global trade, and other geopolitical factors following the U.S.-China trade and economic deal announced on October 30.

Hawaii Service Volume: For the full year 2025, container volume is expected to be comparable to the level achieved in 2024, reflecting modest economic growth in Hawaii and stable market share.

China Service Volume and Freight Rates: For the fourth quarter 2025, lower year-over-year freight rates and volume are expected as customers remain cautious on inventory levels and work through previously purchased inventory.

Guam Service Volume: For the full year 2025, container volume is expected to be modestly lower than the level achieved last year due to a challenging tourism environment.

Alaska Service Volume: For the full year 2025, container volume is expected to be modestly higher than the level achieved last year, supported by economic growth, low unemployment, job growth, and oil and gas exploration activities.

SSAT Terminal Joint Venture Contribution: For the full year 2025, the contribution from SSAT is expected to be higher than the $17.4 million achieved last year, excluding the $18.4 million impairment charge recorded in 2024.

Logistics Operating Income: For the fourth quarter 2025, operating income is expected to be modestly lower than the level achieved last year.

Depreciation and Amortization: For the full year 2025, depreciation and amortization are expected to approximate $196 million, inclusive of $28 million for dry dock amortization.

Interest Income and Expense: For the full year 2025, interest income is expected to be approximately $32 million, and interest expense is expected to be approximately $7 million.

Capital Expenditures (CapEx): For the full year 2025, maintenance and other capital expenditures are expected to be approximately $130 million, with annual maintenance CapEx projected to remain in the $100 million to $120 million range going forward. New vessel construction milestone payments in 2025 are expected to be approximately $248 million.

New Vessel Program Funding: As of September 30, 2025, $628 million in cash deposits and treasury securities in the capital construction fund covers approximately 92% of the remaining milestone payment obligations. The total cost of the new vessel program remains at approximately $1 billion, with targeted delivery schedules unchanged.

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Shareholder Return Plan

Dividends and Share Repurchases: We returned capital in the form of dividends and share repurchases of $302.5 million, and we had maintenance CapEx of $186.6 million.

Share Repurchase Program: During the third quarter, we repurchased approximately 0.6 million shares for a total cost of $66.4 million, including taxes. Year-to-date, we repurchased approximately 2 million shares for a total cost of $229.3 million, including taxes. Since we initiated our share repurchase program in August of 2021 through September of this year, we have repurchased approximately 13.1 million shares or 30.2% of our stock for a total cost of approximately $1.2 billion.

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Key Q&A

Q:Do you view the current pricing levels as sustainable given the pressure on traditional spot rates in the Transpacific lane?

A:Matthew Cox stated that the company made a conscious choice to hold prices despite falling spot rates, based on their belief in reduced expedited volumes. He noted that absolute freight rates are likely to come down in an orderly way, consistent with seasonal patterns.

Q:Are the $6.4 million in port fees included in the operating profit down 30% in 4Q?

A:Yes, Matthew Cox confirmed that the $6.4 million in port fees are included in the operating profit.

Q:Is there a mechanism to get the $6.4 million in port fees refunded or rebated?

A:Matthew Cox mentioned that they are awaiting final regulations from the USTR and the China Ministry of Transport, expected in the next week or two, to determine if a refund or rebate is possible.

Q:Was the $6.4 million in port fees a cash outflow or just an accounting entry?

A:Matthew Cox clarified that the $6.4 million in port fees were a cash outflow, paid weekly upon arrival or prior to departure.

Q:Are recent increases in Transpacific spot rates impacting Matson's pricing?

A:Matthew Cox stated that Matson's pricing is disconnected from market mechanisms and is based on expedited cargo needs. He noted that recent spot rate increases are efforts by international carriers to stabilize rates and have no impact on Matson.

Q:What is the current load factor for Matson's services, and how has it evolved?

A:Joel M. Wine explained that load factors have been lower since April due to maintaining pricing despite reduced volumes. They have not been full since April, with utilization factors leveling out based on reported volumes.

Q:Are customers shifting away from sourcing in China due to trade discussions and political issues?

A:Matthew Cox noted a long-term trend of customers diversifying sourcing beyond China, adopting a 'China Plus One' strategy. However, China remains an important manufacturing source.

Q:What share of CLX and MAX cargo comes from Vietnam or other non-China sources?

A:Matthew Cox stated that approximately 20% of CLX and MAX cargo originates from non-China sources, primarily Vietnam, with additional contributions from Cambodia, Thailand, Malaysia, and the Philippines.

Q:How are pricing trends in domestic lanes like Alaska and Hawaii progressing?

A:Matthew Cox explained that pricing in domestic lanes reflects annual rate increases aligned with cost increases, including labor and fuel surcharges. The pricing environment has been steady with year-over-year increases in line with costs.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the potential refund or rebate of the $6.4 million in port fees, stating they are awaiting final regulations from the USTR and the China Ministry of Transport. This response lacked clarity and specific details about the likelihood or process of obtaining a refund.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call reveals several negative indicators: a decrease in consolidated operating income, net income, and diluted EPS. The company lowered its 2025 revenue outlook and expects reduced container volumes and freight rates. Although there are positive aspects like share repurchases and debt reduction, the overall sentiment is negative due to weak financial performance and muted guidance. The Q&A section further highlights concerns about lower volumes, competition, and muted peak seasons, which negatively impact the stock price outlook, especially given the company's mid-sized market cap.

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