Earnings Call Transcript - MATX Q4 2025

Operator, Operator

Thank you for joining us. Welcome to Matson's Fourth Quarter 2025 Financial Results Conference Call. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please proceed.

Justin Schoenberg, Director of Investor Relations and Corporate Development

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, 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. 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 28 to 40 of our Form 10-Q filed on November 5, 2025, and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 24, 2026, 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 and Chief Executive Officer

Thanks, Justin, and thanks to those on the call. Starting on Slide 3. Matson had a solid finish to the year with consolidated fourth quarter results that exceeded our expectations. For the quarter, Ocean Transportation operating income approached the level achieved in the prior year period, primarily due to higher-than-expected freight rates and volumes in our China service driven by strong e-commerce and e-goods demand. Our China service benefited from strong freight demand in our key customer segments as well as a more stable trading environment in the Transpacific trade lane as a result of the U.S.-China trade and economic deal announced on October 30, which greatly reduced uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors. In our domestic ocean trade lanes, we saw higher year-over-year volumes in Hawaii and Guam and lower year-over-year volume in Alaska. In the Logistics, quarterly operating income decreased year-over-year primarily due to a lower contribution from supply chain management. For the full year, our consolidated operating income decreased year-over-year primarily due to lower volume and freight rates in our China service over the last three quarters as customers manage freight in a challenging environment marked by uncertainty and volatility arising from tariffs and global trade. Looking ahead, for full year 2026, we expect consolidated operating income to approach the level achieved in the full year 2025 and based on our expectations of continued solid U.S. consumer demand and a stable trading environment in the Transpacific trade lane. For 2026 compared to 2025, we also expect to see a more normal operating income seasonality pattern with our second and third quarters being the strongest relative to the first and fourth quarters. I will 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 increased 0.6% year-over-year due to higher general demand. For the full year 2025, container volume increased 1.6% year-over-year, primarily due to higher general demand and a dry-docking of a competitor's vessel in the first half of 2025. For the full year 2026, we expect volume to be comparable to the level in 2025, reflecting similar economic conditions as 2025 and a stable market share. Please turn to Slide 5. According to UHERO's December economic report, the Hawaii economy remains sluggish as softer tourism and ongoing inflationary pressures, including elevated interest rates, more than offset strength in construction activity. International tourism remains weak and visitor arrivals are expected to decline in 2026 before recovering in 2027. Maui tourism improved in 2025, but remained significantly below the levels prior to the devastating 2023 wildfires. Moving to our China service on Slide 6. Matson's container volume in the fourth quarter of 2025 was 7.2% lower year-over-year. For the full year 2025, container volume decreased 9.5% year-over-year, primarily due to the difficult trading environment in the Transpacific in the last three quarters of 2025, marked by continued uncertainty and volatility arising from tariffs and global trade. Please turn to Slide 7. In the fourth quarter of 2025, we saw higher-than-expected freight rates and volume driven by strong e-commerce and e-goods demand. Our China service benefited from a strong freight demand in our key customer segments as well as a more stable trading environment in the Transpacific trade lane as a result of the U.S.-China trade and economic deal announced on October 30, which reduced uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors. So far in 2026, we've experienced stable freight demand up to the Lunar New Year holiday in mid-February. We did not see a traditional bump in demand prior to Lunar New Year, but we expect freight demand to increase post-holiday as workers return to the factories and production ramps. As such, for the first quarter of 2026, we expect lower volume compared to the prior year period as we return to a more traditional Lunar New Year environment. Please turn to the next slide. For the full year 2026, we expect volume to be modestly higher than the level achieved in 2025 based on continued solid U.S. consumer demand and a more stable trading environment in the Transpacific trade lane. The U.S. consumer remains resilient and the U.S. economy continues to show good growth. And we believe the significant tariff uncertainties that we encountered last year are mostly behind us. We also expect to see a return to a more normal seasonality pattern in 2026 with our second and third quarters being the strongest relative to the first and fourth quarters. As you may recall, we experienced a significant decline in volume in the second quarter of 2025 due to the implementation of tariffs, so we expect our China volume in the second quarter this year to be higher than that level achieved from last year. For 2026, we are not expecting all of our ships to be full. Our focus in the Transpacific trade lane is to maximize the yield in every sailing out of Shanghai and maintain price. The premium rates in our China service reflect our unique value proposition relative to air freight and the consistency and reliability of our CLX and MAX services, which are the fastest and second-fastest ocean services from Shanghai to Long Beach. In 2025, we moved with our customers. We added a second weekly feeder service from Vietnam and in December, commenced a weekly feeder service from Thailand. Our customers continue to look at shifting manufacturing out of China to diversify their operations. We remain focused on expanding our network in Southeast Asia. We continue to believe the maximum tariff uncertainty is behind us with continued cooperation between the U.S. and China. And as I said on previous earnings calls, there is too much at stake for both countries not to come to a long-term economic agreement. Please turn to the next slide. In Guam, Matson's container volume in the fourth quarter of 2025 increased 4.4% year-over-year. The increase was primarily due to higher general demand. For full year 2025, container volume decreased 4.3% year-over-year, primarily due to lower general demand. In the near term, we expect Guam's economy to moderate reflecting a challenging tourism environment. As such, for 2026, we expect container volume to be comparable to the level achieved last year. Please turn to the next slide. In Alaska, Matson's container volume for the fourth quarter of 2025 decreased 3.3% year-over-year. The decrease was primarily due to one less northbound sailing compared to the year-ago period, partially offset by higher export seafood volume on our AAX service. For full year 2025, container volume increased 1.7% year-over-year primarily due to higher export seafood volume on AAX, partially offset by one less northbound sailing compared to the year-ago period. For full year 2026, we expect Alaska volume to be comparable to the level achieved last year. Please turn to Slide 11. The Alaska economy continues to show good economic growth and improvement in key economic indicators despite flattish growth in population. In 2025, the state continued to add jobs with oil and gas and healthcare having the largest year-over-year increase. For 2026, we expect continued economic growth in Alaska supported by a low unemployment rate, job growth and continued oil and gas production activity. The oil and gas sector continues to be a key driver of Alaska's economy. In recent years, we've seen meaningful investment in the North Slope projects with more accommodative federal policies, there is a potential for significant investment supporting resources, resource development in the state. Please turn to Slide 12. In the fourth quarter, our SSAT terminal joint venture contributed $9.3 million, representing a year-over-year increase of $18.8 million. The increase was primarily due to an impairment charge related to a write-down of a terminal operating lease asset at SSAT which negatively impacted our fourth quarter 2024 operating income by $18.4 million. For the full year 2025, our SSAT terminal joint venture contributed $32.5 million compared to a loss of $1 million in the prior year. The increase was due to the same $18.4 million impairment charge and higher lift volume. In 2026, we expect the contribution from our SSAT terminal joint venture to be comparable to the $32.5 million achieved in 2025. Turning now to Logistics on Slide 13. Operating income in the fourth quarter came in at $7.7 million or $2.4 million lower than the result in the year-ago period. The decrease was primarily due to a lower contribution from supply chain management. For the full year operating income was $44.2 million, reflecting a year-over-year decrease of $6.2 million. The decrease was primarily due to lower contributions from freight forwarding and transportation brokerage. For 2026, we are expecting operating income to approach the level achieved in 2025. I'll now turn the call over to my partner Joel for a review of our financial performance.

Joel M. Wine, Executive Vice President and Chief Financial Officer

Thank you, Matt. Please refer to Slide 14 for a summary of our fourth quarter and full year 2025 results. In the fourth quarter, consolidated operating income fell by $3.8 million year-over-year to $143.7 million, with decreases in contributions from Ocean Transportation and Logistics of $1.4 million and $2.4 million, respectively. The decline in Ocean Transportation operating income was mainly due to lower contributions from China, though this was somewhat mitigated by increased contributions from SSAT. As Matt mentioned, the rise in SSAT equity income was mainly a result of an impairment charge linked to the write-down of the terminal operating lease asset from the previous year, which negatively influenced our operating income by $18.4 million. The reduction in Logistics operating income was primarily due to lower contributions from supply chain management. We earned interest income of $6.7 million in the quarter, down $3.6 million from the prior year due to reduced cash and cash equivalents and deposits in the CCF compared to the same period last year. Our effective tax rate for the quarter was 5.2%, down from 19.1% in the previous year, benefiting from a one-time tax adjustment of $18.5 million relating to the company's deferred tax assets and liabilities, which positively affected diluted earnings per share by $0.59. In the fourth quarter, net income and diluted earnings per share stood at $143.1 million and $4.60, respectively. For the entire year, consolidated operating income dropped by $51.5 million year-over-year to $499.8 million, with reductions in contributions from Ocean Transportation and Logistics of $45.3 million and $6.2 million, respectively. The annual decline in Ocean Transportation operating income was chiefly due to lower contributions from China, partially offset by increased contributions from SSAT, while lower contributions from freight forwarding and transportation brokerage led to the drop in Logistics operating income. Please move to the next slide. We continue to generate robust cash flows, with cash flow from operations reaching $547.1 million over the trailing 12 months. We returned $348.2 million in capital through dividends and share repurchases, while maintenance CapEx totaled $149.1 million. Our cash flow from operations surpassed the combined spending on maintenance CapEx, dividends, and share repurchases by $49.8 million. Please refer to Slide 16 for an overview of our share repurchase program and balance sheet. In the fourth quarter, we repurchased about 0.7 million shares at a total cost of $78.1 million. For the full year 2025, we bought back roughly 2.7 million shares for a total cost of $307.4 million. Since we launched our share repurchase program in August 2021 through the end of 2025, we've repurchased 13.9 million shares, representing 31.9% of our shares outstanding, at a total cost of about $1.3 billion. As previously stated, we are dedicated to returning excess capital to shareholders and intend to continue this approach unless major organic or inorganic growth investment opportunities arise. Regarding our debt levels, total debt at the end of the fourth quarter was $361.2 million, down $9.7 million from the end of the third quarter. For the year, total debt reduced by $39.7 million. Please go to Slide 17. This slide summarizes our $393.4 million in capital expenditures for 2025. We incurred $244.3 million in capitalized vessel construction expenses for our new Aloha Class vessels, which included $237.3 million in milestone payments and $7 million in capitalized interest and other costs. Maintenance and other capital expenditures were $149.1 million, approximately $20 million higher than previously communicated during our third quarter earnings call. This figure accounts for roughly $20 million of financially attractive early lease buyouts of equipment already in our fleet. Please turn to the next slide. The top table on Slide 18 outlines the key capital expenditures anticipated over the next three years. In 2026, we expect $425 million in new vessel construction expenditures, which includes capitalized interest and owners' items, along with $150 million to $170 million for maintenance and other CapEx to support our vessels, shoreside operations, and logistics businesses. This encompasses approximately $20 million in equipment lease buyouts, representing the final significant tranche of leases executed before the pandemic. We also plan to purchase approximately $30 million beyond our usual amounts for new containers and chassis this year to support our operations and growth. We're preparing for higher-than-normal annual equipment investments due to favorable pricing conditions, particularly as new dry container prices are at an 8-year low. For 2027 and 2028, we anticipate that maintenance and other CapEx will revert to our target range of $100 million to $120 million. Given our intention to accelerate equipment spending this year, we're forecasting maintenance and other CapEx in 2027 and 2028 to be on the lower end of this range unless there are significant inflationary increases in equipment costs. As of December 31, we had around $142 million in cash and cash equivalents along with approximately $533 million in our Capital Construction Fund. Our CCF covers about 92% of our outstanding milestone payment obligations, and when combined with our cash reserves, it exceeds our remaining payment commitments. Therefore, we remain in an excellent funding position for the new building program. The table in the bottom right of the slide outlines our expected 2026 milestone payments by quarter, all of which will be funded from our capital construction fund with resources already designated for these obligations. Now, let me direct your attention to Slide 19 as I discuss our outlook for the first quarter and the full year 2026. For the first quarter of 2026, we predict Ocean Transportation operating income to be approximately $50 million, which is lower than the first quarter of last year due to decreased volumes in our China service. We anticipate Logistics operating income in the first quarter to be slightly less than the $8.5 million recorded in the first quarter of 2025. Consequently, we expect consolidated operating income in the first quarter to be lower than the previous year. For the full year 2026, we forecast Ocean Transportation operating income to approach the $455.6 million realized in 2025. For Logistics, we expect full-year operating income to approximate the $44.2 million achieved in 2025. Therefore, we predict consolidated operating income for the full year 2026 to be close to the $499.8 million from 2025. In addition to this outlook for full-year operating income, we anticipate the following for the full year: depreciation and amortization to be around $210 million, including approximately $35 million for dry dock amortization, interest income to reach about $15 million, interest expense to be about $6 million, other income to be around $7 million, an effective tax rate of about 21%, and dry-docking payments of approximately $45 million.

Matthew Cox, Chairman and Chief Executive Officer

Okay. Thanks, Joel. Let me close with a few final thoughts. Matson is well positioned across its business lines as we head into 2026. The U.S. economy remains solid, underpinned by a supportive macroeconomic environment and healthy consumer spending. And the tariff uncertainties from 2025 are mostly behind us, which we expect to provide stability in the Transpacific trading environment. Across all our trade lanes, we remain focused on what we can control, including vessel and schedule integrity, reliability of our operations and delivering a high-quality service for our customers. These attributes are ingrained in our company's culture through decades-long relationships with our customers, working closely with them and through periods of uncertainty and volatility. In our China service, we're focused on expanding our network in Southeast Asia as our customers continue to diversify their operating locations in the region. Supply chains are becoming more complex, making speed-to-market and schedule integrity paramount for our customers. As the fastest and second-fastest ocean service in the Transpacific, our CLX and MAX services are well suited for increasing supply chain complexity and tighter inventory control by our customers. The premium rates in our China service reflect our unique value proposition relative to air freight and the consistency and reliability of our CLX and MAX services. Our rates in the Transpacific trade lanes remain strong, and we expect to continue to focus on maximizing yield with every weekly sailing from China. We remain committed to looking for ways to grow, either organically or periodically through acquisition. Last, we expect to continue to return capital to shareholders through dividends and our share repurchase program. 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, Operator

And our first question for today comes from Jacob Lacks from Wolfe Research.

Jacob Lacks, Analyst

So a year ago, you gave more of a guidance range depending on the return of Red Sea sailings. This year, you're giving more of a point estimate. To the extent we see a broader resumption in Red Sea sailings, do you think that matters for you? And is this in the guidance one way or the other?

Matthew Cox, Chairman and Chief Executive Officer

Thank you for the question. From our perspective, as we mentioned in our last quarterly call, we believe the broader Transpacific trade is oversupplied, meaning that capacity and the ship order book exceed expected demand, which puts pressure on international freight rates. We estimate that if the Red Sea opens or reopens, it could add about 7% to 9% in additional capacity available for deployment due to shorter transit times. Our guidance is not dependent on whether the Red Sea opens or not; it largely doesn't impact us. The ocean freight rates and the ability of the ocean carriers to manage capacity to sustain their freight rates are more relevant. Our product has become increasingly independent from the generic ocean services supply chain, so it does not affect our guidance.

Jacob Lacks, Analyst

Got it. That's helpful. And you discussed expectation for demand to return post-holiday. Maybe it's a bit too early, but have you seen any signs of a normal seasonal recovery coming out of Lunar New Year yet? Or do you have any visibility on that? Or is this just an expectation based on history?

Matthew Cox, Chairman and Chief Executive Officer

I think it feels like a more traditional Lunar New Year recovery, where we observed no significant increase in demand before the holiday. Factories individually decided on their order books, considering whether to close a bit early or wait an extra week or two for labor to return. Historically, the extensive high-speed rail network has helped reduce the travel time for those from remote areas returning home. From a demand perspective, we've experienced a typical recovery following Lunar New Year, characterized by neither a fast rebound nor a delay. It seems quite normal at this stage. However, as you mentioned, only time will reveal how it actually unfolds. For now, it's a bit premature to assess fully, but we believe that with hindsight, it will resemble a very standard post-Lunar New Year ramp-up.

Jacob Lacks, Analyst

That's helpful. And we're hearing more and more about data center-related volumes moving through air freight. Is any of that spilling over into your expedited ocean service? Or is the strength more consumer electronics and e-commerce volumes that you've discussed in the past?

Matthew Cox, Chairman and Chief Executive Officer

Yes. I mean there is a subcomponent within our e-goods segment. We're talking about e-commerce, e-goods, garments, the traditional product. But within the electronic goods category, we are moving racking and servers. And again, to your point, it's moving out of air freight into our expedited service. So that's a component of our e-goods that we're seeing in the fourth quarter and expect to continue to see in 2026.

Operator, Operator

And our next question comes from the line of Reed Seay from Stephens Inc.

Reed Seay, Analyst

I wanted to get a feel for how you see the pricing environment here in 2026. Obviously, it's been a common theme throughout 2025, the new pricing strategy. And do you see your ability to maybe increase it from where you exited 2025? Or maybe do volumes not support a price increase this year? Just any thoughts on how you're thinking about pricing going into the year?

Matthew Cox, Chairman and Chief Executive Officer

Sure. We shifted our focus last year from merely filling our ships to managing yield. This shift was influenced by our belief that we could lower rates. However, due to the gap in ocean freight rates, we couldn't reduce them enough to generate demand, since our rates were significantly higher than the market. We expect this situation to persist into 2026. Like most carriers, we anticipate a ramp-up in activity after the Lunar New Year and will monitor our demand on a weekly basis. Our focus has shifted away from other ocean carriers, and we are okay with not having our vessels fully loaded as we work on expanding our cargo in Southeast Asia and introducing services to new markets. We'll continue to support our traditional customers from China in e-commerce and garments. Regarding pricing, we believe 2026 will resemble 2025 in terms of our disciplined market approach. Beyond that, only time will clarify our path, but we feel confident enough to project full-year earnings that align with the levels we experienced in 2025.

Reed Seay, Analyst

Got it. That's helpful. And then if we can touch on a little bit more the Thailand route you all introduced in December. What type of volume is that doing today? What type of volume can it do in the future? I guess, what is the opportunity that this presents to Matson? And I assume this is being trucked to China as opposed to being shipped like from Vietnam, is this more favorable economics? Or any color there would be helpful as well.

Matthew Cox, Chairman and Chief Executive Officer

Yes, sure. As it relates to Thailand, as you said, we started that just at the end of the year. And similar to our ramp in Vietnam first in North Vietnam and then last year in South Vietnam. We expect a slow and steady volume. They're consistent with our expectations. It's starting out at 50 loads per sailing. And again, we're just getting started. What's interesting about the customer mix, it's many of the customers that support us in Vietnam and in China are those that know our value proposition. But our goal, of course, we're new to that market. And we'll be continuing to build an organization and work on expanding that book of business. We don't quite have a specific target in mind, but we do expect our volumes, if you look at our China services for the full year, we'll look back and our goal is to have modestly higher volume for the full year out of all of our origins. But we do expect continued growth both in Thailand and in Vietnam. Let me comment on the mode in which it travels. So if you look historically at Matson's business on the CLX service with its Shanghai Ningbo origin, we saw a number of containers that were moving cross-border initially, whether it's from Vietnam or whether it was from Cambodia from Thailand, that trucked all the way across multiple borders to meet our CLX service. What we've seen as we moved initially into Vietnam, there's a certain amount of cargo that are carried on our two weekly Vietnam services that are trucked over the border from Cambodia today. As we move to Thailand, there is still some cargo that will move via truck to our various origins, but we also are moving cargo with our trusted feeder partner on an ocean direct service from Thailand to meet up with our services. So we are still seeing some cross-border trucking, but we have an all-water option with our trusted feeder partner to allow for that direct connection into Shanghai.

Reed Seay, Analyst

Got it. Got it. That makes a lot of sense. And then last one for me. If the administration put out a Maritime Action Plan, there was a little bit in it. Obviously, some of it concerning Jones Act, American-built ships. I'm not sure if there's anything in there that you expect to impact Matson or if there's anything that we should be looking out for on our side as we see maybe next steps from the administration's plans there. So I guess anything stand out to you in that release from the administration?

Matthew Cox, Chairman and Chief Executive Officer

Thank you for the question. I view the Maritime Action Plan as an aspirational blueprint aimed at revitalizing U.S. shipbuilding, particularly in international trades. It is quite comprehensive for those who have taken the time to read it. However, there are no specific time frames attached, and there are no proposed changes to the Jones Act. The main focus seems to be on rebuilding a U.S.-flagged vessel fleet for international trades. It does mention an infrastructure or security fee based on the weight of imported cargo, which could potentially be used to create a trust fund, although it would likely require congressional approval to establish this new fee mechanism. Overall, it's an aspirational plan with no specific timelines, and it does not affect the Jones Act. The exact timing and the order in which various elements will be implemented remain unclear, but congressional approval seems necessary. Those are my thoughts on the Maritime Action Plan at this time.

Operator, Operator

And our next question is a follow-up from Jacob Lacks from Wolfe Research.

Jacob Lacks, Analyst

Just one quick clarification. Were there any port fees you paid in the 4Q results?

Joel M. Wine, Executive Vice President and Chief Financial Officer

It's Joel, Jake. The $6.4 million that we had already disclosed was the total that we paid in the fourth quarter.

Operator, Operator

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 and Chief Executive Officer

Okay. Well, thanks for your participation today. We look forward to catching up with everyone on our first quarter call.

Operator, Operator

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