A&B profit slips but easily tops forecasts
The company's operating profit from its shipper Matson drops 38 percent
Alexander & Baldwin Inc., hampered by the cost of ending of its Guam shipping partnership, had a 0.8 percent decline in first-quarter net income but handily beat analysts' earnings forecasts. Revenue declined slightly.
The Honolulu-based company said yesterday a strong real estate performance partly offset a 38 percent decline in operating profit by ocean-shipping subsidiary Matson Navigation Co.
Overall, net income for the quarter was $37.4 million, or 84 cents a share, compared with $37.7 million, or 86 cents a share, a year earlier. Analysts had forecast an average of 77 cents a share, according to Thomson Financial.
Revenue slipped 0.7 percent to $362.2 million from $364.6 million.
A&B's earnings fell just below the estimate of one of the seven analysts who covers the company. Alex Barron of San Francisco-based JMP Securities had predicted earning per share of 85 cents. Barron cited Matson's revenue of $219.3 million, which was below his forecast of $223 million, and the subsidiary's operating margin of 8.3 percent, down from 14.4 percent in the first quarter of 2005.
"It's a surprise because when you look at the margin percentage, they already told us (the Guam-China transition) would have a big impact," Barron said. "I was already building in that downturn in the margins, but obviously I didn't take my numbers down far enough."
Matson, which began service to China in February, said its financial performance was negatively affected by the end of its 10-year APL alliance, in which Matson and APL shared vessel deployments to Guam. A&B had to begin new service to Guam, and used the opportunity to add China for the first time. It said that after six weeks of service the Asia trade is in line with expectations.
"We expect the gap between the loss of APL-related earnings and earnings generated by our new Guam and China services to moderate toward the second half of the year," said Allen Doane, president and chief executive of A&B.
A&B said revenue from Matson increased 6 percent from $206.2 million because of its China service, improved yields and increases in its bunker-fuel surcharge, which it implemented due to a 64 percent increase in fuel costs.
However, Hawaii automobile volume fell 11 percent because of competition from Pasha Hawaii, while Hawaii container volume was up 1 percent.
Doane, who previously forecast lower full-year earnings due to Matson's transition, said he was pleased with the first-quarter results.
"We continue to benefit from strategies the company has undertaken in the past several years that are materially reducing, on a consolidated basis, the 2006 impact of Guam and China," Doane said. "Our outlook for 2007, while still formative, is positive."
A&B's real estate sales unit posted a 64 percent increase in operating profit to $27.1 million from $16.5 million on the sale of an office building in Wailuku, Maui, three commercial parcels totaling 4.6 acres on Maui, a commercial property on Oahu and a parcel on Kauai. A&B also reached a milestone by selling all 247 residential condominium units and a commercial space at the company's Hokua joint venture development near the Victoria Ward Centers. In addition, the company sold a parcel of land in Valencia, Calif., owned by a separate joint venture.
Revenue for the real estate sales unit fell 48 percent to $23.8 million from $45.9 million because income from joint-venture investments are not included in that segment.
A&B's real estate leasing unit had a 13 percent increase in operating profit to $12.1 million and a 12 percent gain in revenue to $24.6 million. Its occupancy rate on the mainland rose 1 percentage point to 97 percent while in Hawaii increased 8 percentage points to 98 percent.