Horizon Lines' earnings soar with tax benefit
Horizon Lines Inc., the second-largest ocean shipper in the islands, said yesterday its third-quarter net income soared more than 18-fold after taking a tax benefit of $39.4 million.
The Charlotte, N.C.-based company, which accounts for 36 percent of the shipments from the mainland to Hawaii, Guam and Alaska, had earnings of $52.9 million, or $1.57 a share, compared with $2.8 million, or 14 cents a share, a year earlier.
Revenue increased 5.4 percent to $304.7 million from $289.1 million.
The tax benefit was attributable to Horizon electing to pay an alternative tonnage tax instead of federal corporate income tax on qualifying shipping activities. The American Jobs Creation Act of 2004 instituted an elective alternative tonnage tax on qualifying shipping activities for corporations operating U.S.-flag vessels in U.S. foreign trade.
The shift in tax accounting reduced Horizon's income tax bill by $39.4 million, or $1.17 a share, for the quarter. Excluding the tax benefit, adjusted net income was $14.3 million, or 43 cents a share, compared with $13.3 million, or 40 cents a share, a year earlier that excludes non-recurring initial public stock offering expenses, and an adjustment for the purchase of two vessels formerly under lease.
Analysts, after taking into account the exclusions, expected 59 cents a share and revenue of $307.3 million last quarter, according to Thomson Financial.
"The tonnage tax election ... will result in substantial tax savings that will allow us to further re-invest in our business," said Chuck Raymond, chairman, president and chief executive of Horizon. "On Oct. 11, the second of five new vessels being built for our Trans-Pacific-1 service was christened."
Container loads of refrigerated and non-refrigerated foodstuffs and household goods traveling from the mainland to Hawaii, Guam and Alaska represented about 40 percent of Horizon's revenue in 2005.
Among the approximate 2,000 customers it has on those routes are Costco, Johnson & Johnson, Lowe's, PepsiCo, Safeway, Toyota and Wal-Mart, as well as the U.S. Department of Defense and the U.S. Postal Service.
Horizon also said yesterday it was forecasting fourth-quarter operating revenue of $287 million to $292 million; earnings before interest, taxes, depre- ciation and amortization be- tween $39 million to $41 million; and earnings per share of 21 cents to 23 cents per share excluding the tax benefit, and 31 cents to 33 cents per share with the savings.
Earlier this month, Horizon said it was going to reduce its fuel surcharge on shipments between the mainland, Hawaii and Guam by 1 percentage point to 18.75 percent from 19.75 percent, effective next Monday. It was the second fuel-surcharge reduction in about a month after rising fuel costs had forced Horizon to raise its surcharge to 21.25 percent.
At the beginning of this year, Horizon raised its ocean freight rates to and from Hawaii an average of 3.9 percent.
Matson Navigation Co., the largest ocean shipper to Hawaii, initiated the fuel-surcharge adjustments and the rate increase.