A&B buoyed by China venture
The shipping route is already contributing to the company's net
Alexander & Baldwin Inc.'s ocean-shipping venture into China appears to be paying off.
Less than a year after beginning service, the parent of Matson Navigation Co. said yesterday its foray into China is profitable, and that the international shipping line was one of the catalysts that helped boost the overall company's fourth-quarter net income 15.4 percent over the year-ago period.
"The momentum of this service affirms our belief that Matson has established a superior reputation in China less than a year after its entry into that burgeoning marketplace," said Allen Doane, chairman and chief executive of A&B.
Matson began service to China in February following 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.
"2006 was a good year for Alexander & Baldwin, and it ended on a particularly positive note, providing momentum and a firm foundation for growth in the coming year," Doane said. "Matson earned its stripes once again with the successful launch of its Guam and China service."
The Honolulu-based company beat analysts' earnings expectations with net income of $27 million, or 63 cents a share, compared with $23.4 million, or 53 cents a share, a year ago. Analysts had forecast 57 cents a share, according to Thomson Financial.
Revenue rose 2.2 percent to $406 million from $397.1 million.
For the year, A&B's earnings slipped 2.8 percent to $122.5 million, or $2.81 a share, from $126 million, or $2.86 a share. Revenue edged up 0.3 percent to $1.607 billion from $1.603 billion.
San Francisco-based analyst Jason Kremer of Caris & Co. said A&B's China operation is proving more successful than what he initially expected.
"They have a superior service in that their ships can do the routes in less time (10.2 days) than their competitors," Kremer said. "Basically, the key for them is to be able to leverage that value add, which they have not been able to do yet to get higher rates going forward. If they can get a better mix of products or find companies that are willing to pay up for the quicker shipments, that would even be better."
A&B Chief Financial Officer Chris Benjamin said Matson's ships can get goods from Shanghai to Long Beach faster than its competitors not because Matson's vessels are any faster but because most of its competitors make a couple of stops along the way.
"We can get the cargo off the ship and to our customers two to three days faster than our competitors because we have nonstop service and a dedicated terminal for unloading the cargo," he said.
Kremer said he expects Matson's ocean transportation profit to be more backweighted to the second half of the year than it used to be because of the new China service being strong in the third and fourth quarters due to Christmas shipments to the mainland.
"Matson's strength in shipping from the mainland to Hawaii (before China) traditionally was in the second and third quarters," Kremer said. "But (China) contracts come up in April and May and we'll know more after that."
Matson's operating profit in the fourth quarter increased $5.9 million, or 26 percent, to $28.7 million from $22.8 million a year ago. Revenue rose 7 percent to $239.7 million from $223.6 million.
However, Hawaii automobile volume was down 30 percent in the quarter due to a decline in auto retail sales and a reduction in auto manufacturer incentives for rental car fleet sales. The volume of construction material shipped also declined, giving more credence to state economists' forecast of a slowing real estate market.
"There may be a correlation to the slowdown, but also what could be happening is that companies may be working through inventories of construction material as well," Benjamin said.
A decrease in rail volumes and lower rail incentives by major carriers lowered the revenue in A&B's logistics services unit by 12 percent to $106.3 million. The unit's operating profit, however, rose 33 percent to $5.7 million.
Real estate was strong for A&B in the quarter, as the sales unit had a 46 percent gain in operating profit to $10.5 million and a 19 percent increase in revenue to $31.7 million. The increase in the quarter was primarily driven by the sale of the Lanihau Shopping Center in Kailua-Kona on the Big Island and initial closings at the company's joint venture Kai Malu residential development in Wailea, Maui.
"While we are encouraged by sales at Kai Malu in particular, and in the progress of other development projects such as Keola La'i (on Oahu), we also acknowledge that a changing residential real estate environment in Hawaii may affect the timing of sales at certain projects in our pipeline," Doane said.
A&B's leasing unit posted a 22 percent gain in operating profit to $13.5 million and a 13 percent increase in revenue to $26.1 million as occupancy rates grew. Its mainland occupancy rate rose to 98 percent from 95 percent a year ago while in Hawaii it increased to 98 percent from 93 percent.
The company's agribusiness had an operating loss of $3.3 million compared with a gain of $2 million in the year-earlier quarter while revenue slipped 5 percent to $32.3 million. The company attributed the loss to lower raw bulk raw sugar sales volume and prices.