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A&B mulls sugar's future


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POSTED: Saturday, July 25, 2009

Alexander & Baldwin Inc. is evaluating its future in the sugar business amid a 57.4 percent decline in second-quarter earnings that was partly due to an $11.3 million loss in its agribusiness unit.

The Honolulu-based company, hurt by lower sugar prices and decreased output last quarter, said yesterday it has undertaken a “;comprehensive strategic evaluation”; of its sugar operations that is expected to be completed by year-end.

A&B, whose agribusiness business lost $13.2 million through the first six months of the year, said it expects losses to continue through the end of this year.

“;Losses at these levels are totally unacceptable,”; said Allen Doane, chairman and chief executive of A&B, on a conference call.

With the agribusiness unit dragging down earnings, A&B's net income fell to $12.6 million, or 31 cents a share, from $29.6 million, or 71 cents a share, a year ago. Revenue fell 22.9 percent to $355.1 million from $460.5 million.

A&B's agribusiness unit consists of sugar, coffee and support-service operating companies.

The state would be left without any sugar producers if A&B decides to exit the sugar business. The other remaining sugar producer, Kauai-based Gay & Robinson, will harvest its last crop in August 2010. Gay & Robinson said last September that due to the rising costs of sugar operations—including fuel and fertilizer—it was ending sugar production and would lease its land to other agriculture producers so that it could transition into renewable energy.

Maui-based Hawaiian Commercial & Sugar Co.—A&B's sugar division—employs 739 full-time workers, while support companies Kahului Trucking & Storage and East Maui Irrigation Co. employ 55 and 17, respectively.

The loss of sugar operations on Maui would be another big blow to the island, which already is reeling from hundreds of layoffs after Maui Land & Pineapple shut its pineapple-canning operation to focus on Hawaii and mainland fresh-pineapple sales.

A&B said its preference is to maintain its farming operations on Maui, if it can recover from its recent challenges.

“;We are evaluating many options for returning HC&S to profitability, including improved performance of our existing raw and specialty sugar-focused model and the merits of transforming the plantation into a large-scale energy producer utilizing sugar and/or other crops,”; the company said.

               

     

 

AT A GLANCE

        Second-quarter net

       
$12.6 million
       

Year-earlier net
       
$29.6 million

       

Doane said the ongoing sugar losses triggered the comprehensive evaluation and that “;the foundation of success”; will come from producing more sugar.

“;The single biggest driver of production levels is water, and we are fortunate that rainfall has improved this year,”; he said. “;We also recognize that there are other operating factors that influence production levels and costs, and we have a dedicated team working aggressively to turn around our operation. We are confident that sugar production will rebound next year, and we are still developing our projections of production levels, revenue and costs for 2010 and beyond.”;

Agribusiness revenue fell 19 percent last quarter to $29.2 million from $36.2 million a year ago, while sugar production declined 14 percent to 43,300 tons from 50,100 tons, mostly due to lower average yields per acre resulting from unprecedented 2007-08 drought conditions.

Ocean transportation subsidiary Matson Navigation returned to profitability in the second quarter, with operating income of $21.1 million after losing $500,000 in the first quarter. Despite the improvement, operating income fell 44 percent from $37.4 million in the year-earlier quarter. Revenue fell 19 percent to $218.5 million from $268.4 million a year ago.

Doane, however, was heartened that volume in all of its trade lanes and service lines improved from the first quarter.

“;Matson had an improved quarter, overcoming continued volume weakness and a precipitous drop in rates in our China trade,”; Doane said. “;We had a good spike in auto volume (up 88.9 percent from the first quarter) mostly as a result of rental-fleet replacements. These resulted in good operating margins, as we are starting to realize the benefits of our earlier cost-cutting and fleet optimization initiatives.”;

A&B's transportation-logistics unit had operating income of $1.8 million, off 61 percent from $4.6 million a year ago. Revenue fell 30 percent to $80.3 million from $115.5 million.

The company's real estate leasing unit's operating profit fell 13 percent to $11 million from $12.6 million while revenue slipped 5 percent to $25.9 million from $27.3 million. Occupancy rates fell 12 percentage points to 84 percent on the mainland and by 4 percentage points to 95 percent in Hawaii.

A&B's real estate sales unit, excluding joint ventures, had an operating profit of $9.4 million, up 27 percent from $7.4 million a year ago, while revenue fell 32 percent to $21.3 million from $31.2 million.