A&B’s net drops 2.3%
on real estate sales

Alexander & Baldwin Inc., which is preparing to begin new cargo service to China early next year, said second-quarter net income slipped 2.3 percent on fewer sales of real estate.

But ocean shipper Matson Navigation Co., the largest revenue-producing subsidiary in the company, remained a strong contributor with a 23 percent increase in operating profit.

Overall, A&B earned $29.4 million, or 66 cents a share, compared with $30.1 million, or 70 cents a share, in the second quarter of 2004. Revenue rose 4.7 percent to $392.1 million from $374.4 million.

The company's net income beat analysts' consensus estimate of 62 cents.

Allen Doane, president and chief executive of A&B, said the business environment remains favorable for the company and he expected little change during the next six to 12 months.

"The outlook for 2005 is excellent, but I would be somewhat cautious about 2006 as the Guam/China service is initiated, and economic momentum and real estate may shift into a lower gear," he said.

Last month, A&B brought a new containership into service for a planned five-ship rotation for its new California-Honolulu-Guam-China route. The ship is the third of four new vessels that Matson will use on the route.

"These new ships provide improved operating economics that will benefit the Hawaii, Guam and China markets," Doane said.

Matson's operating profit of $38.7 million last quarter exceeded the $31.4 million of a year earlier and reflected an unusually high operating margin since the unit's revenue rose only 6 percent. Matson's 17.5 percent operating margin was partly driven by its minority partnership with SSA Terminals LLC, a stevedoring and terminal operating company.

A&B's logistics services unit, which arranges transportation for cargo after it reaches ports, recorded a 38 percent increase in its operating gain, which rose to $3.6 million from $2.6 million, and a 14 percent increase in revenue.

The company's stock hit an all-time high last week of $54.82.

Nicholas Aberle, a San Diego-based analyst with Caris & Co., said in a report yesterday before the earnings announcement that the stock's run-up in the past three months doesn't reflect the increased risk driven by additional competition, steadily rising interest rates, trade route transitions and an increased debt load.

Increased competition is coming from Pasha Hawaii, which entered the West Coast-Hawaii market in the first quarter with a dedicated automobile transport vessel.

"The combination of these issues lead us to believe that earnings for the remainder of 2005 and throughout 2006 will be materially impacted, ultimately leading to degradation of earnings by 10 percent year over year for full-year 2006," he wrote. "We believe the stock is currently trading in excess of fair value."

The timing of A&B's real estate sales transactions resulted in that division posting a 64 percent drop in operating profit to $4.8 million from $13.4 million and a 48 percent decline in revenue to $14.6 million from $28.3 million.

"The nature of this business segment makes it difficult to rely on quarter-to-quarter comparisons," said Doane, noting that the unit had a strong performance in the year-earlier quarter.

Analyst Jamelah Leddy of Seattle-based McAdams Wright Ragen said A&B has a strong track record of acquiring attractive properties, developing them and selling them for a profit.

"Real estate has been so hot in Hawaii and the thing is at what point does it cool down a little," Leddy said.

Real estate leasing had a 14 percent gain in operating profit to $10.5 million from $9.2 million and a 4 percent gain in revenue to $21.3 million from $20.4 million.

The food products division's operating profit was $300,000 and matched the year-earlier quarter while revenue grew 11 percent to $32.2 million from $28.9 million. The company produced 10 percent more sugar, 58,400 tons, up from 53,200 tons.