Business Overview and History

Matson, Inc. (MATX) is a leading provider of ocean transportation and logistics services, with a rich history dating back to 1882. As a vital lifeline to the domestic non-contiguous economies of Hawaii, Alaska, and Guam, as well as other island economies in Micronesia, Matson has solidified its position as a key player in the Pacific region. However, the company has weathered its fair share of challenges, including the recent pandemic and geopolitical tensions, all while maintaining its commitment to delivering superior service and shareholder value.

Matson was founded in 1882 as Matson Navigation Company by William Matson, a Swedish immigrant, who started the business with a single ship. Initially providing ocean freight transportation services between the U.S. West Coast and the Hawaiian Islands, the company expanded its fleet and services over the following decades. During the early 20th century, Matson Navigation faced significant challenges as it navigated the evolving maritime industry, weathering two World Wars and adapting its operations to support the war efforts. The company also had to compete with the rise of air freight, which offered faster delivery times. To stay competitive, Matson Navigation invested in modernizing its fleet and expanding its service offerings.

In the 1980s, Matson Navigation diversified its business by acquiring Matson Logistics, a provider of multimodal transportation and supply chain services. This acquisition allowed the company to offer a more comprehensive suite of logistics solutions to its customers. Around this time, Matson Navigation also began operating premium, expedited services from China to the U.S. West Coast, capitalizing on the growing trade between the two regions.

In 2012, Matson Navigation Company, Inc. changed its name to Matson, Inc. to better reflect the company's evolution from a pure ocean transportation provider to a diversified logistics and transportation solutions company. This rebranding coincided with Matson's initial public offering, which provided the company with additional capital to invest in its growth initiatives. In 2015, Matson acquired Horizon Lines, further solidifying its position in the Hawaii and Alaska markets.

Today, Matson's core business segments include Ocean Transportation and Logistics. The Ocean Transportation segment provides ocean freight services to the domestic non-contiguous economies, as well as premium, expedited services from China to the U.S. West Coast. The Logistics segment, on the other hand, offers a range of asset-light logistics services, including transportation brokerage, freight forwarding, warehousing, and supply chain management.

Financial Performance and Ratios

Matson's financial performance has been a mixed bag in recent years. In 2024, the company reported net income of $476.4 million, a significant increase from the $297.1 million reported in 2023. This translated to earnings per share of $13.93, up from $8.32 in the prior year. Revenue for 2024 stood at $3.42 billion, compared to $3.09 billion in 2023.

The company's operating cash flow for 2024 was $767.8 million, up from $510.5 million in 2023. Free cash flow, a key metric for investors, reached $457.7 million in 2024, compared to $262.1 million in the previous year.

In the most recent quarter (Q4 2024), Matson reported revenue of $890.3 million and net income of $128.0 million. Revenue increased 12.9% year-over-year, primarily due to significantly higher freight rates in China, higher freight rates in the domestic trade lanes, and higher volume in China, partially offset by lower domestic trade lane volume.

Liquidity

Matson's financial ratios paint a picture of a company with a strong balance sheet and liquidity position. As of the end of 2024, the company's current ratio stood at 1.09, while its debt-to-equity ratio was 0.28. These ratios indicate that Matson is well-positioned to meet its short-term obligations and maintain a healthy capital structure.

The company's cash and cash equivalents totaled $266.8 million as of December 31, 2024, with an available credit line of $643.9 million under a $650.0 million revolving credit facility. Matson's quick ratio, which measures the company's ability to meet its short-term obligations with its most liquid assets, was also 1.09 as of December 31, 2024.

Navigating Choppy Waters: Challenges and Opportunities

Matson's success has not come without its fair share of challenges. The COVID-19 pandemic, for instance, had a significant impact on the company's operations, particularly in its Guam and Hawaii service lines, where tourism-related demand was heavily affected. However, the company's diversified service offerings and focus on expedited China services helped to offset some of these losses.

More recently, Matson has had to contend with the ongoing geopolitical tensions between the U.S. and China. The threat of increased tariffs and trade barriers has introduced uncertainty into the company's China-related services. Additionally, the conflict in the Red Sea has disrupted global trade flows, resulting in elevated freight rates that have benefited Matson's China service but created challenges in other areas of the business.

Despite these challenges, Matson has remained resilient, leveraging its core strengths and adaptability to capitalize on new opportunities. The company's focus on reliability, speed, and customer service has enabled it to maintain its competitive edge, particularly in the China trade lane, where it has seen significant demand growth.

Moreover, Matson's investment in its fleet renewal program, which includes the construction of three new Aloha Class vessels, is expected to improve the efficiency and environmental sustainability of its operations. These vessels, which will be equipped with dual-fuel engines capable of running on liquefied natural gas (LNG), will help Matson reduce its carbon footprint and stay ahead of increasingly stringent emissions regulations.

Shareholder Returns and Capital Allocation

Matson has a long-standing history of returning capital to its shareholders. The company has paid regular quarterly dividends, with the most recent dividend of $0.34 per share announced in January 2025. Furthermore, Matson has been actively repurchasing its shares, having bought back approximately 11.2 million shares, or 25.7% of its outstanding shares, since August 2021.

In terms of capital allocation, Matson has struck a balance between investing in its core business and returning excess capital to shareholders. The company's $1 billion fleet renewal program, which includes the construction of three new Aloha Class vessels, is a testament to its commitment to maintaining a modern, efficient, and environmentally-friendly fleet. Meanwhile, the company's share repurchase program and consistent dividend payments demonstrate its focus on enhancing shareholder value.

Ocean Transportation Segment

Matson's Ocean Transportation segment is the core of the company's business, providing a vital lifeline of ocean freight transportation services to the domestic non-contiguous economies of Hawaii, Alaska, and Guam, as well as other island economies in Micronesia. This segment operates under the Matson Navigation Company, Inc. (MatNav) subsidiary, which was founded in 1882.

In the Hawaii service, Matson is the largest carrier of ocean cargo between the U.S. West Coast and Hawaii, offering five weekly departures from ports on the U.S. West Coast and three weekly arrivals in Honolulu. Westbound cargo to Hawaii includes dry containers of mixed commodities, refrigerated cargo, food, beverages, retail merchandise, building materials, automobiles, and household goods, while eastbound cargo from Hawaii consists mainly of automobiles, household goods, dry containers of mixed commodities, and livestock.

Matson's China service includes two expedited services - the China-Long Beach Express (CLX) and the Matson Asia Express (MAX). The CLX service carries cargo from Long Beach, California to Honolulu, Guam, Okinawa, Japan, and then on to Ningbo and Shanghai, China, where cargo is loaded for discharge primarily in Long Beach. The MAX service operates weekly from Ningbo and Shanghai to Long Beach.

The company also provides services to Guam, Alaska, Japan, Micronesia, and the South Pacific, offering a comprehensive network of ocean transportation solutions across the Pacific region.

The Ocean Transportation segment generates the majority of Matson's total operating revenue, accounting for approximately 82% in 2024. The segment's operating income margin was 17.8% in 2024, up significantly from 11.9% in 2023, driven by higher freight rates in China and the domestic tradelanes, as well as higher volume in China.

Logistics Segment

Matson's Logistics segment, operated through the Matson Logistics, Inc. subsidiary, extends the geographic reach of the company's transportation network throughout North America and Asia. This asset-light business provides a variety of logistics services to its customers, including transportation brokerage, freight forwarding, warehousing, and supply chain management.

The Transportation Brokerage services consist of intermodal rail, highway, and other third-party logistics services for North American customers and international ocean carrier customers, including MatNav. The Freight Forwarding services are primarily provided to the Alaska market through the Span Alaska subsidiary, which aggregates less-than-container load (LCL) freight at its cross-dock facility in Auburn, Washington for consolidation and shipment to its service center in Anchorage and other facilities in Alaska.

The Logistics segment generated $612.1 million in revenue in 2024, a slight decrease of 0.9% compared to the prior year. Operating income for the Logistics segment increased 5.0% to $50.4 million, with a segment operating margin of 8.2% in 2024 compared to 7.8% in 2023, driven by a higher contribution from the supply chain management services.

Performance by Geographic Markets

Matson's business is focused on the domestic non-contiguous economies of Hawaii, Alaska and Guam, as well as international services to China, Japan, Micronesia and the South Pacific. In 2024, the company experienced varying performance across its geographic markets:

• Hawaii container volume decreased 1.7% in Q4 2024 and 2.3% for the full year 2024 due to lower general demand.

• China container volume increased 7.2% in Q4 2024 and 2.4% for the full year 2024 due to seasonally stronger freight demand.
• Guam container volume decreased 10.0% in Q4 2024 and 6.5% for the full year 2024 primarily due to lower demand from the retail and food and beverage segments.
• Alaska container volume increased 1.1% in Q4 2024 and 0.6% for the full year 2024 due to higher northbound volume, partially offset by an additional sailing in the prior year period.

Future Outlook and Guidance

For the first quarter of 2025, Matson expects Ocean Transportation operating income to be meaningfully higher than the $27.6 million achieved in the year-ago period, as they anticipate elevated freight rates in their China service to continue.

Looking at the full year 2025, Matson's expectations for Ocean Transportation operating income are largely dependent on the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity, and the trajectory of the U.S. economy. Assuming Red Sea trade conditions normalize by the end of the first half of 2025 and no significant changes in other factors, full year 2025 Ocean Transportation operating income is expected to be moderately lower than the $500.9 million achieved in 2024. However, if Red Sea trade conditions remain disrupted through 2025 and no significant changes occur in other factors, full year 2025 Ocean Transportation operating income could approach the level achieved in 2024.

For the Logistics segment, Matson expects operating income for the full year 2025 to be modestly lower than the $50.4 million achieved in 2024 due to challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

Overall, Matson anticipates consolidated operating income for the full year 2025 to range from moderately lower than the $551.3 million achieved in 2024 to approaching the level achieved in 2024, depending on various factors including the Red Sea situation and broader economic conditions.

Conclusion

Matson, Inc. (MATX) is a resilient and adaptable company with a rich history in the Pacific region. Despite facing various challenges, including the pandemic and geopolitical tensions, the company has continued to deliver strong financial performance and shareholder returns. Matson's focus on reliability, speed, and customer service, coupled with its strategic investments in fleet renewal and sustainability initiatives, position it well to navigate the choppy waters ahead and capitalize on future growth opportunities. As Matson continues to solidify its position as a leader in the Pacific transportation and logistics landscape, investors would be wise to keep a close eye on this steadfast pioneer.