Matsons, Inc. 2026 Q2 Earnings Call

Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer, and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call.

These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on pages 12 to 23 of our Form 10-K filed on February 27, 2026, in our subsequent filings with the SEC. Please also note that the date of this conference call is August 3, 2026, any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.

Thanks, Justin, thanks to those on the call. I'll start on slide three. Matson delivered a strong second quarter, we are raising our outlook for the full year. The strong performance in the quarter was driven primarily by our China service. The momentum in our China service carried over from the post-Lunar New Year period, freight rates exceeded our expectations. Demand for our China service benefited from tight market conditions, continued demand across e-commerce, garments, and e-goods. Our domestic trade lanes performed largely as expected, logistics delivered year-over-year operating income growth. Looking ahead, we are optimistic about the second half of the year, supported by continued demand in our China service, resilient consumer spending, and a stable Trans-Pacific trading environment.

In summary, our differentiated service model continues to perform well as we enter the second half of the year with strong momentum, solid customer demand, and a healthy balance sheet. As a result, we're optimistic about the second half of 2026 and expect higher performance versus the second half of 2025. Joel will go into more detail on the outlook later in this presentation. I will now go through the second quarter performance of our trade lanes, SSAT, and logistics. Please turn to the next slide. In our Hawaii service, container volume in the second quarter decreased 1.1% year-over-year, primarily due to lower general demand. For the full year 2026, we expect volume to approach the level achieved in 2025 based on our expectations of similar economic conditions as 2025 and a stable market share. Please turn to slide five.

According to UHERO's second quarter 2026 economic report, Hawaii's economy remains stable, supported by strong construction activity and modest growth in tourist arrivals, continues to face headwinds from higher energy-related inflation. Construction remains a source of strength for Hawaii's economy, supported by large federal contracts, the Maui wildfire rebuilding efforts, and investments in infrastructure. Tourism is also improving modestly as visitor arrivals continue to recover, though the increase is from domestic tourists as opposed to higher-spending international visitors. Moving to our China service on slide six, container volume in the second quarter of 2026 increased 15.2% year-over-year. The increase was primarily due to significantly higher demand compared to the prior year period. As you may recall, in the second quarter of 2025, there was a market decline in the Trans-Pacific demand due to the tariffs imposed in April 2025.

Please turn to slide seven for additional commentary on current business trends. Momentum in our China service carried over from the post-Lunar New Year period. For the second quarter, our CLX and MAX services saw higher-than-expected freight rates and demand across e-commerce, garments, and e-goods against a backdrop of tighter supply conditions in the Trans-Pacific trade lane. The elevated demand grew throughout the quarter in both China and Southeast Asia. We saw a mix of strong e-commerce demand, inventory replenishment, and some pull forward of seasonal goods. Some customers opted to get ahead of the general rate increases and higher fuel surcharges while also de-risking upcoming U.S. tariff discussions and uncertainties related to the Iran conflict. Please turn to the next slide for our commentary on the second half of the year. We continue to expect our China service to be at or near capacity through the peak season.

Through July, freight demand on our CLX and MAX services remained in excess of capacity. For the fourth quarter of 2026, we expect demand to reflect a more traditional seasonality pattern compared to the elevated period of freight demand experienced in the Trans-Pacific market in the fourth quarter of 2025, following the U.S.-China Trade and Economic Agreement announced on October 30th, 2025. The agreement helped ease tariff and port entry fee uncertainty for our customers that had constrained freight flows and led to prolonged demand with strong volume and high freight rates lasting later in the quarter last year than normal. For the full year 2026, we expect volume to be higher than the level achieved in 2025, based on our expectation of continued solid U.S. consumer demand and a stable trading environment in the Trans-Pacific trade lane. Please turn to the next slide.

We're encouraged by the continued growth of our regional services across Vietnam, Thailand, and the broader Southeast Asia region. While this expansion was initially driven by our customers' needs, it has also enabled us to diversify our cargo mix. Weekly, Southeast Asia cargo now represents 20%-25% of the China service volume, which is significantly higher than the level achieved in the beginning of 2025. We believe we have the right regional transportation partners to support our growth and build an integrated transportation network. These partners share our commitment to schedule integrity and premium service levels. We continue to look for opportunities to grow with our customers, expand our geographic footprint, and capture market share as Southeast Asia becomes a larger part of our weekly China service volume. Please turn to slide 10. In Guam, Matson's container volume in the second quarter of 2026 increased 4.4% year-over-year.

In the near term, we expect Guam's economy to remain stable. As such, for the full year 2026, we expect container volume to be comparable to the level achieved last year. Please turn to the next slide. In Alaska, Matson's container volume in the second quarter of 2026 decreased 2.3% year-over-year. The decrease was primarily due to lower export seafood volume on AAX, partly offset by one additional northbound sailing. In the near term, we expect Alaska's economy to remain stable, supported by a low unemployment rate, steady job market, and continued oil and gas exploration and production activity. As such, for the full year 2026, we expect container volume to approach the level achieved last year. Please turn to slide 12. In the second quarter, our SSAT investment joint venture contributed $4.8 million, representing a year-over-year decrease of $2.5 million.

The decrease was primarily due to lower lift volume and higher operating expenses. For the full year 2026, we expect the contribution from SSAT to be lower than the $32.5 million achieved in the full year 2025. Turning now to logistics on slide 13, operating income in the second quarter came in at $14.9 million, or a half a million dollars higher than the result in the year ago period. The increase was primarily due to higher contributions from freight forwarding and transportation brokerage, partially offset by a lower contribution from warehousing. For the full year 2026, we expect logistics operating income to be higher than the level achieved in full year 2025. I will now turn the call over to Joel for a review of our financial performance.

Joel? Okay, thanks, Matt. Please turn to slide 14 for a review of our second quarter results.

For the second quarter, consolidated operating income increased to $45.9 million year-over-year to $158.9 million, with higher contributions from ocean transportation and logistics of $45.4 million and $0.5 million, respectively. The increase in ocean transportation operating income was primarily due to a higher contribution from our China service, partially offset by higher vessel operating expenses, primarily due to higher fuel-related costs. As Matt noted, the increase in logistics operating income was primarily due to higher contributions from freight forwarding and transportation brokerage, partially offset by a lower contribution from warehousing. We had an interest income of $5 million in the quarter, compared to $8 million in the same period last year.

The decrease was due to a $311 million reduction in the CCF balance in the last 12 months as construction milestones on our new Aloha Class vessels have been achieved, necessitating higher payments to the shipyard. Diluted earnings per share increased 46.2% year-over-year to $4.27 per share. Net income increased 36.6% year-over-year to $129.4 million. Lastly, diluted weighted average shares outstanding decreased 6.5% year-over-year. Please turn to the next slide. We continue to generate strong cash flows. For the trailing 12 months, we generated cash flow from operations of $584.1 million. We returned capital in the form of dividends and share repurchases of $307.3 million. We had maintenance CapEx of $133.4 million. Our cash flow from operations exceeded the aggregate spend on maintenance CapEx, dividends, and share repurchases by $143.4 million.