Matson, Inc. (MATX) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Matson Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations. Please go ahead, sir.

Thank you. 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, and in our subsequent filings with the SEC. Please also note that the date of this conference call is August 3, 2026, and 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, and thanks to those on the call. I'll start on Slide 3. Matson delivered a strong second quarter, and 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 and freight rates exceeded our expectations. Demand for our China service benefited from tight market conditions and continued demand across e-commerce, garments and e-goods. Our domestic trade lanes performed largely as expected, and 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 transpacific trading environment. In summary, our differentiated service model continues to perform well and as we enter the second half of the year with strong momentum, solid customer demand and a healthy balance sheet. And as a result, we're optimistic about the second half of '26 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. So 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 5. 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, but 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 to continue to recover, though the increase is from domestic tourists as opposed to higher spending international visitors. Moving to our China service on Slide 6. 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 Transpacific demand due to the tariffs imposed in April 2025. Please turn to Slide 7 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 the backdrop of tighter supply conditions in the Transpacific 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 derisking upcoming UF 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 transpacific market in the fourth quarter of 2025 following the U.S.-China trade and economic agreement announced on October 30, 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 Transpacific 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% to 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 1 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 $0.5 million higher than the results 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 $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 interest income of $5 million in the quarter compared to $8 million in the same period last year. The decrease was due to $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. Net income increased 36.6% year-over-year to $129.4 million and diluted earnings per share increased 46.2% year-over-year to $4.27 per share. 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, and 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. Please turn to Slide 16 for a summary of our share repurchase program and balance sheet. During the second quarter, we repurchased approximately 0.3 million shares for a total cost of $67.8 million. Year-to-date, we repurchased approximately 0.7 million shares for a total cost of $122.2 million. Since we initiated our share repurchase program in August of 2021 through June of this year, we have repurchased approximately 14.6 million shares or approximately 34% of our stock for a total cost of approximately $1.4 billion. Also, on April 23, we announced the addition of 3 million shares to our existing share repurchase authorization. As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities. As of June 30, 2026, there were approximately 3.4 million shares remaining in our share repurchase program. Turning to our debt levels. Our total debt at the end of the second quarter was $341.3 million, a reduction of $9.8 million from the end of the first quarter. With that, let me now turn to Slide 17 and walk through our outlook, starting with the third and fourth quarters of 2026 at the top of the page. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income in the third quarter to be approximately 45% higher than the $147.4 million achieved in the third quarter of 2025, with our China service expected to be the primary driver of the year-over-year increase. For Logistics, we expect operating income in the third quarter to be modestly higher than the $13.6 million achieved in the third quarter of 2025. As such, we expect consolidated operating income in the third quarter to be approximately 45% higher than the prior year. For the fourth quarter of 2026, we expect Ocean Transportation operating income to be modestly lower than the $136 million achieved in the fourth quarter of 2025. As a reminder, and as Matt mentioned earlier, the fourth quarter last year in the transpacific market experienced an elevated period of freight demand following the U.S.-China trade and economic agreement announced on October 30 last year. For Logistics, we expect operating income to be modestly higher than the $7.7 million achieved in the fourth quarter of 2025. On the bottom half of the slide, we have our expectations for full year 2026. Starting with Ocean Transportation, we expect year-over-year operating income to be higher than the $455.6 million achieved in 2025. For Logistics, we expect operating income to be higher than the $44.2 million achieved in full year 2025. As a result, we now expect consolidated operating income to be higher than the $499.8 million achieved in 2025. This outlook reflects our expectation of continued solid U.S. consumer demand and a stable trading environment in the Transpacific trade lane. Our full year outlook also reflects our expectation regarding fuel cost recovery. To date, the Iran conflict has not impacted our operating performance or service levels. However, it has impacted fuel prices in all of our markets. At the end of the second quarter, we had undercollected fuel costs across all trade lanes by an amount in the low teens of millions of dollars. We expect to recover these elevated fuel costs by the end of the year. In addition to this full year operating income outlook, we expect the following for the full year: depreciation and amortization to approximately $205 million, including approximately $35 million in dry docking amortization, interest income to be approximately $18 million and interest expense to be approximately $6 million, other income to be approximately $7 million, an effective tax rate of approximately 21.0% and dry-docking payments of approximately $45 million. Moving to Slide 18. The table shows our CapEx projections for the full year 2026. Our range for maintenance and other capital expenditures is unchanged at $150 million to $170 million for full year 2026. Our estimate for expected vessel construction milestone payments and related costs for full year 2026 remains at $400 million. In the second quarter, we paid approximately $180 million in milestone payments from our capital construction fund. Looking ahead, we expect to make approximately $50 million in milestone payments in the third quarter and approximately $127 million in the fourth quarter. As of June 30, we had cash and cash equivalents of approximately $119 million and approximately $346 million in our capital construction fund. Our CCF covers approximately 90% of our remaining milestone payment obligations and when combined with our balance sheet cash, exceeds our remaining milestone payments. So we continue to be in a strong funding position on the newbuild program. Please turn to the next slide. Our targeted delivery schedule for the new Aloha Class vessels remains unchanged. Our first vessel, Makua, is approximately 89% complete with delivery expected in the first quarter of 2027. The pictures on the slide show Makua's bow being mounted on the whole, giving a clear view of the front of the vessel. Our second vessel, Malama is approximately 64% complete with delivery expected in the third quarter of 2027. Our third vessel, MacKenna, is approximately 30% complete with delivery expected in the second quarter of 2028. With that, let me turn the call back over to Matt for closing remarks.

Okay, Joel, thanks. Please turn to Slide 20, where I'll go through some closing thoughts. As I mentioned in my introductory comments, we believe we're well positioned heading into the second half of the year. Our China service to continue to perform at or near capacity, and we're optimistic that the U.S. consumer remains resilient and will be supportive of freight demand in the Transpacific for the remainder of the year. Altogether, these factors support our expectations for a particularly strong third quarter. We continue to navigate geopolitical uncertainty related to the Iran conflict and U.S. tariffs. Our business has generally performed well when global supply chains are disrupted or become congested and where scheduled reliability and high service standards are essential. Southeast Asia expansion continues to be a key strategic priority for Matson, and we expect to grow with our customers as they diversify and expand their manufacturing base in the region. We feel we've made tremendous progress in building out our regional service offering into a viable extension of our China service. The product offering has resonated with customers needing speed and reliability on the water, and I'm excited for Matson to continue to build on the success in the region that we've achieved to date. And with that, I will turn the call back to the operator and ask for your questions. Thanks.

And our first question for today comes from the line of Jacob Lacks from Wolfe Research.

So you guys are guiding to 3Q Ocean EBIT to be much higher a year ago, but then 4Q to be a bit lower. Understanding that last year is a tough comp, are you assuming that all the global trade strength we see today fully subsides in the next couple of months as well?

Yes. It's a good question, Jake. I think our view, and we started the year by talking about after this period of tariff-driven changes in 2025, we were expecting to see a normalization of more traditional transpacific pattern, which, of course, as you know, is the second and third are our strongest quarters and first and fourth are the lower quarters. So we're still projecting to see sort of a normal falloff, again, with the backdrop of strong consumer demand, the U.S. economy hanging in there. And so we expect to see some fall off as we get past peak and the largest amount of volume going through. So we're not expecting anything unusual other than, to your point, kind of a stronger comp, but we see it as very much normalized and nothing out of the ordinary in the fourth quarter.

Understood. And have you seen just like -- I mean, traditional ocean spot rates up well over 100% year-on-year. Have you seen any sign of that start to normalize to date? Or has that generally held up for now?

Yes. I mean, I think traditionally, and my comments will be relative to the overall trade, not our specific trade where we tend to stay higher for longer. But I would say for the overall seasonality, we're seeing at or near peak level demands now. The international ocean carriers had just put through another August 1 rate increase. And some of that at least will stick, and the carriers are interested in trying to do what they can to keep rates up. And they've done, in my opinion, a remarkable job of providing the right amount of tonnage into the market so that the trade gets carried. There aren't large backlog of cargoes, but neither are there significant sailings that are not close to being full. So the market is being supplied in an orderly manner. It's a little too early to say what will happen once we get sort of past the first or second week of October as we transition into a normal peak season. Time will tell us. It's just a bit early to call that one, Jake.

Makes sense. And then maybe last one for me before -- and then I'll hop back in the queue. How are you thinking about China trade policy over the next several months? And is your expectation that the 1-year truth gets extended in November and that the port fees remain on hold?

Yes. These are good questions. I think the backdrop of our outlook, it really reflects a stable trading environment. We use a phrase like that. What we really mean by that is that the U.S. and China's governments, we think, are both interested in creating a stable trade environment, and that will persist through the end of the year and into next year. Of course, something else may come up, but our expectation is very much the case that neither the U.S. or Chinese government want to upset the card at this point in time.

And our next question comes from the line of Reed Seay from Stephens.

I kind of want to follow up a little bit on the pricing piece here. It's been stronger than expected these past 3 quarters. I just want to get your thoughts on maybe trying to parse out how much of this is -- obviously, you've had some support here recently from ocean and air rates. But how much of this is continued price discovery as the value of your offering has really been proven out? And then if you could also help us understand how much of this is fuel here in 2Q and how much fuel we should expect in 3Q just as we look at how much of this is permanent, how much of this is temporary just given the current backdrop?

Sure, Reed. Why don't I ask Joel to comment on the fuel question and then I'll focus on the body of the first part of your question.

Yes. Reed, the quick answer on the fuel is not much of it has been impacted by the fuel. We announced and it's publicly available on our domestic trade lanes, the fuel pieces. So you can see that. And -- but I think your question was geared more towards the Transpacific and our China services. And most of the early rate action that we took had some fuel components to it was done early in the second quarter, the March, April time frame. And then the rest of the pricing environment since then has really been market-driven, not fuel-driven.

Okay. And then, Reed, to the main body of the first part of your question, I think as we've said in our prepared comments, we've been pleasantly surprised by the strength of the international ocean markets. I'll talk about the Transpacific and ours in a moment. But what's interesting this year that perhaps didn't exist last year on the international trades was it's not just the transpacific volumes that we're seeing strength. We're seeing -- despite the conflict in the Middle East, the international trades, whether they be the South American trades, whether they be Asia, Europe or African trades, have all been remarkably resilient and have -- as a result, have absorbed much of the capacity of the international ocean carriers. And as I said in my earlier comment, to answer your question, I think the carriers have done a good job of deploying the right amount of capacity to carry each of these international trades without creating a huge backlog of cargo nor by creating a large surplus of capacity. So the networks have responded in a very orderly way. I think that's translated into the pricing that you see on the SCFI or other publicly available indices. And of course, Matson, as you point out and know, our freight rates are above the rates of the international freight. Our freight rates don't generally move. We don't change them as much, but we're definitely into a period under which we're achieving very satisfactory freight rates and expect those freight rates to continue until the end of peak season.

Got it. That's very helpful. And just kind of a quick follow-up there. I think last year when the broader ocean rates came down, Matson rates seem to hold a little bit more stable. Should we expect similar price action or maybe a little bit more in tandem movement this time around?

Yes. I think our thinking about pricing just more generally is expressed in our guide forward on the third quarter and the full year. And that is to say in the fourth quarter, we do expect once we get past peak season, we have historically and at this point, expect to step rates down as we get towards the end of the year. And again, that's all reflected into our thinking about how that's going to result for the Q3 and Q4 guidance.

That makes a lot of sense. And last one for me, just kind of bigger picture. As we look out to 2027, it looks like ships are on pace to be delivered on time. When you think about the current volume backdrop, is it shaping up how you expected/hoped for whenever these ships get deployed to where you can utilize them to the best of their abilities? Or is there -- is the backdrop slightly different than you planned? Just kind of -- has your thinking changed at all?

Yes. I mean we're very much looking forward to the additional capacity with the first of the vessel getting delivered in the first quarter of 2027. That will -- for the first vessel, at least move nicely as we get into the second and third quarter peaks. So that additional capacity is welcome. We'll be taking the place of a smaller vessel that will then be deployed into one of our U.S. domestic trades, Hawaii or Alaska. And so we continue to feel that, that additional capacity will be welcome and will allow us over time both to increase our earnings footprint, but also connected to our Southeast Asia strategy of broadening our markets that we focus on with our highly differentiated product, I think will tailor nicely into the additional capacity that gets woven into our fleet over the next couple of years. So we feel really good about our positioning there.

And our next question comes from the line of Tomo Sano from JPMorgan.

Congrats on the quarter. On the 45% year-over-year increase outlook for third quarter Ocean Transportation operating income, could you provide more color at a high level bridge across pricing and volumes and key costs, if possible?

Yes. Tomo, I'll take a first stab at that. The primary one, there's some piece of volume and there's some piece of higher freight rates. I mean, clearly, rates are higher now than they were last year's Q3. And then on the volume side, both Q2 and Q3 last year were highly unusual as we've talked about. So the tariff impact in April and May was extreme last year. But then there was actually a bit of a mini surge in a rush to move cargo in June and early July. And then later in August and September, it was a muted peak season that we talked about. So you had less volume really, frankly, moving through the third quarter than you normally would have in the third quarter. So we expect this year to be a better volume environment for our China trade as well as we're heading in the environment right now at higher all-in rates. So the answer is the 45% year-over-year is being driven by both those -- both the volume and the rate side.

That's helpful. And you talked about Southeast Asia cargo is now 20% to 25% of China service volumes. If possible, could you discuss qualitatively how it's different versus China origin cargo in terms of the profitability and pricing structures and seasonalities and the customer concentration, please?

Sure. Yes. I will endeavor to do that. It's a multifaceted question. So let me try to break that down. So I think the first thing that we are very pleased about is from -- just in the last couple of years, we went from essentially no organized Southeast Asia services to now in North and South Vietnam and in Thailand, we are the fastest and most reliable carrier, including those that are ocean direct from those origin with our regional transportation partners and our service. So the good news is out of all of those origins, we've satisfied our strategy, which is we want to participate in markets where we are the fastest and most reliable, where we can offer a competitive product such that we will grab the top 5% or some small percent of the market that really needs to get their cargo there on time, whether it's a late order production problem, whether it's coming out of airfreight and that absolutely needs to be at its destination where it matters. And there's -- we do achieve a premium relative to the market and a significant premium relative to the market from those origins. But as to the element of the question about our relative contribution, freight rates are similar but slightly lower all-in rates for us than our China origin direct cargo. Our operating cost to carry that are a little bit higher because we're positioning equipment into that region, and we're carrying it out. So there's a connecting carrier agreement payout. I would say those numbers are very small and manageable relative to the size of our freight rates, and we are highly satisfied with the ending yield that drops to the bottom line associated with the Southeast Asia cargo, acknowledging that it's slightly lower than a China direct. But we've been able to, we think, diversify. We've established our market presence. As to your question about the types of cargo, many of the customers that are using us in Vietnam and in Thailand are the same customers that trust us with cargo out of China and for the beneficial cargo owners are the same customers that are using us that have multiple facilities in different countries. So our value proposition is already known and trusted by them. So maybe I've over answered your question or not exactly right, but that's some of the color of the comparisons between our China origin cargo and our Southeast Asia cargo.

[Operator Instructions] Our next question is a follow-up from the line of Jacob Lacks from Wolfe Research.

One more for me. How do you view the cost structure of the new vessels compared to the current CLX vessels that will be shifting out? And then should the improved profitability on these be realized immediately following delivery? Or will there be like a bit of a lag for any reason?

Jake, so the cost structure is very similar. They're larger, but the daily operating cost and the fuel burn importantly, are very similar to the vessels that we have today. So there won't be a big change or meaningful change on the cost structure, but we do have the bigger capacity. So the answer then becomes on the additional utilization that we've talked about, that should be incrementally profitable to our bottom line. And we expect that -- it depends on exactly what month when each of the ships are deployed, but we expect them to be full, all of them in Q2 and Q3. They may not -- all the incremental capacity may not be used in Q1 and Q4. But generally, we expect these vessels to be near -- all the additional capacity to be used to be very profitable for us and flowing through the bottom line because of the comment I made about operating costs being similar. So that's generally how we expect it to improve our bottom line as each vessel is phased in.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Cox, CEO, for any further remarks.

Okay. Thanks for everybody listening in. We look forward to catching up with everyone on the Q3 call. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.