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Executives

Jerome Holland

Matthew J. Cox - Chief Executive Officer, President and Director

Joel M. Wine - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Jack Atkins - Stephens Inc., Research Division

William W. Horner - BB&T Capital Markets, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Sameed Musvee - Wells Fargo Securities, LLC, Research Division

Matson (ALEX) Q4 2013 Earnings Call February 25, 2014 4:30 PM ET

Operator

Good afternoon, and welcome to Matson's Fourth Quarter and Full Year 2013 Earnings Call. [Operator Instructions] The conference is being recorded.

I would now like to turn the call over to Jerome Holland, Director of Investor Relations. Please go ahead.

Jerome Holland

Thanks, Kate. Aloha. Matt Cox, President and Chief Executive Officer; and Joel Wine, Senior Vice President and Chief Financial Officer are joining the call from Honolulu. Slides from this presentation are available for download at our website, www.matson.com under the Investor Relations 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 and this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors on Pages 9 to 15 of our 2012 Form 10-K filed on March 1, 2013 and in our subsequent filings with the SEC.

Please also note that the date of this conference call is February 25, 2014, 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, also, references made to certain non-GAAP numbers in this presentation. A reconciliation to GAAP numbers and description of calculation methodologies is provided in the addendum.

With that, I will turn the call over to Matt.

Matthew J. Cox

Thanks, Jerome. And thanks to everyone on the call today. Before diving into the individual business lines, I would like to make some high level remarks about the fourth quarter and full year 2013. In the fourth quarter our businesses performed as expected from an operating standpoint delivering all in all another solid performance. We saw continued stability in our ocean transportation business and marked improvement in our logistics unit warehouse operations.

Likewise for the full year, we achieved meaningful operating improvement driven by significant Hawaii freight volume growth in the first half of the year, continued strong demand for our niche expedited China service and improvements in logistic operations. Unfortunately, our financial results were significantly impacted by a number of one-time charges throughout the year and especially some in the fourth quarter where we accrued a $9.95 million settlement charge amount related to a False Claims Act complaint. And despite these one-timers, our business has generated strong cash flows with $4.54 per share in cash flow from operations and free cash flow per share of $3.72. I feel confident that our businesses are on the right track and look forward to the opportunities and the challenges in the coming year. At the end of today’s call, we will provide our outlook for 2014.

So what was the settlement accrual about? In June of last year, Matson and several other defendants including freight forwarders and ocean carriers were named in a False Claims Act suit brought by the plaintiff on behalf of the Federal Government alleging violations in the False Claims Act, essentially the allegation is claimed that certain of Matson’s freight forwarder customers had been improperly billing the Department of Defense for surcharges on the inland segment of shipments of military household goods in the Hawaii and Guam trades.

After a 20 month investigation, the Federal Government declined to pursue the case. We believe then and we continue to believe that the case against Matson was without merit and that we had a very strong legal position against the allegations. However, in considering our options and taking into account that considerable time and legal expenses associated with full blown litigation and the inherent risks in any jury trial, we determined that the most prudent business decision for Matson would be to pursue a settlement.

On February 14, we commenced a non-binding mediation that resulted in a proposed $9.95 million settlement, in full settlement of all plaintiff’s claims. This past weekend our board made the very difficult decision to accept the settlement and we accrued for it as of 2013 year-end. Because the settlement is contingent on U.S. government approval and dismissal of the case, we will not be commenting further on this matter on this call, and with that we’ve put the matter squarely behind us.

Turning now to Slide 5, you will see our financial metrics for the fourth quarter of 2013. And we have tried to share what the impact of the litigation charge was on our financial performance. We continue to generate strong cash flow as shown by EBITDA which increased 12% year-over-year excluding the litigation charge. Earnings per share declined slightly from the prior year, absent the litigation charge. Our earnings per share was impacted by an unusually high tax rate in the quarter stemming from the litigation charge and a change in the timing of our CCF deposits.

On Slide 6, for the year we generated over $169 million in EBITDA, and even higher level of cash from operations while earnings per share and the return on invested capital were inline with 2013 levels. Absent the litigation charge EBITDA would have been a $179.3 million, up 6% from 2012 and EPS increased 14%, a challenging year no doubt, but a solid performance overall.

Turning now to our individual service lines on Slide 7. In Hawaii the third quarter, our lull in container volume extended into the fourth quarter and as continued into January and February of this year. However, we achieved higher yields as a results of better freight rates and cargo mix compared to the prior year. We also benefited from lower outside transportation costs and from operating a 9-ship fleet throughout the quarter. You may recall that last year we had barge and vessel dry-dockings in the fourth quarter that required the use of a third-party barge services and the operation of a sub optimal 10 ship fleet for a portion of the quarter.

Despite the continuation with the lull in container volume, we remain confident that the Hawaii economies in a multiyear recovery and expect modest market growth in 2014, inline with state GDP growth and increased construction activity.

Containership capacity is projected to increase by 5% to 10% in the second half of 2014, as Patia [ph] is expected to launch its new vessel into the trade. And while it’s still too early to forecast the financial impact of the additional capacity into the trade, I can say with absolute certainty that we will compete for every box of business. Overall, we’re expecting a slight year-over-year increase in our Hawaii container volume for the coming year and that we expect to carry it with a core 9-ship fleet.

Slide 8 details some of the key metrics of the Hawaii economy based on recent forecast by the Hawaii Department Business and The University of Hawaii Economic Research Corporation, UHERO. Hawaii real gross domestic product has historically been a solid proxy for general container volume growth and you can see that it is forecast to be up by 2.8% and 2.5% for 2000 and -- I’m sorry 2014 and 2015. That said we saw a contraction growth in our volume in unequal measures throughout 2013.

The tourism industry had another record setting year in 2013, but experienced a weak finish to the year. While visitor activity is expected to remain at a high level, the rapid growth in arrivals is likely behind us. Tourism is a key economic driver for most of Hawaii, but less so our business right now which thrives on construction and infrastructure spending, which have yet to hit its full stride.

A particular note is that double-digit growth expected in construction activity for 2014 and 2015, a reflection of expected progress on Honolulu’s rail project, several announced condominium projects and a handful of major retail projects. These projects are in the early innings of completion and is typically a lag between permitting and when construction materials are actually shipped. So we look at the forecast uptick with guarded optimism.

Slide 9 shows the results for SSAT, our terminal operations joint venture. SSAT’s performance in the quarter saw a year-over-year improvement, primarily due to new customer activity and improved lift volume in its expanded Oakland terminal. The investment that SSAT made at Oakland positioned the joint venture well for 2014 and beyond. As many of you know SSAT is an essential component of our service capabilities and value proposition to customers. The dedicated terminals SSAT operate provide a distinct competitive advantage for us in on-loading and off-loading our vessels as well as receiving and delivering cargo. For 2014 we’re expecting a modest profit at SSAT.

Turning to our Guam service on Slide 10, Container volume contracted by 3.1% in the quarter on a year-over-year basis. The 200 container decline was minimal and consistent with the general market conditions in Guam. For 2014 we expect continued muted growth and anticipate relatively flat container volume compared to 2013, assuming no new competitor enters into the market.

Moving to the next slide, our China Expedited Service continues to perform well in the oversupply Transpacific trade lane. Our ships ran at nearly 100% utilization on the east bound leg, and we continued to achieve a sizable premium to the spot market in this trade. The premium reflects the unique aspects of our service, industry leading transit times, 24 hour cargo availability at our dedicated terminal in Long Beach and consistently superior on time performance.

During the fourth quarter, our container volume increased by 10.7% due to an additional sailing falling in the quarter this year. Market spot rates did drop significantly on a year-over-year basis in this trade as we expected. However, the rates we achieve showed much more stability, partly because of the premium we command and partly because only half our volume in the trade is spot rate business. Looking into 2014, we expect to see similar volume and rate dynamics. We expect flat container volume on a year-over-year basis, as we are basically running at full capacity now. We expect spot rates to continue to erode slightly despite the intended rate hikes recently announced by the International Ocean Carriers.

Slide 12 highlights results of Logistics, which continued to show a year-over-year improvement, primarily due to increased highway volume and warehouse operating improvements in the fourth quarter. Logistics operating income for the fourth quarter of 2013 increased by $4.7 million, primarily due to the absence of $3.9 million in warehouse impairment and lease restructuring charges taken in the fourth quarter of 2012. The industry continued to see margin pressure during the quarter off of year earlier levels, but we are pleased by the 1.9% operating income margin posted by Matson Logistics. Looking into 2014, we expect operating income to modestly exceed 2013 levels, driven by continued volume growth, expense control and improvements in our warehouse operations.

And with that I will now turn the call over to Joel for a review of our financial performance and consolidated outlook for 2014. Joel?

Joel M. Wine

Thank you, Matt. As shown on Slide 13, Matson’s consolidated operating income for the quarter was $17.9 million as compared to $23.9 million for the fourth quarter of 2012. Fourth quarter 2013 Ocean Transportation operating income excluding the litigation charge declined from $26.7 million to $26.0 million. The small decline resulted primarily from lower volume in the Hawaii trade, lower channel freight rates and $1.7 million in legal expenses and third-party claims related to the molasses incident.

These negative items were offset by freight rate and cargo mix improvements in Hawaii, lower outside transportation costs due to barge dry-dockings in the prior year period, and lower vessel operating expenses attributable to the operation of a 9-ship fleet for the quarter. Logistics operating income was $1.9 million for the fourth quarter of 2013, an increase of $4.7 million over the prior year primarily due to the absence of $3.9 million of the $3.9 million charge taken in the fourth quarter 2012 related to the intangible asset impairment and a warehouse lease restructuring charge. In addition, Logistics fourth quarter 2013 operating income benefited from warehouse operating improvements.

The next slide shows our full year results. For 2013 consolidated operating income was $100.3 million, an increase of 3.7% from 2012. Ocean Transportation operating income excluding the litigation charge totaled $100.43 million which was an increase of $7.7 million or 8% over the prior year amount. The increase in operating income excluding the litigation charge was driven by freight rate and cargo mix improvement in Hawaii, lower vessel expenses from the full year deployment of an 9-ship fleet, lower outside transportation cost due to barge dry-dockings in the prior year and the absence of separation costs, which were partially offset by startup cost and service reconfiguration expenses in the South Pacific trade, higher G&A expenses and other non-recurring unfavorable items and a negative year-over-year variance at SSAT.

In addition, the company incurred $3.0 million in response cost, legal expenses and third-party claims related to the molasses incident. Logistics posted solid operating income results of $6 million in 2013, an increase of $5.9 million compared to the prior year primarily due to the absence of a previously discussed fourth quarter 2012 charge of $3.9 million. Logistics operating income in 2013 also benefited from lower G&A expenses and higher intermodal volume compared to 2012.

Looking at our condensed income statement slide on Slide 15, total revenue increased by 3.2% on a year-over-year basis. Total operating cost and expenses increased 5.0%, SG&A expenses increased 1.9% mostly due to cost related to our assets acquisition in the South Pacific. For the fourth quarter our business has generated EBITDA of $35.3 million or $45.3 million excluding the litigation charge, which is in amount $5 million or 12% higher than the prior year fourth quarter EBITDA of $40.3 million. For the full year, our EBITDA totaled $169.3 million or $179.3 million excluding the litigation charge which is in amount $10.5 million or 6% higher than the full year amount achieved in 2012.

Our effective tax rate during the quarter was unusually high at 49.3%, compared to only 21.9% in the fourth quarter of 2012. The rate for the fourth quarter of 2013 was high primarily due to the litigation charge and a projected change in timing of CCF deposits which resulted in an increase in current period effective income tax expense. This high effective tax rate created a large negative variance compared to the rate for the fourth quarter of 2012, which was unusually low primarily due to a favorable non-recurring change to State Tax Law that required the company to revalue its deferred tax liabilities last year.

Turning to Slide 16, you can see a summary of our balance sheet. We ended the year with total debt of $286.1 million and our net debt to LTM EBITDA ratio fell to 1.0x. Throughout the year we substantially increased our cash position driven by cash flow generation. In addition, on January 28 of this year, we issued $100 million of senior unsecured 30 year notes at a 4.35% fixed rate. So in addition to low leverage, our balance sheet is also very liquid. The December 31, cash and cash equivalence balance of $114.5 million plus the $100 million of proceeds from the new notes financing transaction results in balance sheet cash per fourth quarter diluted common share of $4.95.

As we have said previously, if we did not make any strategic investments between now and when our new vessels are delivered, we would use this balance sheet cash plus free cash flow generated over the next 4 years to pay for our newly ordered vessels. With any shortfall in cash being funded from our $375 million bank revolving credit facility, which has no outstanding borrowings at the moment. Under this scenario therefore, we do not expect the need for any additional new capital raising transactions to fund our new vessel capital expenditures.

Turning to Slide 17, I will discuss how our significant cash flow generated in 2013 were deployed. During the year, we generated $195.7 million in cash from operations which equates to $3.72 per average diluted common share during the year. $35.2 million was used for CapEx, of which $26.8 million were maintenance CapEx and $8.4 million was paid on our 2 vessel contract signings. We also paid $26.8 million in dividends during the year, reduced our debt by $36.6 million and lastly we acquired assets for $9.3 million in the South Pacific to allow us expand into that market.

Turning to Slide 18, we wanted to spend a moment putting Matson’s in strong free cash flow generation into perspective. We define free cash flow very simply. It is net cash provided by operating activities as defined under U.S. GAAP straight from our statement of cash flows minus capital expenditures. Also as reported, straight from our cash flow statement. We have made no adjustments of any kind in driving this number and as you can see the $3.72 per share amount of free cash flow generated this year produces a large 15.1% free cash flow yield based on our closing stock price yesterday.

In this comparison, we wanted to note that we did receive significant benefit in 2013 from our CCF deposit which helped produce a $57.5 million deferred income tax positive cash flow item in our cash flows from operations. If you subtract this full amount from our free cash flow generation for the year, you are still left with $2.39 of free cash flow per share or a yield of 9.7% as shown on this page. When compared to broader market benchmarks such as the S&P 500, the S&P 400 mid-cap or S&P transportation index, Matson’s free cash flow yield is currently 2 to 3x that of the broader market benchmarks. In addition as I mentioned previously, we have a very strong balance sheet with almost $5 per share in cash at the moment. So overall, we think free cash flow generation and balance sheet strength are 2 compelling long-term investment attributes for Matson.

With that now let me turn to Slide 19 and 20 for our outlook for 2014. I would first like to note that our outlook excludes any molasses release impact, because such future potential impacts are presently unknown. Our 2014 outlook is also being provided relative to 2013 operating income excluding the litigation charge. For the full year, we expect Ocean Transportation operating income to be near or slightly above the 2013 level of $104.3 million excluding the litigation charge, driven by slightly higher Hawaii volume, flat volume in Guam and China, modest erosion of freight rates in China and modest profit at SSAT.

We expect that we will continue to benefit from operating a core 9-ship fleet throughout the year, and also expect to benefit from improvement in our South Pacific trade lane. Turning to the first quarter, for the first quarter this year we are expecting operating income to be approximately 1/2 that the level achieved in the first quarter of 2013 which was $18.5 million, primarily due to the unfavorable year-over-year timing of fuel surcharge collections, lower Hawaii volume and lower China freight rates.

Turning to Slide 20 for Logistics. 2014 operating income is expected to modestly exceed the 2013 level of $6.0 million driven by continued volume growth, expense control and improvements in warehouse operations. Interest expense in 2014 is expected to increase over the 2013 amount by approximately $3.5 million due primarily to the new notes financing. We expect our effective tax rate for the full year 2014 to be approximately 38.5%, but we do note that quarterly fluctuations above or below this annual estimate may occur. Maintenance CapEx in 2014 is expected to be approximately $40 million with no scheduled contract payments due for our new vessels in 2014.

With that I will now the call back over to Matt.

Matthew J. Cox

Thanks, Joel. In summary 2013 was another solid year Matson, our businesses continued to distinguish themselves in the niche markets we serve. As a result we generated significant cash flow, we increased our dividend, we’ve pared down our debt while increasing our cash levels and we committed to building 2 new container ships for our core Hawaii service. Needless to say. we continue to be optimistic about our operations and our prospects. While Hawaii volume experienced a lull during the second half of the year, we do remain confident in the long-term prospects for our home trade. Our China service continues to run on all cylinders providing our customers with a singular expedited Transpacific solution.

In Guam, muted but stable economic activity provides us incremental opportunities for modest growth. At SSAT investments made in the Oakland facility are starting to bear fruit, while Logistics has right sized its business to return to higher operating income margins. And after a lot of hard work, we’ve rationalized our South Pacific fleet to better match and meet current market demands. With exceptional operations and significant financial powder, we are able to meet whatever challenges come our way and are poised to seize the opportunities we create.

And with that I would like to open the call to questions. Operator, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Jack Atkins with Stephens.

Jack Atkins - Stephens Inc., Research Division

So I guess my first question is on the outlook and sort of where we stand in the core Hawaii lane. We are sitting here today at roughly the same level of containers moving to Hawaii that we had in 2009 and so I guess I’m just curious, do you guys think that something has changed structurally about the core Hawaii lane to prevent it from getting back to prior levels of overall demand or do you think that things -- it's just a function of that construction economy finally gaining steam and it seems like from the data that you are putting out there and that the University of Hawaii is putting out there, that they were sort of on the cusp of really seeing a recovery. Just curious theoretically what you think about the marketplace?

Joel M. Wine

Yes, I mean I think, Jack, the way you said it, was about right. I mean I think what we see is things have not sufficiently rebounded from the down cycle. The broader economy seems to be doing well and the broader stats about overall state GDP growth, unemployment, the state is in surplus, there is a lot of positive things that are happening in the state. And the construction activity has lagged and based on announced projects everything we’re hearing in discussion with our customers, the general contractors and the building supply guys, everyone is very optimistic that we’re again at the forefront of a multiyear recovery. So we continue to be optimistic, 2013 ended up just a little bit slower than we expected, but we are relatively confident that it’s going to come. As to your question about has anything fundamentally changed or are there some emerging trends that could occur? There is a very minor movement of boxes from smaller boxes into bigger boxes from 24s to 40s and from 40s to 45s sort of meeting our customers preferences for box sizes, but that’s only a very minor driver to what we think should be a multiyear growth towards the previous peak.

Jack Atkins - Stephens Inc., Research Division

Okay, that’s really encouraging to hear, that’s great. And then Joel, when I sort of take all of the different one-time items in the quarter -- and I know you guys don’t like to sort of give a pro forma EPS number. But it seems like you have the $9.95 million in settlement costs, the litigation expenses and then the tax rate which is abnormally high, I mean am I wrong to think that if you -- guess my math is spinning out sort of like a $0.37 adjusted earnings number and am I in the right ballpark there, because I just want to make sure I’m looking at the quarter sort of on an operational basis?

Joel M. Wine

You are in the right ballpark, Jack. I mean clearly to be specific the litigation charge had an effect in the quarter of $0.14 so we said that in our release, and then if you want to -- if you or anybody wanted to adjust for a more normal tax rate that would be in the neighborhood of $0.04 to $0.06 depending upon what base and what other adjustments you might be making. But if you came up with $0.17 we reported, plus $0.14 for the Litigation charge is $0.31 and then you had $0.04 to $0.06 more for the tax of -- you are in the right ballpark.

Jack Atkins - Stephens Inc., Research Division

Okay, that’s helpful and then I guess shifting gears and thinking about your brokerage business, you guys had another very strong quarter there from a top line perspective and I think it’s showing up in terms of the profitability in Logistics. Could you maybe talk for a moment about what are you doing there that’s really driving that level of revenue growth and would you expect that to continue into 2014?

Matthew J. Cox

Yes, Jack, let me take a crack of that. I mean I think if we look at some of the drivers of our core performance and we’ve really been working over the last 1 and 1.5 years to do 2 things primarily within that unit. The first is to get our warehouse segment working profitably. And what that meant for us is shedding ourselves of surplus warehouse capacity to match our current demand level with the amount of warehouse capacity we had. That is behind us now; we finished that at the very end of last year and so improvements of the warehouse operations are part of it. The other part is our group there has been very disciplined in taking G&A and other costs out of the business. As you know this is a nickels and dimes business and your level of overhead is critical to maintain your profitability in the face of what we’re acknowledging are compressed margins in the broader industry. So it is really no secret to it, it just a lot of hard work and in turning our warehouse unit around. We are encouraged, we are expecting to see each of our lines of business modestly improve their results in 2014 and build on a momentum that we’ve had put in place in 2012 and 2013, and therefore are expecting modest improvements in that the overall results and within each of the lines of our business expected that in 2014.

Jack Atkins - Stephens Inc., Research Division

Okay, great. Last question from me now, I’ll jump back in queue. But you guys put through a 7% dividend increase mid-year in 2013, that continues I think a track record going back into the Alexander Baldwin days of paying a nice dividend and I guess, when you all from a management perspective and from a board perspective, Matt, think about the dividend payout is it kind of a philosophy that you want to steadily grow that dividend over time, kind of become a dividend aristocrat or just are you thinking about it more from a let's just sort of keep what we’ve got now and save our cash for paying the strategic investments down the road?

Matthew J. Cox

Yes, I mean I guess, Jack, the way we’ve looked at it as we approach the separation from Alexander and Baldwin was, we believed it was an important part of the Matson story to pay a market dividend. We also believed that where we set the level of the initial dividend was at a level, number one that it could be sustained and number two, my personal hope although this is really the purview of the board, would be allow it if we had the free board to be able to see that grow consistently over time. So that was in the back of our mind when we set the initial dividend and time will tell and again this is the purview of the board, but that’s the way we approached it when we set that dividend level.

Operator

Our next question comes from the line of Kevin Sterling with BB&T Capital Markets.

William W. Horner - BB&T Capital Markets, Research Division

Joel, Matt a quick question about China, can you remind me first when you typically renegotiate your contractual business in that trade?

Matthew J. Cox

Sure, yes it's -- the cycle is typically May 1 to April 30, there are some that will contract early and later than that, but the bulk of ours and the bulk of the trades is May 1 to April 30 cycle.

William W. Horner - BB&T Capital Markets, Research Division

Okay, great and I know you’re running 100% utilization, now you’ve got 50% spot exposure; obviously it’s a good piece of business that you’ll like, but how receptive have your customers been in terms of paying that premium for the niche service that you will offer over the typical rates, because we obviously as we you all said and we all know have been pretty volatile over the past couple of years?

Matthew J. Cox

Yes, the market, William, has been volatile and our customers -- we have an interesting conversation with our customers just anecdotally and they’ll say, "How can you charge such a very significant premium many, many, many hundreds of dollars more than the market, by the way I need 3 more slots for next week more than I have from my allocation this week." So it’s a product because of the niche that we occupy in this expedited service that no other ocean carrier can touch us, puts us in a very important -- it's just we think a relatively small part of the overall market, but one that can pay a premium and the way that our customers think about it is I don’t get it on the Matson Ocean vessel, I’m going to pay air freight at effectively 10x the freight rate that they are paying Matson. So it's depending on how you look at it, it’s either a deferred error or for an expedited ocean product that is in a very, sustainable niche we think.

William W. Horner - BB&T Capital Markets, Research Division

And going back to SSAT joint venture for a minute, I believe last quarter you are actually forecasting a modest loss in the quarter due to some of the carryover transition costs from the mega terminal. In this quarter, you had about a $1 million contribution if I remember correctly. So can you talk about what roughly changed from your outlook last quarter to now, was it a less or fewer transition costs than you expected or is it a result of higher lifts, combination of both?

Matthew J. Cox

Yes, it was really 2 things it was really -- there were as we -- as said at the end of last quarter in the call, we saw significant conversion costs as we created a single terminal. And in order to achieve the throughput at the terminal, we had thrown a significant amount of extra costs just to make sure that the terminal flowed. Those additional labor and other costs ended much more quickly, that is the transition costs ended quicker than we had originally assumed and as you pointed out in your question, we did actually see higher volume than we originally projected. So it's just a bit of both that caused us to have a slightly better result than we have forecasted.

William W. Horner - BB&T Capital Markets, Research Division

Okay, one more then I’ll hand it back over. Regarding Guam, I know your outlook is pretty muted for the trade lane and that obviously assumes with no new competitor entering the space. So my question I guess is what is your comfort level that you all are going to be the primary carrier in that space at least through 2014. I mean have you heard any whispers that somebody might be entering the trade or do you feel pretty confident that you can hold on to your market share for the time being?

Matthew J. Cox

Yes, and so the best answer I can give you is that it’s unknowable, what I can say is we’ve heard of no market chatter about another competitor coming into the trade. We had said eventually another competitor may come into the trade, we see no catalysts in a very flat market, but maybe a bit longer and so you kind of our thinking is, is that we could find ourselves as the primary provider for much of 2014, if there some catalyst in the market at some future point, that maybe a reason for someone to jump in, but at this point we are just making guesses, but specifically to answer your call and repeat myself we are hearing of no market chatter about our potential second entrant at least at this point.

Operator

Our next question comes from the line of Steve O'Hara with Sidoti & Company.

Stephen O'Hara - Sidoti & Company, LLC

Can you just -- in terms of the maybe the construction turn around, I mean it seems like we’ve kind of heard about this for quite a while and the projections have seen kind of pretty good. And I guess you know do you feel like we are kind of getting there, I mean are we getting closer and I mean in terms of what Patia [ph] is bringing on, are you kind of really forecasting maybe a 5% to 10% increase in volumes and you are expecting them to take that? How is that kind of factored in?

Matthew J. Cox

Yes, so good question. The way I would answer that is we continue to believe that there is a multi-year growth story in Hawaii, primarily around a much more active construction and infrastructure spending. It happened just a little bit slower than we originally expected, but not withstanding a bit of a lull we continue to believe it's coming. The Patia’s [ph] second vessel we think will add somewhere between 5% and 10% capacity to the market. We expect that as we said to be some time in the second half of the year and because of the amount of capacity being introduced and when it is being introduced, we do expect to be some market growth that the capacity entry will happen in sometime in the second half of the year. Overall we think that will result in Matson’s volumes growing very modestly in the Hawaii trade. That’s kind of the algebra works for us and that’s kind of our best thinking at this point.

Stephen O'Hara - Sidoti & Company, LLC

Okay and then I mean you noted having a decent amount of cash per share and I mean so what is your -- how long could you sit with that without making significant investment or you could do maybe a strategic investment or could you put that into the CCF, I mean how much -- how long are you comfortable kind of sitting with that much cash on the balance sheet?

Joel M. Wine

Well the majority of the payments as you know for the vessels kick in, in 2017, 2018 although Stephen there are in 2015 and 2016. So we are definitely thinking forward about our balance sheet capital needs and the cash today, it really, if we don’t do any additional investing the cash is earmarked for those vessel deliveries and required capital payments. So we are very comfortable -- when you have a $418 million capital call 3, 4 years out down the road, you need to be conservative as you build liquidity to pay for them and we want to be very clear on today's call that we don’t see ourselves needing any additional financing to pay for those new vessels down the road. But then your question around sitting on this cash between now and then, we do have to make big payments down the road, we don’t want to force ourselves into additional financing, we like to financing we just locked in, we think we’ve got a very well structured balance sheet. I would also note that our existing debt does require about $100 million of amortization, already scheduled amortization over the next 4 years, so to some extent the financing we just did replaces debt pay down that we are going to have to do under amortizing scheduled of debt anyway. With all that being said, if we don’t find investment opportunities, the one thing we have not been doing is share buyback and I think over time we continue to believe our company has got good long-term growth characteristics. That’s a tool that we potentially could use over time during this period as we are waiting investment deliveries as well. So that’s how we think about the overall balance sheet and cash through the next several years.

Operator

[Operator Instructions] Our next question comes from the line of Michael Webber with Wells Fargo Securities.

Sameed Musvee - Wells Fargo Securities, LLC, Research Division

This is actually Sam on for Michael. Just had one quick question. I think majority of my questions have already been answered. Regarding future growth into other Jones Act trade lanes, have you guys made any progress regards to potentially expanding Matson’s route into say some new Jones Act trade lanes, will it be Hawaii or any of the other Jones Act trade lanes out there, why don’t you get some updates on that?

Matthew J. Cox

Sure, yes, this is Matt. I can answer that question. Today Matson participates effectively in 2 of the 4 Jones Act trades as we think about it. Matson operates in the Hawaii trade and in Guam trade, Matson currently does not participate in the Alaska trade or the Puerto Rico trade. And Matson has said on a number of cases and we’ll say again, Matson likes the Jones Act Alaska trade. If one of the 2 operators that are there today would consider themselves up for sale, I think we would be very interested, the Alaska trade to us looks a lot like the Hawaii trade, not well served by barges and has been relatively stable at least as we understand it and profitable for a long period of time. The Puerto Rico trade conversely has been over tonnage, is our understanding that the carriers have not done particularly well there -- Jones Act carriers, and so to the extent that there was an opportunity to look at Alaska, we continue to be interested in that trade. So that just gives a landscape of our thoughts about the other Jones Act trades.

Operator

And I’m not showing any further questions at this time. I would like to turn the call back over to Matt Cox for closing remarks.

Matthew J. Cox

Okay. And I just wanted to say it's 80 degrees here in Honolulu and we are feeling for all of you who are in less warm climates, but that’s why we want you to all come and support the economy here in Hawaii. We look forward to catching up with everyone at the end of the first quarter call. Aloha.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day.

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Source: Matson Management Discusses Q4 2013 Results - Earnings Call Transcript
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