The shipping firm loses $5.4 million as cargo rates for its new routes decrease
POSTED: 1:30 a.m. HST, Jul 30, 2011
LAST UPDATED: 2:26 p.m. HST, Aug 5, 2011
The earnings of ocean cargo transportation firm Horizon Lines Inc. were pulled underwater in the second quarter by its new service to China and high fuel prices.
The Charlotte, N.C.-based firm, which operates in Hawaii, reported a loss of $5.4 million, or 17 cents a share, for its fiscal second quarter that ended June 26. That compared with a profit of $3.7 million, or 12 cents a share, for the same quarter last year.
Operating revenue rose 5.5 percent to $307.5 million from $291.4 million.
Shares of Horizon stock fell 4 cents on Friday to close at $1.05 after the earnings report was released.
Horizon said its Hawaii service produced an operating profit, though cargo volume was down from a year earlier and the state's business environment remained challenging due to a slow and uneven economic recovery.
"A gradual recovery in tourism is expected to slowly add jobs, although overall construction remains flat and the state government continues to operate under fiscal constraints," Horizon said in its earnings announcement. "The company believes the steady military sector and the gradual economic recovery will help stabilize (Hawaii cargo) volumes as the year progresses."
Horizon characterized the performance of its Hawaii service but didn't disclose specific figures for cargo volume or operating profit.
In China, Horizon dramatically increased revenue and cargo volume, but the company lost money on the route because of depressed shipping rates and high fuel costs.
"Trans-Pacific rates remained under pressure throughout most of the quarter, as some large international carriers continued to take aggressive rate actions amid capacity expansion in the trade lane," Stephen Fraser, Horizon's president and chief executive officer, said in a statement. "The startup of a new trans-Pacific service has coincided with one of the most challenging periods in the history of the trade lane."
Horizon launched service to Ningbo and Shanghai from the West Coast in December, and carried 13,893 containers on the route in the second quarter. The added volume produced a 16.4 percent gain for Horizon's overall container deliveries to 75,208 containers from 64,596 containers in the year-over-year period. Excluding China, container volume was down 4.5 percent.
Fraser anticipates that the China service will continue to operate at a loss, though the rate of loss should begin to improve in the third quarter, possibly in part to some carriers pulling out of the market or postponing sailings.
The overcapacity situation in the China trade also affected Matson Navigation Co., a subsidiary of Honolulu-based Alexander & Baldwin Inc., in the first quarter. A&B is scheduled to report second-quarter financial results Aug. 8.
Horizon said that during the second quarter it focused on reducing costs and restructuring debt.
Also during the quarter, Horizon benefited from a reduction in a fine related to settling an antitrust issue with the U.S. Department of Justice. The fine was reduced to $15 million from $45 million.
But because Horizon took a $30 million charge in the fourth quarter to account for the original fine, the company had to reverse the charge in the second quarter, which resulted in an adjusted net loss of $20.9 million. That compared with a $5.2 million profit a year earlier when including extraordinary items.
Horizon also calculated second-quarter earnings that include discontinued operations but exclude the extraordinary fine impact.