- Revenue Improves; Adjusted EBITDA and Net Income Down Slightly
- Volume Declines on Economic Recovery Slowdown; Rate, Net of Fuel, Up Marginally
- Adjusted Free Cash Flow Remains Solid; Debt Paydown Ahead of Plan
CHARLOTTE, N.C., Oct 22, 2010 /PRNewswire via COMTEX/ -- Horizon Lines, Inc. (NYSE: HRZ) today reported financial results for its fiscal third quarter ended September 19, 2010.
On a GAAP basis, third-quarter net income was $7.7 million, or $0.25 per diluted share, compared with $8.4 million, or $0.27 per diluted share, for the third quarter of 2009. On an adjusted basis, third-quarter net income totaled $11.0 million, or $0.35 per diluted share, excluding charges of $3.3 million after tax, or $0.10 per diluted share, for antitrust-related legal expenses, an equipment impairment charge and union severance. This compares with 2009 adjusted net income of $11.4 million, or $0.37 per diluted share, after excluding antitrust-related legal expenses and a vessel impairment charge totaling $3.0 million after tax, or $0.10 per diluted share. Third-quarter revenue increased to $311.0 million from $308.0 million a year ago.
Container volume for the 2010 third quarter totaled 65,726 loads, a 2.8% decline from 67,649 loads for the same period a year ago. Puerto Rico and Hawaii/Guam experienced the largest year-over-year declines. Alaska volume was down just marginally. Container volume for the 2010 nine-month period totaled 190,610 loads, down 1.4% from 193,305 loads a year ago.
Container rates, net of fuel, for the 2010 third quarter, rose slightly to $3,247 from $3,229 for the third quarter a year ago. Container rates, net of fuel, for the 2010 nine-month period were $3,258, marginally below the rate of $3,266 a year ago.
"A summer slowdown in the pace of economic recovery pressured volumes across all of our markets, resulting in a third-quarter financial performance that was short of our expectations," said Chuck Raymond, Chairman, President and Chief Executive Officer. "We had anticipated a firmer overall economic recovery in the third quarter. However, after some initial inventory rebuilding this past spring, economic activity slowed in our tradelanes as consumer spending remained muted in the face of continuing high unemployment. The quarter also was impacted by high fuel prices and lower revenue from transportation services agreements. In addition, vessel operating expenses increased from a year ago due to the timing of regulatory dry-dockings.
"In the face of this challenging operating environment, our financial results demonstrate modest revenue growth and diligent cost management," Mr. Raymond said. "We continued to generate solid adjusted free cash flow, debt paydown remained ahead of plan, and we finished the quarter with improved liquidity. As was the case in the second quarter, our third-quarter was characterized by improved EBITDA contributions from our Alaska market, terminal services to third parties and logistics businesses, combined with ongoing overhead cost savings.
"Volume declines were greatest in Puerto Rico, which remains in recession, and in Hawaii/Guam, which continues to experience a very slow and uneven economic recovery," Mr. Raymond continued. "The volume declines in Puerto Rico were exacerbated by ongoing competitive pricing pressures, due in part to capacity that was added by a competitor to the depressed market in the spring. We are responding appropriately and will continue to do so in the months ahead. Alaska, while down very slightly in volume, contributed to EBITDA growth amid an improving business environment."
Third-Quarter 2010 Financial Highlights
• Operating Revenue - Third-quarter operating revenue increased 1.0% to $311.0 million from $308.0 million a year ago. The largest factor in the $3.0 million revenue gain was a $6.9 million gain in logistics revenue, followed by a $4.9 million rise in fuel surcharges to help partially mitigate higher fuel costs. Terminal services contributed $2.3 million of the revenue increase, while rate/mix improvement added $1.7 million. These gains were partially offset by a $6.2 million revenue decline resulting from lower container volume, and a $6.6 million decrease related to the expiration of a vessel management contract with the federal government.
• Operating Income - GAAP operating income for the third quarter decreased to $18.1 million from $19.0 million a year ago. The 2010 GAAP operating income includes expenses of $3.4 million, consisting of $1.5 million in antitrust-related legal expenses, $1.8 million for an equipment impairment charge, and $0.1 million for a union severance charge. The 2009 GAAP operating income includes $2.0 million of antitrust-related legal expenses and $1.2 million for a vessel impairment charge. Excluding these items, the third-quarter 2010 adjusted operating income totaled $21.5 million, compared with $22.1 million for the prior year's third quarter. The decline in 2010 third-quarter adjusted operating income from the prior year was primarily due to reduced volume, lower fuel recovery, decreased space charter income, and higher vessel operating expense as a result of an increase in dry-dockings. These negative factors were partially offset by a decrease in overhead expenses and terminal services savings.
• EBITDA - EBITDA totaled $33.4 million for the 2010 third quarter, compared with $33.8 million for the same period a year ago. Adjusted EBITDA for the third quarter of 2010 was $36.8 million, compared with $36.9 million for 2009. EBITDA and adjusted EBITDA for the 2010 and 2009 third quarters were impacted by the same factors affecting operating income.
• Shares Outstanding - The company had a weighted daily average of 31.2 million diluted shares outstanding for the third quarter of 2010, compared with 30.9 million outstanding for the third quarter of 2009.
• Nine-Month Results - For the nine months ended September 19, 2010, operating revenue increased 5.1% to $902.7 million from $858.8 million for the same period in 2009. EBITDA totaled $72.9 million compared with $51.2 million a year ago. Adjusted EBITDA for the 2010 nine-month period totaled $78.6 million, after excluding $3.5 million in antitrust-related legal expenses, a $1.8 million equipment impairment charge, and $0.5 million for union severance. Adjusted EBITDA for the 2009 nine-month period totaled $84.6 million, after excluding $20.0 million for the Puerto Rico class-action settlement, $10.4 million in antitrust-related legal expenses, and $3.0 million for impairment, restructuring and other charges. The 2010 nine-month net loss totaled $1.8 million, or $0.06 per share, compared with a net loss of $32.6 million, or $1.07 per share for the same period a year earlier. Adjusted net income for the 2010 nine-month period totaled $3.7 million, or $0.12 per diluted share, compared with $10.8 million, or $0.35 per diluted share, a year ago.
• Liquidity, Credit Facility Compliance & Debt Structure - As of September 19, 2010, the company had total liquidity of $85.8 million, consisting of $4.4 million in cash and $81.4 million of effective revolver availability. The company's trailing 12-month interest coverage and senior secured leverage ratios were 3.81 times and 1.98 times, respectively, in compliance with the credit agreement requirement of above 3.5 times and below 2.75 times, respectively. Funded debt outstanding totaled $540.7 million, a reduction of $22.4 million from the second quarter and $39.8 million from the year-ago third quarter. The funded debt outstanding at September 19, 2010, consisted of $210.7 million in senior secured debt and $330.0 million in convertible notes, at a weighted average interest rate of 4.48%. The company's senior secured debt matures in August 2012, but the maturity will accelerate to February 2012 if the convertible notes are not refinanced or if arrangements are not being made for their refinancing by that date.
Please see attached schedules for the reconciliation of third-quarter 2010 and 2009 reported GAAP results and Non-GAAP adjusted results.
"In light of the third-quarter slowdown, we are more guarded about our outlook for the remainder of 2010," Mr. Raymond said. "While volume trends have firmed modestly so far in October, we expect pricing pressures to continue in Puerto Rico and fuel costs to increase across all of our tradelanes through year end. As we move forward, volume improvement remains dependent on the strength of the economic recovery in our markets and its impact on consumer sentiment.
"We currently expect full-year adjusted EBITDA results to be below those of 2009, but above the levels required by our debt covenants," Mr. Raymond continued. "We also are actively engaged in planning to refinance our debt, and currently expect the refinancing to be completed in the first or second quarter of 2011, depending on market conditions and other factors.
"We remain optimistic about prospects for our new trans-Pacific Five Star Express liner service between China and the U.S. West Coast, which launches on December 13th," Mr. Raymond noted. "We also are starting to see improved volume in Guam, where major infrastructure construction projects are finally underway in preparation for the eventual transfer of U.S. military forces from Okinawa to Guam. This bodes well for 2011 and beyond."
Webcast & Conference Call Information
Company executives will provide additional perspective on the company's financial results during a conference call beginning at 11:00 a.m. Eastern Time today. Those interested in participating in the call may do so by dialing 1-866-394-6819, and providing the operator with conference number 12953467. A copy of the presentation materials may be obtained from the Horizon Lines website, http://www.horizonlines.com, shortly before the start of the call. Alternatively, a live audio webcast of the call may be accessed at http://www.horizonlines.com. In order to access the live audio webcast, please allow at least 15 minutes before the start of the call to visit Horizon Lines' website and download and install any necessary audio/video software for the webcast.
Use of Non-GAAP Measures
Horizon Lines reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). The company also believes that the presentation of certain non-GAAP measures, i.e., EBITDA, free cash flow and results excluding certain costs and expenses, provides useful information for the understanding of its ongoing operations and enables investors to focus on period-over-period operating performance without the impact of significant special items. The company further feels these non-GAAP measures enhance the user's overall understanding of the company's current financial performance relative to past performance and provide a better baseline for modeling future earnings expectations. Non-GAAP measures are reconciled in the financial tables accompanying this news release. The company cautions that non-GAAP measures should be considered in addition to, but not as a substitute for, the company's reported GAAP results.
About Horizon Lines
Horizon Lines, Inc., is the nation's leading domestic ocean shipping and integrated logistics company. The company owns or leases a fleet of 20 U.S.-flag containerships and operates five port terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia and Puerto Rico. The company also manages a domestic and overseas service partner network and provides integrated, reliable and cost competitive logistics solutions. Horizon Lines, Inc., is based in Charlotte, NC, and trades on the New York Stock Exchange under the ticker symbol HRZ.
Forward Looking Statements
The information contained in this press release should be read in conjunction with our filings made with the Securities and Exchange Commission. This press release contains "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "target," "projects," "likely," "will," "would," "could," and similar expressions or phrases identify forward-looking statements.
All forward-looking statements involve risk and uncertainties. In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this press release might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. See the section entitled "Risk Factors" in our Form 10-K filed with the SEC on February 4, 2010, and in subsequent 10-Q filings, for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences.