Horizon Lines, Inc. yesterday reported financial results for its fiscal fourth quarter and year ended December 26, 2010.
As a result of the company’s previously announced plans to divest its logistics business, financial results are being presented on a continuing operations basis, excluding the discontinued logistics operations.
On a GAAP basis, the fourth-quarter net loss from continuing operations totaled $46.4 million, or $1.50 per share, on revenue from continuing operations of $298.8 million. On an adjusted basis, the fourth-quarter net loss from continuing operations totaled $10.2 million, or $0.33 per diluted share, after excluding charges totaling $36.2 million after tax, or $1.17 per diluted share. The majority of these charges, $30.0 million, represents the net present value of a $45.0 million, non-interest bearing fine associated with the resolution of the Department of Justice’s antitrust investigation. The remaining charges include a reduction in non-union workforce, antitrust-related legal fees, an agreement to settle indirect purchaser litigation in Puerto Rico, and equipment impairment charges.
In the year-ago fourth quarter, Horizon Lines reported net income from continuing operations of $1.6 million, or $0.05 per diluted share, on revenue of $286.7 million. On an adjusted basis, net income totaled $3.9 million, or $0.12 per diluted share, after excluding antitrust-related legal expenses, costs for early retirement of certain union employees, and tax adjustments totaling $2.3 million, or $0.07 per share.
Container volume for the 2010 fourth quarter totaled 69,427 loads, a 7.9% increase from 64,320 loads for the same period a year ago, due largely to the extra week and the contribution of the company’s new China service, which began operations in December. Excluding these factors, fourth-quarter volume declined 1.1% from a year ago. Comparable container volume (excluding the extra week and international loads) for the year totaled 254,854 loads, down 1.1% from 257,625 loads a year ago.
Container rates, net of fuel, for the 2010 fourth quarter, eased to $3,229 from $3,251 for the fourth quarter a year ago, largely a result of continued pricing pressures in Puerto Rico. For the year, container rates, net of fuel, were $3,250, marginally below the rate of $3,262 a year ago.
“The fourth-quarter turned out to be very challenging, due to lower-than-anticipated volumes in Hawaii, particularly in the latter months of the quarter, increased fuel prices, continuing rate pressures in Puerto Rico, and anticipated start-up costs related to our new China service,” said Brian W. Taylor, Executive Vice President and Chief Operating Officer. “Despite these challenges we delivered a decent financial performance for the year, including adjusted EBITDA from continuing operations of $96.4 million and adjusted free cash flow from continuing operations of $40.5 million.
“Our achievements for the quarter included the successful launch of our new Five Star Express service between the U.S. West Coast and China, which is operating according to management expectations,” Mr. Taylor said. “In addition, we continued to demonstrate diligent cost management, maintained relatively consistent container rates in the face of continuing pricing pressures, and delivered excellent customer service and improved schedule integrity across our tradelanes.”
Outlook
“We are cautiously optimistic about the outlook for 2011 and expect modest volume improvements in line with the pace of economic recovery in our tradelanes,” said Michael T. Avara, Executive Vice President and Chief Financial Officer. “We expect some strengthening of our tradelane economies, combined with our cost-reduction initiatives, to result in revenue and EBITDA growth for 2011. We expect the seasonal weakness typical in the first quarter to be exaggerated by start-up costs associated with our new China service and the corresponding loss of steady month-to-month revenue from our previous TP1 agreement with Maersk, but we also anticipate improving growth as the year progresses.
“Our progress in 2011 will continue to be influenced by the pace and breadth of economic recovery in our tradelanes, the success of our start-up in China, and the continued high fuel costs and ongoing pricing pressures in Puerto Rico,” Mr. Avara said. “Horizon Lines is positioned to make progress in this environment. With the Department of Justice investigation behind us, we are now moving ahead with our refinancing efforts. We are targeting a completion of this process in the second or third quarter, and are currently in discussions with our lenders to obtain covenant relief so that we can move forward with our plans.
“Our new China business also is ramping up according to management expectations,” Mr. Avara said. “We are encouraged by the EBITDA contribution potential of this business over the longer term, but do not expect it to break even on a standalone basis this year, which is consistent with our earlier projections.”
As a result of the company’s previously announced plans to divest its logistics business, financial results are being presented on a continuing operations basis, excluding the discontinued logistics operations.
On a GAAP basis, the fourth-quarter net loss from continuing operations totaled $46.4 million, or $1.50 per share, on revenue from continuing operations of $298.8 million. On an adjusted basis, the fourth-quarter net loss from continuing operations totaled $10.2 million, or $0.33 per diluted share, after excluding charges totaling $36.2 million after tax, or $1.17 per diluted share. The majority of these charges, $30.0 million, represents the net present value of a $45.0 million, non-interest bearing fine associated with the resolution of the Department of Justice’s antitrust investigation. The remaining charges include a reduction in non-union workforce, antitrust-related legal fees, an agreement to settle indirect purchaser litigation in Puerto Rico, and equipment impairment charges.
In the year-ago fourth quarter, Horizon Lines reported net income from continuing operations of $1.6 million, or $0.05 per diluted share, on revenue of $286.7 million. On an adjusted basis, net income totaled $3.9 million, or $0.12 per diluted share, after excluding antitrust-related legal expenses, costs for early retirement of certain union employees, and tax adjustments totaling $2.3 million, or $0.07 per share.
Container volume for the 2010 fourth quarter totaled 69,427 loads, a 7.9% increase from 64,320 loads for the same period a year ago, due largely to the extra week and the contribution of the company’s new China service, which began operations in December. Excluding these factors, fourth-quarter volume declined 1.1% from a year ago. Comparable container volume (excluding the extra week and international loads) for the year totaled 254,854 loads, down 1.1% from 257,625 loads a year ago.
Container rates, net of fuel, for the 2010 fourth quarter, eased to $3,229 from $3,251 for the fourth quarter a year ago, largely a result of continued pricing pressures in Puerto Rico. For the year, container rates, net of fuel, were $3,250, marginally below the rate of $3,262 a year ago.
“The fourth-quarter turned out to be very challenging, due to lower-than-anticipated volumes in Hawaii, particularly in the latter months of the quarter, increased fuel prices, continuing rate pressures in Puerto Rico, and anticipated start-up costs related to our new China service,” said Brian W. Taylor, Executive Vice President and Chief Operating Officer. “Despite these challenges we delivered a decent financial performance for the year, including adjusted EBITDA from continuing operations of $96.4 million and adjusted free cash flow from continuing operations of $40.5 million.
“Our achievements for the quarter included the successful launch of our new Five Star Express service between the U.S. West Coast and China, which is operating according to management expectations,” Mr. Taylor said. “In addition, we continued to demonstrate diligent cost management, maintained relatively consistent container rates in the face of continuing pricing pressures, and delivered excellent customer service and improved schedule integrity across our tradelanes.”
Outlook
“We are cautiously optimistic about the outlook for 2011 and expect modest volume improvements in line with the pace of economic recovery in our tradelanes,” said Michael T. Avara, Executive Vice President and Chief Financial Officer. “We expect some strengthening of our tradelane economies, combined with our cost-reduction initiatives, to result in revenue and EBITDA growth for 2011. We expect the seasonal weakness typical in the first quarter to be exaggerated by start-up costs associated with our new China service and the corresponding loss of steady month-to-month revenue from our previous TP1 agreement with Maersk, but we also anticipate improving growth as the year progresses.
“Our progress in 2011 will continue to be influenced by the pace and breadth of economic recovery in our tradelanes, the success of our start-up in China, and the continued high fuel costs and ongoing pricing pressures in Puerto Rico,” Mr. Avara said. “Horizon Lines is positioned to make progress in this environment. With the Department of Justice investigation behind us, we are now moving ahead with our refinancing efforts. We are targeting a completion of this process in the second or third quarter, and are currently in discussions with our lenders to obtain covenant relief so that we can move forward with our plans.
“Our new China business also is ramping up according to management expectations,” Mr. Avara said. “We are encouraged by the EBITDA contribution potential of this business over the longer term, but do not expect it to break even on a standalone basis this year, which is consistent with our earlier projections.”