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Maritime transportation company Matson (NYSE:MATX) announced better-than-expected results in Q2 CY2024, with revenue up 9.6% year on year to $847.4 million. It made a GAAP profit of $3.31 per share, improving from its profit of $2.26 per share in the same quarter last year.
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Matson (MATX) Q2 CY2024 Highlights:
- Revenue: $847.4 million vs analyst estimates of $817.3 million (3.7% beat)
- EPS: $3.31 vs analyst estimates of $3.00 (10.2% beat)
- Gross Margin (GAAP): 23.7%, up from 21.8% in the same quarter last year
- Free Cash Flow of $238.1 million is up from -$18.7 million in the previous quarter
- Market Capitalization: $4.53 billion
Founded by a Swedish orphan, Matson (NYSE:MATX) is a provider of ocean transportation and logistics services.
Marine TransportationThe growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for marine transportation companies. While ocean freight is more fuel efficient and therefore cheaper than its air and ground counterparts, it results in slower delivery times, presenting a trade off. To improve transit speeds, the industry continues to invest in digitization to optimize fleets and routes. However, marine transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins. Geopolitical tensions can also affect access to trade routes, and if certain countries are banned from using passageways like the Panama Canal, costs can spiral out of control.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, Matson's 7.3% annualized revenue growth over the last five years was mediocre. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Matson's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 18.2% annually.
This quarter, Matson reported solid year-on-year revenue growth of 9.6%, and its $847.4 million of revenue outperformed Wall Street's estimates by 3.7%. Looking ahead, Wall Street expects sales to grow 2.8% over the next 12 months, a deceleration from this quarter.
Operating MarginMatson has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 20.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, Matson's annual operating margin rose by 4.9 percentage points over the last five years, showing its efficiency has improved.
This quarter, Matson generated an operating profit margin of 14.7%, up 2.2 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Matson's EPS grew at an astounding 34.6% compounded annual growth rate over the last five years, higher than its 7.3% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Matson's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Matson's operating margin expanded by 4.9 percentage points over the last five years. On top of that, its share count shrank by 20.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Matson, its two-year annual EPS declines of 46.8% show its recent history was to blame for its underperformance over the last five years. We hope Matson can return to earnings growth in the future.
In Q2, Matson reported EPS at $3.31, up from $2.26 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Matson to grow its earnings. Analysts are projecting its EPS of $9.52 in the last year to climb by 7.9% to $10.28.
Key Takeaways from Matson's Q2 ResultsWe were impressed by how significantly Matson blew past analysts' revenue expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock traded up 2.8% to $132 immediately after reporting.
