Horizon Lines, Inc. (NYSE:HRZ) reported results for its fiscal third quarter ended September 20, 2009. On a GAAP basis, net income totaled $8.4 million, or $0.27 per diluted share, on revenue of $308.0 million. This compares with net income of $11.1 million, or $0.37 per diluted share on revenue of $352.6 million for the same period a year ago. Adjusted third-quarter 2009 net income totaled $11.4 million, or $0.37per diluted share, after excluding antitrust-related legal expenses and vessel impairment charges totaling $3.0 million, or $0.10 per share after tax. Adjusted net income for the 2008 third quarter totaled $14.7 million, or $0.48 per diluted share, which excludes antitrust-related legal fees totaling $3.6 million, or $0.11 per share after tax.
"During the third quarter, we continued to successfully battle the economic turbulence that gripped our markets, focusing on cost containment, customer service and schedule integrity," said Chuck Raymond, Chairman, President and Chief Executive Officer. "The 5.7% volume decline from the third quarter of 2008 was an improvement over the past three quarters. We maintained stable margins relative to a year ago, although revenue-per-container rates were flat. More than half of the 12.6% revenue decline was due to reduced fuel surcharges, as fuel prices were significantly lower than 2008.
"Cash flow was relatively strong, and we voluntarily made debt payments of $10 million during the quarter." Mr. Raymond said. "We completed the quarter well-positioned to withstand an ongoing weak environment, and to capitalize quickly on even a mild recovery.
"In our liner business, our third-quarter cargo volumes continued to compare very favorably with other transportation segments, reflecting our focus on U.S. domestic ocean markets, where we play a primary role in delivering cargo that is vital to the basic needs of our tradelanes," Mr. Raymond said. "Our logistics business continued to face the challenges of building a business through organic growth in the worst recession since the Great Depression. We expect our logistics business to continue to operate below breakeven levels for the foreseeable future, but we continue to believe that it remains an engine for the long-term growth of our company."
Third-Quarter 2009 Financial Highlights:
Operating Revenue - Operating revenue declined 12.6% to $308.0 million from $352.6 million a year ago. The largest factors in the $44.6 million revenue decline were a $23.4 million reduction in fuel surcharges, followed by $13.4 million decrease from a 5.7% reduction in volume. The volume decline was due to a continuing weak macroeconomic environment that impacted discretionary consumer spending across all tradelanes; specifically, flattening economic growth and cautious consumer sentiment in Alaska, a decline in visitors and construction in Hawaii, and the ongoing recession in Puerto Rico.
Operating Income - GAAP operating income for the third quarter totaled $19.0 million, compared with $21.8 million for the third quarter of 2008. The 2009 GAAP operating income includes expenses of $3.1 million consisting of $1.9 million in antitrust-related legal expenses and $1.2 million in impairment charges for vessels. The 2008 GAAP operating income includes $4.6 million in antitrust-related legal expenses. Excluding these items, adjusted operating income totaled $22.1 million for the third quarter of 2009, and $26.4 million for the prior year's third quarter. The decline from last year was largely due to reduced volumes, lower non-transportation revenue, and reduced logistics revenue, which were partially offset by non-union workforce reduction savings.
EBITDA - EBITDA totaled $33.8 million for the 2009 third quarter, compared with $37.6 million for the same period a year ago. Adjusted EBITDA for the 2009 third quarter was $36.9 million, compared with $42.2 million for 2008. EBITDA and adjusted EBITDA for the 2009 and 2008 third quarters were impacted by the same factors affecting operating income.
Shares Outstanding - The company had a weighted daily average of 30.9 million diluted shares outstanding for the third quarter of 2009, compared with 30.4 million for the third quarter of 2008.
Nine-Month Results - For the nine months ended September 20, 2009, operating revenue decreased 13.2% to $858.8 million from $989.5 million for the same period in 2008. EBITDA totaled $51.2 million compared with $97.6 million a year ago. Adjusted EBITDA was $84.6 million compared with $105.4 million a year ago. The net loss for the nine-month period totaled $(32.6) million, or $(1.07) per share, while adjusted net income totaled $10.8 million, or $0.35 per diluted share. In the same period a year ago, net income totaled $17.7 million, or $0.57 per diluted share, while adjusted net income was $23.9 million, or $0.78 per diluted share. Adjusted EBITDA and adjusted net income for the 2009 nine-month period exclude a $20.0 million charge related to the previously disclosed class-action legal settlement in Puerto Rico, a $10.5 million tax valuation allowance, $10.4 million in antitrust-related legal expenses, $1.9 million in impairment charges, $1.0 million in restructuring costs and a $0.1 million loss on the previously disclosed modification of the company's credit agreement. Adjusted EBITDA and net income for the 2008 nine-month period exclude $7.0 million in antitrust-related legal expenses and $0.8 million related to early retirement for certain union employees.
Outlook:
"We face a challenging fourth quarter, which we expect to be characterized by lingering economic weakness that will continue to impact volumes to varying degrees across all of our tradelanes, as well as in our logistics business," Mr. Raymond said. "While our third-quarter volume performance indicates we might be coming off the bottom, we expect the recovery to be slow, muted and disparate.
"Horizon Lines remains well positioned in this environment," Mr. Raymond continued. "We are intensely focused on both customer service and cost containment, and are targeting selective revenue growth opportunities even in these challenging times. We recently added a Tampa call on our Houston-to-San Juan sailing, an addition that provides new options for our customers, and new revenue potential for Horizon Lines at little incremental cost.
"Despite the ongoing economic challenges, our outlook for 2009 remains consistent with our second-quarter observations," Mr. Raymond said. "We anticipate that 2009 adjusted EBITDA will be below the $130.0 million reported last year, but remain above levels that would jeopardize compliance with the financial covenants in our credit agreement. We also currently expect adjusted free cash flow for the year to approximate the level of $59.9 million reached last year, despite a decline in EBITDA. As we move through the fourth quarter and into 2010, we believe Horizon Lines possesses the financial resources and operational strength to endure a protracted economic recovery and to quickly capitalize on even modest recoveries in our tradelane economies."
