Matson, Inc. Aktie

Thank you for standing by. Welcome to Matson's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call.

These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 12 to 23 of Form 10-K filed on February 27, 2026, and in our subsequent filings with the SEC. Please also note that the date of this conference call is May 4, 2026, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call. Starting on Slide 3. In the first quarter 2026, Ocean Transportation operating income exceeded our expectations, primarily due to higher freight demand post Lunar New Year in our China service. In our domestic trade lanes, we saw lower year-over-year volume in Hawaii and Alaska. In Logistics, operating income was lower year-over-year, primarily due to a lower contribution from supply chain management.

To date, the Iran conflict has not impacted our operating performance or service levels. However, it has impacted fuel prices in all our markets. While we have effective mechanisms to recover the cost of fuel by the end of the year, for the second quarter, we expect a negative impact from the lag in the recovery of fuel costs. I'll go into more detail later in the presentation on the effects of fuel prices and our recovery mechanisms.

Lastly, we are raising our full year outlook for consolidated operating income and now expect to modestly exceed the level achieved in 2025. The primary driver behind raising outlook for consolidated operating income is the strengthening of freight demand in our China service post Lunar New Year that we expect now to continue through peak season. Joel will go into more detail on the outlook later in the presentation.

I will now go through the first quarter performance in our trade lanes, SSAT and logistics. So please turn to the next slide. In our Hawaii service, container volume for the first quarter decreased 5.6% year-over-year, primarily due to lower general demand and the dry-docking of a competitor's vessel in the year ago period. For the full year 2026, we expect volume to be comparable to the level achieved in 2025, reflecting similar economic conditions in Hawaii and stable market share.

Please turn to Slide 5. According to UHERO's February economic report, Hawaii's economy is expected to experience modest growth supported by construction activity, while tourism remains soft and inflationary pressures persist. Construction continues to be a bright spot for the labor market -- with a high level of public and private building activity, including the rebuilding of Maui. Regarding tourism, the outlook for international visitors remains weak, offsetting modest growth in domestic tourist arrivals. Lastly, inflation remains elevated and may continue to weigh on discretionary spending and overall demand.

Moving on to our China service on Slide 6. Matson's volume in the first quarter of 2026 was 9.5% lower year-over-year, primarily due to lower general demand. As we noted on the fourth quarter earnings call, we expected volume in the first quarter to be lower than the prior year as we return to a more traditional Lunar New Year freight cycle.

Please turn to Slide 7 for additional commentary on current business trends. In the first quarter, we did not see a traditional bump in demand prior to Lunar New Year. Post holiday, the freight demand exceeded our expectation and was driven by higher demand across several of our key market segments such as e-commerce, e-goods and garments. We saw continued air-to-ocean freight conversions and further growth and penetration into Southeast Asia ports.

E-commerce from South China continues to be a solid recurring contributor to volume demand. E-goods volume picked up in the post holiday due to strong demand for data center servers and racks, which has continued into the second quarter. With respect to air-to-ocean freight conversions, we benefited from elevated freight costs and reduced air cargo capacity in select markets.

In the first quarter of 2026, we saw strong volume from our feeder network in North and South Vietnam and Thailand. Our Thailand feeder service, which commenced operations in late December 2025 has received positive feedback and has exceeded our expectations to date on volume. Overall, the uptick in freight demand we saw post Lunar New Year has continued to build in the second quarter as demand strengthens and volumes return to a more traditional seasonal pattern. With increasing demand, we remain focused on maximizing the yield on every sailing out of Shanghai, and our freight rates remain at healthy levels.

As a result, we expect second quarter 2026 container volume to be higher compared to the prior year period, which included a market decline in transpacific demand due to the tariffs imposed in April of 2025. As a reminder, our container volume declined 30% last April before recovering in May and June. Encouragingly, conditions are more stable today. For the full year 2026, we expect container volume to be moderately higher than the level achieved in 2025 as we expect the demand strength in the second quarter to continue through peak season.

Please turn to the next slide. In our Guam service, Matson's container volume in the first quarter of 2026 was flat year-over-year. In the near term, we expect Guam's economy to remain stable. As such, for the full year 2026, we expect container volume to be comparable to the level achieved last year. Please turn to the next slide.

In our Alaska service, Matson's container volume in the first quarter of 2026 decreased 2% year-over-year. The decrease was primarily due to lower general demand, partially offset by an additional northbound sailing and an additional AAX sailing compared to the year ago period. In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth and continued oil and gas exploration and production activity. As such, for full year 2026, we expect container volume to be comparable to the level achieved last year.

Please turn to Slide 10. In the first quarter, our SSAT terminal joint venture contributed $5 million, representing a year-over-year decrease of $1.6 million. The decrease was primarily due to lower lift volume. For the full year 2026, we expect the contribution from SSAT to be lower than the $32.5 million achieved in full year 2025.

Turning now to Logistics on Slide 11. Operating income in the first quarter came in at $6.8 million or $1.7 million lower than the result in the year ago period. The decrease was primarily due to lower contribution from supply chain management. For full year 2026, we expect operating income to approach the level achieved in full year 2025. Please turn to the next slide.

Before I turn the call over to Joel for a review of our financial performance, I'd like to share a few thoughts on the recent volatility in fuel prices attributed to the Iran conflict. We expect fuel price volatility to impact our near-term earnings due to a timing lag between when we incur fuel costs and when we can fully recover these costs through our fuel surcharge. These mechanisms are very effective at recovering the cost of fuel over time. Historically, in our Maritime business, we have been successful in recouping the cost of fuel within any calendar year, although fluctuations can occur between quarters.

In the first quarter of this year, the impact was not material as we experienced escalating fuel prices only during the last few weeks of the quarter. For the second quarter, we expect to lag in the recovery of fuel costs, but we expect to fully recover our fuel costs by the end of the year with most of that occurring in the third quarter. These expectations regarding the impact of fuel costs and the recoverability of these costs have been factored into our outlook.

And with that, I will now turn the call over to my partner, Joel.

Okay. Thanks, Matt. Please turn to Slide 13 for a review of our financial results. For the first quarter, consolidated operating income decreased $20.7 million year-over-year to $61.4 million, with Ocean Transportation decreasing $19 million and Logistics declining $1.7 million. The decrease in Ocean Transportation operating income in the first quarter was primarily due to a lower contribution from our China service. The decrease in logistics operating income was primarily due to a lower contribution from supply chain management.

We had interest income of $6.1 million in the quarter compared to $9.4 million in the same period last year. The effective tax rate in the quarter was 16.6% compared to 21.6% in the year ago period. Our tax rate was lower year-over-year due to a discrete tax item that reduced taxable income. Given the lower income level in the quarter relative to the other quarterly periods in the year, discrete tax items can have a more pronounced impact on our effective tax rate in the quarter. In the first quarter of 2026, net income and diluted earnings per share were $56.6 million and $1.85, respectively. Diluted weighted shares outstanding decreased 7.8% year-over-year.

Please turn to the next slide. We continue to generate strong cash flows. For the trailing 12 months, we generated cash flow from operations of $552.1 million. We returned capital in the form of dividends and share repurchases of $333.8 million, and we had maintenance CapEx of $156.9 million. Our cash flow from operations exceeded the aggregate spend on maintenance CapEx, dividends and share repurchases by $61.4 million.

Please turn to Slide 15 for a summary of our share repurchase program and balance sheet. During the first quarter, we repurchased approximately 400,000 shares for a total of $54.4 million. Since we initiated our share repurchase program in August 2021 through the end of March of this year, we have repurchased approximately 14.2 million shares or 32.7% of our stock for a total cost of approximately $1.3 billion.

On April 23, 2026, we announced the addition of 3 million shares to our existing share repurchase authorization. As we have said before, share repurchases are an important component of our capital allocation strategy, and this increase allows us to continue to be steady buyers of our shares in the absence of any large organic or inorganic growth investment opportunities.

Turning to our debt levels. Our total debt at the end of the first quarter was $351.1 million, a reduction of $10.1 million from the end of the fourth quarter of 2025. With that, let me now turn to Slide 16 and walk through our outlook for the second quarter of 2026 at the top of the page. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income to be approximately $20 million higher than the $98.6 million achieved in the second quarter of 2025.

We also expect Logistics operating income to approach the $14.4 million achieved in the second quarter of 2025. As such, we expect consolidated operating income in the second quarter to be approximately $20 million higher than the prior year, which includes the negative impact we expect from the lag in the recovery of fuel costs that Matt mentioned earlier.

On the bottom half of the slide, we have our expectations for full year 2026. Starting with Ocean Transportation, we now expect year-over-year operating income to modestly exceed the level achieved in the prior year. The strengthening of freight demand in our China service post Lunar New Year and our expectation that this demand strength continues through peak season is the primary driver behind our raise in outlook. For Logistics, we expect operating income to approach the level achieved in the prior year.

As a result, we now expect consolidated operating income to modestly exceed the level achieved in the prior year. Our full year outlook includes the expectation that we're able to recover fuel costs by the end of the year with most of the recovery occurring in the third quarter. We also expect a more normal operating seasonality pattern with consolidated operating income in the second and third quarters being the strongest relative to the first and fourth quarters.

In addition to this full year operating income outlook, we expect the following for the full year: depreciation and amortization to approximate $210 million, inclusive of approximately $35 million for dry-docking amortization, interest income to be approximately $16 million and interest expense to be approximately $6 million, other income to be approximately $7 million, an effective tax rate of approximately 21% and dry-docking payments of approximately $45 million.

Moving to Slide 17. The table on the slide shows our CapEx projections for the full year 2026. Our range for maintenance and other capital expenditures is unchanged at $150 million to $170 million for full year 2026. Our estimate for expected new vessel construction milestone payments and related costs for full year 2026 is $400 million. As of March 31, we had cash and cash equivalents of approximately $100 million and had approximately $522 million in our capital construction fund.

Our CCF covers approximately 93% of our remaining milestone payment obligations and when combined with our balance sheet cash, exceeds our remaining financial obligations. We continue to be in a great funding position on the new build program. Lastly, our targeted build schedule remains unchanged. In the first quarter, we made a milestone payment of approximately $16 million from the CCF.

Looking ahead, we expect to make approximately $213 million in milestone payments in the second quarter. And then in the third and fourth quarters, we expect to make milestone payments of approximately $34 million and $110 million, respectively. With that, let me turn the call back over to Matt for closing remarks.

Thanks, Joel. Please turn to Slide 18, where I'll go through some closing thoughts. We continue to navigate a period of geopolitical tension and uncertainty. While we've experienced higher fuel prices, we're confident in our ability to fully recover our increased fuel costs. Our focus remains on what we can control, which is to put our customers first, maintain operational excellence and uphold our high standard of service. We remain confident in the demand consistency of our businesses because of our focus on serving niche markets where we're an integral part of the supply chain.

In our domestic trade lanes, we provide a vital lifeline to the communities we serve. And in our China service, our value proposition is differentiated based on speed, reliability and schedule integrity. Building on these strengths, we've successfully moved with our customers into Southeast Asia markets to extend our geographic reach and diversify our origination ports. Our China service has also become an important means for our e-commerce customers to meet the increasing consumer demand in the U.S. and we continue to expect e-commerce to be a long-term driver of growth for our CLX and MAX services.

Lastly, we remain disciplined in our return of capital to shareholders. In the absence of sizable growth projects or acquisitions, we expect to continue to return excess cash to shareholders. As Joel mentioned, and we recently announced, we added 3 million shares to our authorization to repurchase stock. And with that, I will turn the call back to the operator and ask for your questions.

And our first question for today comes from the line of Jacob Lacks from Wolfe Research.

So you mentioned that you expect demand strength to continue through peak season. Last year was a little bit unique with the MAX service below 100% utilization during peak. Do you think you can get back towards more full ships this year as we move into 3Q?

Yes, I do, Jake. I think we said at the beginning of the year, and we continue to see it as it's unfolding in front of us, a more traditional cycle in the China trades, meaning post Lunar New Year slow build to the second and third quarter, full or nearly full ships as we have traditionally, whether we -- a week -- and we have vessels that are slightly different sizes, but we expect to be full or nearly full in the second and third quarter as we build into the traditional peak season.

So we expect it to remain busy until the traditional first, second week of October pattern in the Lunar New Year. So yes, we're feeling like we're in a more normal environment and perhaps a bit slower post Lunar New Year, but that's kind of the way we're seeing the world today. But overall, we expect to end up above where we did last year. And now we're at a point where we're feeling like we're going to exceed last year's marks.

Very helpful. And when I look at sort of air freight versus ocean freight, air tends to be a lot more fuel intensive. Are you seeing more shippers look to convert freight to your service just the longer this high fuel price environment persists? And to the extent we start seeing some jet fuel shortages in Asia, could that accelerate volume growth from some of the non-China geographies?

Yes, I think you're right. I think it's -- so I think what we have heard from our customers is, although we have been mentioning this airfreight conversion for the last couple of years, given this expedited space that we created, there's been sort of a long term. There are periods in markets where that growth trend would go up or go down. And we think we're entering a period where we're going to see more airfreight conversions, some of which will be temporary and some of which will continue to convert. I also think that the longer that energy prices -- I'm sorry, energy prices and availability are issues, I think the air freight markets have been significantly dislocated and especially in places where they primarily import their jet fuel.

So while we haven't seen significant impacts yet, we are seeing both from a price standpoint and a potential availability, we're seeing as we're seeing a lot of passenger airlines cancel flights or cancel marginally profitable flights. That's happening all over the world, including in the U.S., although that's not our core market. Just a reminder that 50% of the airfreight flies in the bellies of passenger planes. So we think, we see it as not as a tailwind and rather than a huge catalyst. Our ships are likely to be in a more traditional peak cycle nearly full. So I think it will be helpful and a tailwind.

Interesting. And maybe last one for me. Can you give us a sense how much the fuel lag headwind you're expecting in the second quarter is? I know it's volatile, but any quantitative like just a number around that would be helpful. And then...

Go ahead. Did you have a second part of that question?

Yes. Just as you get into 3Q, like could you even over-recover just given the investments you've made in scrubbers and LNG? Or is this really a true pass-through?

Yes. Okay. So let me get to your first question first. I think the way we're thinking about it in terms of providing more visibility to our second quarter under collection, we're not exactly sure where we're going to end up. As you say, there's a significant amount of volatility. And I think it's not central to our story. As we think about it, we remain highly confident in our ability to recover fuel for the year. The first quarter, because that it happened late in the quarter, and we consume fuel over longer voyages.

So there was very little impact. We're thinking that the impact will primarily be felt in the second quarter. And we're also highly confident that we're going to be able to recover that in the second half of the year. So there's not a margin erosion story. And I think we've given you our second quarter guide, so that's inclusive of the amounts we're including, but would rather stay away from point-specific items. And then as to your second question on fuel, I'll turn that over to Joel.

Yes. So if it's fuel-related items that we'll put in the recovery basket, Jake. So for instance, if we -- for a scrubber, which we haven't done recently, but we did many, many years ago, that's a fuel-related item that allows us to really purchase fuel at lower cost. It's part of the overall equation. So if something like that is very specific to our fuel, it's related to fuel, then yes, that goes into our overall recovery basket.

And our next question comes from the line of Joe Enderlin from Stephens Inc.

You previously disclosed transshipment mix around 20% of CLX and MAX. Was there any change in that figure in 1Q? And then any regions in particular made you more optimistic on near-term growth?

Yes. I think we -- that 20% we previously cited, we're in the 20% to 25% range. I think we expect to continue to be in that range as we'll grow both our China origins and our Southeast Asia origins, both as we look towards filling our ships as we get into the more traditional peak season. I think the question really is we do expect our customers to continue to move some of their manufacturing base out of China, although we continue to believe that China will remain an important element of our story and remain an important part of the world productive capability for manufacturing products.

So I would say, could we go up from the 20% to 25%? Sure. I think it's possible. But importantly, it allows us to move with our customers as they look at relocating their plants. We're a trusted supply chain partner and they have confidence in us. And so we'll continue to move as our customers move at that pace.

Got it. That's helpful. And then just as a follow-up, I guess, kind of a broader question on the China service. It was a really volatile year last year, a lot of changes in trade. How would you just describe overall hesitancy on China trade as we move through the year among customers?

Yes. I mean I think for our customers, there are -- obviously, there remains a events around tariffs, do those settle down. They're going to be looking at producing their products at a place from an all-in standpoint, including tariffs and transportation charges and all other things to help them meet their needs for their retailing needs. And so I think there's a lot of factors that go into it.

But our view and is embedded in our commentary is that we think while there will be moments where tariff issues pop up, I think in our world, we think that tariff uncertainties are largely behind us. President Xi and President Trump will be meeting in a few weeks. We're optimistic that we're past the period like we had last fall where there was significant uncertainty. That's based into -- or baked into our thinking about how the rest of the year is going to unfold in that regard.

Got it. That's helpful. And just one more on the competitive backdrop. We touched on expedited air. But then within expedited ocean, how do you shape up the competitive backdrop there? Have you seen any increase in blank sailings? Or has there been any capacity losses as competitors had less confidence on the trade backdrop with China?

Yes. So let me make a general comment about the ocean trades generally, the more generic, and then I'll pivot to your question about what we describe as a second-tier expedited carriers that is that group that are below us or between the general freight markets and the -- and our industry-leading market. So on the general generic ocean side, I think we're seeing relatively good utilization of the ocean carriers. There are small roll pools. The ocean carriers themselves are trying to get air freight -- I'm sorry, ocean freight up. Many of them have very significant increases in their fuel consumption cost and other cost increases, and they're seeking to raise rates in part to recover those costs. So I would call the broader generic ocean market as orderly. And I would say the second-tier expedited carriers, we haven't seen any dramatic changes in any of the carriers' capabilities. We haven't seen any significant cancellations of sailings.

And so we see that the market for that secondary carrier there's 3 or 4 of them that buy for that space to be relatively similar. And again, not that you asked, but our belief was and continues to be that if we remain the fastest and second fastest CLX and MAX service, we're going to get the lion's share of this expedited market, and that continues to be true now.

And our next question comes from the line of Toma Sano from JPMorgan.

So your Q2 Ocean Transportation operating income guidance is $20 million above last year. So which services or customer segments are driving this growth? And what are the key risks to achieving it, please?

Okay. Thanks, Tomo. So the primary driver to that increase is really the continued strength in our China trade post lunar Near that we talked about. And so our domestic businesses, we expect to hang in there on a relatively similar basis on a year-over-year basis. So the primary uptick is really the China trade and the demand drivers in some of our core segments that Mac talked about earlier. So e-commerce, e-goods, garments, those sectors really returning to a more normal traditional demand in Q2 compared to last year's Q2, which had a lot of tariff impacts on it.

And so the risk, and that speaks to the risk. The risks are that there's a dislocation or there's tariffs reenacted or other kind of shocks to the system. So absent a shock to the system that would impact consumer demand or tariffs and direct trade relationships, we expect it to be a relatively orderly demand-driven second quarter, and that's why we expect to be up year-over-year.

And if you could share some more color on Hawaii and Alaska demand and economic conditions, especially regarding tourism and construction, energies. And again, like what risk do you see for 2026?

Okay. So Tomo, I'll start with Hawaii. So Hawaii, the bright spot is construction. There has been more construction activity. It's been fairly consistent for a year, 1.5 years, and we see that driving some demand in 2026. But it hasn't been enough to really buoy the economy in a really meaningful positive way because the other side, the tourism side has been still very sluggish. So U.S. West Coast tourism and U.S. tourism to Hawaii has been okay, although dollar spend has been not really dramatically growing. But where you really continue to see sluggishness on the tourism side is international tourism, which is still quite a bit off where it was 3, 4, 5 years ago, and that's been the biggest overhang on the -- on lack of -- creating lack of growth and GDP growth in the Hawaiian economy. So it's a mixed bag in Hawaii, but overall, we still continue to say it's a sluggish environment.

In the case of Alaska, moving to that market, there continues to be a significant amount of oil and gas and infrastructure investing around energy. That's been very positive for Alaska. Our volumes have hung in there well. We sometimes have year-over-year differentiation based upon competitors dry-docking and timing of voyages and things like that. But overall, the Alaska market continues to be steady and hanging in there with upward trajectory is our expectation because of investment in oil and gas and activity happening because of that more disposable income for the residents of Alaska because of that.

So those are the general high-level puts and takes in those 2 key markets. The third market for us, Guam, you didn't ask about that directly, but it's a really important domestic market for us, and that's continued to be steady as well. Tourism is hanging in okay, but not -- again, not on the international side. But we still continue to see a lot of government spending in Guam and the Western Pacific region that's helping the volumes in that region.

And then lastly, if you could talk about our Logistics segment operating income declined in Q1. What specific actions are you taking to drive recovery in Q2 and beyond? And what is your outlook for the rest of the year?

Yes. So the outlook for the rest of the year is that we'll be approaching last year's results. And the actions we've been taking is really focusing on 2 different pieces. Our Alaska -- Span Alaska piece is about a little bit over half the logistics side. And there, we're continuing just to focus on disciplined pricing and delivery for our customers and providing the best transit times and customer service in that market.

And then a similar strategy on the brokerage business side, which has been the other piece where margins have been more compressed and under pressure, both on highway truckload, but also intermodal. And there, we're continuing to really focus on stickier customer relationships, small and medium customers and having pricing discipline and good execution to deliver for those customers in what's still been generally a soft freight environment. That's on the demand side.

And then also on the buy side for truck, for the actual procurement of truck pricing, continue to work with our trucking partners and buying the truckload capacity at the right kind of price in the market as well to maintain our pricing and margin discipline. So those are the actions that our team is focused on in this environment, and we expect to be able to achieve the results we talked about the rest of the year by approaching -- this year approaching last year's results as well.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt for any further remarks.

Okay. Thanks for listening in today. We'll look forward to catching up with everyone on our second quarter call. Thanks very much. Aloha.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you for standing by. Welcome to the Matson's Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab.

Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 28 to 40 of our Form 10-Q filed on November 5, 2025, and in our subsequent filings with the SEC.

Please also note that the date of this conference call is February 24, 2026, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements.

I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call. Starting on Slide 3. Matson had a solid finish to the year with consolidated fourth quarter results that exceeded our expectations. For the quarter, Ocean Transportation operating income approached the level achieved in the prior year period, primarily due to higher-than-expected freight rates and volumes in our China service driven by strong e-commerce and e-goods demand. Our China service benefited from strong freight demand in our key customer segments as well as a more stable trading environment in the Transpacific trade lane as a result of the U.S. China trade and economic deal announced on October 30, which greatly reduced uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors.

In our domestic ocean trade lanes, we saw higher year-over-year volumes in Hawaii and Guam and lower year-over-year volume in Alaska. In the Logistics, quarterly operating income decreased year-over-year primarily due to a lower contribution from supply chain management.

For the full year, our consolidated operating income decreased year-over-year primarily due to lower volume and freight rates in our China service over the last 3 quarters as customers manage freight in a challenging environment marked by uncertainty and volatility arising from tariffs and global trade.

Looking ahead, for full year 2026, we expect consolidated operating income to approach the level achieved in the full year 2025 and based on our expectations of continued solid U.S. consumer demand and a stable trading environment in the Transpacific trade lane. For 2026 compared to 2025, we also expect to see a more normal operating income seasonality pattern with our second and third quarters being the strongest relative to the first and fourth quarters.

I will now go through the fourth quarter and full year performance of our trade lanes, SSAT and Logistics. So please turn to the next slide.

Hawaii container volume for the fourth quarter increased 0.6% year-over-year due to higher general demand. For the full year, 2025, container volume increased 1.6% year-over-year, primarily due to higher general demand and a dry-docking of a competitor's vessel in the first half of 2025. For the full year 2026, we expect volume to be comparable to the level in 2025, reflecting similar economic conditions as 2025 and a stable market share.

Please turn to Slide 5. According to UHERO's December economic report, the Hawaii economy remains sluggish as softer tourism and ongoing inflationary pressures, including elevated interest rates, more than offset strength in construction activity. International tourism remains weak and visitor arrivals are expected to decline in 2026 before recovering in 2027. Maui tourism improved in 2025, but remained significantly below the levels prior to the devastating 2023 wildfires.

Moving to our China service on Slide 6. Matson's container volume in the fourth quarter of 2025 was 7.2% lower year-over-year. For the full year 2025, container volume decreased 9.5% year-over-year, primarily due to the difficult trading environment in the Transpacific in the last 3 quarters of 2025, marked by continued uncertainty and volatility arising from tariffs and global trade.

Please turn to Slide 7. In the fourth quarter of 2025, we saw higher-than-expected freight rates and volume driven by strong e-commerce and e-goods demand. Our China service benefited from a strong freight demand in our key customer segments as well as a more stable trading environment in the Transpacific trade lane as a result of the U.S.-China trade and economic deal announced on October 30, which reduced uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors.

So far in 2026, we've experienced stable freight demand up to the Lunar New Year holiday in mid-February. We did not see a traditional bump in demand prior to Lunar New Year, but we expect freight demand to increase post-holiday as workers return to the factories and production ramps. As such, for the first quarter of 2026, we expect lower volume compared to the prior year period as we return to a more traditional Lunar New Year environment.

Please turn to the next slide. For the full year 2026, we expect volume to be modestly higher than the level achieved in 2025 based on continued solid U.S. consumer demand and a more stable trading environment in the Transpacific trade lane. The U.S. consumer remains resilient and the U.S. economy continues to show good growth. And we believe the significant tariff uncertainties that we encountered last year are mostly behind us. We also expect to see a return to a more normal seasonality pattern in 2026 with our second and third quarters being the strongest relative to the first and fourth quarters.

As you may recall, we experienced a significant decline in volume in the second quarter of 2025 due to the implementation of tariffs, so we expect our China volume in the second quarter this year to be higher than that level achieved from last year. For 2026, we are not expecting all of our ships to be full. Our focus in the Transpacific trade lane is to maximize the yield in every sailing out of Shanghai and maintain price. The premium rates in our China service reflect our unique value proposition relative to air freight and the consistency and reliability of our CLX and MAX services, which are the fastest and second-fastest ocean services from Shanghai to Long Beach.

In 2025, we moved with our customers. We added a second weekly feeder service from Vietnam and in December, commenced a weekly feeder service from Thailand. Our customers continue to look at shifting manufacturing out of China to diversify their operations. We remain focused on expanding our network in Southeast Asia. We continue to believe the maximum tariff uncertainty is behind us with continued cooperation between the U.S. and China. And as I said on previous earnings calls, there is too much at stake for both countries, not to come to a long-term economic agreement.

Please turn to the next slide. In Guam, Matson's container volume in the fourth quarter of 2025 increased 4.4% year-over-year. The increase was primarily due to higher general demand. For full year 2025, container volume decreased 4.3% year-over-year, primarily due to lower general demand. In the near term, we expect Guam's economy to moderate reflecting a challenging tourism environment. As such, for 2026, we expect container volume to be comparable to the level achieved last year.

Please turn to the next slide. In Alaska, Matson's container volume for the fourth quarter of 2025 decreased 3.3% year-over-year. The decrease was primarily due to one less northbound sailing compared to the year ago period, partially offset by higher export seafood volume on our AAX service. For full year 2025, container volume increased 1.7% year-over-year primarily due to higher export seafood volume on AAX, partially offset by 1 less northbound sailing compared to the year ago period. For full year 2026 we expect Alaska volume to be comparable to the level achieved last year.

Please turn to Slide 11. The Alaska economy continues to show good economic growth and improvement in key economic indicators despite flattish growth in population. In 2025, the state continued to add jobs with oil and gas and health care having the largest year-over-year increase. For 2026, we expect continued economic growth in Alaska supported by a low unemployment rate, jobs growth and continued oil and gas production activity. The oil and gas sector continues to be a key driver of Alaska's economy. In recent years, we've seen meaningful investment in the North Slope projects with more accommodative federal policies, there is a potential for significant investment supporting resources, resource development in the state.

Please turn to Slide 12. In the fourth quarter, our SSAT terminal joint venture contributed $9.3 million, representing a year-over-year increase of $18.8 million. The increase was primarily due to an impairment charge related to a write-down of a terminal operating lease asset at SSAT which negatively impacted our fourth quarter 2024 operating income by $18.4 million. For the full year 2025, our SSAT terminal joint venture contributed $32.5 million compared to a loss of $1 million in the prior year. The increase was due to the same $18.4 million impairment charge and higher lift volume. In 2026, we expect the contribution from our SSAT terminal joint venture to be comparable to the $32.5 million achieved in 2025.

Turning now to Logistics on Slide 13. Operating income in the fourth quarter came in at $7.7 million or $2.4 million lower than the result in the year-ago period. The decrease was primarily due to a lower contribution from supply chain management. For the full year operating income was $44.2 million, reflecting a year-over-year decrease of $6.2 million. The decrease was primarily due to lower contributions from freight forwarding and transportation brokerage. For 2026, we are expecting operating income to approach the level achieved in 2025.

I'll now turn the call over to my partner Joel for a review of our financial performance. Joel?

Okay. Thanks, Matt. So please turn to Slide 14 for a review of our fourth quarter and full year 2025 results.

For the fourth quarter, consolidated operating income decreased $3.8 million year-over-year to $143.7 million with lower contributions from Ocean Transportation and Logistics of $1.4 million and $2.4 million, respectively. The decrease in Ocean Transportation operating income in the fourth quarter was primarily due to a lower contribution from China, partially offset by a higher contribution from SSAT. As Matt noted, the increase in SSAT equity income was primarily due to an impairment charge related to the write-down of the terminal operating lease asset in the year ago period, which impacted our operating income by $18.4 million. Decrease in Logistics operating income was primarily due to a lower contribution from supply chain management.

We had interest income of $6.7 million in the quarter, which is $3.6 million lower than the prior year due to a lower balance of cash and cash equivalents and deposits in the CCF as compared to the prior year period.

The effective tax rate in the quarter was 5.2% compared to 19.1% in the year ago period. We benefited from a onetime tax adjustment of $18.5 million related to the company's deferred tax assets and liabilities which favorably impacted diluted EPS by $0.59 of earnings per share.

In the fourth quarter, net income and diluted earnings per share were $143.1 million and $4.60, respectively.

For the full year, consolidated operating income decreased $51.5 million year-over-year to $499.8 million with lower contributions from Ocean Transportation and Logistics of $45.3 million and $6.2 million, respectively. The decrease in Ocean Transportation operating income for the year was primarily due to a lower contribution from China, partially offset by a higher contribution from SSAT. The decrease in Logistics operating income was primarily due to lower contributions from freight forwarding and transportation brokerage.

Please turn to the next slide. We continue to generate strong cash flows. For the trailing 12 months, we generated cash flow from operations of $547.1 million. We returned capital in the form of dividends and share repurchases of $348.2 million, and we had maintenance CapEx of $149.1 million. Our cash flow from operations exceeded the aggregate spend on maintenance CapEx, dividends and share repurchases, by $49.8 million.

Please turn to Slide 16 for a summary of our share repurchase program and balance sheet. During the fourth quarter, we repurchased approximately 0.7 million shares for a total cost of $78.1 million. For the full year 2025, we repurchased approximately 2.7 million shares for a total cost of $307.4 million. Since we initiated our share repurchase program in August of 2021 through the end of 2025, we repurchased 13.9 million shares or 31.9% of our then outstanding shares for a total cost of approximately $1.3 billion. As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

Turning to our debt levels. Our total debt at the end of the fourth quarter was $361.2 million, a reduction of $9.7 million from the end of the third quarter. For the year, we reduced total debt by $39.7 million.

Please turn to Slide 17. The table on this slide summarizes our $393.4 million in capital expenditures in 2025. We had capitalized vessel construction expenditures on our new Aloha Class vessels of $244.3 million which consisted of $237.3 million in milestone payments and $7 million in capitalized interest and other costs. Maintenance and other capital expenditures were $149.1 million, which is approximately $20 million higher than what we previously communicated on our third quarter earnings call. This amount includes approximately $20 million of financially attractive early lease buyouts of equipment that was already in our fleet.

Please turn to the next slide. The table at the top of Slide 18 shows the capital -- the key capital expenditures planned over the next 3 years. For 2026, we expect $425 million of new vessel construction expenditures, including capitalized interest and owners' items, and $150 million to $170 million for maintenance and other CapEx to support our vessels, shoreside operations and Logistics businesses. This includes approximately $20 million in equipment lease buyouts and representing the final sizable tranche of these leases that were executed prior to the pandemic.

We also expect to purchase approximately $30 million more than normal in new containers and chassis this year to support our operations and growth. We are planning for greater than normal annual investment in equipment due to the currently favorable pricing dynamics, primarily in new dry container pricing, which is at an 8-year low.

Turning to 2027 and 2028, we expect maintenance CapEx and other CapEx to revert to our targeted range of $100 million to $120 million. Given our plans to pull forward equipment spend this year, we expect maintenance and other CapEx in 2027 and 2028 to come in at the lower end of this range, absent any significant inflationary rises in new equipment costs.

As of December 31, we had cash and cash equivalents of approximately $142 million and approximately $533 million in our Capital Construction Fund. Our CCF covers approximately 92% of our remaining milestone payment obligations. And when combined with our balance sheet cash exceeds our remaining payment obligations. Therefore, we continue to be in a great funding position on the new build program.

Table in the bottom right of the slide shows our expected 2026 milestone payments by quarter. All payments will be made from our capital construction fund with funds already set aside for these obligations.

With that, now let me turn to Slide 19 and walk through our outlook for the first quarter and full year 2026. For the first quarter of 2026, we expect Ocean Transportation operating income to be approximately $50 million, which is lower than the first quarter last year, primarily due to lower volume in our China service. We expect Logistics operating income in the first quarter to be modestly lower than the $8.5 million achieved in the first quarter of 2025. As such, we expect consolidated operating income in the first quarter to be lower than the prior year.

For the full year 2026, we expect Ocean Transportation operating income to approach the $455.6 million achieved in 2025. For Logistics for the full year 2026, we expect operating income to approach the $44.2 million achieved in 2025. And as such, we expect consolidated operating income for the full year 2026 to approach to $499.8 million achieved in 2025.

In addition to this full year operating income outlook, we expect the following for the full year: depreciation and amortization to approximate $210 million, including approximately $35 million for dry dock amortization, interest income to be approximately $15 million and interest expense to be approximately $6 million, other income to be approximately $7 million, an effective tax rate of approximately 21% and dry-docking payments of approximately $45 million.

I'll now turn the call back over to Matt.

Okay. Thanks, Joel. Let me close with a few final thoughts. Matson is well positioned across its business lines as we head into 2026. The U.S. economy remains solid, underpinned by a supportive macroeconomic environment and healthy consumer spending. And the tariff uncertainties from 2025 are mostly behind us, which we expect to provide stability in the Transpacific trading environment. Across all our trade lanes, we remain focused on what we can control, including vessel and schedule integrity, reliability of our operations and delivering a high-quality service for our customers. These attributes are ingrained in our company's culture through decades-long relationships with our customers, working closely with them and through periods of uncertainty and volatility.

In our China service, we're focused on expanding our network in Southeast Asia as our customers continue to diversify their operating locations in the region. Supply chains are becoming more complex, making speed-to-market and schedule integrity paramount for our customers. As the fastest and second-fastest ocean service in the Transpacific, our CLX and MAX services are well suited for increasing supply chain complexity and tighter inventory control by our customers. The premium rates in our China service reflect our unique value proposition relative to air freight and the consistency and reliability of our CLX and MAX services. Our rates in the Transpacific trade lanes remained strong, and we expect to continue to focus on maximizing yield with every weekly sailing from China.

We remain committed to looking for ways to grow, either organically or periodically through acquisition. Last, we expect to return -- excuse me, last, we expect to continue to return capital to shareholders through dividends and our share repurchase program. We expect to continue to be steady buyers of our shares.

And with that, I will turn the call back to the operator and ask for your questions.

[Operator Instructions] And our first question for today comes from the line of Jacob Lacks from Wolfe Research.

So a year ago, you gave more of a guidance range depending on the return of Red Sea sailings. This year, you're giving more of a point estimate. To the extent we see a broader resumption in Red Sea sailings, do you think that matters for you? And is this in the guidance one way or the other?

Yes, thanks for the question. From our perspective, and we mentioned this in one -- I think our last quarterly call, because of our relative positioning, we do see the broader Transpacific trade as oversupplied, that is capacity and the ship order book exceeds expected demand, and there's pressure on international freight rates. We also know that -- or has estimated that if the Red Sea does open or reopen that, that adds somewhere between 7% to 9% of additional capacity that would be available to be deployed given the shorter transits.

And our guidance is independent of whether the Red Sea opens or doesn't. We said it largely doesn't matter to us. The ocean freight rates, the ability of the ocean carriers to set the appropriate capacity to support their freight rates. Our product has increasingly distanced itself from the supply chain on the generic ocean services. So it really doesn't matter to us. And so accordingly, we really don't have a view of it because I don't think it affects our own guidance.

Got it. That's helpful. And you discussed expectation for demand to return post-holiday. Maybe it's a bit too early, but have you seen any signs of a normal seasonal recovery coming out of Lunar New Year yet? Or do you have any visibility on that? Or is this just an expectation based on history?

I mean I think it feels to us like a more traditional Lunar New Year recovery, where we saw demand -- first of all, in my prepared comments, we saw no significant spike pre-Lunar New Year. And factory by factory, they made the decision about looking at their order books, did they close a little bit early? Are they going to wait 1 week or 2 longer for the labor to return? Historically, they have a benefit of this whole high-speed rail network. So it used to take several days for people who lived in the remote regions to return. And now that's really accelerated.

From a demand standpoint, I guess the way I would put it is we've seen a very traditional recovery from Lunar New Year, which means it's not a speedy recovery nor is it lagging. It feels to us really normal at this point. But as you point out, time will tell here in terms of the ramp. So a little bit early to see it, but we think it will -- with the benefit of hindsight, look like a very traditional Lunar New Year post-ramp.

That's helpful. And we're hearing more and more about data center-related volumes moving through air freight. Is any of that spilling over into your expedited ocean service? Or is the strength more consumer electronics and e-commerce volumes that you've discussed in the past?

Yes. I mean there is a subcomponent within our e-goods segment. We're talking about e-commerce, e-goods, garments, the traditional product. But within the electronic goods category, we are moving racking and servers. And again, to your point, it's moving out of air freight into our expedited service. So that's a component of our e-goods that we're seeing in the fourth quarter and expect to continue to see in 2026.

And our next question comes from the line of Reed Seay from Stephens Inc.

I wanted to get a feel for how you see the pricing environment here in 2026. Obviously, it's been a common theme throughout 2025, the new pricing strategy. And do you see your ability to maybe increase it from where you exited 2025? Or maybe do volumes not support a price increase this year? Just any thoughts on how you're thinking about pricing going into the year?

Sure. Yes. We did -- as you know, we pivoted last year to be focusing on not necessarily filling our ships, but rather focusing on yield management. And part of that was informed by our belief that we could lower the rate. But given the gap we had over the ocean freight rates, we couldn't lower the rates far enough to create demand, given how for our freight rates were above the rest of the market. We see that dynamic continuing to play out in 2026.

And so I would expect for us to -- like most carriers, we'll see a ramp-up post-Lunar New Year. We'll be watching closely where our demand is week by week. We're focusing less on the other ocean carriers. And we've given ourselves permission to not have our vessels full while we're focusing on both growing our Southeast Asia cargo and introducing those services to the MAX and CLX service parameters into the new markets in Southeast Asia. That will be an area that we're going to continue to focus on. And then, of course, continuing to support our traditional customers out of China for e-commerce and e-goods and garments, those traditional plans.

But getting back to pricing, I think we're thinking 2026 is going to look a lot like '25 in terms of our disciplined approach to the market. Beyond that, time will tell, but we feel confident enough at this point to provide the guidance from full year earnings to approach the level we saw in 2025.

Got it. That's helpful. And then if we can touch on a little bit more the Thailand route you all introduced in December. What type of volume is that doing today? What type of volume can it do in the future? I guess, what is the opportunity that this presents to Matson. And I assume this is being trucked to China as opposed to being shipped like from Vietnam, is this more favorable economics? Or any color there would be helpful as well.

Yes, sure. As it relates to Thailand, as you said, we started that just at the end of the year. And similar to our ramp in Vietnam first in North Vietnam and then last year in South Vietnam. We expect a slow and steady volumes. They're consistent with our expectations. It's starting out at 50 loads per sailing. And again, we're just getting started.

What's interesting about the customer mix, it's many of the customers that support us in Vietnam and in China are those that know our value proposition. But our goal, of course, we're new to that market. And we'll be continuing to build an organization and work on expanding that book of business. We don't quite have a specific target in mind, but we do expect our volumes, if you look at our China services for the full year, we'll look back and our goal is to have modestly higher volume for the full year out of all of our origins. But we do expect continued growth both in Thailand and in Vietnam.

Let me comment on the mode in which it travels. So if you look historically at Matson's business on the CLX service with its Shanghai Ningbo origin, we saw a number of containers that were moving cross-border initially, whether it's from Vietnam or whether it was from Cambodia from Thailand, that trucked all the way across multiple borders to meet our CLX service. What we've seen as we moved initially into Vietnam, there's a certain amount of cargo that are carried on our 2 weekly Vietnam services. that are trucked over the border from Cambodia today.

As we move to Thailand, there is still some cargo that will move via truck to our various origins, but we also are moving cargo with our trusted feeder partner on an ocean direct service from Thailand to meet up with our services. So we are still seeing some cross-border trucking, but we have an all-water option with our trusted feeder partner to allow for that direct connection into Shanghai.

Got it. Got it. That makes a lot of sense. And then last one for me. If the administration put out a Maritime Action Plan, there was a little bit in it. Obviously, some of it concerning Jones Act, American-built ships. I'm not sure if there's anything in there that you expect to impact Matson or if there's anything that we should be looking out for on our side as we see maybe next steps from the administration's plans there. So I guess anything stand out to you in that release from the administration?

Yes, sure. And again, thanks for the question. So my take on this is, this Maritime Action Plan represents really, I would call it an aspirational blueprint to revive U.S. shipbuilding and in particular, U.S. shipbuilding in the international trades, it's very comprehensive for those that have taken the time to read it. It's clear that -- well, there's no time frames attached to this. And of course, there were no specific proposed changes to the Jones Act, rather, the focus was really on recreating a U.S. flagged vessel fleet in the international trades. And it did include infrastructure or security fee based on the weight of imported cargo, again, without any specific time frame, those funds could be used to create a trust fund. But they also acknowledge that it was likely to need congressional approval to create this new mechanism on security fees.

And again, with no time frame. My take on it is, it's really aspirational. There's no specific time frame on it. It doesn't impact the Jones Act. And exactly the timing and what pieces will roll out in what order is really not clear. but it does require, we think, congressional approval. So those are my thoughts on the Maritime Action Plan at this point.

And our next question is a follow-up from Jacob Lacks from Wolfe Research.

Just one quick clarification. Were there any port fees you paid in the 4Q results?

It's Joel, Jake. The $6.4 million that we had already disclosed was the total that we paid in the fourth quarter.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks.

Okay. Well, thanks for your participation today. We look forward to catching up with everyone on our first quarter call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you for standing by, and welcome to the Matson Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development at Matson. Please go ahead.

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab.

Before we begin, I would like to remind you that, during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 24 to 35 of our Form 10-Q filed on May 6, 2025, and in our subsequent filings with the SEC.

Please also note that the date of this conference call is November 4, 2025, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements.

I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call. I'll start on Slide 3. In the third quarter, our business segments performed well in a difficult environment marked by continued uncertainty and volatility arising from tariffs and global trade.

In Ocean Transportation, operating income was lower year-over-year, primarily due to lower year-over-year freight rates and container volume in our China service. In our domestic tradelanes, we saw higher year-over-year volume in Hawaii and Alaska, and lower year-over-year volume in Guam.

In Logistics, our operating income was lower year-over-year, primarily due to lower contributions from freight forwarding, transportation brokerage and supply chain management.

For the fourth quarter 2025, we expect consolidated operating income to be approximately 30% lower year-over-year. We're also optimistic and expect a more stable trading environment for our customers starting in the fourth quarter as a result of the reduction in uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors due to the trade and economic deal between the U.S. and China announced on October 30. Joel will go into more detail on our updated forecast and outlook later in the presentation.

I will now go through the third quarter performance of our trade lanes, SSAT and Logistics. So please turn to the next slide. Container volume in our Hawaii service increased 0.3% in the third quarter year-over-year. For the full year 2025, we expect volume to be comparable to the level achieved in 2024, reflecting modest economic growth in Hawaii and stable market share.

Please turn to Slide 5. According to UHERO's September Economic report, the Hawaii economy is softening as slowing tourism and high inflation and interest rates weigh against stronger construction activity. Construction is a bright spot in the Hawaii economy, supported by public sector projects and the Maui rebuilding effort. Hawaii tourism softened considerably over the summer as tourist arrivals and spending declined year-over-year in part due to tariff uncertainties impacting international tourism.

Moving to our China service on Slide 6. Container volume in the third quarter of 2025 decreased 12.8% year-over-year, primarily due to the difficult environment marked by continued uncertainty and volatility arising from tariffs and global trade. Freight rates in the quarter were lower year-over-year.

Please turn to Slide 7. The Transpacific tradelane in the third quarter experienced a muted peak season compared to the elevated demand levels last year, due to businesses advancing cargo in the late second quarter and early third quarter ahead of U.S. tariff deadlines, which led to slower third quarter demand for our expedited services. The muted demand we experienced in the third quarter persisted through October as customers continue to navigate tariff uncertainty.

As such, for the fourth quarter 2025, we expect lower year-over-year freight rates and volume in our China service as we expect many of our China service customers to be cautious on inventory levels and work through previously purchased inventory. However, we expect a more stable trading environment for our customers in the fourth quarter of 2025 as a result of the reduction in uncertainty regarding tariffs, port entry fees, global trade and other geopolitical factors due to the trade and economic deal between the U.S. and China announced on October 30.

Please turn to Slide 8. When port entry fee collection commenced in the U.S. and China on October 14, we did not let these fees impact our China service. We advised our customers that our CLX and MAX services from China would not change and that port entry fees would not be passed on to them. At that time, based on our initial assessment of our anticipated fleet schedule, vessel charters and expected dry dockings, we expected to pay approximately $20 million in port entry fees in the fourth quarter 2025 and approximately $80 million annually in port entry fees in 2026 and 2027.

Then on October 30, the U.S. and China reached a trade and economic deal. The deal includes a 1-year suspension of port entry fees and a cumulative reduction by 10% for tariffs on Chinese imports to curb fentanyl flows for 1 year, each starting on November 10. We expect the USTR and the China Ministry of Transport to publish specific instructions regarding port entry fees shortly. This was a welcome development, and we are optimistic that this is a positive step towards a longer-lasting agreement between the 2 countries.

Quarter-to-date, we have paid $6.4 million in port entry fees. Again, we have not passed these port entry fees on to our customers. Our philosophy in the tradelane is to charge rates based on the value we provide with our expedited services given the underlying supply and demand conditions.

In our nearly 20 years of operating our China service, we have not passed on surcharges or temporary fees to our customers, and we did not and do not intend to do so with these port entry fees.

I want to underscore that we are business as usual with the CLX and MAX services operating without interruption. We remain committed to the Transpacific tradelane and are highly confident in our positioning with the 2 fastest and most reliable Transpacific services and we will continue providing our CLX and MAX customers with world-class service.

Moving to the next slide. In Guam, Matson's container volume in the third quarter of 2025 decreased 4.2% year-over-year due to lower general demand. In the near term, we expect Guam's economy to moderate, reflecting a challenging tourism environment. As such, for the full year 2025, we expect volume to be modestly lower than the level achieved last year.

Please turn to Slide 10. In Alaska, Matson's container volume for the third quarter of 2025 increased 4.1% year-over-year. The increase was primarily due to one additional northbound sailing compared to the year ago period and higher AAX volume.

In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth and continued in oil and gas exploration and production activity. As such, for the full year 2025, we expect container volume to be modestly higher than the level achieved last year.

Please turn to Slide 11. In the third quarter, our SSAT terminal joint venture contributed $9.3 million, representing a year-over-year increase of $2.4 million. The increase was primarily due to higher lift revenue. For full year 2025, we expect the contribution from SSAT to be higher than the $17.4 million achieved last year without taking into account the $18.4 million impairment charge recorded by SSAT during the fourth quarter of 2024.

Turning now to Logistics on Slide 12. Operating income in the third quarter came in at $13.6 million or $1.8 million lower than the result in the year ago period. The decrease was primarily due to lower contributions from freight forwarding, transportation brokerage and supply chain management. In the fourth quarter of 2025, we expect Logistics operating income to be modestly lower than the level achieved last year.

And with that, I will now turn the call over to my partner, Joel, for a review of our financial performance. Joel?

Okay. Thanks, Matt. Please turn to Slide 13 for a review of our third quarter results. For the third quarter, consolidated operating income decreased $81.3 million year-over-year to $161 million with lower contributions from Ocean Transportation and Logistics of $79.5 million and $1.8 million, respectively.

The decrease in Ocean Transportation operating income in the third quarter was primarily due to lower freight rates and volume in China. As Matt noted, the decrease in logistics operating income was primarily due to lower contributions from freight forwarding, transportation brokerage and supply chain management.

We had interest income of $7.6 million in the quarter compared to $10.4 million in the same period last year. Interest expense in the quarter was unchanged year-over-year. Net income decreased 32.3% year-over-year to $134.7 million and diluted earnings per share decreased 28% year-over-year to $4.24 per share. Lastly, diluted weighted average shares outstanding decreased 5.9% year-over-year.

Please turn to Slide 14. We continue to generate strong cash flows. For the trailing 12 months, we generated cash flow from operations of $544.9 million. We returned capital in the form of dividends and share repurchases of $302.5 million, and we had maintenance CapEx of $186.6 million.

Our cash flow from operations exceeded the aggregate spend on maintenance CapEx, dividends and share repurchases by $55.8 million.

Please turn to Slide 15 for a summary of our share repurchase program and balance sheet. During the third quarter, we repurchased approximately 0.6 million shares for a total cost of $66.4 million, including taxes.

Year-to-date, we repurchased approximately 2 million shares for a total cost of $229.3 million, including taxes. Since we initiated our share repurchase program in August of 2021 through September of this year, we have repurchased approximately 13.1 million shares or 30.2% of our stock for a total cost of approximately $1.2 billion.

As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

Turning to our debt levels. Our total debt at the end of the third quarter was $370.9 million, a reduction of $10.1 million from the end of the second quarter.

Please turn to Slide 16, where I will walk through our outlook. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income to be lower than the $137.4 million achieved in the fourth quarter of 2024.

For Logistics, we expect operating income in the fourth quarter of 2025 to be modestly lower than the level achieved last year. In total, we expect consolidated operating income in the fourth quarter to be approximately 30% lower than the prior year. In addition, we expect the following for the full year 2025.

Depreciation and amortization to approximate $196 million, inclusive of $28 million for dry dock amortization. Interest income to be approximately $32 million and interest expense to be approximately $7 million, other income to be approximately $9 million, an effective tax rate of approximately 22.0% and dry-docking payments of approximately $45 million.

Lastly, I'd like to discuss our CapEx projections for the full year 2025. Compared to what we previously provided on our second quarter earnings call, our expectation for maintenance and other capital expenditures this year has increased to approximately $130 million due to some CapEx now expected to occur before the end of 2025 versus previously expected to occur in early 2026.

Overall, we are confident our annual maintenance CapEx will remain in the $100 million to $120 million range going forward. Our estimate for expected new vessel construction milestone payments in 2025 is now approximately $248 million. This is lower than our prior estimate as a milestone payment has been pushed back to the first half of 2026. Please note that, the total cost of our new vessel program remains the same at approximately $1 billion.

Please turn to Slide 17. I wanted to spend a moment on our current CCF funding of the new vessel build program. As of September 30, the $628 million in cash deposits and treasury securities in our capital construction fund covers approximately 92% of the remaining milestone payment obligations, which excludes future interest income or accretion earned on cash deposits and treasury securities.

Assuming the interest income rate on our CCF money market funds remains at our current rate of 4%, we expect only approximately $28 million of additional CCF cash deposits to be required for the final milestone payments in late fourth quarter 2027.

In addition to the current CCF balance, we also had $93 million in cash and cash equivalents as of September 30. These 2 balances combined exceed our remaining milestone payments, so we are in a great funding position on the new build program.

This year, in the fourth quarter, we expect to make approximately $101 million in milestone payments from the CCF, of which we already made approximately $36 million in milestone payments in October.

Lastly, the targeted build schedule also remains unchanged. We recently received an update from Hanwha Philly Shipyard, and there has been no change to the schedule we previously communicated. We continue to expect our 3 vessels to be delivered in the first quarter of 2027, the third quarter of 2027 and the second quarter of 2028.

With that, I'll turn the call back over to Matt.

Okay. Thanks, Joel. In closing, as we continue to navigate through this period of market uncertainty and volatility, Matson remains well positioned and diversified across its tradelanes and in logistics. We will continue to focus on what we can control. Across all our business lines, we continue to work closely with our customers to manage their transportation needs in an evolving marketplace.

We are also steadfast in maintaining the highest levels of service reliability and delivery delivering superior customer service. Decades of experience have proven to us that Matson's future success and growth is a function of how well we deliver for our customers during unsettled times. We believe that the trade and economic deal announced on October 30 is an important positive step forward towards a more stable economic trading environment.

And with that, I will turn the call back to the operator and ask for your questions. Thanks.

Certainly, and our first question for today comes from the line of Jacob Lacks from Wolfe Research.

So pricing has clearly held in well, just given everything going on, on the Transpacific lane right now. We've seen a lot of pressure on more traditional spot rates over the past few months. Do you view the current pricing levels as sustainable? Or do you think there could be some further pressure from here just with weakness in the more traditional ocean market?

Yes. Thanks for the question. So, I think we did make a conscious choice to hold our prices as we saw the SCFI and the spot rate fall pretty dramatically in the last quarter or so. And that was really based on a belief in our sense that we would see a little bit less expedited volumes for reasons that we talked about earlier. And we're very pleased with our pricing.

As we've said many times, we are -- we have a different pricing algorithm coming out of the pandemic, and we really are trading at multiples, some of the highest spreads over the market rates that we've ever seen in absolute dollars. So, I guess the way I would describe that now, where we typically go is that we do typically see a period of market adjustments as we get through traditional peak and once all the merchandise is delivered, and that usually happens sometime in October for a few months until we get ramping up for Lunar New Year.

So, I would say our absolute freight rates are likely to come down, but in a very orderly way and very consistent with our previous seasonal patterns. So really nothing surprising or no major significant changes to the way we've thought about the market.

That's helpful. And then it's -- I think you touched on this a little bit, but the utilization headwinds in the quarter, is that just your actions on pricing? Do you think there's sourcing changes out of China that are impacting it? It would be great to get your perspective.

Yes. My perspective on this was there was certainly additional capacity in the Transpacific market, but our utilization little bit lower levels was really borne out of an insight that because of the dramatic premium in our pricing relative to the market pricing that we couldn't lower our prices enough to create additional demand that which needed to move in an expedited fashion was going to pay the Matson premium for getting its cargo to the market in a very reliable and fast way.

So, our sense was that ours had a little bit more to do with the front-loading of inventory. And if you're front-loading hundreds of thousands of SKUs, you're likely to have a little bit less need for expedited product, if you're moving it all into a warehouse. And it was really more that function that, I think drove our utilization rather than supply and demand in the broader market.

Makes sense. And maybe just one quick clarification. Are the $6.4 million in port fees, are those included in the operating profit down 30% in 4Q? Or are those excluded?

Yes, they are. They're included.

And our next question comes from the line of Omar Nokta from Jefferies.

I actually have a few questions that pretty much follow up on everything that Jacob was asking you guys were talking about. And maybe just on this first one, I know it's not a lot, but in terms of that $6.4 million in port fees, is there a mechanism for you to get that refunded back or some kind of rebate? Is there any kind of discussion on that front?

So, Omar, we mentioned in our prepared comments just a moment ago that we were awaiting final -- the USTR and the China Ministry of Transport final regulations that we expect those to be issued shortly in the next week or 2. And we will be able to determine whether that was an element or not.

Okay. So just making sure, the $6.4 million that was incurred accounting-wise? Or was it actually like a cash outflow?

It was a cash outflow. Those are due upon arrival or prior to departure each week. So those are paid each week.

Okay. Okay. And then obviously, clearly, Matson, you're performing very strongly despite all the headwinds we've been seeing, especially kind of in light of the muted peak season you had talked about, and sort of been expecting. Just in terms of what we've been seeing here recently in the spot market, obviously, your earnings aren't going up and down or swinging as dramatically as say, the spot market does. But I wanted to get a sense of what you're sort of seeing develop today. Spot rates on the Transpacific fell to lows back in early October, but they've had a nice sort of sharp rebound off the bottom. Just from your vantage point, are you seeing that kind of in your business? Is it increased activity that's driving some of these gains? Or is it -- are these index rates maybe moving up for some other reason?

Yes. I mean, I can -- let me answer it directly first and then indirectly, if I can. The actions that are happening on pricing now are really having 0 impact on Matson's pricing. We really are pricing on a totally different threshold, which is customer that -- customers who have cargo that need to move fast to meet whether it's a late production or whether it's unforecasted demand that -- where they need to replenish cargo.

So, we're quite disconnected from those market mechanisms. But more broadly, I see this as an effort by the international ocean carriers to get freight rates up from a level that I believe they see are really not profit making and doing their best to try to get rates up to a more stabilized level, especially as we get past the peak season for cargo in the markets. And whether they're those will be achieved will be subject to other ocean carriers handicapping that. But it really is having no impact on us.

Okay. I appreciate that color. And maybe just a final one. Joel, we had spoken, I think, back in maybe early September and sort of discussing the load factors and how -- I think you mentioned this in your remarks earlier, perhaps you were running in the 90s in terms of load factor earlier in the year, you were willing to take that down into the 70s and maintain rate. How has that evolved since? Are you still kind of operating in that 70s region?

Yes. So, I mean, it's different for the CLX and the MAX. And the key observation, Omar, was that for the last 20 years, we've been basically full for 20 years. So, this period going back to April, when the first big round of tariff escalation occurred where we were -- our volumes were down significantly, that was the first time we experienced that.

So then as we moved into May and June and then the traditional peak season, there was a number of dynamics happening in the market that led us to maintain our pricing, as Matt's talked about, but we didn't necessarily get all the way back to full. So even now to today, since April, we haven't been full at all during that entire period of time.

So, it's really been a function of maintaining our rates and then working with our customers as they have continued to build inventory and ship, but not -- but -- and then based upon that, the utilization factors have leveled out where they were. And you just -- you can kind of see and estimate what that is based upon the volumes we just reported for the quarter relative to the year prior when we were full of the whole year. So that's kind of the dynamic that's played out and continue to play out here as we post the news on October 30.

[Operator Instructions] Our next question comes from the line of Reed Seay from Stephens Inc.

I wanted to ask about your customer conversations at this point. It's been a pretty crazy year for Transpacific ocean cargo. Are they potentially getting a little weary of sourcing from China? Or at this point, do they seem pretty steadfast and sticking it out through these trade discussions and all the deals?

Yes. This is Matt. Let me take a crack at that. I think what we're seeing is an expansion of trends over these last few years. So, it was a China-centric a few years ago, manufacturing strategy. They were the world's factory floor. And then I think as a result of some political turmoil, we saw many of our customers evolve into a China Plus One strategy, which took all of the eggs out of one basket given the volatility and what had happened through the pandemic and other things.

So, I think over time, you saw our customers, large retailers diversify their sourcing. I think you see with the -- more recently, with some of the discussions and issues between the U.S. and Chinese governments, we see a continuing long-term trend of our customers looking to identify multiple sourcing for their products. I think that's a long-term trend that's going to continue.

I think it's also true, however, that China will continue to be a very important source of manufacturing into the foreseeable future. So, I think both are true. We're continuing to see customers look to diversify whether it's in Southeast Asia or other Mexico or other locations. We're also seeing the continued strengths of the ability to source out of China. So, I think both are going on at the same time.

Got it. And then kind of on a similar vein, you've talked about the catchment basin in the past couple of quarters. Can you talk about maybe where you're seeing a lot of this volume from the CLX and MAX maybe as a share of -- from Vietnam or from other sources just as we see it in the third quarter?

Yes, sure. I can touch on that as well. So, I think we -- you can use 20%, which is what we reported last quarter as a good indicator of the amount of cargo that is on the CLX and MAX services that come from other than China origin. And those are North and South Vietnam, where we started in 2023 and then earlier this year, separate services from North Vietnam and South Vietnam.

We also see cargo moving from Cambodia over the border to catch up with our Ho Chi Minh service in the South. We're also seeing cargo come out of Thailand, of Malaysia, of the Philippines. But I would say, as of now, the largest chunks of our cargo are really coming out of Vietnam at this point. But we do expect, for example, Thailand and other origins to continue to grow as we transition into 2026 and beyond.

Got it. And lastly, if you could just talk about maybe the pricing within your domestic lanes, Alaska and Hawaii now are a little more stable. I guess, China is more stable now, too. But can you just talk about how those are progressing and whether or not you've had some gains there?

Yes. I mean on our domestic trades, our approach has been and continues to be -- we tend to do annual rate increases that mirror increases in our underlying costs, whether that be for labor or other inputs. We have a floating -- as you may know, we have a fuel surcharge that adjust based on our actual cost of fuel in each of the tradelanes and based on the fuel that we're consuming in those markets. And so, our approach there is really around recovering increases in costs, whether those were port terminal fees or pass-through.

So, I would say our -- we've seen a relatively steady pricing environment. We've been relatively successful in continuing to see real year-over-year increases in line with our costs. And those are really the highlights of our pricing dynamics that have been and continue to be those that drive our current performance.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks.

Okay. Well, thanks, everybody. We appreciate your dialing in today. And again, to repeat myself, I think we really are encouraged and optimistic by this October 30 deal date, 30th date between U.S. and China. And I think it will really reduce some of the planning uncertainty for our customers who've been trying to live through this period of relative instability. So, we're encouraged by that, and I will look forward to catching up with everyone on our year-end call. Thanks.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you for standing by, and welcome to the Matson Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir.

Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events.

We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 24 to 35 of our Form 10-Q filed on May 6, 2025, and in our subsequent filings with the SEC. Please also note that the date of this conference call is July 31, 2025, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call. Starting on Slide 3. Our second quarter financial performance exceeded our expectations amid the challenges of market uncertainty and volatility arising from tariffs and global trade. In Ocean Transportation, operating income was lower year-over-year, primarily due to lower year-over-year volume in our China service. In our domestic trade lanes, we saw higher year-over-year volume in Hawaii and Alaska and lower year-over-year volume in Guam.

In Logistics, our operating income was lower year-over-year, primarily due to a lower contribution from transportation brokerage. Looking ahead, we expect uncertainty regarding tariffs and global trade, regulatory measures, the trajectory of the U.S. economy and other geopolitical factors to continue. However, given our financial performance in the second quarter and assuming these factors do not materially change from current conditions, we are raising our outlook for the full year 2025.

Joel will go into more detail on our updated outlook later in the presentation. I will now go through the second quarter performance of our trade lanes, SSAT and logistics. So please turn to the next slide. Container volume in our Hawaii service increased 2.6% in the second quarter year-over-year. The increase was primarily due to higher general demand. For the full year 2025, we expect volume to be modestly higher than the level achieved in 2024, reflecting modest economic growth in Hawaii and stable market share.

Please turn to Slide 5. According to UHERO's second quarter 2025 economic report, the Hawaii economy remains stable, supported by strong construction activity, but faces potential headwinds from slowing tourism, increasing unemployment and high inflation and interest rates. Hawaii is currently experiencing solid construction activity from the public sector and the Maui rebuilding effort. Hawaii tourism showed modest growth in the second quarter despite international tourist arrivals remaining challenged.

Please turn to Slide 6. Moving to our China service. Container volume in the second quarter of 2025 decreased 14.6% year-over-year, primarily due to the challenges of market uncertainty and volatility from tariffs and global trade. Freight rates were modestly higher year-over-year. As you might recall, we began to see elevated rates in the middle of the second quarter last year due to tighter supply chain conditions, including the effects of the Red Sea situation, coupled with the supportive economic and consumer demand environment.

Please turn to Slide 7. At the onset of tariffs in April, we experienced significantly lower year-over-year freight demand as our customers held back less urgent shipments to work through the tariff impacts. Many of our customers were negotiating the tariffs with their trading partners on an order-by-order basis. At the same time, we saw carriers and alliances begin to reduce capacity in the transpacific trade lane based on the significant volume downturn. Starting in mid-May, we saw a rebound in demand after the U.S. and China agreed to a temporary reduced level of tariffs, but also in anticipation of country-specific reciprocal tariffs returning in August.

The buildup of freight that had taken place unwound over several weeks. Market freight rates increased quickly to meet the higher demand levels and capacity returned over the subsequent few weeks. Following the [ London ] meeting in June between the U.S. and China that upheld the terms from May, we saw a stabilization of volume modestly below the prior year period amid a number of evolving trade lane supply and demand factors, including trade lane capacity reductions after the cargo rush in May, customers in Vietnam and other Southeast Asian countries advancing freight ahead of July 9 when the 90-day pause on country-specific reciprocal tariffs expired and some customers pulling forward freight from the traditional peak season in the third quarter to derisk ahead of the next U.S.-China deadline.

Please turn to Slide 8. During the second quarter, we moved with our customers as they shifted production throughout Asia in response to the tariffs, which resulted in higher container volume levels originating outside of China. Our transshipment volume in the second quarter 2025 represented approximately 21% of our China service compared to approximately 13% in the first quarter of this year. The sequential quarterly increase is primarily due to higher customer demand and the opening of our new expedited Ho Chi Minh service offering as our second best-in-class service out of Vietnam with our Haiphong service from 2 years ago. While we don't know where our transshipment percentage will ultimately land given the various factors at play, we do believe in the long run that an increasing percentage of volume will originate from areas outside of China.

We remain focused on supporting our customers in the region as they continue to shift their production capabilities, and we will look at opportunities to further expand our transshipment capabilities. Looking ahead, in the third quarter 2025, we expect lower year-over-year freight rates and volume compared to the elevated demand levels achieved in the third quarter last year and our expectation of a muted peak season this year. As I mentioned earlier, we saw a stabilization of volume in June and in July, we continued to see stabilized volume and rates, notwithstanding lower demand levels and continued pressure on the SCFI.

As a result, our premium to SCFI widened, and we significantly outperformed the market relative to the SCFI due to our service differentiation and brand reputation. Assuming tariffs and global trade, regulatory measures, the trajectory of the U.S. economy and other geopolitical factors do not materially change from current conditions, we expect for the full year 2025 average freight rates and volume to be lower year-over-year.

Please turn to the next slide. In Guam, Matson's container volume in the second quarter of 2025 decreased 2.2% year-over-year. In the near term, we expect Guam's economy to remain stable with a slow recovery in tourism, low unemployment rate and some increase in construction activity. As such, for the full year 2025, we expect container volume to be modestly lower than the level achieved in the last year.

Please turn to Slide 10. In Alaska, Matson's container volume for the second quarter of 2025 increased 0.9% year-over-year. The increase was primarily due to higher AAX volume, partially offset by 2 fewer northbound sailings compared to the year ago period. In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth and continued oil and gas exploration and production activity. As such, for 2025, we expect container volume to be modestly higher than the level achieved last year.

Please turn to Slide 11. In the second quarter, our SSAT terminal joint venture contributed $7.3 million, representing a year-over-year increase of $6.1 million. The increase is primarily due to higher lift volume. For 2025, we expect the contribution from SSAT to be modestly higher than the $17.4 million achieved last year without taking into account the $18.4 million impairment charge at SSAT during the fourth quarter of 2024.

Turning now to Logistics on Slide 12. Operating income in the second quarter came in at $14.4 million or $1.2 million lower than the result in the year ago period. The decrease was primarily due to a lower contribution from transportation brokerage. For the third quarter 2025, we expect Logistics operating income to be comparable to the level achieved last year. And for the full year 2025, we expect operating income to also be comparable to the level achieved last year. And I will now turn the call over to Joel for a review of our financial performance. Joel?

Thanks, Matt. Please turn to Slide 13 for a review of our second quarter results. For the second quarter, consolidated operating income decreased $11.6 million year-over-year to $113 million with lower contributions from Ocean Transportation and Logistics of $10.4 million and $1.2 million, respectively. The decrease in Ocean Transportation operating income in the second quarter was primarily due to lower volume in China, partially offset by higher freight rates in China and the timing of fuel-related surcharge collections.

As Matt noted, the decrease in logistics operating income was primarily due to a lower contribution from transportation brokerage. We had interest income of $8 million in the quarter compared to $18.8 million in the same period last year. As you may recall, second quarter 2024 included $10.2 million in interest income earned on the federal tax refund related to our 2021 federal tax return. Interest expense in the quarter decreased $0.4 million year-over-year due to the decline in outstanding debt in the past year. Net income decreased 16.3% year-over-year to $94.7 million and diluted earnings per share decreased 11.8% year-over-year to $2.92 per share.

Note the $10.2 million in onetime interest income earned on our federal tax refund I just mentioned contributed $0.24 in the earnings per share in the year ago quarter. Lastly, diluted weighted average shares outstanding decreased 5.3% year-over-year. Please turn to Slide 14. This slide shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of approximately $617.9 million, from which we used $39.7 million to retire debt, $199 million on maintenance and other CapEx, $161.5 million on new vessel CapEx, including capitalized interest and owners' items, $30.3 million in cash deposits and interest income in the CCF, net of withdrawals for milestone payments, $14.5 million on other cash outflows, while returning approximately $284.4 million to shareholders via dividends and share repurchase.

Please turn to Slide 15 for a summary of our share repurchase program and balance sheet. During the second quarter, we repurchased approximately 0.9 million shares for a total cost of $93.7 million, including taxes. Year-to-date, we repurchased approximately 1.4 million shares for a total cost of $162.9 million, including taxes. Since we initiated our share repurchase program in August of 2021 through June of this year, we have repurchased approximately 12.5 million shares or 28.8% of our stock for a total cost of approximately $1.1 billion. As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

Turning to our debt levels. Our total debt at the end of the second quarter was $381 million, a reduction of $9.8 million from the end of the first quarter. Lastly, on July 23, we entered into a new 5-year revolving credit facility with commitments aggregating $550 million. We reduced the size of our credit facility from $650 million to $550 million due to the nearly fully funded status of the new Aloha Class vessel build program and our expected lower level of capital needs for the remainder of the decade due in part to our next Jones Act build cycle not anticipated until the mid-2030s.

In connection with the new revolver, we also amended the existing private placement debt to match the covenants and terms of the new revolving credit facility. Please turn to Slide 16. I'm going to walk through our outlook, starting with the third quarter of 2025 on the left side of the slide. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income to be meaningfully lower than the $226.9 million achieved in the third quarter of 2024. For Logistics, we expect operating income in the third quarter of 2025 to be comparable to the level achieved last year. As such, we expect consolidated operating income in the third quarter to be meaningfully lower than the prior year.

On the right-hand side of the slide, we have our expectations for full year 2025. Starting with Ocean Transportation, we expect year-over-year operating income to be higher than the guidance we provided in May, but moderately lower than the $500.9 million achieved in 2024. We also expect Logistics full year operating income to be comparable to the level achieved in the prior year. In addition to this full year operating income outlook, we expect the following for the full year: depreciation and amortization to approximate $200 million, inclusive of $26 million for dry dock amortization, interest income to be approximately $31 million and interest expense to be approximately $7 million, other income to be approximately $9 million, an effective tax rate of approximately 22% and dry-docking payments of approximately $40 million.

Moving to Slide 17. The table on the slide shows our CapEx projections for the full year 2025. Compared to what we previously provided on our first quarter call in May, our range for maintenance and other capital expenditures remains the same at $100 million to $120 million for the full year 2025. Our estimate for expected new vessel construction milestone payments in 2025 also remains unchanged at $305 million. Again, milestone payments for new vessel construction are expected to be paid from our capital construction fund, which already covers approximately 92% of the remaining obligations, excluding future interest income and accretion earned on cash deposits and treasury securities.

We currently expect our only remaining cash contribution into the CCF for milestone payments to not be until 2028, and the final amount is expected to be less than $30 million. Lastly, in the third quarter, we expect to make approximately $71 million in milestone payments. With that, I will now turn the call back over to Matt.

Thanks, Joel. In closing, we believe we are well positioned in our trade lanes and in logistics as we manage through the period of market uncertainty and volatility. It is during uncertain times like these that Matson demonstrates its unique capabilities and service qualities across our organization. With our China service, we are focused on maintaining the 2 fastest and most reliable transpacific services. We're also focused on being there for our customers, looking for additional opportunities to support them with world-class services and customer support as they diversify their manufacturing base and grow in an evolving marketplace. And with that, I will turn the call back to the operator and ask for your questions.

And our first question comes from the line of Jacob Lacks from Wolfe Research.

So you discussed expectations for lower volumes in 3Q. I think you had a couple of extra sailings a year ago. So is this just reflecting lapping those extra sailings? Or is there a bit of a utilization headwind that we should be keeping in mind as well?

Yes. I think it's -- there's 3 or 4 factors going on here, Jake. I think the first one, we noted that in last year's numbers, there was some extra demand, as you point out in your question. Those resulted in some extra sailings as well as a very healthy freight rate environment. I know we're talking about volume here. And then the other primary factor, although we see the consumer holding up reasonably well in this environment, retail sales are holding their own. We are understanding that many of our customers are in pretty good shape on their inventory, some of whom took advantage of these pauses to if they could work a deal with their manufacturers to bring in inventory early. And so our view is that we're going to see a peak season, but it will be relatively muted. And so those are some of the factors that are going into our thinking about Q3 year-over-year comparisons.

Got it. That's helpful. And then it feels like we continue to see some new strings of expedited services crop up. Is this having any impact on you in the marketplace? And do you think these are -- like these certain new services have staying power in like a more persistently weaker market?

Yes, it's a good question. I think at this point, we say in our prepared remarks just a moment ago that our main focus is on maintaining #1 and #2, the fastest and second fastest. I think there are 3 or 4 other carriers who are in the near expedited segment. We've talked about them before, CMA, ZIM, [ Heda ] and there's a couple of others. But -- and so we are seeing activity as they try to position themselves in various markets as sort of the next tranche below our expedited services. I think your observation is right. It's our expectation that if the SCFI spot rates remain relatively low, we're going to -- these expedited services are expensive and difficult to maintain if you're just receiving something close to the spot rate. So it would not surprise us that like we did in other down cycles, these expedited markets or carriers would likely look hard at whether they -- all those services continue to make sense for them.

Makes sense. And last one for me, and then I'll get back in the queue. I appreciate the environment is pretty uncertain today, but to the extent maybe you can think -- help us think about the shaping of the back half of the year in the context of your annual earnings guidance, would you expect seasonality sort of the breakout between Q3 and Q4 to look something similar to the past couple of years?

Yes, I would say so. I would say we don't expect this year to be as peaky given the starting position of our customers' inventory levels. We will see cargo that will move. We expect to see a strong Q3 sequentially or related to the quarter then usually sometime in October, we start to see most of the inventory that's going to be put into our customer supply chains for the holiday season to be on the water. And so we'll likely see a fall down in October in a more traditional sense. So yes, that's our expectation.

And our next question comes from the line of Daniel Imbro from Stephens Inc.

I want to start a little higher level. Maybe just on the developments happening in Southeast Asia. I think last quarter, you talked about the Vietnamese service doubled pretty quickly. I'm sure it grew here further in 2Q. Just as you're seeing the catchment basin develop, like what kind of infrastructure investments are needed in those markets? I guess what does the path forward look like as we figure out whatever this post-tariff or new tariff world is and how Matson can continue to maintain its leadership in that Southeast Asia part of the world?

Yes. Okay. It's a good question. I think from us in our approach to these markets, we're really going to be first listening to our customers. Where are they going to be moving their production if they're going -- if their goal is to move a larger percent of their manufacturing capability out of China? And where are they going next? And then part of our strategy is we believe that over the long term in various countries, if we can have the fastest and most reliable services, not just from our main Shanghai destination and Ningbo, but from these other origins. So we're looking closely at working with feeder partners, those that have existing services or those that are willing to establish new services that have and can share, we'll do a survey in each of these country origins, who's the fastest out of those services directly to the West Coast? And can we beat them.

So we're not going to -- our goal is not to become a generic average service offering in terms of days, it's really important for us to be fast. So once we've heard from our customers, once we've determined whether we can make a competitive origin transit, if we can find a new partner or the same partner in different markets that would give us that differentiated service, and we're going to grow in those ways. The other thing I would note is, for example, in our Vietnam services, we do see cargo that moves over land from other locations like Cambodia into Vietnam. So it's not just those that can serve, but those that are in close land proximity, including a cross-border from those origins. So I think it's going to be a combination of those things. But long term, we -- our strategy is to be the most reliable and fast out of each of these origins as we evolve.

That's helpful. And then maybe for a follow-up, just a couple of financials thinking about the back half of the year. You mentioned to Jake's question that SCFI has moderated here in the third quarter. I know you're not going to guide, but directionally, would you expect your China rates to follow suit on a sequential basis? And then ocean operating margin in 2Q was stronger than expected. I know we'll get the full expense detail on the 10-Q, but did you take any cost reduction actions during the quarter that should continue through the back half and into next year? Just trying to figure out what's happening on the expense side there.

Okay. Daniel. So on the expense question side, yes, we did take some actions early in April on the heels of the original tariff announcements where we wanted to tighten our belt and took some G&A actions. And so therefore -- and those are still in place. We'd expect that to continue throughout the course of the year. So that was part of the reason of the operating margin that you noted for Q2. The other part, of course, is it was year-over-year pricing, was strong this year on a year-over-year basis compared to the full quarter last year. Because remember, last year, the international rates, our transpacific rates really started moving up about halfway through the quarter and didn't get to the higher levels until the latter part of the quarter. So those are the 2 impacts on the year-over-year on the second quarter.

In terms of your question about guidance and the outlook for the Q3 and Q4, it's really what Matt already reiterated. We feel like the domestic markets are hanging in there okay. In the China market, we're experiencing overall lower freight rates and volume. So it's going to be a more muted peak season that's baked into our thinking of that third quarter outlook that we provided.

And our next question comes from the line of Omar Nokta from Jefferies.

Good update. Obviously, things have progressed quite a bit better than initially expected, at least relative to, say, 3 months ago. I did want to maybe just follow up a little bit on how things are progressing here quarter-over-quarter. I understand it's a little too short term. But just maybe in general, there's been a lot of volatility this year, especially in 2Q where things started slow, they ramped. You mentioned initially last quarter that April volumes were down 30% from China. They ended up being down 14.6%. Obviously, we know 3Q, as you said, is going to be lower on a year-over-year basis. But given that you're seeing so far a muted peak season, can we assume that the run rate volumes for China in this coming quarter are going to be somewhat similar to the run rate that we saw for the final 2 months of this past quarter?

Yes. Omar, it's Joel. Yes, that's a fair assumption. We do have a slightly different number of vessels in capacity this year versus last year. So there's a little bit of each weekly departure capacity that we offer compared to last year. But the overall trend of what we're calling this third quarter that we continue to see here in July is consistent with the last, call it, 6 weeks or so from mid-May through June in terms of the demand that we're seeing. So yes, I think that's a fair way to look at it.

Okay. And then just in terms of -- I think you mentioned in the opening remarks, the Vietnam volumes have stepped up to 21% of the China figures in the second quarter. That's up from 13%. knowing it's a bit difficult to give a really good projection. I guess maybe just one, can you remind us what it was in 2Q last year? And any sense of how they're progressing thus far this quarter?

Yes. So Matt will give some color on the Vietnam trends in general, Omar. But last year, on a sequential basis, Vietnam volumes were high single-digit kind of numbers. And we -- so we really -- they were at such a lower level that we were really commenting on them as we were growing that market. And then once we launched the second service in Ho Chi Minh in early April of this year and had 2 markets and plus the dynamics with tariffs and everything else that happened at that time, that's why we started really giving you and the investment community more direct line of sight on what those volumes were.

And then, Omar, this is Matt. On a moving forward basis into Q3 and perhaps beyond, I think it's our expectation that we will see kind of a similar low 20%-ish mix of non-China origins as we saw as we got towards the end of the second quarter. And it's interesting because -- and I expect that to continue. But as things normalize, I think there's 2 factors that are going to define longer term how much we're sourcing in China versus other origins. I would say the longer-term one is that it's clear that our customers are going to continue to look for ways to derisk their sourcing from China plus 1 to perhaps multi-region or closer to end market around the world. And that will inform, I think, a lot of their thinking over the longer term.

But I would say in the medium term, I think what you're going to look at is where are the relative differences between tariffs, between countries. So the question is, if, let's just say, Vietnam stays at 20% and the U.S. or China ends up at 30%, both big ifs, there's no model here. Is that 10% difference, I think that will be a factor in our customers' minds about the advantages and disadvantages relative to one another. So there's sort of a -- while we do acknowledge and believe that there will be longer-term movement out of China, we continue to believe China will be a powerhouse in terms of manufacturing capacity into the foreseeable future and also acknowledge that more cargo is likely to be sourced from elsewhere. So I know those are partly conflicting, but that's kind of what we think is going to happen.

Okay. And maybe just one final one for me. This is perhaps just a bit big picture, but clearly, there's a growing chorus of building ships in the U.S. And so far, it seems to be a lot of talk. And maybe at some point, that starts to turn into physical ordering. You mentioned earlier in the call that you've got these 3 ships they'll deliver here in a couple of years. You don't really need to do anything until the mid-2030s. Just maybe out of curiosity, maybe a bit early, but are you getting a sense at all that you may need to lock up a slot sooner rather than later if there starts to really become a competition for the small number of shipyard slots available here?

Yes. I think at this point, you make a couple of observations in your question. Matson supports the Trump administration's efforts to try to renew and revive shipbuilding in the U.S. We see those as different than Jones Act carriers in the past. We've observed in previous decades. The cost to build in the U.S. for international trades is still quite large. So the question will there be additional support in providing construction differential subsidies or other types of things to make U.S. construction for international trades relatively comparable to whether it's Korea or Japan or China as an alternative place to build. That's, I think, yet to be determined.

But I think it's way too early for us to be worried about trying to fill in a slot. We do our planning. We'll likely 2 or 3 years before be looking at getting into a contract. Obviously, if those lead times look longer, that may accelerate our thinking. But at this point in time, we feel like we have plenty of time before we need to make any firm decisions in those regards.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks.

Okay. Well, thanks to everyone. I would just make one other remark before I wish everyone well for the next quarter. And it's just to repeat a point I made before the Q&A section, which is that it is encouraging for us to see how well we've held up in a very dislocated market. It is, to us, clear that our customers have placed a lot of trust in us when they need to keep production lines moving, they need to keep items on the store shelves, and we're grateful for their trust in us, and we expect that to continue. So with that, we look forward to catching up with everyone on next quarter's call. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.