Matson Inc (MATX) 2013 Q4 法說會逐字稿

Good afternoon, and welcome to Matson's fourth-quarter and full-year 2013 earnings conference call.

(Operator Instructions)

The conference is being recorded. I would now like to turn the call over to Jerome Holland, Director of Investor Relations. Please go ahead.

Thank you, Kate. Aloha.

Matt Cox, President and Chief Executive Officer, and Joel Wine, Senior Vice President and Chief Executive Officer, are joining the call from Honolulu. Slides from this presentation are available for download at our website, www.matson.com under the Investor Relations 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 saws 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 and this conference call. These risk factors are described in our press release, and are more fully detailed under the caption Risk Factors on pages 9 to 15 of our 2012 form 10-K, filed on March 1, 2013, and in our subsequent filings with the SEC.

Please also note that the date of this conference call is February 25, 2014 and any forward-looking statements we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements.

Also references made to certain non-GAAP numbers in this presentation. A reconciliation to GAAP numbers and description of calculation methodologies is provided in the addendum. With that, I will turn the call over to Matt.

Thanks Jerome, and thanks to everyone on the call today. Before diving into the individual business lines, I'd like to make some high-level remarks about the fourth quarter and full year 2013. In the fourth quarter, our businesses performed as expected from an operating standpoint, delivering all in all another solid performance.

We saw continued stability in our ocean transportation business end marked improvement in our logistics unit warehouse operations. Black lines for the full year, we achieved meaningful operating improvement, driven by significant Hawaii freight volume growth in the first half of the year, continued strong demand for our niche expedited China service, and improvements in logistics operations. Unfortunately, our financial results were significantly impacted by a number of one-time charges throughout the year, and especially some in fourth quarter, where we accrued a $9.95 million settlement charge amount related to a False Claims Act complaint.

Despite these one-timers, our business has generated strong cash flows with $4.54 per share in cash flow from operations and free cash flow per share of $3.72. I feel confident that our businesses are on the right track, and look forward to the opportunities and the challenges in the coming year. At the end of today's call, we will provide our outlook for 2014.

So what was the settlement accrual about? In June of last year, Matson and several other defendants, including freight fowarders and ocean carriers, were named in a false claims act suit brought by the plaintiff on behalf of the federal government alleging violations of the False Claims Act. Essentially, the allegations claimed certain of Matson's freight forwarder customers had been improperly billing the Department of Defense for surcharges on the inland segment of shipments of military household goods in the Hawaii and Guam trades.

After a 20-month investigation, the federal government declined to pursue the case. We believed then and we continue to believe that the case against Matson was without merit and that we had a very strong legal position against the allegations. However, in considering our options and taking into account that considerable time and legal expenses associated with full-blown litigation, and the inherent risks in any jury trial, we determine that the most prudent business decision for Matson would be to pursue a settlement.

On February 14, we commenced a nonbinding mediation that resulted in a proposed $9.95 million settlement in full settlement of all plaintiff's claims. This past weekend, our Board made the very difficult decision to accept the settlement, and we accrued for it as of 2013 year-end. Because the settlement is contingent on US government approval and dismissal of the case, we will not be commenting further on this matter on this call. With that, we've put the matter squarely behind us.

Turning now to Slide 5, you will see our financial metrics for the fourth quarter of 2013. We have tried to show what the impact of the litigation charge was on our financial performance.

We continue to generate strong cash flow, as shown by EBITDA, which increased 12% year-over-year, excluding the litigation charge. Earnings per share declined slightly from the prior year, absent the litigation charge. Our earnings per share was impacted by an unusually high tax rate in the quarter, stemming from the litigation charge and a change in the timing of our CCF deposits.

On Slide 6, for the year we generated over $169 million in EBITDA, an even higher level of cash from operations, while earnings per share and the return on invested capital were in line with 2013 levels. Absent the litigation charge, EBITDA would have been $179.3 million, up 6% from 2012, and EPS increased 14%. A challenging year no doubt, but a solid performance overall.

Turning now to our individual service lines on Slide 7. In Hawaii, the third-quarter lull in container volume extended into the fourth quarter, and has continued into January and February of this year. However, we achieved higher yields as a result of better freight rates and cargo mix compared to the prior year.

We also benefited from lower outside transportation costs and from operating a nine-ship fleet throughout the quarter. You may recall that last year we had barge and vessel dry dockings in the fourth quarter that required the use of a third-party barge services and the operation of sub-optimal 10-ship fleet for a portion of the quarter.

Despite the continuation of the lull in container volume, we remain confident that the Hawaiian economy is in multi-year recovery and expect modest market growth in 2014, in line with state GDP growth and increased construction activity. Container ship capacity is projected to increase by 5% to 10% in the second half of 2014, as Patia is expected to launch new vessel into the trade.

And while it is still too early to forecast the financial impact of the additional capacity into the trade, I can say with absolute certainty that we will compete for every box of business. Overall, we are expecting a slight year-over-year increase in our Hawaii container volume for the coming year, and then we expect to carry it with a core nine-ship fleet.

Slide 8 details some of the key metrics of the Hawaiian economy based on recent forecasts by the Hawaii Department of Business and the University of Hawaii Economic Research Corporation, UHERO. Hawaii real gross domestic product has historically been a solid proxy for general container volume growth, and you can see that it is forecast to be up by 2.8% and 2.5% for 2000 -- I'm sorry, 2014 and 2015. That said, we saw a contraction in growth in our volume in unequal measures throughout 2013.

The tourism industry had another record-setting year in 2013, but experienced a weak finish to the year. While visitor activity is expected to remain at a high level, the rapid growth in arrivals is likely behind us.

Tourism is a key economic driver for most of Hawaii, but less so our business right now, which thrives on construction and infrastructure spending, which have yet to hit its full stride. Of particular note is the double-digit growth expected in construction activity for 2014 and 2015, a reflection of expected progress on Honolulu's rail project, several announced condominium projects, and a handful of major retail projects. These projects are in the early innings of completion, and there's typically a lag between permitting and when construction materials are actually shipped. We look at the forecast uptick with guarded optimism.

Slide 9 shows the results for SSAT, our terminal operational joint venture. SSAT's performance in the quarter saw year-over-year improvement, primarily due to new customer activity and improved lift volume at its expanded Oakland terminal. The investment that SSAT made at Oakland positioned the joint venture well for 2014 and beyond. As many of you know, SSAT is an essential component of our service capabilities and value proposition to customers.

The dedicated terminals SSAT operate provide a distinct competitive advantage for us in unloading and offloading our vessels, as well as receiving and delivering cargo. For 2014, we are expecting a modest profit at SSAT.

Turning to our Guam service on Slide 10, container volume contracted by 3.1% in the quarter on a year-over-year basis. The 200 container decline was minimal and consistent with the general market conditions in Guam. For 2014, we expect continued muted growth and anticipate relatively flat container volume compared to 2013, assuming no new competitor enters the market.

Moving to the next slide, our China expedited service continues to perform well in the oversupply Trans-Pacific trade lane. Our ships ran at nearly 100% utilization on the eastbound leg, and we continue to achieve a sizable premium to the spot market in this trade. That premium reflects the unique aspects of our service, industry-leading transit times, 24-hour cargo availability at our dedicated terminal in Long Beach, and consistently superior on-time performance.

During the fourth quarter, our container volume increased by 10.7% due to an additional sailing falling in the quarter this year. Market spot rates did drop significantly on a year-over-year basis in this trade, as we expected. However, the rates we achieved showed much more stability, partly because of the premium we command, and partly because only half of our volume in the trade is spot rate business.

Looking to 2014, we expect to see similar volume and rate dynamics. We expect flat container volume on a year-over-year basis, as we are basically running at full capacity now. We expect spot rates to continue to erode slightly, despite the intended rate hikes recently announced by the international ocean carriers.

Slide 12 highlights the results at logistics, which continue to show year-over-year improvement, primarily due to increased highway volume and warehouse operating improvements in the fourth quarter. Logistics operating income for the fourth quarter 2013 increased by $4.7 million, primarily due to the absence of $3.9 million in warehouse impairment and lease restructuring charges taken in the fourth quarter of 2012.

The industry continued to see margin pressure during the quarter off of year-earlier levels, but we are pleased by the 1.9% operating income margin posted by Matson Logistics. Looking into 2014, we expect operating income to modestly exceed 2013 levels, driven by continued volume growth, expense control, and improvements in our warehouse operations.

With that, I will now turn the call over to Joel for a review of our financial performance and consolidated outlook for 2014. Joel?

Thank you, Matt. As shown on Slide 13, Matson's consolidated operating income for the quarter was $17.9 million as compared to $23.9 million for the fourth quarter of 2012. Fourth quarter 2013 ocean transportation operating income, excluding the litigation charge, declined from $26.7 million to $26.0 million.

The small decline resulted primarily from lower volume in the Hawaii trade, lower China freight rates, and $1.7 million in legal expenses and third-party claims related to the molasses incident. These negative items were offset by freight rate and cargo mix improvements in Hawaii, lower outside transportation costs due to barge dry dockings in the prior-year period, and lower vessel operating expenses attributable to the operation of a nine-ship fleet for the quarter.

Logistics operating income was $1.9 million for the fourth quarter 2013, an increase of $4.7 million over the prior year, primarily due to the absence of the $3.9 million charge taken in the fourth quarter 2012 related to the intangible asset impairment and a warehouse lease restructuring charge. In addition, logistics fourth quarter 2013 operating income benefited from warehouse operating improvements.

The next slide shows our full-year results. For 2013, consolidated operating income was $100.3 million, an increase of 3.7% from 2012. Ocean transportation operating income, excluding the litigation charge, totaled $104.3 million, which was increase of $7.7 million, or 8%, over the prior-year amount.

The increase in operating income, excluding the litigation charge, was driven by freight rate and cargo mix improvements in Hawaii, lower vessel expenses from the full-year deployment of a nine-ship fleet, lower outside transportation costs due to barge dry-dockings in the prior year, and the absence of separation costs. Which were partially offset by startup costs and service reconfiguration expenses in the South Pacific trade, higher G&A expenses, and other nonrecurring unfavorable items and a negative year-over-year variance at SSAT. In addition, the Company incurred $3.0 million in response costs, legal expenses, and third-party claims related to the molasses incident.

Logistics posted solid operating income results of $6 million in 2013, an increase of $5.9 million compared to the prior year, primarily due to the absence of the previously discussed fourth quarter 2012 charge of $3.9 million. Logistics operating income in 2013 also benefited from lower G&A expenses and higher intermodal volume compared to 2012.

Looking at our condensed income statement on Slide 15, total revenue increased by 3.2% on a year-over-year basis. Total operating costs and expenses increased 5.0%. SG&A expense increased 1.9%, mostly due to costs related to our asset acquisition in the South Pacific.

For the fourth quarter, our businesses generated EBITDA of $35.3 million, or $45.3 million excluding the litigation charge, which is an amount $5 million, or 12%, higher than the prior-year fourth quarter EBITDA of $40.3 million. For the full year, our EBITDA totaled $169.3 million, or $179.3 million excluding the litigation charge, which is an amount $10.5 million, or 6%, higher than the prior full-year amount achieved in 2012.

Our effective tax rate during the quarter was unusually high at 49.3 % compared to only 21.9% in the fourth quarter of 2012. The rate for the fourth quarter 2013 was high primarily due to the litigation charge and a projected change in timing of CCF deposits, which resulted in an increase in current period effective income tax expense. This higher effective tax rate created a large negative variance compared to the rate for the fourth quarter 2012, which was unusually low, primarily due to a favorable nonrecurring change to state tax law that required the Company to revalue its deferred tax liabilities last year.

Turning to slide 16, you can see a summary of our balance sheet. We ended the year with total debt of $286.1 million and our net debt-to-LTM EBITDA ratio fell to 1.0 times.

Throughout the year we substantial increased our cash position driven by cash flow generation. In addition, on January 28 this year, we issued $100 million of senior unsecured 30-year notes at a 4.35% fixed-rate.

In addition to low leverage, our balance sheet is also very liquid. The December 31 cash and cash equivalents balance of $114.5 million, plus the $100 million of proceeds from the new notes financing transaction, results in balance sheet cash per fourth quarter diluted common share of $4.95.

As we have said previously, if we do not make any strategic investments between now and when our new vessels are delivered, we wold use this balance sheet cash plus free cash flow generated over the next four years to pay for our newly ordered vessels. With any shortfall in cash being funded from our $375 million bank revolving credit facility, which has no outstanding borrowings at the moment. Under this scenario, therefore, we do not expect the need for any additional new capital raising transactions to fund our new vessel capital expenditures.

Turning to Slide 17, I will discuss how our significant cash flow generated in 2013 were deployed. During the year we generated $195.7 million in cash from operations which equates to $3.72 per average diluted common share during the year. $35.2 million was used for CapEx, of which $26.8 million was maintenance CapEx and a $8.4 million was paid on two vessel contract signings. We also paid $26.8 million in dividends during the year, reduced our debt by $36.6 million, and lastly, we acquired assets for $9.3 million in the South Pacific to allow us to expand into that market.

Turning to slide 18, we wanted to spend a moment putting Matson's strong cash flow generation into perspective. We define free cash flow very simply, it is net cash provided by operating activities as defined under US GAAP straight from our statement of cash flows minus capital expenditures, also as reported straight from our cash flow statement. We have made no adjustments of any kind in deriving this number, and as you can see, the $3.72 per share amount of free cash flow generated this year produces a large 15.1% free cash flow yield based on our closing stock price yesterday.

In this comparison, we wanted to note that we did receive significant benefit in 2013 from our CCF deposit, which helped produce a $57.5 million deferred income tax positive cash flow item in our cash flows from operations. If you subtract this full allow from our free cash flow generation for the year, you are still left with $2.39 of free cash flow per share, or a yield of 9.7% as shown on this page.

When compared to broader market benchmarks, such as the S&P 500, the S&P 400 mid-cap, or the S&P transportation index, Matson's free cash flow yield is currently two to three times that of the broader market benchmarks. In addition, as I mentioned previously, we have a very strong balance sheet with almost $5 per share in cash at the moment. Overall, we think free cash flow generation and balance sheet strength are two compelling long-term investment attributes for Matson.

With that, now let me turn to Slide 19 and 20 for our outlook for 2014. I would first like to note that our outlook excludes any molasses release impact, because such future potential impacts are presently unknown. Our 2014 outlook is also being provided relative to 2013 operating income, excluding the litigation charge.

For the full year, we expect ocean transportation operating income to be near or slightly above the 2013 level of $104.3 million, excluding the litigation charge. Driven by slightly higher Hawaii volume, flat volume in Guam and China, modest erosion of freight rates in China, and modest profit at SSAT. We expect that we will continue to benefit from operating a core nine-ship fleet throughout the year, and also expect to benefit from improvement in our South Pacific trade lane.

Turning to the first quarter. For the first quarter this year, we are expecting operating income to be approximately one-half of the level achieved in first quarter of 2013, which was $18.5 million, primarily due to the unfavorable year-over-year timing of fuel surcharge collections, lower Hawaii volume, and lower China freight rates.

Turning to slide 20 for logistics. 2014 operating income is expected to modestly exceed the 2013 level of $6.0 million, driven by continued volume growth, expense control, and improvements in warehouse operations. Interest expense in 2014 is expected to increase over the 2013 amount by approximately $3.5 million, due primarily to the new notes financing.

We expect our effective tax rate for the full year 2014 to be approximately 38.5%, but we do note that quarterly fluctuations above or below this annual estimate may occur. Maintenance CapEx in 2014 expected to be approximately $40 million, with no scheduled contract payments due for our new vessels in 2014.

With that, I will now turn the call back over to Matt.

Thanks, Joel. In summary, 2013 was another solid year for Matson. Our businesses continue to distinguish themselves in the niche markets we serve.

As a result, we generated significant cash flow, we increased our dividend, we pared down our debt while increasing our cash levels, and we committed to building two new container ships for our core Hawaii service. Needless to say, we continue to be optimistic about our operations and our prospects.

While Hawaii volume experienced a lull during the second half of the year, we do remain confident in the long-term prospects for our home trade. Our China service continues to run on all cylinders, providing our customers with a singular expedited trans-Pacific solution.

In Guam, muted but stable economic activity provides us incremental opportunities for modest growth. At SSAT, investments made in Oakland facility are starting to bear fruit, while logistics has right-sized its business to return to higher operating income margins.

And after a lot of hard work, we have rationalized our South Pacific fleet to better match and meet current market demands. With exceptional operations and significant financial powder, we're able to meet whatever challenges come our way and are poised to seize opportunities we create.

With that, I would like to open the call to questions. Operator, please?

Thank you.

(Operator Instructions)

Our first question comes from the line of Jack Atkins with Stephens.

Good afternoon, guys. Thanks for taking my questions.

Hi, Jack.

My first question is on the outlook and where we stand in the core Hawaii lane. We are sitting here today at roughly the same level of containers moving to Hawaii that we had in 2009.

I guess I'm curious, do you guys think that something has changed structurally about that core Hawaii lane to prevent it from getting back to prior levels of overall demand? Or do you think that things -- it is a function of construction economy finally gaining steam?

It seems from the data that you're putting out and that the University of Hawaii is putting out there we are sort of on the cusp of really seeing a recovery. Just curious, theoretically what you think about the marketplace?

I think, Jack, the way you said it was about right. I think what we see is things have not sufficiently rebounded from the downcycle.

The broader economy seems to be doing well. The broader stats about overall state GDP growth, unemployment, the state is in surplus, there's a lot of positive things that are happening in the state. The construction activity has lagged.

Based on announced projects, everything we are hearing in discussion with our customers, the general contractors and the building supply guys, everyone is very optimistic that we are, again, at the forefront of multi-year recovery. We continue to be optimistic. 2013 ended up just a little bit slower than we expected, but we are relatively confident that it is going to come.

As to your question about has anything fundamentally changed, or are there some emerging trends that could occur? There was a very minor movement of boxes from smaller boxes into bigger boxes from 24s to 40s and from 40s to 45s, sort of meeting our customers preferences for box sizes. That is only a very minor driver to what we think should be a multi-year growth towards the previous peak.

Okay. That's really encouraging to hear. That is great.

Joel, when I sort of take all of the different one-time items in the quarter, and I know you guys don't like to give a pro forma EPS number. But it seems like you have the $9.95 million in settlement costs, the litigation expenses, and then the tax rate which is abnormally high. Am I wrong to think that if you -- I guess my math is spitting out a $0.37 adjusted earnings number, and am I in the right ballpark there? I want to make sure I'm looking at the quarter on an operational basis.

You are in the right ballpark, Jack. Clearly, to be specific, the litigation charge had an effect in the quarter of $0.14. We said that in our release.

If you want to, if you or anybody wanted to adjust for a more normal tax rate, that would be in the neighborhood of $0.04 to $0.06, depending upon what base and what other adjustments you might be making. If you came up with $0.17 we reported plus $0.14 for the litigation charge is $0.31, and then you had $0.04 to $0.06 more for the tax, you are in the right ballpark.

Okay, that's helpful. Then I guess shifting gears and thinking about your brokerage business. You guys have another very strong quarter there from a top-line perspective. I think it is showing up in terms of the profitability in logistics.

Could you maybe talk for a moment about what you are doing there that is driving that level of revenue growth? Would you expect that to continue into 2014?

Yes Jack. Let me take a crack at it. I think if we look at some of the drivers of our core performance, and we have really been working over the last year, 1.5 years, to do two things primarily within that unit.

The first is to get our warehouse segment working profitably. What that meant for us is in shedding ourselves of surplus warehouse capacity to match our current demand level with the amount of warehouse capacity we had.

That is behind us now. We finished that at the very end of last year. The improvements to the warehouse operations are part of it. The other part is our group there has been very disciplined in taking G&A and other costs out of the business.

As you know, this is a nickels and dimes business and your level of overhead is critical to maintaining your profitability, in the face of what we are acknowledge are compressed margins in the broader industry. There is really no secret to it. It is just a lot of hard work, and in turning our warehouse unit around.

We are encouraged. We are expecting to see each of our lines of business modestly improve their results in 2014 and build on the momentum that we had put in place in 2012 and 2013. Therefore are expecting modest improvements in that the overall results, and within each of the lines of our business, expect that in 2014.

Great. Last question from me and I will jump back in queue. You guys put through a 7% dividend increase midyear in 2013. That continues, I think, a track record going back into the Alexander Baldwin days of paying a nice dividend.

When you all, from a Management perspective and from a Board perspective, Matt, think about the dividend payout, is it a philosophy that you want to steadily grow that dividend over time, kind of become a dividend aristocrat? Or are you thinking about it more from a, let's just sort of keep what we've got now and save our cash for paying for these strategic investments down the road?

Yes. I guess, Jack, the way we looked at it as we approached the separation from Alexander & Baldwin was we believed it was an important part of the Matson story to pay a market dividend. We also believed that where receptive level of the initial dividend was at a level, number one, that it could be sustained. Number two, my personal hope, although this is really the purview view of the Board, would be to be allowed, if we had the free Board, to be able to see that grow consistently over time.

That was in the back of our mind when we set the initial dividend. Time will tell. Again, this is the purview of the Board. That's the way we approached it when we set that dividend level.

Okay, great. Thanks for the time, guys.

Thanks, Jack.

Our next phone Kevin Sterling with BB&T Capital Market.

Good afternoon, guys. This is actually William Horner on for Kevin.

Hi, William.

Joel, Matt. Quick question about China. Can you remind me first when you typically renegotiate your contractual business in that trade?

Sure, yes. The cycle is typically May 1 to April 30. There are some that will contract early and later than that. The bulk of ours and the bulk of the trades is a May 1 to April 30 cycle.

Okay, great. And I know you are running at 100% utilization. I know you've get 50% spot exposure. Obviously it's a good piece of business that you all like.

How receptive have your customers been in terms of paying that premium for the niche service that you all offer over the typical rates? Because obviously, as you all have said and we all know, have been pretty volatile over the past couple of years.

The market, William, has been volatile. Our customers -- we have an interesting conversation with our customers, just anecdotally, and they will say, how can you charge such a very significant premium, many, many, many hundreds of dollars more than the market? And by the way, I need three more slots for next week, more than I have for my allocation this week.

It is a product, because of the niche that we occupy in this expedited service that no other ocean carrier can touch us, puts us in a very important, it's a, we think, a relatively small part of the overall market, but one that can pay a premium. The way that our customers think about it is, if I don't get it on a Matson ocean vessel, I'm going to pay air freight, at effectively 10 times the freight rate that they are paying Matson. It is, depending on how you look at it, it is either a deferred air or an expedited ocean product that is in a very sustainable niche, we think.

Okay, Matt. Thanks. That is good color.

Going back to the SSAT joint venture for a minute. I believe last quarter, you all were actually forecasting a modest loss in the quarter due to some of the carry-over transition costs from the mega terminal. This quarter you had about $1 million contribution, if I remember correctly.

Can you talk about what really changed from your outlook last quarter to now? Was it a less, or fewer transition costs than you expected? Or was it a result of higher lifts, combination of both?

Yes, it was really two things. It was really, there were, as we said at the end of last quarter in the call, we saw significant conversion costs as we created a single terminal. In order to achieve the throughput at the terminal, we had thrown a significant amount of extra costs, just to make sure that the terminal flowed.

Those additional labor and other costs ended much more quickly, that is the transition costs ended quicker than we had originally assumed. As you pointed out in your question, we did see higher volume than we originally projected. It was just a bit of both that caused us to have a slightly better result than we had forecasted.

Okay. One more, then I will hand it back over. Regarding Guam, I know your outlook is pretty muted for the trade line. That obviously assumes with no new competitor entering the space.

My question, I guess, is what is your comfort level that you all are going to be the primary carrier in that space, at least through 2014? Have you heard any whispers that somebody might be entering the trade? Do you feel confident you can hold onto your market share for the time being?

Yes. The best answer I can give you is that it is unknowable. What I can say is we have heard of no market chatter about another competitor coming into the trade. We had said eventually another competitor may come into the trade.

We see no catalyst in a very flat market. It may be a bit longer. Our thinking is, is that we could find ourselves as the primary provider for much of 2014.

If there is some catalyst in the market at some future point, that may be a reason for someone to jump in. At this point, we're just making guesses. Specifically to answer your call and repeat myself, we're hearing of no market chatter about a potential second entrant, at least at this point.

Okay, great. That is it for me, guys.

Okay. Thank you.

Our next question comes from the line of Steve O'Hara with Sidoti and Company.

Hi, good afternoon.

Hi, Steve.

Or good morning, maybe. In terms of the, maybe the construction turnaround, it seems like we've kind of heard about this for quite a while and the projections have seemed pretty good. Do you feel like we are getting there? Are we getting closer?

In terms of what Patia's bringing on, are you really forecasting maybe a 5% to 10% increase in volumes, and you are expecting them to take that? How is that factored in?

Good question. The way I would answer that is, we continue to believe that there is a multi-year growth story in Hawaii, primarily around a much more active construction and infrastructure spending. It happened just a little bit slower than we originally expected but notwithstanding a bit of a lull, we continue to believe it is coming.

The Patia's second vessel we think will add somewhere between 5% and 10% capacity to the market. We expect that, as we said, to be some time in the second half of the year.

Because of the amount of capacity being introduced and when it is being introduced, we do expect to be some market growth, that capacity entry will happen some time in the second half of the year. Overall, we think that will result in Matson's volumes growing very modestly in the Hawaii trade. That is kind of how the algebra works for us, and that is our best thinking at this point.

Okay. And then, you go to having a decent amount of cash per share. What's your -- how long could use it with that without making a significant investment, or could you maybe a strategic investment? Could you put that into the CCF? How long are you comfortable sitting with that much cash on the balance sheet?

Sure. The majority of the payments, as you know, for the vessels, kick in in 2017 and 2018, although, Stephen, there is some in 2015 and 2016. We are definitely thinking forward about our balance sheet capital needs and the cash today.

Really, if we don't do any additional investing, the cash is earmarked for those vessel deliveries and required capital payments. We are very -- when you have $418 million capital call three, four years out down the road, you need to be conservative as you build up liquidity to pay for them. We want to be very clear on today's call that we don't see ourselves needing any additional financing to pay for those new vessels down the road.

Then your question around sitting on this cash between now and then. We do have to make big payments down the road. We don't want to force ourselves into additional financing. We like the financing that we just locked in. We think we've got a very well structured balance sheet.

I'd also note that our existing debt does require about $100 million of amortization, already scheduled amortization, over the next four years. To some extent, the financing we just did replaces that paydown that we are going to have to do under our amortizing scheduled debt anyway.

All that being said, if we don't find investment opportunities, the one thing we have not been doing is share buyback. I think over time we continue to believe our Company has good long-term growth characteristics. That is a tool that we potentially could use over time during this period as we are waiting for our vessel deliveries as well. That is how we think about the overall balance sheet and cash through the next several years.

Okay. All right. Thank you.

(Operator Instructions)

Our next question comes from the line of Michael Webber with Wells Fargo Security.

Hello, guys. This is actually Sam on for Michael. How are you?

Good, thanks.

Just had one quick question. I think the majority of my questions have already been answered. Regarding future growth into other Jones Act trade lanes.

Have you guys made any progress in regards to potentially expanding Matson's routes into, say, some new Jones Act trade lanes whether it be Hawaii or of the other Jones Act trade lanes out there? Like to get some updates on that?

Sure, yes. This is Matt. I can answer that question.

Today, Matson participate effectively in two of the four Jones Act trades, as we think about it. Matson operates in trade Hawaii trade and in the Guam trade. Matson currently does not participate in the Alaska trade or the Puerto Rico trade.

Matson has said on a number of cases, and will say again, Matson likes the Jones Act Alaska trade. If one of the two operators that are there today would consider putting themselves up for sale, I think we would be very interested. The Alaska trade to us looks a lot like the Hawaii trade, not we'll served by barges and has been relatively stable, at least as we understand it, and profitable for a long period of time.

The Puerto Rico trade, conversely, has been over-tonnaged. It is our understanding that the carriers have not done particularly well there -- Jones Act carriers. To the extent that there was an opportunity to look at Alaska, we would be interested in that trade. That's as good a landscape of our thoughts about the other Jones Act trades.

Got it. That is helpful. I think the majority of my other questions were already asked and answered.

That's it. I will turn it over.

Okay. Great. Thank you.

I'm not showing any further questions at this time. I like to turn the call back over to Matt Cox for closing marks.

Okay. I just wanted to say it is 80 degrees here in Honolulu, and we are feeling for all of you who are in less warm climates, but that is why we want you to all come and support the economy here in Hawaii. We look forward to catching up with everyone at the end of the first quarter call. Aloha.

Ladies and gentlemen, thank you for participating in today's conference. This does concludes the program. You may all disconnect. Everyone have a good day.