[141111.EN.SEA] Horizon Lines Announces Loss of $126.5m In The Third Quarter

Horizon Lines recorded a loss of $126.5m from continuing operations in the third quarter. The company attributed this significant loss to an estimated goodwill charge of $117.5m as a result of the closure of its trans-pacific service and assets being held for sale. The company hopes that its exit from the trans-pacific market, combined with a new debt facility, will help to stabilize the company in the fourth quarter.

Revenue from continuing operations increased 8.2% to $321.9m from $297.6m in the corresponding period of 2010. The two key contributing factors were a £22.6m growth in fuel surcharge revenue and the addition of a new China service. This growth was partially offset by an $18.5m in lost charter space revenue, a $7.5m decline from decreasing domestic volumes and a $1.5m decline in terminal services revenue.

However, the company's profits were hit hard by the losses experienced on its trans-pacific service. Due to persistent rate softness, a lack of business in the region and poor economic growth in Guam, the company was unable to sufficiently recover the ever increasing fuel costs on the trade lane. Horizon Lines doesn't expect the volatile rate environment and high fuel prices to subside and as a result the company has taken the decision to discontinue its trans-pacific service to China and Guam.

"Our trans-Pacific service operated at a much wider-than-anticipated loss, resulting from falling container rates and our inability to adequately recovers fuel cost increases," said Stephen H. Fraser, President and CEO of Horizon Lines. 

"While the service has been successful in meeting most of its operating and volume objectives, its financial performance has been severely pressured by the trade lane's persistent rate weakness, evidenced by the more than 37% decline in eastbound freight rates over the past 12 months, and by the more than 40% rise in fuel prices since we launched the service in December 2010."

In addition, the company was adversely impacted by "lower volumes in our domestic trade lanes and continued rate pressure in Puerto Rico," commented Fraser. Excluding the new China service which only began in 2011, the company's volumes totaled 62,882 loads, a decrease of 2,294 loads, or 3.5%, from 65,176 in 2010. Volumes declined across its continuing operations in Alaska, Hawaii and Puerto Rico.

On October 5, 2011, the company completed the refinancing of its entire capital structure, reducing the likelihood of the company defaulting on its debt. Horizon Lines had been dangerously close to going bankrupt for much of 2011 and also suffered from its involvement in criminal proceedings which saw the company fined $15m for violating federal antitrust regulations in the Puerto Rico trade lane (the initial fine was $45m, but was later reduced). 

However, the $652.8m financial restructuring should secure the company's future. Horizon Lines reported it is currently operating comfortably within the agreed terms of the new revolving credit facility.

Although the new debt structure has alleviated the imminent threat of bankruptcy, the company will still have to contend with difficult trading conditions in the fourth quarter and into 2012. Falling rates and decreasing domestic volumes will continue to squeeze profit margins, however it will be interesting to see what effect, if any, discontinuing the trans-pacific service has on Horizon Lines' performance in the fourth quarter.

Source : EFT, 10.11.11 (Content provided in partnership with Transport Intelligence).