Not all shipping companies are equal in today's economy. One of the more resilient, Alexander & Baldwin (Nasdaq:ALEX) demonstrated that fact in the second quarter of 2010. For the most part, many quality businesses reporting this quarter have benefited from a weak 2009 comparable quarter, so the slight improvement in the economy has had more than a slight improvement on the operations of many businesses.

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By Land and By Sea
In the second quarter of 2010, ALEX reported net income of $28.9 million, or 70 cents per diluted share, compared to $12.6 million, or 31 cents per diluted share, in the second quarter of 2009. Revenue in the second quarter of 2010 was $398.9 million, compared to $351.0 million for the second quarter of 2009. While even dry bulk shipper DryShips (Nasdaq:DRYS) managed to return to profitability in the second quarter, the company still faces the legacy issues it incurred pre-recession, namely excessive debt as a result of an aggressive expansion plan.

Alexander and Baldwin has managed to maintain a rather conservative balance sheet through it all. In addition, the company's business as a both a shipping company and land owner limits its exposure to shipping demand. The company is the largest private land owner in the state of Hawaii and it has managed to weather the real estate storm in relatively fine shape. The company was selling land in prior years; today it is buying those similar assets for a fraction of the price.

A Guaranteed Shipper
Unlike most shipping companies, ALEX is a Jone's Act shipping company. As a U.S. based shipping company, ALEX is protected by the Jones Act from any foreign competition on shipping lanes between U.S. ports. So the company's shipping lines to Hawaii and Guam are only available to companies like ALEX, Horizon Lines (NYSE:HRZ) and to a lesser degree Trailer Bridge (Nasdaq:TRBR). Shipping volume to Hawaii is starting to stabilize with a 2% decline quarter over quarter in container volume for Alex. As to what Alex ships, its the basics like food, healthcare products and auto parts. In addition, the company ships automobiles, a category which is still experiencing substantial volume decline. While these trade lines continue to improve, Alex is experiencing strong growth in its China to U.S. trade lane with volume up by 35% in the second quarter. The US demand for Chinese goods is expected to remain robust fueled by a need for cheaper goods due to China's low cost of production.

On the real estate side, operating profit declined by 23% due to lower rents in the company's mainland real estate portfolio. Hawaii's occupancy rates were down by 2% but still remained at an attractive 93% for the quarter. While expectations for this division remain muted in the near future, the company has always been opportunistic with regards to the buying and selling of real estate at attractive prices in order to derive more value.

Sailing Forward
While the rate of the economic recovery plays a big role in the operating performance of Alexander and Baldwin, the company is in much stronger shape that traditional shipping companies due to its valuable Hawaiian land assets and growing China to U.S. trade lane. (This index can provide insight into economic growth and production, but it has its critics. To learn more, see The Baltic Dry Index: Evaluating An Economic Recovery.)

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Tickers in this Article: ALEX, HRZ, TRBR, DRYS

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