U.S. Jones Act carrier Horizon Lines Monday lowered it financial guidance for the fourth quarter and full year 2007 on the back of rising fuel costs and a softening Puerto Rico trade.
Based on current market conditions, the Charlotte, N.C.-based company now expects fourth quarter operating revenue of $310 million to $315 million (up from the previous guidance of $300 million-$310 million); earnings before interest expense, net, taxes, depreciation and amortization (EBITDA) of $35 million-$38 million (down from $43 million-$48 million); and diluted earnings per share (EPS) of 28 cents to 35 cents (down from 53 cents to 65 cents).
For the full year, Horizon Lines projects operating revenue of $1.20 billion to $1.21 billion (previously $1.19 billion-$1.20 billion); EBITDA of $160 million-$163 million (from $168 million-$173 million); diluted EPS of $1.31-$1.38 (from $1.56-$1.68) and free cash flow of $19 million-$22 million (from $27 million-$31 million).
"The very rapid and steep rise in fuel costs has resulted in prices at unprecedented levels and significantly higher than anticipated when we most recently gave guidance on Oct. 26," said Chuck Raymond, Horizon Lines' chairman, president and chief executive officer. "The average price of bunker fuel has soared over $55 per ton or 12 percent from $445 per ton on Oct. 26 to $500 per ton today."
"Horizon Lines is unable in the short term to fully recover the impact of rapidly rising fuel prices, despite our fuel surcharge recovery program. We estimate that higher fuel costs were responsible for $5 million of the $9 million reduction in EBITDA, with the $4 million balance primarily attributable to continued weakness in Puerto Rico.
Raymond said the company is addressing the situation by implementing higher fuel surcharges and continuing with its hedging program that he said is on target to meet or exceed $13 million in net benefits by year-end.
"Horizon Lines will still deliver very satisfactory results in 2007 despite an environment that was extraordinarily challenging in numerous, unforeseen ways. Results in 2007 were adversely impacted by the continuation of a deep recession in Puerto Rico and fuel prices that have soared to record levels," Raymond said.
"In the face of all of these challenges, 2007 results will be essentially equal to those in 2006. This accomplishment is made even more impressive by the fact we incurred about $15 million in net costs to deploy our new vessels."
In a separate development, the company's board of directors has authorizing the repurchase of up to $50 million of its Class A common stock.
Mark Urbania, Horizon Lines' executive vice president and chief financial officer, said: "We remain very confident in the long-term performance of our business, despite some of the near-term challenges we are facing. The sharp decline in our stock price provides an opportunity to repurchase stock at attractive prices."
The company also provided financial guidance for 2008. Based on current market conditions and forecasts, Horizon Lines anticipates full year 2008 operating revenue of $1.36 billion-$1.38 billion; EBITDA of $175 million-$185 million; diluted EPS of $1.94-$2.18 and free cash flow of $115 million-$125 million.
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Source: American Shipper
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