Alexander & Baldwin Inc.’s agricultural sector – led by Maui’s Hawaiian Commercial & Sugar Co. – produced a “strong performance” in 2011 while losses related to Matson Navigation Co. and the real estate sales division put a drag on company profits.
In reporting its 2011 and fourth-quarter financial results Monday, the Honolulu-based company said it logged a net income of $34.2 million, or 81 cents a share, for the year, down 63 percent from the $92.1 million, or $2.22 a share, in 2010 and down nearly 75 percent from the $132 million, or $3.19 a share, in 2008, as the Great Recession began roiling the national economy.
For the fourth quarter, A&B’s net income was only $1.6 million, or 4 cents a share, down from $20.2 million, or 48 cents a share, in the same quarter the previous year.
The company’s ocean transportation sector showed an operating profit of $74.1 million for the year, down from $118.7 million in 2010. This sector of the company suffered losses from the discontinuing of its second China-Long Beach service in the third quarter.
In addition, A&B said that the company continues to make progress on plans to separate its shipping and real estate/agricultural businesses in the second half of this year.
The agricultural sector, which includes HC&S and trucking and storage companies on Maui, Kauai and the Big Island, showed an operating profit of $22.2 million in 2011, up 264 percent from $6.1 million in 2010. This is a big contrast from three years ago, when agriculture lost $27 million and the board of directors debated shutting down sugar operations.
“Our agribusiness segment has continued to deliver strong performance, driving significant earnings with continued improvement in sugar yields and factory performance and favorable sugar prices and power margins,” said Stanley M. Kuriyama, A&B president and chief executive officer, in a news release Monday.
A total of 182,800 tons of sugar was produced in 2011, up 6 percent from 171,800 tons in 2010.
“Our production of just over 182,000 tons in 2011 reflects steady and significant improvement toward our goal, which is to return to at least 200,000 tons per annual harvest,” said HC&S General Manager Rick Volner Jr. in an email Thursday. “We believe it is achievable. As recently as 1999, there were 228,000 tons of sugar produced.”
The 6 percent increase in sugar production in 2011 was “due principally to higher average yields per acre, which were primarily the result of improved farming practices,” the A&B news release said.
Volner explained that the plantation has worked to improve soil preparation through tilling, fertilization, weed control and irrigation practices and better seed planting for maximum germination.
“Controlled ripening of the fields prior to harvest is critical to maximizing sugar yields,” he said. “Our factory and power plant performance, which is critical to extracting the sugar from the cane plant, was improved this last year, and even single-digit improvements make a difference in our business.
“Investments in equipment upgrades and ongoing maintenance improved sugar extraction, reduced downtime and contributed to improved results.”
There are other factors beyond the plantation’s control, such as sugar prices and the weather and water – the latter being “the single most important variable that will determine our production and performance,” Volner said. Because sugar is a two-year crop, the 2011 harvest was most influenced by water applied in 2009 and the first half of 2010, he said.
Droughts in recent years have reduced yields. In fact, HC&S received a $5 million crop disaster relief payment in the last quarter of 2010, he said.
The plantation’s bottom line benefited from sugar prices that hit 29-year highs, Volner said. U.S. raw sugar prices had stayed between 18 and 22 cents a pound for more than three decades due to domestic and global factors.
“While the price HC&S receives for sugar is based on an average of futures prices for the specific months that it delivers sugar to C&H (the refiner), prices have generally been in the low- to mid-30 cent range over the past year or so,” he said.
HC&S uses bagasse, a renewable resource, coal, diesel oil, fuel oil and recycled motor oil to generate steam for the production of most of the power needed for sugar milling and irrigation pumping operations. HC&S also generates a limited amount of hydropower, which is dependent on adequate rainfall.
Last year, HC&S produced more than 190,000 megawatt hours of power, with about a third used by the Puunene Mill, a third for irrigation pumping and a third sold to Maui Electric Co. Volner noted that, unlike wind and solar power, HC&S provides a “firm” power source to MECO, supplying between 6 and 7 percent of the island’s power.
For this year, the plantation is forecasting sugar production “at levels consistent with recent years’ production,” said Volner, while noting that the weather and the dry first two months of this year and sugar pricing remains out of the company’s control.
“We are gearing up for our next harvest season starting later next month with multimillion-dollar investments in our infrastructure in the fields, factory and power plant,” said Volner. “Our staff has been preparing hard for the season and for additional improvement in our results.”
While the agriculture business showed improvement, A&B’s real estate sector “posed challenges,” especially from a real estate sales perspective, said Kuriyama.
“We continue to actively build our pipeline of development projects to ensure that we are well positioned for market recovery,” he said, citing a 340-unit condominium project on Oahu near the Ala Moana Shopping Center, as well as acquisitions in the Gateway at Mililani Mauka Shopping Center and an option to purchase a site in urban Honolulu zoned for high-rise development.
Total operating profit for real estate sales was $15.5 million in 2011, down 69 percent from the $50.1 million in 2010.
On Maui, A&B sales in 2011 included:
* The Apex Building at Triangle Square in Kahului, which included a retail building and the 2.3-acre site. This building had been developed by A&B Properties and was completed in 1995. The sale was concluded in the first quarter of 2011.
* An 86-acre parcel adjacent to HC&S’ fields off Mokulele Highway. The site was sold in the first quarter to a local buyer.
* A 5.7-acre site in the Maalaea area. The fee sale was to a longtime tenant, who had been leasing the site for a radio tower. The sale occurred in the fourth quarter.
Real estate leasing revenue for 2011 was 6 percent higher at $39.3 million, compared to $35.3 million in 2010. The increase was principally due to the timing of portfolio acquisitions and dispositions and a 7 percentage point increase in Mainland occupancy, the A&B news release said.
Average occupancy rates for the Hawaii properties in 2011 was 91 percent, down a percentage point from 2010.
“The diverse markets and economies in which we operate affected our various lines of business in different ways in 2011,” said Kuriyama. “Container volume in Matson’s Hawaii trade lane has benefited from a gradually improving Hawaii economy, and our Mainland commercial property portfolio’s improved performance reflects the beginnings of a national economic recovery.”
