Second Quarter 2006 Earnings Release

EX-99.3 4 dex993.htm SECOND QUARTER 2006 EARNINGS RELEASE Second Quarter 2006 Earnings Release

July 28, 2006

Exhibit 99.3

Earnings Call Agenda

Introduction and Overview

–

Chuck Raymond –

President & Chief Executive Officer

Commercial and Operations Update

–

John Handy –

Executive Vice President

Financial Review

–

Mark Urbania –

Senior Vice President & Chief Financial Officer

Questions and Answers

Forward-Looking Statements

Risks, Uncertainties, Other Factors with Respect to “Forward-Looking

Statements:”

Certain statements contained in this presentation constitute “forward-

looking statements”

within the meaning of the Private Securities

Litigation Reform Act of 1995. Such statements that are not of

historical

fact

constitute

“forward-looking

statements”

and,

accordingly, involve estimates, assumptions, judgments and

uncertainties. There are a number of factors that could cause actual

results or outcomes to differ materially from those addressed in the

“forward-looking statements”. Such factors are detailed in the

Horizon Lines, Inc.’s final prospectus filed with the Securities and

Exchange Commission on June 12, 2006.

Second Quarter 2006 Earnings Release

Chuck Raymond

President & Chief Executive Officer

Introduction and Overview

Second Quarter Highlights

18 quarter of consecutive adjusted EBITDA growth

Double digit earnings gains

Fleet enhancement strategy ahead of schedule

Customer focus and service efficiency initiative launched

Positive economic outlook for remainder of 2006

Horizon Lines again recognized for service excellence

Operating Revenue

270.5

289.8

255

265

275

285

295

2005

2006

Second Quarter

($ in Millions)

528.1

564.8

500

510

520

530

540

550

560

570

2005

2006

Six Months

($ in Millions)

7.1%

6.9%

Adjusted EBITDA

36.0

40.7

32.0

34.0

36.0

38.0

40.0

42.0

2005

2006

Second Quarter

($ in Millions)

65.4

72.5

60.0

62.0

64.0

66.0

68.0

70.0

72.0

74.0

2005

2006

Six Months

($ in Millions)

13.1%

10.9%

Adjusted EPS

0.13

0.21

0.00

0.05

0.10

0.15

0.20

0.25

2005

2006

Second Quarter

0.16

0.28

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2005

2006

Six Months

75.0%

61.5%

Second Quarter 2006 Earnings Release

John Handy

Executive Vice President

Commercial and Operations Update

Commercial Highlights

Rate/mix improvements more than offset some volume softness

Well positioned competitively

Economic outlook for remainder of 2006 remains positive

Rate Update Second Quarter 2006

Rate improvement continues and is expected to more than offset

modest volume softness in 2006

Refrigerated cargo yields solid mix upgrades in Alaska

Continued gains in higher margin Hawaii cargo and gains in

Guam drive revenue growth

Greater

mix

refrigerated

cargo

and

less

intermodal

volume

create revenue and margin improvement in Puerto Rico

Responsible surcharge adjustments maintain fuel cost recovery

Volume Update Second Quarter 2006

Alaska volumes up modestly as delayed construction season

starts

Lingering impact of record rainfall in Hawaii delayed shipping

cycles

Puerto Rico volumes affected by the non-essential government

service shutdown and tax law changes announced in June

Expanding Government Business

Revenue Containers

(3,002)

78,606

75,604

Variance

2005

2006

Competitive Update Second Quarter 2006

Seasonal deployment in Alaska has prevented significant cargo

backlogs during the peak season

Guam competitive deployment changes allow for continued

penetration in the refrigerated, military and freight-all-kinds

segments

Tonnage reductions enacted in Puerto Rico to combat market

softness

Economic Outlook -

2006

Look for stable economic conditions in Alaska and Hawaii/Guam,

but continued softness in the Puerto Rico economy that could

impact volume growth

Focus on offsetting softer volume with mix improvement that still

delivers revenue and profitability growth

Operating Highlights

Fleet enhancement initiative ahead of schedule

Comprehensive customer focus and service efficiency program

initiative commenced

Rolling stock replacement program continues with 1,250 new

containers

Strong performance across all key operating metrics

Company extended string of service awards

Wal-Mart “2005 Jones Act Carrier of the Year Award”

for the fifth year

since 2000

Vessels Delivery and Phase-In Dates

New Transpacific (TP)1 ships delivery dates:

March 2007

Horizon Tiger

May 2007

Horizon Falcon

April 2007

Horizon Eagle

March 2007

Horizon Hawk

November 2006

Horizon Hunter

Current Outlook

Targeted 2007 phase-in dates:

March –

Commencement of TP1 ex Asia

April –

Commence new Jones Act Pacific Northwest (PNW) Tacoma-

Oakland-Honolulu service

May –

Last new TP1 vessel deployed ex Asia

3Qtr –

First C8 to Puerto Rico

Designing 2007 vessel phase-in plan to minimize cost of positioning

ships and ramp-up into new network

Horizon Edge Project Introduction

Mission / Vision

Working together to realize better ways to more efficiently serve our

customers and add value to our organization.

Project Structure

Utilizing a team of dedicated Horizon Lines employees along with

Celerant

Consulting Inc. for project implementation.

The project implementation started in May 2006 and will end in 2008.

Celerant

will participate throughout the entire project and their total

compensation is determined based upon the savings achieved.

Estimated Benefits Targets

2007 Net Benefits -

$13 million

2008 & Beyond Annual Net Benefits -

$40 million

Key Operating Metrics

89.0%

87.0%

Vessel On-Time Arrivals

(3)

87.0%

89.0%

Vessel Utilization

(2)

99.7%

99.6%

Vessel Availability

(1)

Second Quarter

2005

Second Quarter

2006

Notes:

(1)

Employs a zero departure time delay tolerance

(2)

Based upon headhaul

direction volume

(3)

Employs a zero arrival time delay tolerance

Second Quarter 2006 Earnings Release

Mark Urbania

Senior Vice President & Chief Financial Officer

Financial Update

Second Quarter Financial Highlights

Adjusted 2006 Results versus Adjusted 2005

18 consecutive quarters of adjusted EBITDA growth

Operating revenue increased by $19.3 million or 7.1%

Adjusted operating income improved by $5.1 million or 28.0%

Adjusted EBITDA higher by $4.7 million or 13.1%

Adjusted net income increased by $2.6 million or 59.1%

Adjusted earnings per share grew by $.08 or 61.5%

Income Statement Summary –

Second Quarter

Adjusted

(1)

($ in Millions)

Actual

($ in Millions)

33,544,170

19,101,778

33,544,170

Shares Outstanding –

Basic

4.4

7.0

(4.1)

6.4

Net Income (Loss) Common Shareholders

1.6

Preferred Stock Accretion

93.3%

92.0%

95.6%

92.3%

Operating Ratio

36.0

40.7

29.3

39.8

EBITDA

.13

.21

(.21)

.19

Earnings (Loss) Per Share –

Basic

4.4

7.0

(2.5)

6.4

Net Income (Loss)

2.8

4.2

1.1

3.9

Income Tax Expense

7.2

11.2

(1.4)

10.3

Pretax Income (Loss)

11.0

12.1

13.4

12.1

Other Expense

18.2

23.3

12.0

22.4

Operating Income

252.3

266.5

258.5

267.4

Operating Expense

289.8

Quarter Ended

June 25, 2006

270.5

289.8

Operating Revenue

Quarter Ended

June 26, 2005

Quarter Ended

June 26, 2005

Quarter Ended

June 25, 2006

(1)

Adjusted to exclude non-recurring transaction-related expenses associated with a secondary stock offering in 2006 and an

initial public stock offering in 2005.

Income Statement Summary –

Six Months

Adjusted

(1)

($ in Millions)

Actual

($ in Millions)

33,544,170

18,912,639

33,544,170

Shares Outstanding -

Basic

5.5

9.4

(13.8)

8.8

Net Income (Loss) Common Shareholders

3.1

Preferred Stock Accretion

94.2%

93.1%

97.0%

93.2%

Operating Ratio

65.4

72.5

49.8

71.6

EBITDA

.16

.28

(.73)

.26

Earnings (Loss) Per Share –

Basic

5.5

9.4

(10.7)

8.8

Net Income (Loss)

3.7

6.0

0.3

5.7

Income Tax Expense

9.2

15.4

(10.4)

14.5

Pretax Income (Loss)

21.4

23.8

26.2

23.8

Other Expense

30.6

39.2

15.8

38.3

Operating Income

497.5

525.6

512.3

526.5

Operating Expense

564.8

Six Months

Ended

June 25, 2006

528.1

564.8

Operating Revenue

Six Months

Ended

June 26, 2005

Six Months

Ended

June 26, 2005

Six Months

Ended

June 25, 2006

(1)

Adjusted to exclude non-recurring transaction-related expenses associated with a secondary stock offering in 2006 and an

initial public stock offering in 2005.

Operating Revenue

22.3

11.6

Cargo Mix and Rate Improvement

(17.8)

(9.2)

Volume Variance

27.7

15.3

Bunker and Intermodal

Fuel Surcharges

Revenue Growth

($ in Millions)

19.3

1.6

Second Quarter

2006

36.7

Total Revenue Increase

4.5

Other / Non-Transportation Revenue

Six Months

2006

Cash Flows

0.3

1.1

Net Proceeds from Sale of Fixed Assets

(1.1)

(1.8)

Financing/Transaction Costs**

(0.5)

Distribution to Holders of Preferred Stock

1.1

Sale of Stock

10.4

0.4

Stock Compensation

Cash Flow Summary

($ in Millions)

4.7

2.7

Net Cash Flow

(1.3)

(2.6)

Debt Repayment*

6.2

6.0

Free Cash Flow

(7.4)

Dividends

(18.0)

(20.4)

Interest

Taxes

(10.0)

(12.1)

Dry-Dock Expenditures

(2.2)

(7.2)

Capital Expenditures

(23.8)

(18.9)

Working Capital

49.8

71.6

EBITDA

Six Months

June 26, 2005

Six Months

June 25, 2006

*Includes open market purchase of 11% Senior Discount Notes

**Includes credit agreement fees and fees associated with IPO/secondary offering

Improving Leverage

3.5x

LTM Adj. EBITDA / LTM Interest Expense (b)

78%

Debt / Capitalization

3.6x

3.4x

Debt / LTM Adj. EBITDA

Credit Statistics:

682.4

685.4

Total Capitalization

151.8

153.0

Equity

---

Series A Preferred Stock

530.6

532.4

Total Debt

81.7

84.9

11% Notes (a)

197.0

9% Notes

251.9

250.5

Total Senior Secured Debt

0.5

0.4

Capital Leases

4.5

Vessel Mortgages

246.9

245.6

Term Loan

---

Revolver (a)

December 25,

2005

June 25,

2006

($ in Millions)

(a)

Fully accreted balances were $104 million at December 25, 2005 and $102.5 million on June 25, 2006.

(b)

Excludes amortization of Financing Fees. December 25, 2005 and June 25, 2006 LTM Interest Expense are pro forma.

2006 Earnings Guidance

Year

Third Quarter

Earnings Guidance

($ in Millions except EPS)

$.85 -

$.90

$.40 -

$.42

EPS

$158 -

$162

$48 -

$51

EBITDA

$1,155 -

$1,165

$305 -

$310

Operating Revenue

Financial Appendix

Adjusted Operating Income Results

0.2

0.9

0.2

0.9

Transaction Related Expense

2.7

1.3

Lease Buyout

10.4

4.0

IPO Restricted Stock Compensation

Adjustments

(a)

Adjusted Operating Income

($ in Millions)

(a)

These charges are not anticipated to recur regularly in the ordinary course of business.

30.6

39.2

18.2

23.3

Adjusted Operating Income

14.8

0.9

6.2

0.9

Total Adjustments

1.5

0.7

Management Fees

12.0

Quarter

Ended

June 26, 2005

22.4

Quarter

Ended

June 25, 2006

15.8

38.3

Operating Income

Six Months

Ended

June 26, 2005

Six Months

Ended

June 25, 2006

Adjusted Net Income Results

0.2

0.9

0.2

0.9

Transaction Related Expense

2.7

1.3

Lease Buyout

5.5

16.2

(3.4)

4.8

1.5

10.4

(10.7)

Six Months

Ended

June 26, 2005

9.4

0.6

(0.3)

8.8

Six Months

Ended

June 25, 2006

(1.7)

(0.3)

Tax Impact

6.9

0.6

Total Adjustments

0.7

Management Fees

4.0

IPO Restricted Stock Compensation

Adjusted Net Income

($ in Millions)

4.4

7.0

Adjusted Net Income

2.4

Interest Expense Reduction

Adjustments

(2.5)

6.4

Net Income (Loss)

Quarter

Ended

June 26, 2005

Quarter

Ended

June 25, 2006

Net Income/EBITDA Reconciliation

0.2

0.9

0.2

0.9

Transaction Related Expense

3.5

1.8

Lease Buyout

65.4

1.5

10.4

49.8

34.0

0.3

26.2

(10.7)

Six Months

Ended

June 26, 2005

72.5

71.6

33.1

5.7

24.0

8.8

Six Months

Ended

June 25, 2006

0.7

Management Fees

4.0

IPO Restricted Stock Compensation

Net Income/EBITDA Reconciliation

($ in Millions)

36.0

40.7

Adjusted EBITDA

29.3

39.8

EBITDA

17.3

17.2

Depreciation and Amortization

1.1

3.9

Tax Expense

13.4

12.3

Interest Expense, Net

(2.5)

6.4

Net Income (Loss)

Quarter

Ended

June 26, 2005

Quarter

Ended

June 25, 2006

Note: EBITDA is defined as net income plus net interest expense, income taxes, depreciation and amortization. We believe that EBITDA is a

meaningful measure for investors as (i) EBITDA is a component of

the measure used by our board of directors and management team to

evaluate our operating performance, (ii) the senior credit facility contains covenants that require Horizon Lines Holding Corp. to maintain

certain interest expense coverage and leverage ratios, which contain EBITDA and (iii) EBITDA is a measure used by our management team to

make day-to-day operating decisions.

Second Quarter 2006 Earnings Release

Questions & Answers