Knobias Clip Report (11-19-2007)

Submitted By Knobias ClipReport

HRZ: Cuts Fourth Quarter and 2007 Guidance; Announces $50M Buyback

Monday’s session saw the overall market dive heading into one of the largest shopping days of the year. The annual Black Friday title reserved for the day following Thanksgiving has many market onlookers trepid after the last few months of hits the American consumer has taken.

With oil prices still hovering at record highs, the day may be the beginning of a pitiful holiday buying season if the status quo holds. Consumers who’ve already seen their home prices fall, the buying power in their dollars slip, and the budget reserved for energy expenses increase, will now be saddled with the task of scrounging every penny they own to spend in hopes the culmination will satisfy the analysts’ estimates for the national retailers? The daunting chore may be too much for the consumer to handle.

Oil is beginning to take hold many of the logistics names as well with one in particular reporting some downward revised guidance.

Horizon Lines, Inc. (HRZ) is the nation's leading domestic ocean shipping and integrated logistics company comprised of two primary operating subsidiaries. Horizon Lines, LLC operates a fleet of 21 U.S.-flag containerships and 5 port terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia and Puerto Rico.

On Monday, the Company reported revised guidance that had many preparing for the worst. The Company now expects for the fourth quarter of 2007, operating revenue of $310 - $315 million, earnings before interest expense, net, taxes, depreciation and amortization (EBITDA) of $35 - $38 million, and diluted earnings per share (EPS) of $.28 - $.35. Previous fourth quarter 2007 guidance included operating revenue of $300 - $310 million, EBITDA of $43 - $48 million, and diluted EPS of $.53 - $.65.

The Company also updated its financial guidance for the full year 2007, with projections of operating revenue of $1,200 - $1,205 million, EBITDA of $160 - $163 million, diluted EPS of $1.31 - $1.38 and free cash flow of $19 - $22 million. Prior full year 2007 guidance projected operating revenue of $1,190 - $1,200 million, EBITDA of $168 - $173 million, diluted EPS of $1.56 - $1.68, and free cash flow of $27 - $31 million.

Noted as the reason for the cut guidance was the surging cost in oil which has caused bunker fuel to soar over $55 per ton or 12% from $445 per ton on October 26th to $500 per ton. Also contributing was the Company’s inability to recover the impact of higher fuel charges with their surcharge recovery program.

But the Company did paint a somewhat rosy picture for 2008. Based on current market conditions and forecasts, the Company projects full year 2008 operating revenue of $1,360 - $1,380 million, EBITDA of $175 - $185 million, diluted EPS of $1.94 - $2.18 and free cash flow of $115 - $125 million. At the mid-ranges of the EPS guidance, 2008 results are projected to be up 53% from 2007 numbers.

The Company also announced a $50 million share buyback program in which managment noted they would make purchases from time to time as market conditions warrant.

In any event, shares of the Company were down over 5.5% on the day, continuing a trend that has seen the name fall from highs in the $33 range to Monday’s rang of $22.50. With any continuation in share depreciation, the name could become somewhat cheap with a forward price to earnings ratio in the 14 area if 2008 guidance is accurate and oil price spikes subside. With that in mind, investors would be wise to watch.



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